Entergy Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2024

There are 15 speakers on the call.

Operator

Good morning. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to Entergy's First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I will now turn the call over to Bill Abler, Vice President of Investor Relations for Entergy Corporation.

Speaker 1

Good morning and thank you for joining us. We will begin today with comments from Entergy's Chair and CEO, Drew Marsh and that Kimberly Fontaine, our CFO, will review results. In an effort to accommodate everyone who has questions, we request that each person ask no more than 2 questions. In today's call, management will make certain forward looking statements. Actual results could differ materially from these forward looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation and our SEC filings.

Speaker 1

Entergy does not assume any obligation to update these forward looking statements. Management will also discuss non GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now, I will turn the call over to Drew.

Speaker 2

Thank you, Bill, and good morning, everyone. We had a very productive start to the year with progress on activities to support our near and long term objectives. That includes continued progress towards our growth opportunity as well as important achievements in our risk reduction efforts that will benefit our key stakeholders. Starting with our financial results for the quarter, today we are reporting adjusted earnings per share of $1.08 This result for the quarter is below our expectations, yet we remain firmly on track to deliver on our annual commitments. I'm confident because of actions we've already taken, our team's track record on flexible spending and our demonstrated ability to deliver steady predictable results.

Speaker 2

Kimberly will go over the details. Now, I'll cover the business updates from the quarter. Everything we do starts with the customer because that is the key to create value for all our stakeholders, customers, employees, communities and owners. Our efforts on that front were recently recognized by EEI's Outstanding National Key Accounts Customer Engagement Award, which is determined by customers. Validating our customer centric progress, 100 of the nation's leading chain and multi site businesses voted to recognize Entergy for delivering exceptional service.

Speaker 2

We still have more work to do, but we are grateful for this milestone. Additional evidence of progress comes from the the execution of 8 new electric service agreements with industrial customers signed in the quarter, including the data center in Mississippi that we announced earlier this year. These contracts represent approximately 1.1 gigawatts of new load and more than $150,000,000 of annual adjusted gross margin. As a reminder, our conservative planning practices assume that most rather than all volumes will come to fruition. Customer affordability remains a key focus area.

Speaker 2

Last quarter, I outlined our efforts to secure federal support for projects that would benefit our customers. Our utilities received 6 letters of encouragement from the GRIP application submitted late last year. Full applications for all 6 projects will be submitted to the Department of Energy by the end of May. We also continue to advance our $4,500,000,000 Part 2 application for the DOE loan program which if successful will lower capital cost for our customers. Our nuclear fleet continues to make progress and all our nuclear plants are now in column 1 of the NRC Action Matrix.

Speaker 2

However, operational excellence must be earned every day. Waterford III is currently working to recover from a shutdown following a transformer failure. At approximately 20 years old, the transformer was only halfway through its expected life and early indications point to equipment failure as the cause. We have an interim solution with spare transformer that can support up to 90% capacity until the replacement transformer arrives. We're working diligently to bring the plant back online in the coming weeks.

Speaker 2

In Mississippi, Grand Gulf wrapped up its 28 day refueling outage in March. This is the plant's shortest refueling outage since 2007. This outcome is a result of the team's intense focus on safety and operational excellence. We and most importantly our customers appreciate the work they put in to achieve this outcome. Stakeholder engagement remains a focus area and an important way to assess progress is through our regulatory outcomes.

Speaker 2

Starting at the federal level, System Energy reached a $115,000,000 agreement in principle with the New Orleans City Council to resolve all current CRE claims. Several New Orleans City Council members cited near and long term benefits to customers through the settlements. This agreement is consistent with series settlements with Mississippi and Arkansas, both of which were approved by FERC and determined to be fair and reasonable. It's also consistent with the reserve recorded in 2022. With the addition of New Orleans, Sealy has resolved roughly 85% of its litigation risk.

Speaker 2

Turning to the retail level, last week the Louisiana Public Service Commission approved the first phase of Entergy Louisiana's resilience and grid hardening plan. The plan includes 2,100 projects totaling $1,900,000,000 of investments over 5 years. The projects will provide important resilience benefits to customers and communities. A more resilient grid will also serve as a catalyst for growth as it bolsters confidence for customers seeking to locate or expand in our service area. The approval includes a forward looking recovery mechanism with semi annual true up, which will provide a solid foundation for our continued customer investment Louisiana.

Speaker 2

There are also reporting requirements to provide transparency to our stakeholders on our progress. While the investments will take place over the next 5 years, we are getting underway immediately. For those of you attending our Analyst Day in person, we will show you some examples of the future of our system through recently installed resilience projects. Entergy Louisiana is also in settlement discussions on 2 other proceedings. The FRP renewal or alternatively a base rate case and the streamline and enhance renewable RFP process to add up to 3,000 megawatts of solar.

Speaker 2

Given solid progress thus far, the hearing dates for these dockets have been extended to allow time to resettlement in these cases. Entergy Louisiana also filed for approval of Bayou Power Station, a $411,000,000 112 Megawatt quick start non base load natural gas power station. It is an innovative solution to meet the power needs in a challenging area on the edge of the Eastern Interconnect. To enhance local resilience and storm restoration speed, the unit would be situated atop a barge in Southern Louisiana. This is an area that is critical to our nation's energy security and Louisiana's economy.

Speaker 2

Entergy New Orleans filed an updated resilience and grid hardening plan which requests approval of Phase 1, a series of investments totaling $168,000,000 over 3 years. This is in addition to the GRIP resilience project that was approved by the City Council earlier this year. We are requesting to expedite the technical conference in May 1 and we are seeking a decision around mid year, so we can get started on this important work for customers. Our gas LDC sale continues to move along smoothly. The stakeholder engagement process has been going well and we remain on track to close the transaction by the Q3 of 2025.

Speaker 2

And lastly, Entergy Mississippi filed its annual FRP in March. Mississippi's efficient mechanism enables continued customer centric investments while providing appropriate credit support for Entergy Mississippi as it makes these investments. Interim rates became effective on April 1. Finally, we are very excited about our upcoming Analyst Day in June. We'll use that opportunity to show off New Orleans, give you a look at our resilience investment, provide a more detailed dive into our multi year strategy and outlook.

Speaker 2

That includes a significant customer growth opportunity before us, the plans to expand our clean energy portfolio and to advance reliability and resilience, and our efforts to help support customer affordability while maintaining our credit strength and earnings growth. We've had a productive start to 2024 with solid progress and execution across key customer, operational, regulatory and financial fronts. And by continuing to put our customers first, we will deliver premium value to each of our key stakeholders. I'll now turn the call over to Kimberly, who will review our financial results for the quarter.

Speaker 3

Thank you, Drew. Good morning, everyone. Today, we are reporting 1st quarter adjusted earnings per share of 1.08 dollars Several items affected the quarter results, including mild weather, the timing of operating expenses, including planned generator maintenance outages and the acceleration of vegetation spending and lower sales to cogeneration customers. With the Q1 results under our belt, we remain firmly on track to achieve 2024 results in line with our guidance. And we are well positioned to achieve our long term 6% to 8% growth outlook.

Speaker 3

I'll review all of this in detail. In the quarter, we had 2 items that were considered adjustments and excluded from adjusted earnings that I'd like to mention. First, Entergy Arkansas received a decision from the U. S. District Court in a long standing case around opportunity sales.

Speaker 3

The decision resulted in Entergy Arkansas recording a $0.46 impairment of a regulatory asset in the quarter. 2nd, Entergy New Orleans recorded a $0.27 regulatory charge to share incremental income tax benefits from the 2016 to 2018 IRS audit resolution. Our first quarter adjusted EPS drivers are laid out on Slide 4. Our results reflect regulatory actions that include recovery of the investments that we are making to benefit our customers. Depreciation expense is also higher as a result of those investments.

Speaker 3

For retail sales, as I noted earlier, weather was mild this year, but not as mild as 2023. Excluding weather, sales volume was not a big driver for earnings as higher sales to residential was largely offset by lower sales to commercial. Industrial sales were down 0.6% quarter over quarter, driven by lower sales to cogeneration customers. We continually monitor fundamentals important to our industrial customers. As you can see in the appendix of our presentation, the metrics remain supportive giving us confidence in our industrial growth outlook.

Speaker 3

Utility other O and M was higher this quarter than Q1 last year due to several drivers, some of which have variability throughout the year. For example, healthcare claims were higher and we had more planned maintenance outages at non nuclear plants. We also accelerated vegetation management in advance of storm season. Compared to our guidance assumption, other O and M in the quarter was higher than initially planned. However, we fully expect O and M to balance out over the year and ultimately be roughly in line with our original guidance assumption.

Speaker 3

Moving to slide 5, operating cash flow for the quarter was $521,000,000 which was lower than last year. The largest driver was customer receipts, which included significant deferred fuel collections in 2023. Deferred fuel costs within operating cash flow declined approximately $350,000,000 compared to last year. Credit is summarized on slide 6. We maintain a strong ongoing focus on our credit as it is an important element in executing on investments for our customers.

Speaker 3

For the quarter, our metrics were impacted by timing of debt issuances that will balance out over the course of the year. Our underlying business continues to generate strong FFO and our outlook support metrics in range or better than the rating agency expectations. On Monday, S and P issued a credit update for Siri, improving its outlook to positive and affirming its rating followed the announced settlement with the City Council of New Orleans. S and P further noted that they could raise Series ratings by 1 notch if the settlement is approved by FERC. As we have said, settlement of system energy litigation provides certainty for all stakeholders.

Speaker 3

Consistent with this, S and P noted these settlements reduce uncertainty of potential future claims and support the company's future cash flows, stability and predictability. Turning to slide 7, our equity needs remain unchanged. We continue to make progress against our 2025 2026 equity needs. As of the end of the quarter, we locked in more than 30% of our equity need for those years utilizing ATM forwards. As shown on Slide 8, we are affirming our guidance and longer term adjusted EPS outlook.

Speaker 3

Weather and lower sales cogeneration customers have been a headwind to start the year. For the full year, we are benefiting from sales to additional industrial customers. The impact of these sales offsets this headwind. We continue to be on track for our full year expectation. Regarding utility O and M, quarterly timing can vary significantly, especially when compared to a prior year where we deployed significant flex spending for the benefit of customers following a very hot summer.

Speaker 3

As we look to Q2 this year, we expect O and M to be higher than last year with the increase roughly in line with the Q1 variance. Key drivers of the timing of our spending in 2024 include the following. In 2023, all of our flex spending increase were in the back end of the year. So we expect corresponding reductions in spending this year in that same timeframe. In Q2 last year, we received significant prescription rebates covering multiple years, which we don't expect to recur at that level or in the same timeframe this year.

Speaker 3

I noted earlier that our Q1 variance includes accelerated vegetation spending. We expect that acceleration to continue in advance of storm season in 2024. This acceleration reduces spending in the back half of 2024 assuming normal weather. While we have variability in the quarters and spending, I want to reiterate that we fully expect O and M to balance out over the year consistent with our outlooks and we are confident we will deliver on our financial commitments. We continue to prioritize the needs of our customers to create value for our key stakeholders.

Speaker 3

We're well positioned to execute and deliver successful customer, operational and regulatory outcomes along with steady predictable financial results. As Drew said, we're excited about our Analyst Day in June where we'll provide a long term in-depth view of our plans for the future. And now, the Entergy team is available to answer questions.

Speaker 4

We have our first question from Shar Pourreza from Guggenheim Partners. Your line is now open.

Speaker 5

Hi, good morning team. It's actually Constantine here for Char. Thanks for taking the questions.

Speaker 2

Hi, good morning.

Speaker 5

Can we start on the updated thoughts around the CapEx plan given the data points around resiliency and additional industrial customers? Had about $900,000,000 in plan with a bigger number now approved. Is that pushing CapEx higher in the near term? And how should we think about the moving pieces there?

Speaker 3

Thanks, Constantine. Yes, from a capital plan, we did get $1,900,000,000 approved. We had $900,000,000 through this outlook period. Of the $1,900,000 approved, about $1,500,000,000 of that is in that same 3 year period. So that's an increment of about $700,000,000 for Louisiana.

Speaker 3

The Louisiana portion of that $900,000,000 was $800,000,000 So that's an incremental $700,000,000 How that rolls out through the capital plan? We'll update all that in at Analyst Day along with, what the effects of the rider and any other changes to our capital and our financing plan.

Speaker 5

Okay, perfect. And maybe can you help us reconcile some of the charges taken in the quarter and how the refunds may impact cash and financing needs in the near term? Do you anticipate any pull forward of equity issuance or are there offsetting factors that we should think about?

Speaker 3

We don't see any immediate change in equity. We had already reserved a substantial portion of the income tax or the deferred tax effect for New Orleans. We did increase that, but it's the return period is a pretty long period and so there's no effects in the outlook period, no material effects in the outlook period.

Speaker 5

Perfect. And maybe just one last follow-up on some of your commentary around regulatory outcomes. Do have any updated thoughts around the FRP process and rate case process in Louisiana? And is the period after the direct testimony kind of the make it right for the kind of more intense settlement discussions, any kind of lessons learned that you can implement?

Speaker 6

Hey, good morning. It's Rod. I think I can say, look, 5 weeks ago, we filed we suspended the procedural schedule to facilitate settlement. If you think about the date of May 21 when staff and intervener testimony is due, In the next 3 weeks, I think it's reasonable to assume that 1 of 3 things will happen. We'll either announce the settlement, we'll mutually agree to extend the dates procedurally to facilitate settlement or pivot back to a procedural schedule.

Speaker 6

With the resiliency docket addressed last week, I think the next 3 weeks will be telling about the progress we'll make. But we're comfortable that the stakeholders in Louisiana are now focused on settlement discussions.

Speaker 5

Perfect. Thanks, Ben. Appreciate taking the questions. Best of luck.

Speaker 2

Thank you.

Speaker 4

Our next question comes from Jeremy Tonet from JPMorgan. Your line is now open.

Speaker 7

Hi, good morning.

Speaker 2

Good morning, Jeremy.

Speaker 7

Hi. Just wanted to dig in a little bit more on plus $0.15 revised weather normal sales, just a stronger industrial sales outlook as you put out there. If you could kind of bucket whether that's more the pet chem is benefiting from cheap ethane and the outlook improving there or cheap methane benefiting ammonia, other industries or whether that's data centers? Just wondering which one of the industrial activities out there are you seeing, I guess, more upside?

Speaker 6

I think this is Rod. I can touch on that and certainly Kimberly can follow. But beyond the AWS transaction in Mississippi, we're continuing to see significant interest in the data center sectors, both hyperscale as well as colocation in Arkansas, Louisiana and Mississippi. But we continue to see strong interest from the metals sector as well, specifically aluminum and steel with projects in various stages of development. You can add in there with the IRA, developments are showing up in blue ammonia, in addition to the conversations around carbon capture.

Speaker 6

And that's not to exclude what we would consider to be our traditional sectors of growth in the service territory around refining and petrochemicals. We plan to give more color, of course, at Analyst Day, but I didn't want to suggest that there was one specific sector. There's a fair amount of diversity in our backlog and growth outlooks.

Speaker 3

And Jeremy, just to add to that for the $0.15 for this year, you can think about that specifically as our historic industries along the Gulf Coast and those industrial customers are online and taking power currently.

Speaker 7

Got it. That makes sense. It's very helpful there. That kind of weaved into my next question. I was just wondering for the Analyst Day, obviously, you're not going to give us all the details here, but just wondering any broad parameters of what we should expect on the day?

Speaker 2

Well, I mentioned a few of them in my remarks earlier around some of the things that Rod just discussed and the opportunities that we see for growth from a sales perspective and where that's coming from, some more color and depth to that conversation. Certainly, more clarity around the kinds of investments that we plan to make and that includes the generation side as well as the fold and wire side, we're talking about reliability and resilience. Some of the work that we are doing to drive productivity internally From a data perspective, we'll be giving a more robust outlook that goes out to 5 years that will include capital and earnings and we'll make clear as Kimberly just mentioned about our expectations from a financing perspective. And also since we'll be in New Orleans, we'll have a number of our leaders here with us. And you'll get the ability to access the broader segments of our management and leadership team than you normally do when you just see, you know, Rod and Kimberly and Bill Abler and myself out on the road.

Speaker 2

So you'll get to see what we are seeing in our various jurisdictions and get a more boots on the ground view of how things are progressing.

Speaker 7

Got it. Sounds great there. And if I could, just want to finish with Jerry real quick. It seems like a lot of meaningful progress over the past year or so. And just wondering your thoughts on, I guess, the prospect for continued positive momentum here in settlements given all the ground that's been covered so far?

Speaker 6

Yes. And I think the you're right. Being in a position where we can state comfortably that roughly 85% of the serious risk has been addressed through settlement, it does lend itself what I would think would be a compelling case to resolve the rest with the state of Louisiana. We can't speak and don't speak around the nuances of negotiations in any period, but we do believe that the fact that New Orleans is now off the table, it gives us a shot to pursue settlement with Louisiana near term.

Speaker 7

Got it. That's helpful. Thank you.

Speaker 4

Our next question comes from Michael Lundgren from Evercore ISI. Your line is now open.

Speaker 8

Hi, thanks for taking my question. I was wondering if you could provide a preview of your planned resiliency filing in Texas. You laid out a cadence of spending for Texas at the EEI conference. And I was just wondering if the Texas Resiliency Act since then has changed how you're thinking about it in terms of the amount and timing of planned investments?

Speaker 6

Yes, it's Rod again. We're going to make that filing in the Q2. And some of the considerations around the amount will be influenced by how we think about the contribution to the resilient spend from the state grant program, not to mention to your earlier point, how the capital would flow through the recovery mechanisms affecting both affordability and credit. But we'll make that filing before the end of Q2.

Speaker 2

And I'll add that as you probably recall, the Texas part of the resilience investment was pushed back a little bit because we have a lot of growth upfront. And so we so you probably won't see as much and that's where the grant piece comes in. And also the mechanism as we've talked about before, Since we have all of this growth in our service territory, the mechanism doesn't work as well from a credit perspective for us. So we're working on that. We have another legislative session coming up, but you'll see all of that reflected in our ultimate resilience filing.

Speaker 8

Great. Thank you. And secondly from me, on the Bayou power station, is the 411,000,000 dollars of investment included in your base capital plan? And then also given that it would be floating off the Louisiana coast, I was just wondering if you could talk about the protections in place for the plant from severe weather with work crews and equipment potentially being impacted? I know sometimes you see that with oil rigs off the coast.

Speaker 3

Yes. As far as the $411,000,000 that is included in our capital plan from a protection, it's a technology that's been used elsewhere. It's not and certainly just not necessarily in this area along the East Coast. And certainly is expected to be resilient in heavy, winds and storms.

Speaker 2

And just to be clear, it's not out in the middle of the ocean. It is on land, but it's in a canal, so that it can float with the storm surge. And so that's really what we're talking about here, not an oil rig out in the middle of the Gulf.

Speaker 8

Yes, yes, of course. Okay. Well, thank you very much.

Speaker 4

Our next question comes from Nick Campanella from Barclays. Your line is now open.

Speaker 9

Hey, good morning. Thanks for taking my questions.

Speaker 10

Good morning. I

Speaker 9

guess just morning, morning. Going back to the data center discussion, just you gave a stat on 1.1 gigawatts of new load is going to be about $150,000,000 of new gross margin, and this relates to the Mississippi Center. But just thinking about how that drops to the bottom line when you kind of take into financing costs or other items there, can you kind of help us understand how it translates to EPS? Just I'm thinking about there's clearly more opportunities like this on the horizon and trying to see what those are worth. Thanks.

Speaker 3

Yes. Thanks for the question, Nick. When you think about the Mississippi data center, it ramps up over time. So you're not going to see a lot of that in the 3 year outlook period. We can talk more about what that means over the 5 year that Drew referenced at Analyst Day.

Speaker 3

But you're right, when you think about AGM on that sort of customer, you are also putting in infrastructure to support it. So there is, you saw a shift in spending in the 4th quarter update where we added incremental renewables, for example, in Mississippi. So those investments and the associated costs associated with those investments will offset some of that from a bottom line perspective and then financing costs for those type things as well. But again, you'll see most of that effect outside the 3 year outlook period.

Speaker 2

Yes. It's the investment is the thing that will ultimately go to the bottom line. The AGM is there to support that incremental investment. So we think it's really important and it demonstrates the growth opportunity that's out in front of us and the demand from our customers to help them meet what they want to do.

Speaker 9

Great. That's really helpful. Appreciate it. And then, I guess, you mentioned in your remarks and you have it on slides here, you've been above the 14% FFO to debt target that the agencies view at. I'm just thinking about Moody's continuing to be a negative outlook.

Speaker 9

Do you think that there's a window to kind of address that ahead of summer? And what's your latest conversations been there?

Speaker 3

We certainly have regular conversations with the rating agencies and they are constructive conversations about, what's happening in the business. If you look at our underlying calculation, the FFO trailing 12 months for the quarter was similarly strong to what it was at the end of the year. And then we issued more debt in this quarter, as I mentioned in my comments, that will put the balance out through the course of the year, putting us strongly, in the rating agencies' expectation at the 14 percent or better. So strong discussions, certainly the rating agencies have to do their evaluations and make those decisions, but hitting that threshold for 2023, which we did and then continuing to execute on that and as we work to build towards 15% are important to us.

Speaker 9

All right. Thank you so much.

Speaker 5

Thank you.

Speaker 4

Our next question comes from Anthony Krowdwell from Mizuho. Your line is now open.

Speaker 11

Hey, good morning team. Hope all is well. I guess just quickly, if I could get Rod busy here. Just on Siri Rod, I know there's you're working with the Louisiana Public Service Commission on maybe settling there. Separately, there's the formula rate plan issue.

Speaker 11

Is there anything that prevents both of those being settled together, meaning one's a FERC issue and one may be more of a state issue?

Speaker 6

Short answer is no. We're pursuing our efforts with stakeholders on settling both and the interest being avoiding any litigation associated with either. So short answer is no, there's nothing preventing us from pursuing a settlement on both issues regardless of federal versus state jurisdiction.

Speaker 11

Great. And then just an easy one, I guess, Drew, on the gas sale update. I know it's a very long window for approval. Just any update or timing or procedural schedule you can provide us?

Speaker 2

The gas LDC is, as I mentioned, is on schedule. We have there's more details in the appendix. And so I think that at the LPSC, it's moving on quite quickly. The timeline is a little longer in New Orleans. But at this point, we don't see anything that's impeding the progress and the ultimate completion of the transaction.

Speaker 2

So we're firmly confident. There is the possibility that it could move up a little bit, but at this point, we're sticking with our buy Q3 2025 timeline.

Speaker 11

Great. Thanks for taking my questions.

Speaker 2

Thank you.

Speaker 4

Our next question comes from the line of Steve Placement from Wolfe Research. Your line is now open.

Speaker 10

Yes, hi, good morning. Thanks. Most of my questions were answered. Just wanted to get a little more information on this Waterford trip. Do you expect that you'll have the new transformer by kind of summertime?

Speaker 2

Probably not. That's a new transformer and as you as I know you're aware, there's a backlog for large transformers like that. And we don't have one of that size as a spare. So we do have the interim transformer ready to go and it should be ready by summertime that gets us back to about 90%. And so the plant should be online this summer, but we won't have full deliverability out of the plant that we get a new transformer in place.

Speaker 10

Okay. All right. But you can run 90% just with the spare. So it's kind of most of the way. So Yes,

Speaker 6

that's correct.

Speaker 10

Okay. And then maybe just on MISO transmission, when are we going to get I know they're going through their different tranches, like when are we going to get to the Entergy Zone area for MISO transmission?

Speaker 2

I believe that they are expecting to put something out late this year, but the timelines have moved around a little bit for them. But I think that was the previous expectation. If you're talking just to be clear, you're talking about the long term planning piece of it, right?

Speaker 10

That's right. That's right. That's right.

Speaker 2

Yes. I think they're as you know, they've been in the Pfizer North for a while working on stuff. And I do believe that they plan to put out some expectations later this year.

Speaker 10

Okay. And then I guess just on the cogen sales, just is this you still expect I expect industrial growth for the year. Cogen sales, if I recall, are pretty low margin?

Speaker 3

That's absolutely correct, Steve. And the Cogent sales were for the quarter, but that's really a volume difference, slight EPS difference. But as we discussed, the incremental industrial sales certainly support that, helping us achieve our objectives at the end of the year. Okay.

Speaker 10

Thank you.

Speaker 2

Thank you. Thank you.

Speaker 4

Our next question comes from the line of Angie Storozynski from Seaport Research Partners. Your line is now open.

Speaker 12

Hi, thank you. So two questions. First, as you see this data center load materializing in your service territory, is there any discussion about potential changes in like T and D tariffs that these big users would be paying? I'm mostly trying to see if there's any way to shield residential customers from payments for any sort of T and D upgrades that will be needed to accommodate this load?

Speaker 3

Good morning, Angie. Yes, when you think about data centers, they certainly are requiring infrastructure to support them. And so, we are ensuring that the pricing of those customers price in a way that support those customer coming, but also support the rest of our customers in the infrastructure build that's needed. When you reference Mississippi specifically, we worked closely with the legislature to ensure that we had the ability to add the infrastructure that we needed, but also that we protected all of our other customers through the contract. And so it was a benefit both to add the customer to the system, but also to the state of Mississippi and all of our other customers.

Speaker 3

And I would think about it the same way for future data centers that add to our service territory.

Speaker 12

Good. And speaking of Mississippi, and I'm just thinking about Siri, all of these issues that are related to the Grand Gulf nuclear plant. I mean, as you are basically trying to finish all of the litigations associated with that plant, is there I mean, would you, for example, consider signing like a long term contract with a data center instead of having those sort of disputes with on the regulated level just to make this asset dedicated to an industrial or commercial user as opposed to having it again? It seems to have led to a number of regulatory disputes in the past?

Speaker 2

No, that's a good question, Angie. We are thinking about various potential solutions there. Right now, the output of those facilities are contracted for the life of the unit to each of the operating companies that participate. So I don't think that there's any room for data center pieces, but we are looking at all other alternatives in order to try to mitigate that future potential litigation risk. So that is definitely on our radar screen, although we don't have anything to discuss about that right now.

Speaker 12

Very good. Thank you.

Speaker 2

Thank you.

Speaker 4

Our next question comes from the line of Ryan Levine from Citi. Your line is now open.

Speaker 7

Good morning. I was hoping you

Speaker 13

could touch on how you may approach attracting data centers outside of Mississippi, you mentioned Arkansas and some other locations. Could you just provide some context or some color around the regulatory attractiveness of those states on a comparison basis?

Speaker 6

Yes. This is Rod again. And I think Kimberly alluded to it. The example in Mississippi, I think, serves as a blueprint for other states when you think about how we shaped both the legislation from the actual state, the contractual guarantees, if you will, from AWS and the regulatory outcomes that facilitated our ability to meet AWS' needs, I think plays well. It would certainly focus around job creation and economic development from a stakeholder engagement standpoint, similar to the way that we did in Mississippi.

Speaker 6

I see that being very relevant in say, Louisiana, in Arkansas. Certainly, there's going to be an expectation regardless of where these data centers are cited that there's rate protection for the other customers in the service territory. Notwithstanding any conversation around the green or the clean dynamics, we are going to serve that customer's needs and the attributes that are important to them. But here's the piece that I think becomes really important as we're engaging our regulators and our customer stakeholders. What Mississippi was able to do was to expedite the CCN approval process to help us build the infrastructure around transmission and generation to serve that load and also providing credit accretive, for instance, in Mississippi, allowing for cash C WIP during the construction of those facilities, allowing us to finance those projects and lower the overall costs for customers.

Speaker 6

If you think about those dimensions, the rest of the states are taking notice of the success in Mississippi and from purely a competitive standpoint are trying to figure out how to replicate that those types of frameworks in their jurisdictions. But we think it's a blueprint that really projects well for our other states.

Speaker 2

Yes. And I'll just add that given what Ron just outlined, our regulators and our communities are excited about these potential investments. They're large investments that are going to throw off a bunch of tax and hollers and provide some really good jobs. And it's, you know, our areas in Central and Northern Mississippi, Northern Louisiana, and in Arkansas, there's a lot of rural space out there that data centers can go to, and those jobs are meaningful in those areas. So they're really excited about the opportunity for those investments and the economic activity that comes along with them.

Speaker 2

That's why, as Rod said, they're competing to figure out how they can serve these potential customers.

Speaker 13

Great to hear. And then on one other topic, just in terms of the Texas resiliency filing, is given your service territory, is there any opportunity to add fire mitigation or wildfire mitigation risk management to the plan?

Speaker 2

Yes, that's a great question. And where we are along the coast in Texas, a lot of the resilience investments and the wildfire investment is going to be very similar and overlapping. So yes, that is going to be part of it. I'm sure that wildfire is going to be a part of the conversation in the legislature coming up early next year. And so we do anticipate that there will be some overlap there.

Speaker 2

I'll just mention, further away from the coast in Mississippi, Northern Louisiana, Arkansas, we are also thinking about wildfire mitigation investment there to complement all the things that we've already done to monitor and prepare and respond to potential wildfires and all the community work that we're doing. But we realized that the next piece of that is investment to mitigate or eliminate wildfire risk. And so that conversation is ongoing with our stakeholders. And so we'll be looking to create opportunities to manage those risks for all of our stakeholders in the near future.

Speaker 13

Thanks for taking my questions.

Speaker 2

Thank

Speaker 4

Our next question comes from Travis Miller from Morningstar. Your line is now open.

Speaker 14

Thank you. Hello, everyone. 1, the new industrial customers including both data centers and the other industrial customers, what's the general split in terms of the CapEx between T and D and generation that you're anticipating?

Speaker 3

There's both there, Travis. The transmission certainly, generally is less than the generation, but some of it is timing. When you think about we have long term supply plans and where we may have had generation in a plan and perhaps there's some earlier execution of it in order to meet that demand. And as you know, we're in MISO, so transmission is planned through MISO as well. And so we also have long range planning on the transmission.

Speaker 3

So I don't have the exact split and I know you can get with Bill and get that specifically. But generally, when you think about the data centers probably heavier weighted to generation than transmission.

Speaker 14

Okay. And then you anticipate on that generation piece doing an RFP or would you have first rights to any kind of new generation build?

Speaker 3

In Mississippi, the legislation enabled us to, it effectively gave us CCN authority, to build what was needed for that data center to meet their timeline. So that doesn't require an RFP process. Some of our jurisdictions have RFPs and others don't. I think it comes down to a customer timeline and how you work with all your stakeholders to bring the customer on the timeline you're looking for. And then what that requires to ensure that we are building, strong appropriate assets into order to support the customers overall.

Speaker 14

Okay. And then general, the comments here you just made in general are for any industrial customer or more for data versus other chemical producers or factories, etcetera?

Speaker 3

Is that Yes. I mean, the data center is you

Operator

sorry. The data center

Speaker 3

is unique in that it's a larger customer coming in at one time on a faster timeline, but I would think about the planning principles the same for all of our customers.

Speaker 14

Okay, great. Thanks so much. Appreciate it.

Speaker 2

Absolutely. Thank you.

Speaker 4

There are no further questions as of right now. I'd like to hand back the call over to Mr. April. Thank you.

Speaker 1

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

Speaker 1

Thank you very much.

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Entergy Q1 2024
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