Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 Earnings Release and Teleconference call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. David Borde, Vice President of Investor Relations. Mr. Borde, 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. [Operator Instructions]. In today's call, management will make certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation and our SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now, I will turn the call over to Leo.

Thank you, David, and good morning, everyone. We now have 3 quarters behind us, and we continue to consistently execute on the initiatives that keep us on track to achieve our goals, both near term and longer term. We've completed most of the 2018 key deliverables we outlined at the beginning of the year, and we've added a few more since then. We are pleased to report strong third quarter results with Utility, Parent & Other adjusted EPS of $2.27 and consolidated operational earnings per share of $3.77. Drew will cover the numbers in more detail, but the bottom line is, that we're raising our consolidated operational guidance range. For our UP&O adjusted view, we are affirming our 2018 guidance and our longer-term outlooks through 2021. With the EEI Financial Conference less than 2 weeks away, we are keeping today's call focused on the quarter. Before I go into our accomplishments, I'd to address a couple of news items that while not materially impacting financial results weren't being addressed. First, on the Mississippi Attorney General complaint. This is the continuation of litigation that was filed 10 years ago. The matter was set to go to trial in early November, but as you may have heard earlier this week, the trial was continued to sometime next year. The precise date has not been set. We filed 2 separate motions for summary judgment, and last June, the State of Mississippi passed legislation, which clarifies that a claim of this nature should first proceed in front of the NPSE before being filed in court. This matter has been disclosed and thoroughly discussed in our 10-K and 10-Q filings to which I would point you. The important thing for you to takeaway is that our generation practices are scrutinized, reviewed or audited in multiple…

Thank you, Leo, and good morning, everyone. As Leo mentioned, our accomplishments this quarter directly support our strategic, operational and financial objectives. Our results were strong with consolidated operational earnings of $3.77 per share and Utility, Parent & Other adjusted earnings of $2.27 per share. At the Utility, the fundamentals of our business are healthy. We are seeing the effects of productive investment on behalf of our customers and the lower tax rate. We also had positive effects of weather year-over-year. At EWC, we saw good returns on the nuclear decommissioning trust funds in the third quarter and as we've communicated, favorable tax benefits. Overall, operational earnings to date are better than we expected. Therefore, we are raising our 2018 Entergy operational guidance while our core Utility, Patent & Other business is firmly on track to achieve its 2018 guidance and longer-term outlooks. Breaking down the results, starting with Utility, Parent & Other on Slide 5. Adjusted earnings, which normalized weather and taxes, were $0.12 higher than the prior year. Setting aside offsetting line items, we saw a lower retail sales volume in the unbilled period. This was partially offset by higher-than-expected weather adjusted bill sales and positive rate actions at Entergy Arkansas and Entergy Texas. Finally, nonfuel O&M was higher as planned due largely to fossil spending and contract costs. Moving to EWC's results on Slide 6. Operational earnings were $1.42. Excluding this quarter's tax items, the key driver was higher returns on the nuclear decommissioning trust funds. Lower nuclear pricing as well as nuclear sales volume partially offset the increase. This quarter, as reported earnings -- as reported earnings included $110 million upward revision to Pilgrim's asset retirement obligation from an updated decommissioning study. The revision resulted in an asset impairment, which is treated as special item and…

[Operator Instructions]. Our first question comes from Julien Dumoulin-Smith of Bank of America Lynch.

So perhaps, first just to kick it off, good progress on the nuclear plan thus far. Curious on where you stand with respect to any end point, recognizing that there is still some time before you actually shut down these units down. How are negotiations and progress going there? And how also at the same time are you thinking about cash flow and the net cash flow comment in light of some of the mark-to-market improvements in the last few months in Northeast more broadly?

Julien, this is Drew. So on the first question regarding Indian Point, as we stated previously, our intent is to follow a path similar to Pilgrim, Palisades and Vermont Yankee on Indian Point. The good news is we have a lot of time. As you've mentioned, it's going to be a while before those plants are shut down. And we're receiving heightened interest because we've had success with Vermont Yankee on the NRC. So we're actually going to take some of the time to get the best deal we can, and we're not going to probably talk about specifics of the process and where we are in the process as we go along. And on the second question, regarding -- sorry, mark-to-market, when we were thinking about the cash measure, we were thinking about potential for contributions to our decommissioning trust funds and the current market expectations through the last couple of days are reflected in our expectation of positive cash '19 to '22.

Got it, excellent. And then, quick as a follow-up, good success on the regulated front as well. How are you thinking about execution against the higher equity ratios across your service territories as well? It seems like you've had some of the settlements coming already?

I think if you look at Texas, it was close to 51%, the New Orleans request is above 50%, Louisiana is around 49%. The ones that we're still working on moving up are in Arkansas and Mississippi. I think Arkansas is the lowest at about 46% or so, so we are working on moving those up, but it'll take a little bit more time.

Got it. And how is that reflected just -- if in the case of Arkansas on the context of what you all filed I believe is part of a settlement there too?

I think that was what we anticipated when we made that filing, and we're expecting to move it up over the next few years.

And our next question comes from Praful Mehta with Citigroup.

I appreciate, Leo, the update on the legal topics proactively, so appreciate that. On the quarter, I wanted to firstly talk on load growth. The load growth year-to-date you mentioned is about 0.5%, but your guidance assumption was more like negative 0.7%. So just wanted to understand what's driving the improvement year-to-date? And is that more sustainable do you think? Or is that more 2018 specific?

It's Rod. I think driving the year, we saw continued strong industrial growth. But what was different was the residential and commercial sector being stronger than we anticipated. But to your question about how we think about that in the outlooks, our outlooks haven't change given the guidance we gave you through, I believe, 2022. So we're not making any adjustments to our long-term outlook.

And just real I'll add that, we're expecting AMI as we deploy that will give our customers better information and that will actually put some pressure on residential and commercial sales as we go forward, and we are over that.

Got you, fair enough. And Drew maybe for you, the second question more on finance and then like the credit side. Looks like your FFO to debt, obviously, has gone below 15% target that you have, and the debt to cap has gone above the 65%. Wanted to understand are the rating agencies allowing you some time to deal with this ADIT credit and kind of allow that lower than 15% for a couple of years? How is that pressure or discussion with the agency going?

Yes. Praful, they're fully aware of where we are and our plan associated with the excess ADIT. And what we've committed to for FFO to debt is 15% or above starting in 2020, and they're aware of that. And if you actually back out the excess ADIT, you'll see that we're still at 15% on that, there is a reconciliation in the back of the materials. On the debt to total capital, I don't know that they focus on that as much. They're going to be -- the main measure that Moody's in particular is looking at is that parent debt to total debt, and so we're maintaining that at or below 25%, and that number should start to drop over the next few quarters as we pull down on our equity forward.

And our next question comes from Greg Gordon with Evercore.

I'm wondering when we see you guys at EEI and we talk about the capital plan, I mean, your capital plan has been dominated by -- well, not dominated by, but a large portion of your capital plan has been focused on building large -- medium to large size CCGTs combustion turbines, the RISE plant in New Orleans. How much should we expect your -- the type of capital you're spending to evolve with regard to thinking about renewables, battery storage, energy efficiency technologies behind the meter as we move into the paradigm that other regions of the country, other utilities have sort of been compelled to or proactively embracing in terms of technological change?

Yes, Greg, I'll start and let Drew jump in. At Analyst Day, we talked about the continued need for new generation. Obviously, that's actually when we had identified the Mississippi need at that point. If you think about the generation that we have, we will still continue to need to refresh that as we get through time, we still have significant amount of legacy generation that we can replace with newer, more modern, more efficient better environmental footprint type of stuff. But as we also mentioned there is a dynamic of renewables battery storage becoming economic and competitive with central station generation, and that's why as we've announced in the past, we've got 1,000 megawatts renewable under development at the moment, and we continue to look at ways to test out battery storage either as we have it with our New Orleans solar facility right now or even on grid and other areas where it would be useful for us to have battery storage. That's not necessarily only for the backup of generation, but some, to me, the T&D needs of the system. But as you might recall also when we were at Analyst Day, we started to talk a lot more about grid modernization and where we could go with customer-facing types of investments, so we see that picking up as well, really in addition to and post-AMI, we should have a significant amount of investment where devices that give us more information about the grid, give us more capability to do things remotely, give us a little bit better troubleshooting capability and all that. In addition to how we manage information and data and analytics that go to our customers. So I guess, the bottom line is, we continue to have a lot of the traditional investment, particularly…

I'll just finish that up, and I don't have a lot to add. In the operational IT kind of area where we talk about AMI and our new systems and distribution automation that kind of stuff, we're anticipating spending around $1.8 billion, $1.9 billion associated with that through the entire program. Now a little bit of that has been spent in '18. A lot of the meters, which probably make up $700 million, $800 million of it are going to start to roll out in January and be through '21. And then, we're going to also start to pick up distribution automation in that same time frame. So we have a significant amount of spending that we have identified. And then we also have some of the build on transfers like the new 800 megawatts of solar that we have proposed in New Orleans and so forth. So there is some of it in our capital plan right now, but as we have said, there is a lot more to go.

One question, one follow-up, different topic. The end -- and think I applaud your desire to simplify your earnings disclosures. They are very, very, very complete and new but probably we could use some simplification going forward. But on that front, for many, many years, you've had a very successful ability to bring in earnings through tax and while that's created a lot of volatility, it's created value. How deep of a well should we assume you have? I mean, there must be a finite opportunity to go back and work with the IRS and the states to improve your tax positions pro forma. It's been so many years since year-after-year you've been successful in making that kind of a profit center, how long should we assume that can continue?

Greg, it's Drew. So certainly, we think about that like we think other line items and to the extent that we can benefit our customers, we would certainly continue to go look for opportunities. And so that's -- that part won't change, and so I think we will continue to drive in that direction for the time being and for the foreseeable future. We do think that there might be other things out there, but they're not well baked enough at this point to be able to articulate exactly what they would be or when they would come.

And our next question comes from Jonathan Arnold with Deutsche Bank.

Just a question. I believe when you recently announced Holtec deal, you indicated that you felt that they would be quicker to get through the NRC process second time around and you put some parameters around that. So I'm just curious having completed Vermont Yankee, do you still feel that's the case? And can you remind us sort of what you're thought process around giving Palisades and Pilgrim done would be time wise?

Sure. This is Drew. And as you remember, Jonathan, Vermont Yankee deal is kind of a first of a kind deal, so everybody was learning through that process, and certainly, the NRC was learning through the process, and we would expect that there would be some kind of learning curve associated with it. And so our current anticipation is that we would complete the Pilgrim process by the end of next year. The Palisades process, of course, won't commence until 2022. But if we would expect some time second half of 2022 is whenever we would be able to close that particular half of the transaction.

Do I hear right that you would file with NRC on Pilgrim this quarter or early next? Sorry, I missed it.

We're aiming for this quarter. We're aiming for this quarter.

So you're thinking this is roughly a little over a year process now rather than however long that you eye to?

Yes, roughly, exactly.

And your next question comes from Paul Fremont with Mizuho.

I guess, you mentioned sort of a commitment to an improved FFO to debt ratio by 2020. Can you just elaborate on how you go from the current level to a committed higher level that you've promised for the rating agencies?

Yes. Paul, it's Drew. So I think the main difference is just the absent of returning -- assets returning all that cash. So I think, I would have it as a top line deficit of year-to-date $342 million. You add that back in, it should improve. The other thing I think that will improve is just the business as well. Things like the Choctaw transaction, Moody's actually wrote about it as a positive thing because we will go into new rates as soon as we close, and we'll start to collect on that. There won't be any lag associated with it and it's a significant investment. So that should improve our cash coverage ratios.

Okay. And you don't anticipate then any need for equity in the -- over the next several years then?

Yes. It's no difference in what we said at Analyst Day, which is nothing expect until 2021 or beyond.

And the next question comes from Charles Fishman with MorningStar Research.

Of course, condolences on Wayne. I know he meant a lot to people at your end. He certainly was a well-respected executive among the analyst community.

Thank you, Charles. Appreciate it.

Slide 37 on the special items, just had a couple questions on that. Fourth line down, the gain loss on sale of assets, that line is driven by the performance of MVP. Is that correct?

A little bit. And the ARO as we mentioned for Pilgrim this quarter, the ARO changed as the decommissioning cost estimate changed. And it actually changed the amount of the loss that we would have experienced in next -- in 2019 next year and moved it forward to this quarter. So you saw that come down a little bit as relates to the Pilgrim transaction. The other thing that's been going on is we've been working hard on some deferred tax assets that we have in those companies -- those project companies. And to the extent that we can find ways to utilize those, we wouldn't have to write them off.

So the ARO revaluation, you move that to '18 and that went up in what line 2? And then there was also an improvement in line 4 on the gain loss. Is that -- did I get it...

Yes, but it would have been in different years, yes. So it would have gone in, in '18 and out in '19. David and I have lots of time to explain that off the call. But yes, it's -- it basically -- we're expecting a larger loss at Pilgrim, now it would be a smaller loss because of that.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to David Borde for any closing remarks.

Thank you, Jimmy, and thanks to everyone for participating this morning. Our annual report on Form 10-Q is due to the SEC on November 9 and provides more details and disclosures about our financial statements. Events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet would be reflected in our financial statements in accordance with generally accepted accounting principles. Also, as a reminder, we maintain a web page as part of Entergy's 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.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your program and you may disconnect. Everyone, have a great day.