Ladies and gentlemen, thank you for standing by. And welcome to the Entergy Corporation First Quarter 2020 Earnings Release and Teleconference. At this time, all participants are in listen only mode. After the speakers presentation, there will be a question-and-answer session [Operator Instructions]. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, David Borde, Vice President, Investor Relations. Please go ahead, sir.

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 to ask no more than one question and one follow-up. 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 Web site. I would also point out that our initial earnings release this morning contained a clerical error relating to the March 31, 2020 balance sheet and we have since posted a corrected version of the release on our Web site. And now I will turn the call over to Leo.

Thanks, David, and good morning, everyone. We appreciate you all joining our call today and I hope that you and your families are well. The past few months have presented extraordinary circumstances that have been difficult for everyone around the world, so many have stepped up to the plate to help people, communities and our country in this time of need and we truly appreciate all of their efforts. Providing safe and reliable power is essential, especially during times like these. That's why at Entergy, we plan and prepare for extraordinary events. Our robust, comprehensive, tried and tested incident response plan contemplates many, including storms, cyber attacks, emergency leadership succession and pandemics. To ensure preparedness, we run drills routinely so that everyone knows their roles and responsibilities and when activated the plan runs smoothly. In 2007, we developed our pandemic response plan, specifically to address events like the one we are facing today. For COVID-19, we mobilized our teams on January 16th very early on. Our focus has been on four primary objectives, ensuring the safety and wellness of our employees, maintaining safe reliable service for our customers, mitigating financial impacts and ensuring our ability to continue to plan for the future. Informed by lessons learned from the events, not only challenges to normal operations but also improvements that can be made. Our response is working as designed. We are meeting the needs and expectations of our customers and communities. Our major projects remain on track and our capital plan is unchanged. The actions of our employees in the midst of this pandemic have been exemplary. They have shown once again their dedication and resilience to work through hurdles to safely keep the power and gas flowing for our customers. I cannot express how proud I am of our Entergy…

Thank you, Leo. Good morning, everyone. Similar to Leo's sentiment, I'd like to express my appreciation for all those helping the people and communities affected by COVID-19. The extraordinary efforts of so many are inspiring, that includes our employees who have quickly adapted to changing working conditions. They have once again risen to teh challenge as they have so many times in the past. I'll review the quarter results and then move to guidance and the longer-term outlook. But before I get to that, I want to highlight the bottom-line for Entergy. After solid first quarter, we are affirming our adjusted EPS guidance and outlook. We expect revenue to be $120 million to $140 million lower as a result of COVID-19. We are implementing $100 million of identified spending reductions for 2020. We received constructive regulatory accounting orders to defer COVID-19 costs. Our capital plan remains the same. Our liquidity remains strong. And we still do not see a need for equity until 2021. Those are the key takeaways. Our first quarter results were solid as stay at home orders did not begin till very late in the quarter. As you can see on Slide 8 on a per share basis, Entergy adjusted earnings were $1.14, $0.32 higher than first quarter 2019 due to increased earnings at the utility. On Slide 19, you'll see the primary drivers for the utility positive quarter were straightforward. We saw the positive effects of rate actions in Arkansas, Louisiana, Mississippi and Texas. O&M was lower as we took action to reduce spending in response to mild weather, which was apparent early in the quarter. And had favorable tax benefits, a portion of which was shared with our customers. You'll also see a higher effective tax rate in other, which partially offset this. Higher depreciation…

[Operator instructions] And our first question comes from the line of Shahriar Pourreza from Guggenheim Partners. Your question, please.

Just a couple of questions here. So first thinking about the headwinds, you're calling out at this point the $100 million to $120 million. You mentioned some reliefs for COVID costs. Can you just speak specific what those costs are, how we should think about alternate recovery, how you can kind of defer them? And then thinking about the cost reductions you pulled today to offset the COVID impacts. Are these one time in nature or could we sort of think about them as being somewhat perpetual ongoing benefits? And I have a follow-up.

So I'll address the cost so far. So, I think there's kind of two buckets of costs that we're looking at, some of them are incident response costs and those include things like more PP&E, hand sanitizer, masks and things like that. There's also cleaning costs associated with that and then costs associated with moving people around and things like that. Those types of dollars at this point are fairly limited. We expect them for the year to be somewhere in the $15 million range and we've incurred less than half of that so far. We're anticipating as we get back to work, there will be more cleaning costs, for example and more PP&E that we have to provide over the course of the year. The other bucket of costs is related to potential bad debt expense. And that is, we haven't incurred anything of that nature to-date and we probably won't for awhile, but those costs we would expect to incur as well. In terms of the magnitude of that, historically, we've seen about $25 million of bad debt expense. And we have in past experiences like 2008, 2009 financial crisis or Katrina, Rita, that kind of environment, we've seen anywhere from $10 million to $20 million of incremental bad debt expense in a year. Of course this could be a little bit worse than that, and we're working hard to make sure that we mitigate that. Leo mentioned new payments plans, working to make sure that our customers have access to funds and information on how to access the paycheck protection program. And as I also mentioned in my remarks, we're trying to accelerate some future regulatory liability payments due today to try and mitigate some of those impacts on customer bills. So, all of that plays into trying to make sure that customer bills are as low as possible to mitigate what the bad debt expense might ultimately be as well.

And then just last question, you guys always have some really good insight into your customer trends. How much growth do you see being deferred from '20? The new assumptions call it '21 and beyond this potential economic impact of the headwind. Are you quantifying '21 versus just being slightly lower? And assuming this backdrop is more protracted versus kind of your own internal planning assumptions. Do you have these incremental levers like today's cost cuts to mitigate or could that start to pressure your growth guide maybe through CapEx deferrals and they become secondary in nature? I mean it sounded like from Leo's comments you guys are very confident around the plan. So, I just want to under the assumption this is more protracted. Do you see any kind of concerns around growth CapEx 5% to 7%, or you have enough leverage at your disposal I guess?

There was a lot in that. I will start with the customer trends seen and then talk about O&M, and then finish with CapEx. So on the customer trends piece, the expectation in our outlook right now is that our sales will be about 1% below what we were planning in '21 and '22. Obviously, there's a lot of uncertainty associated with that. So, we are also running scenarios to think about what it might be if it's something lower than that. Once we get out a couple of years, we should have gone through regulatory processes and each jurisdiction and that should help us. But at the same time, we are also working on, okay, so what other O&M management tools might we have at our disposal to work our way through that. The further we get out, the more sustainable we really need these cost changes to be unlike this year. This year as we mentioned there's a lot of onetime items and we're trying to look for additional continuous improvement and O&M category that is more sustainable. But we'll really need to rely on our skills to develop that, those opportunities as we go forward to manage that a little bit more. There will always be one time levers within a given years that we have, but we will, on a long term basis, we’ll want to rely on continuous improvement. And then finally, in regards to growth CapEx, we currently don't have any plans to change our growth capital or our capital at all for that matter. We think it's important for our communities and our customers for us to continue to make those investments. We think we have the capacity and liquidity to do that, there's no concerns there. If for some reason it was lower for longer from a sales perspective, it might start to shift around the nature of that capital. So for example, if we no longer needed some transmission capital to meet NERC reliability standards, there maybe other capital that we think would be very important for our customers in the distribution space. So, there's a lot of levers still to manage things going forward but hopefully that answers all the nuances of your one question.

Yes, this is Leo . I just want to add from the standpoint of pulling the levers. The process that we're utilizing right now, while it's kind of accelerate a little bit is same process we were using last year, for example, to flex up and down. So, the process had actually, as you noticed in the first quarter, the process had already begun, because we knew we were going to be challenged by a traditional headwind, which was weather in the first quarter. So those processes year-on-year are going to be the same ones that we have kind of developed as part of the culture and the DNA of the company and just the planning process. And the continuous improvement that we mentioned is something that we were working through as well and obviously, we'll even find some continuous improvement I think out of response to the event that will help us going forward. And then I just wanted to really jump in on the capital plan. And obviously, the capital plan is a major reliability improvement to our customers is what it's been about. And with 90% of this, greater than 90% of the capital plan, all being about a technological improvement and reliability in the service level that we provide our customers, whether it's through AMI or even replacing old generation with new gas fired generation of renewables that we're adding to the footprint. So all of it is customer enhancing. And as Drew mentioned and as we've talked about before, we have a significant amount of opportunity within the distribution and customer solutions space that could step up and take place in any, for example, transmission investment that that might get shifted around. But an important aspect of where we sit today and this has been…

Thank you. Our next question comes from the line of Julien Dumoulin-Smith from Bank of America. Your question please.

Just wanted to follow-up on the last set of questions really, and I'll throw in a quick follow-up but starting with last one. How do you think about your FRPs across the various states in those rate caps against the need to ensure earning as you return and at the same time recognizing the consistency commitment to invest capital. I imagine, obviously Twin Goals, it seems like you’ve had a little bit more latitude than you had historically in those annual filing, first off. And then the second one is just, if you can quantify the potential impact of that SERI decision from the ALJ, that's the first one.

I'll start on the FRPs and perhaps Drew will follow up. In Louisiana and Arkansas, Mississippi and New Orleans, we've just mentioned that four of our five jurisdictions had FRPs in effect, where those FRPs are working as designed. And to the extent that the COVID costs might operate beyond the FRPs, we have the accounting orders that we just referenced. We're seeking to renew the FRPs in Louisiana and Arkansas, and Mississippi. We don't have a sunset provision. But those FRPs are working as designed to address many of the changes in sales as we are forecasting. So from an FRP perspective, the efficient recovery mechanisms we have in each of the states is giving us the relative confidence we have around what we're forecasting. And it's incorporating the various puts and takes with O&M and projected sales. So, its working as design. It’s certainly part of the case we’re making to renew them in Arkansas and Louisiana. So from that vantage point, we think the FRPs are working as well.

And I'll just add, you asked about the rate path. Our expectation for the rate path is that we would still be at or below inflation. Now, you have to take into account the excess ADIT that we have been given back last year, if you lead off of 2019 but it's still a very low growth rate for our rates and our bill path. And then you asked about ROEs. As Leo was talking about, we have an important role to play in the community right now in terms of putting capital to work to not only benefit our customers, but also to drive economic activity. And in order to do that, we have to make sure that we maintain adequate credit and liquidity, and our retail regulars know that we've been in conversations with him about that. And so they were also committed to make sure that we have the credit and liquidity we need to do the things that are required to support our customers and our communities. So I think that will help address some of the ROE question as well.

Our next question comes from the line of Jeremy Tonet from JP Morgan. Your question please.

Just want to start off, I guess what you guys are seeing across your footprint right now in your different jurisdictions, you start to see certain areas start to open up. And just wondering, kind of maybe more real time like what type of trends are you seeing from your larger customers ramping up, and what kind of line of sight have you gleaned from that that kind of informs your guidance here?

I think in the -- across the customer segments, we alluded to it earlier. Certainly, in the residential segment. The stay at home orders have certainly driven the expected experience of high usage per customer in that segment. A lot of variability across the commercial customer segments, as Drew alluded to, where we saw in schools and restaurants, movie theaters and churches, experiencing the brunt of the near-term demand erosion. In the industrial sector, we've been in constant communication aside from the AMI data that we're tracking on a day-to-day basis. We've been in constant communication with those larger industrial customers around their respective outlooks, and we’re paying as much attention to the various components of their value chain as perhaps they might. And they've given us relative comfort that the data we're receiving from AMI is supportive of our point of view that approximately 10% demand erosion that we're experiencing in the last several weeks is likely to be stable until such time as the economy recovers. Certainly, in the refining and primary metals segment, we expected those segments to be harder hit and driving some of the downturn, and that's played out in a way that we expected. And I say that with all of the uncertainly that still remains around the timing of the economic recovery relative to our ability to get testing and tracing and things of that nature. And so, the engagement in addition to the AMI data, the engagement with customers has really reinforced what we're seeing. And certainly, it plays out differently from state-to-state. But the significant presence of our industrial base in Louisiana and Texas, and that's where we've seen the lion share of volatility within that 10% range.

And then maybe just picking up on that last point, for the longer-term for the industrial petchem load. It seems like the Brent and Henry Hub spread been a proxy for NAPTA ethane spread has been a key determinant of the U.S. Gulf Coast competitive advantage across global cost curve given the favorable feedstock there. Do you worry that the dynamic of a tighter crude oil to nat gas spread narrows as competitive advantage and kind of adversely impacts future load growth versus prior expectations?

So we are closely monitoring that spread, that's one of the ones that we pay close attention to as well for the very reason that you mentioned. And obviously near-term that spread is not as healthy as it has been historically, but we do expect it to return to where it was and continue to provide economic advantage for our Gulf Coast industrial customers going forward. And we do see those spreads and others like them being healthy if you look out on a long-term basis. But we recognize the near-term they're a little bit more challenged. It does not change some of the other advantages that we do have that I listed off in my remarks, but that is one that we are paying close attention to.

Thank you. Our next question comes from the line Stephen Byrd from Morgan Stanley. Your question please.

Most of my questions have been addressed. I just wanted to go into tax in a little more detail. I think the change in guidance in terms of the tax is about a net improvement of around $0.18 a share. And I wonder if you could just give a little color around what the changes were? I guess I see IRS settlement and stock-based comp. Could you sort of explain what the changes were in a little more detail?

The main one is the IRS settlement, which we completed in the quarter. That settlement had to do with securitization costs for several years ago. And while there is a tax benefit on the tax line, much of that is offset in the revenue through customer give backs, and that is net about $0.05 only. The other stuff is like the stock-based compensation that's just annual true ups that occur each year, whenever stock vests and we true up from a tax perspective. There is no true up from a GAAP perspective, that's why there's a difference there.

And I understand the expectation is now for an 18% effective income tax rate this year. Longer-term, approximately where do you see your effective income tax rate being? Just so we're trying to think through your longer term earnings power properly.

It's similar to where we had it previously around the 22% range.

Thank you. Our next question comes from the line Jonathan Arnold from Vertical Research Partners. Your question, please.

Just a quick question, previously you said you thought that equity from 2021 would be on the order of 5% to 10% of utility investments. But with some of this if you're going to accelerate some of these regulatory liabilities and maybe have a cash impact. Is that still a good number or should we be thinking about re-calibrating that that scale once we get off the 2020?

I think that's still a good number. We're very careful about the way that we are moving liabilities forward. They are either increasing rate base, because they are coming out or we are discounting them to make sure that we are economically neutral, such that we have more cash flow in the future. So, that's the -- either way we should have the financing headroom to move some of those liabilities forward. It's going to -- those kinds of choices will impact the current year's FFO to debt ratio, but there should be a little bit better headroom in that ratio going forward as a result.

And then you mentioned, Drew, wanting to keep the rate path below inflation. Have your views of inflation as you make in the plan changed. And can you share a bit of what your number is that you're using for longer term inflation?

That's an excellent question, Jonathan. I wish I knew what inflation was going to be. We use 2% as a rule of thumb for that kind of the benchmark that we look at adding $3 trillion of fiscal stimulus. We don't really know what that will do for inflation.

And then I think that was -- and just one thing, I was trying to reconcile the Slide 15 on retail sales, which I think that shows what you're expecting industrial to be down 7% for the year and then Slide 41 has 1.5% number on industrial. Is that just a typo or is a different basis of what are you telling us that?

Yes, there’re two different bases. The one on Slide 15 is versus our original guidance. And as you will recall, we were planning to be up about 6%, or 5.5% to 6%, 6.5, I can't remember the exact number. And you subtract that with 7% you get into the...

I got it. So the guidance had the optic and that's it.

Thank you. Our next question comes from the line of Steve Fleishman from Wolfe. Your question please.

Just wanted to re-ask the question that was asked earlier about the CRE decision on ALJ. And if that were finalized even though you don't think it will be, what the impact would be?

This is Drew. And thanks Steve for picking that up. We didn't quite get to it on Julien's question. So we appreciate you re-asking it. The impact is laid out in the queue, as Leo mentioned, there are a lot of details. There's two components to the ruling that came through associated with lease payments and uncertain tax positions and the amounts are in there. The lease payments is a little bit unclear, because the calculation from the ALJ wasn't provided specifically. So we don't -- the bottom line is, we don't think there will be a very large impact there. The larger one is the uncertain tax positions. And as the ALJ laid it out, if you include the refund and the interest, it looks like it's close to about $600 million. As Leo mentioned, we believe that, we have the right policy perspectives and that the ALJ's ruling is interim and the FERC is the one that would drive policy decisions. And we would also note that in that calculation even though the ALJ wrote about it, the ALJ did not include offsets that are included, that you might include in there like interest that we've been paying to the IRS for the position overtime. And that would reduce that $600 million down to a little less than, or probably a little bit more than half of what the ALJ put out. And of course the overall impact of that would basically be the financing costs of whatever that number would ultimately be.

So that would be obviously a onetime refund, just is there any, aside from financing that as a risk. Would there be any other ongoing earnings impact or just the one time…

Well, the lease payments, they indicated that the lease payment would not be able to continue, that's what the ALJ wrote, which is about $17 million a year. And then of course the onetime would be a change in our rate base on an ongoing basis for deferred tax positions. So, we'd have that as well.

One other question. Just you probably said this but maybe I'm still just not clear on it. Just in terms of the base assumptions you're using for your kind of sales forecast now. How would we track progress or reopening soon and then slow recovery, and that's kind of how to think about kind of the base economic you are using…

The base assumption is that sometime in the early summer, that is later in this month into June, we'll begin to see a change in the stay-at-home orders and that dynamic will begin the upswing in the economy. The outlook through 2020, particularly from an industrial growth perspective is essentially that that 10% reduction in industrial demand that's driving the overall growth for the utility would then begin to see a slower uptick. And then as Drew laid out in '21 and '22, we expect the drivers of our growth to still be driven by industrials as the commercial and residential sort of normalizes to our pre-COVID point of view.

And Steve, I'll just add that the timing of all that matters a lot. So if the current economic environment lingers through the summer and there people are more at home than what we're planning, because they're not working that could be a sales improvement for us, because of the higher residential load that we typically experience in the summer time. So, if it were to linger all the way through the end of the year of course the summer would end then it would fall back into what we kind of expecting on the second quarter, which would not be as positive but the timing of it does matter.

Thank you. Our next question comes from Michael Lapides from Goldman Sachs. Your question please.

Real quickly the O&M savings the $100 million. Do you expect that to be kind of a permanent savings level, or do you expect to all of that to come back and we should embed in ‘21 or ‘22 forecasts?

We're currently considering that to be one time savings.

So if O&M that will go away, but effectively it would come back in future years maybe not all in 2021 but overtime. So not leading to a permanent kind of O&M reduction?

Yes, it's not permanent. The timing of it, some of it depends. We're already working to offset, because some of it is deferrals to 2021. So, we're working to even offset those in 2021 in our forecast. But I would say that they're just one time and they don't really relate to future periods at this point.

And can you remind us your multiyear EPS forecast. What is assumed for kind of an O&M growth rate off of 2019?

We were saying that we were going to come in at about $2.65 billion for utility in parent O&M and that we're going to keep that flat.

And then last thing on EWC. Can you remind me do you expect the EWC to send cash up to the parent or need cash infusions from the parent over the next couple of years?

We have said that we expected to be net cash positive to the parent not by a lot but by a little. And as we get closer to the end, it's trending to zero because we're very much close to the end of EWC. But right now, it's still net cash positive to the parent.

And then I'll sneak one last one, the RFP for new gas generation in Texas. Just curious does the change in the outlook for demand change the need for the size and scale of that unit?

At this point in time no. As you recall, Michael, the new generation is typically replacing older generation with a much more efficient lower cost, more environmentally sound unit. So, this is all part of that portfolio transformation strategy that we've had where the net adds to our capacity are relatively small compared to the amount of generation that we're at. I think actually within the next year, we may tear down three old plants and we're deactivating units as well. And up till this past year when we put couple of new units in service, we were pretty well as many megawatts that we added that's what we were deactivating. So it's not -- as I mentioned earlier, when you look at the capital plan, over 90% of the capital plan is driven by this improvement in the level of service through a technological overhaul across all four functions that we invest in, whether it's generation, transmission, distribution or customer solutions and that is going to continue. And as Drew mentioned, to the extent some of our reliability investment in transmission is kind of like Lake Charles project was a couple of years ago, after the fact beefing up the system to serve load that had already been there to the extent that that might change where we've got a whole host of distribution and customer solutions opportunities that could take its place, a lot of which actually drive down the cost while they improve the level of service for customers. So, they're a good a good option for us to make. So, I know it's a bit of a long answer to your question, Michael. But keep in mind, 90 plus percent of the capital plan is driven by that reliability improvement, technological improvement across the system and benefiting customers. And then obviously in the near-term, we're overlaying on that fact that there's lot of jobs created by the work we do. And if there's one thing everybody can agree on, more people need to be working today rather than fewer.

Thank you. Our final question for today comes from the line of Sophie Karp from KeyBanc. Your question please.

Most of my questions have been answered, but maybe I could just quickly follow-up on Indian Point, just checking if there are any disruptions in the process that you're going through from the wide shutdowns in New York State? Thank you.

For Indian Point, no change. Indian Point 2 shutdown, as Leo mentioned on April 30th and it's currently being refueled. As far as the processes around the sale of Indian Point those were initially slightly delayed but we still have plenty of time which we don't expect to close on that transaction until about this time next year. So, we have plenty of time to continue to work through the processes in New York and at the NRC. And we still believe that the interest in New York are aligned with ours, looking for a way to expeditiously decommission Indian Point is the goal and working with Holtec to make that happen. We believe this continues to be the best option. So, no real changes at Indian Point at this point.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to David Borde for any further remarks.

Thank you, Jonathan, and thanks to everyone for participating this morning. Our annual report on form 10-Q is due to the SEC today and provide more details and disclosures about our statements. Also, as a reminder, we maintain a webpage as part of Entergy's investor relations Web site, called regulatory and other information, which provides key updates and regulatory proceedings and important milestones on our strategic execution. While some of this information maybe considered material information, you should not rely exclusively on this page for all relevant company information. And this concludes our call. Thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. Everyone have a great day.