Entergy Louisiana, LLC Q1 FY2022 Earnings Call

Thank you for standing by, and welcome to the Entergy Corporation's First Quarter 2022 Earnings Release and Teleconference. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, today’s program is being recorded. I would now like to introduce your host for today's program, Bill Abler, 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 effort to accommodate everyone who asks 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 Leo.

Thank you, Bill and good morning, everyone. Today, we are reporting first quarter adjusted earnings of $1.32 per share, a very good start for the year. With favorable weather and higher-than-planned retail sales, we are ahead of schedule and solidly on track to achieve our 2022 objectives. And we remain on track for our longer-term outlooks. During the quarter, we continued to execute on both our near and long-term deliverables, just as we have over the last several years. We've made demonstrable progress on our operational, strategic and financial objectives. Operationally, I'll start with some notable regulatory updates. We've continued to make meaningful progress on storm cost recovery. Texas is done and Louisiana's securitization proceeds from the 2020 storms, plus $1 billion towards Ida will be completed in the coming weeks. Entergy Louisiana's filing for the balance of Ida will be completed within the coming days, and the Entergy New Orleans filing will follow later this year. A financially strong utility is important for customers. Drew will discuss how securitization progress supports our balance sheet strength. As expected, Entergy Mississippi filed its annual formula rate plan which enables continued customer-centric investment and supports our financial outlooks. We're continuing to drive progress on enhancing the resilience of our system, which benefits customers that supports local economic activity as well as our growth plan. Entergy Louisiana completed an important transmission upgrade in the southern part of the state. This $86 million project replaced approximately 80 structures to increase resilience along several miles of critical path transmission in La Pouch Paris, an area that was severely affected by Hurricane Ida last year. To create a solid foundation, the new infrastructure is placed in steel cases. The line was built to withstand wind speeds of 150 miles per hour and will improve the resilience of the electric system. Entergy Louisiana also completed a $100 million project in North Louisiana, that positions the region for economic growth. The West Monroe project will provide additional transition capacity, improve reliability and is built to withstand extreme weather events. What that means for customers is enhanced reliability and resilience, better integration of clean generating resources and economic benefits to improved access to lower cost of power. Bottom line, the Entergy team continues to focus on delivering operational excellence across all facets of our business. Strategically, I'll start with our merchant business wind down. The last step in our merchant nuclear exit is nearly complete. Palisades is on track to shut down at the end of May with the sale to Holtec following around mid-year. The Palisades team is finishing strong, and I would like to thank them for their dedicated service. We have worked to help employees with their career goals beyond the plant shutdown. Many will continue to work for Entergy at other locations. Some will continue to work for Holtec on decommissioning and others are retiring. As you know, the Department of Energy recently announced a program to save nuclear plants that are about to shut down. Michigan's Governor issued a letter encouraging utilization of this program to keep Palisades open. We are supportive of federal initiatives to keep nuclear plants operating. However, we are five years into the Palisades shutdown process. We're far down the path. There are significant technical and commercial hurdles to changing course at this point. That said, alongside Holtec, we will work with any qualified party that wants to explore acquiring the plant and obtaining federal funding. But I do want to be very clear: this does not change our strategy. Entergy is exiting the merchant nuclear business, even if Palisades continues to operate as a part of Entergy. Across all of our operating companies, we continue to be a critical partner to support strong economic development, bringing new businesses, new jobs and new tax base in the communities we serve. For example, Entergy Arkansas, along with the Wynne Economic Development Corporation announced completion of the select site certification for a 37-acre industrial site. Certification streamlines the site selection process. Initiatives like this help attract new businesses and new projects like the U.S. Steel expansion that was announced earlier this year. Over the past five years, our economic development team has helped bring to provision close to 300 announced projects, $42 billion of capital investments, and more than 25,000 jobs. These outcomes have been critical to the economic health of our communities and have been a significant factor in the 9% cumulative industrial sales growth we've achieved over the past five years. And we continue to expect significant industrial expansion in the next several years. As we have discussed, growth from our industrial customers has been driven in large part by cost, labor, logistics and regulatory advantages of the Gulf Coast as well as favorable commodity spreads, which continue to support expansion. Further, the current geopolitical state of the world makes the U.S. and the Gulf Coast in particular a top choice for stability. LNG exporters in the Gulf are being called on to expand production to help reduce Europe's reliance on Russian energy influence. This opportunity represents a win for our customers, communities and owners, not to mention the community. To help support our customers' growth and decarbonization objectives, we are driving progress to expand our renewables footprint. As of today, we have approximately 650 megawatts of renewable capacity in service, 625 megawatts of solar projects approved by regulators and in progress, 725 megawatts of announced projects and up to 4,000 megawatts of RFPs. That's more than half of the 11,000 megawatts of renewable resources in our supply plan through 2030. We've made progress identifying new resources and active RFPs. Since our last call, Entergy Texas concluded evaluations of its 2021 solar RFP. Several resources were selected totaling at least 400 megawatts from owned and contracted proposals. We also made selections from the Louisiana and Arkansas 2021 RFPs earlier in the year. We will provide additional details about the resources selected from these proposals once parties reach definitive agreements. We are also soliciting the next round of renewables. Entergy Arkansas recently issued its RFP seeking up to 500 megawatts of renewables to provide cost-effective clean energy, which furthers fuel diversity. Entergy Louisiana also issued notice to proceed with renewable RFP seeking up to 1,500 megawatts in Louisiana. Our customers' demand for decarbonization solutions, including green products is not slowing down. The long-term solar market continues to look favorable based on an improving technology curve and higher natural gas price scenarios. However, we fully recognize the near-term cost and schedule pressures that solar projects are facing. Supply chain constraints have been exacerbated by the Department of Commerce investigation, which we expect will drive additional delays and the potential for further cost increases. These dynamics are affecting the entire U.S. solar industry, but we are continuing to work through these constraints and are executing on our solar expansion plans. It's important to note that not all of our projects are affected. For example, Sunflower solar in Mississippi, our only owned project coming online this year, has its panels on site; installation is nearly complete. Entergy's owned solar represents a relatively small portion of our three-year $12 million capital plan. Roughly half of owned projects in the three-year horizon are not experiencing impacts of recent market constraints. A greater portion of our own projects are expected in the latter half of the decade, which would be past the current working constraints. As we've said before, we have a large backlog of customer-centric investments with the ability to rotate capital into our plan as an opening presents itself. The bottom line is that we recognize the near and medium-term constraints but still see strong market fundamentals in the long term supporting our supply, demand and customer objectives. On our last call, we told you about the new U.S. Steel expansion. In support of this project and the customers' decarbonization goals, Entergy Arkansas filed for approval to acquire the 250 megawatt Driver Solar facility. Driver Solar is an example of how we can partner with customers with their sustainability needs while accelerating the growth of our renewable portfolio in our regulated framework. It also highlights our unique growth strategy to help customers achieve the outcomes they desire, which in turn drives the outcomes for all Entergy’s stakeholders through more jobs and economic activity in our service area, increased capital deployment to support electrification, low growth to offset costs and higher rates of change towards societal decarbonization. Nuclear also plays a critical role in our customer decarbonization strategy. Entergy is one of the cleanest large-scale fleets in the nation due to our nuclear fleet. Customers are increasingly highlighting access to carbon renewable resources is key to economic development. They are looking to reduce their carbon footprint and many are indifferent to the type of carbon-free technology. We continue to see examples in the industry that reinforce the need to balance reliability, supportability and environmental sustainability. Entergy's resource planning has always balanced these objectives. Our baseload nuclear plays an important role. We have discussed the sizable long-term opportunity for Entergy to help our industrial customers decarbonize and achieve their sustainability unit levels. We have estimated an addressable market of approximately 30 terawatt hours by 2030. To put that into context, that's about 25% of our 2021 total retail sales. That's not to say that we will capture the entire market, but we're working on how to serve our customers' needs and maximize this opportunity. With many carbon reduction goals coming past 2030, we anticipate greater opportunities beyond the next 10 years. Realizing this growth requires significant investment benefits to all stakeholders. This will include meaningful transmission and distribution investments to reliably serve the expansion of our renewable resources beyond the obstacles outlined in our current 2030 resource plan. Financially, we continue to strengthen our balance sheet. Beyond the securitization progress that I mentioned, we have also significantly reduced our remaining growth equity needs through 2020. Currently, only 25% of the original amount discussed at our 2020 Analyst Day remains. We are on track to achieve steady, predictable growth in adjusted EPS and dividends, with the opportunity to do even better. We're very excited about our upcoming Analyst Day on June 16. We'll use that opportunity to provide a closer look into our multiyear strategy and financial plans. That includes our plans to quickly advance resilient investment in our coastal region to lower storm risk for our system, our communities and our customers. And to further expand our renewables portfolio to support our customers' decarbonization goals. As I said, we've had a productive start to 2022, and we will continue to successfully achieve the milestones that keep us on track to deliver steady, predictable earnings and dividend growth while maximizing operating efficiencies and investments to make our system as resilient, reliable, clean and affordable as it can be. These are the outcomes our customers want, and by delivering them, we create sustainable value for all our stakeholders. Before I conclude, I encourage you to see our recently released 2021 integrated report, 'The Future is On'. The report lays out how we delivered results in 2021 and discusses why we're optimistic and excited about Entergy's future. You can see how we integrate the environmental, social and governance objectives into all we do. I'll now turn the call over to Drew to review our first quarter results as well as our financial strength and outlook.

Thank you, Leo. Good morning, everyone. Today, we are reporting strong results for the first quarter. As you can see on Slide 3, we had adjusted earnings of $1.32 per share. The drivers are straightforward and keep us solidly on track to achieve our financial objectives for the year. We remain confident in our continued success and we are affirming our guidance and longer-term outlook. Turning to Slide 4, you'll see the drivers for the quarter. As a result of our continued customer-centric investments, we saw higher levels of revenue as well as higher depreciation and interest expenses. Other O&M increases included higher customer service support and nuclear generation expenses. Results for EWC are summarized on Slide 5. The drivers for that business are largely due to the shutdown sale of Indian Point last year. As Leo mentioned, we expect to complete our exit of the merchant nuclear business in the coming months. That will be a major strategic milestone. Moving to Slide 6, operating cash flow for the quarter was higher than last year at $538 million. Higher utility revenue, lower fuel and purchase power payments, and lower pension contributions were the largest drivers. As a reminder, fuel and purchase power payments were significantly impacted by winter storm Uri in 2021. Non-capital storm spending was higher than last year, which provided a partial offset. Turning to credit and liquidity on Slide 7. We continue to make progress on securitizations that will strengthen our balance sheet to produce significant cost savings for our customers. Our regulators recognize that financially healthy utilities benefit our customers. To that end, Entergy Texas recently completed securitization for its 2020 storms. And on the day of our last call, the LPSC approved storm recovery and financing for the 2020 storm plus a $1 million down payment on Hurricane Ida. The approval included replenishment of Louisiana storm escrow to $290 million. Louisiana securitization is expected to be off balance sheet, and we anticipate a $3.2 billion issuance in the coming weeks. Entergy Louisiana plans to file for Ida cost recovery in the coming days, as Leo mentioned, and we are targeting to receive proceeds by year-end. The timing of recovery ultimately depends on the procedural schedule approved by the commission. Entergy New Orleans is seeking approval from the New Orleans City Council to issue $150 million in securitized bonds to replenish the company's storm reserve. If approved, this reserve would enhance credit and ability to respond to potential future storms. In addition, ENO plans to file for Ida cost recovery later this year. Our net liquidity at the end of the quarter was $3.5 billion, being further supported by the tax securitization proceeds received on April 1 and the $3.2 billion Louisiana securitization proceeds once they are received. Beyond securitization and liquidity, we continue to focus on resilience, which we will discuss in detail at our Analyst Day. Part of that discussion will include how we are actively applying for federal funding to help pay for resilience investments and mitigate customer insights. Looking at Slide 8, it's been approximately two months since our last earnings call. And in that time, we have reduced our equity needs by nearly $170 million through our ATM program, with roughly $570 million remaining to be executed between now and the end of 2024. Given the small amount, our plan is to close out the remaining needs with the ATM program. The four sectors shown on Slide 9 represent nearly half of our industrial sales. The fundamentals for our industrial customers remain robust in support of continued growth expansion. In addition, the expansion of LNG export facilities is coming into the spotlight again. The majority of these potential LNG expansion projects will provide and expand Entergy service territories. Looking forward to Slide 10, we have a solid base plan with good visibility to achieve our guidance and outlook. We are also monitoring situations surrounding inflation and interest rates. We did not see a meaningful impact on our operational results, and we remain on track to achieve our annual cost estimate. As a result, we are affirming our 2022 adjusted EPS guidance range as well as our longer-term outlook. As we move towards Analyst Day in New York in June, we're executing on our operational, strategic and financial objectives and building on a solid foundation. In New York, we'll share our longer-term views on customer-centric investments and financial outlooks. And we look forward to seeing you there. And now the Entergy team is available to answer questions.

Our first question comes from Shar Pourreza from Guggenheim Partners. Please go ahead with your question.

Hey, guys.

Good morning.

Leo, from your prepared remarks, just quickly on Palisades, should we assume you don't want to even remain a short-term owner until the asset is potentially sold? So viability of the asset is really a Holtec question or could there be changes to the Holtec agreement? And maybe just elaborate a little bit on some of the technical challenges like refueling and the capital that's needed to halt decommissioning and can they even be overcome?

I'm not going to elaborate on what might work or not. The plant is set to stop operations in May because we will run out of fuel, and we haven't placed any fuel orders. There's significant work required at the plants to get them ready to operate beyond that period, and we haven't investigated what that work entails since we have been planning for five years to shut the plant down. We do have an agreement with Holtec, which includes certain conditions that have mostly been met, except that the plant is still in operation. It’s a big challenge at this late stage. However, we fully support the ongoing operation of the nation's nuclear fleet as it's crucial for the reliability of the electric grid and essential for decarbonizing the economy; shutting down those plants means taking a step backward. I am optimistic about what the Department of Energy is planning for future plants, but at this point with Palisades, it’s a significant challenge.

Got it. And then just on credit metrics and equity would you guys potentially trend above your thresholds. Do you see any opportunities to maybe further downsize your $570 million of remaining needs? And as you're kind of getting closer to hitting your credit metrics and prepare to roll forward your capital plan, do you anticipate any improvements in credit metric thresholds especially as the business mix has improved and storm funding is moving closer to resolution? So would like, for instance, an improvement in thresholds, let's say, the 12% to 13% effectively leave you over levered versus the current projections?

Yes, this is Drew. Regarding the opportunities that could impact our credit metrics, the key one we mentioned at the end of last year is related to pension. Currently, changing interest rates are affecting our pension liability, and the returns from the trust backing the pension are not meeting our expectations, which is balancing things out. We're closely monitoring this situation. If interest rates remain high and returns begin to align more with our expectations, it could provide additional flexibility in our credit metrics. This is our primary focus at the moment. Additionally, we need to complete our securitizations to remove some debt from our balance sheet, which will be significant milestones. We're also closely watching our capital expectations, as they influence our equity requirements. In the near term, we do have some capital allocated for solar projects, and I'm sure there will be questions on that during the call. We also have plans for other capital projects, especially related to resilience. If we encounter delays with solar, we have resilience investments that our customers are anticipating and expect us to deliver if the opportunity arises. I do not foresee any additional capacity from the capital side moving forward.

Got it. And then just one quick follow-up, if I may, and I appreciate that. It's just on your Analyst Day. I know you talked about resiliency and sort of the green tariffs. Just given the timing of the regulatory initiatives and the technical conferences, I know you highlighted how they would fit in with the Analyst Day. But should we specifically think about the Analyst Day as a roll forward of your base plan, and will you qualitatively discuss these opportunities with some scenario and back testing analysis? Or could we actually see some of the spending rolled into the capital plan? Thanks.

Well, I think, Shar, we're going to let the punch lines of Analyst Day show up on Analyst Day. Thank you.

Thank you. Our next question comes from the line of Nicholas Campanella from Credit Suisse. Your question please.

Hey. Good morning, team. Thanks for taking the question.

Good morning.

So I just wanted to hit solar supply chain risks quick and just the impact. Could you just help us just size the amount of megawatts going into the rate base that would potentially be at risk? I think you said roughly half you're secured on over the three-year horizon. So is that like 300 to 400 megawatts? And just to confirm, I heard your last comments right, to the extent that capital shifts, you were just going to backfill that with potential distribution resiliency spend?

Good morning. This is Rod. In reference to Leo's comments, the near-term risk we mentioned regarding our current projects is around 280 megawatts, specifically referring to West Memphis and Walnut Bend. In terms of megawatts, they do not account for a significant portion of our total capacity, so we want to provide that context. Additionally, Leo noted that most of our renewable capacity will actually become available later in the decade. We are highlighting this because we acknowledge some near-term constraints, but they do not affect our overall plans for expansion.

And I think to your last point, Nick, I think Drew mentioned it and I mentioned in the script, we've got a capital plan and timing that's laid out. We've got other things waiting in the wings that we could or couldn't accelerate. So the ability to roll something else into the plan that provides benefits to our customers in a different way is always there.

Absolutely. And then just Drew's comments on inflation. If anywhere, where would you kind of call out that you're kind of seeing the most pressure to the plan? And can you just kind of talk about just the current state of power markets, how you're kind of managing customer bill impacts and the ability to just continue to extend your rate base growth here, perhaps any levers that makes your jurisdiction more unique than others, that would be helpful. Thanks.

Thank you, Nick. This is Drew. The way you framed the discussion was intriguing, especially regarding the pressure on the plan. I would actually argue that it enhances the plan's economics because we consider how inflation affects our two main investment themes, beyond our foundational capital in renewables. In terms of resilience, we believe inflation will reinforce the economic rationale from the customer's viewpoint for accomplishing those initiatives. When discussing renewables and rising gas prices, there's currently more economic flexibility, which is driving the urgency to implement renewable solutions. We've made significant progress in improving our gas efficiency with the combined cycle gas turbines we've historically constructed, and the Orange County Advanced Power Station, a high-efficiency unit, is also operational. These developments are already beneficial, but we anticipate they will hasten our renewable initiatives. Additionally, regarding resilience, a crucial aspect of the plan involves the expenses related to reinforcing distribution and transmission lines before a storm, as opposed to the costs incurred after a storm. If inflation persists, that disparity will become more pronounced, increasing the urgency for customers to act proactively in a strategic manner. While these factors will affect customer bills, the alternative of inaction would have an even more significant impact on their bills. Therefore, I believe it will motivate customers to support the acceleration of our plan, which includes investments in renewables and resilience.

That was very detailed. Thanks for the response. See you in New York.

All right. Thanks, Nick.

Thank you. Our next question comes from the line of Jeremy Tonet from JPMorgan. Your question please.

Hi. Good morning.

Good morning, Jeremy.

All right. Just want to come back to DOE a little bit more, if I could. And for 2023 projects, if you could just break down price risk versus timing risk. And do you see C&I demand kind of insulating the project to a degree on both these factors?

I want to clarify how Drew and I will divide the response to the price risk question you asked.

Yeah. Just price and timing for 2023 projects.

So regarding the projects we just mentioned, specifically Sunflower, that project is secure as it is one of our own. We anticipate it will be operational by August, so that looks promising. However, we do expect some delays with the other projects I mentioned earlier, West Memphis and Walnut Bend. We are collaborating with our BOT partners, both of whom are reputable, to finalize the costs and schedules. There is some risk involved due to delays related to the supply chain and DOE issues. We'll see if Drew has anything to add on that.

I would like to add to what Rod mentioned earlier that the majority of our expectations extend beyond the next two-year period. We have issued requests for proposals, and the Department of Energy has accepted them. They are fully aware of the supply chain concerns and risks. Even before the Department of Energy's action, they were informed about tariff activities in that area. We anticipate that the organizations we are collaborating with following the proposals will be well-equipped to navigate the current environment and meet the expectations outlined in the proposals. We believe the Department of Energy fees will be resolved relatively soon, and most of the parties we've been engaging with expect this to happen by the end of the year. However, even if it takes a bit longer, we are confident it won't jeopardize our overall expectations. Additionally, in the short term, as I mentioned earlier, we have numerous other initiatives to advance and fulfill other customer expectations if there are any project delays.

Got it. Thank you for the thought. That's helpful. And just kind of pivoting a bit here to nuclear and really small modular reactors, just want to know your thoughts on, I guess, how this could unfold going forward. And we saw one of your peers potentially partnering with the university to build an SMR. Is this something that Entergy would consider doing to demonstrate the viability of the technology? Or any thoughts like us on SMR when and if that could be something that Entergy is really moving more towards or exploring?

We are closely observing developments in the small modular reactor space. Our nuclear team is engaged with various organizations to stay informed about these advancements. The success of this technology is vital for achieving the economy's decarbonization goals. The ability to develop cost-competitive, carbon-free, smaller projects is important, especially given the challenges with the large capital requirements of existing technologies. These requirements can create complications during construction. We are excited about the potential of this technology and are continuously evaluating its relevance to our needs, though it's still early to determine its integration. While we are focusing more on hydrogen due to our strong position in that market, we remain committed to exploring what small modular reactor technology can offer for us and the economy overall.

Got it. It's very helpful. I leave it there. Thanks.

Thank you.

Thank you. Our next question comes from the line of Durgesh Chopra from Evercore ISI. Your question please.

Good morning, everyone. Drew, it's been a while. I have just one quick follow-up. Can you confirm if the storm Ida balance of costs, which you haven't yet received regulatory approval for, is still at $1.7 billion? That was the figure mentioned at the end of the fourth-quarter call. Could you confirm or provide an update on that?

The total cost estimate for the storm remains at $2.7 billion, with $1 billion included in the first securitization that we expect to price in the coming weeks. The remainder will be addressed towards the end of the year. The entire $2.7 billion will be included in our filing that we will submit in the next few days. To clarify, we need to obtain approval for the full amount to ensure cost recovery. The $1 billion down payment does not constitute pre-approval of those costs; it is merely a pre-financing.

I see. So essentially, you'll be seeking approval for the full $2.7 billion and the $1 billion that you've gotten already will be applied towards it. Is that the right way to think about it?

That is correct.

Okay. Thank you very much. I appreciate the call today. Thanks, guys.

Thank you.

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

Hi. Good morning, team and thanks for the opportunity here. Congratulations on continued results. If I can, just to focus on the first quarter and some of the dynamics here. Can you comment a little bit on the industrial demand and the 6.5% in the first quarter here? And how do you see this trend through the balance of the year as you think about it, especially given the potential for export-oriented industries to do particularly well here? And could you talk also in tandem at the same time about some of those trends that you observed specifically around accelerating customer desire for renewables? You had specifically identified at the start of this year, a number of very large customers. But I have to imagine, based on your comments already that there are actually several other larger customers that you're talking to.

Yes, this is Drew. I’ll address the first part of the question and then hand the second part over to Rod. Regarding our sales expectations, we experienced higher industrial sales than we had anticipated this quarter, with much of it aligning with our forecasts. In particular, refiners performed well due to very high crack spreads. We did encounter some unplanned outages in the chemical and petrochemical sectors, which affected our performance slightly. However, outages among our Cogent customers actually boosted us back up, so that segment showed strong results. Additionally, the unplanned outages for our regular customers were quite substantial as well. Overall, our results were roughly in line with our expectations, but slightly higher. Looking ahead for the remainder of the year, as indicated in one of the slides with key industry statistics, we anticipate that these sectors will continue to operate at high utilization rates. They will aim to minimize both planned and unplanned outages to maximize production in the current commodity environment. While LNG wasn't mentioned on that slide, its utilization rates are also extremely high. Now, I will pass it to Rod for further discussion.

I was initially going to focus on the LNG sector, but I won't discuss Analyst Day details since we'll present our five-year outlook then. However, we are noticing increased interest in signing offtake contracts, which supports our view on LNG expansion. We'll let our customers initiate that discussion, but it's worth noting that 85% of projects under FID consideration in the LNG sector are located within Entergy's service area. This underlines our belief that we have a distinctive growth narrative alongside our customers. Our capability to assist them with their expansions while also supporting their ESG goals presents a significant growth opportunity for us, and we remain optimistic about it.

Excellent. And then just one other nuance here. I'm just seeing a lot of headlines here on insurance costs. I'm sure you guys have seen the headlines in Florida, but also in Louisiana itself, especially as it relates to catastrophic storms. Can you comment about any potential pressures from an inflationary perspective on your business specifics?

You're talking about insurance specifically, Julien?

Yeah. I mean I was thinking about insurance specifically, obviously, a broader backdrop here, but insurance seems to be getting headlines here outside of the utility space of very late.

Okay, we are not allowed to insure our poles and wires, so that hasn’t been a contributing factor in that area. Like everyone else, we are experiencing overall pressure on insurance premiums, and we are addressing that across all areas, whether it's property, general liability, or others. We are also focused on managing cyber-related issues to ensure we meet our operational and maintenance expectations moving forward. This reflects a broader trend related to inflation. We have observed inflation in fuel costs, which we have discussed. We are collaborating with our stakeholders to manage this in the short term. We believe that fuel is a cyclical commodity, and we expect that the efforts in the oil industry will eventually help lower prices again. Regarding capital costs, we have noted inflation in solar and other materials linked to our capital projects. It's important to remember that while we are facing inflation for our current marginal capital projects, these are being added to a much larger rate base that is already established. Therefore, the impact on customer bills is relatively minor. We are closely monitoring the fuel costs and, as for other operating expenses, we haven’t encountered significant pressure recently, but we remain vigilant and are committed to our continuous improvement initiatives to stay ahead of any challenges.

Got it. It doesn't sound like it's an outsized impact to you all here. It sounds like you guys have it under control. And also it sounds like a pretty good update here at this Analyst Day. So we're going to stay tuned. Thank you, guys.

Thanks, Julien.

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

Good morning. Regarding the resilience plans you've mentioned, last year you talked about having discussions with key stakeholders. Can you provide any updates on how those discussions have progressed? Do you sense any urgency from them on this matter? Any insights would be appreciated.

Thanks, Steve. Good morning. We have just finished analyzing the risk scenarios likely related to storms, and we are currently evaluating the CapEx investment options. What you mentioned is the start of both formal and informal technical and stakeholder discussions, which will begin in earnest tomorrow in New Orleans. The feedback process is just starting, and we will provide more details at Analyst Day. We have already had some informal discussions while initiating our analysis, and there is strong interest in understanding our perspective on the risks and benefits of moving forward more quickly. In the current economic climate, stakeholders, customers, regulators, and others are keenly focused on our thoughts regarding costs and billing implications. We expect to see active involvement from stakeholders as we progress through New Orleans. We believe we will be ready for our first formal submissions by July for the City of New Orleans and the state of Louisiana shortly thereafter. Even in Texas, we have started discussing ideas on how they should consider resilience. Their sense of urgency may differ from that of Louisiana and New Orleans, but they are paying attention, particularly given the importance of our Texas service area in industrial growth and their interest in resilience. In summary, we are just at the beginning stages, but we will have more to share at Analyst Day, Steve.

Okay. So it sounds like at the very least, you'll have better data scenarios for the Analyst Day of what different options are. And obviously, the results will be over time, depending on what customers' states want. Okay. Thank you.

Thank you.

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

Good morning, everyone. I have a question about your awareness of commodity and gas prices. Considering your long-term investment plans, what trajectory do you anticipate for your current build over the next few months? It would be great to focus on that.

Sure, this is Drew. In the near term, it varies by jurisdiction, with Louisiana being a key focus due to the securitization costs. The final pricing of those securitization bonds will influence the costs, which are expected to be around 10% once everything is included in the bills. This estimate also factors in the slight increase in interest rates. Our customers are aware of this and we are addressing it with our stakeholders. Most of the necessary approvals from the commission are already in place, so we're moving forward as planned. Regarding gas prices, their impact on bills is typically swift in Louisiana, Texas, and New Orleans, although some hedging in Mississippi and Louisiana exists, it is minimal. Customers are accustomed to the volatility in gas prices. We are actively working through it with a continuous improvement program and offering levelized billing options to help customers manage their bills and mitigate some of the volatility. Gas prices are currently slightly higher than our previous expectations but remain manageable. As mentioned, the investments we plan to make should help mitigate gas price and inflation risks in the long run.

When you say over time, Drew, you're talking about sort of further out on the curve, right? Can you frame for us what the sort of 2022 impact on sort of top of the securitization might end up being on Louisiana customers, for example?

On 2022, it's going to be part of what I explained earlier because it's not just the overall securitization costs. So maybe about two-thirds of that. There will be about a 5% or 6% increase once those costs are reflected in the bills later this year.

And then I think the commodity piece is incremental to that? Or is that included in that number? I guess my...

No. You're referring to gas prices? Yes. A general guideline is that an increase of about $1 per MMBtu could lead to a 3% to 4% rise in gas prices if that level is maintained over a year. However, we haven't experienced that yet, but that's the general idea.

Thank you for that insight. I would like to ask about another point. When I review your slide detailing progress against guidance in areas like utility operations and maintenance, as well as the interest line and the new parent line, it appears that you are experiencing more pressure than anticipated in the first quarter compared to your projections for the year. I understand that the other taxes component is expected to be more front-end loaded. Is this timing consistent across all areas, or are there certain issues that are accumulating, yet you anticipate that an increase in sales will effectively balance them out? I would appreciate it if you could clarify this for us.

Yeah. Sure. So in terms of O&M, I think in the first quarter, you're talking to the timing elements. We are on track for our expectations for the balance of the year. And in terms of the interest expense element, we are seeing some interest expense that's a little bit higher than we would expect to stick as we go through the course of the year. But there's also some timing elements in that sort of category that we are seeing in the first quarter that will turn back around. So you're not seeing all of the interest expense in the first quarter and it goes away. It actually is going to be building over the balance of the year, but there are some timing elements in the first quarter that will turn around. But I think those are the two things that are going on.

Thank you for that. Good luck. I look forward to the future.

All right. Thank you.

Thank you. Our final question for today comes from the line of James Thalacker from BMO Capital Markets. Your question please.

Hi. Good morning, everyone.

Good morning, James.

Just a real quick clarification just post-Julien's question. With a slightly better sales outlook you guys have, have the drivers related to mix changed materially, Ergo? Is this really being driven more by a more robust C&I sales? Or are you seeing higher demand across all classes despite an increasing trend for return to work at this point?

This is Rod. I think the short answer is it's been actually going the way that we expected. With residential demand trailing off as our residential customers are going back to work, school and kind of a pre-COVID life. And the growth story has been driven by the C&I space that you alluded to. So from our vantage point, we're actually tracking according to plan there with a little bit of robustness in the C&I space, but that's about it.

Okay, that's great. To clarify Jonathan's question, the 10% increase you're mentioning refers to total retail sales in Louisiana, correct?

Yes.

Is there a disparity in the rate design that provides an indication of the potential differences between residential, commercial, and industrial sectors? This might be a bit too detailed at this stage. I can discuss it further offline.

I think Bill can discuss that with you later because I can't provide an answer right now. There is a distinction, of course. A significant portion of distribution costs will primarily impact residential and commercial customers, with less effect on industrial customers.

Okay. Great. I’ll follow up with Bill. Thanks so much.

Thank you. This concludes the question-and-answer session of today's program. I'd like to hand the program back to Bill Abler for any further remarks.

Thank you, Jonathan and thanks to everyone for participating this morning. Our quarterly report on Form 10-Q is due to the SEC on May 5, and provides more details and disclosures about our financial statements. Events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet would be reflected in our financial statements in accordance with generally accepted accounting principles. Also, as a reminder, we maintain a web page as part of Entergy's Investor Relations website called Regulatory and Other Information, which provides key updates of regulatory proceedings and important milestones on our strategic execution. While some of this information may be considered material information, you should not rely exclusively on this page for all relevant company information. And this concludes our call. Thank you very much.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.