Entergy Corporation

Thank you. I will now turn the call over to Bill Abler, Vice President of Investor Relations for Entergy Corporation.

Good morning, and thank you for joining us. We will begin today with comments from Entergy's Chairman and CEO, Drew Marsh, and then Kimberly Fontan, our CFO, will review results. In an effort to accommodate everyone who has questions, we request that each person ask no more than two questions. In today's call, management will make certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to a number of factors which are set forth in our earnings release, our slide presentation, and our SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the investor relations section of our website. And now, I will turn the call over to Drew. Thank you, Bill, and good morning, everyone. Today, we are reporting very strong financial results for the quarter, as well as important progress with a few recent announcements, including a settlement in principle with the Arkansas Public Service Commission on series litigation and an agreement to sell our gas distribution business. Starting with our quarterly financial results, our adjusted earnings per share was $3.27. We experienced record temperatures with an estimated impact of 64 cents, which has given us the opportunity to flex our spending plans to invest in key areas that benefit our customers, de-risk 2024, and support our goal to deliver steady, predictable results. With our results to date and our biggest quarter behind us, we are raising the bottom of the guidance range by $0.10 per share. We remain well-positioned to achieve our long-term 6% to 8% growth outlooks. Our goal to deliver steady, predictable growth includes our dividends. Consistent with expectations, our Board of Directors once again raised our quarterly dividend by 6% to $1.13 per share, or $4.52 annually. Turning to the business updates, Our system faced extreme heat and we saw record demand through July and August. In fact, there were 13 days that surpassed previous peak demand records. Despite the challenging weather, our system met our customers' high expectations. Our power delivery team withstood June storms and performed well as the summer turned hot and dry for most of our service territory. Our generation portfolio covered our customer demand, and we operated well within our reserve margins, and our nuclear fleet was online throughout the quarter with a fleet capability factor of 99%. We continue to invest in our nuclear assets with the goal to operate safely and reliably well into the future. Two of our plants are currently in planned outages to complete work along these lines. Waterford III is an extended planned refueling outage that includes significant investments to drive plant longevity. In addition, River Bend is in a planned outage to complete minor repairs to improve reliability going forward. We are also investing in power delivery to improve reliability and resilience. These investments not only benefit existing customers, but also attract new economic development to our region. Through the first three quarters of this year, we replaced approximately 21,000 distribution poles, placed nearly 1,500 new transmission structures in service, and completed 15 new substations. Our past investments in modern efficient generation units, our nuclear fleet, and our power delivery system helped us meet this summer's demand. We continue to see signs of strong customer growth that helps affordability by spreading fixed costs over a larger customer base. For example, First Solar announced plans to invest up to $1.1 billion to build a solar manufacturing facility. CF Industries is proposing a $2 billion low-carbon clean ammonia production facility, and CORA is proposing an $800 million investment in two electric vehicle battery supply chain projects. These are just a few of the projects that support our expectation for strong growth in the coming years. We've made meaningful progress. on important regulatory matters, which supports the credit required to meet customers' growing needs and to drive improved customer outcomes. First, System Energy reached a $142 million global settlement in principle with the Arkansas Public Service Commission to resolve all current CERI claims. Energy Arkansas has already received some funds, and the remaining amount will be refunded by CERI once FERC approves the settlement. This agreement is consistent with CERI's settlement with Mississippi, which was approved by FERC. It is also consistent with the reserve recorded last year. With this latest settlement, CERI has now resolved nearly two-thirds of its litigation risk. The CERI settlement follows FERC's August order on rehearing for the sale leafback renewal and uncertain tax position case. In that order, FERC agreed with certain of System Energy's arguments on the sale leaseback and depreciation refund calculations and denied rehearing requests on the uncertain tax positions. Accordingly, we submitted our compliance report on the sale leaseback and CERI has recouped $40 million of the amount previously paid to Entergy New Orleans and Entergy Louisiana. Shortly after FERC's August order, the LTSC filed for rehearing and clarifications. FERC denied the rehearing by operation of law and indicated it intends to issue an additional order on this matter. We believe that the August order and settlement with Arkansas provides important clarity that will help guide constructive discussions to resolve the remaining series litigation matters. A fair and reasonable settlement can provide meaningful refunds to customers in the near term and eliminate uncertainty. which itself brings further benefits to customers. Turning to retail matters, Entergy New Orleans' new formula rates were approved by the City Council and went into effect in September. This is the last rate change under E&O's current FRP. In addition, the Council also approved Entergy New Orleans' request to extend its FRP for another three years. The outcome provides regulatory clarity for Entergy New Orleans and includes enhancements that will support the company's credit and, by extension, its ability to make important investments for its customers. Entergy Louisiana, likewise, had new formula rates affected in September, its last rate change under its current FRP. In the third quarter, Entergy Louisiana also filed its rate case. and alternatively proposed to extend its FRP with some revisions to provide an opportunity to earn a fair and improved return on investment that is critical to support the Louisiana growth. The proposal also includes new customer and community programs to support those in need. We prefer the proposed FRP renewal to the Ray case as it better supports the strong growth that is important to Louisiana. Regardless of the past, our goal is to maintain the current cadence with new rates effective next September. In late breaking news, at the LPSC yesterday afternoon, we filed an unopposed stipulated settlement that resolved outstanding 2017 to 2019 formula rate plan filings and certain issues in the 2020 and 2021 filings. This settlement, which requires LPSC review, is consistent with our outlooks and it represents continued work with our stakeholders to provide clarity on our path forward. Separately, Louisiana's docket to implement a streamlined process for certifications of up to 3,000 megawatts of new solar is also progressing. Staff testimony is supportive of enhancing the process, and we will work with them to incorporate their perspectives. It is still relatively early in the process, And we are hopeful that we will ultimately reach a constructive settlement as part of our ongoing efforts to work collaboratively with our regulators to bring clean energy solutions for our customers. In Texas, the PUCT approved our rate case settlement. New rates as well as new depreciation and amortizations are effective retroactive December 2022. And also just yesterday, Entergy Arkansas filed a unanimous settlement with its annual FRP that allows for a rate change at the 4% cap. We expect the commission to take up the matter before year end and new rates will be effective in January. Last week, Entergy Arkansas agreed to forego cost recovery from the stator incident in 2013. As a result, This quarter, Entergy Arkansas wrote off replacement power costs and undepreciated plants that were on its balance sheet. This has been a long-standing issue, and this resolution provides clarity moving forward. Finally, regarding resilience, we continue to move forward in the processes to review our accelerated resilience proposals. In New Orleans, we are holding town hall meetings to listen to our stakeholders' input and answer their questions. We're targeting a city council decision by year end. In Louisiana, we received input from the staff engineer as well as staff and interveners. All parties agreed that accelerated resilience would benefit customers. There are, however, varying opinions on how much we should pursue right now and the timing as we work together to manage customer affordability. Our focus remains on bringing as much value to customers as we can while maintaining the credit of the business. We have significant capital needs to meet our customers' growing demand for reliable, resilient, and clean energy. To that end, we are pursuing opportunities to source that capital at lower costs. On Monday, we announced an agreement to sell our gas distribution business for $484 million. We will use the proceeds to reduce debt and support our capital needs. The sale is expected to be essentially neutral to earnings. While the gas business is a relatively small piece of our overall utility business, the more than 200 employees in that business are an important part of Entergy's community and culture, as they have been for over 100 years. We have reached agreement with Bernhard Capital Partners, a Louisiana-based group and part because they understand that these employees are critical stakeholders in the gas business. In addition, our customers will continue to receive the high level of service that they have come to expect. The transaction is contingent on regulatory approvals, and we anticipate closing around the third quarter of 2025. Federal programs are another cost-effective way to source capital. We are pursuing both grants and loans through various programs. For example, under the Grid Resilience and Innovative Partnerships, or GRIP, program, each of our operating companies submitted applications. We are pleased to report that the proposal from Entergy New Orleans was selected and the federal share of the $110 million system hardening and battery microgrid project will be $55 million. While four of our projects were not selected, they did receive encouragement letters, and we are able to reapply for future funding rounds. We are also preparing to apply for federal loans through the DOE Title 17 Clean Energy Financing Program. Our application will include projects that we are already planning, including renewable generation, battery storage, and transmission projects. Beyond federal financing directly for our customers, we are working with our community partners to attract other federal support for investment in our region. A good example is Louisiana's HERO project that unites public, private, and philanthropic sectors to accelerate more affordable, reliable, and clean energy to protect residents of Louisiana from climate change threats. Entergy Louisiana and Entergy New Orleans were both critical team members in helping Louisiana secure the $500 million award. Another example is Entergy Texas' participation in the High Velocity Hydrogen Hub, which was selected by the DOE for a $1.2 billion award. This funding will help jumpstart additional clean energy production, transportation, and end-use opportunities which in turn will create jobs and economic activity in our communities. Entergy Texas could see additional load from blue and green hydrogen customers as a result. Most of our community work is local, boots on the ground, including economic development. Our teams work alongside our state and local governments to attract new business, jobs, and tax base to our service area. We are honored that Site Selection Magazine has once again recognized Entergy as a top utility for economic development. We also have programs to directly help our customers in need. With the extreme heat this past quarter, we stepped up our efforts to provide resources for bill assistance, provide education on energy efficiency, arrange for payment plans, and encourage customers to transition to levelized billing. We also hosted our first Power Your Future Summit with education and workforce partners across our service area to create pathways to employment for individuals from underrepresented communities. These are just a few examples of the tremendous work our utility companies and employees put toward our community stakeholder every day. The EEI Financial Conference is just a couple weeks away. The fundamentals underpinning our growth and value creation for each of our key stakeholders remains intact. Our long-term sales growth outlook is robust, bolstered by the IRA. Our investment plan includes incremental capital to support the growth and other customer objectives, including reliability, resilience, and clean energy investments. Customer affordability remains a priority, and we are actively pursuing continuous improvement efforts to expand our employees' skills and capabilities, and using technologies like artificial intelligence and robotic process automation to help us maintain a generally flat O&M trajectory despite the inflationary environment and our incremental investments. And while our capital plan is increasing, we have a plan to manage within the current financing environment that meets our credit objectives with the same level of equity we laid out at Analyst Day. With all of that, We are on track to deliver steady, predictable earnings and dividend growth, and steadily working to build the premier utility. We look forward to continuing this conversation with you at the EEI Financial Conference in a couple weeks. Now, I'll turn the call over to Kimberly, who will review our financial results for the quarter.

Thank you, Drew, and good morning, everyone. As Drew said, we've had a very strong quarter with results to keep us on track to meet our financial commitments. Summarized on slide three, our adjusted earnings were $3.27 per share. With results to date, we are narrowing our guidance range. We are also affirming our 6% to 8% adjusted EPS growth through 2026. Slide four details the quarter's variances by line items. As Drew mentioned, weather this quarter was one of the hottest on record. Excluding weather, retail sales volume declined roughly 1%. For industrial, sales to new and expansion customers increased, mainly in the primary metals, industrial gases, and petrochemical sectors. Sales to cogen customers were lower in the quarter. You may recall that cogen sales were elevated last year. Sales to existing large industrial customers also declined, primarily in the petrochemicals, pulp and paper, and agricultural chemical sectors, largely due to outage timing. We continue to expect strong industrial sales in the fourth quarter from new and expansion customers, which will bring the full-year industrial growth to close to 2%. Regulatory actions positively affected results. Entergy Texas implemented new base rates, and new formula rates were in effect at the other operating companies. O&M was 12 cents lower compared to last year. Drivers for the decrease were nuclear expense, including lower outage costs, and compensation and benefits costs. MISO ancillary generator service costs were also lower. This was largely offset by lower generator ancillary revenues. Other drivers for the quarter results included expense increases that result from our customer-centric investments, primarily higher interest costs and depreciation on new assets. New depreciation rates for Entergy Texas also contributed. Operating cash flow is shown on slide five. The quarter's results is $1.4 billion, which is $412 million higher than last year. Key drivers included the timing of fuel and purchase power payments, lower O&M spending, and last year's EWC severance and retention payments. These were partially offset by lower utility customer receipts due to lower fuel revenue and the timing of pension contributions. Turning to credit and liquidity on slide six, net liquidity remained strong at $4.9 billion. With less than a quarter left, we remain squarely on track to achieve credit metrics at or above target ranges by the end of this year. Key drivers include debt repayments in the fourth quarter and roll off of FFO items from fourth quarter 2022. Looking at slide seven, our equity needs through 2024 are unchanged. We have a small amount remaining for that period that is well within the capacity of our ATM program. Slide eight summarizes our adjusted EPS outlooks. As I mentioned earlier, we are once again narrowing our guidance range and affirming our long-term six to eight percent growth outlook through 2026. As we move into the last quarter of the year, I'd like to highlight a few updates for the balance of the year. Higher than planned revenue from weather gives us the ability to flex up spending in areas that benefit our customers and de-risk future periods. Our full year O&M estimate reflects the impacts of these flex spending levers. For example, our 2023 spending now includes additional maintenance expense as a result of our generating units running at very high capacity, incremental vegetation management to improve reliability, supplemental maintenance for transmission and distribution assets to improve reliability, and bill assistance to help customers who need it. Our FLEX program helps us ensure that we deliver steady, predictable, adjusted EPS growth year in and year out. The Intergy management team will be in Phoenix in less than three weeks, where we will discuss the progress we've made on our long-term growth strategy and provide preliminary three-year capital and financing plans. Additionally, we will provide high-level consideration for 2024's earnings expectations. We have a strong base plan consistent with our strategic objectives that support our growing customer base. We are excited about the opportunities before us and look forward to talking to you at EEI. And now the Intergy team is available to answer questions.