安特吉 (ETR) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Entergy Corporation fourth-quarter 2014 earnings release and teleconference. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, today's call is being recorded.

I would now like to turn the conference over to Paula Waters. Ma'am, you may begin.

Thank you. Good morning and thank you, everyone, for joining us. We will begin today with comments from our Chairman and CEO, Leo Denault, and then Drew Marsh, our CFO, will review results.

In an effort to accommodate everyone with questions this morning, we request that each person ask no more than two questions. In today's call, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risk and uncertainty that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additional information concerning these risks and uncertainties is included in the Company's SEC filings.

Now I will turn the call over to Leo.

Thank you, Paula, and good morning, everyone.

Last year we told you that Entergy was in a unique position, and that is still true today. We said we had a significant opportunity to invest in and modernize our fleet, strengthen reliability and meet evolving regulatory expectations and requirements. We said by making these investments we could both grow our rate base and keep customer rates low, a strategy supported in part by the industrial renaissance here in the Gulf South.

We said we would manage risk and preserve optionality at Entergy Wholesale Commodities by improving fleet operations and pursuing stability. We said we would manage commodity risk and leverage the inherent volatility of power prices to our benefit and that of our owners.

I am pleased to say we did all of these things in 2014.

At the utility, we announced the proposed purchase of the Union Power Station, which would serve four of our operating companies. In Louisiana, Ninemile 6 came on online months early and about $70 million under budget. We resolved two important rate cases in Mississippi and Texas, and in Arkansas, while we are not where we need to be, we were granted limited relief in our request for a rate case rehearing.

We completed our first full year of operation in MISO, and it is becoming clear that our projections that customers would realize savings were correct, validating our regulator's decision to approve that move. Although the numbers are still estimates, it now appears that customers across the utility will, in fact, realize more MISO-driven savings than we had originally expected. (technical difficulty) while keeping our rates low, about 20% below the national average across all of our customer classes.

For the year, we beat our original 1.9% retail sales growth projections by 4/10 of a percentage, coming in at 2.3%. Industrial sales led the way with 5% growth, beating our estimates of 2.8% by a wide margin.

At EWC we improved operations at our plants, which even during the coldest days of the Polar Vortex, we are able to provide customers with safe, reliable power. And we made significant investments at our FitzPatrick plant to strengthen reliability even further.

At Indian Point, we received an important favorable ruling on CZMA from a New York State appellate court, and we continue to engage New York State agencies when appropriate and possible.

And particularly in the first quarter, during periods of market volatility, our risk management and hedging activities delivered substantial value for our owners. EWC's strong first quarter, coupled with that of the utility, resulted in operational EPS growth of nearly 9% for the year, well above the original guidance we provided in the fall of 2013. All of these things lead to Entergy capturing a top quartile position on total shareholder return in 2014. We believe this performance illustrates our commitment to what has been our mission for some time, creating sustainable value for our owners, customers, employees and the communities that we serve.

As we look to 2015 and beyond, we can say with confidence that the fundamentals driving our business are intact. Of course, we know that our Company faces some challenges in the coming year, and these challenges, including a drop in power prices, underlay our announcement this morning on 2015 guidance. But Entergy remains on track to deliver on its objectives. Our strategy remains sound, and you will continue to see us execute on it this year and in the years to come. Let me start our discussion about utility by saying we continue to believe that today Entergy has some of the best growth fundamentals in the business. We continue to see a need to make productive investments to meet increasing reliability requirements and to modernize our fleet.

We enjoy and are working hard to strengthen recovery mechanisms that give us the financial flexibility to make these investments. Again, we expect to do so while maintaining our rate advantage, both through actions we have taken and despite the drop in oil prices through the continued expansion of our industrial customer base.

2014 provided ample evidence to support this point of view.

Let's start with productive investments and the recent options we have taken. On December 9, we signed an agreement to acquire Union Power Station near El Dorado, Arkansas. While the agreement is subject to regulatory approval from three of our operating companies, buying this natural gas-fired nearly 2000 megawatt facility helps us modernize our fleet and positions our operating companies to meet growing demand, including from industrial customers.

In Arkansas and Louisiana, similar to prior acquisitions, these filings also include proposals for timely rate treatment.

In Texas we filed for a CCN, Certificate of Convenience and Necessity, and plan to file a case in the second quarter to incorporate the Union plant in rate upon closing.

In Louisiana, for the first time in nearly 30 years, the utility added a self-build power plant to its fleet. We are happy to say that Ninemile 6 in Westwego began operations in the MISO market on December 24. This plant provides value to our customers into our community and is already fully reflected in rates.

In addition, in early June, we announced plans for a major transmission built in Southwest Louisiana. The Lake Charles Transmission project, an investment of an estimated $187 million, will be one of the largest transmission projects in Entergy history. Again, our aim here is to strengthen reliability and support economic development that is already occurring in one of the fastest growing regions in the country.

I will move now to the regulatory arena where we also made significant progress.

In Mississippi we received more clarity in early December when the MPSC approved a rate modernization plan, which includes, as you know, a 10.07% benchmark ROE, as well as provisions to strengthen our financial position for making investments.

Importantly, and also in Mississippi, we began implementing the state's first ever utility owned solar project, which will include the installation of three 500 kW ground-mounted solar arrays. It is not a huge project, but it is an important way to gauge the viability of solar energy in the state. And for us, it's also a good example of how Entergy and our commissioners work together to find common ground.

In Texas we were the first utility in the state to take advantage of the distribution cost recovery rider. We also had two transmission lines CCN approved, and we filed another for a total investment of approximately $166 million.

In Arkansas the APSC recently ruled to allow us to recover via retail rates FERC-ordered system agreement payments. 100% of the $71 million requested last June was approved in the PCA rider. And just last week, we notified the Arkansas commission that we will be filing a rate case in the next two to three months. We believe this rate case will have a positive outcome and give us the financial flexibility to invest in and strengthen our Arkansas portfolio, which in turn should go a long way in helping to drive economic growth and job creation.

As you have heard me say before, constructive engagement with our regulators in Arkansas has been a top priority for us. We think we have an opportunity to strengthen our efforts in this regard, and now it is up to us to do just that.

In New Orleans, the NOI and the city council's advisers reached an agreement in principle. This agreement would allow securitization of the amount necessary to establish a $75 million storm reserve.

It would also allow recovery of nearly $32 million in capital costs associated with the Hurricane Isaac restoration. Funds from this securitization are expected in May 2015 and will give Entergy New Orleans the financial resources to restore services if and when another storm hits.

In Louisiana the LPSC approved an accelerated gas pipe replacement program to among other things replace about 100 miles of pipe over the next 10 years. The commission also approved a rider for recovery of approximately $65 million in investment over 10 years. Rider recovery will be adjusted quarterly to reflect actual investment incurred for the prior quarter.

Finally, as I said earlier, we expect to see the industrial renaissance continue.

Overall we see retail sales growth estimates at 3.25% to 3.75% through 2017. Drew will be giving you more detail about this in a minute.

Entergy Wholesale Commodities also had a strong year, capped by a quarter with some important positives. The plants operated well, and we made progress on the license renewal at Indian Point.

As most of you know, a New York State appellate court ruled that Indian Point is grandfathered under the New York Coastal Zone Management Program, as such exempt from CZMA review. If permission to appeal is denied or the ruling upheld, a new CZMA determination would not be required for license renewal.

We also negotiated a standstill agreement with the New York State Department of State, which provides parties a period of about six months to discuss our recent withdrawal of the CZMA application. While we remain confident in our legal position to withdraw this application, the agreement is notable because it is evidence of the progress we've made in engaging in constructive discussions with New York State agencies.

As we have consistently said, Entergy remains open to discussing a potential settlement that is fair and considers the interest of all parties.

We continue to work through the license renewal process for Indian Point, a plant that supplies on average 25% of the power for New York City in the Westchester County area and one that the New York ISO acknowledges is an essential part of the state's generation portfolio. We also continue to believe Indian Point will operate well into the next decade.

Another item of note in the fourth quarter was Vermont Yankee, which came off-line safely and as planned on December 29. Remarkably it did so following its fourth breaker to breaker run.

During what was often a difficult time, through hard work and dedication, our VY employees delivered an extraordinary year. At Entergy we often say that we are lucky to work with the best in the business, and there can be no better evidence of this than are people at Vermont Yankee, and for that, they have our sincere thanks.

The VY closure also highlighted market design flaws, and while we can't say these flaws were the sole cause of the closure, it nonetheless brings into stark relief the unintended consequences that unviable market design can have. Fortunately we are seeing some progress on fixes to capacity markets, and certainly the infrastructure constraints in the Northeast are attracting more attention.

If this attention translates to sound policies that address these issues, we think that would be good for everyone.

One thing you'll be hearing about this year is energy price formation. Basically today some ISO market rules and algorithms can affect suppressed prices by not allowing the full cost of the marginal unit to set the clearing price.

In the long run, this will lead to unwarranted plant retirements, resulting in higher costs and more volatility in price and ultimately degradation in reliability, and that won't be good for anyone.

I'll end our EWC discussion with a note on our hedging strategy, which has proven so successful in the past. While we strive to hedge with asymmetric upsides to take advantage of our bullish point of view and market volatility, our hedging portfolio as reflected in our quarterly price sensitivity charts does carry some downside price risk.

Moving forward we will continue to position our portfolio to capture market upside while maintaining downside risk protection, always considering product availability, hedging costs and market liquidity.

Overall we think EWC has one of the best merchant portfolios in the country. Not only are our plants safe and well run operating at high capacity factors with few unplanned outages, but as we saw last year, all of them play a critical role in their respective regions.

We also believe the EWC fleet is well positioned for growth, in part because we see improving fundamentals over time, including power prices and a constructive outcome on Indian Point.

And we intend to continue to strengthen these fundamentals through our own actions, including disciplined hedging and risk management, as well as diligently managing the processes for the continued safe operation of our facility.

So, again, Entergy had a strong year. But as proud as we are of that success, it is in the rearview mirror. We are now focused on the road ahead and achieving our 2015 goals.

First and foremost, excellence in safety and operations. We are pleased that Riverbend received its first ever rating of excellence compared to peers, joining both Indian Point and Waterford 3 in that category. This is an accomplishment that reflects our employees' years of hard work and commitment. We need to make sure that this level of excellence is maintained and expanded.

At the utility, we expect to deliver on our significant investment in construction opportunity, even as we work to find new ways to benefit current and potential customers.

I'll note that this includes deployment of renewable energy. In 2015 we will be taking additional steps to access its potential cost and performance at several of our operating companies. And in order to meet evolving customer needs and expectations, we will also look for opportunities to incorporate new ideas and technologies. Working to ensure that we are able to earn our full allowed ROEs in the coming years and across the utility also continues to be a priority.

Another objective is to receive approval from the Louisiana Public Service Commission to combine Entergy Louisiana and Entergy Gulf States Louisiana into a single utility. This move will make it easier for us to make needed investments in the state's power infrastructure and via expanded rate options, sustain and compel the state's industrial renaissance.

At EWC we will continue to focus on positioning the portfolio to unleash its full value, and this certainly includes advancing license renewal efforts at Indian Point.

We will continue to advocate for sensible policy frameworks that recognize the value of our merchant fleet from environmental to reliability, which we believe will benefit not only our Company but also the customers and communities we serve.

And finally, all of these actions will support job creation and economic growth in every state, region and community where we do business. This includes substantial support for schools and universities, as well as workforce training programs. So opportunity is shared with as many people as possible. This is a priority for us.

You'll be hearing more about progress against each of these objectives in the months to come.

Let me conclude with a couple of important points.

Today, as you heard me say, Entergy has an opportunity to position our service territory for the future. This means modern more efficient plants, infrastructure that is even more reliable than it is today and the incorporation of new and emerging technologies. For us, this opportunity translates to investment, particularly over the next three to five years.

To reiterate and as we saw in 2014, we have a compelling capital plan, a regulatory environment that, by and large, allows us the financial flexibility to deploy it, and sales growth that supports both by keeping rates low.

And in the end, this business is a long-term play. So while short-term and even mid-term volatility is a fact of life, as we look to 2015 and beyond, this should not distract us from this Company's strong fundamentals, sound strategy and unique opportunity.

And with that, I will turn it over to Drew.

Thank you, William, and good morning, everyone.

Today I will review the financial results for the quarter, as well as highlights from the full year. In addition, I will discuss the 2015 operational earnings guidance, which we initiated today and review our 2017 financial outlook.

Starting with slide 2, our fourth-quarter results for the current and prior years are shown on an as reported and operational basis. Note that operational results exclude special items from the decision to close Vermont Yankee, HCM implementation and the transmission spin merge effort terminated in 2013. Operational earnings per server were $0.75 in the fourth quarter of 2014, lower than the $1 per share earned in 2013.

Results by line of business are summarized on slide 3.

Starting with the utility, operational EPS was $0.61 per share in the current period compared to $0.86 in the prior period. The utility continued to realize volume improvement of 2.4% weather adjusted retail sales growth. Excluding the effects of weather, higher volume contributed about $0.03 per share to the quarter's net revenue increase.

The industrial customer class had the strongest gains at 6.7%. About a third of the industrial growth came from the large chemical segment, which increased 11% quarter over quarter, mostly due to the expansion of a core alkali customer.

We also had solid growth of 4.3% from our petroleum refining customers, while sales to small industrial customers increased 3.3% as regional producers continue to benefit from a stronger national economy.

Higher price contributed approximately $0.14 per share, a portion of which was offset by other line items.

Despite the net revenue growth, utility results declined due largely to three drivers: first, non-fuel O&M was higher as benefits from our cost management efforts were offset by higher nuclear spending to improve operations, timing of thoughtful spending and other increases such as MISO administrative fees, which were offset elsewhere in the income statement.

Next, we recorded a $0.06 per share write-off because of regulatory uncertainty associated with the resolution of the Waterford 3 steam generated replacement grievance review.

Finally, the utility's effective income tax rate was higher due to the benefits recorded in 2013.

Moving onto EWC, operational earnings per share of $0.39 were lower than the $0.48 earned a year ago. The low EBITDA, two key drivers were a higher effective tax rate and lower realized earnings on decommissioning trusts.

EWC EBITDA for the quarter summarized on slide 4 was $183 million, a $50 million increase from the fourth quarter of 2013. Increased net revenue was the main driver, due primarily to the effects of mark-to-market activity.

Similar to 2013, we had sales that did not qualify for hedge accounting. Unlike 2013, market price moved down after those sales were executed and resulted in a positive mark-to-market gain in the fourth quarter of 2014. The net revenue increase was partially offset by the gain on the sale of the District Energy business in the fourth quarter of 2013.

Briefly moving to operating cash flows shown on slide 5, OCF was around $1 billion in the current quarter, about the same as 2013.

Now I will review the full-year results starting on slide 6. On an operational basis, 2014 earnings-per-share ended the year at $5.83, up from $5.36 in 2013 and above our original guidance midpoint of $5.00. The largest driver for the year was topline growth at EWC and utility.

EWC earnings benefited from improved operating performance, as well as our hedging strategy, which, as Leo noted, provides upside opportunity in a higher price environment while balancing operational and credit risks. Utility net revenue reflected rate actions in sales growth, including the effects of weather.

The overall Company net revenue growth was partially offset by several items, including a higher effective income tax rate, utility write-offs and the 2013 gain on the District Energy sale.

On slide 7 and staying with the full-year view, EWC's operational adjusted EBITDA increased almost $400 million year over year, due mainly to the higher net revenue discussed earlier.

Our full-year operating cash flow performance is summarized on slide 8. OCF was about $3.9 billion in 2014, up $700 million from the prior period.

The primary full-year drivers are higher net revenue and the receipt of proceeds to reimburse the Louisiana operating companies for Hurricane Isaac costs.

I will now turn to forward-looking information. Slide 9 summarizes our 2015 operational earnings guidance, which we are initiating today with a midpoint of $5.50 and a range of plus or minus $0.40.

Our guidance range reflects two key updates since we talked to you at EEI about our expectations for 2015. First of all, we are now using forward price curves as of December 31, which are lower than the September 30 forward debatable at EEI.

Since EEI, our revenue estimates for EWC's nuclear fleet have come down approximately $0.65 per share, including $0.13 for mark-to-market activity.

Secondly, we've continued to evaluate our income tax positions, and our midpoint now reflects an effective tax rate of approximately 23%. This change is driven by additional anticipated benefits at the utility compared to expectations last fall. The precise timing of these benefits is uncertain, but our best estimate right now is that these will be more back-end loaded in the year.

Other less significant updates largely offset.

Now I will cover a few highlights of each of the business segments. Starting with the utility, the guidance midpoint is $5.70 per share. Net revenue continues to be an important driver, and sales growth accounts are approximately half of the $0.55 net revenue increase. Our guidance midpoint reflects 2.7% weather-adjusted retail sales growth in 2015, including 4.4% growth for the industrial class. A portion of the growth percentage change is due to 2014 industrial sales that were higher than we expected, as well as continued refinement of our 2015 estimates driven in part by timing adjustments, meaning some customers with delays and some with slower ramp ups.

We also updated some customer-specific forecasts for recent utilization trends.

In addition, the net revenue increase reflects expected rate changes, but as we noted last quarter, we don't see regulatory price changes having a material year-over-year bottom line impact.

Below net revenue, utility O&M will increase because pension expense is now estimated to be higher than we anticipated at EEI, due primarily to a lower discount rate of 4.27%. The pension expense change since EEI increased the utility O&M by approximately $0.06 per share.

For taxes, the utility midpoint reflects an approximately 23% effective income tax rate in 2015.

Now let's turn to EWC. EWC's 2015 operational earnings guidance midpoint is $0.70 per share. We've isolated the year-over-year earnings contribution of Vermont Yankee, and it is now expected to decline approximately $0.20 per share. This is different than our expectations at EEI of about $0.40 per share due to lower fourth-quarter prices in 2014 and more earnings on the decommissioning trust as we rebalance to a more conservative stance during the first phase of decommissioning.

Another driver in EWC's 2015 guidance is higher nonfuel O&M, including higher pension and OPEB expenses, as well as a maintenance outage at Ryzex and our CCGT in Rhode Island.

Our 2017 outlook is summarized on slide 10. The utility outlook for operational earnings of $1.05 billion to $1.1 billion remains on track. The foundation for the utilities growth outlook is its capital investment plan, which is largely unchanged since EEI.

The next important assumption for the utility is sales growth, which we anticipate will continue to be robust through 2017.

Our current estimate for the full year compound annual growth rate off of a 2013 base year is around the low end of the range provided at EEI.

Now that 2014 results are in the books, we are updating that disclosure to 3.25% to 3.75% three-year compound annual growth rate through 2017 off the 2014 base year and reflecting continued refinement of our expectations.

For EWC, we have an EBITDA outlook of $650 million to $700 million in 2017. As you know, market prices are volatile, and based on December 31 prices, we would not be in that range. However, based on our point of view, we continue to believe that we can meet our EWC EBITDA expectations for 2017, although we are at the lower end of those expectations today.

Our 2015 outlook for parent and other is unchanged as well.

Slide 11 provides a view of the contribution to utility growth by key industries expanding in our service territory. Over the last several months, we have seen steep declines in oil prices, and many of you have asked us about the potential impact to our sales growth outlook. There will be some effect on our state economies, particularly on Louisiana and Texas businesses, that support the oil and gas services industry. However, the outlook to our core growth large industrials remains robust.

Key growth segments in the chemical sectors are largely unaffected by oil price declines such as ammonia, chlor-alkali and industrial gases.

Primary metals and wood products are also largely unaffected. These industries rely on low energy costs and a growing economy to be successful.

Other second order impacts could begin to impinge on petrochemicals, but we've only seen a couple of minor delays to date, and our customers remain committed to completing the multiyear projects they have started.

We've seen some pullback in specific sectors like gas to liquids facilities, which compete directly with crude based on production or pricing.

While we would note that oil to gas spreads remain robust, prices are at lower levels with increased volatility, which has caused some of our customers' investment decisions to be delayed. Still these customers are not key to our growth expectations through 2017. In fact, through 2017 the vast majority of our anticipated new or expanding large industrial customers have passed their final investment decisions or they are under construction.

As Leo said, 2014 was a good year, but it is now in the past, and we still have a lot ahead of us. We understand that a lot has changed in the last few months, and we know that a lot can happen between now and 2017.

However, based on what we know today, we believe that the utility's long-term growth proposition is intact and achievable. We will execute the capital plan and upgrade our infrastructure to better serve our existing as well as our new customers.

At EWC we will manage around the volatility that is inherent in that business, and we will work toward additional clarity on Indian Point, which will give us strategic flexibility. And we will continue to focus on safety and operational excellence throughout the Company. We know we have new challenges, and we are excited about meeting them.

And now the Entergy team is available for questions.

(Operator Instructions). Michael Weinstein, UBS.

So I wanted to just dig into the guidance a little bit further here. Can you expand -- and I know you alluded to it already, but what exactly is driving the tax changes? Can you elaborate here a little bit and what you think about a normalized tax rate would be in subsequent years or just kind of in a generic year?

This is Drew. That's a good question. If you look back over the last five years, we have had an operational effective tax rate in the range of what we are talking about. I think corporatewide, it has been about 26%, and at the utility it has been about 23%.

So what we are talking about is not unusual in that regard. And as we look forward this year, when we usually talk about these things, we talk about a portfolio of opportunities, and it is still certainly no different now. And we have a portfolio of opportunities that we are looking at in 2015. And by laying it all out this year upfront, we are trying to give you a better view of what we expect this year. Beyond 2015, certainly our expectations continue to be that we will look for opportunities because that is one of the largest items on our income statement.

But just to make sure that we are all clear about what the underlying business expectations are, we have put statutory tax rates in for 2016 and our 2017 outlook that we rolled forward today.

So as far as 2015 goes, like I said, it is a portfolio of opportunities. We have a number of cases that are rolling forward with various tax authorities, and it is based on what our expectations are today. Certainly nothing is guaranteed in that because there are ongoing discussions, but that's the best estimate that we have today. It could be higher or lower than that by the end of the year.

And just relative to the initial guidance you kind of laid out there, at the time of EEI, what exactly changed, if you could elaborate?

I think it just has to do with some of our expectations about what is going to transpire, particularly towards the end of the year, and our desire to make sure that our investors were fully informed about the possibilities could be rather than get surprised. Even if it's an upside at the end of the year, we certainly don't want to land that in your lap as a surprise.

Great. Excellent. And then just coming back to the other side of the house here on the EWC front, what are you thinking about -- what gives you confidence rather in still having kind of a long-term bullish perspective? Obviously you have a view on 2017. What are you seeing out there? Is it capacity? Is it energy? I mean could you elaborate a little bit?

Sure. Julien, this is Bill. A couple of things. In the long run, as we look at gas supply, obviously we are seeing a huge cutback in drilling. So we think that eventually that will have an impact, a bullish impact on natural gas prices.

As it relates to heat rates, we think that those are also undervalued in the market. As you think about the number of shutdowns, either economic shutdowns or shutdowns due to environmental reasons, we remain bullish on heat rates, and we are seeing some positive changes in the capacity markets such as what was evidenced recently this week up in New England.

Julien Dumoulin-Smith;^

Great. Thank you, guys.

Dan Eggers, Credit Suisse.

If I just look at what you guys did in 2014, you look at 2015 at the utility level and if we back out the beneficial tax rate, 2014 being pretty close to statutory, 2015 being much lower, it looks like your earnings are a lot closer to flat year on year, and I know there's a was going to be moving parts. But how should we think about earned ROEs this year for 2015, and then 2016, 2017 how do you get to your earned ROEs if that tax rate does normalize?

I'll take a first crack at this, and then Theo can jump in. And I'll let Theo talk about ROEs. I'll talk about the big drivers for the earnings blocks, particularly as we move forward.

So I think you are right in terms of 2014 to 2015 we are not seeing substantial growth because we don't have a lot of rate actions. But, as you look forward, certainly this year, we have some significant investment opportunities. We are talking about Union Power and those kinds of things that we expect to come on at the end of the year. As well as rate opportunities within Arkansas and Texas. And those are going to be the main drivers that are going to push us forward to the 2016/2017 timeframe. And I will let Theo talk about the ROEs in particular.

I think when you look at 2015 ROE, I think you can see an ROE that is slightly below 10%, not much different from 2014. I think as you have somewhat illuminated on. But I think as you go forward through 2016 and you look at the things Drew just mentioned earlier, sales growth, the fact that the Union purchase goes into -- planted into rates in 2000 -- we anticipate it goes into rates in 2016 -- and also you see some changes relative to some of our O&M levels, pension costs -- I wanted to mention you will see those ROEs start to move, as we have said many times, at EEI and other venues, in the 10% to 11% range in 2016.

As you look at the various operating companies, we see ourselves making constructive progress at Arkansas as it relates to moving toward the allowed ROE as a result of our 2015 planned rate case and other actions in Arkansas. The growth that we see in Louisiana will move our Louisiana utilities. I think when you look at it on a combined basis, you will see that company within its earnings band range based on its [995] allowed ROE, and I think as you look to Mississippi, New Orleans, we see those companies also earning at their allowed ROEs when they get into the 2016 timeframe.

Texas gets closer. We see growth in Texas as well, and also we would, because of the Union acquisition, we will have a rate case in Texas to move forward with that. And so we will likely some rate change in Texas as well.

So all of that as you look across the jurisdictions, we move closer. But those that aren't at that point today, they move closer to or get to that allowed ROE, and overall, as we have said over the past few months, you see a utility business that is in a 10% to 11% ROE range.

Thank you for that, Theo. But if you think about next year and beyond, effectively the $0.95 of tax that presumably could go away next year, you are thinking that the Texas case, the Arkansas case and putting Union in the rate base should more than compensate for that headwind. Is that the way if we are going to simply balance things out?

Yes. I think you will see the rate actions, and again, as well as I think, you will see some O&M impacts as well as we go into 2016.

Okay. I guess one dumb question. If the discount rate stays at the same level as it ended last year, what happens to pension expense beyond 2015? Is this a catchup year, or would it stay at these levels that would be a flat year-on-year comp?

No, that's an excellent question. No, it would actually -- it would go up. So we build our forecasts with interest rate increases as the market tells us in mind, and mark-to-market, if you will, it is not exactly like a mark-to-market but it is similar. And so we are anticipating interest rate rises, which would mean lower pension liabilities, would mean lower pension expense.

And so right now we are anticipating in 2017 a 5% discount rate on our pension liability. And, as I mentioned, that 4.27% is where we ended the year. So that would be somewhere in the neighborhood of about $0.20 of earnings -- $0.25 of earnings per share impact if we were sort of flat to where we are today versus our expectations for 2017.

Okay. Got it. Thank you, guys.

(Operator Instructions) Paul Patterson, Glenrock Associates.

Just on the 2015 guidance, you guys mentioned that there's an increase in depreciation and decommissioning for 2015. And you talked about I was just wondering if you could review that a little bit in terms of what is driving the increase in depreciation expense and decommissioning at the wholesale business -- at the non-regulated business.

Okay. This is Drew. So I think it is due to just normal activities. The depreciation is the capital investment that we've made at EWC in 2014, and then the decommissioning expense is, as we get closer to the end of these lives, particularly as you shorten up your expectations, that decommissioning expense is going to rise naturally as you go out that direction. So I think it is just the normal expectations based on capital investment and shortening life of the assets.

So the capital investments that you are making, the actual plant value of the new-co plants is increasing as the lifespan of the plant is decreasing, is that correct?

Certainly from a GAAP accounting perspective, you are seeing a -- you are growing the asset base still right now. And it is -- as you are getting to a shorter life expectancy, you are having that greater depreciation, yes.

And we should expect that to continue going forward?

Yes. Like you said last year, I think, or maybe it was two years ago, we did a depreciation study to try and balance it out a little bit. So it is less dramatic than it would've been before, but certainly you will see some of that still going forward, yes.

Okay. Thank you.

Stephen Byrd, Morgan Stanley.

I wanted to discuss the hedging strategy from here, and just given the environment that we are in and your point of view, would you want to be a bit more cautious in terms of hedging in the expectation of improving heat rates, etc., or how do you think about your hedge philosophy at this point?

Well, absolutely we think about that. So given the point of view that we just discussed earlier, as we look into the outer years, we want to be very careful about the products that we use. So that we are not necessarily really interested in a lot of fixed-price products at this point in time, so we look to move more towards structured products than have that asymmetric upside. Obviously that depends on a lot of things, counterparties, cost of the products, etc. But we are carefully looking at that strategy, as we speak, specifically as it relates to 2016 and 2017.

Okay. And just shifting to Indian Point specifically, there was a recent state ruling regarding just a hearing process around a potential summer shutdown to protect fish in the Hudson River. Could you give us a sense of just procedurally the process through which that hearing will take place just so we can try to focus on next steps and understand that process?

Sure. That ruling just did come out this week, so kind of from a high-level perspective by February 20, Riverkeeper and the staff needs to make some recommendations as it relates to specifically what it thinks it would like to recommend in terms of the outages. That will go through the normal discovery process, probably more or less throughout this summer, and then in the fall, we will actually have a hearing on the issues of outages and then hope to get to some initial reply briefs by the end of the year.

Okay. And then in terms of after the reply briefs, what would be the step after that?

Well, depending on what happens there, then you could work through an appeal process, etc. To kind of sum it up, Stephen, we think this process probably goes on for several years before you get any final determination.

Oh, I see. So there could be a decision late in the year or early next year, but then there could be various appeals after that?

That's correct.

Okay. Thank you very much.

Jonathan Arnold, Deutsche Bank.

One quick question on when you gave the sensitivity on interest rates and the discount rate just now on the pension, which I think was $0.20 impact on 2017 if the discount rate increase did not materialize, is that a holistic estimate including your exposure to short-term debt, or is that just the pension?

That was just the pension. And I was trying to do math on the fly. I tried to widen my range out a little bit, but I think $0.08 is our rule of thumb on 25 basis points. So $0.20 to $0.25 is probably a better estimate for that, but yes, it doesn't include the interest rate offset.

Okay. And the second point was, I was curious you have the slides with the 2017 point of view, but you also have the 2018/2019 disclosures in table 7 of the release. Can you share with us what capacity price was embedded in there for the auction that just happened?

Are you talking about for [ice] in new England? (multiple speakers)

It wasn't updated overnight, but so it might've been your point of view that was in there.

I think it is our point of view. So you know that the option results for both Pilgrim and Ryzex came back for the SEMA zone at about [1108 a kW month] for that auction.

Right. And is that what was in your table here?

I think it is fairly close to what we had. I think we had talked about that -- we anticipated it would be net [comb].

Okay. Great. Thank you.

Michael Lapides, Goldman Sachs.

Can you talk to us a little bit about your plans in Arkansas? You have hinted at times about trying to seek legislative relief. Just trying to think about the timing of trying to do that and what type of relief or what type of mechanisms you would like to seek versus the timing and process for a potential full-blown rate case there.

This is Theo. I guess I will start with we believe in Arkansas we are starting from a common goal with those that are in state with we believe with the commissioners, as well as state and local officials, which is really about attracting jobs, supporting economic development growth in regional prosperity in the state.

When you think about legislative actions that we have talked about and we have said this before, the legislature is currently in session now in Arkansas, and any legislative actions would clearly go through the legislative process within the current session.

In terms of the different -- what may be a part of that, I think as we said before we would be looking at mechanisms that would align Arkansas with some mechanisms we see in other jurisdictions across our service area, things like, for instance, FRP. FRPs may be similar to what we saw in Mississippi that had various forward-looking elements that recently came out of the Mississippi case.

And also, I think one thing we would look to try to address in Arkansas is really giving the commission some criteria other than kind of a simple DCF method to determine ROE. I mean really this is about giving the commissioners some more tools in their toolbox and really giving them various options they can look at again in a different way in Arkansas that would help us achieve a common goal that I talked about earlier.

So with the legislative session going on from a timing perspective, I would expect that we would file some legislation around this and around these various components in the next few weeks in Arkansas.

Got it. So we should probably think that any rate filings wouldn't happen until after the legislative session closes. So kind of thinking about a midyear case that implies a midyear 2016 revenue change?

Well, I think if you looked -- Leo mentioned in his opening comments that we did provide notice that we would file a case in Arkansas, I believe, in 60 to 90 days, and we did that at the end of January. If you count from that point in time, you are sometime in the March/April timeframe in terms of filing a case. And given the statutory timelines in Arkansas, that would probably put you, if I am doing my math correctly in my head, a rate effective timeline somewhere at the beginning potentially of 2016.

Got it. Okay. Thank you. Much appreciated.

Charles Fishman, Morningstar.

Leo, you made comments concerning the way the Board would look at the dividend in 2016 at EEI. If I take slide 10 on your 2017 outlook, the way I understood those comments at EEI, I should look at the utility net income year outlook less parent and other. And it appears to me, probably by 2017, you're getting close to the payout range you want to be in. Is that a fair assessment that the Board and the way the Board would look at it?

Yes. When we were talking back at EEI, the view is that we will start to have the conversation with the Board when we start to look at 2016 and 2017's results. And you are exactly right.

What we're talking about is a payout ratio around utility combined with parent and other as the dividend paying entity that we would be looking to excluding EWC, of course, given the volatility associated with that kind of business.

But, as we start to look at what 2016 and 2017 hold and what those combined earnings will be, we think that that is when the conversation begins with the Board.

As we have mentioned, a lot of factors will go into with that in addition to just what those earnings levels are. So, for example, the investment profile what is going to happen in terms of our investments in the utility in 2016 and 2017, and if it makes sense to reinvest versus the dividend or raise the dividend because we have the growth path there. So you're right about the metrics, and like I said, the timing would show up right around as we look at the 2016 and 2017 earnings profile.

Okay. Thanks for the additional color. That's it.

Andy Levi, Avon Capital.

Just a few questions. I will keep it to two, two and a half. Just back on the taxes, I guess the concern I have that it is about a $0.90 of earnings power. So, if you can do back that out, 2015 actually looks kind of weak. And so I am just kind of want to understand your thinking on that, and why that is the case? Because if you just put a utility multiple on it, it is quite a bit of value, $10, $15 of value in the stock. And then I have a follow-up.

I think the way we are thinking about it is 2015 is sort of a foundation year for the growth opportunity that we have over the next couple of years. And, as we looked at it, we're really focused on making sure that we put the building blocks in place for making that 2017 aspiration.

Taxes are a big piece of what we do every day, and we manage them as well as we can like every other line item on the income statement. And like I said earlier, it is not out of line with where we have been in terms of an effective tax rate over the last five years.

So we think this is part of our normal operating procedure, and this year there's a couple of lumpy items in there that are helping us get there. But this is part of our expectation and what we expect to do every day when we come to work.

I understand that. But, again, I'm not going to debate with you. But if you go back to your Regulation G disclosures, your statutory tax rate is 36%, so I'm just trying to look at the true earnings power longer-term of the Company.

The follow-up I have -- this is on Pilgrim -- I guess since the big snowstorm, the plant has been out. If you can kind of give us an update there. And if I'm not mistaken, you were supposed to have an outage in 2015 on Pilgrim. And so whether this unforced outage will help on the scheduled outage that you had, or is this just an unfortunate outage event in the spring you will go into your regular outage and also the cost of having the plant down during this time of year?

So to answer the question regarding Pilgrim, the plant shut down due to Storm Juno. It shut down orderly, safely without incident on the 27th. We did lose off-site power to the facility. However, all safety systems and backup power systems worked as planned.

So we have been working through that, dealing with a number of issues. We expect that plant to start up in the near term in the next couple of days and be back to full load probably sometime this weekend.

As it relates to the planned outage, we do have a refueling outage that is scheduled in the spring. That remains unchanged. So we still need to refuel the facility and perform normal maintenance on that facility as we originally planned. So nothing really changes there.

And I have one really very quick question. On just EWC, I didn't see any CapEx numbers for 2015. Is that something that you guys disclose, or you don't give?

No, it should be in there, Andy. It's on table -- it's in Appendix B.

Okay. And how much is that for 2015?

$425 million.

Okay. And so your operating cash flow at EWC is how much?

I don't think we've disclosed that specifically.

Okay. Great. Thank you very much.

Thank you. I would now like to turn the conference call back over to Paula Waters for closing remarks.

Thank you, Shannon, and thanks to all for participating this morning.

Before we close, we remind you to refer to our release and website for Safe Harbor and Regulation G compliance statements. As a reminder, we plan to file our annual report on Form 10-K with the SEC around the end of the month. The Form 10-K provides more details and disclosures around our financial statements.

Please note that events that occur prior to the date of our 10-K filings that provides additional evidence about conditions that existed at the date of the balance sheet will be reflected in our financial statements in accordance with generally accepted accounting principles. Our call was recorded and can be accessed on our website or by dialing 855-859-2056, replay code 62430843. The telephone replay will be available until February 12.

This concludes our call. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.