Entergy Louisiana, LLC Q3 FY2020 Earnings Call

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 the results. 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. Today, we are once again reporting strong quarterly results, which keep us firmly on track to meet our financial commitments. Third quarter adjusted earnings were $2.44 per share, and we're on pace to exceed our $100 million O&M cost savings target for the year. With three quarters behind us, and the confidence and clarity we have for the remainder of the year, we are narrowing our 2020 guidance range, which is now $5.60 to $5.70, and we are affirming our longer-term outlooks. 2020 has presented challenges for all of us around the world. We've endured a global pandemic, including its economic impacts. We've witnessed social unrest, and we've had a record-breaking storm season with back-to-back hurricanes hitting our service area. Yet no matter what 2020 threw at us, we remain steadfast in delivering on our commitments to our customers, our communities, our employees, and our owners. That's what our stakeholders expect from us. For the past several years, we've built the culture, processes, and resources to successfully deliver on our commitments even in the face of extraordinary times. Our comprehensive incident and storm response plans ensure we are always ready and prepared to respond to extraordinary events. Our best-in-class capital projects management team delivers projects on budget and on schedule, even in challenging environments. Our proven cost management program helps us confront financial headwinds so we can meet our financial commitments. And our disciplined continuous improvement program identifies permanent cost savings to deliver incremental sustainable value for all of our stakeholders. Our strong results today amid these extraordinary times demonstrate the progress we've made over the past seven years to build a simpler, stronger, and more resilient company. We are on track to achieve not only our commitments for 2020 but also the long-term strategic, operational, and financial objectives we laid out at Analyst Day. We have a strong five-year customer-centric capital plan that will elevate our customer experience. We will create incremental value for our stakeholders through continuous improvement. We will continue our legacy of sustainability and environmental leadership for a cleaner world. And we will maintain our long-term vision for steady, predictable growth in earnings and dividends, and we see a path to continue that growth beyond 2024. The professionalism and dedication of our employees and our organization were once again on full display when Hurricane Delta made landfall in Southwest Louisiana on the heels of Hurricane Laura. Delta caused 493,000 outages at its peak. With the help of our mutual assistance partners, we were able to deploy 12,000 workers, and nearly all of our customers were restored within five days. We showed why we are best-in-class in storm response as we successfully managed to back-to-back major hurricanes all amid a global pandemic. That's what we prepare for, and that's what we do. In fact, Zeta is expected to make landfall this evening in Southeast Louisiana. We've activated our storm response plan, and we are fully prepared and ready to respond. For our restoration efforts, we have received broad support from local, state, and federal officials, and as one local official put it best during Hurricane Laura, as soon as the storm passed, Entergy was everywhere. Of course, our thoughts and prayers are with everyone who is impacted by these storms, especially those in Southwest Louisiana and Southeast Texas who endured the most damage. Beyond our thoughts and prayers, we've provided financial support to affected communities. Entergy shareholders granted more than $730,000 during the third quarter to help families and communities recover. We are deeply grateful for our employees and partners and their dedication to restore the electric service that is so critical to the communities we serve. The storms also proved the strength and resiliency of our modern infrastructure. For example, in the past two years, we completed the Lake Charles and the Nelson Dermaina transmission projects in the Lake Charles area. Those projects were designed to withstand 140-mile-per-hour winds. Every structure from those projects remained standing after enduring the brunt of Hurricane Laura, the strongest storm to hit Louisiana in over 150 years. This is a direct result of our plan to improve the resiliency of our infrastructure and provide a high level of service to our customers. By contrast, many older structures in the same path, which were built to less resilient standards, were destroyed. We rebuilt those structures using modern design and technology, and they remained intact throughout Hurricane Delta. These improvements to our transmission system will provide benefits to our customers for many years to come. In the midst of all of this, we continue to make progress on our key long-term deliverables. Our renewables efforts have escalated over the past few years. And this quarter, we've achieved several important milestones. Louisiana customers began to receive power from the capital region solar, the largest solar facility in the state. We have a 20-year power purchase agreement for the output from the 50-megawatt facility. Entergy New Orleans completed Louisiana's largest commercial rooftop solar project. Approximately 7,000 solar panels provide 2.4 megawatts of clean energy to New Orleans residents. We announced three new solar projects from our request for proposals. Entergy Arkansas is planning to purchase Walnut Bend, a 100-megawatt solar farm. Entergy Texas announced two projects from a renewable request for proposals. The first, Liberty County Solar, will be a 100-megawatt owned resource. The second, Embrel Solar, will be a 150-megawatt facility from which we will purchase the output. We are requesting approval from our regulators to move forward with these selections where required. We also continue to make progress on partnering with our customers to offer renewable resource options to help meet their sustainability goals. Sixty-one tax-exempt companies subscribe to Entergy Arkansas' solar energy purchase option, purchasing power generated by the Stuttgart Solar Energy Center. By participating in this utility-level arrangement, these customers will save anywhere from 18% to 28% on their electricity usage. These renewable projects will bring clean energy to our customers and will help us achieve our environmental commitments. At Analyst Day, we laid out our climate strategy, and we told you how renewable investments will continue to grow significantly as we move towards achieving our 2030 carbon reduction goal and ultimately, our commitment to achieve net-zero emissions by 2050. We already are the largest provider of renewable energy in both Louisiana and Arkansas. In Entergy, Mississippi is building the largest utility-owned solar facility in that state. We have a meaningful commitment to grow our renewable portfolio for which we plan significant investment by the end of the decade, as always, subject to the approval and direction of our regulators. We will continue to engage and work with our regulators and stakeholders to expand the use of renewables under a framework that ensures we balance reliability, affordability, and sustainability. In 2002, we established our portfolio transformation strategy to replace aging, less efficient assets with modern, cleaner, highly efficient assets. We've deactivated approximately 6,500 megawatts of older generation with an average heat rate of approximately 13,000, and we've added more than 9,000 megawatts of modern generation with an average heat rate of approximately 7,300. These newer resources have, on average, a 50% lower emissions profile than the assets we deactivated. And not only are they cleaner, they also provide significant savings to our customers from lower fuel costs. Looking ahead, we will propose building resources that will have fuel optionality to be powered with hydrogen. We'll also look at retrofitting existing assets to enable the use of hydrogen fuel and carbon capture and sequestration technology. We are already working to make this a reality. We recently submitted a proposal in Entergy Texas' RFP for a resource that, if selected and approved, will be developed with the option to be powered partially or fully with hydrogen. Our portfolio transformation strategy has led to measurable undeniable results. For the past two decades, our emissions rate has been well below the sector average. Our utility CO2 emissions rate has decreased approximately 30%. And today, we operate one of the cleanest large-scale fleets in the country. And we will only continue to get cleaner as we maximize the use of new modern technologies to serve our customers at the lowest reasonable cost while meeting our environmental commitments. We've talked to you about our unique framework, which illustrates the certainty of our capital plan. Ninety percent of our capital plan is based on the need for system modernization and is not dependent on customer growth. More than 90% will be recovered through timely rate mechanisms, and approximately 85% of our capital plan is ready for execution from a regulatory approval standpoint. Our constructive and progressive regulatory mechanisms provide clarity to our plan and give us confidence in meeting our financial commitments. On October 15, New Orleans City Council approved the unanimous settlement agreement that resolves Entergy New Orleans rate case and FRP filing. Under the agreement, Entergy New Orleans will submit the first of three annual formula rate plan filings in mid-2021. The agreement also sets Entergy New Orleans' equity ratio at 51% for the duration of the FRP. The settlement does not address the 9.35% allowed return on equity (ROE). We continue to believe that this ROE does not adequately reflect Entergy New Orleans' business risk profile as evidenced by the recent downgrade by S&P. We will continue to explore adjustments to the allowed ROE in our discussions with the City Council and its advisers. Entergy Texas also submitted its first filing utilizing the new generation rider recently established by the Texas Commission. The filing requests a $91 million annual revenue requirement from Montgomery County Power Station effective when the plant is placed into service. At Entergy, we play a vital role in every region where we operate. This responsibility is never clearer than during our incident response to events like major storms and the current pandemic. But our commitment to sustainability extends far deeper than just incident response. We demonstrate our leadership through our daily actions, such as our climate strategy, attracting talent and developing our workforce, our commitment to diversity, inclusion, and belonging, and initiatives that strengthen the well-being of our communities. At our Analyst Day, we published a comprehensive ESG presentation that outlines our leadership in sustainability, which I encourage you to review. As I said at the outset, 2020 has validated that we are now a simpler, stronger, and more resilient company. We are prepared to successfully respond to challenges, and that's been important this year more than ever. With much of 2020 behind us, we've delivered strong results despite the challenges of a global pandemic and its economic impact, social unrest across the country, and an active storm season with back-to-back hurricanes hitting our service area. We are excited about the prospects ahead of us. The fundamentals of our company are strong, and the value drivers that uniquely position us to be The Premier Utility remain in place. We are strategically, operationally, and financially on track to meet the commitments we've made to our stakeholders. We have some of the lowest rates in the United States and are committed to maintaining that advantage. We have a significant investment plan that improves the level of service for our customers through innovative solutions that meet the outcomes they expect. We have one of the cleanest large-scale generation fleets in the country. And we are a leader in sustainability with a commitment to achieve net-zero carbon emissions by 2050. We have a clear line of sight to 5% to 7% growth in earnings. And by the end of next year, we'll start to grow the dividend commensurate with those earnings. And as we mature in our continuous improvement efforts, we aspire to lower our costs and do even better for the benefit of our stakeholders. We look forward to continuing the conversation with you at the EEI Financial conference, and Drew will now review the quarter's results.

Thank you, Leo. Good morning, everyone. As Leo noted, our strong results this quarter demonstrate the progress we've made to build a strong, resilient company, prepared to deliver on our commitments through extraordinary times. We're on pace to exceed our $100 million cost savings target for the year. And with the confidence and clarity we have for the remainder of the year, we are narrowing our 2020 adjusted EPS guidance range, which is now $5.60 to $5.70. We're also affirming our longer-term outlooks as we remain focused on building the Premier Utility. Entergy adjusted earnings for the quarter were $2.44 per share. Drivers were straightforward. Starting with utility, we saw a positive effect of regulatory actions associated with our customer-centric investments in Arkansas, Louisiana, Mississippi, and Texas. We experienced lower sales volume due to the impacts from Hurricane Laura, COVID-19, and less favorable weather. O&M was once again lower in the quarter as we successfully manage through a challenging environment for the benefit of our stakeholders. And depreciation and interest expenses were higher as a result of our continued customer-centric investments. At EWC, as reported earnings were $0.15, $0.85 higher than a year ago. The key driver was lower asset write-offs and impairment charges due to the sale of Pilgrim in the third quarter of 2019. In addition, strong market performance for EWC's nuclear decommissioning trust funds positively contributed. The quarter's results also reflected lower revenue and lower O&M, primarily due to the shutdown of Indian Point 2. Operating cash flow decreased approximately $145 million. The main drivers were lower collections from customers due to the impacts from COVID-19 and higher pension funding, as well as a $70 million reduction in the unprotected excess ADIT returned to customers that partially offset the decrease. Before we turn to outlooks, I'd like to quickly cover Hurricane Delta. We estimate the total cost to be between $250 million and $300 million. We plan to consolidate these costs with those from Hurricane Laura and our regulatory recovery filings. Of course, we are also monitoring Hurricane Delta and will act on those costs appropriately based on the need and working closely with our retail regulators. Now turning to Slide 10. We have a good line of sight on the remainder of the year, and we are narrowing our 2020 adjusted EPS guidance, which is now $5.60 to $5.70. We are also affirming our longer-term outlooks. For 2020, we're successfully managing lower revenues from weather, COVID-19, and major storms. And to date, we are on track to exceed our $100 million cost reduction target, which allows us to deliver on our commitments to our customers, employees, communities, and you, our investors. Our credit metrics and liquidity position are outlined on Slide 11. Our liquidity remains strong, and as of September 30, our net liquidity, including storm reserves was $4.3 billion. Our parent debt to total debt was 22.4%, and our FFO to debt was 11.8%. Excluding the giveback of unprotected excess ADIT and certain items related to our exit of EWC, FFO to debt would have been 12.5%. Clearly, our FFO-to-debt ratio this quarter is unusually low. This is largely due to the effects of COVID-19 and Hurricane Laura and the acceleration of cash being returned to customers as a result of COVID-19, such as deferred fuel. Debt has also increased due to financing of storm costs near term, but we expect these to cycle through over time. We remain firmly committed to achieving an FFO to debt target at or above 15%. We are confident we will reach that level, but the timing will be affected by the recovery of our storm costs. We expect to achieve our targeted metric when storm securitizations are received. This is consistent with what we've communicated to the rating agencies. Both S&P and Moody's have written constructively about our credit post-storms. In fact, Moody's expects us to meet our FFO-to-debt target in 2022, which aligns with a non-expedited securitization plan. And S&P raised Entergy's business risk profile to excellent, S&P's best business risk profile. This is an important outcome as it recognizes the work we have done over the past few years to de-risk our asset portfolio and build a strong, resilient business. While we have made great progress, as Leo mentioned, we are nonetheless disappointed by the recent downgrade of Entergy New Orleans. S&P's actions demonstrate the importance of supportive regulatory constructs, ROEs, and capital structures to maintain the financial strength of our utility operating companies. Preserving credit quality is essential to keep costs low and fund needed investment for customers. This past summer, we had another successful quarter. Despite the impact from storms and COVID-19, we delivered on our customer, employee, community, and investor objectives. We are meeting key goals as reflected in our 2020 deliverables. And as we demonstrated at Analyst Day, the fundamentals of our business are strong, and we remain uniquely positioned to be the premier utility. We look forward to continuing the conversation with all of you at EEI. With the conference so soon after Analyst Day, we will not provide additional materials. Nevertheless, we included in the appendix of today's webcast presentation, our preliminary 2021 drivers and our three-year capital plan through 2023 by operating company, two disclosures we typically provide to you at EEI. And now the Entergy team is available to answer questions.

Our first question comes from Jeremy Tonet with Jpmorgan.

Just want to start off with the O&M savings that you've really kind of succeeded with achieving this year. I'm just wondering where that stands, I guess, year-to-date, so far? What's driving your ability to kind of get to that target and go above that target? And how much of that could be kind of recurring into next year? Just trying to get a feeling on those items.

Yes, Jeremy, this is Drew. That's a good question. I think it relates to the operating leaders in the company, really following the plan that we laid out early in the year. We talked about this on our first-quarter call about how we plan to achieve the $100 million, which was identified. We have pretty much run the exact game plan that we talked about back then. It had to do with some operational planning, deferring some maintenance items during outages and things like that. Those are probably the primary drivers, and we had to do that with reliability and safety in mind, of course, at all times. Then there were a number of things that we identified that were related to COVID-19, a lot of employee expense related items, travel costs for gathering and things of that nature. Now that we're working in a more decentralized fashion. So those make up the bulk of the opportunities. I'll say that typically we have what we call flex spending opportunities in any given year, and those largely include the things that I just talked about. But not all of them are necessarily repeatable. There may be different types of options in any given year, but our goal is to manage to an objective where we meet our steady, predictable earnings and dividend growth because that provides the financial flexibility and credit quality that we need to continue to grow. At the same time, we do always look for continuous improvement opportunities, and some of the things that I talked about could contribute to that. Namely, some of the things that allow us to work differently today that we've discovered, such as some of the more decentralized learning, some of the employee expenses like travel. We may not have to travel as much. And so we're examining those things closely to see if they will fit into our continuous improvement programs and ultimately get reflected as continuous improvement. And that effort is where we would see opportunity on an ongoing basis to create more headroom for our customers for incremental customer investment.

Got it. That's very helpful. And just one more, if I could. Could you provide color on local sales trends? And what assumptions went into underpinning your expected 3% growth in 2021? How have your thoughts kind of evolved since the Analyst Day?

I'll take that one as well. They haven't really evolved much since the Analyst Day. They're pretty much exactly where they were at that point. But we do expect continued rebound in the economy year-over-year. That's where the growth is mostly coming from. I will say, like I said at Analyst Day, our experience to date has been the so-called V-shaped recovery. But at Analyst Day, we said that given the economic forecast that we had seen, we were not forecasting a continuation of that being necessary. We were smoothing that out and making it a little bit of a longer-term recovery. And so that's what's reflected in our forecast. And that is sort of that 3%. So we're not seeing as much of a rebound as we might have if we had seen the more of the V-shaped recovery. That opportunity is still potentially out there because, like I said, our experience has been more of the V-shape thus far. So perhaps we have a little bit of conservatism built in. If the economy does, in fact, slow down, we should be well positioned.

And our next question comes from James Thalacker with BMO Capital Markets.

Just two real quick questions. I guess, first, just following back, Drew, you answered the question on the FFO year-over-year. But I also noticed that in your slides that you're talking about an average share count for 2021 is now 204 million shares versus 201 million in 20. So could we infer that you've kind of made the decision on the form of equity that you'll undertake in 2021 and any considerations on timing we should be thinking about?

No new considerations on timing. We are going to have to access equity capital by the end of next year, which is consistent with what we've been talking about. You can see that in the numbers. But we haven't made definitive decisions on exactly how we're planning to go source that at this point, but we have some placeholders in to reflect different opportunities.

Okay. And so you're still looking at the preferred option, too, is one of the things you talked about that the shareholder?

Yes, we still have that on the table, and we will still be seeking shareholder approval of that with our proxy in the spring.

Got it. And last question here. At slide 15, just looking at Entergy Arkansas, there was a date here, I guess, today, where you were expecting potentially a stipulation or a settlement deadline. Do you think that we'll hear anything on that today?

It's Rod. I can answer that. Today, is the deadline for settlement on the FRP filing, and so not the extension. We're actually working with both the commission and the stakeholders to extend that deadline another day or so to give the parties an opportunity to continue to work through the issues. The nuance there is that there are a number of issues around the FRP that might implicate the actual extension, and we're trying to narrow that list down. So today, you might hear of an extension, but just know that that's an intentional effort on our part to provide some clarity to the commission on the issues that we've addressed between the actual FRP and the actual extension, which has a longer timeline from a settlement perspective, but they're connected. So that's what's going on there.

Understood. So you're basically just trying to narrow the scope?

That's exactly right.

Right. Regarding the last point, the Arkansas staff seemed to take a strong stance on the FRP extension. Should we expect a timeframe for clarity on that to extend beyond the December 4 settlement deadline, potentially leading to a fully litigated process? Or do you still believe that a settlement could be reached in this matter?

No. So our point of view, our optimism around getting that business done has not changed. What you're seeing with the recent filings, both the staff and other stakeholders is the normal part of the process that essentially sets the conversations that we have when we're actually in negotiations as we are now. So between now and the actual extension of settlement timeline, the beginning of December, I believe, we'll be going to work to close out the very issues that I alluded to before. So no, I don't expect there to be any difference because of what was filed, all of which have been expected.

And our next question comes from Jonathan Arnold with Vertical Research.

Yes, I suspect the answer to this may be sort of storm, et cetera. But I was just curious on the balance sheet, there was a really big move in accounts payable seemed to go up about $1.3 billion over the second quarter and just a lot bigger than usual. Anything you can provide there as an explainer?

Yes, that's exactly what that is, Jonathan, and there is a corresponding regulatory asset in there that offsets that. Ironically, that cash hasn't actually flowed out the door yet. But it's reflected in our FFO because we've taken out the working capital piece. So the payables are taken out, but the asset is still in there. So it looks like the cash has flowed into the FFO metric.

Great. And then could I just sort of ask for an update on arrears and bad debts? You thought that on the balance sheet went up another $30 million versus June. And I guess on the rule of thumb you shared with us last quarter, you tend to book 30% of your arrears as bad debt. So does that imply an incremental $100 million over the sort of $100 million increase you had in the second quarter? Or is there another way of thinking about that?

That's about right, Jonathan. We have booked a little bit of over $50 million in terms of bad debt expense. And you're right, it's about one-third typically of our overall customer arrears. And so that math would lead to about $150 million overall in that ballpark.

Okay. You mentioned last quarter that there were people who could afford to pay but weren't. What is your current perspective on that?

Yes. Since the beginning of COVID, we had a point of view around what the experience would likely be like for customers who didn't pay, and that aligns with our dunning process, where we were not disconnecting customers for non-payment. We're seeing our expectations materialize. There were some conservatism built in. As you recall, we saw regulatory accounting orders from our commissions as a backstop to the potential likely outcomes on bad debt and customer arrearages. So we're actually seeing it play out the way that we expected. We expect to be at some point in the near term, we haven't defined the date yet when we return back to more business as usual, whenever that might be, we'll begin the filings to connect recovery from customers, including through the regulatory mechanisms on the bad debt and other expenses associated with COVID.

Okay. What do you think the trajectory looks like from here? As you discuss your expectations, do you see it continuing to rise, or have we reached a certain level?

It's too early to say, candidly, because there's the unknown as to what are going to be the continuing impacts of COVID as we round out the fourth quarter into the new year. What will likely be different is the stance of the regulators relative to the relief we provided to customers about that bad debt. And so that's going to be a to be continued. On our end, we're going to be prudent in the way that we continue to provide service to customers, but take advantage of the opportunities given to us by the regulators to at least present to them what, if any, trends we're seeing on arrears beyond sort of the path that we're currently on.

And our next question comes from Shahriar Pourreza with Guggenheim Partners.

Just two quick questions here. I appreciate the transparency on issuing the 2023 guidance. Can we just talk a little bit about the cadence of the earnings growth year-over-year? Because it seems that at the midpoint of those ranges, you're expecting more tailwind growth rather than sort of front years of the plan, i.e., 5% in the front year, 7% closer to the '23 time frame. So just wanted to maybe get a sense on what's driving that? Is it the equity in the front end of the plan? So just kind of curious how we should think about the guidance.

Yes. From our perspective, Shar, it's pretty ratable, pretty close to that 6%. When we have done a little bit better last year, and we're on track to do a little bit better this year, we're not necessarily projecting that out into the future years just yet. So it looks like when we go from a little bit higher where we started for '20 to out in the future, it slows down a little bit, I think. But if you look at our original guidance midpoints, you'd see that fairly predictable 6% growth is what you'd see.

Got it. So don't look at the year-over-year midpoint growth and assume that it is going to be more back-end loaded?

No, not from the revised spot. If you start from the original spot, I think you'll get to that same place.

Got it. Perfect. And just one quick follow-up, Juan, regarding the equity question. There are many moving parts to consider, such as storm recoveries and another pending event, along with lower volumes. The credit metrics were somewhat lower than anticipated when viewed comparatively. How should we think about the equity situation? We have some plans for '21. Should we expect equity to be more front-end loaded rather than back-end loaded, or should we view it as more of an annual approach, given the various moving pieces that were mentioned, including those highlighted by Leo in the prepared remarks?

Yes. We're not planning any change in our cadence to our equity at this point as a result of COVID or the storms. So we do still expect to, as we've been talking about, have some equity by next year to maintain our path, although we probably won't be hitting our FFO to debt target exactly the same as we were. But we've committed to the rating agencies that we will have some equity out there, and we'll continue with that process on through the next five years, but no real changes as a result of the storm or COVID at this point.

And our next question comes from Julian Dumoulin with Bank of America.

Sorry about that. I apologize, I wasn't quite sure if it was open. Listen, I'll make it easy or quick. I'm curious as to how you would characterize the totality of the storms and the bill impacts incurred this year. I appreciate it doesn't necessarily fit into the traditional framework, should we call it, of the FRP. But really, just curious how you think about that and to the extent to which it may shift timing of CapEx or otherwise as you think about bill impacts in future years as securitization and otherwise filter their way into rates.

It's Rod. I'll address how we approach this. As you mentioned, the storms are outside the usual framework. However, they still affect the overall customer bill. Our approach remains consistent. We look for ways to lessen the bill impact and consider the tools at our disposal. We are fortunate to have some of the lowest rates in the U.S. Knowing these storms will affect our customers, we are working with federal agencies to find ways to offset some aspects of customer bills related to these storms. We have previously utilized securitization to reduce the immediate recovery costs for customers and will continue to seek ways to lower our overall service costs. By collaborating with federal agencies, applying regulatory mechanisms, leveraging financial structures we have used in the past, and implementing our own strategies, we aim to mitigate the impact on customers. The storm presents challenges similar to other costs we incur to deliver results for customers. It will be an ongoing effort, but our commitment to reliability, affordability, and sustainability remains part of our core business. Thus, we will maintain our approach moving forward.

Julien, I'll just add, this is Leo. We talked about at Analyst Day, given what our current rate level is and the current trajectory without the storm costs is manageable. We believe that they're manageable within the capital budget that we've got. As Rod mentioned, that's totally consistent with how we've operated over the years, and it's totally consistent with how we've gotten recovery of storm costs over the years. Our objective is to attempt to continue to try and do better for all of our stakeholders. Through continuous improvement and everything, we anticipate that we can even make that a little bit better for our customers. So we think it's all manageable in the context of the size of the balance sheet, the size of our asset base, and everything to be able to make all this work.

And our next question comes from Sophie Karp with KeyBanc.

First. So first, maybe on the O&M. So you clearly have overachieved on the O&M costs so far this year. But when I look on the slide, the guidance slide, it seems that there are full year goal remains the same. Should we expect a reversal of O&M cuts in Q4 then? Or should we expect you to try and sustain the cost cut trajectory into the end of the year?

Sophie, this is Drew. We're going to get a little bit above that $100 million. So it might get to the $120 million range or so by the end of the year, and that's baked into the new narrowed range that we talked about this morning.

Got it. And then on equity and sort of balance sheet, again, there is a real possibility as we sit here today that we will see some form of better reversal of the tax cuts from 2016 right under the Biden administration, which is presumably would be balance sheet positive for utilities. Would that influence your thinking about equity needs? Would you wait to get more clarity on that type of development?

Yes, this is Drew. We are definitely considering that. Given that our equity plan extends for five years, I anticipate that during this period we will gain more understanding of how the new tax rate will affect us and how it will ultimately influence our rates. If these changes result in deferred taxes, we could see additional cash flow to help offset any equity needs. However, I cannot guarantee that this will cover all of our equity needs. Additionally, there are other proposals, such as alternative minimum taxes, that remain unclear at this stage, and we will need to keep a close eye on those as well. But yes, you are correct. Assuming the federal tax rate increases from 21% to 28% and those are deferred taxes, it should enhance our funds from operations and reduce our equity requirements.

Our next question comes from Stephen Byrd with Morgan Stanley.

I wanted to check in on regulated nuclear operations. I know you've made a lot of investments in that regard. I was just curious to know if those investments have been paying off? Are the metrics you point to just in terms of how the operations are going on that side?

Thank you, Stephen. They are paying off. We've seen the benefit of putting those investments into the plants in the operations of the plants, improving. Everything is on track for those. As we mentioned, we just came out of the last big outage as it relates to the program that we went under as we went from 2016 to this point throughout the regulated fleet as we were preparing most of those for their new extended lives. So we are seeing the benefit of those investments. We continue to have investments to make, although they're not the kind of size of what we've been doing over the past couple of years.

Got it. That's really helpful. And then just going back to storm damage and thinking through that, I appreciate you have a lot of tools at your disposal to think about the customer bill impact. One tool I was just curious about is the duration of recovery and whether that over time might be adjusted. I guess one thing I've been thinking through is just if we annualize some of the damages we've been seeing of late, it does start to show a more material impact on the bill. But if you have the ability to spread that out over a longer period of time, that could help alleviate the impact a bit. How do you think about that element of in the toolbox?

Yes, Steven, this is Drew. All of our retail regulators will expect us to use securitization to reduce the capital costs associated with it. Currently, a 10-year securitization has about a 1% cost of capital. If we extend that to 15 years, the cost may be slightly higher, but it would also distribute the overall bill impact over a longer period. We are considering options to minimize the effect on customer bills. Additionally, as you know, we constantly explore structural ideas, and I'm sure you're aware of our previous efforts with affiliate preferences to reduce customer bill impacts. We are examining various structural alternatives to help mitigate this issue as well.

And our next question comes from Rakesh Chopra with Evercore ISI.

I have one quick question regarding FFO to debt. It seems you've delayed the target from Q4 2021 to mid-2022. Can you share what gives you confidence in reaching that target by mid-2022? Are you relying on regulatory approvals for storm cost recovery, or was this timeline developed in discussions with the credit agency? Any insight into the timing of these credit metrics would be appreciated.

Sure. That's a good question because yes, we were pretty specific with mid-2022, but really we're tying it to the timing of our securitization more or less. Once we get the securitizations in place, that should help us move to FFO-to-debt ratios that are much closer to our targets. So when Moody's wrote about it, they said 2022. If you think about our typical securitization timeline, it's 18 to 24 months. So we sort of said, okay, well, 24 months from basically, whenever Laura came along, of course, now we are looking at the data this afternoon. So 24 months from that might be a little bit longer. But we're going to be seeking expedited treatment for some of this, and hopefully, we'll be able to move that timeline forward a bit.

Our next question comes from Paul Fremont with Mizuho.

Thank you. A couple of questions on EWC. One would be, can you help us understand what the objections are for New York in transferring the Indian Point license? And do you think that, that's going to hold up a potential transfer of license to Holtec? And can we also get maybe a little bit of an update on the cash flows that you're now expecting between now and when EWC winds down?

Okay. This is Drew. On the regulatory front, we are in discussions with various agencies in New York as well as the NRC is getting closer to the end of its process. Of course, they are evaluating the operational capability and the financial capability of Holtec to do the decommissioning. We have full confidence that they will pass the screens from the NRC. From the state's perspective, they're asking the same questions, really. It's just a matter of working through the process in New York. It's not a defined process as well as it is at the NRC but we are working through. We're having conversations, and we still believe that at this point, we are on track to close sometime around the middle of next year. In terms of the cash flows, I believe they are still positive from kind of 2020 through 2022, cash back to parent. That's kind of the metric that we've used. If you just used EBITDA, of course, you might not be looking at that. We don't have much capital left in these plants before they are retired. But our overall cash back to parent is still slightly positive.

Great. Any order of magnitude there?

Oh, less than $100 million.

And our last question comes from Andrew Weisel with Scotiabank.

Sorry I was on mute there. Just a very quick follow-up on O&Ms. You say you're on track to exceed $100 million. I think I heard $120 million, but I see you're continuing to call for $2.7 billion for 2021. I guess my question is, as you go through the year, are you still thinking those savings won't be repeated or recurring? Or is your reiteration of $2.7 billion conservative?

This is Drew. That's a good question. It's a question that Leo asks me every day about why we're still at $2.7 billion. We do have a lot of costs that came out of this year that did move into next year. A lot of these things that I mentioned at the outset were part of operational changes that we made during outages, maintenance decisions we made, and things like that that we do have to make in order to maintain the safety and reliability of our assets. That's probably the main thing. As I said, we have learned some things, and we have some continuous improvement opportunities that are coming out of that. Some are pretty immediate, like travel expenses. Others may take a little bit of time like trying to realize real estate savings from a smaller footprint or something of that nature. There are going to be some opportunities that result from what we've done this year that become continuous improvement. Those will be baked into our expectations over time.

Yes. Andrew, this is Leo. Andrew is being a little bit funny about what I ask him every day. He's trying to be a comedian today on the call, I guess. But the fact of the matter is we think we're in a pretty good position in terms of the business model, the investment opportunities we have, and the ability to create value for our customers. I went through in my prepared remarks. Just consider the value of the new transmission infrastructure versus the old transmission infrastructure on a day-in, day-out basis, especially in times like what we've seen, the anomaly that has been of 2020 all the way around. We've learned a lot about the way we operate the business, both from our flex levers, our continuous improvements, and the things that Drew was talking about, what we're capable of when we put our mind to it. Obviously, when we discuss how we're teeing up sales growth and how we're teeing up O&M, certainly for next year and the years beyond, there's a lot of uncertainty out there that we just need to be prepared for. We've set ourselves up to be prepared for that uncertainty. The biggest one being obviously the pandemic, how long does it go, when is our vaccine? We can control what we can control. We can't control the public health crisis. So we're going to control what we can control. For example, the posture that we're in today as it relates to our travel schedules and our remote work schedules, our meeting schedules, and all that. We've announced to our employees that we're going to continue in that process until the middle of 2021 at a minimum. There could potentially be some opportunities in the future, as Drew mentioned, in the sales forecast. But those are dependent in some respects on things that we don't control. We feel like we're in a pretty good place, teed up for 2021. Certainly, by the time we get to the end of 2021, we would anticipate that we get back to a much more normal trajectory. We're prepared for a continuation of 2020 if we have to. We're really excited about how we can perform under normal circumstances. So I don't know if that directly answers your question or not.

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 on regulatory proceedings and important milestones on our strategic execution. While some of this information may be considered material, 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 now disconnect.