安特吉 (ETR) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Entergy Corporation's First Quarter 2018 Earnings Release and Teleconference. (Operator Instructions) And as a reminder, this conference is being recorded. Now I'd like to turn the conference over to Entergy's Vice President of Investor Relations, David Borde. Please go ahead.

Great. Thank you. 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. (Operator Instructions) In today's call, management will make certain forward-looking statements. 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 our earnings release, our slide presentation and the company's 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 the slide presentation, both of which can be found in the Investor Relations section of our website.

And now I will turn the call over to Leo.

Thank you, David, and good morning...

Pardon me, Mr. Borde. We're having a hard time hearing the speaker right now. (technical difficulty)

Thank you, David, and good morning, everyone. Today, we are reporting solid first quarter results with Utility, Parent & Other adjusted earnings of $0.71 per share and consolidated operational earnings of $1.16 per share. Drew will cover the financials in more detail, but the bottom line is that this quarter's results keep us on track to achieve our full year UP&O adjusted and consolidated operational guidance and our long-term outlooks.

This first quarter was a productive start to the year, and we executed operationally with success on key projects and regulatory initiatives. The quarter's accomplishments continue our strategic execution on key deliverables dating back to the first quarter of 2015 when we initiated the concepts of our quarterly to-do list. That's 13 consecutive quarters where we've met essentially every goal we set out as critical to our broader overall strategy. Some of our goals were ambitious, but we are confident that we have the organization, focus and commitment to succeed. Our progress this quarter is an extension of those efforts.

Specifically, we continue to move forward with our newbuild generation projects. The New Orleans Power Station was officially approved, and we've issued full notice to proceed with the engineering procurement and construction contractor. This 128-megawatt reciprocating internal combustion engine facility will provide significant reliability and cost benefits to customers, and it will be the only large-scale generation located within the city of New Orleans. The flexible design of this facility will also make it well suited to support intermittent renewable resources like solar.

The Montgomery County Power Station in Texas is also underway. The EPC contractor has been released to start engineering and order major equipment. And this summer, we will issue full notice to proceed on that project.

As for the St. Charles and Lake Charles Power Stations, construction advances on both projects. All the major equipment is in place for St. Charles, and Lake Charles is well into its engineering and procurement phases and moving forward with its construction phase. I'm pleased with the progress we've made on these important resources, all of which are proceeding on schedule and on budget.

For Washington Parish Energy Center, we have reached an unopposed agreement in principle, and we'll be preparing settlement documents and filing to present the Louisiana -- to the Louisiana Commission. We expect to present the filing in time for the LPSC consideration this summer.

We are also planning for the future of our power generation organization. We recently announced a partnership with River Parishes Community College to open a power generation training center on the college's campus in Gonzales, Louisiana. We expect to send up to 400 employees each year for training at this center.

We've made significant progress on key transmission projects that will improve reliability, support growth and lower costs for our customers. Our Lake Charles Transmission Project is our largest transmission undertaking ever, and it will provide improved reliability and additional load-serving capability in an area that is experiencing significant industrial growth. The major components have been completed, with portions now placed in service and already benefiting customers.

We also completed large projects in Southeast Louisiana and Mississippi that are already providing reliability benefits to customers in those areas, and we are developing and constructing several large projects in Texas.

In addition, the transmission employees achieve over 1 million hours without a recordable accident. That's just over 210 days through the end of the quarter, setting a record for the transmission organization. I applaud our employees for reaching this milestone and their continued diligence and focus on safety.

We are approximately 60% complete with the buildout of the IT systems required to support advanced meter deployment. We are working to complete those systems and finalize meter and communication network development plans as well as customer education plans. The AMI project remains on track to begin meter installations in 2019. These advanced meters will provide significant benefits to our customers, and lay the foundation for the next generation of grid technology investments for our system.

On the regulatory front, the Louisiana Public Service Commission approved our unopposed settlement agreement for Entergy Louisiana's annual formula rate plan through 2020. This is a good outcome and another positive step towards ensuring that we have progressed efficient recovery mechanisms in our jurisdictions. This settlement was the result of another constructive, collaborative effort among all the stakeholder groups, and gives us the financial flexibility to continue to invest in the reliability of our infrastructure for the benefit of our customers.

As part of the settlement, we will reset rates to a 9.95% ROE in 2018, and our customers will receive the benefits of the lower income tax rate. The settlement also includes a provision for the return of more than $200 million to customers for unprotected excess ADIT. Half of that will be returned this year, and the remainder over the next 4 years. The FRP now has a new transmission rider that will help ensure more timely recovery of Entergy Louisiana's transmission investment. The overall framework also includes other refinements that we believe will position us to earn our allowed return in Louisiana during the FRP period. We will submit our first filing under the FRP by the end of June for rates to be effective in September of this year.

And finally, Entergy Mississippi filed its annual FRP in March. Because of the effects of the lower federal tax rate, we requested no change in base rates. The FRP filing also includes our proposal to return unprotected excess ADIT. Under our proposal, Mississippi customers would receive bill credits this year totaling approximately $80 million, and the remaining balance would be used to recover certain items on Entergy Mississippi's balance sheet that otherwise would be in rates.

Of course, as we execute on our investment plan, we remain focused on customer bills. Today, we already have some of the lowest retail rates in the country. Going forward, the lower federal tax rate, the roll-off of securitizations, continued industrial growth and the deployment of AMI are all important drivers that will help keep our rates low for the benefit of our customers.

Also during the quarter, Entergy Louisiana signed a 10-year agreement with Yuhuang Chemical to supply power to a new methanol facility. YCI is investing $1.5 billion in the construction of its methanol plant, which is scheduled to be completed by first quarter of 2020. This project is just another example of the continuing economic development opportunities in our service areas. We are proud of our contribution to these efforts, as these types of projects are critical to the well-being of the communities we serve.

Our economic development teams are actively engaged with existing customers, new prospects, Site Selection consultants, state agencies and local economic development organizations to bring more industrial growth opportunities to our region. And we continue to see strong interest, supported by a favorable business and economic environment. For example, we expect the oil and gas ratio to sustain at competitive levels, which improves customer economics in the petrochemical value chain. In addition, LNG markets are absorbing incremental supply at a fairly rapid pace, and the market is poised to meet additional liquefaction capacity by early 2020.

And pending International Maritime Organization rules, we capped sulfur and marine fuels starting in 2020. The high sulfur fuel oil that would no longer be suitable for burning in the ships would require secondary processing to further refine the products to meet the new standards just to create an economic opportunity for refiners to incrementally expand secondary processing units, such as hydrocrackers. Overall, the indicators that have led to continued industrial sales growth in our service territory are still trending in a positive direction.

At our merchant business, we continue to focus on safety and risk mitigation as we steadily move toward the end of operations. We reached a settlement agreement for the sale of Vermont Yankee to NorthStar. Evidentiary hearings will be held in May, and we've requested a decision from the Vermont Public Utility Commission in July. That transaction will also require approval from the NRC, and we continue to expect a decision in the third quarter.

With respect to Indian Point, we have received determinations from the New York ISO that IPEC's retirement will not create any reliability concerns, nor will it raise any market power issues. We are on track to retire the units as scheduled. We recently wrapped up our last refueling outage of Unit 2, and that unit is now in its final operating cycle. The outage was completed within our schedule and budget. Indian Point 2 has been an important asset for Entergy and the communities it serves and supports. I would like to acknowledge the work of all of our employees at the plant over the years and their commitment to finish strong.

On April 2, the Nuclear Regulatory Commission began its final quarterly inspection of ANO's Confirmatory Action Letter progress. The few remaining CAL items are being addressed in ANO's current refueling outage, and all are expected to be satisfactorily closed to support closure of the Confirmatory Action Letter this June. As a result, we are on track for ANO to exit Column 4 and return to normal oversight by the end of the second quarter.

At Grand Gulf, we are also in a refueling outage, where we are working on a number of important maintenance projects and equipment upgrades. In combination with both the thorough review of processes, procedures and protocols we conducted at the plant and the more than 3,100 hours of training and operations, maintenance of technical fields our crews underwent in the past 18 months, we expect the reliability with the plant and its capability factor to improve going forward.

I'd also like to acknowledge a few awards and recognitions that we have received so far this year. Entergy Texas and Entergy Mississippi received 2018 ENERGY STAR Awards for their outstanding efforts to promote energy efficiency and educate customers. Entergy was named for the third consecutive year by the Women's Business Enterprise National Council to the list of America's Top Corporations for Women's Business Enterprises. The honor recognizes corporations that have implemented world-class policies and programs to enable growth and reduce barriers for women on businesses. And the Louisiana Society for Human Resource Management also awarded Entergy its 2018 Excellence in Diversity Award, recognizing the impact we've made fostering a diverse and inclusive work culture.

As a reminder, we recently released our 2017 integrated report entitled Utility Reimagined, where we discussed in detail the many ways we are creating sustainable value for all 4 of our stakeholders. We've increased our environmental, social and governance disclosures and, in particular, we've adopted the Edison Electric Institute's ESG template as part of our integrated report.

In a continued effort to provide you with relevant information, we are also reviewing and assessing evolving best practices on a 2-degree scenario analysis, including the newly published series framework for U.S. utilities with a view towards preparing a 2-degree scenario analysis that would likely be published either as part of or concurrently with our 2018 integrated report.

We also remain focused on continuing to reduce our carbon footprint. Our efforts began nearly 2 decades ago when we were the first U.S. utility to commit to voluntarily stabilizing CO2 emissions. We are working to expand our portfolio of renewable resources in ways that complement our existing resources and capabilities, while maintaining our low customer rates. On our fourth quarter call in February, we mentioned that we are pursuing over 800 megawatts of renewables. Since then, we have identified new opportunities, and we are now evaluating more than 1,000 megawatts of renewables. Some of these projects have been announced, while others are still in confidential discussions.

As renewable resources continue to become increasingly efficient and cost-competitive, we plan to take further advantage of these opportunities. Increasing our use of renewables is one way for us to meet customer energy needs and expectations. As I discussed on our last earnings call, we recognize the utility industry is in the midst of change. We are planning for the long-term future of the company, and are laying the foundation to provide innovative customer solutions in a changing world.

To further enhance our focus on this commitment, we've assembled a cross-functional team of employees, led by a newly-created leadership position, who reports directly to me. This team is dedicated to developing ideas, evaluating opportunities and implementing action plans to meet the demands of our rapidly evolving industry, and working to identify solutions that leverage new technologies, such as data analytics, automation, distributed generation, utility and community steel, solar, microgrids, battery storage, electric vehicles and other emerging technologies, all while keeping in mind, as we always do, our most impoverished customers and the environment.

Finally, earlier this year, we welcomed John Burbank to our Board of Directors. John has strong experience in developing and executing strategies for customer-facing businesses that are dealing with transformational change. He also has expertise in digital technology, customer data analytics and product development. All of this makes John uniquely suited to help us take advantage of innovations to meet ever-evolving customer expectations.

As I said at the outset, we had a solid to start to 2018, a start that keeps us on our path for continued sustainable growth in our core business. We're well positioned for continued success in delivering on our commitments to you. We are excited about this journey, and we look forward to talking to you more at our Analyst Day on June 21. I will now turn the call over to Drew to cover our financial results for the quarter in more detail.

Thank you, Leo. Good morning, everyone. As Leo said, the first quarter was a solid start to the year, and the bottom line is that we are on track to meet our full year Utility, Parent & Other adjusted and consolidated operational guidance and our long-term outlook.

Let's get straight to the numbers. Overall, operational earnings for Entergy consolidated increased $0.17 quarter-over-quarter. Drivers included the lower tax rate, favorable weather as well as the unfavorable effects from the implementation of ASU 2016-01 on our nuclear decommissioning trust funds at EWC.

Let me we drill down into the different segments, starting with our core Utility, Parent & Other business on Slide 5. Adjusted earnings were $0.12 lower than the prior year due to a few key drivers. Despite strong weather-adjusted sales growth and positive rate actions in both Arkansas and Texas, unbilled sales volumes were lower. We also recorded regulatory provisions at both Entergy Louisiana and Entergy New Orleans to reflect regulatory agreements regarding implementation of the effective tax reform. Combined, these drivers resulted in a decrease.

Non-fuel O&M was higher, largely from nuclear expenses, including nuclear payroll, which has increased as we continue to ramp up staffing pursuant to our plan. We don't expect nuclear to be a significant driver for the full year. In addition, because of the ongoing capital investment in our core business, we naturally see increases in ad valorem and franchise taxes, which are partly offset by an increased AFUDC. And finally, the quarter reflected the lower federal tax rate.

Even though our UP&O-adjusted results were lower quarter-over-quarter, our expectations for the full year have not changed. We remain on track to meet our 2018 guidance through a combination of factors that will benefit us in the second half of the year, including rate actions and O&M timing. Rate actions included an expectation for the recently approved Entergy Louisiana FRP. As Leo mentioned, this is a good outcome for our customers and all of our other stakeholders, and will position Entergy Louisiana to earn its allowed return during the FRP period. As you know, Louisiana is our largest jurisdiction. We're happy with the collaborative effort from all stakeholders to reach this agreement.

Turning to EWC's first quarter results, summarized on Slide 6. Operational earnings were $0.33, approximately $0.04 lower than the prior year. Excluding FitzPatrick, the key driver for EWC was the weak market performance in the quarter for EWC's nuclear decommissioning trust fund. Changes in accounting rules now require us to mark the equity portion of those investments to market, but this doesn't change our view on the long-term value of the funds, our anticipated cash flows from EWC or efforts toward commercial resolution of the EWC business. The balance of the trust as of March 31 was approximately $4 billion, and the key value driver for decommissioning is identifying economies of scale and engineering solutions that can reduce the ultimate costs. We're aggressively pursuing these types of solutions.

Lower-income tax expenditure, reductions of the federal tax rate, combined with a change in pretax income, partly offset the overall operational earnings decline.

Slide 7 shows operating cash flow for the quarter of $557 million, a slight increase from a year ago. The change was driven by lower refueling outage spending as well as the effect of favorable weather, partially offset by lower net revenue at EWC.

Today, we are affirming our 2018 earnings guidance ranges and our longer-term UP&O adjusted outlook, which are summarized on Slides 8 and 9. For our consolidated operational guidance, the unfavorable nuclear decommissioning trust returns in the first quarter were lower than our planning assumption. But it's still early in the year. We're working on various opportunities at both Utility and EWC. We're confident that we can overcome first quarter headwinds by the end of the year.

Also as a reminder, our guidance assumes $100 million favorable tax item at EWC, which we currently expect to materialize in the third quarter of this year.

Our credit metrics are shown on Slide 10. As we mentioned on our last earnings call, the impact of tax reform will start to affect these metrics in the next few quarters. We continue to make good progress on tax reform in our jurisdiction. The dialogue with our regulators is constructed, and we are optimistic that we will receive approvals to return the unprotected portion of the excess ADIT sooner than we originally anticipated. All this will temporarily put additional pressure on our credit metrics. We recognize the value of returning the benefits to our customers sooner rather than later, resolving the uncertainty of how tax reform will be implemented in growing our net rate base faster. This should also accelerate the recovery of our credit metrics. In short, our plan continues to shape up, positioning us better to maintain our current credit rating of BBB+ and Baa2. Our plan still includes issuing approximately $1 billion of equity over our outlook period, and we still expect that to occur before the end of 2019. The form of equity we issue, the timing of any issuance and the method by which we choose to execute are all under consideration, with a priority of maintaining flexibility to optimize the execution.

In summary, before I turn to Analyst Day, this was a solid start to the year. Our results keep us on track to achieve our full year guidance and outlooks through 2020, continue to strengthen our business risk profile and position us better to maintain our current credit rating.

Now let's look beyond 2020, which we will discuss in greater detail at Analyst Day. We see no shortage of investment opportunities to sustain our growth beyond our current outlook period, investment opportunities that build on the strong foundation we've established in the past few years, which we continue to solidify. From new, clean, efficient innovative generation resources to grid technologies, such as smart devices, distributed generation, microgrid and battery storage, there is significant investment opportunity to deliver tailored solutions to meet our customers' rapidly-changing expectations. Because of the pace of change that we are anticipating, financial agility will be increasingly important, and that means maintaining or even improving our strong balance sheet. Therefore, at Analyst Day, we will lay out a financing plan that meets our earnings and credit objectives.

We see great opportunities ahead for our company and all our stakeholders. As Leo mentioned, in the future, we want to deliver tailored customer solutions beyond basic power delivery, and provide the most accessible, affordable, reliable and sustainable energy mix for our customers. We look forward to seeing you at Analyst Day to continue this dialogue.

And now the Entergy team is available to answer questions.

(Operator Instructions) Our first question comes from Shar Pourreza with Guggenheim.

So let me just ask -- start off by asking on the performance of your decommissioning trust funds. Obviously, the performance for the quarter was somewhat materially less than your expectations. So can you kind of, one, elaborate what drove this. And more importantly, does your fundamental viewpoint that you will exit EWC in a cash flow positive position at all put the question because of what you saw? And do you sort of see any impact on the sales process with the performance?

Okay. Shar, this is Drew. And your first question about the drivers, I think, is just the -- is the accounting change that reflected the equity markets over the course of the quarter. And so of course, last year, we did not have to mark-to-market the equity piece. We only saw the realized gains and losses associated with the trust. And this year -- and the rest of it was in other comprehensive income. This year, all of it's flowing through the income statement. And as part of that, as we went to this accounting change, we actually moved 600 -- about a $600 million positive into retained earnings. It didn't go through the income statement. It was just reclassed on the balance sheet from other comprehensive income. So those are the things that were going on there. And of course, we also had some of the portfolio management activities that we talked about last quarter that were de-risking our portfolio. So our overall loss was a very slight loss compared to maybe an equity market loss, a couple percent, over the quarter. And with regards to our EWC plan, that doesn't change anything overall for our EWC plans or for our cash expectations towards the end of the -- through 2022. So we still expect '17 to '22 to be neutral to positive. In fact, as we were thinking about this, earlier this year, we are pressure-testing these -- several things that could happen to make sure that we could sustain that statements through any volatility that we might see in the markets.

Okay, got it. That's helpful. And then just I appreciate the comments that you had on the equity, but your prior thoughts or language seem to point that you were more shifting towards something more market-based versus an initiation of an internal program. So is that sort of still kind of what you're tilting? Or should we assume sort of a combination of both, given sort of the size of the potential offerings? So sort of like, how is your thought process generally evolving?

Yes. So we are still -- we still have all our options on the table because we are thinking about optimizing against the timing and the need with the markets and the costs that we might incur associated with that. So all those things are still on the table, and it'll likely be later this year when we get into the market.

Our next question comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch.

So I wanted to chat on transmission briefly. Clearly, there were some events in the quarter with respect to the sort of North and South integration that transpired. Also, I supposed in the settlement itself in Louisiana, there's been discussion about capital spending. Can you discuss sort of the state of affairs and process with respect to MISO and your own capital budgeting plans around that? And I acknowledge that this may preempt a little bit of the Analyst Day, but I wanted to delve into it, if we could.

Julien, this is Rod. One, we're seeing in MISO -- and much of the capital planning for the utility business is consistent with the MTEP processes through '17 and certainly '18 and beyond. The significance of the settlement in Louisiana plays along with the fact that part of the 9.95% reset in our Louisiana FRP includes an expectation of about $0.5 billion a year during the period in transmission alone. And so the capital plan is consistent with our expectations around our earnings opportunity and the growth, and CapEx will be fueled in part by what comes out of the MTEP process with MISO.

Just to be clear about it, is there anything that shifted in the MTEP process with respect to some of the limitations in the north-south capacity I suppose this winter if there were some events?

No.

Okay, excellent. And then the $0.5 billion is consistent with the $845 million as well?

When you say the $845 million...

The 18' to 20' average for a preliminary transmission capital plan.

Yes, yes. Thank you.

Our next question comes from Jonathan Arnold with Deutsche Bank.

Just I thought I heard you say -- and I may have misheard this, apologies if so, that as of March 31, the decommissioning funds were approximately $4 billion?

That's correct.

So can you help us -- I'm guessing that might not be on the same basis as the Slide 29, where the escalated funding adds up to about $5.8 billion as of 12/31. And then the question is, does it -- when you say escalated, can you just remind us what that means?

That's using the 2% growth rate. But the -- but I think where you want to look -- there's a different slide in there that I believe has -- on Slide 25 in the appendix, has the NDT balances as of March 31. That's on Slide 25.

Okay. So that's the one...

Correct.

But that's not on the same basis, right, as the...

No, no. Yes, the escalated -- that's using the NRC funding formulas on the other page. I apologize for that confusion. We'll make sure to clarify that.

Okay. No, no, that's fine. That was really -- I just wanted to get that straight.

Our next question comes from Praful Mehta with Citigroup.

So firstly, just on earnings, in terms of where you are tracking relative to your guidance, I know there was some talk on the lower end. Where exactly do you see yourselves now given Q1 has kind of done it in terms of 2018 EPS guidance?

Yes, that's a good question, Praful. I think we're expecting to be about in the middle at this point. I mean, it's early in the year. We have a lot of levers to manage the -- at least the current volatility and the decommissioning trust. And so we're expecting, on an operational basis, to be about the middle when it's all said and done. For Utility, Parent & Other, we're right on track as of the first quarter. So there wouldn't be any change there.

Okay, great. That's helpful. And then secondly on this unprotected DTL refund, they look meaningful and, clearly, it looks like you're doing them sooner than you had originally planned. So just to understand the impacts of that from the cash flow side and the credit side, I'm assuming that's a negative, but you're saying you're going to recover from that pretty quickly, just touch on that a little bit. And then secondly, on the rate case side, that should probably be a positive helping your growth. So if you can just help us understand the kind of implications of the decommissioning -- unprotected, sorry, of the deferred income tax refund impacts.

Sure. So in regards to the cash and the credit metrics and the pay, so we were anticipating, when we talked last quarter, a little slower pace on how fast the unprotected excess ADIT would be flowing back to customers. And now it's a little faster. So the expectation is that -- the way that that's going to work, from an income statement perspective, is there will be no effect. But we'll be getting less revenue in the door, which would be a cash item, and we'll also be experiencing lower income tax expense, which would be a noncash item on the income statements. So it will offset there the flow into the cash flow metrics. And so the measures that we were talking about are the metrics like FFO to debt. Last quarter, we talked about 14% on a longer-term basis. Now we're expecting it to be a little bit lower than that upfront, but we'll recover much quicker. And so by the -- by 2020, we expect to be above that level because of the more rapid return of the unprotected excess ADIT. And from a rate-based perspective, we would expect that as -- and we haven't finished this in our regulatory process, but as we return that unprotected excess ADIT to customers, our net rate base ought to increase. And so on the last call, we've talked about the opportunity for about $1 billion of increased net rate base by 2020. We still expect that to be the case associated with the return of excess ADIT, both protected and unprotected, by the way, for that.

Our next question comes from Steve Fleishman with Wolfe Research.

I guess, 2 clarifications. Just on the comment on the middle of the range for this year that you're tracking to, is that good for both the overall company and Utility, Parent & Other?

Yes. You want -- I'll go ahead with that one, too, first, Steve. This is Drew. So yes, we have several levers that we think we can pull to manage the operational spot. But as far as Utility, Parent & Other, we are right on track to begin with.

Okay. And then just in terms of thinking about the comment on the ADIT get back and the like. So to a degree you have this kind of lower upfront metric, does that kind of incent you to get the equity issuance done sooner, and then -- just to kind of manage the consistency of the metrics? Or is the fact that you'd get there by '19, '20, it's fine for the agencies? They don't care if it's lower for 1 year?

Yes. So this is Drew. So the -- in terms of the overall timing of the excess ADIT return, it is moving forward, and we were and are trying to match up our access of the equity capital markets to that in some way. So it's going to move it forward a little bit. But the rating agencies are certainly aware that we are going to access the equity capital markets there, looking at that, plus a number of other factors, like our progress on changing our business risk profile at EWC and the positive regulatory environment within Utility that -- as that's improving. So they're taking a number of things into consideration, I think only one of which is making sure that we match up the timing of the equity with the return of those cash flows.

Okay. And then just on the -- kind of on the long-term discussion, the -- I mean, it sounds like the plan overall is to kind of just continue with more of what you're already doing, and then obviously have these better regulatory structures in place to recover it. Is that the kind of at a high level what the plan is? And obviously, you're trying to kind of get ahead on changes in the generations mix and customer experience and technology, things like that. Does that...

Yes. Yes, Steve. The bottom line is that, as we have been for really over 10 years now, we're in a major technological improvement of the entire system, started in generation, worked its way into transmission, and now it's getting more into distribution. And I would say, in some respects, you'd start to see a melding of some of the distribution opportunities with the kind of generation opportunities we have. So we continue to have an aging generation fleet that we're updating in terms of what we've got going on right now at St. Charles, Lake Charles, Montgomery County, Washington Parish Energy Center and the New Orleans Power Station. The 1,000 megawatts of renewables that I talked about are things that would come into play to both, on the one hand, replace other aging generation that we would deactivate as new generation comes in line, but they come in line as renewables because they're both, a, competitive with generation that they would replace certainly in the market, and potentially as we go forward with other types of generation. But also some of them have distribution reliability opportunities as well that just starts to be more localized with generation. So you're not necessarily avoiding a generation investment, you're avoiding a large transmission investment. So those kinds of technological improvements, plus distribution automation and other things that we could pursue that would allow us to better operate the grid, lower cost to our customers, improve reliability and get closer to them in solutions, all of that we see as just the continuation of the process we've been undergoing. From a regulatory front, you're right. What we've done over the course of the last 5 years in particular is we've taken the opportunity to outline the types of investments that we need to make for our regulators, and allow us to sync up that regulatory model to match the customer benefits that we're providing with the investments. So for example, what we've done with transmission in Louisiana and the new FRP lines up really well with what was a big source of regulatory lag and a big source of dollars for our customers in the transmission space. So we already had AMI and generation covered really well. Now we've got transmission in the same bucket, as we get a little bit more closely in line with the regulatory mix with the type of investments we're making. So you're right. The future is just improved technological advancements on the system across all functions, and trying to make sure that we and our regulators work to benefit our customers with the most efficient regulatory model that we can get.

(Operator Instructions) Our next question comes from Stephen Byrd with Morgan Stanley.

I wanted to touch base on just nuclear operations on a high level and just get your latest thoughts in terms of operational improvements, how you think about the trajectory of just really thinking core operations and sort of the trajectory from here. You've had good progress of the timing in terms of the operational improvements. So just curious, what are your latest thoughts there?

Stephen, I'll start. I'll let Chris jump in. But the bottom line is we're continuing to spend a significant amount of resources and effort on our nuclear fleet, and we're seeing progress in the areas we expected to see progress. As I think Chris outlined when we first began, it's going to take a few years and a couple of outages in the facility to get the equipment into place that we need to get. But we hired 1,000 people last year in the nuclear fleet. That's some of the O&M that we expected that Drew mentioned that we showed up in the first quarter. But at a high level, I'd say that we're making progress in the way we expected.

Can I just follow up with that, Leo? This is Chris. We are where we expected to be in terms of the execution of the plan. As we did outline at the last Investor Day, we're looking at a 2- to 3-year period before we start to see significant improvement. We believe we're on track with that. We've been using the opportunities with the refueling outages to improve the safety and the reliability margins of the plant. And from a regulatory relations perspective, as you mentioned in the opening remarks, Leo, we do expect to see a return back to normal NRC oversight at the end of the second quarter. So we've been making good progress.

That's very helpful. And then just shifting over to, Leo, the renewables investment opportunities you mentioned in your prepared remarks. Without getting into the specifics around some of those projects, is this something where we should expect a fairly material filing, where you're proposing on a number of projects, the total -- quite a bit of megawatts. You mentioned 1,000 megawatts, plus the potential opportunities. In other words, is this likely to result in a fairly chunky filing of request? Or is this likely to be relatively smaller and just sort of building momentum over time as you get more projects develop? How should we sort of think of it progressing?

At this point, I would say it'd be fairly ratable at some point in time. But right now, what we're in the midst of is a couple of RFPs that were out there in terms of negotiating some of those projects. We've got a couple that we've announced that are PPAs. And obviously, some of these are going to end up being owned, as I mentioned on the last call. The majority of the dollars that you would see, which show up kind of, if and when they do, at the end or outside of the current outlooks that we've provided, as you might guess -- we're in discussions with things, most of which would show up in the 2020 and beyond time frame. Some of the projects could be a decent size, but it's our objective, as I mentioned, earlier to the last question, is just that we continue to evaluate these on 2 fronts. One is as new generation resources, but also given the nature of how you can locate them and the speed with which they can be put together, where they would make transmission sense as well. So we're excited about the opportunity. A lot of it has to do with how the cost curves move over the next few years as well.

Our next question comes from Michael Lapides with Goldman Sachs.

Real quickly, on the nuclear O&M, really O&M at the Utility in general, do we anticipate in guidance O&M at the Utility being up more than an inflationary level for 2018? And then how do you think about what the trajectory looks like? Like what's embedded in the '19 and '20 guidance?

So Michael, this is Drew. Yes. So in the 2018, I think we're still consistent with our expectations. I mentioned earlier that we're looking at some opportunities to help close the gap on the NDT performance through March 31. And so we're working through some of that. But as of now, in our guidance expectations, I don't think there's really much of a change. The -- looking forward -- well, I guess, and you had a question specifically around nuclear. As Leo mentioned, we've hired 1,000 people over the last year. We're still going to hire some this year. The effect of that payroll change is most acute in the first quarter. And so it will -- the effect of it will -- less than over the next few quarters. But we also have -- even though it's still larger, we have some projects that we had last year that will even out the overall O&M spending for nuclear during the course of the year. So that will be comparable to 2017 by the end of the year. Looking forward, in terms of '19 and '20, I think we have a little under inflation expectations for O&M growth. Nothing dramatic at this point.

Got it. And when -- I want to make sure I understand. Coming back to the return of excess accumulated deferred income taxes, can you help me understand what the offset is? I get the cash outflow and kind of the accounting around the cash outflow. But can you walk me through what makes it -- what kind of offsets that over -- it hurts near-term FFO to debt, but can you walk me through how it might help longer term?

Sure. Well, it's just after we finish giving the $1 billion back that effect will stop being in our FFO measure. So what you're seeing is lower net revenue while we're giving that money back. And to the extent that you lengthen that out, if we were going for 4 or 5 years with that giveback, you'd see a depressed FFO number for that period of time. The way it's shaping up is we're going to be giving it back over the next 18 months. So it will depress FFO maybe more so than we are planning. But by the time we get out to 2020, that effect for the unprotected fee should go away. So your FFO-to-debt measure should improve.

Got it. And then one last one. And I don't know if it's a Leo or a Rod question, but you guys have added or in the process of adding a lot of generation in both Louisiana and Texas, which makes a ton of sense, given the industrial pet chem-related demand that's occurring in that corridor. Just curious, as you look at Arkansas and Mississippi, are there, over the next few years or beyond, opportunities for conventional generation, either additions or repowerings? And when I'm thinking through this, I'm thinking there are some higher heat rate units in both states that maybe aren't as efficient as kind of newer technology -- newer gas-fired technologies are. You still have a sizable coal unit in Arkansas, with that lax significant pollution controls. I'm just trying to think about those 2 states as drivers of kind of future rate-based growth after going through the cycle you're going though right now in Louisiana and Texas.

The -- if you think about what our generation moves have been over the course of the last 10 years, Michael, that actually have been generation that we've acquired in Mississippi and Arkansas, both, it's all the same strategy. The majority of the generation end has to do with the age and the efficiency, as you mentioned, of the existing fleet that we had. So as we deactivate those less-efficient, higher-cost, less environmentally-friendly units, we're replacing those with a combination of acquired units, whether it be Union, Perryville, Ouachita, Calcasieu, Hinds, Hot Springs, the long list of things that we've already acquired, or the newbuilds like St. Charles, Lake Charles, Montgomery County, Ninemile 6, et cetera. So in those other jurisdictions, that will be there as well. On the first -- on the last quarter call, we identified, I think that somebody asked the question about some new generation dollars that had shown up. Those had shown up as one of those other jurisdictions because of that same need. And as you mentioned, down the road, we do have the coal plants that -- certainly, gas has become very, very competitive with coal, and depending on what happens with environmental regulations, et cetera. So the short answer is, yes, we do see the need for new generating resources across all of our jurisdictions, not just Louisiana and Texas. And in fact, over the last decade, we've seen us add generation in New Orleans, Mississippi and Arkansas as well. Going forward, it'll probably be a combination of looking at new gas, but also some of the projects that have already been announced. For example, the Stuttgart project in Arkansas, where we have a PPA. That's a renewable resource. So we should start to see renewables, battery storage, those sorts of things show up at some point in time in there, too, as they become competitive. So yes, those fleets are aging as well and, yes, we'll end up with new generating resources there.

Our next question comes from Paul Patterson from Glenrock Associates.

Just really quickly to sort of follow up on Shar and Jonathan's question on decommissioning. There was a letter that the NRC sent with respect to Vermont Yankee basically indicating that they do believe that there was enough information to make them feel comfortable with the ability to decommission the plant. And given the information that you guys have provided today, and just in general, it's a little surprising considering that everything else in terms of the decommissioning fund's implying. So can you elaborate a little bit on what's the issue there and how that's going be resolved?

Paul, this is Drew. That's, I think, just part of the normal NRC processes. That was a request for additional information. And our expectation is that we -- or, I guess, in that case, probably Northstar responded to that at Vermont Yankee. And so that -- I think it's just part of the normal back-and-forth. We didn't see anything in particular in that, that we are concerned about at this point.

Okay. So I mean, just to clarify this, so they've felt all along that there's enough decommissioning funding. Is it just simply because of the transaction taking place, and Northstar hasn't given them the information? Is that what we're dealing with here, I guess?

Well, in a normal course of business, like the filings that you saw, that Jonathan referenced on Page 29, those are more formulaic. And so when we go through a specific transaction they're going to dig much deeper into the financials of the buyer. And we totally expect that and understand why they're doing it. And so we would consider that, like I said, just part of the normal process compared to that normal annual filings, which are very formulaic in nature.

And our final question comes from Charles Fishman with Morningstar Research.

Just one more question on Slide 29, which I believe is a new slide. The site-specific study you show one at Indian Point 1 and also at Vermont Yankee, that takes place after the unit has shut down. And then at that point, you make a decision whether you pursue a Northstar-type solution or something else. Is that the process?

Sure. So site-specific studies can happen in a couple of ways. If it -- like you said, if you are shutting down the plant, you will give a site-specific study to assess the overall costs of the facility and match that up against the trust, and make sure that you're adequately funded. If you are having -- and this doesn't happen very often, but there are ways that you could also do it on an ongoing basis during the operation -- normal operations when you do these formulaic assessments. If you didn't get all the funding you need in the formulaic assessment, you can do a site-specific study to see if you meet the NRC requirements. But typically, Paul, as I think -- or as Paul was pointing out, Charles, that I think you would do that at the end of the year or at the end of the life of the unit.

Okay. And then also make the decision of what process to pursue, whether it's Northstar or something else?

Sure. I mean, I think you would do it relative to a safe store environment or an environment where you would more rapidly decommission the asset or if you're -- but if you're going to go through a sales process, like we are with Northstar, that's almost like a separate assessment than what you're seeing on Page 29. Page 29 is more of the normal stuff.

That's our last question in queue. So I'd like to turn the conference back over to Mr. Borde for closing remarks.

Thank you, James, and thanks to everyone for participating this morning. Before we close, we remind you to refer to our release and website for safe harbor and Regulation G compliant statements. Our Annual Report on Form 10-Q is due to the SEC on Monday, on May 10, 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. Finally, 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.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.