Earnings Call Transcript
ENTERGY MISSISSIPPI, LLC (EMP)
Earnings Call Transcript - EMP Q4 2020
Operator, Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Entergy Fourth Quarter 2020 Earnings Release and Teleconference Call. Please be advised that today's conference is being recorded. I'd now like to hand the call over to David Borde, Vice President of Investor Relations. Please go ahead.
David Borde, Vice President of Investor Relations
Thank you. 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 requested 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. And now, I will turn the call over to Leo.
Leo Denault, Chairman and CEO
Thank you, David, and good morning, everyone. Before I turn to my remarks, I would like to give you an update on the winter storms we experienced last week. Severe weather conditions affected most of the country including our service area. In order to balance the system, MISO directed us to conduct rolling power outages. Our system is back to normal operations. Our thoughts are with all of our customers and communities who were impacted by the weather. Our employees once again demonstrated their dedication by working around the clock in difficult conditions to quickly restore service where needed. As always, I am grateful and humbled by their commitment. We are still working through our numbers, but our preliminary assessment of the cost is approximately $125 million to $140 million associated with mobilizing crews and restoring power and approximately $400 million of incremental fuel costs. We have fuel recovery mechanisms in all of our jurisdictions, and we will work with our regulators to recover these costs in a manner that mitigates the impact on customer bills. I will now turn to our discussion on 2020. Today, we are reporting strong results for another successful year. Our adjusted earnings per share are $5.66, which is in the top half of our guidance range. We achieved these results by overcoming revenue challenges with our flexible spending program. We set a goal to reduce 2020 costs by $100 million, and we exceeded that target by approximately 50%. Underlying our strong performance was the foundation that we have built over the last several years; we have become a resilient organization prepared to create sustainable value for all our stakeholders, even in extraordinary times. It's what our stakeholders expect from us, and it’s what it takes to be the premier utility. Challenges are a natural part of doing business. No company is immune, and Entergy is no exception. As 2020 demonstrated, the test of sustainability is less about challenges and more about how we are able to achieve our goals regardless of the circumstances. Because of this solid foundation and our proven track record, we are confident in our continued success in 2021 and beyond. As such, we are initiating our 2021 guidance and affirming our longer-term outlook, consistent with what we shared at Analyst Day last September. In 2020, we brought online four large generation resources that are cleaner and more efficient than our older assets, providing customer savings and environmental benefits that will help us meet our sustainability commitments. These assets also give us dispatch flexibility that is important for system reliability. Renewable energy is also a key part of our strategy to achieve our sustainability goals. Our clean energy efforts have escalated over the past few years. We now have more than 500 megawatts of renewable resources in operation. These resources come in many forms, both small and large, owned and contracted, and some are innovative solutions like the New Orleans residential rooftop project, where we own the solar systems that are installed at low-income customers' homes. Those customers get a fixed bill credit on their bill, providing economic benefits to those who need it and renewable energy for all customers. We have approximately 450 megawatts of solar projects currently being installed. We have another 880 megawatts of solar resources either in regulatory review or RFPs. We plan to solicit another 800 megawatts of solar this year. This is only the beginning, and we will continue to grow the number of renewable energy facilities across our region. Almost half of our capital was for distribution and utility support investments that are closest to the customer experience. A portion of these costs is for our advanced meter project. We have now completed the installation of 70% of the 3 million advanced meters we are deploying across our service area. This is an exciting milestone as we enter the final phase of our three-year journey. Advanced meters help our customers better manage their energy usage and bills, and it lays the foundation for new technological capabilities over time. With billions of real-time data points available, we'll be able to gain new insights that will drive fundamental change in the way we serve our customers while consuming the least amount of energy resources. We invested $800 million in our transmission infrastructure; excluding storms, our transmission investments benefit our system and our customers, as they reduce congestion, strengthen service reliability, enhance system efficiency and resiliency, and support economic development in our jurisdictions by enabling service to new customers. We completed several important projects, some of which proved critical during the active storm season. These new structures, built to modern standards, stood against the record winds from Hurricane Laura and were critical to restoring power following that storm. These projects are all part of our plan to improve the resiliency of our infrastructure and provide a higher level of service to our customers. In 2020, we continued to work collaboratively with our regulators for the benefit of customers. In the face of difficult times due to COVID-19, we collaborated to find solutions. Early on, we suspended disconnects and worked to set up payment plans for customers who couldn't pay their bills. In all our jurisdictions, we received accounting orders, deferring costs associated with COVID-19, including bad debt expense from accounts that we don't expect to collect as a result of the pandemic. We also worked with our commissions on rate recovery mechanisms that give us the opportunity to recover costs that are benefiting our customers. The Public Utility Commission of Texas finalized the new generation rider, which provides for full and timely recovery of capital costs associated with new generation, where timely recovery helps us create value for our stakeholders in Texas and ensures that the communities we serve remain economically competitive. The Texas Commission approved the use of this rider earlier this year for recovery of Montgomery County power station. The city council of New Orleans approved a unanimous settlement that resolved Entergy New Orleans rate case and FRP filing. We will make the first of three annual FRP filings later this year. We also had annual FRP rate actions in Arkansas, Louisiana, and Mississippi. We plan to submit filings in Louisiana and Texas in the first quarter of this year and in New Orleans in the second quarter to request recovery of 2020 storm costs. As we have done in the past, we will seek to securitize these costs. With current low interest rates, this will result in significantly lower costs to customers as compared to typical recovery. Louisiana's and Arkansas FRPs expire with the 2020 filings, and we've requested renewal; discussions are ongoing, and we will provide updates as we get them. In spite of the positive outcomes in 2020, the Arkansas Commission's order for our 2021 FRP rate change fell short of our expectations. We believe the order incorrectly applies the law and results in an unreasonable outcome. We requested a rehearing on the Commission's order, and we expect to receive their decision on our request and the FRP extension by March 15. You should note that our guidance and outlook today reflect the Commission's December order and extension of the FRP. Our leadership in sustainability and environmental stewardship has been a long-standing hallmark of who we are and has led to measurable, undeniable results. For the past two decades, our emissions rate has been well below the sector average. Our utility CO2 emissions rate has decreased nearly 40% since 2000, and today, we operate one of the cleanest large-scale power generation fleets in the nation. Our fleet is clean, as we have not only set meaningful reduction targets, but we continue to exceed them. The most recent example is our environmental 2020 goal, where we committed to maintain carbon dioxide emissions through 2020 at 20% below year 2000 levels. Our actual 2020 emissions were 27% below 2000 levels, beating our reduction goal by 33%. Looking ahead, our business plan supports our 2030 commitment to reduce our utility carbon emissions rate by 50% below year 2000 levels. Achieving this objective calls for continued transformation of our portfolio. To that end, by 2030, we anticipate that our generation portfolio will include at least five gigawatts of renewables with potential for more. During that timeframe, we also plan to deactivate approximately four gigawatts of legacy gas along with the remainder of our coal assets. Going forward, we will not build any large-scale generation that isn't hydrogen-capable. As we transform our portfolio, we will work with our regulators to do so within a framework that balances reliability, affordability, and environmental stewardship while enriching the economies of the communities we serve. To support our longer-term net zero goal, we're exploring emerging technologies through a partnership with Mitsubishi Power. We will develop innovative solutions that include large-scale battery storage, carbon capture and sequestration, and hydrogen-based strategies. While we are not relying on hydrogen to meet our 2030 commitment, we believe it will be a part of creating a carbon-free future. Hydrogen is an important technology that will allow utilities to adopt much greater levels of renewables to meet growing sustainability needs. Hydrogen storage, transportation, and utilization attributes will allow us to leverage today's pipeline and generation technologies in a manner that supports a highly reliable and fuel-diverse electric grid. In the Gulf South, we have a distinct locational advantage. We are uniquely positioned given the existing hydrogen infrastructure in Texas and Louisiana. Existing infrastructure today in our service territory includes more than 3.5 billion cubic feet of hydrogen capacity, two of the three hydrogen salt caverns operating in the United States, and more than 1,100 miles of hydrogen pipelines, which is 60% of the United States infrastructure. In addition, two of the largest hydrogen producers in the world are our customers. We also have more than 860 miles of CO2 pipelines in our service area, which would facilitate carbon capture and sequestration. These are just a few of the advantages for our service area, which presents us with unique opportunities. To advance our work on hydrogen, we are working on a few projects that I'd like to share. The Orange County Power Station was selected in Entergy Texas's request for proposals; that facility will have the capability upon commercial operation to utilize up to 30% hydrogen. Longer term, the turbines can be configured to operate on up to 100% hydrogen at modest incremental cost. The facility is conveniently located near existing hydrogen pipeline infrastructure that can be connected to the plant to utilize hydrogen when feasible and economic. We own a storage facility with three caverns; we are evaluating converting one of these caverns to hydrogen. We are taking advantage of the existing hydrogen pipeline infrastructure in the Texas industrial corridor near the Orange County Power Station, and we are developing a four-phase plan to support access to hydrogen fuel across our fleet of hydrogen-capable plants. We are also in the very early stages of developing a green hydrogen demonstration plan, the Montgomery County Hydrogen Innovation Center. This project will teach us important lessons about electrolysis operations and ultimately lay the groundwork for future full-scale projects. We're excited about these projects and our collaboration with Mitsubishi. As we lead our industry to make hydrogen a reality that will create green jobs in the Gulf South region. We will provide updates on these initiatives as we have new developments. Being the premier utility means doing our part to create a more sustainable future for our customers, our communities, and the world—a goal we continuously strive for in everything we do. In 2020, we were once again named to the Dow Jones Sustainability North American index. We are the only electric utility to receive this honor 19 years in a row. We are very proud of this recognition as DJSI is one of the most respected independent sustainability measures in the world. We earned perfect scores in the areas of climate strategy, water-related risks, materiality, environmental reporting, social reporting, and policy influence. This past year, our employees demonstrated once again why Entergy is best in class in storm response. During a storm season unlike any other in our history, our commitment to health, safety, and preparedness is one of our proudest achievements. Our teams worked around the clock to safely restore service, rebuild infrastructure, and help our communities recover while following virus prevention protocols. For our employees' extraordinary efforts, we received broad support from local, state, and federal officials. We also received five emergency response awards from EI. This marks the 23rd consecutive year EI has recognized Entergy employees for their emergency response. 2020 was another successful year for our company. Everything we accomplished gives me confidence in our ability to meet our goals and commitments going forward. We've proven that we are a resilient company prepared to respond to adversity and deliver on our mission to create sustainable value for our stakeholders. It's what our stakeholders expect from us, and that’s what it takes to be the premier utility. Despite obstacles imposed by the pandemic, mild weather, and storms, our employees found ways to connect, innovate, drive growth, and build toward the future, all while meeting our financial commitments. The fundamentals of our company are strong, and the drivers that uniquely position us to be the premier utility remain firmly in place. We consistently meet or exceed our guidance expectations. We have line of sight on 5% to 7% adjusted EPS growth, and by the end of the year, we expect the same for our dividend growth rate, subject to board approval. And as we mature in our continuous improvement efforts, we aspire to permanently reduce O&M costs and redeploy those resources for the benefit of our stakeholders. I am as excited as ever about our future. I will now turn the call over to Drew to review our financial performance.
Drew Marsh, CFO
Thank you, Leo. Good morning, everyone. Today we are reporting strong results for 2020. As Leo mentioned, we successfully managed lower revenues by lowering our O&M expense by approximately $150 million, which exceeded our $100 million cost reduction target for the year. Our results today are a validation of the strong resilient company we are. As a result, we are confident in our continued success going forward and are initiating our guidance and affirming our longer-term outlook. I'll begin with a review of results for the full year and then provide an overview of guidance for 2021. Starting on slide 6, Entergy's adjusted EPS for 2020 was $5.66, $0.26 higher than 2019 and in the top half of our guidance range. Moving to slide 7, there were many drivers that are straightforward and laid out in the release. The key area of focus for us in 2020 was O&M. We offset the negative impacts of storms, COVID-19, and unfavorable weather with approximately $150 million of cost reductions. We identified several cost-cutting measures early in the year and deliberately executed on our plan. Slide 8 lists some of the actions taken. We are proud of what we've accomplished, yet we are not surprised. Our employees have built the culture, processes, and resources to successfully deliver on our commitments to all of our stakeholders, even during extraordinary times. That has been important this year more than ever. Our results further strengthen our confidence in our success going forward as we affirm our earnings expectations from 2021 through 2023. Results for EWC summarized on slide 9 are generally in line with our expectations, and we continue to make good progress on our exit from that business. Full year operating cash flow shown on slide 10 was approximately $2.7 billion. As you would expect, storm costs were a large driver, as were lower collections due to COVID-19. Decreased collections for fuel and purchase power costs and unfavorable weather also affected the metric. Lower unprotected excess ADIT returned to customers partly offset the decrease. Our cash and credit metrics as of the end of the year are shown on slide 11. Our parent debt to total debt is 21.6%, and our FFO to debt is 10.3%. As we mentioned last quarter, our FFO to debt is temporarily lower in part due to the financial impacts from the storms. We expect the metric to return to target levels as we receive storm securitization proceeds next year, as we have strong precedents for storm cost recovery. We plan to submit initial filings over the next few weeks. We will also pursue off-balance sheet treatment in Louisiana and Texas. We remain committed to maintaining our best investment grade profile and supporting credit targets including at or above 15% for FFO to debt next year and below 25% for parent debt to total debt. Moving to slide 12; with the resiliency we've demonstrated in 2020, we are confident in our continued success in 2021 and beyond. Our 2021 adjusted EPS guidance range is $5.80 to $6.10, and our current plan puts us firmly at the $5.95 midpoint. This and our 2022 and 2023 outlook ranges remain the same as the outlook we presented at Analysts Day. We continue to target a 5% to 7% annual growth rate for adjusted earnings per share. We also expect to grow our dividend commensurate with our EPS growth rate starting in the fourth quarter of this year, subject to final Board approval. On slide 13, we have outlined a few key drivers for 2021 earnings growth. We also include more detailed assumptions in the appendix of the webcast presentation, beginning with the top line; a full year of 2020 rate activity following significant investments to benefit customers will contribute to 2021 growth. We will also make annual FRP filings during the year. We project utility O&M to be a little under $2.7 billion in line with our disclosures from Analyst Day. Depreciation expense is expected to increase and net interest is expected to decrease due to lower AFUDC as new plants came online in 2020. We also anticipate that our effective income tax rate will be higher. Our guidance and outlook reflect the December APSC order in Arkansas, and assume an FRP extension in both Arkansas and Louisiana. In Arkansas, we are reprioritizing our O&M and capital investments to more closely align with the ordered recovery structure. To the extent the order is reversed, we will plan to readjust our O&M and capital to deliver the customer benefits that those investments would produce. While we continue to monitor risks, we have already identified flexible spending levers in the event needed. We're also exploring permanent upside opportunities through solar investments and further continuous improvement. As Leo mentioned, 2020 was a strong year for our company, as we exceeded our $100 million cost reduction target and delivered on our commitments to each of our four key stakeholders in the midst of unprecedented times. Looking ahead, the fundamentals that underlie our steady predictable growth are strong. Our guidance and outlook remain the same as we presented at Analyst Day and provide a clear line of sight to the 5% to 7% adjusted EPS growth rate. We have among the lowest retail rates in the country, and our solid strategic operational and financial plans will upgrade the service level that we provide to our customers. Our proven and disciplined flexible spending program helps us adapt to financial headwinds or tailwinds so we can meet our financial commitments. In the fourth quarter of this year, we expect to grow our dividend commensurate with our 5% to 7% EPS growth rate. We have significant opportunities ahead, and we are well positioned to be the premier utility. Before turning the call over to Q&A, I want to take a moment to acknowledge and thank David Borde for his great work as Vice President of Investor Relations. He built solid relationships with all of you. And the good news is he will not go far. He will work with Rod to help bring our vision of the future utility to life. For the next few weeks, he will reach out to many of you to introduce Bill Abler, who is taking over leadership of the Investor Relations team. Bill has a strong commercial background in both commodities and utilities, and he will be an excellent representative for us. And as both Dave and Bill are backed by a very strong team with disciplined processes, you should not expect any change in the level of service you will see from us. Now the Entergy team is available to answer questions.
Operator, Operator
Our first question comes from Jeremy Tonet with JPMorgan.
Ryan, Analyst
Hi, guys, it's actually Ryan on Jeremy. Just wanted to start off with kind of the order in Arkansas, and you guys were very clear about reaffirming the guidance and potential offsets with capital and O&M. I wanted to dig a little bit more into what some of those offsets you are thinking about in Arkansas to offset this potential negative order. If you get a positive outcome on the rehearing, should we think about maybe the top end of the range for 2021?
Drew Marsh, CFO
This is Drew. I'll take that, and then Rod can provide any other framework elements as needed. We're adjusting, as I mentioned in my comments, our O&M and capital to prepare for or respond to the order that we received in December, and that can be seen in some of our capital disclosures. There is some normal pining capital moving around in some of the jurisdictions, but the primary focus is in Arkansas—that’s the main thing we are taking action to adjust with. In terms of potential upside, as I also said in my remarks, to the extent that we are able to get the order reversed, we would anticipate putting most, if not all depends on what the order would say, back into our capital plan, so that our customers can benefit from the capital and O&M that we are planning to deploy in Arkansas.
Ryan, Analyst
Okay, that makes sense. As a follow-up, I’ve noticed the stock price has been at depressive levels recently, and I am wondering if you have any thoughts on what's required to get the stock moving or reassure market confidence. If the stock price stays at these depressed levels, would you think about any type of transaction, maybe a sell down in some of these utilities to offset some of the equity needs going forward?
Leo Denault, Chairman and CEO
I'll start, and I'll let Drew speak to the last part of that, Ryan. The best thing we can do is continue as we have over the last several years to execute to meet our commitments to our customers and to meet our commitments to all of you. This just means being disciplined about our capital and O&M spend, about where it is and what level it is, continue to improve the service level our customers receive from us, and continue to hit or exceed the numbers we committed to all of you. That's what we intend to do.
Drew Marsh, CFO
I’ll just add to the M&A and sales potential here. We are always open to anything that would be value-creating for our stakeholders—that is always our number one rule in M&A is to create value. Other considerations are execution and distraction from the things we are doing to further create value for stakeholders that are already underway. The second point makes it somewhat challenging for us concerning equity raises. We would likely require regulatory approval for any M&A activity at the APCO, which could create uncertainty in that equity raise. So while we might find good value, if we were counting on that for an equity raise and needed to go through the regulatory process, that would create some uncertainty.
Operator, Operator
Our next question comes from Stephen Byrd with Morgan Stanley.
Stephen Byrd, Analyst
Hey, good morning. I wanted to step back and talk about the impacts to the system from the unprecedented weather impact that you all noted. As you think about the lessons learned from Texas and your other utility businesses, I know you're spending a lot on making your system more resilient. Are the lessons learned resulting in the potential for further acceleration of spending or changes to plans, whether it is generation plans, renewables plans, etc., or are these lessons consistent with your overall focus on resiliency?
Leo Denault, Chairman and CEO
I'll start out, and let others chime in. Every event that occurs has unique attributes that allow us to learn lessons. Whether it's hurricanes or tropical storms—Harvey is different from Laura, for example, in terms of impact in similar areas in our service territory. We’re still in the process of unpacking the lessons learned from last week, so I wouldn't say that it's inconsistent with our plans for resiliency. But certainly, every time we go through an event, we will learn something that we will apply to the next events. There will be things we learned from Katrina that have served us well for every event that occurred after that regarding how our capital shapes up and our operations. There may be lessons learned that direct our activities potentially differently, but I wouldn't anticipate a change in the size of the capital plan going forward; it may be a redirection.
Stephen Byrd, Analyst
That's helpful. Lastly, on nuclear operations, how are you feeling about operational progress, performance, overall trends, and any recent developments?
Leo Denault, Chairman and CEO
For the most part, it is consistent with where we've been. We continue to work with Grande Golf; we have some work to continue to get that plant where we want it, but the majority of it is on track.
Stephen Byrd, Analyst
Understood. The Grande Golf work is primarily general operational improvements? How would you highlight the work needed there?
Leo Denault, Chairman and CEO
In the equipment reliability space, for the most part, as you know, we've gone through a couple of major outages with significant equipment modifications. The most recent involved the control system; we've had some issues coming out of that outage with equipment associated with that modification. We plan to continue to work through those, resolve them, and get the plant up to the level of excellence that we desire.
Shar Pourreza, Analyst
Hey, good morning, guys. A couple of questions—firstly, just on the cost savings you presented. You executed $150 million in savings that was well in excess of your original $100 million. I'm curious about the level of recurring cost savings that you think you can carry through to 2021 and if you can find incremental opportunities, especially on the corporate side, as we've seen several peers generate significant cost savings from real estate optimization.
Drew Marsh, CFO
Hey, Shar, this is Drew. Most of the savings we saw in 2020 I would characterize as one-time in nature; they are part of our flexible spending efforts. These efforts typically look for ways to take action to manage outcomes in that particular year. We wouldn’t see those as recurring, but this year, we’ve identified new ones we would be able to use as necessary. After we communicated we got to $100 million, we looked for more savings in case we needed it, and as it turns out, we did need all of it. There were some things identified as potential continuous improvement elements which fit into those other buckets, although they were relatively small—probably around 20%. Those are now accounted for in our outlooks as part of our O&M expectations. We are driving our continuous improvement efforts forward; real estate optimization is on our radar as we think about how we manage our workforce for the future.
Shar Pourreza, Analyst
Got it. Then just regarding Arkansas, good to see you're reaffirming that depending on the outlook of the FRP order that you are comfortable with the plan and the midpoint of guidance embedded there. Are you having any dialogue with the commission around sort of that strategic move, and wondering where you are redeploying the capital spent?
Rod West, Executive
Shar, it's Rod. The conversation with the stakeholders is ongoing, and I won't comment specifically about any aspect. However, it is known in Arkansas that one of the consequences of us not having clarity around the FRP and the extension is that we would have to revisit how we deploy capital in Arkansas. Those discussions have been ongoing since the December order. That's part of the motivation for why we are working through various avenues to turn things around—our point of view around the capital plan is shared with them as we are not discussing specific puts and takes. Our historical position about why we felt the FRP provides the best opportunity to create sustainable value for customers has played out during dependency of the FRP, and we feel adamant about the propriety of the extension, so that message should resonate.
Leo Denault, Chairman and CEO
To answer your question about where the capital is going at this point; yes, to the extent we are optimistic we can reverse the December order, we are waiting to see if we would want to reinstate that capital.
Durgesh Chopra, Analyst
Hey, team, good morning. Can you remind us if I missed this, have you quantified, in terms of financials, what impact, if any, the event from last week has for you?
Drew Marsh, CFO
Yes, this is Drew. As Leo mentioned in his remarks, we're assessing costs mostly in the ballpark of $125 million to $140 million in restoration costs and approximately $400 million in incremental fuel costs. I can give you a bit of color, and we will have specific numbers in the K that we will file in a couple of days. On the fuel cost, I think if we're looking at the whole month of February, it's about $500 million total. I would say around $100 million of that is what we would normally expect, so that aligns with the $400 million that Leo described. Approximately $200 million is in Louisiana, mostly EOL, and around $150 million is in Texas. Again, these are all round numbers, and we will provide specific figures later.
Durgesh Chopra, Analyst
Understood, thanks for the clarity. Just to clarify that it's essentially a $400 million increment to what you might have otherwise expected on a normal basis?
Drew Marsh, CFO
Yes, I'm referring specifically to the month of February.
Durgesh Chopra, Analyst
Okay, perfect. Thanks. Just quickly, can you clarify for me the timeline on the Arkansas FRP extension—when is that final order expected, and any color on what to look for regarding whether it could get extended?
Rod West, Executive
March 15 is the date that the Commission has set for itself to issue the order for both the 2021 FRP and the renewal of the FRP extension.
Operator, Operator
Our next question comes from Steve Liesman with Wolfe Research.
Unidentified Analyst, Analyst
Yes, thanks. Good morning. So this was a helpful update—thank you. Just the Louisiana FRP extension; I believe you have continued settlement talks there. Could you provide some color on your confidence in settling that case?
Rod West, Executive
Steve, this is Rod. The conversations in Louisiana are proceeding, and perhaps consistent with expectations, slowed only by the most recent storms along with COVID. The types of issues we are working through with our stakeholders and regulators have been in line with our expectations. We're targeting a resolution of the Louisiana renewal by the end of March, and we will be monitoring that progress.
Unidentified Analyst, Analyst
Got it. And then on to Drew regarding your financing plans; is there any update or changes in your equity issuance plans for the three-year period?
Drew Marsh, CFO
No, no new changes from what we described at Analysts Day. We have made some progress—got the aftermarket program up and running in January. A proxy will be coming up, and we will request authorization to issue preferred equity. Those are the only two noteworthy items since our last disclosure.
Unidentified Analyst, Analyst
On the aftermarket, is there a timeline for that part of the financing you're targeting?
Drew Marsh, CFO
No, there's no timeline. We don't have any additional information there.
Operator, Operator
Our next question comes from Paul Fremont with Mizuho.
Paul Fremont, Analyst
Thank you very much. I guess if I heard you correctly, in Arkansas, your guidance is essentially contingent on an FRP extension. Are you expecting that to come through negotiation or through a final Arkansas Public Service Commission rate order?
Rod West, Executive
The answer, without sounding trite, is yes. Progress we make until the 15th will incorporate what we see. Our assumptions in guidance and outlook assume the December order and an FRP, presumptively reflecting that order. Our confidence relies on our management of expectations with whatever reasonable components of an Arkansas order. We are committed to managing to those likely outcomes.
Paul Fremont, Analyst
But would your guidance still hold if the FRP were not renewed?
Rod West, Executive
If the FRP were not renewed, we would likely have to assess the circumstances and, if needed, we could file a rate case or implement other remedial actions. From a planning standpoint, we are considering all of those scenarios, but it’s too early to determine which levers we would ultimately pull.
Operator, Operator
Our next question comes from Julian Dumoulin with Bank of America.
Julian Dumoulin, Analyst
Thank you, team. Good morning.
Leo Denault, Chairman and CEO
Don't you get we are having a 24x7 shop, so you don't know what time of day it is?
Julian Dumoulin, Analyst
Let me come back regarding the planning scenarios we discussed. You mentioned cost reductions and capital levers, along with flowcharts about your approach—could you elaborate on these levers? For example, if you were to pursue this, would you file a rate case later this year in Arkansas, or would you lean towards litigation and appeals strategy as the first course of action? How quickly do you think about the different scenarios?
Leo Denault, Chairman and CEO
We are in the middle of discussions, and these orders are nearing resolution. It would be best to defer commentary around all of that until we reach an outcome, since it’s quite prompt.
Julian Dumoulin, Analyst
Understood. But to clarify, you already have contingencies running on both costs and capital levers as it stands today?
Leo Denault, Chairman and CEO
Correct.
Julian Dumoulin, Analyst
On the subject of cumulative bill impacts, how do you anticipate the total trajectory? Knowing what you know about storms and the pace of CapEx and sales trajectory in 2021 onwards?
Leo Denault, Chairman and CEO
You're correct. We've made adjustments to our plan anticipating likely outcomes in the FRP renewals based on what we shared with you today in our outlooks. From a bill impact standpoint, we are going to work through all of these processes, whether related to storms or recovery efforts, while trying to minimize the financial impact on our credit profile, earnings, and customer bills.
Operator, Operator
Our next question comes from Jonathan Arnold with Vertical.
Jonathan Arnold, Analyst
Yes, good morning, guys. Can we get an update on where you are with rates and the impact of incremental bad debt since your update last quarter?
Drew Marsh, CFO
Sure, Jonathan. As of the end of the year, we recorded a bad debt expense of $112 million. Our normal bad debt expense in any given year is about $25 million. So that incremental $87 million was recorded as a regulatory asset because we have orders in each of our jurisdictions that allow us to recover those costs. The arrears typically run about three times higher than the bad debt expense; that number is consistent and has leveled off, although we need to see where it goes with the recent storms and disconnects needing additional evaluation.
Jonathan Arnold, Analyst
So to clarify, you’re estimating the rate numbers to be around 300?
Drew Marsh, CFO
Correct.
Jonathan Arnold, Analyst
And as you reserved or wrote off for fees or recovery, you're looking at roughly a third?
Leo Denault, Chairman and CEO
That's correct.
Jonathan Arnold, Analyst
Thanks for that. Also, for the quarter, numbers appear better than the full year. I noticed you had about $0.23 of tax-related benefit for the year, but you were sort of targeting $0.15 during your last update in Q3. So there seems to be an incremental hold versus what you were expecting.
Drew Marsh, CFO
Yes, that's correct. Much of it is in the fourth quarter, related to an annual true-up that turned out beneficial in our favor. There was also a small item we identified along the way, but that has aligned with what we'd committed to do previously. Going forward, we expect such annual true-ups to either work in our favor or against us, so we have to manage around those. Additionally, our tax rate for 2021 is projected at 22%, drifting up to around 24% to 24.5% afterward.
Jonathan Arnold, Analyst
So could you say it helped around $0.15 in Q4?
Drew Marsh, CFO
Yes, we weren’t factoring in the $0.16 regulatory provision from the Arkansas order, so it balanced out.
Jonathan Arnold, Analyst
I understand. The CapEx amount seems to be down for 2021, approximately $300 million. Is most of that dialed back in Arkansas, or are there other factors at play?
Drew Marsh, CFO
That is primarily impacted by Arkansas. We've reduced some capital in 2021 and 2022, but we’ve put a little back into 2023 in Arkansas. There were timing elements in the other jurisdictions, but the primary influence is Arkansas.
James Thalacker, Analyst
Thanks so much. Good morning, guys. Just a quick follow-up; I think I know the answer since you reiterated the ranges for 2023. It doesn’t sound like your financing plan has changed, but could you speak to the cadence of that financing? Should we assume it remains fairly ratable or potentially a bit more front-end loaded considering the FFO metrics?
Drew Marsh, CFO
We don’t have any additional information beyond what we've shared during Analysts Day on the issuing equity this year. We are planning to issue some equity as part of the $2.55 billion by 2024; we’ll provide more details as they develop. The $1 billion ATM we mentioned was part of that original financing plan, as you noted.
Ryan Levine, Analyst
Thank you for taking my question. I wanted to follow up on some of the bad debt items. What is your 2021 earnings guidance around the bad debt expense assumption? And have you made any incremental changes based on events from last week?
Leo Denault, Chairman and CEO
We have not adjusted our bad debt assumptions. Right now, I believe it's fairly normal around the $25 million amount we mentioned earlier. We will monitor it closely and see where all the COVID arrears fall out, as we have estimates suggesting about a third of those—a figure we expect to recover through the regulatory process, but we do not have exact numbers yet.
Ryan Levine, Analyst
Are there regulatory approaches or tools, or potential political responses you have to help mitigate that potential incremental bad debt expense?
Leo Denault, Chairman and CEO
Currently, we have orders in place and are working closely with customers to mitigate the impact on them. We've implemented deferred payment plans and renegotiated thousands of plans with our customers to help them out. We have partnered with some of our retail regulators to facilitate funding and resources for our customers, and we actively communicate with our customers and retail regulators regarding these efforts.
Ryan Levine, Analyst
Can you remind me about the regulatory approach to enable a path for Louisiana from your other jurisdictions to fuel LDCS with hydrogen, considering your hydrogen strategies highlighted?
Leo Denault, Chairman and CEO
From a regulatory process standpoint, it follows similar processes we use with our resource planning. Recovery of investments for those resources would go through our existing mechanisms. If we see there are gaps in the current mechanisms concerning newer technologies like hydrogen, we will discuss those with our regulators. Until then, our existing RFP and riders already account for what we have in place. Just to reaffirm, the LDC is a very small piece of our overall business, with the rate base only about $200 million.
David Borde, Vice President of Investor Relations
Thank you, Michelle. And thanks to everyone for participating this morning. Our annual report on Form 10-K is due to the SEC on March 1 and provides more details and disclosures about our financial statements. Events that occur prior to the date of our 10-K filing providing evidence of conditions that existed at the date of the balance sheet will be reflected in our financial statements in accordance with generally accepted accounting principles. We also maintain a regulatory and other information webpage as part of Entergy Investor Relations, which provides key updates on regulatory proceedings and important milestones on our strategic execution. While some information may be considered material, you should not rely exclusively on this page for all relevant company details. Thank you very much.
Operator, Operator
Ladies and gentlemen, this concludes the program. You may all disconnect. Everyone have a great day.