Entergy Corporation (ETR) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Entergy Corporation Fourth Quarter 2014 Earnings Release and Teleconference. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to Paula Waters. Ma'am, you may begin.

Thank you. Good morning and thank you, everyone, for joining us. We'll begin today with comments from our Chairman and CEO, Leo Denault; and then Drew Marsh, our CFO, will review results. [Operator Instructions] In today's call, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risks and uncertainty that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additional information concerning these risks and uncertainties is included in the company's SEC filings. Now I'll turn the call over to Leo.

Thank you, Paula. And good morning, everyone. Last year, we told you that Entergy was in a unique position, and that's still true today. We said we had a significant opportunity to invest in and modernize our fleet, strengthen reliability and meet evolving regular expectations and requirements. We said by making these investments, we could both grow our rate base and our keep customer rates low, a strategy supported in part by the industrial renaissance here in the Gulf South. We said we would manage risk and preserve optionality at Entergy wholesale commodities by improving fleet operations and pursuing stability. We said we'd manage commodity risk and leverage in the inherent volatility of power prices to our benefit and that of our owners. I'm pleased to say we did all of these things in 2014. At the Utility, we announced the proposed purchase of the Union Power Station, which would serve 4 of our operating companies. In Louisiana, Ninemile 6 came online months early and about $70 million underbudget. We resolved 2 important rate cases in Mississippi and Texas. And in Arkansas, while we are not where we need to be, we were granted limited relief in our request for a rate case rehearing. We completed our first full year of operation in MISO. And it's becoming clear that our projections that customers would realize savings were correct, validating our regulator's decision to approve that move. Although the numbers are still estimates, it now appears that customers across the Utility will, in fact, realize more MISO-driven savings than we had originally expected. We did all these while keeping our rates low, about 20% below the national average across all of our customer classes. For the year, we beat our original 1.9% retail sales growth projections by 0.4% coming in at 2.3%. Industrial sales led the way with 5% growth, beating our estimates of 2.8% by a wide margin. At EWC, we improved operations at our plants, which, even during the coldest days of the polar vortex, we're able to provide customers with safe, reliable power. And we made significant investments at our Fitzpatrick plant to strengthen reliability even further. At Indian point, we received an important favorable ruling on CZMA from the New York State appellate court, and we continue to engage New York State agencies when appropriate and possible. And particularly in the first quarter, during periods of market volatility, our risk management and hedging activities delivered substantial value for our owners. EWC's strong first quarter, coupled with that of the utility resulted in operational EPS growth of nearly 9% for the year, well above the original guidance we provided in the fall of 2013. All of these things led to Entergy capturing a top quartile position on total shareholder return in 2014. We believe this performance illustrates our commitment to what has been our mission for some time, creating sustainable value for our owners, customers, employees and the communities that we serve. As we look to 2015 and beyond, we can say with confidence that the fundamentals driving our business are intact. Of course, we know that our company faces some challenges in the coming year. And these challenges, including the drop in power prices, underlay our announcement this morning on 2015 guidance. But Entergy remains on track to deliver on its objectives. Our strategy remains sound and you will continue to see us execute on it this year and in the years to come. Let me start our discussion about the Utility by saying we continue to believe that, today, Entergy has some of the best growth fundamentals in the business. We continue to see a need make productive investments to meet increasing reliability requirements and to modernize our fleet. We enjoy and are working hard to strengthen recovery mechanisms that give us the financial flexibility to make these investments. Again, we expect to do so while maintaining our rate advantage, both through actions we've taken and, despite the drop in oil prices, through the continued expansion of our industrial customer base. 2014 provided ample evidence to support this point of view. Let's start with productive investments and the recent actions we have taken. On December 9th, we signed an agreement to acquire Union Power Station near El Dorado, Arkansas. While the agreement is subject to regulatory approval from 3 of our operating companies, buying this natural, gas-fired, nearly 2,000-megawatt facility helps us modernize our fleet and positions our operating companies to meet growing demand, including from industrial customers. In Arkansas and Louisiana, similar to prior acquisitions, these filings also include proposals for timely rate approvals. In Texas, we filed for CCN, Certificate of Convenience and Necessity, and plan to file a rate case in the second quarter to incorporate the Union Plant and rates upon closing. In Louisiana, for the first time in nearly 30 years, the Utility added a self-build power plant in its fleet. We're happy to say that Ninemile 6 in Westwego began commercial operations in the MISO market on December 24. This plant provides value to our customers and to our community, and is already fully reflected in rates. In addition, in early June, we announced plans for a major transmission build in southwest Louisiana. The Lake Charles transmission project, with investment of an estimated $187 million, will be one of the largest transmission projects in Entergy history. Again, our aim here is to strengthen reliability and support economic development that is already occurring in one of the fastest-growing regions in the country. I'll move now to the regulatory arena, where we also made significant progress. In Mississippi, we received more clarity in early December when the MPSC approved a rate modernization plan, which includes, as you know, a 10.07% benchmark ROE as well as provisions to strengthen our financial position for making investments. Importantly, and also in Mississippi, we began implementing the state's first ever utility-owned solar project, which will include the installation of 3 500-kilowatt ground-mounted solar arrays. Not a huge project, but it's an important way to gauge the viability of solar energy in the state, and, for us, it's also a good example of how Entergy and our commissioners can work together to find common ground. In Texas, we were the first utility in the state to take advantage of a distribution cost recovery rider. We also had 2 transmission lines CCN approved, and we filed another, for a total investment of approximately $166 million. In Arkansas, the APSC recently ruled to allow us to recover, via retail rates, FERC ordered System Agreement payments. 100% of the $71 million requested last year was approved in the PCA rider. And just last week, we notified the Arkansas commission that we will be filing a rate case in the next 2 to 3 months. We believe this rate case filed will have a positive outcome and give us the financial flexibility to invest in and strengthen our Arkansas portfolio, which in turn should go a long way in helping to drive economic growth and job creation. As you've heard me say before, constructive engagement with our regulators in Arkansas has been a top priority for us. We think we have an opportunity to strengthen our efforts in this regard, and now it's up to us to do just that. In New Orleans, ENOI and the city council's advisers reached an agreement in principle. This agreement would allow securitization of the amount necessary to establish a $75 million storm reserve. It would also allow recovery of nearly $32 million in capital costs associated with the Hurricane Isaac restoration. Funds from this securitization are expected in May of 2015, and will give Entergy New Orleans the financial resources to restore services if and when another storm hits. In Louisiana, the LPSC approved an accelerated gas pipe replacement program to, among other things, replace about 100 miles of pipe over the next 10 years. The commission also approved a rider for recovery of approximately $65 million in investment over 10 years. Rider recovery will be adjusted quarterly to reflect actual investment incurred for the prior year quarter. Finally, as I said earlier, we expect to see the industrial renaissance continue. Overall, we see retail sales growth estimates of 3.25% to 3.75% through 2017. Drew will be giving you more detail about this in a minute. Entergy Wholesale Commodities also had a strong year, capped by a quarter with some important positives. The plants are operated well and we made progress on the license renewal of Indian Point. As most of you know, a New York State appellate court ruled that Indian Point is grandfathered under the New York Coastal Zone Management Program; as such, exempt from CZMA review. If permission to appeal is denied or the ruling upheld, a new CZMA determination would not be required for license renewal. We also negotiated the standstill agreement with the New York State Department of State, which provides parties a period of about 6 months to discuss our recent withdrawal of the CZMA application. While we remain confident in our legal position to withdraw this application, the agreement is notable because it is evidence of the progress we've made in engaging in constructive discussions with New York State agencies. As we have consistently said, Entergy remains open to discussing a potential settlement that is fair and considers the interest of all parties. We continue to work through the license renewal process for Indian Point, a plant that supplies, on average, 25% of the power to New York City and the Westchester County area, and one that the New York ISO acknowledges as an essential part of the state's generation portfolio. We also continue to believe Indian Point will operate well into the next decade. Another item of note in the fourth quarter was Vermont Yankee, which came offline safely and as planned on December 29. Remarkably, it did so following its fourth breaker-to-breaker run. During what was often a difficult time, through hard work and dedication, our VY employees delivered an extraordinary year. At Entergy, we often say that we're lucky to work with the best in the business, and there can be no better evidence of this than our people at Vermont Yankee. And for that, they have our sincere thanks. The VY closure also highlighted market design flaws. And while we can't say these flaws were the sole cause of the closure, it nonetheless brings into stark relief unintended consequences that unviable market design can have. Fortunately, we're seeing some progress on fixes to capacity markets. And certainly, the infrastructure constraints in the Northeast are attracting more attention. If these attention translates to sound policies that address these issues, we think that would be good for everyone. One thing you'll be hearing about this year is energy price scrimmage. Basically today, some ISO market rules and algorithms can affect suppressed prices by not allowing the full cost of the marginal unit to set the clearing price. In the long run, this will lead to unwarranted plant retirements, resulting in higher cost and more volatility in price, and ultimately, degradation reliability. And that won't be good for anyone. I'll end our EWC discussion with a note on our hedging strategy, which is proving so successful in the past. While we strive to hedge with asymmetric upsides, take advantage of our bullish point of view and market volatility, our hedging portfolio as reflected in our quarterly price subsidy charts does carry some downside price risk. Moving forward, we will continue to position our portfolio to capture market upside while maintaining downside risk protection, always considering product availability, hedging costs and market liquidity. Overall, we think EWC has one of the best merchant portfolios in the country. Not only are our plants safe and well run, operating at high-capacity factors with few unplanned outages. But as we saw last year, all of them played a critical role in their respective regions. We also believe the EWC fleet is well positioned for growth, in part because we see improving fundamentals over time, including power prices, and a constructive outcome on Indian Point. And we intend to continue to strengthen these fundamentals through our own actions, including disciplined hedging risk management as well as diligently managing the processes for the continued safe operation of our facilities. So again, Entergy had a strong year. But as proud as we are of that success, it's in the rearview mirror. We are now focused on the road ahead and achieving our 2015 goals. First and foremost, excellence in safety and operations. We were pleased that River Bend received its first-ever rating of excellence compared with peers, joining both Indian Point and Waterford 3 in that category. This is an accomplishment that reflects our employees' years of hard work and commitment. We need to make sure that this level of excellence is maintained and expanded. At the Utility, we expect to deliver on our significant investment in construction opportunity, even as we work to find new ways to benefit current and potential customers. I'll note that this includes deployment of renewable energy. In 2015, we will be taking additional steps to assess its potential cost and performance at several of our operating companies. And in order to meet evolving customer needs and expectations, we will also look for opportunities to incorporate new ideas and technologies, working to ensure that we are able to earn our full allowed ROEs in the coming years. And the across the Utility also continues to be a priority. Another objective is to receive approval from the Louisiana Public Service Commission to combine Entergy Louisiana and Entergy Gulf States Louisiana into a single utility. This move will make it easier for us to make needed investments in the state's power infrastructure; and, via expanded rate options, sustain and propel the state's industrial renaissance. At EWC, we will continue to focus on positioning the portfolio to unleash its full value, and this certainly includes advancing license renewable efforts at Indian Point. We will continue to advocate for sensible policy frameworks that recognize the value of our merchant fleet, from environmental to reliability, which we believe will benefit not only our company but also the customers and communities we serve. And finally, all of these actions will support job creation and economic growth in every state, region and community where we do business. This includes substantial support for schools and universities as well as workforce training programs, so opportunity is shared with as many as people as possible. This is a priority for us. You'll be hearing more about progress against each of these objectives in the months to come. Let me conclude with a couple of important points. Today, as you heard me say, Entergy has an opportunity to position our service territory for the future. This means modern, more efficient plants, infrastructure that is even more reliable than it is today, and the incorporation of new and emerging technologies. For us, this opportunity translates to investment, particularly over the next 3 to 5 years. To reiterate, and as we saw in 2014, we have a compelling capital plan, a regulatory environment that, by and large, allows us the financial flexibility to deploy it, and sales growth that supports growth both keeping -- both by keeping rates low. And in the end, this business is a long-term play. So while short term and even mid-term volatility is a fact of life, as we look to 2015 and beyond, it that should not distract us from this company's strong fundamentals, sound strategy and unique opportunity. And with that, I'll turn it over to Drew.

Thank you, Leo, and good morning, everyone. Today, I will review the financial results for the quarter as well as highlights from the full year. In addition, I will discuss the 2015 operational earnings guidance which we initiated today and review our 2017 financial outlook. Starting with Slide 2, our fourth quarter results for the current and prior years are shown on an as reported and operational basis. Note that operational results exclude special items from the decision to close Vermont Yankee, HCM implementation and the transmission spin-merge effort terminated in 2013. Operational earnings per share were $0.75 in the fourth quarter of 2014, lower than the dollar per share earned in 2013. Results by line of business are summarized on Slide 3. Starting with Utility, operational EPS was $0.61 per share in the current period compared to $0.86 in the prior period. The Utility continued to realize volume improvement with 2.4% weather-adjusted retail sales growth. Excluding the effects of weather, higher volume contributed about $0.03 per share to the quarter's net revenue increase. The industrial customer class had the strongest gains at 6.7%. About a third of the industrial growth came from the large chemical segment, which increased 11% quarter-over-quarter, mostly due to the expansion of the core alkali -- of the ag core alkali customer. We also had solid growth of 4.3% from our petroleum refining customers, while sales to small industrial customers increased 3.3% as regional producers continue to benefit from a stronger national economy. Higher price contributed approximately $0.14 per share, a portion of which was offset by the other line items. Despite the net revenue growth, Utility results declined due largely to 3 drivers. First, nonfuel O&M was higher as benefits from our cost management efforts were offset by higher nuclear spending to improve operations, timing of Basel spending and other increases, such as MISO administrative fees, which were offset elsewhere in the income statement. Next, we recorded a $0.06 per share write-off because of regulatory uncertainty associated with the resolution of the Waterford 3 steam generator replacement prudence review. Finally, the Utility's effective income tax rate was higher due to benefits recorded in 2013. Moving onto EWC, operational earnings per share of $0.39 were lower than the $0.48 earned a year ago. The low EBITDA, 2 key drivers were a higher effective income tax rate and lower realized earnings on decommissioning trusts. EWC EBITDA for the quarter, summarized on Slide 4, was $183 million, a $50 million increase from the fourth quarter of 2013. Increased net revenue was the main driver due primarily to the effects of mark-to-market activity. Similar to 2013, we had sales that did not qualify for hedge accounting. Unlike 2013, market price moved down after those sales were executed and resulted in a positive mark-to-market gain in the fourth quarter of 2014. The net revenue increase was partially offset by the gain on the sale of the District Energy business in the fourth quarter of 2013. Briefly moving to operating cash flow shown on Slide 5, OCF was around $1 billion in the current quarter, about the same as 2013. Now I'll review the full year results, starting on Slide 6. On an operational basis, 2014 earnings per share ended the year at $5.83, up from $5.36 in 2013 and above our original guidance midpoint of $5. The largest driver for the year was top line growth at EWC and Utility. EWC earnings benefited from improved operating performance as well as our hedging strategy, which, as Leo noted, provides upside opportunity in a higher-priced environment while balancing operational credit risk. Utility net revenue reflected rate actions and sales growth, including the effects of weather. The overall company net revenue growth was partially offset by several items, including a higher effective income tax rate, Utility write-offs and the 2013 gain on the District Energy sale. On Slide 7, and staying with the full year view, EWC's operational adjusted EBITDA increased almost $400 million year-over-year, due mainly to the higher net revenue discussed earlier. Our full year operating cash flow performance is summarized on Slide 8. OCF was about $3.9 billion in 2014, up $700 million from the prior period. The primary full-year drivers are higher net revenue and receipt of proceeds to reimburse the Louisiana operating companies for Hurricane Isaac's costs. I'll now turn to forward-looking information. Slide 9 summarizes our 2015 operational earnings guidance, which we are initiating today with a midpoint of $5.50 and a range of plus or minus $0.40. Our guidance range reflects 2 key updates as we talked you at EEI about our expectations for 2015. First of all, we're now using forward price curves as of December 31, which are lower than the September 30 forwards available at EEI. Since EEI, our revenue estimates for EWC's nuclear fleet have come down approximately $0.65 per share, including $0.13 for mark-to-market activity. Secondly, we have continued to evaluate our income tax positions and our midpoint now reflects an effective tax rate of approximately 23%. This change is driven by additional anticipated benefits at Utility compared to expectations last fall. The precise timing of these benefits is uncertain, but our best estimate right now is this will be more backend-loaded in the year. Other less significant updates largely offset. Now I'll cover a few highlights of each of the business segments. Starting with the Utility, the guidance midpoint is $5.70 per share. Net revenue continues to be an important driver and sales growth accounts are approximately half of the $0.55 net revenue increase. Our guidance midpoint reflects 2.7% weather-adjusted retail sales growth in 2015, including 4.4% growth for the industrial class. A portion of the growth percentage change is due to 2014 industrial sales that were higher than we expected, as well as continued refinement of our 2015 estimates, driven in part by timing adjustments, meeting some customers with delays and some with slower ramp ups. We also updated some customer-specific forecasts for recent utilization trends. In addition, the net revenue increase reflects expected rate changes. But as we noted last quarter, we don't see regulatory price changes having a material year-over-year bottom line impact. Below net revenue, Utility O&M will increase because pension expense is now estimated to be higher than we anticipated at EEI, due primarily to a lower discount rate of 4.27%. The pension expense changed since EEI increased the Utility O&M by approximately $0.06 per share. For taxes, the Utility midpoint reflects an approximate 23% effective income tax rate in 2015. Now let's turn to the EWC. EWC's 2015 operational earnings guidance midpoint is $0.70 per share. We've isolated the year-over-year earnings contribution of Vermont Yankee, and is now expected to decline approximately $0.20 per share. This different than our expectations at EEI of about $0.40 per share due to lower fourth quarter prices in 2014 and more earnings on the decommissioning trust as we rebalanced to a more conservative stance during the first phase of decommissioning. Another driver in EWC's 2015 guidance is higher nonfuel O&M, including higher pension and OPEB expenses as well as the maintenance outage at RISEC and our CCGP in Rhode Island. Our 2017 outlook is summarized on Slide 10. The Utility outlook for operational earnings of $1.05 billion to $1.1 billion remains on track. The foundation for the Utility's growth outlook is a capital investment plan, which is largely unchanged since EEI. The next important assumption for the Utility sales growth, which we anticipate will continue to be robust for 2017. Our current estimate for the full-year compound annual growth rate off a 2013 base year was around the low end of the range provided at EEI. Now that 2014 results are in the books, we are updating that disclosure to 3.25% to 3.75% 3-year compound annual growth rate through 2017, off the 2014 base year and reflecting continued refinement of our expectations. For EWC, we have an EBITDA outlook of $650 million to $700 million in 2017. As you know, market prices are volatile. And based on December 31 prices, we would not be in that range. However, based on of our point of view, we continue to believe that we can meet our EWC EBITDA expectations for 2017, although we are at the lower end of those expectations today. Our 2017 outlook for Parent & Other is unchanged as well. Slide 11 provides a view of the contributions to Utility growth by key industries expanding in our service territory. Over the last several months, we've seen steep declines in oil prices and many of you have asked us about the potential impact to our sales growth outlook. There will be some effect on our state economy, particularly on Louisiana and Texas businesses that supports the oil and gas services industry. However, the outlook to our core growth large industrials remains robust. Key growth segments in the chemical sectors are largely unaffected by oil price decline, such as ammonia, chlor-alkali and industrial gases. Primary metals and wood products are also largely unaffected. These industries rely on low energy costs in a growing economy to be successful. Other second order impacts could begin to impinge on petrochemicals, but we've only seen a couple of minor delays to date, and our customers remain committed to completing the multiyear projects they have started. We have seen some pullback in specific sectors like gas-to-liquid facilities, which compete directly with crude based on production or pricing. While we would note that although the gas spreads remain robust, prices are at lower levels with increased volatility, which has caused some of our customers' investment decisions to be delayed. Still, these customers are not key to our growth expectations through 2017. In fact, through 2017, the vast majority of our anticipated new or expanding large industrial customers have passed their final investment decisions, or they are under construction. As Leo said, 2014 was a good year, but it's now in the past and we still have a lot ahead of us. We understand that a lot has changed in the last few months and we know that a lot can happen between now and 2017. However, based on what we know today, we believe that the utility's long-term growth proposition is intact and achievable. We will execute the capital plan and upgrade our infrastructure to better serve our existing as well as our new customers. At EWC, we will manage around the volatility that is inherent in that business and we'll work towards additional clarity on Indian Point, which give us strategic flexibility. And we will continue to focus on safety and operational excellence throughout the company. We know we have new challenges and we are excited about meeting them. And now, the Entergy team is available for questions.

[Operator Instructions] Our first question is from Michael Weinstein of UBS.

It's Julien here. So I wanted to just dig in to the guidance a bit further here. Can you expand -- and I know you alluded to it already, but what exactly is driving the tax changes? Can you elaborate here a little bit? And what do you think about a normalized tax rate would be in subsequent years or just, kind of, in a generic year?

Julien, this is Drew. That's a good question. The -- if you look back over the last 5 years, we have had an operational effective tax rate in the range of what we're talking about. I think, corporate-wise, it's been about 26%, and at Utility, it's been about 23%. So what we're talking about is not unusual in that regard. And as we look forward, this year -- we'll usually talk about these things. We talk about a portfolio of opportunities and it's still certainly no different now. And we have a portfolio of opportunities that we're looking at in 2015. And by laying it all out this year upfront, we're trying to give you better view of what we expect this year. Beyond 2015, certainly our expectations continue to be that we will look for opportunities because that is one of the largest items on our income statement. But just to make sure that we are all clear about what the underlying business expectations are, we haven't -- we put statutory tax rates in for '16 and -- or our '17 outlook that we rolled forward today. So as far as 2015 goes, like I said, it is a portfolio of opportunities. We have a number of cases that are rolling forward with various tax authorities and it's based on what our expectations are today. Certainly nothing is guaranteed in that because there are ongoing discussions, but that's the best estimate that we have today. It could be higher or lower than that by the end of the year.

And just relative to the initial guidance you kind of laid out there at the time of EEI, what exactly changed? If you could elaborate briefly.

I think it just has to do with some of our expectations about what's going to transpire, particularly towards the end of the year. And our desire to make sure that our investors were fully informed about what the possibilities could be rather than get surprised, even if it's an upside at the end of the year. We certainly didn't want to land that in your lap as a surprise.

Great, excellent. And then just cutting back to the other side of the house here, on the EWC front, what are you thinking about sort of -- or what gives you confidence, rather, in still having kind of a long-term bullish perspective? Obviously, you have a view of '17, what are you seeing out there? Is it capacity, is it energy? I mean, could you elaborate a little bit?

Sure, Julien. This is Bill. A couple of things. In the long run, as we look at gas supply, obviously we're seeing a huge cut back in drilling. So we think that, eventually, that will have an impact, a bullish impact on natural gas prices. As it relates to heat rates, we think that those are also undervalued in the market. As you think about the number of shutdowns, either economic shutdowns or shutdowns due to environmental reasons we remain bullish on heat rates. And we are seeing some positive changes in the capacity markets, such as what we -- what was evidenced recently this week up in New England.

Our next question is from Dan Eggers of Crédit Suisse. Daniel L. Eggers - Crédit Suisse AG, Research Division: If I just kind of have a look at what you guys did in 2014 and you look at the 2015 at the Utility level, right, if we back out the beneficial tax rate, '14 being pretty close to statutory, '15 being much lower, it looks like your earnings are a lot closer to flat year-on-year. And I know there's always going to be moving parts, but how should we think about earned ROEs this year for '15? And then '16, '17, how you get to your earned ROEs if that tax rate does normalize?

I'll take a first crack at this, and then Theo can jump in. And I'll let Theo talk about ROEs. I'll talk about the big drivers for the earnings blocks as -- particularly as we move forward. So I think you're right. In terms of '14 to '15, we're not seeing substantial growth because we don't have a lot of rate actions. But as you look forward, certainly this year, we have some significant investment opportunities. We're talking about like Union Power and those kinds of things that we expect to come on at the end of the year, as well as rate opportunities within Arkansas and Texas. And those are going to be the main drivers. They're going to push us forward to sort of 2016, 2017 time frame. And I'll let Theo talk about the ROEs in particular.

Hey, Dan, this is Theo. I mean, I think when you look at '15 ROE, I think you're going to see ROE that's slightly below 10%. Not much different from '14, I think, as you somewhat illuminated on. But I think as you go forward through '16 and you look at the things Drew just mentioned earlier, sales growth, the fact that the Union purchase goes into -- planted into rates in 2000 -- I mean, the spend it goes in the rates in 2016. And also you see some changes relative to some of our O&M level pension cost, I want to mention you'll see those ROEs start to move, as we have said many times at EEI and other venues, in that 10% to 11% range in 2016. As you look at the various operating companies, we see ourselves making constructive progress at Arkansas as it relates to moving towards the allowed ROE as a result of our 2015 plan rate case and other actions in Arkansas. The growth that we see in Louisiana will move our Louisiana utilities. I think when you look at it on a combined basis, you'll see that company at -- within its earnings band range based on 9.95% allowed ROE. And I think as you look to Mississippi, New Orleans, we see those companies also earning at their allowed ROEs when they get into the 2016 timeframe. Texas gets closer. We see growth in Texas as well. And also, we would -- because of the Union acquisition, we'll have a rate case in Texas to move forward with that. And so we'll see some -- likely see some rate change in Texas as well. So all of that, as you look across the jurisdictions, we move closer -- to those that aren't at that point today, they move closer to get to their allowed ROE. And overall, as we've said over the past few months, when you say Utility business, that's in the 10.11% ROE range. Daniel L. Eggers - Crédit Suisse AG, Research Division: So I guess -- but if you think about kind of next year and beyond, effectively the $0.95 of tax that you have presumably could go away next year. You're thinking of the Texas case, the Arkansas case and putting Union in the rate base should more than compensate for that headwind. Is that the way if we're going to simply balance things out?

Yes, I think you'll see the rate actions. And again, as well as, I think, we'll see some O&M impacts as well as we go into '16. Daniel L. Eggers - Crédit Suisse AG, Research Division: Okay. And I just have one dumb question. If the discount rate stays at the same level as it ended last year, what happens to pension expense beyond 2015? Is it a catch-up year? Or would it stay at these levels, that would be a flat year-on-year comp?

No, that's an excellent question. No, It's an actually -- it would go up. So we build our forecast with interest rate increases, as the market tells us, in mind. And we -- mark-to-market, if you will. It's not exactly like a mark-to-market, but it's similar. And so we're anticipating interest rate rises, which would mean lower pension liabilities, which will mean lower pension expense. And so right now we are anticipating, in 2017, a 5% discount rate on our pension liability. And as I mentioned, that 4.27% is where we ended the year. So that would be somewhere in the neighborhood of about $0.20 of earnings -- $0.20, $0.25 of earnings per share impact if we were sort of flat to where we are today versus our expectations for 2017.

[Operator Instructions] Our next question is from Paul Patterson of Glenrock Associates.

Just on the 2015 guidance, you guys mentioned that there's an increase in depreciation and decommissioning for 2015. And you talked about it, I just wondered if you could just review that a little bit in terms of what's driving the increase in depreciation expense and decommissioning at the wholesale business at the nonregulated business.

Okay, this is Drew. So I mean, I think it's due to just normal activities. The depreciation is the higher -- the capital investment that we've made at EWC in 2014. And then the decommissioning expense is, as we get closer to the end of these lives, particularly as you shorten up your expectations, the decommissioning expense is going to rise naturally as you go out that direction. So I think it's just the normal expectations based on capital investment and shortening life of the assets.

With the capital investment that you're making, the actual plant value of the nuclear plant is increasing as the lifespan of the plant is decreasing, is that correct?

Certainly, from a GAAP accounting perspective, that you're seeing a large -- you're growing the asset base right now. And it is -- as you are getting to a shorter life expectancy, you are having that greater depreciation, yes.

And we should expect that to continue going forward?

Yes. I mean, like -- last year, I think, or maybe 2 years ago, we did a depreciation study to try and balance it out a little bit so it's less dramatic than it would have been before. But certainly, we -- you will see some of that still going forward, yes.

Our next question is from Stephen Byrd of Morgan Stanley.

I wanted to discuss hedging strategy from here. And just given the environment that we're in and your point of view, would you want to be a bit more cautious in terms of hedging in the expectation of improving heat rates, et cetera? Or how do you think about sort of your hedge philosophy at this point?

Steven, this is Bill. Well, absolutely, we think about that. So given the point of view that we just discussed earlier, as we look into the outer years, we want to be very careful about the products that we use so that we -- not necessarily really interested in a lot of fixed-price products at this point in time. So we look to move more towards structured products that have that asymmetric upside. Obviously, that depends on a lot of things -- counterparties, cost of the products, et cetera. But we are carefully looking at that strategy as we speak, specifically as it relates to 2016 and '17.

Okay. And just shifting to Indian Point specifically. There is a recent -- I think, it's a state ruling regarding -- just the hearing process around a potential summer shutdowns to protect fish in the Hudson River. Could you give us a sense of just procedurally the process through which that hearing will take place, just so we can try to focus on next steps in understanding that process?

Sure. That ruling just did come out this week. So kind of from a high-level perspective by February 20, Riverkeeper and the staff needs to make some recommendations as it relates to specifically what thinks it would like to recommend in terms of the outages that will go through the normal discovery process. Probably more of us throughout the summer. And then in the fall, we will actually have a hearing on the issues of outages and then hope to get you some initial reply briefs by the end of the year.

Okay. And then in terms of after the reply briefs, what would be the step back after that?

Well, depending on what happens there, then you would work through an appeal process, et cetera. To kind of sum it up, Stephen, we think this process probably goes on for several years before you get any final determination.

Oh, I see. So there could be a decision late in the year or early next year, but then there would be -- there could be various appeals after that?

That's correct.

Our next question is from Jonathan Arnold of Deutsche Bank.

One quick question on -- when you gave the sensitivity on interest rates and the discount rate just now, on the pension, I think it was $0.20 impact on 2017 if the discount rate increase did not materialize. Is that a holistic estimate, including your exposure to short-term debt? Or is that just the pension?

That was just the pension. And I was trying to do math on the fly, trying to widen my range out a little bit. But I think $0.08 is our rule of thumb on 25 basis points. So $0.20 to $0.25 is probably a better estimate for that. But yes, it doesn't include interest rate offset.

Okay. And the second point was I just -- I was curious on your -- I mean, you have the slides with the '17 point of view, but you also have '18, '19 disclosures in Table 7 of the release. Can you share with us what capacity price was embedded in that for the auction that just happened? Is it...

Are you talking about -- for ISO New England?

Well, for ISO New England...

Yes. I guess, I think it wasn't updated overnight, but it must have -- might have been your point of view that was in there.

Yes, I think it is our point of view. So you know that the option results for those Pilgrim and RISE came back for the CMA zone at about $11.08 a kW-month for that option.

Right. So is that what was in your table here?

I think it's fairly close to what we had. I mean, I think we had talked about that. We anticipated it would be net cone [ph].

Our next question is from Michael Lapides of Goldman Sachs.

Can you talk to us a little bit about your plans in Arkansas? You've hinted at times about trying to seek legislative relief. Just trying to think about the timing of trying to do that? And what type of relief or what type of mechanisms you'd like to seek versus the timing and process for a potential full-blown rate case there?

Yes, Michael, this is Theo. And I guess I'll start with we believe in Arkansas, we started from a common goal with those that are in state, we believe, with commissioners as well as state and local officials, which is really about attracting jobs, supporting economic development growth and regional prosperity in the state. When you think about legislative actions that we've talked about, I think we said this before, the legislature is currently in session now in Arkansas, and any legislative actions would clearly go through the legislative process within the current session. In terms of the different -- what may be a part of that, I think as we said before, we would be looking at mechanisms that would align Arkansas with some mechanisms we see in other jurisdictions across our service area. Things like, for instance, FRP. FRPs may be similar to what we've seen in Mississippi that has various forward-looking elements that recently came out of the Mississippi case. And also, I think, one thing we would look to try and address in Arkansas is really given the commission some criteria other than kind of a simple DCF method to determine ROE. I mean, really, this is really about giving the commissioners some, I'd say, more tools in our toolbox and really giving them various options they can look at again in a different way in Arkansas that would help us, help achieve the common goal that I talked about earlier. So with the legislative session going on, from a timing perspective, I would expect that we'd follow some legislation around this and around these various components in the next few weeks in Arkansas.

Got it. So we should probably think that any rate filings wouldn't happen until after the legislation -- legislative session closes? So kind of thinking about a midyear case, that implies a midyear 2016 revenue change.

Well, I think if you look -- I mean, as Leo mentioned in his opening comments, that we did provide notice that he would file a case in Arkansas, I believe in 60 to 90 days. So -- and we did that at the end of January. If you count from that point in time, you're sometime in the March, April time frame in terms of filing a case. And given the statutory timelines in Arkansas, that would probably put you with, if I'm doing my math correctly in my head, a rate-effective timeline somewhere at the beginning, potentially, of 2016.

Our next question comes from Charles Fishman of MorningStar.

Leo, you made comments concerning the way the board would look at the dividend in 2016 at EEI. If I take Slide 10 on your 2017 outlook the way I understood those comments at EEI, I should look at the Utility, net income, your outlook, less Parent & Other. And it appears to me, you're probably, by '17, you're getting closer to the payout range you want to be in. Is that a fair assessment that the board -- in the way the board would look at it?

Yes. When we -- I think even when we were talking back at EEI, the view is that we'll start to have the conversation with the Board when we start to look at '16 and '17's results. If you look at -- and you're exactly right. What we are talking about is the payout ratio around Utility combined with Parent & Other, as the dividend paying entity that we would be looking to, excluding EWC, of course, given the volatility associated with that kind of business. But as we start to look at what '16 and '17 hold and what those combined earnings would be, we think that that's where the conversation begins with the board. As we've mentioned, a lot of factors will go into that, in addition to just what those earnings levels are. So for example, the investment profile, what's going to happen in terms of our investments in the Utility in 2016 and '17. And if it make sense to reinvest versus the dividend, raise dividend, because we have the growth path there. So you're right about the metrics. You're -- and like I said, the timing would show up right around as we look at the '16 and '17 earnings profile.

Our last question is from Andy Levi of Avon Capital.

Just a few questions. I'll keep it to 2, 2.5. Just back on the taxes, I guess the concern I have that it is about $0.90 of earnings power. So if you kind of back that out, '15 actually looks kind of weak. And so I just kind of want to understand your thinking on that and why that is the case? Because if you kind of just put a Utility multiple on it, it's quite a bit of value, 10 to 15x the value in the stock. And then I have a follow-up.

Okay, Andy, this is Drew. I think the way we're thinking about it is '15 is sort of a foundation year for the growth opportunity that we have over the next couple of years. And as we look at it, we were really focused on making sure that we put the building blocks in place for making that 2017 aspiration. Taxes are a big piece of what we do every day. And we manage them as well as we can, like every other line item on the income statement. And like I said earlier, it's not out of line with where we have been in terms of an effective tax rate over the last 5 years. So we think this is part of our normal operating procedure. And this year, it's -- there's a couple of lumpy items in there that are helping us get there. But this is part of our expectation and what we expect to do every day when we come to work.

I understand that. But again, I'm not going to debate with you, but if you go back to your Regulation G disclosures, your statutory tax rate's 36%. So I'm just trying to look at the true earnings power longer-term of the company. The follow-up I have, this is on Pilgrim. I guess, since big snowstorm, the plant's been out. If you can kind of give us an update there? And if I'm not mistaken, you were supposed to have an outage in 2015 on Pilgrim? And so, whether this unforced outage will help on the scheduled outage that you had or is it just an unfortunate outage? And then in the spring, you'll go into your regular outage? And also the cost of having the plant down during this time of the year?

Yes, Andy, this is Bill. So to answer question regarding Pilgrim, the plant shutdown due to a Storm Juno, it shut down orderly, safely, without incident on the 27th. We did lose off-site power to the facility. However, all safety systems and backup power systems worked as planned. So we've been working through that, dealing with a number of issues. We expect that plant to start up in the near-term and in the next couple of days, and be back to full load probably sometime this weekend. As it relates to the planned outage, we do have a refueling outage that's scheduled in the spring. That remains unchanged. So we still need to refuel the facility and perform normal maintenance on that facility as we originally planned. So nothing really changes there.

And I have one really very quick question. On just EWC, I didn't see any CapEx numbers for '15. Is that something that you guys disclose or you don't give?

No. It should be in there, Andy. It's on table -- it's in Appendix B.

Okay. And how much is that for '15?

$425 million.

$425 million. Okay. And so, your operating cash flow at EWC is how much?

I don't think we disclosed that specifically.

I will now like to turn the conference call back over to Paula Waters for closing remarks.

Thank you, Shannon. And thanks to all for participating this morning. Before we close, we remind you to refer to our release and website for Safe Harbor and Regulation G Compliance statements. As a reminder, we plan to file our annual report on Form 10-K with the SEC around the end of the month. The Form 10-K provides more details and disclosures around our financial statements. Please note that events that occur prior to the date of our 10-K filings that provides additional evidence about conditions that existed at the date of the balance sheet will be reflected in our financial statements in accordance with Generally Accepted Accounting Principles. Our call was recorded and can be accessed on our website or by dialing (855) 859-2056. Replay code 62430843. The telephone replay will be available until February 12. This concludes our call. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.