Entergy Corporation (ETR) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Entergy Corporation Fourth Quarter 2015 Earnings Teleconference. [Operator Instructions] I would now like to turn the conference over to Paula Waters, Vice President of Investor Relations. Please begin.

Good morning and thank you for joining us. We will begin today with comments from Entergy’s Chairman and CEO, Leo Denault and then Drew Marsh, our CFO will review results. In an effort to accommodate everyone who has questions, we request that each person ask no more than two questions. 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 uncertainties 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. And now, I will turn the call over to Leo.

Thank you, Paula and good morning everyone. Today, we are reporting fourth quarter operational earnings per share of $1.58, consistent with the guidance we gave you last quarter. It was a good quarter overall, although developments related to resolving lingering risks and uncertainties resulted in a few non-recurring expenses. Namely, we had two regulatory charges in utility related to longstanding matters and we reported two additional asset impairments, reflecting the changes in strategic direction for the EWC business. With those things now mostly behind us, we have initiated 2016 guidance with the midpoint in line with our expectations. We also affirmed our 2017 and 2018 utility, parent and other financial outlook. 2015 was a pivotal year for us. We accomplished much of what we set out to do, working in the interest of all four of our stakeholders. For our customers, we began making investments in our long-term capital plan to continue modernizing our infrastructure and maintain a reliable and efficient system. Meanwhile, we control the overall cost in our customer bills and obtain new legislation and regulatory actions. These accomplishments facilitate our ability to continue improving our service to customers. Our employees, we continue to purchase – to pursue our organizational health initiative soliciting feedback from our workforce and using it to strengthen our culture and enhance our organization. For our communities, we continued our focus on education putting particular emphasis on workforce development. We began a $5 million 5-year workforce development initiative in partnership with the communities we serve. The first round of grants will be announced soon. We also contributed approximately $3 million throughout 2015 in support of education to organizations such as Teach for America, STEM/NOVA, Jobs for Americans Graduates and City Gear, among others. Our employees echoed our commitment, giving more than 95,000 hours of their time to support education and other causes. Combined with our work in other areas like assistance to low income families, these contributions are accomplishing several objectives. We are creating economic activity when trained and educated people enter the workforce. We are creating valuable resources and a competitive advantage for our region helping to attract new businesses. Our efforts work for us as we need new skilled employees. And perhaps most importantly, our efforts provide an opportunity to those that might not otherwise have one, so that the cycle of poverty can be eliminated for a family for generations to come. For our owners, we successfully executed on our strategy designed to provide long-term growth and stability and therefore increased our dividend by 2.4%, the first increase in more than 5 years. We will continue working towards our objective of steady, predictable dividend growth. We also strengthened our credit profile as recognized by the major rating agencies, with several positive changes in the outlooks for our ratings, along with the rating upgrade for Entergy New Orleans by Moody’s. Nevertheless, in some ways, 2015 was a year of challenges and evolution. Our total shareholder return for 2015 was disappointing. However, our returns since September 30, have placed us second overall among our 20 utility peers. Your positive reaction to successes and other actions since the third quarter of 2015 validates the momentum we see as we move into 2016. At EWC, we took steps to reduce volatility and gain clarity on the future of the business. Closing Pilgrim and FitzPatrick was not the path we wanted to take. After pursuing many alternatives, they ultimately were the only options remaining for us. We know they are tough decisions for those involved and we are committed to supporting our employees who work at these plants and their communities throughout this difficult transition. I will take a moment now to expand more on some of our fourth quarter 2015 accomplishments beginning with the utility. I have mentioned the necessity to continue to modernize our infrastructure and maintain a reliable system. To this end, our purchase of Union Power Station has received the necessary retail regulatory approvals. One last approval was pending from the Federal Energy Regulatory Commission. Upon closing, the purchase of this plant will provide lower cost, reliable generation to our customers for many years to come. 2015 also saw the start of a regulatory process for the St. Charles generation project, a 980-megawatt combined cycle gas turbine plant to be constructed in Montz, Louisiana. We have requested approval from the Louisiana Public Service Commission to proceed with the construction of this new modern plant, which will provide economic and reliable power for many years. The targeted in-service date is June 2019. In addition to approval of more than $700 million of transmission investments in all four states of our service territory, as part of the Mid-Continent Independent System Operator, or MISO, MTEP15 process, we initiated one of the largest transmission projects in our history. This project includes two new substations, expansion of two existing substations and 25 miles of new high-voltage transmission lines around the Lake Charles Louisiana area. It will both enhance reliability for existing customers in that area as well as support new load in this growing region of Louisiana. The Louisiana Public Service Commission approved a Certificate of Public Need and Necessity at its business and executive session in December. We expect construction to begin in the first quarter of 2016. Our regulatory frameworks are now better aligned to facilitate future investments to enhance the efficiency and reliability of our system to benefit our customers. We are seeing the results of this improved framework and the settlement of our Arkansas rate case. The settlement reflects a net $133 million base rate increase and a 9.75% authorized return on equity effective at the end of February. It also sets the framework for the formula rate plan with the future test year in the coming years. The Arkansas Public Service Commission is expected to act on the settlement and issue an order later this month. With this new regulatory structure, we will have increased financial flexibility and ability to execute on capital investments in response to our customers’ needs. Affirming this view, Moody’s revised EAI’s outlook to positive in April following the adoption of the legislation, allowing for a forward test year FRP and the filing of the rate case to use the new FRP. Moreover, the new regulatory structure will help Entergy Arkansas support economic expansion, creating jobs for our customers in these communities and spreading fixed costs over more sales and helping to maintain the rate advantage. We will be able to provide similar benefits to our customers in Mississippi as Entergy Mississippi’s first FRP with forward-looking features was approved earlier in 2015. In addition, we have been partnering with Mississippi state officials to help bring 2,500 jobs to Hinds County through a $1.45 billion tire plant in our service territory. Mississippi lawmakers approved an incentive package for Continental Tires, one of the top five worldwide automotive suppliers to build a new facility near Clinton. This announcement further demonstrates how Mississippi is a premier location for automotive production as they join Nissan and Toyota in the state. In Texas, we are using some of the new rider mechanisms to provide similar financial flexibility and the ability to support the needs of our customers. We have reached a settlement for an incremental increase to our distribution investment rider of just over $5 million effective at the start of the year. The Public Utility Commission in Texas approved the settlement last week. We also are nearing completion of the regulatory view of our request for an incremental $13 million revenue requirement under a similar rider for transmission investment. We expect a proposal for decision later this month and the commission consideration in March. Finally, we reached a milestone on December 29 when we received the final approval from FERC to end the system agreement among Entergy Louisiana, Entergy Texas and Entergy New Orleans, the three operating companies that remain parties to the agreement. This is an important step towards simplifying our regulatory structure and reducing risk and uncertainty for us and our customers. It will allow us to put greater focus on the distinct opportunities that each of our retail regulatory jurisdictions as well as our core operations without the distractions from constant interregional litigation associated with this agreement. Along with our plans for capital investment, we are carefully monitoring the affect of these investments on our customer’s bills. Based on the most recent EAI data, our average rates are over 25% below the national average. Historically low natural gas prices also have helped lower customer bills and are offsetting some increases in base rates. As a result, our customers will continue to benefit from some of the lowest rates in the country while also benefiting from a more modern and efficient electric system. Looking back at EWC in the fourth quarter, we have worked towards resolution on the future of each of our plants, advancing our strategy to both provide capital to invest in other opportunities and to reduce risk and volatility from this part of our business. We closed on the sale of our 583 megawatt Rhode Island CCGT on December 17. This plant was a good investment for us, its sale now frees up resources we can use to support other opportunities. The New York ISO recently determined the retirement of FitzPatrick, when combined with several other facilities, will result in a resource adequacy shortfall in 2019. However, we expect there will be more cost effective solutions to fill this need. And ISO New England determined that there is no reliability need associated with the Pilgrim retirement in June of 2019. As a result, we will move forward with plans to close both plants. As we have said before, these difficult yet necessary steps or not what we wanted. On a positive note, the Nuclear Regulatory Commission issued the license amendments for Palisades, reflecting updated guidance, inspection and analysis on the reactor vessel head embitterment. These amendments confirm that the plant needs the appropriate criteria to run till the end of its extended license and will not be forced into an early shutdown. At Indian Point, we continue to pursue license renewal in each of our plants to resolve the Coastal Zone Management Act and Clean Water Act requirements remains open. The NRC confirmed that our timely application for renewal enabled the continued operation of the Indian Point following the original expiration date of the unit’s license this past December. Additionally, the NRC issued a draft update to the Indian Point supplemental and Environmental impact Statement, which reaffirm the NRC’s previous conclusion that the environmental effects of Indian Point’s continued operation are not an obstacle to license renewal. And lastly, Vermont Yankee announced that it would be ready to begin the transfer of spent fuel into dry cast starting in 2017, 2 years earlier than originally planned. We are seeking approval from the Public Service Board for Certificate of Public Good, so we can begin construction of the storage pad to complete the safe transfer to dry storage. Now it’s time to look to the future. Last year’s strategic accomplishments have ultimately set us up to undertake an equally ambitious list for 2016. You can read the list on Slide 3. Several of the items listed are related to closing out the regulatory agenda we began in 2015 and using the tools we have to execute on our capital investment plan. These regulatory items include the now approved distribution rider and the pending transmission rider filings in Texas and making our first forward-looking formula rate plan filings in Arkansas and Mississippi, as well as the second combined Entergy Louisiana FRP filing using a 2015 test year. Also on our to-do list are steps which help continue to modernize and enhance our utility system. As I said earlier, we have requested approval from the Louisiana Public Service Commission to proceed with the construction of the St. Charles power station. We will make selections in our request for proposals for Entergy Louisiana and Entergy Texas, long-term resources in the coming months. We will begin construction of the Lake Charles Transmission Project, as well as numerous other significant transmission projects. Lastly, we continue to move forward with the process for installing smart meters on our utility system. Smart meters are a foundational investment in the grid modernization opportunity I spoke about at EEI. These types of investments are another way for us to lower costs and improve service for our customers. Some benefits of it AMI include operational efficiencies, timely information provided to our customers so they can better understand and control their usage and faster outage restoration and improved system reliability for our customers. The next step involves further engaging our regulators and other stakeholders to discuss this investment and its associated benefits and we continue to evaluate other investments in the grid that can benefit our customers. The operating companies anticipate making regulatory filings where applicable for the smart meter investment between the third quarter of 2016 and the third quarter of 2017. A piece of the 3-year capital plan laid out in our slides today is earmarked for this initiative and we will share more with you over time on AMI as well as what might be next. At EWC, we continue to make plans and preparations for transitioning the FitzPatrick and Pilgrim nuclear plants to the decommissioning phase. At Pilgrim, we will make a decision by mid-year on whether to refuel the plant for another 2-year operating cycle. I would like to take a moment to personally thank the more than 1,200 employees at both our Pilgrim and FitzPatrick plants for staying focused on continued safe and secure operations. I want to acknowledge their professionalism, dedication and hard work throughout this time of transition. After all the underlying objective that supports all of the initiative on the to-do list, is the imperative to get the fundamentals right. Without that, nothing else works. That means continuing to deliver safe, reliable power and natural gas to our customers at the lowest reasonable cost. These actions, combined with our other ongoing initiatives, will contribute towards meeting our objectives in the interest of all four of our stakeholders. That is the execution of the journey we set out on 3 years ago. We have set clear objectives to create sustainable value for all of our stakeholders. For owners, deliver top quartile returns through steady and predictable utility and parent and other earnings growth and dividend growth while reducing risk, particularly in the volatile commodity exposed generation business. For our customers, deliver top quartile customer satisfaction through anticipating customer needs and exceeding their expectations while keeping rates reasonable. For employees, we are on the top quartile score for organizational health by providing a stable environment with a healthy culture that provides clear direction to our employees and attractive opportunities for career development. And for our communities, where all of us live, maintaining an active role in making things better. This includes helping to bring jobs through economic development, helping ensure we have a trained workforce available to fill those jobs, giving both our time and financial support and operating in a socially and environmentally responsible way. These objectives form the basis of our strategy investing in the utility to benefit customers while maintaining competitive rates with ready access to capital and timely and predicable investment recovery, providing the financial strength and flexibility we need to make these investments and reducing volatility from our merchant business and freeing up resources to invest in other opportunities. This strategy has given the plan for execution we laid out on the 2016 to-do list. From objectives to strategy, all the way through execution, we have made great progress. We have a clear vision for what we still must do. We have the tools in place to do it. We will talk more about this journey at our Analyst Day in June 9. Please mark your calendars now and we will have more details as the day gets closer. With that, I will turn the call over to Drew.

Thank you, Leo and good morning everyone. Today, I will discuss fourth quarter and full year 2015 results, followed by our guidance for 2016 and our outlook to 2018. But before we get into details, the punch-line is that our results and expectations remain in line with all that we have discussed with you. Now, let’s jump into 2015. Results for the quarter are summarized on Slide 4 of our presentation. Operational earnings, excluding special items were $1.58 per share, up from $0.75 a year ago and in line with the expectations we shared last November. Most significant special items include EWC’s non-cash impairment of our Palisades unit and the sale of the Rhode Island State Energy Center. Operational earnings for the business increased due to tax items, partially offset by utility charges, warm weather and lower wholesale power prices. Looking at utility, parent and other results on Slide 5, operational earnings per share increased quarter-over-quarter. The main driver was income tax as a result of the business combination for the two Louisiana operating companies, which was completed in October. This item contributed $1.50 to fourth quarter earnings after reserves to share $107 million with customers. The customer sharing is reflected as a reduction in net revenue. Unfavorable weather partially offset the tax items. Slide 6 shows our adjusted view of utility, parent and other earnings, which excludes weather and normalizes for income tax items. The adjusted view was lower than the same period a year ago. However, as Leo mentioned, this quarter’s result included two charges totaling $0.35 per share. Considering those charges, the underlying business was in line with our November expectations. Volume increased for both residential, weather-adjusted sales and industrial sales. Our residential growth was 1.6% and sales to industrial customers increased 0.6%, as shown on Slide 7. We continue to see gains for new and expansion projects, adding approximately 300 gigawatt hours or 2.7% to our industrial sales this quarter. However, volume from existing industrial customers declined due primarily to weakness in the core alkali sector and an extended outage for a key customer, which we mentioned last quarter. Recently, we have also seen weakness in the metals and wood product sectors. On the positive side, sales to existing petroleum refining customers increased on higher production due to continued favorable market conditions. EWC fourth quarter results are summarized on Slide 8. Operational earnings were $0.16 in the current quarter, $0.23 lower than the fourth quarter of 2014. The most significant factor was lower wholesale prices. The nuclear fleet revenue was $44 per megawatt hour this quarter, down from $54 in 2014, excluding Vermont Yankee. Closure of VY contributed $0.05 to the decline. Conversely, the effects of last quarter’s impairments reduced fuel, non-fuel O&M and depreciation expenses, which helped earnings $0.14. Income tax variance of $0.13 also contributed to the offset. Slide 9 shows operating cash flow this quarter about $50 million lower than the same quarter in 2014. Biggest driver was reduced net revenue at EWC. Now, I will quickly go through full year results, summarized on Slide 10. Operational earnings for 2015 were $6 per share, up from $5.83 in 2014, once again in line with the expectations we shared last November. Higher earnings at utility, parent and other drove the increase. As shown on Slide 11, utility, parent and other operational earnings share results were $4.97 in 2015 compared to $3.64 in the prior year led primarily by the aforementioned income tax items. On Slide 12, adjusted utility, parent and other results came in at $3.08, excluding weather and normalizing for taxes lower than in 2014. As of the charges, the fourth quarter adjusted EPS would have been $3.43, which was also in line with our previous expectations. Slide 13 summarizes EWC operational earnings, which declined year-over-year to $1.03 per share in 2015 from $2.19. Lower prices were the largest driver, accounting for $1.06 of the decline. Another $0.20 was due to Vermont Yankee and the effects of the impairment provided a $0.14 offset. Full year operating cash flow shown on Slide 14 was just under $3.3 billion in 2015 around $600 million lower than the prior year, the most significant factors were about $300 million of Hurricane Isaac related securitization funds received in 2014 as well as revenue from our EWC business. Now, let me wrap up 2015 results. We are initiating 2016 operational earnings guidance. Details on our 2016 assumptions as well as sensitivities are provided in the appendix of our presentation. Consolidated operational earnings per share guidance is $4.95 to $5.75 per share with the midpoint of $5.35 on Slide 15. We are also issuing an adjusted utility, parent and other guidance range of $4.20 to $4.50 per share, with $4.35 midpoint, consistent with our communications since last summer. Recall that our adjusted measure reflects normal weather and statutory taxes. The possibility exists for significant tax items this year as early as the second quarter, but there is too much uncertainty to put those possibilities into the guidance at this time. Starting with the utility, parent and other adjusted view, we expect $1.27 per share growth. Rate actions and sales growth are the largest drivers as well as lower non-fuel O&M and the effect of the 2015 utility charges. Depreciation expense is also expected to increase by about $0.30, including Union. The Union acquisition is expected to contribute a little more than $0.20 to the bottom line in 2016. As you know, we have not closed that transaction yet and 2016 earnings would be reduced about $0.02 for every month of delay. The Arkansas settlement agreement as filed would help Entergy Arkansas move much closer to its allowed return levels. We expect the Arkansas Public Service Commission to issue a decision soon. Our industrial sales growth in 2016 continues to be driven by identified new and expansion projects in our service territory rather than our existing customer base. Approximately two-thirds of our new and expansion projects are already in service to continue to reach steady low levels in 2016 and the remaining third comes from projects that are scheduled to come into service this year, most of which are in the final stages of construction or early stages of testing. Nevertheless, these new projects continue to have timing and ramp rate risks, which could impact results. Our industrial sales are also exposed to market and commodity risks associated with the broader economy. As a result of these risks, our overall industrial growth expectation of 2016 is now at 2.9% and overall retail sales growth is at 1.9%. We see utility non-fuel O&M at about $2.5 billion or about $0.20 lower than 2015 due primarily to pension and OPEC costs, which are expected to decline about $0.29. This includes a slightly higher pension discount rate than we expected at EEI. The change in the discount rate offset higher ANO Column 4 expenses, now projected to be $50 million in 2016, about flat year-over-year. We also anticipate lower expenses for fossil and nuclear in 2016 as well as higher expenses for the Union plant operations. Turning to EWC, its guidance midpoint is $1 per share, about the same as the 2015 results. Lower energy and capacity prices are expected to largely offset the effects of impairments recorded in 2015. Effects from the 2015 impairments, which affect multiple line items, are $0.49 per share year-over-year. Our guidance, based on year end prices, assumes average energy and capacity revenue of $48 per megawatt hour. Despite our 86% hedge position, there is $0.25 per share downside sensitivity to a $10 per megawatt hour drop in prices. The prices have been lower by about $4 since the beginning of the year with the warm winter weather. EWC’s pension and OPEB expense will also decline about $0.10 year-over-year, offsetting higher Pilgrim Column 4 costs and inflation effects bring net non-fuel O&M to a little less than $0.10 lower, along with decommissioning trust earnings about $0.10 lower in 2016. Looking ahead to first quarter results, based on what we know today, we are expecting operational earnings generally in line with first quarter consensus of around $1.10 per share. This considers milder weather experienced so far this year, including $0.07 of negative effect already in January and we don’t currently anticipate any significant tax items in the first quarter. Moving to our longer term views, Slide 16 shows our utility, parent and other adjusted earnings per share outlook, which is unchanged since EEI. The foundation for our objective to achieve steady and predictable utility, parent and other growth is rate-based growth from the utility investment plan. The 2016 through 2018 capital plan is about $1.1 billion higher than the preliminary estimates provided at EEI, but primarily because the Union acquisition was delayed into 2016. As Leo discussed, our capital outlook is also supported by regulatory mechanisms, which provide increased financial flexibility to execute on capital plans and by longer term retail sales growth, which can help mitigate rate effects for our customers. We also see continued O&M improvement as the assumed pension discount rate increases slowly over time and ANO Column 4 spending rolls off. There could be some level of continued spending to maintain the ANO performance improvement upon Column 4 exit or additional cost as a result of the NRC’s inspection. We expect any prudently incurred incremental cost to be recoverable. The near-term changes to our sales growth for 2016 do not have an impact on our long-term 4% to 5% annual industrial growth expectations through 2018. We continue to see large industrial projects coming online to drive the growth. Overall, our annual retail sales growth is still expected to be in the range of 2% to 2.5%, which implies residential and commercial as slightly less than 1%. Finally, it is important to remember that our capital plan is driven more by our need to modernize our aging infrastructure and maintain reliability and less by our need to support load growth. As a result, our strategic objectives, investment thesis, dividend growth and resulting earnings outlook remain on track. Slide 17 provides our EWC outlook for EBITDA with separate estimates for the nuclear plants that are closed or planned to be closed. Current forecast is based on market prices as of year end. As I mentioned, market prices have declined since that time. One other thing that we closely monitor is our cash and credit position. Slide 18 summarizes our cash flow and credit metrics. Efforts focused on improving cash flow and the de-risking the business create both value and stability. Our goal is to remain solidly in the investment grade credit rating range for all our rated entities while we support the growth of the rest of the business. Now on the slide but certainly germane to the credit position is our pension liability. Despite a slight negative return on our pension assets in 2015, we were able to improve our funded status by about $250 million. Although many factors impact that number, reality is that we continue to take sustainable steps to manage our pension obligation in a methodical way. This includes program changes, liability management, efforts and investment of nearly $800 million over the past 2 years. Over the next 3 years, we expect to contribute over $1.1 billion to our pension trust, including almost $400 million in 2016. Before closing, I would like to acknowledge that David Borde is with us today on the earnings call. We recently announced that David will assume Paula Waters’ role as Vice President of Investor Relations in mid-March. You will have the opportunity to meet David on the road in the coming weeks. David’s background on Wall Street, both as a lawyer and an investment banker, makes him a strong fit for the Investor Relations role. He also worked as part of Entergy’s corporate development group before becoming a key team member supporting Theo and Utility strategy through his role as Director of Utility’s Finance Business Partners Group. David will continue to pursue the standard of excellence we have strived to achieve in our disclosure and our relations with all of you. At the same time, Paula is not going far. She has been given new responsibilities within utility where she will oversee top line growth strategies, including economic development and revenue forecasting in support of the five utility operating companies. We appreciate Paula’s remarkable tenure in Investor Relations as she has been instrumental and helping us clarify our discussions and strengthening our relationships with you, the analyst community. Thank you, Paula. And now, the Entergy team is available to answer questions.

Thank you. [Operator Instructions] The first question is from Dan Eggers of Credit Suisse. Your line is open.

Hi, good morning guys.

Good morning.

If I could jump to the back of the slide you have updated CapEx numbers, the CapEx increased quite a bit from what you had at EEI, part of that’s probably union slippage, but can you just help us think about the rate base growth and the effect of bonus depreciation on the rate base growth net of the increasing CapEx?

Dan, this is drew. And so we previously discussed that for the first couple of years, we already had an expectation for bonus depreciation baked into our financials. And so getting out to 2018, there is really not much impact on our overall rate based expectation, in fact it still remains right in the middle of our previous ranges that we provided, so really quite minimal impact on us overall through the guidance range or through the outlook range.

And then what was the rest of the increase beyond union to fill on the ‘16 to ’18 CapEx?

I think it was mostly just minor project adjustments. I do think that there is any major elements in there that would be worth calling out at this point, I don’t think.

And I guess on load growth and kind of the expectations for that number to bounce back after maybe a little bit slower for ‘16 than expected, where do you rank your confidence in that reset in growth today versus say six months ago or at the last Analyst Day and what is the visibility to that underlying industrial gain?

Dan, this is the Leo. I think from our perspective, we would rank that confidence higher, a little higher than we had say few years ago at the analyst meeting, because primarily a lot of the projects have advanced relative to that point in time and also we have gotten a better line of sight on what’s really happening from an economic perspective as it relates to what you are seeing with commodity markets. As we talked about at EEI, as you look ‘15 through ‘18, basically 95% of that growth or what we call new and expansion projects were related to projects that were in advance stages. And we continued to see that to be the case. That’s not to say that we see some projects, smaller projects, maybe falloff as we have gone forward. And if you also recall at EEI, that 95%, about 70% was made up of basically a handful of large projects that were in advance stages and those projects were primarily in the steel and ethane cracker, we did have an LNG project. We also have projects in the ammonia area, as well as methanol. So it was spread across a lot of various segments. As we continue to get closer and as we move closer in time to the expected construction, data completion dates of these projects, clearly we get more visibility around where those projects are just by the sheer passage of time. I think the other thing that we have gotten more visibility around is what’s going on with our existing customers and got more granularity as to what’s happening in that particular area. We don’t really see much growth when we talk about the 4% to 5% coming from our existing customer base. But as we have talked about in the past, our existing customers are large industrial customers are on fixed rate – fixed demand charge type contracts and so while we may see any volumetric fluctuations, we really don’t see accompanying fluctuations in revenue when you talk about downside situations. So I think our confidence is higher. I mean clearly, as Drew said in his script, there are still existential factors that can affect what we are seeing. But we monitor this on a very regular basis and we need to try to get as much intelligence around this as we possibly can, both from a customer perspective as well as the macroeconomic perspective.

So you are not seeing erosion in these existing customers because of an economic slowdown kind of on a global basis, so you are not expecting them to do worse, you would expect them to stay where they are is that effectively embedded in guidance?

I mean I would expect that there is always the risk they could do worse. But we have adjusted our expectation around that group based on what we see and what we know today. And we did adjust it downwards as compared to where we were a number of months ago.

Dan this is Drew. And of course you have seen in the last couple of quarters, we have seen lower growth in the industrial sector, but the new and expanding customers have been growing in the industrial space about 3% and existing customers have been detracting from it about 2.5%. So we are expecting a little bit of that same thing in 2016.

Okay, got it. Thank you, guys.

Thank you.

Thank you. The next question is from Julien Dumoulin-Smith of UBS. Your line is now open.

Hi, good morning.

Good morning Julien.

So just a follow-up a little bit on Dan’s last question, if you will, can you comment on sort of the non-industrial trends I suppose, just if we try to look at the mix 60-40, I suppose it would imply something shifting there as well, but I will let you elaborate?

Julien, are you relating to just the ‘16 period or the same period Dan was referring to?

Actually, let’s stick with ‘16.

Okay. I think when we think about growth in kind of the non-industrial sector for ’16. First, I would start by saying if you look at the quarterly GSP across the Gulf South region, we see numbers probably anywhere from 2.5% to 4% in the ‘16, ‘17 timeframe. Also I think if you look at what we have experienced even in ‘15 for the companies within that region, we have residential sales growth ranging from 1.5% to about 3.5% on a weather adjusted basis. We had commercial sales growth basically in the 1% to 2% on a weather adjusted basis in that area. And so as we look forward, we see for example on the commercial side, major projects that happened in ‘15 that will have a full year effect in ‘16, that contribute to what we view as a fairly reasonable sales growth expectation on the commercial side. In the residential area, we do – are seeing pockets of what we call maybe the multiplier effect related to the industrial growth that we see again in that Gulf South, Gulf Coast regional area. And I would also say that one thing that we take advantage of in 2016 is another day of kilowatt hour sales that have some small impact on our expectation in 2016 as well. So, around 1%, which is where we are when you adjust, when you take out the total growth and the impact of industrial, again, macroeconomic effects, we see – or impacts we could see at the industrial level, we could see at the residential and commercial. But we have as I said in response to Dan’s question we have done a lot of work around updating our expectations relative to that. And at this point, we feel fairly comfortable with where we are.

Just to be clear that you are saying not much of a change on the non-industrial?

I would say you mean ‘15 over ‘16 in terms of not much of a change or that was just where we were thinking…

Yes, exactly.

If you look at ‘15 weather-adjusted, I think residential was about 0.6%, commercial was about 0.4%. I think what we are seeing in ‘16 and our assumption is something closer to 1%.

And that’s consistent with where we were at sort of EEI November timeframe. The residential commercial expectations haven’t changed much.

Got it. And just a quick clarification, if you can on the expectations for FitzPatrick and the retirement timeline, is there any scenario here that you could be looking at implementing a ZEC or whatever you want to call it, scheme, perhaps margin positive presumably?

Julien, this is Bill. At this point in time, there is no clarity or certainty around what that program is and what the actual value associated with it would be. So, we have no plans as it relates to changing our focus on shutting down that plant on January 27. We do support the concept of a clean energy standard and I think that, that makes sense, but we really need to understand the details of it and assure that it is actually implemented.

Excellent. Thank you.

Thank you, Julien.

Thank you. And the next question is from Paul Patterson of Glenrock Associates. Your line is open.

Good morning.

Good morning.

We are going to miss, Paula. But anyway, I just want to touch base on the Palisades impairment and how that impacts – well, the Palisades and I guess the other impairment in the wind and what have you and how that impacts 2016 guidance? If I heard you correctly, you said there was a $0.49 impact that I understand it’s sort of complicated, so I don’t want you to go through any laborious detail. But just in general, so if you could highlight what that is? Did I hear that correctly I guess, I mean…

Yes. So, Paul, it’s Drew. A couple of things there. So I think that it’s spread across a couple of different categories when you think about these impairments. There is an impairment piece that’s in net revenue for fuel. There is an impairment piece, which is in O&M for refueling outage expenses and then there is an impairment piece which is in depreciation for the asset itself. And so, we have actually broken down for you in the back, in the appendix, on Slides 46 and 47, we give a lot of detail about the plants that are sort of ongoing and the plants that are planned to be closed or are closed and talk about where you can see those impairment effects for those three buckets.

Those impacts – I mean, the impairment was done in the fourth quarter. Did those impacts – how do they go into 2017, I guess?

Into 2017?

Yes. I mean, are they continuing or how do you follow what I am saying it just seems like a large number?

Yes. Well, I mean, it is. I mean if you think about all those plants that were impaired, they are still going to be operating in ‘16, so you are still going to see the effects of that stuff. Once you get into ‘17, as Bill said and we announced on January 27 we will be shutting down FitzPatrick, so you won’t see those same kind of effects as that starts to fall away. But Pilgrim and Palisades will still be there. So, you will still see those effects for those plants continue to go on. Now, once we refuel Pilgrim, I guess it will be a little bit different if we make that decision. And that would be I think those costs would be expensed if we go down that path. And so it will change things a little bit at that point, but you will still continue to see those impairment effects for those two assets, because they are still operating potentially beyond ‘17.

I guess what I am wondering is with respect to Palisades, I mean, what caused this big write-off in the contracted plant? It wasn’t completely clear to me, is it just the lifespan has been changed or your market expectations after the contract has expired?

Yes. So, I think what changed there is the fact that we made decisions around the other single unit assets. So, Pilgrim, FitzPatrick and Vermont Yankee were all single unit assets. Palisades was the only remaining one out there, although it did have the contract. Because of our decisions for the other three, we had to again more closely assess the probabilities associated with the life expectancy of the Palisades unit. And when we did that, it failed the accounting test for the impairment. And we are continuing to operate the plant till 2022. The operational decision is different than the accounting decision. We will make a decision around Palisades when it’s appropriate to do that out in the future and that will depend on the circumstances that exist at that time, the market conditions at that time, etcetera. But from an accounting perspective, we are forced by our other actions to take a close look at the Palisades unit.

Okay. And then just finally on the midpoint outlook, it’s a $0.40 range, just in terms of the term midpoint, how should we think about that? Is there some range outside of that that we should be thinking about or just elaborate a little bit on that terminology?

This idea was something that we originated, the idea of a midpoint outlook back at Analyst Day in 2014. And our expectation at that point of time was that by the time we got out to that date, because it was pretty far out there that our midpoint expectation might shift around a little bit. And so what we tried to do is signal to everybody about where it would land. But when we get out to that point, we would give you the actual guidance and give you a midpoint for where that would be. So, I guess similar to ‘16, where we landed at $4.35, which was at the bottom of our range of potential midpoints. I guess there could be a little bit above or below the ranges that we are talking about. But so I guess the answer to your question directly, yes, there could be a little bit above or below in those out-years, but we are not at this point communicating anything differently than just the range that we have.

Paul, this is Leo. Just this may or may not be helpful, but what we expect is the midpoint of the guidance to fall within that range.

Excellent. Thanks a lot.

Apparently, that was more helpful than any.

And the next question is from Stephen Byrd of Morgan Stanley. Your line is open.

Hi, good morning. Thanks for taking my questions.

Good morning, Steve.

I wanted to just add on to Paul’s question on thinking about Slide 47 and then also Slide 40. There are number of line items. But I guess in total, when we look at some of these nuclear plants that maybe shutting down at some point in the future, because I understand I guess you are including the revenues from power generated, but some of the expenses are not included in sort of adjusted earnings. On a total basis from these nuclear units, what’s the amount of expense that is effectively going to be excluded from adjusted earnings for these plants in say ‘16 or beyond?

In ‘16, I think it’s about $50 million of capital that would fall into that category, and I think that’s on Slide 40. And then I think if there are any fuel expenses, if we would make that again, that decision to shutdown Pilgrim, there could be some additional expenses that ends up in that same category. But I think that’s what we will be talking about, Stephen, mainly.

Okay. So $50 million you said capital, would that be something that would be an expense but will be excluded from adjusted earnings or is that CapEx, I wasn’t clear on that?

Well it is – it would otherwise be considered capital, but because of the situation where those plants are expected to shutdown, the accounting will force us to put that as an expense. So you will see it in the as reported as an expense, that $50 million in capital. We will break it out for you as a special item, so you can understand what that is. But that’s the way it would be portrayed I believe in the financial statement.

Okay. And what amount of fuel expense is being excluded from adjusted earnings?

I don’t know that – have that number in front of me right now, so we will have to give that to you later Stephen.

Okay understood. And then on ANO in column four, I think you laid out pretty clearly the cost of I believe $50 million in 2016, could you give a little color in terms of your assumption in the plan in terms of when you are able to move that out of column four and sort of what are the key challenges or steps that need to be taken to make that happen?

I will answer that. So just from a financial perspective, we don’t have any costs beyond 2016. From an operational perspective in the NRC, I think there is a longer process there that goes on. And so while we may stop incurring costs, it may be a little bit longer into 2017. I think there is a possibility it could go even longer than that, but I don’t believe that would be necessarily our expectation that the NRC would make a rating change there.

Okay, understood. Thank you.

Thank you. The next question is from Praful Mehta of Citigroup. Your line is open.

Hi guys and Paula, you will be missed and welcome David. So a quick question on the capital plan and your point that it’s the aging infrastructure that drives the growth and the CapEx, not as much the load growth. But I am assuming at some point, you do need load growth to kind of maintain your competitive rates and keep that rate and attract more I guess CapEx and more load into the region. So what is the minimum load growth that you look at from an industrial perspective, given the decline in load growth at least for 2016, how would you see the load growth out in the future and is there a minimum level that you would track to say you need that kind of load at least in terms of load growth to support the CapEx plan while keeping the rates in check?

So Parful that’s a good question. One thing to keep in mind, as you look at that capital plan, as you said, the generation piece of this is driven primarily by every year that goes by new technologies, improve the heat rate, cost efficiency, the environmental output of the new plants plus the old plants get older and more costly. So as time progresses, certainly we have the ability to benefit our customers with a more reliable, more environmentally friendly and lower production cost unit. And so we are doing that over time just like anyone would. It just so happens that this kind of seems to happen in big chunks in terms of when the facilities are required. So we are in the process of doing that. Recall that we have never been long generation also, so we are short – we anticipate being short generation out into the middle of the next decade even with if we were to have significantly lower growth. So the need for the generation will continue to exist and what we have mentioned before is we have some flexibility around the timing as it relates to the CTs. We have the deactivations of the units and certainly PPAs that roll off, that are all part of the mix. So it’s a combination of the need, but it’s also us making sure we have a risk mitigation strategy for the company and for its customers associated with how we put that in place. So I know there is no – at this industrial load growth number that we would give you that we say we no longer need this investment. But the fact of the matter is we would continue to be short with the ability to be in MISO and utilize the market over time as we go out there. And we won’t see that changing under too many scenarios. The transmission investment is driven in large part by changing reliability requirements, similar type of activity as it relates to new technologies and the ability to improve the operations of the system as we go forward plus again, the age of the infrastructure requires some upgrading as well. As does our entry into MISO provide us with the opportunity to make deliverability of assets that before we couldn’t into the market going forward as well. So in the transmission that we are doing from a reliability standpoint, a lot of that like the Lake Charles project, a lot of the load that we are going to serve there is already there, so it’s beefing up of the reliability, improving the infrastructure plus load growth that we already see under construction. So that’s pretty solid as well under a variety of load growth scenarios. And then as we talked about before, we are also embarking on the MI side of things and as we go forward, there could be other things that would certainly show up, that could either replace things that may or may not fall out or upwards than that capital growth going forward on the distribution side, which is going to become more and more important again in the benefit – to benefit our customers. So I guess the bottom line here is there is an opportunity for us to continue to invest this capital because of structure is and where the state of the technology is. And we are also managing it in a real risk mitigation kind of strategy. Again, not getting long on the generation side, not getting out of our skis on the transmission side and I would like to make sure that we are well within the balance of anything that might happen on a load growth point of view. But you are right, the main benefits that we have from load growth are that it continues to provide us with that competitive advantage, whereas I mentioned in my script, we are today over 25% below the national average in our rates, that contributes to our ability to attract new business into the region so that we have the capability to do that more. And so things like the Continental Tire example that I mentioned and all the steps that’s under construction that Leo mentioned, all of those, in addition to us managing our cost levels, the decline in natural gas prices, all of that go to contribute to that, rate advantage continuing and hopefully growing over time. And so, you can’t really say at what load growth you not do the capital, it’s very robust over a variety of load growth scenarios, but we have to be mindful of the risk mitigation strategies that we would in place when we build those new plants or those CTs, but also other costs pending that we can do as it relates to our normal O&M, fuel costs and production costs as we put these new plans in place for example, that help us maintain that advantage. That’s kind of – it’s more complicated than just one number, I guess would be the answer. But it’s pretty robust across a variety of load growth scenarios.

Got it. Thank you, Leo. That was extremely helpful color. And finally just a quick question on taxes, I know you had reduced your NOL balance I think on the last call, now with bonus helping you as well, do you see yourselves being cash tax payers through the ‘18, ‘19 timeframe or it is the minimum tax cash tax during that period?

Praful I think what we said is we expect our cash tax rate to be around 10% through that period that you are talking about. And as I mentioned earlier, bonus depreciation was baked in for a good bit of that, so we would expect it to be about the same over that timeframe.

Got it. Thank you, guys.

Thank you.

Thank you.

Thank you. And the last question will come from Charles Fishman of Morningstar. Your line is open.

Thank you and good morning. On Arkansas, Leo, I recall that when you took your current position, this was one of your top three goals was to get an improved regulatory framework in Arkansas and now that you have it, I guess looking back and again I thought you said that your strategy was to tell Mississippi – or excuse me, to tell Arkansas that look at the industrial development in Mississippi if you have a favorable regulatory framework that can certainly support that development, I guess my question is was that the argument that helped win the day, number one. And I guess a related question would be is there anymore tweaking you would like to see in Arkansas, maybe besides a little higher allowed ROE?

Well, I would say, first of all there is no argument that we have had with anybody on anything. And I know you just used that term, but I don’t want that to be a term that’s out there. The fact of the matter is that all of our jurisdictions, Arkansas, Louisiana, Mississippi, Texas, all of them, we are all interested in the exact same thing. We are all interested in growing the economies of the jurisdictions in the states in which we operate and same with the city of New Orleans. We have spent a lot of time with all those jurisdictions, including Arkansas sitting down with them. Our jurisdictional CEOs have done a wonderful job. Their regulatory folks have done a wonderful job. Theo has done a wonderful job of making sure that we sit down and find common ground with all of them around bettering the economy of the state. And Charles, I started out with the four stakeholders and our objectives for them around the first quartile TSR, first quartile customer satisfaction, etcetera, we bring jobs to the state, we do good for the company, we could do good for the community, we could do good for the employees, it’s great for the political environment as well. So all we have done is we have sat down and discussed that with our regulators as well as the politicians in our regions to describe to them our desire to participate in that with them and help them achieve their objectives. And so what we have crafted in Texas with riders, in Arkansas with the forward-looking FRP, with Mississippi with the forward features at FRP, the way assets are recovered in Louisiana and New Orleans, etcetera. What we have accomplished with them is that common ground about how giving us the financial flexibility to make you all comfortable with the investments that we have through the regulatory process helps us attract the Big River steels, the Sasols of the world, the Continental Tires of the world to come to our region, to buy power from us, to help us invest in the infrastructure and create tens of thousands jobs. We are working on this together to be able to do that. So, I wouldn’t say that anybody won the day in Arkansas other than the State of Arkansas and we participated in that in a small way and they worked together with us to create something that allowed us to do that. And I would say that it’s no different than the workforce development program that I mentioned in my script. We are spending $5 million over the next 5 years to help train people to work at those plants that we have helped attract. And that’s good for all four of our stakeholders as well as we do that. So, it really has been the last few years of extraordinary collaboration, foresight buyer regulators and us listening to them as much as them listening to us.

Is there anything in Arkansas with respect to regulatory framework that you would like to tweak?

Well, I am not sure that, that’s something that we would need to do a lot of at the moment. Certainly, there is always things that we want to accomplish, but really that’s going to depend on the environment as we go forward, we go forward with the grid modernization, we go forward with AMI, we go forward with different things than what we have today that might require some further collaboration with those folks. But right now, we have got to make a filing under the first forward-looking FRP and get that underway before we started worrying about changing things.

Okay. Well, I think you are being a little modest, because I know this was one of your goals in Arkansas and I think you did accomplish it, so congratulations. And that was my only question.

Alright, thank you.

Thank you. And at this time, I would like to turn the call back over for closing remarks.

Thank you, Latoya 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. We plan to file our annual report on Form 10-K with the SEC next week. The Form 10-K provides more details and disclosures about our financial statements. Please note that events that occur prior to the date of our 10-K 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 GAAP. The call was recorded and can be accessed on our website or by dialing 855-859-2056, confirmation ID 85410755. The telephone replay will be available until February 25. This concludes our call.