Hello. Good morning. My name is Jeremy, and I will be your conference operator today. At this time, I would like to welcome everyone to Entergy's Second Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bill Abler, Vice President of Investor Relations for Entergy Corporation.

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 those 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 second quarter adjusted earnings per share of $1.84. Our progress through the first half of the year keeps us firmly on track to achieve 2023 results in line with our guidance. and we remain well positioned to achieve our long-term 6% to 8% growth outlook. Creating sustainable value for our customers, employees, communities and owners is at the center of everything we do. I'll start today with our work to meet our customers' demands. We're investing in resilience and reliability and working to expand our clean energy footprint. This work helps our current customers meet their goals while also attracting new customers to Entergy's service area. To that end, our power delivery team continues to upgrade legacy assets to new, more robust wind and flooding standards through new construction projects, storm restoration and asset renewal. For example, in the second quarter, our new deployments included roughly 600 transmission structures, approximately 8,000 distribution poles, more than 200 miles of new distribution conductor and 7 new substations. In addition, these improvements will support more than 120 megawatts of growth. Safe and effective nuclear operations are also important for our stakeholders. Our nuclear units continue to provide clean, reliable baseload power to our customers in 2 of our plants, River Bend and ANO Unit 2 recently completed successful refueling outages, which included major projects to support long-term operational excellence. Overall, our nuclear plants are running very well. Outside of refueling outages, our fleet achieved a 99% capability factor for the first half of 2023. While our customers demand more reliability and clean energy from us, our unique and sizable long-term industrial sales growth opportunity continues to improve. Growing businesses support our communities, provide employment opportunities and help with affordability. The inherent advantages…

Thank you, Drew. Good morning, everyone. As Drew mentioned, our results this quarter keep us firmly on track, and we are affirming our guidance and our longer-term outlook and remain focused on delivering steady, predictable results. Slide 3 shows a high-level view of the quarter. Our adjusted earnings per share was $1.84, $0.06 higher than last year. We continue to see benefits from our customer-centric investments, including regulatory actions, along with higher depreciation, taxes other than income taxes and interest expense. We also saw a significant reduction in other O&M, a portion of which was for items that do not have a bottom line impact. Slide 4 details the variances by line item. Regulatory actions support our investment program to benefit customers. There were a few updates in the quarter. Entergy Mississippi put its latest FRP rates into effect in April. In June, Entergy Texas implemented interim rates from its rate case settlement. The settlement is credit positive and largely neutral to earnings as the rate case included new higher depreciation rates. Weather was $0.17 lower than last year. While weather was warmer than normal this year, you may recall that temperatures last year were significantly above average. Excluding the effects of weather, retail sales growth for the quarter was down 0.9%. The residential segment had a slightly positive contribution from customer growth, partially offset by lower usage per customer. Commercial and Industrial sales were lower. For Industrial, lower sales to Cogent customers was the primary driver as Cogent sales returned to more normal levels this year. This decline was partially offset by growth from small industrials and new and expansion large industrial customers. O&M was also a driver. We had lower spending for nuclear and nonnuclear generation, primarily due to reduced scope of work. Other drivers included higher rebates…

[Operator Instructions] Our first question comes from the line of Shar Pourreza.

It's actually Constantine here for Shar. So starting at the LPSC. With the LPSC turnover, are there any actionable changes in relationship or alignment that you've implemented? And do you feel the LPSC is in general, comfortable with the current regulatory construct? Or would you look to add anything beyond the new resiliency framework kind of going forward?

It's Rod. I think the best answer to your question is really the proof of concept, the decision that the LPSC has made to date. We've got the support, as you'll recall, after the election at the end of 2022, we got the support for our securitization. We got support for our Lake Charles Transmission system. We got support for our gas business rate decisions, all from the new commission. And so, I don't believe that we have a relationship issue. And in fact, we continue to work collaboratively with this new commission. We acknowledge that the addition of the newest commissioner, Davante Lewis, has created an opportunity for us to engage differently in educating a new commissioner on the historic relationships between the company and its stakeholders, not just the relationship between the commissioner and the company, but also the commissioner and the customer impacts. I know that you're reacting -- your question, react in some respects from some of the comments that have come out of individual commissioners and our reaction has been consistent. As long as we maintain our focus on ensuring positive customer outcomes, whether it's resiliency, whether it's renewables and clean energy and certainly affordability, we expect to be -- continue to be aligned with LPSC. And so we're moving forward, as Drew alluded to, with our regulatory calendars and to file our rate case and FRP as well as a strong renewables portfolio in addition to continuing to fuel the growth for the state, and we expect the commission to be supportive of the company's positions. We'll have a lot of debate along the way, but we'll continue to work constructively with them.

And Constantine, as part of your question, whether there's -- we think there's some continued support for formula rate plans within LPSC.

Right. And I guess just anything that you feel like you need incremental to narrow some of those are kind of earned ROE gaps?

Well, from that vantage point, that's less -- less of a change. It's Entergy's interest in ensuring that the -- both -- whatever the regulatory mechanism is, we're using both the filing of the rate case as well as the planned FRP renewal to align those recovery mechanisms with our capital plan. We're not necessarily disclosing any specific tweak at this point to the FRP because we haven't even made the filing yet, but we expect the commission to be receptive to the case we're making for why an FRP is in the best interest of customers long term. We're filing the rate case because it was a condition of the settlement during the last FRP renewal. But we expect to continue to make the case to the commission for why the FRPs and certain adjustments to it would be beneficial to our stakeholders long term.

Excellent. That's great color. And maybe shifting to the other kind of regulatory item, SIRI. Would the operational prudence complaint kind of reaching a point of settlement impasse in July and rehearing is still pending. Are you embedding any range of outcomes in the current financial plans just in terms of cash or financing drag? And maybe any guidance on kind of capping the potential liability in any form from the last complaint?

Sure. Thanks for the question. As it relates to SIRI in our financial plan, as you know, we recorded the reserve last year equal to the Mississippi settlement applied broadly across and that is reflected in our financial plan. And then we assumed that we are able to continue to work with the parties to resolve the litigation and that Grand Gulf is an important asset to our fleet and continues to operate and contribute to our results.

And I'll add that in terms of capping the exposure, the ALJ order from May regarding the UPSA is while it had -- as I mentioned, they had a $250 million of requested refunds, it did prune off quite a bit of additional liability. And so you do see that the amount of liability continues to come in as we move forward in the process. But we're still working through all that. And certainly, that's the amount that we believe we are at right now is what we have reflected on our books.

And our next question comes from the line of Jeremy Tonet.

Just want to stick with Louisiana here a bit. And I think you touched on it a little bit, but want to see if you might be able to expand more. And how do you think the Louisiana resiliency process could unfold once the staff engineered report is filed this month. Any sense from the commission on how the commission would like to handle it and if this could be kind of rolled together the resiliency, the RFP, the rate case all get tied together?

I totally understand your question, and I am -- my hesitation is only that I don't want to get ahead of the regulatory process. But I think your instincts are aligned. Once we get initial feedback from the staff on the filing, I think it puts us in a position to evaluate the timing around how we might pursue potential settlement discussions. Our objective, obviously, is to remove as much uncertainty as we can. And whenever we have the opportunity to avoid going through the expense of litigating issues where there's an opportunity to find time and ground. Part of our expectation going in is to first make the compliance filings as is expected by the commission. But the moment we do, we're trying to find a path to settlement, that isn't different. And I think your instincts about how we think about between now and the end of the year, assessing the likelihood of aligning around both the resiliency filing in concert with the discussions around the rate case FRP are spot on. That's our ultimate objective. But we have to make the filing and get the feedback. We have to make the filing on the rate case, but to your point, get the feedback from the LPSC staff on the resiliency filing and take it from there. But great point.

Got it. Got it. That makes sense. That's helpful. And sticking with Louisiana here, are stakeholder communications -- let us to hear about when those recent outages, there were some system glitches and communication to consumers was maybe not where it could be. Just wondering efforts on this side to, I guess, improve customer response and kind of address some of those local stakeholder concerns there?

Yes, Jeremy, this is Drew. We have folks all over that issue. We got over 100 people squared away in a large conference room in Texas working on this. But we feel like we have a good plan going forward from where we are. Certainly, the -- some of the performance of some of our systems after some upgrades that were intended to improve things last -- earlier or late in the spring didn't work out as intended. And so we worked through all that. We have a good plan going forward, and we expect to be back on track for any future storms.

Got it. That's helpful there. And then just a last one, if I could. I was wondering if you might be able to unpack a little bit more FFO to debt and kind of the trajectory over the balance of the year and hitting the goals that you want to hit there. Just any incremental color would be appreciated.

Sure, Jeremy. Really two key factors there. One is closing the Louisiana securitization, which we did in the first quarter. And as we go through the year, you'll see the debt associated with previously carrying that roll off. And the second is around the recovery of the higher deferred fuel balances that occurred last year with the higher gas prices and higher volumes we saw. You can see that the deferred fuel balances are down back to what I would consider more normal levels. And so, as those debt levels roll off, those two items will significantly help us and then just managing through our normal operations as we go through the end of the year puts us on target to be at or above that 14%.

Our next question comes from the line of David Arcaro.

I think, Drew, you alluded to some initiatives that you're pursuing on the renewable development side of things to make the organization more competitive in some of these RFPs and to give yourself a better fighting chance to do some more self-build. I was just wondering if you could elaborate on what types of initiatives that you've pursued there to lower costs and build the pipeline, it sounded like?

Yes. Thanks, David. That's a good question. We have been working on building the capability in the development space as I mentioned. And we have been actually successful for the projects that we have been able to put forward in competing in our RFPs. So I think we're making good progress in terms of what does it take to be competitive on the solar RFP front. . The challenge we've had is we just haven't had a large pipeline of projects to support. So many of the projects that are even in the 30% that I mentioned earlier are build on transfer projects where a developer is constructing it and then moving it over to us at -- just before the completion of COD. What I'm referring to when I say we're making progress is we are finding some success in building up our portfolio. So we have somewhere in the neighborhood of about 4 gigawatts of development pipeline that we have put forward at this point. Now, I wouldn't say that's all ready to go and RFP. We're still building out some of those projects. But it's a much larger portfolio, and we are expecting to add maybe another half gigawatt to that by the end of the year. And then beyond that point, we'd expect it to continue to grow, and that should be very strong given where we have been competitively, that should be very strong in the RFPs going forward. So that's what we've been seeing, and that's what we're focused on.

And the only thing that I'll add to Drew's comments is that part of the sort of declogging if you will, that pipeline, we've been securing additional sites for renewables development, including our generation sites as well as the transmission interconnects that are all part of the development process, and that's adding to our improved competitiveness to Drew's point.

Got it. That's helpful color. And then let's see -- curious similar topic, but in Texas, one of your peer utilities in the state has had challenges just getting a few renewables projects over the finish line there. I was just wondering how that's affecting your strategy in the State of Texas? How that might maybe impacting the outstanding RFPs that you've got?

Yes. And the short answer is that it's not impacting -- one, it's not a surprise to us because our point of view is consistent with -- and has been consistent with the PUCT. We understand the significance of reliability first. We do believe because of the interest of our customers that the renewable resources should be an important part of our supply portfolio. But we recognize that the commission's position has been rather consistent in Texas. It's notable that our position outside of ERCOT in our service territory and the success we've had in our CCNs has given -- in our view, given us a better vantage point to discuss the attributes of renewables with the commission perhaps in a different light because we're not having the same reliability issues in our service territory as they've expressed concerns about inside of -- inside of ERCOT. We are paying close attention, though, to -- particularly in Texas that if the commission were to have a change in policy around renewables, we see a tremendous opportunity in both hydrogen and CCS for other capital investment opportunities. But we think our position is strong. Our customers, particularly given all the growth we have in Texas are requesting the attributes of renewables and/or clean energy, and we're well positioned regardless of what direction the commission might take from a policy perspective in Texas to help them meet those needs.

And our next question comes from the line of Paul Zimbardo.

Drew, I think you mentioned that although some projects might be shifting around the timing a little bit. You're net seeing stronger industrial growth in that 2025 period, '25 plus. Just could you give a little more color on that and kind of what that means for the plan? And if this is something you could roll into the plan within the EEI refresh?

Yes. So it would be expected to be part of the EEI refresh, and we can give you some more details for sure. Then I would characterize the movement from '24 to '25 is the normal roll around of these large industrial projects that are billions of dollars and they're hard to get done. And so that's nothing that we haven't seen before. And so that is -- well, I wouldn't say that was expected, I would say we're not surprised. And that is -- so that part is not really new news. As we look forward beyond 2024, we are continuing to see a very robust industrial sales pipeline, lots of interest from a lot of different parties. We've -- particularly around the clean energy. I mentioned a particular CCUS project from ExxonMobil in my remarks, but there are other projects like that out there. There are projects like that related to hydrogen. So we are I think, well positioned to take advantage of all of that and we'll give you more details whenever we get to EEI.

Okay. Great. Understood. And then just pivoting to Texas following up on a couple of questions that were asked. Is there a good way to think about kind of what the earnings improvement opportunity is after the legislation, whether it's earned hourly basis points, additional capital spending opportunities. Just if there's some way to think about that, that would be helpful.

Sure, Paul. Are you referencing out of the Texas legislation, specifically. Was that your question?

Correct. Yes, the legislation.

Yes, there were a couple of -- a number of favorable things out of the legislation. Obviously, the resilience filing gives us a path to file our resilience plan and seek recovery of that in a way that helps provide our system higher resilience standard and support our customers. The DCRF changed from an annual filing to a biannual filing, that certainly gives us an opportunity to improve the -- or decrease the lag associated within investments. But from an overall perspective, we're still -- we haven't changed our outlook with regards to that, but certainly, a better way to recover investments. And then the third item is around compensation. And that one really for us on executive compensation is around recovery in a rate case. It's not really effective to us, but it certainly is helpful from a precedential perspective.

Okay. Is there a way to kind of quantify like ROE improvement or something from all of that?

Yes. I think it's too early to do that at this point. But certainly, they are positive tailwinds from our perspective that help us when we think about our overall outlook, but nothing changes in that regard.

All right. And that looks like right now, that is all of our questions. If there are no more questions, I will go ahead and turn it back over to Mr. Abler.

Thanks, Jeremy, and thanks, everyone, for participating this morning. Our quarterly report on Form 10-Q is due to the SEC on August 9 and provides more details and disclosures about our financial statements. Events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet would be reflected in our financial statements in accordance with generally accepted accounting principles. Also as a reminder, we maintain a 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.