Good afternoon, ladies and gentlemen, and welcome to the Entergy Corporation Fourth Quarter 2018 Earnings Release and Teleconference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. David Borde, Vice President of Investor Relations. Please go ahead.

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

Thank you, David, and good morning, everyone. Today we are reporting strong results for another successful year of significant accomplishments. For our core Utility, Parent & Other business, adjusted EPS were in line with our guidance and growth expectations, and our consolidated operational earnings came in above our guidance range. A year ago, I told you that the foundation for our success in 2018 was largely in place and we laid out what we needed to do to stay on track to achieve our outlooks and aspirations. We've checked off every deliverable on that list as well as a few more and our success keeps us firmly on track to achieve our strategic and financial objectives in 2019 and beyond. As a result, we raised our dividend for a fourth consecutive year, a trend we expect to continue, subject as always to approval of our Board. At EWC, we made important progress toward exiting that business. At the start of the year, we have made shutdown decisions on all EWC nuclear plants and we had an agreement in place to sell Vermont Yankee, a first of its kind transaction. Since then, we completed the sale of Vermont Yankee and we announced agreements to sell Pilgrim and Palisades. The Vermont Yankee transaction is an important milestone, not only for our strategy to completely divest our merchant nuclear assets, but also for the nuclear decommissioning industry. It establishes a model for the sale of nuclear plants post shutdown, which benefits the industry and key stakeholders by accelerating the decommissioning timeline, drawing on industry leading decommissioning and site remediation expertise and experience, and laying the foundation for future business development opportunities in the regions. We're also making progress on the sale of Pilgrim to Holtec. Holtec submitted its post shutdown decommissioning activity report…

Thank you, Leo. Good morning, everyone. Leo stated we are reporting strong results for another successful year. We executed on all our planned deliverables and this progress is reflected in our financial performance. For Utility, Parent & Other, on an adjusted view, we ended the year in line with our expectations, and for Entergy consolidated we exceeded our expectations for the year. We are pleased with these results and we look forward to continuing this momentum into 2019. For the next few minutes, I'll review the results of the fourth quarter and then the full year. We're also issuing 2019 guidance and the three-year outlook under our new Entergy adjusted measure. Starting with the quarter on Slide 6, our adjusted Utility, Parent & Other earnings were $0.04 higher than fourth quarter 2017. The key driver was lower non-fuel O&M, driven by lower nuclear costs this quarter. Also contributing to the increase were favorable base rate actions. Partially offsetting these drivers were regulatory provisions for two items I highlighted for you on the last earnings call. First, the $25 million refund to Entergy Texas customers from the lower tax rate, retroactive to January 2018. And second, because Entergy Arkansas and Entergy Mississippi performed above expectations such that future true-ups would result in amounts due back to customers, we have accrued those in 2018. We also had lower income tax expense and higher depreciation expense. Before we move on, I'd like to point out that starting next quarter we will revert back to showing our variances on an EPS basis only since the statutory tax rate period-over-period will be the same again. This will simplify our variance views going forward. Moving to EWC on Slide 7, operational earnings decreased $1.22 from a year ago. This was largely the result of lower returns…

[Operator Instructions]. Our first question comes from the line of Julien Dumoulin-Smith from Bank of America. Your line is open.

So just a quick clarification here. Obviously, well done on '19 and onwards guidance. But wanted to just -- structurally, as you think about beyond even '21, is this $0.10 sustainable in sort of the upside tied to the new effective tax rate you always talk about? I just want to understand how sustainable it is?

We believe it is sustainable, Julien. With the tax reform, there is a structural change in the way that that effective tax rate going to come out due to the protected excess ADIT. As you know, that that's going to go on for many years and it will lower revenue, also lower the tax expense that you see and so, it won't be exactly dollar for dollar like the unprotected piece, but it will effectively be in there on an ongoing basis and so we expect to see a lower effective tax rate going forward.

Got it. Excellent. If I can just quickly follow up, it seems like Utility CapEx went up a little bit from the preliminary guidance you guys all gave back at [EEI]. Can you just elaborate a little bit on what's moving there? I mean, it sounds like there might be some, I'll let you elaborate.

Okay. Well, thanks for noticing that. It did go up a little bit. There's two areas. It's primarily in the distribution and the transmission area. The distribution area is continuing to increase our grid mod investments and specifically in the area of distribution automation, as we continue to push into that. And now in transmission, it's continuation of just needed transmission upgrades as part of the MTEP process. And so those are investments that we recognize out of the MTEP process and so we've added into the capital plan.

Our next question comes from the line of Praful Mehta from Citigroup. Your line is open.

So on the EPS outlook going forward, just wanted to understand the change is driven only by the effective tax rate or also by the AFUDC going forward or is the AFUDC fall off only from 2019?

Yeah. So both of those are what we are citing as affecting the effective tax rate. The main change is the effective tax rate. There isn't really much change in the AFUDC expectation, not in our guidance outlook. But as the AFUDC comes down from '19 to '20, the effect that that has on the effective tax rate is going to diminish. And so it actually pass back up afterwards, but the protected excess ADITs starts to come off. So it's going to level out at around the $0.10 effect. It's just a little bit more this first year as we have three large combined cycle gas turbines under construction that are long-dated construction assets, there's just going to be more AFUDC on the books this year.

Got you. That's super helpful, Drew. And then in terms of Grand Gulf, I know there was an NRC review ongoing. Is there any update on the status on that?

Good morning, Praful. Yes, we have expectations of a formal exit with the NRC next week. We have to self-identify the issues that are determined to be non-cited violations or the lowest safety significance. We're very pleased with our operator response to the issue and we expect a formal inspection report in about 45 days. So there is no significant issues identified in the inspection.

Understood. And so is this effectively -- is there any change needed in terms of how you operate nuclear in general or do you see this within the plan of what was expected?

No. We believe we're on track with our plan and we don't see any need for change.

Okay, understood. And then just the last thing on the credit side, Drew, the 15% target, obviously you're much below that, obviously, driven by the ADIT in the short-term. How comfortable is the rating agency view around that metric and like how much time are they expecting you to kind of grow back into that 15% level? Are there any levers that you can pull if the metric is delayed in terms of the improvement? Just wanted to understand kind of what's the flexibility you have on that metric.

Yes, well, the expectation that we would get above the 15% by 2020, next year, and we're still on track with that. We have ongoing conversations with the rating agencies. They're fully aware of the plan and they can see the expectation for the excess ADIT -- the unprotected excess ADIT going back to customers quite rapidly. In fact, that's one of the things that they cited as positive is that we are getting that behind us so that you can see our FFO-to-debt measure move higher more quickly instead of drawn out. When we discussed it with them, the expectation was that if we're going to have to deal with this on an ongoing basis, how we’re recalculating, it can show you the effect of it back to 15% in the materials today. If we had to do that on an ongoing basis, it would be much harder for them to get comfortable with our outlook. So they are very comfortable with it and they see the full depth of it and we all expect to get back by 2020.

Our next question comes from the line of Greg Gordon from Evercore ISI. Your line is open.

A couple of questions, and I apologize if I'm making you repeat yourself. It's been pretty earnings morning. With the changes in the current EBITDA outlook for EWC, where do you stand in terms of your aspirations of sort of fully exiting on a cash and neutral basis or cash positive -- I mean, have the numbers moved around a little bit in terms of where you expect that exit on an NPV basis?

Yes, well, I mean, as the world turns, things are continuing to evolve. We affirmed our expectation that we would be cash positive from net cash back to Parent out of EWC '19 to '22. And the market has moved around -- the equity capital market has moved around. As you know, it dipped down in the fourth quarter. It's rallied in January. The rally in January of course was helpful for us and also allowed us to finish the de-risking of Pilgrim and that was very helpful in terms of getting us more comforts towards our expectation of keeping that cash outlook. We've also continued to find ways to manage our O&M and capital costs and those efforts are ongoing within EWC and some of those are realized in the fourth quarter of '18 in the form of -- significantly over O&M. And so those things are helping us keep our expectation for positive cash flow out of EWC net back to parent over the next few years.

Fantastic. And then I think you just answered my next question, which was, you expect to be very solidly inside your metrics through time here, so any significant incremental equity issuance is probably not in the cards here that you really need to be.

Yes. No change from what we said at Analyst Day last summer. We will finish up our last year's equity issuance. We have that in escrow right now. We should draw that out sometime in the second quarter, and then we wouldn't need to look at anything until 2021 and beyond.

Our next question comes from the line of Michael Lapides from Goldman Sachs. Your line is open.

Hey, guys. Thanks for taking my questions. Actually I have a handful of them. First of all, on the generation rider in Texas, can you talk to us just about the process behind that in terms of getting that finalized potentially and then whether it needs -- whether is this enabling legislation and therefore you need regulation that come with it that kind of outlines how it will work?

Hey, Michael, good morning, it's Rod. From a process standpoint, we have proposed legislation in Texas in both the House and the Senate. And you are correct, it is enabling legislation that if passed would give the PUCT an option to enact a generation recovery rider or something to that effect that would essentially match from a better timing perspective our investments with recovery. And so there would be the passage of the legislation, if we're successful, and then, it would enable the PUCT through the regulatory process to implement a generation rider.

Got it. And then one question on all the generating plants that you have coming in the service over the next couple of years. Can you just remind us how those all get into utility rates, meaning, do they go into rates as a special rider win put in service? Do they go in only when the annual formula rate plan process is implemented -- like Louisiana, I think it's implemented and after the summer like in September each year and Mississippi is a different time line. Like how should we think about the timing of when those rate step-ups occur?

One of the reasons why we were seeking to get the law changed in Texas was to allow Texas to be more like the future forward test years of Mississippi and Arkansas. And to your point, in Louisiana, our largest jurisdiction, the moment a plant comes online and into service, it automatically goes into rates. And so we were trying to bring Texas forward. So all the other jurisdictions, with the exception of Texas, through a special recovery rider or through the formula rate plan. The moment that plant goes into service, we begin recovering through the rate regime. So Texas is -- we're trying to get Texas in line with the other three -- really four, with New Orleans.

And I'll just add, Michael. In Mississippi, we're not building a plant, we're buying a plant, the Choctaw asset, and it should go the same way as Rod just described, in-rates when we are able to close.

Got it. So when I think about the other plants in Louisiana that are coming online, just as they come online, assume the step change that incorporates the O&M, the capital, the return on and recovery of capital et cetera.

That is correct.

Got it. Last item, just on Indian Point, when is the last -- I don't want to use the word -- when does the state have to make a final decision about the Indian Point retirement in 2020, meaning, when do you reach a point of no return where if the state hasn't said, hey, do a refueling, get it ready, we need it to operate longer, let's talk contracts, when do they actually have to tell you that by?

I don't think that there is any process associated with the state. But in terms of a point of no return, I'll let Chris answer that.

Yes, we're at the point where Unit 2 is refueled for its last cycle and it will operate until the spring of 2020, and Indian Point Unit 3 we will refuel shortly and it will then run through spring of 2021 and then that's it. I mean, we do not intend to refuel the units again.

Got it. So if the state were to change its mind, it's got to happen within six to 12 months, before you'd have to do another refuel?

We would need considerable warning and that's something that we would have to discuss with the state. But to be very clear from our end, we have not made arrangements to purchase additional fuel and have no intentions of doing another refuel outage beyond the one this the spring.

Okay.

And then we'd also need the incremental capital that we need to go into the plant likely as well.

Under negotiations.

Our next question comes from the line of Jonathan Arnold from Deutsche Bank. Your line is open.

A quick question on just on the new guidance basis. Do we understand it correctly that, when you say that you will not include I think significant tax items in there? What's the -- do you have a threshold in mind that we should think of that you'll effectively exclude from evaluating yourselves against this guidance?

Well, I think I can give you a framework for it. In 2018, we had about $1 of tax items over a couple of quarters and we had one in the fourth quarter related to the restructuring in Arkansas, and then one in the second quarter I think related to an IRS settlement. Those two things added up to a buck. We would have excluded both of them. And we would had an effective tax rate in 2018 of about 21% excluding those items and the effect of the unprotected excess ADIT.

Okay. Those would seem to be clearly material.

Yes.

Should we think about this as sort of where you will manage around -- having -- weather in the guidance, perhaps? I'm just trying to get a better sense of how you will evaluate your performance on this new metric.

Well, I mean, I think we are trying to build flexibility into our business to help us do that, not use taxes. So we are actively working on ways that we can manage our business in light of the fact that we're going to have weather volatility in our numbers and I think that's the primary measure. You're not going to see a $0.75 tax item show up at the same time to kind of rescue us. That's not the plan.

Okay. That's clear enough. Look forward to seeing it play out. And just a second issue. Leo, I think you talked about working toward a post shutdown sale of Indian Point when you talked about the decommissioning transactions. Should I take that to mean that you wouldn't anticipate a deal for Indian Point until after the shutdown or more that such a deal wouldn't close obviously till after shutdown? I just wasn't sure if you were trying to give us some indication of timing on reaching a similar agreement.

So the transaction would not close until post shutdown. What I was indicating is that we have begun work on a transaction. That, as we've mentioned before, we would expect to complete sometime between now and the end of the year.

Okay. So that is something you think is a reasonable prospect for '19 because that was -- I was going to ask why it wasn't on the '19 items.

That's correct. It is something that we've mentioned before, in order to close the transaction post shutdown of the units, we would like to get into the regulatory process in such time that we would want to have a transaction signed and announced by the end of the year. Obviously, we've also mentioned we recognize from your standpoint, sooner would be better than later, but that's the timeline that we've got. But what I was indicating is that we've actually started that work.

Our next question comes from the line of Paul Ridzon from KeyBanc. Your line is open.

Good morning. Thank you. For your '19 and '20 guidance, what your assumptions are for effective tax rate?

So for '19, I think it's about 22.5% and for 2021, it's a little higher. It's more like...

A dime higher basically?

Yes.

And then just kind of got lost on your comments about you will no longer weather normalize or you will continue to?

We will no longer weather normalize. We will still report what we think the effect of weather is on our results, but we aren't going to adjust our results because of that.

Our next question comes from the line of Shar Pourreza from Guggenheim Partners. Your line is open.

Sorry, I hopped on a second late. The de-risking of the decommissioning trust, did that have an indirect impact to the viability of the sales that you're looking at for Indian Point trust sometime this year? And then the other question is the transaction that you're sort of working on, can you just confirm whether it's with one bidder or are you still working through a couple of bidders?

I'll start with the second part of question. We're not going to comment on that.

Okay.

I got the answer but we don't comment. Merely just wanted to point out that we've begun that activity.

And Shar, this is Drew. On the first part of your question, so we -- the de-risking activities were related to Pilgrim and not related to Indian Point. As we have a transaction set there and we have expectations there that we want to make sure we meet, and so that's why the de-risking activity took place there. Any point is a different transaction. It will have a -- it will have its own set of expectations around the trust and we'll act accordingly on de-risking or otherwise when that's appropriate.

Got it, got it. But we could sort of use the proxies for the existing assets that you have right now as far as we think about return thresholds for this current transaction given some of the other assets are still operating but the decommissioning funds were pre-sold.

I'm not sure I'm following your question exactly. The de-risked elements around Pilgrim, they're going to return some sort of fixed income element in around 2% or so. The Indian Point, from a returns perspective, is unchanged at this point.

Okay.

And so once we get to a spot where we have clarity around what our expectations are for that trust, then we will act accordingly there.

Our last question comes from the line of Angie Storozynski from Macquarie. Your line is open.

Thank you. I have two questions. I know a lot of questions about the decommissioning trusts for EWC assets. But when I think about Indian Point, in the past you'd mentioned that given that it's a two reactor site, it could have some economies of scale related to decommissioning of these assets. So when you talk about your expectations for EWC to actually return cash, do you already account for those efficiencies or is this based on the assumption of that minimum balances of those decommissioning trusts as stated by the NRC?

Yes. Angie, this is Drew. So when we're thinking about that return of cash back to the parent, we're thinking about basically operating cash flows and working capital in the current business and the operating business and any associated retention payments and capital requirements. We still have one refueling left et cetera. All of that is baked into our expectation for return of cash back to the parent. The decommissioning activities are strictly matched up against the decommissioning trusts and so we do anticipate economies of scale. We think that will be helpful. That helps us mitigate any expectation of actually having put money into those trusts, but other than that, it's mostly the operating expectations that are dictating our expectation that we would be positive cash flow out of that business net to parent through '22.

Okay. And separately on your new guidance and the effective tax rate assumption, so does it matter whether this tax benefit is going to be realized, i.e., if it's at the parent level or at the regulated utilities level and if it's the latter, is there any risk that you know as you go through your rate cases some of this benefit would actually be transferred to your customers, that is, it wouldn't be retained in earnings because you would have to basically embed the lower effective tax rate in your customer rates?

Yes. I think actually a lot of it hopefully will. That's one of the strategies that we employ to help keep our customer rates low, and one of the drivers of course is the protected excess ADIT, which is basically money that's going back to customers we collected over time for the higher tax rate in previous years. So that's going to be kind of dribbling out over time. That's really the source or one of the two sources of the lower effective tax rate and that is going directly back to customers over time. And then the AFUDC piece, AFUDC is recognized by books, it's not recognized by tax. So that's just a structural element that's in there associated with that. That will get reflected in rate base ultimately. But those are the two main drivers of the positive change in the effective tax rate, and of course, when we are defining tax items, we are not including those in our numbers going forward. But often, we are working with retail regulators to share those benefits with customers and as we do that those might flow back to customers as well.

We have no further question at this time. I will now turn the call back to Mr. David Borde.

Thank you, Shirley, and thanks to everyone for participating this morning. Our Annual Report on Form 10-K is due to the SEC on March 1st and provides more details and disclosures about our financial statements. 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 Generally Accepted Accounting Principles. Also, as a reminder, we maintain a web page as part of Entergy's Investor Relations website called Regulatory and Other Information, which provides key updates of regulatory proceedings and important milestones on our strategic execution. While some of this information may be considered material information, you should not rely exclusively on this page for all relevant Company information. And this concludes our call. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. Have a wonderful day. You may disconnect.