Thank you for standing by, and welcome to Entergy Corporation's Fourth Quarter 2022 Earnings Release and Teleconference. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Mr. Bill Abler, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us. We will begin today with comments from Entergy's Chairman and CEO, Drew Marsh; and then Kimberly Fontan, 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. Actual results could differ materially from these forward-looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation and our SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now I will turn the call over to Drew.

Thank you, Bill, and good morning, everyone. Today, we are reporting strong results for another successful year. Our 2022 adjusted earnings per share was $6.42 in the top half of our guidance range. This is the seventh year in a row that our results have come in above our guidance midpoint. Our steady predictable financial results are underpinned by our strategy to create value for our four key stakeholders, our customers, employees, communities and owners. Our strategy starts with learning from our customers what they need from us to be successful, and then we build an investment plan to meet those demands. As a result, we are investing in our power delivery system to improve reliability and resilience and significantly expanding our clean generation to support our rapidly growing industrial load and the decarbonization goals of our customers. This customer-centric approach has delivered benefits for all our key stakeholders. We are confident this approach will continue to create meaningful value well into the future. In 2022, Entergy’s 12,000 employees worked every single day to deliver operational excellence, achieve positive regulatory outcomes, build the foundation for our long-term growth strategy and drive improved affordability for our customers. Operational excellence begins with safety. In 2022, we made important strides recording the fewest injuries in our company's history, and a total recordable injury rate that ranked in the first quartile among EEI utilities. To achieve this result, we reduced total accidents, including employees and contractors by 30% and serious injuries by more than 50%. This is an improvement that we're proud of, our work isn't done because we believe zero harm is possible. We will continue our relentless focus on keeping our employees and contractors safe all day, every day. Entergy's operational excellence is consistently on display when we respond to extraordinary circumstances.…

Thank you, Drew. Good morning, everyone. As Drew said, today, we are reporting strong 2022 results in the top half of our guidance range. We executed on key deliverables throughout the year and once again increased our dividend by 6%. We are confident that we will continue to deliver on our commitments, and we are initiating 2023 guidance and affirming our longer-term outlook. I will begin by reviewing results for 2022, and then provide an overview of key drivers for our 2023 guidance. Starting on Slide 3, Entergy adjusted EPS for 2022 was $6.42, $0.40 higher than 2021. Turning to Slide 4, our earnings growth was driven by strong retail sales and the significant investments we've made to support our customers. Weather adjusted retail sales growth was more than 3% for the year as sales rebounded from COVID-19 and Hurricane Ida impacts. Industrial sales were strong, nearly 5% higher than 2021, driven by continued growth from new and expansion customers as well as higher than expected demand from cogeneration customers. Overall, weather in 2022 increased our retail sales. This enabled us to flex our spending for the benefit of customers. Higher power delivery expenses included increased spending on reliability, safety and training, and vegetation maintenance, which was partially due to inflation. Higher prices for chemicals used in our generation processes contributed to increases in both nuclear and non-nuclear generation spending. We also increased our call center support spending to improve customer service levels. Higher costs, which result from capital investment specifically depreciation expense, taxes other than income taxes, and interest expense were also reflected in 2022 results. Slides 5 and 6 show that the fundamentals for our industrial customers remained strong and support our growth outlook. Commodity spreads, operating margins, and utilization rates continue to be robust across key industrial…

[Operator Instructions] Our first question comes from the line of Shar Pourreza from Guggenheim. Your question, please.

Hi. Good afternoon, Drew and team. It's actually Constantine here for Shar. Congrats on a great quarter. Can we start off with a question on the 2023 planning assumptions and some of the moving pieces there? I see that the load stepped up from the prior first look up to 1% and O&M seems to have a slight tick up. Can you talk about what drove those changes, and what other changes are now embedded versus the early outlook? And on O&M specifically, is that piece attributed to flex O&M or more of recurring costs?

Sure. Thanks for that. This is Kimberly. As you pointed out, our 2023 sales are up a little bit and our O&M is up a little bit from EEI. As you know that early outlooks are preliminary estimates and we've continued to refine our guidance and our outlooks. And as we did that, we found additional tailwinds both in conservative planning principles and additional opportunities in sales. There are some modest opportunities in interest rates expense, and that enabled us to add additional O&M for customer-centric spending like vegetation, as well as call center support and things like that. I will note that we continue to sit squarely in the middle of our guidance range, and we do plan to use flex spending or flex levers that we have to continue to manage 2023 both from a weather potential effects as well as any other effects that come along.

Great. That's very helpful. And shifting to SERI, there's still a few proceedings outstanding. Just to clarify some of the new developments from the December order, how much additional refund are retail regulators lending? And more broadly on the process given kind of the individual complaints at receiving orders and the settlement that -- with Mississippi, does that provide some visibility to an ultimate resolution timeframe? And is there any kind of more constructive settlement discussion positions at this point?

So this is Rod. I'll try to unpack the procedural aspects of SERI updates, and I think I'll let Kimberly address anything as it relates to any new financial claims. But two primary matters to update around the uncertain tax position and the sale-leaseback. One is the compliance filing and the other being the -- our opposing party's request for rehearing. On the compliance filing, actually today, we're filing our response to the regulator's opposition to our filing. And there is no specific timeline that FERC has to act on that, so that's one update. The second, a week from now there is the request outstanding by the opposition of -- for rehearing on the decisions that the FERC made at the end of the year. There is a deadline there that FERC has imposed on itself of February 23rd, so it's actually a week from today. That's the request for rehearing filed by the parties there. So two updates there. We'll have to review the order to determine what if any next steps we have in that regard, but those are the two primary updates for the SERI proceedings around the uncertain tax position and sale-leaseback.

And just to add as far as from a financial perspective, as you know, we reflected the complete effect of the SERI Mississippi settlement for all companies in June. About $235 million of that $550 million roughly charge that was taken last June went to Mississippi and the remainder is reserved. I think Drew mentioned as I did that there was about $104 million of refunds out of the decision that came in December, and those were paid by SERI to the operating companies in early January.

And just as a follow up. Does the kind of information, does this kind of set you up for a better position for any kind of settlement discussions just given the fact that some of these issues are starting to get off the table?

Well, I'll -- This is Rod again. I can respond there to the extent that we are progressing with FERC being clear about its intentions. It does set up a clear path to settlement. And I think what's upcoming and outstanding that being FERC having an opportunity to clarify its prior decision in December as well as addressing any of the issues upon which the rehearing is being requested. Again, it further clarifies those outstanding issues that may be standing in the way of settlement. Our position is settlements in the best interest of our customers and other stakeholders, and we will remain aggressive in pursuing that. But it's in FERC's corner right now to clarify their end of 2022 decision that I think will guide our next steps on settlement.

And I'll just add that -- this is Drew. Whenever we were back in December, we did have conversations going whenever the FERC did decide that they were going to put an order out. It halted those conversations to see what those orders were. And so, pending that information and clarity around that as Rod said, we would hope to be able to get back to the table with them.

That's very helpful. Thank you for taking the questions. I'll jump back in the queue.

Great. Thanks.

Thank you. One moment for our next question. And our next question comes from the line of Paul Zimbardo from Bank of America. Your question, please.

Hi. Good morning. Thank you, all.

Good morning.

Hey, good morning.

Just a couple of smaller ones. Just on the -- you put on your slide that pension is less of an O&M drag year-over-year in 2023. Just -- if you could quantify that, and also how much was the pension contribution that you made last year in 2022?

Paul, this is Kimberly. I may need to get back with you on the specific numbers, but in general, our pension expense is down as you noted as the funded status has increased about $500 million to about 85%. We did increase the contribution at the end of the year, but I'll have Bill follow up with the specific number on that. Our pension liability came down due to the increase in interest rates, which, of course, is reflected in the discount rate for that liability, but that was offset by lower than expected returns on the asset side of our investments. But on a net basis, we are in a better funded status position at the end of the year.

Yeah. The liability was helped by a number of retirements along with interest rates. I think the number for the contribution was around $400 million in that ballpark, Paul, but Bill can give you the exact number.

Okay.

And it's going to be in the K.

Okay. Great. And then also, I noticed there was a $33 million depreciation adjustment for SERI you had in your earnings release. If you could just give some information on what that related to.

Sure. As Rod said, the decision that came out in December had a number of components and on the sale-leaseback side, it had a component around recovery of the cost of the portion that's owned by a third party and how that sale-leaseback was. So when the play that back through, the net rate base that was charged over time had been depreciated when you apply the effects of the sale-leaseback changes that the FERC order judge determined or the FERC determined that depreciation is a turnaround of that effect on that rate base that was depreciated over that time. So it's kind of -- you have to take that piece as well as I think you'll see another sort of net liability there and all those are adjusted out. It's related to that -- those items are all related to how you unwind the sale-leaseback component that came out of that order.

Okay, great. Thank you for that. Appreciate it.

Thanks, Paul.

Thank you. [Operator Instructions] And our next question comes from the line of David Arcaro from Morgan Stanley. Your question, please.

Hi. Thanks so much for taking my question.

Absolutely. Good morning.

I was curious about the Louisiana Commission at least some of the commissioners seem to be focused on reliability and even outside of major storms. So wondering if there's a path to address that aspect of things, kind of areas that seem to maybe fall out of the specific 10-year resiliency plan, just maybe normal day-to-day outside major storm reliability?

Yeah, reliability is actually a part and parcel of our resilience conversation. They are very much connected. And coming out of the back end of 2022 where our customers were experiencing financial hardship because of rising commodity prices, high usage and the like, the regulators were looking for relief and any disruption to our customers was viewed as a challenge for the regulators. But it didn't stop our stakeholder engagement strategy around reinforcing the need for continued investment, customer-centric investments and reliability. And it will continue to be part of our resilience filing and it's part of the case that we've made and the case will continue to make to the Louisiana Commission. They are aligned with us on those customer-centric investments, and we expect to see improvements in reliability across the board. So they've been interested. It's been aligned with our engagement with them thus far. We expect to continue to have their support, especially around our efforts to accelerate the investments.

And I'll add to Rod's comments that we had or we have a resilience and reliability program that we've been operating for the last years that has shown improvements in our stats. And when I was mentioning continuous improvement moving over into the capital space in my remarks, one of the areas where we are focusing that is in this energy delivery space because we have a reliability program. We are upgrading our resilience program. We also have customer efforts going on, integrating those three things and making it much more optimized. It's a space where we think we can achieve all the outcomes that we're looking for and do it more efficiently. So that is a place where all these things are starting to come together and not -- and are actually separate efforts going on internally in the business.

Got it. Thanks. That's helpful. And you alluded to it in the prepared remarks, obviously, the last securitization process was a challenging one and I was just wondering if you could elaborate? Is there a way to lower the risk around storm cost securitization processes going forward in Louisiana? Just what kind of initiatives can you pursue specifically to kind of align parties more smoothly going forward?

I'll start and I'll let Rod jump in. But I think the main thing that we can do is embark on a resilience program together. And that is a big opportunity we have, filings in Louisiana and in New Orleans, and as I said we -- we're planning to do that in Texas later this year. That's the biggest opportunity and that will move all of our stakeholders forward in terms of preparing for storms and responding more effectively to storms. So, Rod, I'll let you...

Yeah, and I think that's the point. Our customers are agnostic as to whether the investment is a reliability investment or a resiliency investment, and when there is a storm and the customers are interrupted, they are experiencing the hardships of that interruption. That's what was part of the driver for the heightened tension both in our -- from the regulators as well as our investment plans in pursuing accelerated investments in resiliency because our customers had the recency of the experience with storms. And so, Drew's point is right on point that if we can get alignment around accelerated resiliency investments, our customers will actually experience better reliability experiences as well. They are quite connected.

Yeah, that makes sense. Okay, great. Thanks so much.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Durgesh Chopra from Evercore ISI. Your question, please.

Hey, team. Thank you for giving me time. Hey, just...

Absolutely. Good morning.

Good morning, Drew. Just -- just clarification. What to expect on February 2020 -- February 22nd? So is the FERC actually going to put out an order where they will kind of -- you have the compliance refund, will they affirm the compliance refund report? I'm just trying to kind of figure out what to look for there?

We expect them by February 23rd if I'm hearing your question correctly. We are expecting the FERC to respond to the parties' request for rehearing. So any substantive aspects of that is unknown to us, but our expectation is that FERC will respond to the parties' request to have certain of those issues reheard, not necessarily a substantive ruling one way or the other.

I see. So if they basically say no to the rehearing, then I guess, does that clear way the path to you kind of going through other settlements and putting that to bed? Is that the right framework that I'm thinking about?

Well, the parties will have the opportunity to appeal if they're not satisfied with the outcome. I think from our vantage point, there were certain advantages to give FERC the opportunity to reaffirm the initial position it took, and we had some challenges with the sale-leaseback part of the order. And so, what we're looking for out of this candidly is clarity. And we'll wait to see what -- how FERC responds in the next week to order our next steps.

Understood. Thank you, guys. That's all I had. All my other questions have been answered. Thanks, again.

Excellent. Thank you.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Angie Storozynski from Seaport. Your question, please.

Thank you. So the first on FERC and SERI. So FERC scheduled hearings and that's a last challenge that talks about the prudence of the up rates of Grand Gulf, which I mean on its own frankly, it's hard to believe that this challenge wasn't outright rejected. So I mean, is there any read through? Are you hearing anything from FERC why those hearings were even scheduled?

Hey, Angie. It's Rod. You're -- I'm assuming you're talking about the orders -- the rehearing order that the FERC released today where they declined our motion to...

Yes.

Rehear. Yeah. So the order is procedural only as we read it. It doesn't order any refunds or require any further actions. And they went so far as to explain that in setting the prudence complaint for hearing and settlement, it imposes no obligation on us. It doesn't deny us any of our rights. It fixes no legal relationships, but it simply initiates further proceedings. And they're with holding their right and ability to address anything substantive along the lines. It's not unexpected for us, but it's -- again, it's a procedural and not a substantive order. So there's not anything to read from it from a subsidy standpoint.

And, Angie, to be sure we appreciate your sentiment.

Yeah. And the next step is the settlement offer March -- SERI settlement offer to the parties on March 1st, but again, Angie, taking it as a procedural matter, not a substantive one.

Okay. And then, completely -- changing topics completely here. So I mean, I was just wondering there is this discussion in the industry overall about switching from solar ITC to solar PTC. Obviously, from a regulatory utility perspective that's helpful given no issue with ITC normalization, but is there -- I mean, as you look at it, right, especially that your solar resource would be superior or above average, I mean, is this shift -- would that be actually in any way EPS accretive? I mean, I'm just thinking about the earnings recognition under the -- on the solar PTCs versus the ITC.

Yeah. Good question, Angie. The way we think about the PTCs is they provide -- and any IRA in general is it provides opportunity for incremental investment. We'll need to work with our regulators as we have over a number of years successfully to provide back the tax credits to customers in a way that provides them the value, but continues to support our credit and our balance sheet. And so, we've begun those conversations early, but how those play out will be a matter of discussion with our regulators. We've talked about using those as credits against rate base as compared to direct credit, for example, to customers as it gives us an opportunity to manage our balance sheet as well as ensure the opportunity to customers. And it also helps with the volatility associated with customers' bills on PTCs, particularly as it relates to the nuclear PTC.

And Angie, this is Drew. I would add to Kimberly's comments that we have a 50% planning assumption to the extent that this does help make us more competitive. There might be an opportunity for incremental investment over and above what we're planning, but we still have to go achieve that. So we're continuing to work to get more competitive. And this is certainly helping level the playing field for us as you said versus the ITC framework. But that's an opportunity for us that we will have to go achieve out there in the future.

Okay. And then, lastly, you did make comments about changes in forward power curves and the quantification of the nuclear PTC benefit that would accrue to your customers, but we haven't yet received any guidelines from the IRS and it sounds like it's not expected until the early summer. But is there -- but have you been in discussions with the IRS about how they will potentially quantify the current energy stream that nuclear plants are getting?

Yes, we're certainly working through EEI with our partners and with the other utilities on getting clarification on these nuclear PTCs. We'll obviously have to wait with the rest of the industry on what that actually comes out as, but we do believe that that's an opportunity for us and we'd be eligible for those. And it provides, as Drew said, an opportunity for customers, both to manage builds as well as an opportunity for incremental investment depending on how those come out. But we have definitely been in discussions with them through EEI.

And we did anticipate that they would be probably a little slower on this because they had more time. It doesn't kick in until 2024. And so, we anticipated that they're going to cover a lot of other things like the corporate minimum tax and other important elements first before they got to that.

Awesome. Thank you. Thank you, both.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Anthony Crowdell from Mizuho. Your question, please.

Hey, good morning. Hopefully, just two quick ones. I -- you may have addressed them, but just curious. I guess there's two issues going on with SERI. What is a reasonable expectation when you think of all of the challenges that will play out at FERC like what's a reasonable assumption when all that is over? Is that within six months or you think it could carry longer?

We can't say because FERC has -- on the issues we just alluded to, doesn't have a specific timeline. They are in control of the schedule there. The updates that I've given was the filing we were making today that -- where the FERC has no scheduled deadline. That's in regard to our compliance filing. Then, the other was a week from today, the timing that FERC imposed on itself to reply to the request for rehearing from all the other parties, but it is in FERC’s domain to decide when they make these decisions. So I could not give any expected timeframes to resolve all of these. That's another one of the reasons why we're so aggressive in engaging with the regulators to pursue a settlement to remove the uncertainty inherent in FERC's operations. No disrespect to our FERC commissioners.

Great. And just lastly, in Slide 9 you go through some credit and liquidity metrics there. You talk about maybe about by year end, you hope to be at the range or better. Your FFO to debt, especially with Moody's trying to be at 14%. I guess, do you have a targeted credit cushion or a targeted level you hope to be maybe by 2024 that you could share?

Sure. As you pointed out, we are targeting to be above 14% by the end of 2023 and closing out the securitization for Louisiana that was approved in January is a significant help to enable that. As far as longer term, we are targeting 15% and we're targeting that over the outlook period. So you'll see us continue to focus on strengthening our balance sheet over the outlook period to get to that target of around 15%.

Great. Thanks for taking my questions.

Thank you.

Thank you. One moment for our next question. And our next question is a follow-up from Constantine from Guggenheim. Your question, please.

Hi. Thanks for taking my follow up. Maybe just to elaborate on the O&M targets and conditions that you're seeing, you kind of mentioned some of the costs escalating, but just trying to get a sense on what percentage of O&M is subject to some of these external factors, and how do those elevated costs play into regulatory relief just given the FRP revenue increase caps?

Sure. Thanks for the follow up. As far as inflation, we do have some inflation costs in our 2023 guidance. We've talked about costs like commodity costs and chemicals that have increased. We've seen some labor cost increase in our vegetation contracts, for example. But as I said, we have seen some relief on that, particularly on the commodity side as it relates to either the resources that go into our capital plan. Things like copper, nickel, steel, all these are down year-over-year. So there are some -- it's a blend, if you will, but we do think we have some flex levers in 2023 to help us manage both our O&M and our overall -- where we are in the guidance range.

So, no kind of impact on the regulatory relief just given some of that flex that you have. I think the early outlook has like a 9% utility book ROE, any change in thinking around there?

Yeah. So as far as Louisiana and Arkansas where Arkansas certainly has an FRP, we continue to work to manage within that cap. Increased sales which U.S. Steel will come in over the outlook period will certainly help us in that regard. From a Louisiana perspective, as you know, in June is the last filing of our FRP in the current cycle and we would expect to have either a rate case or new FRP filing. Those modifications out of those outcomes would help us move up -- but you'd see their ROEs move up hopefully depending on the outcomes associated with those rate mechanisms.

Great and quick follow-up on the question around credit metrics. Just are capital market conditions changing your thoughts around the process or kind of capital allocation or dividend decisions? And kind of more broadly, how are you thinking about optimizing those financing needs, especially with CapEx ramps up in the second half of the decade?

Yeah. We certainly -- as we noted from an equity perspective, we've met our needs through 2024 largely. We have about $130 million left. We've talked about a total need between 2025 and 2026. We haven't broken that out, but as we accelerate capital investments and we see additional renewable growth in the back half, we'll definitely have to look at how we are financing that most effectively. But we continue to watch interest rates as well as other mechanisms to finance, but we don't have anything as far as alternate financing or anything like that, that we have that's executable at this point.

And it's not changing our capital mix really either at this time. We're using the internal tool for continuous improvement and trying to flex around those internal options rather than try to adjust what we're doing on an external basis at this point.

Excellent. That's very helpful. Thanks so much and great quarter.

Thanks, Constantine.

Thank you. And our final question for today comes from the line of Nicholas Campanella from Credit Suisse. Your question, please.

Hey, everyone. Thanks for getting me in here. Just one from me today. In Louisiana, I know you're kind of on the last year of the FRP cadence and I guess you'll either file for an extension in the third quarter or a rate case. Can you just give us a sense of where you're leaning there and any additional thoughts around that? Thank you.

Well, we are prepared for both tracks and the filing of a rate case. It doesn't prevent us from continuing to work with the commission and our related stakeholders on an extension or renewal of the FRP. So they are parallel paths, not inconsistent with the prior as I recall in my two iterations of review. So the process will likely be the same. Given the fact that we have the accelerated resilience filing and any anticipated tweaks along those lines, we'd be looking to figure out with our stakeholders what's the most efficient path for us to incorporate the resilience components aside from the rest of the components of our capital plan and rate design. So more to come but parallel paths.

Thanks for that. Have a great day.

Thank you.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Bill Abler for any further remarks.

Thank you, Jonathan, 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.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.