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

Good morning, and thank you for joining us. We will begin today with comments from Entergy's Chairman and CEO, Leo Denault, and then Drew Marsh, our CFO, will review results. In an effort to accommodate everyone who has questions, we request that each person ask no more than one question and one follow-up. In today's call, management will make certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation, and our SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. I would also point out that our initial earnings release this morning contained a clerical error relating to the March 31, 2020 balance sheet, and we have since posted a corrected version of the release on our website. And now I will turn the call over to Leo.

Thanks, David, and good morning, everyone. We appreciate you all joining our call today, and I hope that you and your families are well. The past few months have presented extraordinary circumstances that have been difficult for everyone around the world, so many have stepped up to the plate to help people, communities, and our country in this time of need, and we truly appreciate all of their efforts. Providing safe and reliable power is essential, especially during times like these. That's why at Entergy, we plan and prepare for extraordinary events. Our robust, comprehensive, tried and tested incident response plan contemplates many scenarios, including storms, cyber attacks, emergency leadership succession, and pandemics. To ensure preparedness, we run drills routinely so that everyone knows their roles and responsibilities, and when activated, the plan runs smoothly. In 2007, we developed our pandemic response plan specifically to address events like the one we are facing today. For COVID-19, we mobilized our teams on January 16th, very early on. Our focus has been on four primary objectives: ensuring the safety and wellness of our employees, maintaining safe, reliable service for our customers, mitigating financial impacts, and ensuring our ability to continue to plan for the future. Informed by lessons learned from these events, not only challenges to normal operations but also improvements that can be made, our response is working as designed. We are meeting the needs and expectations of our customers and communities. Our major projects remain on track and our capital plan is unchanged. The actions of our employees in the midst of this pandemic have been exemplary. They have shown once again their dedication and resilience to work through hurdles to safely keep the power and gas flowing for our customers. I cannot express how proud I am of our Entergy family. Entergy has a critical role to play, and this is the time that we must step forward, not back. Our customers and communities are depending on us more than ever to power their homes, as many work remotely or have responsibilities to care for children and loved ones at home. Businesses like grocery stores and pharmacies require reliable power to continue to operate and address essential needs, and our healthcare workers are relying on us to keep hospitals, clinics, and care facilities powered. In short, the services we provide are vital to helping our customers, our communities, our families, and our neighbors successfully manage this crisis. It's a great responsibility that we do not take lightly. Our capital investment plan is also a critical component for our economy and our communities. Our plan is designed to benefit our customers while also creating jobs and stimulating the economies in the states where we operate. We have taken specific actions for each of our stakeholders. For employees still working at plants and in the field, we've implemented preventative measures, so they can focus on safety on and off the job. We're suspending disconnects for customers, which is important during times when many may not have a steady income. We are talking with regulators about the importance of keeping our capital plan on track to preserve the reliability and economic benefits for our customers and our communities. And we're talking to our largest customers to understand the issues they face and to determine how we can support them. Our supply chain team is working diligently with suppliers to ensure we have what we need to keep our operations and major projects on track. We're also working with regulators to support the timely resolution of both special and routine matters. We have received accounting orders to defer costs associated with COVID-19 in four of our jurisdictions, and we expect to receive a similar order for Entergy New Orleans in the near future. We're grateful for the leadership and partnership that our commissions have demonstrated. We are also supporting our communities through a COVID-19 Response Fund. Our charitable foundation, employees, and executive team have already committed more than $1.3 million to help community nonprofits and qualifying customers who are struggling with the financial impact of the pandemic. Looking ahead, uncertainty remains as to the depth and length of this pandemic. But today, we are affirming our guidance and outlooks as we see a path to achieve those results. The foundation that supports the strength and sustainability of our business remains in place. We have among the lowest retail rates in the country. Our capital plan benefits our customers and our local economies. We have constructive and progressive regulatory mechanisms. We are a leader in key measures of sustainability with one of the cleanest large-scale generation fleets. While we have seen some recent slowdown in industrial activity, our industrial base is among the most economically advantaged in the world, and we expect they will lead the recovery in their respective industries. The foundation that we've established over time remains firm, and we are committed to our objectives and our resolve to be the premier utility. This is what makes Entergy a compelling long-term investment. In April, our Board of Directors declared a quarterly dividend as planned. As part of that decision, the board considered our response to the current situation, scenario analysis regarding future uncertainty, and the strength of our business going forward. We are committed to creating sustainable value for all of our stakeholders, including our owners, and the dividend declaration is consistent with that objective. Now I'll turn to our strategic execution. Today, we're reporting solid first quarter adjusted earnings per share of $1.14. While the pandemic has affected the way we do business, it hasn't stopped us from making progress against our key deliverables. We placed Lake Charles Power Station in service in March, well ahead of schedule and on budget. This new resource is another milestone in our portfolio transformation strategy to replace older generation with cleaner, more efficient assets, and it will provide important benefits to our customers. We've also made good progress at New Orleans Power Station. Commissioning of the plant is in progress, and we recently synchronized the units to the grid for the first time. We expect that project to come online in June. Our other major generation projects remain on track. We are not experiencing any significant equipment or staffing issues. This is a testament to the experience of our capital projects management team and the strength of our relationships with our suppliers and contractors. We continue to deploy automated meters as planned. We are more than one-third of the way through our AMI project with 1.3 million meters installed. We are leveraging the data from these meters to understand changes in usage among our various customer segments. In April, we received approval for Sunflower Solar in Mississippi and Searcy Solar in Arkansas. These 100 megawatt resources will be the largest utility solar projects in their states. Large-scale solar facilities provide the most cost-effective solar power for all customers, keeping rates low while delivering the best value for renewable energy. Both facilities are expected to be in service in 2021. As part of our firm commitment to provide our customers with greater renewable power options, we expect to meet even more of our supply planning needs with renewables as technology and economics continue to improve. Since our last earnings call, we announced two new requests for proposals for generation assets. Entergy Texas is seeking proposals for a 1,000 to 1,200 megawatt combined cycle gas turbine in mid-2025 to mid-2026. Entergy Texas will include a self-build option, and submissions are due in August. Entergy Louisiana is seeking 250 megawatts of new build solar resources. The RFP will accept proposals for owned and contracted projects with target service dates of no later than the end of 2023. We continue to implement rate changes through our formula rate plans and riders. New rates were recently implemented in Mississippi, and these included a new vegetation management rider. In Texas, we filed a new distribution rider. Entergy Louisiana plans to request renewal or extension of its formula rate plan, and we will make our annual FRP filing in Arkansas this coming July. In April, we received an initial decision from the administrative law judge in one of system energy's open dockets at FERC. I won't go through all the details; feel free to call David if you need additional explanations. The bottom line is that we disagree with much of the initial decision, and we believe that it incorrectly seeks to resolve important policy issues that FERC ultimately must opine on. The actions we've taken create significant benefits for our retail customers, and we feel strongly that our positions on the law and the facts are correct. We will file our brief on exceptions in June, asking FERC to reject the adverse rulings in the initial decision, and we look forward to the FERC’s review. There is no mandated deadline for the commission's decision. At EWC, Indian Point Unit 2 was shut down on April 30th. This milestone brings us one step closer to fully exiting the merchant business. We remain committed to our employees, and all qualified employees who are willing to relocate have been offered positions. We look forward to them starting the next phase of their careers with us. As you can see, it's already been a very active and productive start to the year. COVID-19 is a global pandemic that is affecting lives around the world. At Entergy, we activated our response plan early, which positions us well to face the challenges head-on. We were prepared and we will remain diligent, focused, and flexible to ensure we make the right decisions at the right times to mitigate the impacts as best we can. While uncertainty remains for all of us, we've made progress against our key strategic deliverables while meeting the needs and expectations of our customers and communities in this critical time. Our major projects remain on track. Our capital plan is unchanged. And the foundation that supports the long-term strength of our business and makes Entergy a compelling investment remains in place. We are stepping forward, not back, to be leaders in our communities at a time when they need us the most. Recent events have not changed our objectives to create sustainable value for our stakeholders or weakened our resolve to be the premier utility that can deliver on its commitments through economic cycles. Before I turn it over to Drew, I encourage you to read our recently released 2019 integrated report, Building The Premier Utility. The report outlines what we believe it takes to be the premier utility and why we're well on our way. I'm also happy to confirm that we still plan to host an Analyst Day this year. Because the situation with COVID-19 continues to be fluid, the event will be virtual. We also plan to delay the event until later in the year, most likely in late October. We look forward to continuing our conversation with you about our strategy to continue to grow our business for the long term. Stay tuned for more details. I'll now turn the call over to Drew, who will review our first quarter results as well as our outlook.

Thank you, Leo. Good morning, everyone. Similar to Leo's sentiment, I'd like to express my appreciation for all those helping the people and communities affected by COVID-19. The extraordinary efforts of so many are inspiring, including our employees who have quickly adapted to changing working conditions. They have once again risen to the challenge as they have so many times in the past. I'll review the quarter results and then move to guidance and the longer-term outlook. But before I get to that, I want to highlight the bottom line for Entergy. After a solid first quarter, we are affirming our adjusted EPS guidance and outlook. We expect revenue to be $120 million to $140 million lower as a result of COVID-19. We are implementing $100 million of identified spending reductions for 2020. We received constructive regulatory accounting orders to defer COVID-19 costs. Our capital plan remains the same. Our liquidity remains strong, and we still do not see a need for equity until 2021. Those are the key takeaways. Our first quarter results were solid, as stay-at-home orders did not begin until very late in the quarter. As you can see on Slide 8, on a per share basis, Entergy adjusted earnings were $1.14, $0.32 higher than the first quarter 2019 due to increased earnings at the utility. On Slide 19, you'll see the primary drivers for the utility's positive quarter were straightforward. We saw the positive effects of rate actions in Arkansas, Louisiana, Mississippi, and Texas. O&M was lower as we took action to reduce spending in response to mild weather, which was apparent early in the quarter. And we had favorable tax benefits, a portion of which was shared with our customers. You'll also see a higher effective tax rate in other, which partially offset this. Higher depreciation and interest expenses resulting from our continued growth also partially offset the increase, as did the higher share count. On Slide 11, EWC’s as-reported loss was $0.55 compared to positive earnings of $0.50 a year ago. Losses on decommissioning trust investments and lower revenue, primarily due to the shutdown of Pilgrim, were the main drivers. Partially offsetting the decline were lower O&M, lower impairment charges, and a tax item recorded in the first quarter 2019. Slide 12 shows a nearly $160 million increase in operating cash flow. The main drivers were higher collections for fuel and purchased power costs, and a roughly $65 million reduction in the unprotected excess ADIT return to customers. The first quarter also benefited from higher nuclear insurance refunds and lower nuclear refueling outage spending at EWC. Unfavorable weather and higher pension contributions partially offset the increase. Now I'd like to talk about our 2020 guidance and our longer-term outlook. On Slide 13, we are affirming our 2020 adjusted EPS guidance range of $5.45 to $5.75, and our 2021 and 2022 outlook remains unchanged. We've laid out the path to achieve our results on Slide 14 so that you can better understand our current expectations. I'd like to give you some context. In 2020, we expect sales to be lower due to the unfavorable weather we experienced in the first quarter and the impact of COVID-19. On Slide 15, we developed a point of view on sales for the remainder of 2020 based on extensive discussions with our industrial and commercial customers and analysis of data available from our advanced meters. On a weather-adjusted basis, we expect commercial and industrial sales to be lower than the original guidance assumption. Commercial sales are expected to have the largest decline at 9.5% for the full year. The most impacted are schools, restaurants, movie theaters, and churches, as stay-at-home orders have shuttered many of these institutions temporarily. Industrial sales are expected to be 7% lower, and our refinery and fuel customers have been the most impacted. Although refiners in our region have been less affected than in other parts of the country. This is partially offset by residential sales being about 2% higher as usage per customer increases due to stay-at-home orders. As you can see, we expect the second quarter to be the most impacted, assuming stay-at-home orders start to phase out in mid-May to early June. We then expect slow improvements through the year as the economy recovers. We'll work to mitigate the impact of lost sales. This includes a $100 million reduction in O&M spending for 2020, which will not affect safety or reliability. We've already identified where we will achieve these savings. We are reducing employee expenses, reducing contractor and consulting work, prioritizing when vacancies are filled, and adjusting the timing and scope of power generation outages. These are extraordinary times for our customers and communities, and extraordinary times demand extraordinary measures. While we are taking these one-time measures to compensate for the lower sales, we anticipate this year to continue looking for efficiencies in our business to drive long-term value for all of our stakeholders. Our work over the last few years to improve our regulatory frameworks also helps to further mitigate impacts, and we are utilizing efficient regulatory mechanisms available to us. We have formula rate plans in four of our five jurisdictions, and three have forward-looking features. These plans reset rates annually. In addition, two jurisdictions, Arkansas and Mississippi, have look-back provisions to take into account under- or over-earnings from the previous year. And as Leo mentioned, we've received the accounting orders in Texas, Mississippi, Arkansas, and Louisiana for the deferral of costs resulting from COVID-19. We're aware that these are very difficult times for our customers and their families. Therefore, we are implementing new customer payment plans to help make bills more manageable. In addition, we are developing new tools, such as accelerating regulatory liabilities to reduce customer bills now versus in the future. We are also cognizant of the economic impact COVID-19 is having on our communities, and we're working to keep our capital plan on track while using local workforces so that our customers and our communities can reap the benefits from those investments, such as economic stimulus and improved reliability. Looking ahead to 2021 and 2022, we expect some of the economic effects of COVID-19 to linger, and sales are projected to be slightly below what we previously planned. Our current regulatory mechanism will help, and we will be ready to manage O&M as necessary. For industrial sales, our long-term expectations for growth remain largely intact. None of our plans, new or expansion projects have been canceled, although a few have announced delays. Long-term forward commodity spreads remain supportive of key industries in our region, and while there is uncertainty around the COVID-19 recovery and future oil prices, our industrial base remains among the most economically advantaged in the world due to low-cost feedstock, highly flexible, modern facilities, economies of scale, world-class infrastructure, a highly productive workforce, supportive communities, and easy-to-access domestic and global markets. We expect they will lead recovery in their respective industries. This is our plan today. But obviously, uncertainty remains for all of us as to the depth and length of the COVID-19 impact going forward. In the event things turn out differently, there would be a number of factors to consider. Near-term, there is timing as the seasonality of sales could result in different outcomes, and we would look to O&M to help to the extent possible without affecting safety and reliability. Longer-term, regulatory processes would address revenue deficiencies over time, and we would look to continuous improvement to help offset customer impacts. Our liquidity position remains strong, as you can see on Slide 17. As of March 31st, our net liquidity, including storm reserves, was over $3.2 billion. We've had success accessing capital markets despite market volatility, and we've issued nearly $1.1 billion in new long-term debt so far this year, all at the operating companies. This covers the operating company maturities and helps fund our capital plan. In addition, we have renewed the lines of credit at two of the operating companies, which also provides liquidity in times of need. We still plan to access the debt markets upon $450 million of parent bonds that mature later this year. Our credit metrics are outlined on Slide 18. Our parent debt to total debt is 22.2%, and our FFO to debt is 14.3%. The FFO metric includes the effects of returning $236 million of unprotected excess ADIT to customers over the last 12 months. Excluding this give-back and certain items related to our exit of EWC, the reported debt would have been 16%. While we remain committed to achieving FFO to debt at or above 15%, our customer support to offset COVID-19 impacts will push our timings to the fourth quarter of 2021. We've had conversations with the rating agencies on this, and they have publicly expressed their intent to take a long-term view regarding COVID-19 impacts. Finally, we still do not see a need for equity until 2021. Another topic that may be on your mind is pension. As of March 31st, our pension asset balance was $5.4 billion and through April, this had improved to $5.7 billion. The March 31st pension asset balance is incorporated into our outlook. As we have stated, these are extraordinary times for everyone and we have a vital role to play to help our customers and our community successfully manage this crisis. We are well positioned to manage these challenges head-on. At this time, although economic uncertainty remains, we have a path to achieve our financial objectives. And as Leo said, we will continue to monitor the economy and remain diligent, focused, and flexible to mitigate impacts as best we can. And now the Entergy team is available to answer questions.

And our first question comes from Shahriar Pourreza from Guggenheim Partners. Your question, please.

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

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

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

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

Yes, this is Leo. I just want to add from the standpoint of pulling the levers. The process that we're utilizing right now, while it's kind of accelerated a little bit, is the same process we were using last year, for example, to flex up and down. So the process had actually, as you noticed in the first quarter, begun because we knew we were going to be challenged by a traditional headwind, which was weather in the first quarter. So those processes year-on-year are going to be the same ones that we have kind of developed as part of the culture and the DNA of the company and just the planning process. The continuous improvement that we mentioned is something that we were working through as well, and obviously, we'll even find some continuous improvement, I think, from the response to the event that will help us going forward. And then I just wanted to really jump in on the capital plan. Obviously, the capital plan is a major reliability improvement for our customers. With over 90%, greater than 90% of the capital plan being about technological improvements and reliability in the service level that we provide our customers, whether it's through AMI or even replacing old generation with new gas-fired generation and renewables that we're adding to the footprint. So all of it is customer-enhancing. As Drew mentioned, to the extent some of our reliability investment in transmission is kind of like Lake Charles project was a couple of years ago, after the fact beefing up the system to serve load that had already been there to the extent that that might change where we've got a whole host of distribution and customer solutions opportunities that could take its place, a lot of which actually drive down the cost while they improve the level of service for customers. So they're a good option for us to make. I know it's a bit of a long answer to your question, Michael. But keep in mind, 90 plus percent of the capital plan is driven by that reliability improvement, technological improvement across the system and benefiting customers. An important aspect of where we sit today is the dialog that we've had with the states, whether it be at the administration level or at the regulatory level. The biggest problem that the United States has at the moment is unemployment in addition to the virus. We are in a position to step forward with the capital plan and make sure that we keep people working. I'm just going to give you a couple of statistics that might be useful for you to think about. During the storms that we had over Easter weekend in Arkansas, we obviously had to restore power, and that was a significant event. But as we restored power, we had about 2,000 people in Arkansas staying in hotel rooms that otherwise they wouldn't have stayed and eating meals they wouldn't have been eating. So there were effectively 13,000 nights in hotel rooms that occurred only because Entergy was there. There were effectively 40,000 meals that were served only because Entergy was there. That is the kind of economic impact that we have, not just on the people we hire, whether they be our employees or our contractors. As we go into the community, those multiplier effects that we talk about quite often are significant. They are real people serving real meals to our employees that were probably working that week but not the week before or the week after. So the capital plan is important for more than just improving the reliability of the system and the service level that we provide our customers. It's important to those communities as well.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you. Our final question for today comes from the line of Michael Lapides from Goldman Sachs. Your question, please.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you, Jonathan, and thanks to everyone for participating this morning. Our annual report on form 10-Q is due to the SEC today and provides more details and disclosures about our statements. Also, as a reminder, we maintain a webpage as part of Entergy's investor relations website, called regulatory and other information, which provides key updates and 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. Everyone have a great day.