Entergy Louisiana, LLC Q3 FY2022 Earnings Call

Good morning and thank you for joining us. We will begin today with comments from Entergy’s 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 has 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. Yesterday, we implemented the leadership succession we announced in August. I am honored to lead this great company, but I am not alone. Leo will serve as Executive Chair for the next few months, and we will maintain our strong execution of our strategic goals. Leo has developed a strong team of leaders. Kimberly Fontan is now our Chief Financial Officer, and Kimberly Cook-Nelson will be the Chief Nuclear Officer. Chris Bakken will take on the role of Executive Vice President of Entergy Infrastructure to guide both Pete Norgeot, recently promoted to Chief Operating Officer, and Kimberly Cook-Nelson as they transition into their top operational roles. With the new senior leadership team established, Entergy has a promising future, and we plan to deliver on our commitments to our key stakeholders. Today, we are reporting strong quarterly adjusted earnings of $2.84 per share, indicating another solid quarter that keeps us on track for the year. With our largest quarter behind us, we are tightening our 2022 guidance by raising the lower end by $0.10 per share and affirming our long-term outlook for 6% to 8% annual growth through 2025. Last week, our Board of Directors increased our quarterly dividend by 6%, bringing the annualized amount to $4.28 per share, in line with our target payout ratio of 60% to 65%. Throughout the quarter, we continued executing important initiatives. Sustainable growth relies on steady regulatory mechanisms. Four of our operating companies have annual formula rate plans to ensure timely recovery of our investments that benefit customers. The FRP filing for Mississippi was approved in July, while the FRP rate changes for Entergy New Orleans and Entergy Louisiana took effect on September 1st. We expect Entergy Arkansas’ annual review to conclude in December. Additionally, Entergy Texas filed a base rate case this year, progressing on schedule with hearings set for December. If not settled, we anticipate a decision in the second quarter of next year. The New Orleans City Council approved a $206 million securitization financing to recover storm costs and replenish Entergy New Orleans’ storm escrow. Although the cost review for Ida is ongoing, advancing the financing will help customers by reducing interest rate risk. Louisiana is also reviewing Ida costs, and supportive testimony has been filed, recommending full cost recovery. Hearings are scheduled for December, and we expect to see securitization funds early next year. These steps are crucial for restoring our credit metrics to targeted levels. In September, we received a recommendation from an administrative law judge regarding our proposed Orange County Advanced Power Station. The judges expressed support for the project, recognizing the significant economic and reliability benefits it would bring. While the judges did not recommend the hydrogen capability for the plant, we still believe it is in our customers' best interests. The Governor of Texas has indicated his support for the plant and its hydrogen capability. The proposed hydrogen capability represents less than 5% of the total investment and offers a critical option for fuel diversity, ensuring the plant’s value in a low carbon future. Moreover, the development of a hydrogen economy is moving closer, especially with the Inflation Reduction Act, which will enhance hydrogen economics and accelerate clean hydrogen production. Entergy's region is poised to capitalize on this opportunity, and we believe the Gulf Coast will drive job creation and economic benefits in our communities. The decision regarding Orange County will ultimately lie with the commission, scheduled for discussion at tomorrow's meeting. If approved, OCAPS will be our first unit capable of using up to 30% hydrogen from the outset, with plans to eventually operate on 100% hydrogen. The Gulf region remains a prime area for growth opportunities. As we highlighted at Analyst Day, our industrial customers hold numerous inherent advantages that position them as low-cost producers globally, further heightened by recent supply chain and geopolitical developments. Important commodity spreads for our customers remain favorable and continue to support the outlooks shared at Analyst Day. We are seeing significant project announcements in our service area. For instance, Entergy Texas and New Fortress Energy have signed an MOU for renewable energy and hydrogen infrastructure development, promoting the green hydrogen economy in Southeast Texas. New Fortress Energy’s initiative will utilize advanced electrolysis technology from Plug Power to produce over 50 tons of green hydrogen daily. Entergy Texas will provide 120 megawatts of green power for this facility, expected to be one of North America's largest of its kind. In Louisiana, Olin and Plug Power announced plans for a 15-ton per day green hydrogen production facility. These projects exemplify the development of the hydrogen economy in our service area. CF Industries has also announced a $2 billion carbon capture ammonia complex in Ascension Parish, expected to create more than 400 jobs, showcasing further customer growth associated with decarbonization. We have made significant progress over the past few months and are closely monitoring the substantial pipeline of opportunities for effects stemming from broader economic uncertainty, but we have not observed a noticeable slowdown. As reiterated at Analyst Day, the fundamentals of our region position the Gulf Coast well for significant growth, even amid economic challenges. We are also advancing our renewable energy initiatives. We received approval for a 250-megawatt solar acquisition in Arkansas, which will be constructed near U.S. Steel’s expansion in Osceola, due for completion in 2024. U.S. Steel will benefit from the facility’s clean energy attributes, demonstrating our collaboration with our customers and regulators to promote growth, job creation, and sustainability. In September, the Louisiana Commission approved four solar projects totaling 475 megawatts and also adopted our new Geaux Green tariff, which took reservations from large commercial and industrial customers yesterday. Based on current inquiries, we anticipated strong demand. All 365 megawatts available under the tariff were fully reserved within minutes, reflecting an overwhelming appetite for sustainability solutions. We have also initiated plans for two new renewable RFPs, with Entergy Texas seeking 2,000 megawatts of clean energy, and Entergy Mississippi looking for 500 megawatts. Overall, we have eight active RFPs totaling 7,000 megawatts, with selections made in four, currently negotiating with counterparties, and we will reveal specific projects once agreements are finalized. In addition to clean energy, resilience is paramount for our customers relying increasingly on dependable electricity supply. Since Hurricane Ida, we have invested in new infrastructure built to higher standards to enhance the system’s resilience, including over 22,000 distribution poles, 2,200 transmission structures, and eight fuel stations. Our ongoing resilience investments are a key component of our base plan, which includes continual system upgrades. At Analyst Day, we outlined our $15 billion 10-year accelerated resilience plan. We expect our proposed investments to greatly diminish physical and financial storm risk, and we are actively engaging with stakeholders to make our case. We’ve made our initial filing in New Orleans and plan additional filings in Louisiana before the year's end and in Texas by mid-next year. Our accelerated resilience plan is heavily influenced by our Florida neighbors, recognising the effectiveness of their hardened assets in Hurricane Ian, along with the successful performance of our own hardened infrastructure in recent years, lending us confidence in significantly reducing our storm exposure while providing substantial benefits to customers. Affordability remains a central focus, and we introduced multiple initiatives last quarter to assist our customers facing higher bills from increased temperatures and elevated natural gas prices. Through our recent affordability initiatives, we have aided over 35,000 customers with more than $5 million in bill credits. We have hosted energy fairs in 48 communities to provide helpful information on bill management and energy efficiency benefits. We have also weatherized many low-income households and installed energy-efficient appliances, including heat pumps and tankless water heaters. These efforts are just a part of our commitment to addressing affordability issues. Many of our previous actions have helped mitigate the current impacts of high natural gas prices for our customers. Our investments over the last eight years in more efficient generation and renewable resources are approximating $400 million in fuel cost reductions based on 2022 gas prices. Our nearly decade-long participation in MISO has brought customer savings exceeding $2 billion up until 2021. Supporting economic development and growth in our service areas further contributes to customer affordability, as it not only disperses fixed costs across a growing customer base but also generates economic growth and jobs essential for our communities. Another strategy for enhancing affordability is relentless pursuit of improvement. We are leveraging continuous improvement to discover efficiencies that counteract inflationary pressures and create space for new investments benefiting customers. We have a compelling growth story at Entergy. We are observing significant industrial growth as the economic indicators for businesses in the Gulf South remain promising. This growth represents not only opportunities for investment and returns for our owners but is also vital for our communities, particularly in today's economic landscape. This opportunity is unique to Entergy and will yield benefits for all our key stakeholders. We anticipate continued growth as our customers seek our assistance in achieving their decarbonization objectives. This journey begins with increasing our clean energy capacity, which will lower indirect emissions, and extends to the electrification of industrial processes to curtail direct emissions. We are enthusiastic about our short-term and long-term prospects and look forward to engaging further at the EEI financial conference in a few weeks. Before concluding, I want to say a few words about Leo Denault. He retired as our Chief Executive Officer yesterday after a commendable career. While we may not see him daily, the effects of his unwavering commitment to our four key stakeholders will endure. Under Leo's guidance, we streamlined our business into core utilities, revamped our nuclear operations, refocused on our customers, broadened our ESG commitments, emphasized diversity, inclusion, and belonging as a pillar, and established ourselves as a leader in corporate citizenship. We navigated through recent challenges such as the pandemic and storms without losing momentum and clarified our vision for future opportunities. Over his distinguished career, Leo participated in 74 earnings calls over 19 years, providing steadfast support for our key stakeholders. He will continue to work with us as Executive Chairman for the next several months as we advance the vision and strategy he established. I would like to introduce our new Chief Financial Officer, Kimberly Fontan. Kimberly most recently held the position of Chief Accounting Officer and has also garnered senior leadership experience in operations and regulatory roles. Her broad expertise and perspective make her a valuable addition to Entergy’s senior leadership team. Now, I will hand the call over to Kimberly Fontan, our Chief Financial Officer.

Thank you, Drew, for that introduction. I am honored to join the leadership team and I am pleased to join you all on the call today. I am looking forward to working with all of you in the financial community. As Drew said, we have had another strong quarter, with results to keep us on track to meet our financial commitments. Summarized on slide three, our adjusted earnings were $2.84 per share. Consistent with comments on guidance last quarter, we are narrowing our guidance range by raising the bottom end $0.10. This result is consistent with our objective of steady, predictable earnings growth. We are also affirming our outlooks through 2025. On slide four, you will see the adjusted EPS drivers for the quarter; higher retail sales was the primary driver as last year was impacted by Hurricane Ida. Weather this year was also warmer than normal. Excluding weather, sales growth in the quarter was 5.7%. Industrial sales were up 7%. We continue to see growth from new and expansion projects in line with our expectations. The primary contributors to the industrial growth were chlor-alkali and transportation customers. Sales to small industrial and combined heat and power customers were also higher than last year. O&M increased for the quarter due to several factors. Power delivery expenses increased, including higher vegetation costs in part driven by inflation. We also had increased costs for transmission maintenance and nuclear operations. Bad debt expense rose on the heels of higher bills this past summer. Other drivers for the quarter results include higher depreciation and interest expense from investments we continue to make to serve customers. You can see on slides five and six that the fundamentals underlying our industrial sales and growth remained strong and we have not seen signs of a pullback. Industrial commodity spreads continued to support positive margins and robust Gulf Coast operational levels; refining remains highly profitable with low product inventory supporting high operational rates; record commodity spreads continue to drive Gulf LNG exports to Europe today and expansion of this capacity in the future. The U.S. Gulf ammonia producers are running at high rates to help fill the global supply gap. Beyond supportive commodity spreads, the Gulf Coast region continues to offer industrial customers inherent labor, infrastructure, and global shipping advantages. And as we discussed at Analyst Day, this next wave of our industrial growth is being accelerated due to onshoring trends. These trends are caused by broken supply chains globally, manufacturers needing reduced geopolitical investment risk, as well as global customers who need energy security. The results for EWC are summarized on slide seven. The shutdown and sale of our merchant nuclear plants continue to be the main drivers for that business. Operating cash flow is shown on slide eight. The quarter’s result is $993 million, a decline compared to last year. Key variances, including the timing of fuel and purchase power payments, the wind-down of EWC, and increased O&M, offset partially by higher utility customer receipts. Turning to credit and liquidity on slide nine, we continue to work towards achieving in-range or better credit metrics by the end of 2023. We continue to monitor our deferred fuel position, and in the third quarter, our balance increased approximately $150 million. We continue to work with our retail regulators to manage the impact of high fuel costs on customer bills. The forward curve for natural gas continues to decline, which helps with customer bills as well. As deferred fuel balances are recovered, our credit metrics should improve. We continue to make progress on the securitization front. A credit positive development in the quarter was the City Council’s approval for Entergy New Orleans to issue securitization bonds to establish a new storm reserve and recover Ida storm costs. This, of course, is subject to the City Council’s prudence review. Last quarter, we gave our early take on the impact of the Inflation Reduction Act for our customers and for Entergy’s cash and credit position. After additional analysis, we continue to be optimistic about the benefits from this legislation. Slide 10 provides highlights on the cash and credit impacts of the IRA. One important note is that we do not expect to be subject to the minimum tax provisions until 2026. The chart illustrates the relationship between gas and power prices and the resulting nuclear production tax credits at various commodity prices. We expect to see meaningful value for our customers, though, as you can see, the value is dependent on volatile commodity prices. We will work with our retail regulators to flow the value of the production tax credits to customers in a manner that mitigates volatility on their bills. We see meaningful value from the solar PTCs as well. The PTCs increased competitiveness of utility-owned solar. The value for customers will increase over time as we grow our renewables portfolio. We remain encouraged about the prospects for the IRA to create value for our key stakeholders. Slide 11 summarizes the progress against our equity plan. To date, of the $1.2 billion expected need through 2024, we have issued nearly $1.1 billion, most of which are equity forwards. We plan to exercise the equity forward and receive the cash proceeds by the end of the year. Moving to slide 12, given the added clarity from three quarters of actuals, we are narrowing our adjusted EPS guidance range and affirming our long-term 6% to 8% growth outlook through 2025. For the full year, we once again raised our expectation on sales growth. This is largely due to higher than planned sales to cogeneration customers. While a positive for 2022 going forward, we will continue to plan conservatively for this customer group as electric demand from these customers varies. Commercial sales also have been higher than we expected, a positive sign for economic health. The higher than planned revenue from weather and sales gives us the ability to spend in areas that benefit our customers and de-risk future periods. Our O&M estimate for the year reflects flex spending, including initiatives to improve customer call response times and the enhanced customer assistance programs that we have discussed. We are also able to absorb some higher than expected expenses like vegetation management and ammonia used to reduce NOX emissions at our power generation plants without having to reduce other costs. Actions like these help us ensure that we deliver steady, predictable adjusted EPS growth year in and year out. The Entergy management team will be in Florida in less than two weeks and we will provide our preliminary three-year capital plan and high-level drivers for 2023’s earnings expectations. Additionally, we will discuss Entergy’s long-term growth story, including our unique industrial growth opportunity, our accelerated resilience program, renewables expansion, IRA opportunities, and our role in the hydrogen economy. Entergy has great opportunities ahead for our key stakeholders. We have a strong base plan to meet our strategic objectives, and we look forward to talking to you about our plans at EEI. And now the Entergy team is available to answer questions.

Thanks. And our first question comes from Jeremy Tonet from JPMorgan. Your question please.

Hi. Good morning.

Good morning, Jeremy.

Thanks. Just want to start off with the 2,500 megawatts add in RFPs. Just what is your expectation for utility-owned opportunities there versus PPAs?

Hey. Thanks for the question, Jeremy. Good question. Our current expectation is at least 50% or better from an owned perspective and that’s what’s assumed in our outlook.

And does...

It’s consistent with where we were. Sorry, Jeremy, this is Drew. It’s consistent with where we were at Analyst Day.

Got it. Does IRA present the opportunity that this could be a bit higher?

Sure. That’s certainly something that we are looking at. Recall that a lot of our investments on renewables are in the back half of the decade. So we certainly expect to see benefits from IRA in that period and we will talk more about that at Analyst Day. But we do think that the IRA provides upside, as well as reducing the need for tax equity partnerships on that front.

Got it. That’s helpful. And just if I could ask about U.S. Gulf Coast industrial activity expansion, just wondering what cadence do you see for that growth as far as LNG export capacity and other factors? What time frame do you see that ramping up and how do you think about the secondary impact where you bring kind of more and better jobs into the area and what that does for your residential customers?

Sure, that's a great question. This is Drew. I'll begin and then Kimberly or Rod can elaborate. What we discussed at Analyst Day was a 6% compound annual growth over the next five years, with a significant portion of that, around 24%, being the largest increase in our forecast. However, it remains consistent with what we previously outlined and we expect it to remain strong. Regarding jobs, this will certainly benefit our local employment and help our residential and commercial customer bases to expand. To be honest, the job market is not as robust as it was 30 years ago due to the level of automation and other advancements in modern industrial facilities. Still, this presents us with opportunities to enhance our competitiveness on a global scale. There are trade-offs to consider, but these factors contribute to the attractiveness of our region. Rod, do you want to add anything?

No. I think that makes the point. The message we sent at Analyst Day around the back half of the decade, representing the lion’s share of the growth, and even at Analyst Day, we showed what sectors we thought would populate that growth as well, tying in our industrial expansion with the electrification and ESG concerns of our customers. So we ought to leave it at that.

Okay.

Got it. That’s helpful. I will leave it there. Thanks.

Thanks, Jeremy.

Thank you. One moment for our next question. Our next question comes from the line of Shar Pourreza from Guggenheim. Your question please.

Hey, guys. Good morning.

Good morning, Shar.

Drew, maybe just starting off around your earnings guidance, just, I guess, looking at your O&M run rate increase and interest rate headwinds for 2023, how are you sort of thinking about the contingency and plan levers on offset, etcetera? I guess how does sort of this inflationary environment kind of change your planning parameters versus the Analyst Day expectations, especially as we are looking to bridge into next year with a sort of a $0.30 band at the top and bottom end?

Thank you for the question. I'll begin with your inquiry about O&M. The factors influencing 2022 were primarily our flexible strategies, which encompass both pull-forwards and one-time initiatives such as the enhanced customer assistance program we discussed earlier this year. The pull-forwards allowed us to advance certain elements from future years and mitigate risks in later periods. Another factor affecting 2022 was inflation, which we managed through increased weather and volume in the first three quarters. In light of this, we have accounted for inflation in our 2023 forecast and we believe we will achieve our outlook, supported by continuous improvement initiatives we are pursuing. Regarding your question on interest rates, the forecast at Analyst Day was around 5% to 5.25%. We have since adjusted the interest expense to just under 6% for long-term debt and about 5.25% for short-term debt, which is factored into our outlook. However, our treasury team has worked diligently over the past few years to lessen our exposure to potential rising interest rates by refinancing long-term debt during periods of lower rates to aid us in future terms.

Got it.

And Shar, I will just add one thing on that last piece. We have a lot of cash expected to come in. Kimberly mentioned that we are intending to exercise the equity forwards and then we have the securitizations, which we should be finishing up over the next several months. Those two things should alleviate some borrowing needs in the next near-term, I should say.

Okay. Perfect. And then just to ask, maybe just shifting to financing, I mean, obviously, your capital growth opportunities are increasing with resiliency, hardening, green tariffs, etcetera. I guess, how are you sort of thinking about more accretive ways to finance this growth in this current really challenging capital markets environment. I mean, there’s been some press sort of highlighting that you could be looking to raise about $2 billion through a minority sale of your utilities combined into a holding company, excluding Texas. I guess any sort of general comments here, any sense on timing, is there a process that started? I mean you certainly won’t be the first utility that’s looking to optimize an asset in lieu of traditional financing?

Yeah. So I will hand this over to Kimberly to address it first.

Yeah. Thanks, Shar. There’s no new news on this front. I know we had talked to you about the value difference between private capital and public capital markets, and to the extent that we can capitalize on that, and there’s a difference there, we would be compelled to do that. But there’s no new news on that front at this point.

Okay. Got it. Figured this is Drew’s first CEO call, I was going to try to put him on the spot. Thanks, guys.

And I hand it to Kimberly very softly.

But give you the flex. You did perfectly. Thanks.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of David Arcaro from Morgan Stanley. Your question please.

Hey. Good morning. Thanks very much for taking my question.

Good morning.

On the AMT, I just wanted to check, how much of an impact are you expecting once we reach 2026? I think you had in one of the slides in terms of when the corporate AMT would start impacting the business. And I was wondering in the interim over the next couple of years, just given that same slide, slide 10, we are currently seeing Henry Hub forward prices kind of in the 450 range or above over the next few years. Is there an AMT impact at all in like 2024, 2025 that’s offset by the nuclear PTC level? I am wondering if you could just compare those two impacts.

Sure. Good question. As the slide indicates, we don’t expect the corporate minimum tax until 2026. That’s not being offset in 2024, 2025. If you think about how that’s being calculated, it’s a 3-year historical average and then we can replace book with tax depreciation. So that enables us to not expect to have a minimum tax until 2026. That said, to your point on the graph on the right, we do think that we have significant opportunity on the nuclear PTCs. But it is dependent on the gas and power prices and where those are at the time. But those do start coming in, in 2023 and 2024 and so we would expect those to come in earlier than that corporate minimum tax. And we will work with our regulators to provide benefits to our customers, but also offset the effects of that corporate minimum tax when we do have exposure to that.

Okay. Great. Thanks. That’s helpful. And then on the upcoming Louisiana Resilience filing, I was just wondering if there’s any feedback or initial conversations from relevant stakeholders in the state around the importance, the priority of kicking off this work and what the appetite might be?

Hi, it’s Rod. The quick response is that the stakeholders in Louisiana have shown a keen interest in resiliency. They recognize the demand following several discussions on reliability and resiliency. The commission is always focused on how we approach this and, given the current economic sensitivities, how it will affect customer bills. As mentioned in Drew’s opening comments, it’s apparent that the insights we’ve gained from NextEra underscore the work we’re doing to align on the necessity for increased resiliency spending. Ultimately, the decision will come through the resiliency filing when the LPSC establishes a procedural schedule. The research we’ve conducted, including the recent lessons from Florida, supports our strong belief in the need for this initiative. While we cannot disclose details in advance or get ahead of our regulators, we feel confident that we’re making good progress in aligning with our stakeholder group.

Okay. Great. Thanks so much.

Thanks, Dave.

Thank you. One moment for our next question. And our next question comes from the line of Durgesh Chopra from Evercore ISI. Your question please.

Hey, team. Good morning and congrats Drew your first call and Kimberly to you as well.

Thank you.

Thank you.

Yes. Of course. All my other questions have been answered. I was just wondering if you could update if there’s an update to share on the SERI settlement. I know you had this settlement with Mississippi, but anything there that we should focus on as we get into the year-end or next step there?

It’s Rod again. No new news that I can communicate publicly. I can share affirmatively that we are actively engaged with relevant stakeholders and trying to contact a settlement and find common ground and I can only report that, that work is ongoing, but nothing public.

Okay. That’s helpful, guys. Thank you.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Paul Zimbardo from Bank of America. Your question please.

Hi. Good morning. Thank you.

Good morning, Paul.

If I could just follow up on Shar’s question a little bit and thanks for the details on the O&M. If you could just break down that, I believe it’s $0.60 higher than the original guidance, basically how much is that acceleration versus more the inflation and kind of organic pieces of that?

Good question. There are several factors at play, including pull-forwards and items related to inflation. It’s difficult to pinpoint an exact figure. From an inflation standpoint, we're noticing impacts mainly in fuel and chemical costs, as well as capital expenses, while the labor market effects are less pronounced. We have factored in a consistent level of inflation. Additionally, we have often mentioned the importance of being flexible in response to opportunities from weather, volume changes, or other business dynamics. That’s what we’re currently acting on, finding chances to invest where we can best support our customers and stakeholders.

Yeah. And Paul, this is Drew. I will add that the inflation effects, they are touching us. We are not immune to that, like, the rest of the industry. The places where we are seeing it start to creep in on the labor side or Kimberly mentioned the commodity type effects. And so we are also seeing what I would say in commodity services area. So vegetation is a big area where we have seen inflation and so we have been ramping up, as you mentioned, our continuous improvement efforts to offset that, because the inflation piece doesn’t go away easily, and so there are continuous improvement efforts ramping up to offset that over the next however long we need it. And we are finding actually good success in the offset. So we are very comfortable that we are going to be able to manage through the inflation effects that we have seen so far.

Okay. Great. Understand there. And staying on the hot topic of inflation, just as you think about the next Arkansas FRP filing, do you think that this is probably another one that’s going to be at the rate change cap or do you think you can manage a little bit below that level?

We have been working in the Arkansas area. The continuous improvement will help us reduce costs in that space. We certainly monitor to ensure that we stay under the caps, managing affordability for customers while also creating value for all our stakeholders. We believe we will continue to manage inflation with ongoing improvements. The specific number we plan to file in Arkansas next year is still being developed, but it will definitely take inflation into account.

And we are a little over the cap for what’s coming for the formula plan this year. So we are above the cap already there.

Yeah. Yeah. Okay. Understood. Thank you both and see you soon.

All right. Thanks, Paul.

Thank you. One moment for our next question. And our next question comes from the line of Michael Lapides from Goldman Sachs. Your question please.

Hey, guys. Thank you for taking my question, and again, congrats, not just to Drew and Kimberly, but obviously, Leo. It has been a long time since coming over from Indiana. I have a couple of easy questions. One is your demand growth, especially on the C&I side, has been really, really healthy, not just this year but last couple of years, and this quarter, we saw a turn in residential demand growth. You have proposed Orange County in Texas, but just curious, even though you are adding a lot of renewable in lots of the jurisdictions, what your thoughts are around in some of the other jurisdictions to any need for any more conventional generation?

Yeah.

We do plan for the long term and are focused on growth, monitoring the growth that’s taking place. Our plans involve significant investments in renewable energy, with an expectation of adding between 14 to 17 gigawatt hours over the longer term. We will incorporate baseload generation and smaller units as needed to maintain reliability and meet customer needs. In the near term, the Orange County project is our focus.

Orange County serves as an example of how we plan to incorporate hydrogen capabilities in response to the long-term need for a transition to clean energy driven by our customers' demands. In the short term, we don’t require additional capacity to offset current needs. However, if energy demand increases, we will definitely need to reevaluate that. Currently, we anticipate the need for additional capacity towards the end of this decade, whether through some form of storage or by transitioning natural gas to hydrogen in the long run.

Got it. And then one related follow-up, there are many positive developments happening in Louisiana. The securitization appears to be progressing well, though we haven't completed the final steps. It will be interesting to observe the grid resiliency docket. Could you remind us of your revenue request for the formula rate plan compared to what has been authorized in that plan? Additionally, how are you considering bringing Louisiana closer to achieving the authorized rates of return?

Yeah. So you are referring to the fact that we have sort of been at the bottom of our band in the formula rate plan. Is that what you are referencing, Michael?

Either the bottom...

We are actively collaborating with retail regulators to explore options for more efficient recovery, especially as we increase our focus on resilience. In our resilience filing, we've requested more up-to-date cost recovery. We've implemented more efficient riders for transmission and distribution investments in Louisiana, which we will need to extend. These are the types of tools we are utilizing to address the delays we've observed in Louisiana specifically.

So if I look at your EPS guidance over the next couple of years, does this assume that Louisiana at some point in that timeframe that it kind of how far out gets closer to the midpoint of the range?

It appears that next year will be the final year for the FRP, and we will need to pursue either a new rate case or a renewal of that FRP. We will collaborate with the commission to achieve outcomes that align with our business needs, which is what we are planning for in our outlook.

Meaning your outlook assumes you are not at the low end of the band, you are back towards the middle or does it assume kind of what you have delivered over the last couple of years?

I think I’d have to look specifically at what it assumes, but it certainly assumes that we work constructively with our regulator in order to move us further up in that band.

And I don’t think it’s assuming...

Makes sense.

We are assuming that we have the existing mechanisms in place. But we will need to get better mechanisms in order to hit all of the financial targets that we need to hit, particularly the credit metrics that we are targeting going forward.

Understood and thank you. A lot of things improving in Louisiana over the last five years to seven years in terms of regulation and look forward to seeing this on a go-forward basis as well. Thanks, Drew.

Thank you, Michael.

Thank you. One moment for our next question. And our next question comes from the line of Ross Fowler from UBS. Your question please.

Good morning, Drew. Good morning, Kimberly. How are you?

Good morning.

Congratulations on the official new roles, I guess, as of yesterday. Most of my questions have been asked, but just a couple for me. So going back to Rod’s comments on the Louisiana resiliency filing and lessons learned from Hurricane Ian. I guess one of the lessons learned was the system did very well. But there were parts of it, obviously, that didn’t perform as well and there’s been some discussions, I guess, in Florida around undergrounding those portions of the system that are higher risk. Has that entered sort of the conversation in Louisiana yet or can you provide some color or context around that?

Sure. It’s Rod again. The short answer is yes. All of the above is part of the analysis. You wouldn’t be surprised to hear us say that we expect the conversation to focus on cost benefit and risk reward. When considering the risk associated with high winds versus high water, the impact varies depending on the specific area of the region. In Louisiana, they are certainly factoring in the advantages of undergrounding, which has historically resulted in lower outage frequencies with underground facilities. However, when disruptions do occur, the duration of these outages tends to be longer, especially after overcoming the initial high costs associated with undergrounding, which has often been prohibitive in our service territory. What’s different now, buoyed by recent storm experiences, along with potential cost improvements and benefits of undergrounding, is that it has become part of the ongoing discussion.

All right. That’s fantastic. Thank you. And then maybe one just on LNG expansion. We have seen some softening in LNG prices. I think that probably has more to do with weather in Europe than anything else. But I know it’s days, are you still seeing a lot of interest there; obviously, you touched on this a little bit, but what interest specifically are you seeing around maybe use of electric drives for future projects and putting renewable energy into those electric drives to the extent possible to sort of make the profile of future projects green.

Yeah. Yeah. It’s at the core of most of the conversations we are actually having with our LNG customers. We noted the recent earnings call for Energy Transfer on the Lake Charles LNG project where they are spending the gamut in consideration of the electric drives, gas compression, as well as a carbon capture. But across the landscape, we are seeing the expected acceleration of development of the LNG projects in the service territory. And we remain bullish as are our customers, notwithstanding the current economic environment. I think Drew alluded to some of the structural benefits or advantages that those customers have, and that’s continuing to show up, not just in the expansion, but also in the ESG components of the LNG expansion as well.

I will just add that the trend towards LNG with electric drives and cleaner products is not exclusive to LNG. We are observing this in other industrial processes where companies, particularly those constructing new facilities, are aiming to electrify as much as possible. Some existing facilities are also transitioning to electric. Anyone involved in new projects, whether in metals, LNG, petrochemicals, or other areas, is exploring ways to electrify industrial processes that would typically rely on fossil fuels. This is an ongoing trend across a wide range of industrial processes.

Yeah. That’s fantastic, Drew. Thank you and see you all in a couple of weeks.

Great. Thanks, Ross.

Thank you. One moment for our next question. And our final question for today comes from the line of Sophie Karp from KeyBanc. Your question please.

Hi. Good morning and thank you for taking my questions. I wanted to revisit the topic of SERI from a different perspective, as it's now just three or four slides in your presentation. Have you considered a more strategic approach to the situation regarding these assets, rather than addressing the dockets individually? Is there a potential overarching regulatory solution, or perhaps a global settlement that you could share?

Sure. Sophie, this is Drew. I'll address that. Certainly, regarding the settlements mentioned by Rod, we are engaged in discussions with others to explore the possibility of a global resolution. Before our current work at FERC and throughout various proceedings, we experienced a long period without significant litigation concerning SERI. I anticipate that once we navigate through this, things will revert to that more stable condition. We will have to see. A strategic alternative is definitely something we consider, but we won't have options in that regard until we conclude the ongoing litigated settlement. If we can move past the litigation, we could contemplate that, but returning to a normal run rate doesn’t seem like the optimal choice for us. We need to wait and see how this unfolds, but until we finish the current discussions at FERC, we won't be able to proceed on any strategic initiatives.

All right. Thanks for the color. That’s all for me.

Thank you.

Thank you. This does conclude 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 thank you all for joining us this morning. Our quarterly report on Form 10-Q is scheduled for submission to the SEC on November 9th and will provide further details and disclosures regarding our financial statements. Any events that happen before our 10-Q filing that offer additional evidence of conditions existing at the date of the balance sheet will be reflected in our financial statements in accordance with generally accepted accounting principles. Additionally, we have a dedicated section on Entergy’s Investor Relations website called Regulatory and Other Information, which gives important updates on regulatory proceedings and significant milestones in our strategic execution. While some of the information available there may be material, please do not rely solely on this page for all relevant company information. That 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.