David Borde - Vice President and Director of Investor Relations Leo Denault - Chairman and Chief Executive Officer Drew Marsh - Chief Financial Officer

Shar Pourezza - Guggenheim Praful Mehta - Citi Group Nicholas Campanella - Bank of America Paul Fremont - Mizuho Securities

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Earnings Release and Teleconference. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to introduce your host today for today's conference, David Borde, Vice President of Investor Relations. You may begin.

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. In efforts to accommodate everyone who has questions, we request that each person ask no more than one question and one follow-up. Our planned remarks will be shorter today given our recent Analyst Day and we know you have a busy morning and therefore are scheduled for 45 minutes. In today's call, management will make certain forward-looking statements. Actual results could differ materially from these forward looking statements due to a number of factors which are set forth in our earning's release, our slide presentation and our SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And, now, I will turn the call over to Leo.

Thank you David and good morning everyone. Given that we are coming off of the Analyst Day, our remarks today will be brief. The main update is that we had a strong quarter and we remain on track with all of our strategic operational and financial objectives. As we stated when we saw you in New York, we have a solid capital plan that is largely ready for execution from a regulatory standpoint, with a demonstrated track record of on-time and on-budged performance. This capital plan will modernize our technology across all functional groups and provide significant value for our customers in service level, sustainability and costs while fueling growth in our business. Additionally, we continue to make significant progress toward transitioning to a pure-play utility as evidenced by our announcement today that we have signed purchase and sale agreements with a subsidiary of Holtec International to sell both Pilgrim and Palisades after their scheduled shutdown. Turning to financial results, we are reporting second quarter Utility, Parent and Other adjusted EPS of a $1.23 and consolidated operational earnings per share of a $1.79. Drew will cover the numbers in more detail, but this quarter's results keep us firmly on track to achieve our full-year guidance and our long-term outlooks. At our businesses, we continue to make good progress achieving our goals. Starting with major projects, in Louisiana, the public service commission approved our agreement to purchase Washington Parish Energy Center. Calpine will construct the 361 MW facility which we expect to purchase in 2021. We also continue to make progress on our four new build generation projects. We discussed those in detail on our Analyst Day, and all projects remain on budget and on schedule. Yesterday, we issued a full notice to proceed on the Montgomery County power station. The transmissions are $187 million Lake Charles transmission project is nearing completion. Major portions are already in service providing benefits to our customers. We are finishing the final major phase of work replacing the towers and lines to expand the Calcasieu River. We expect completion in the third quarter. With approximately 1,000 MW in various stages of development, we are committed to providing our customers with renewable power options which are playing an increasingly important role in our resource planning. In Arkansas, the commission approved a new 100 MW solar PPA which includes a green pricing tariff option for Entergy Arkansas's customers. Entergy New Orleans submitted a request to improve three renewable projects totaling 90 MW of solar generation including a 20 MW PPA, a 20 MW self-build and 50 MW acquisition. The projects would be expected to be in service in the 2020 or 2021 time frame. Entergy New Orleans also included a request in its rate case filing to implement a community solar and a green pricing option. We are evaluating similar offerings in our other jurisdictions. Turning to nuclear operations ANO units one and two have returned to Column one of the NRC's reactor over-site process. This marks the culmination of a comprehensive and dedicated effort by our nuclear team especially our Arkansas Nuclear one employees. As a result of this hard work, we've improved human performance, equipment reliability and safety culture. At Grand Gulf the NRC held an exit conference on June 28. At that meeting, the NRC concluded that the plant had successfully met the objectives for the supplemental inspection. We expect Grand Gulf to transition the column one once the inspection report is issued which we anticipate later this month. Turning to regulatory activity. We've been busy with rate proceedings in all five of our jurisdictions. We are pleased to note that when combined with the positive resolutions around the implementation of tax reform, we expect our customers to see minimal impacts to the rates over the next few years, even, as we implement our solid customer centric investment plan. Specifically, Entergy Mississippi received approval of its annual FRP. The filings resolve the effects of tax reform including customer refunds and rate base offsets; and because of the lower federal tax rate, no base rate change was needed. In May, Texas submitted its filing requesting a net base rate change of a $118 million. In addition, we proposed refunds of unprotected excess ADIT to Entergy Texas customers, which will return approximately $200 million over two years. The net impact to customer rates in the next few years would be $17 million, significantly lower than the base rate impact. Entergy Louisiana filed its annual FRP in June. Because of the effects of tax reform and cost rolling off of hurricanes Katrina and Rita, customer rates will actually decline over the rate affected period. Entergy Arkansas Valley filed its annual evaluation report in early June-- July; because of the 4% rate gap we requested revenue change of $65 million for 2019. This rate change will be more than offset by the return of $466 million of unprotected excess ADIT through the end of next year. And finally, Entergy New Orleans filed its base rate case yesterday which reflects an expected net decrease of approximately $20 million. We also requested a formula rate plan for test years 2019 through 2021 and several new customer offerings, such as a prepaid tariff that we intend to launch after AMI is fully deployed ,electric vehicle charging infrastructure tariff and a fixed billing option. These filings are an important piece to achieving our objectives. There are also illustration of the commitment of our leadership, our employees and our regulators to our customers. I appreciate our retail regulators timely and constructive review and evaluation not only of these filings, but on a broader portfolio of changes we have implemented together in the past several years for the benefit of our customers. We look forward to our continued constructive relationships. As I just mentioned, in the quarter customers started to see benefits from tax reform in their bills, which included $278 million of unprotected excess ADIT. More than half of that, a $150 million was credited to customer bills. The remainder reduced plant balances at Entergy Mississippi. $278 million of benefits in one quarter is impressive and represents substantial savings for our customers. At EWC, see our proposal to sell Vermont Yankee to NorthStar is still progressing; we are awaiting approvals from the NRC and the Vermont Public Utility Commission. The Vermont Commission has decided to issue its decision regarding the settlement after the NRC determination is made which we expect late in the third quarter. At the plant, all of the remaining nuclear fuel has been removed from the spent fuel pool and loaded into the last drive fuel canister, which will be moved to the fuel pad within the next few days. This is an important milestone for our VY transaction as completing this work is a condition to close. We still target completion of the transaction by year-end. Additionally, today we announced agreements to sell Pilgrim and Palisades to Nuclear Asset Management Company, a subsidiary of Holtec International. With these agreements we have now solidified plans to fully divest three of our remaining four EWC nuclear sites. This significantly furthers our strategy to transition to a pure play utility. The agreement will accelerate decommissioning at both sites. Holtech has partnered with SNC Lavalin group to form Comprehensive Decommissioning International or CDI, which will complete the decommissioning work. CDI bring significant experience and expertise in decommissioning and site remediation. We are very pleased with this announcement and the incremental clarity it provides for our exit from EWC. At Indian Point, unit two completed its final refueling outage. That unit is now in its final operating cycle. We are proud of the significant benefits that unit two has provided for its customers and its community remain focused on finishing strong, until the unit closes in April of 2020. I would also like to highlight a few of our other activities and achievements. In June, we received our 29th EEI award for emergency response following severe winter storms in the Northeast. The work of Entergy's crews to restore power to customers impacted by the Nor'easters is a great example of mutual assistance in action in our industry's commitment to serving customers. In May, we went to our nation's capital to advocate for low income customers. We helped United Way introduce a nationwide effort to quantify and describe the number of households that are struggling financially. The program is titled ALICE and represents families who are employed, but have limited assets and limited income. Helping Alice's families and our communities is an important business imperative for us as our success is directly tied to prosperity of our communities. As a result of efforts like this, Entergy was once again named one of the 50 most community minded companies in the United States. As I said in the outset, we had a strong quarter; 2018 has already been a year of significant accomplishments that keep us on track to meet all of our strategic, operational and financial objectives. At the utility, we are managing our business to preserve competitive rates for our customers, even as we implement our solid customer centric investment plan. At EWC with our announcement to sell Pilgrim and Palisades, we continue to make significant progress for transitioning to a pure play utility. Finally, our financial results firmly position us to achieve our full year guidance and our long-term outlooks. We look forward to a productive second half year, and I'll now turn the call over to Drew.

Thank you, Leo and good morning everyone. As Leo mentioned, our accomplishments this quarter directly support the plans and objectives we reinforced at Analyst Day, in particular results for the quarter were strong and keep us firmly on track to achieve our full-year guidance and longer-term outlooks. While I turn to the results in greater detail, there are two items of note for the quarter that I would like to point out. First, we reached a settlement with the IRS for the 2012 and 2013 tax years. This is a positive outcome and generated an earnings benefit of $0.31. Second, as Leo mentioned, our customers started to see benefits from $278 million of unprotected excess ADIT related to tax reform. As a result, the net revenue and income tax lines are complex, and I will continue until customers have received the full benefit of the return. Remember these entries offset each other dollar-to-dollar, so there is no bottom line earnings impact. Beyond the accounting, I want to point out that within six months of the enactment of tax reforms; we achieved sufficient clarity around implementation such that our customers are already receiving significant benefit. This accomplishment is a direct result of efforts with our retail regulators to meet our customers' expectation. Now turning to results on Slide 4, operational earnings for Entergy Consolidated were a $1.32 lower than second quarter 2017. You will recall that last year's results reflected approximately $2 of income tax benefit at EWC. This year's results include $0.31 of income tax benefit, $0.24 of which is at new P&L. This is the result of the 2012 and 2013 IRS Audit I mentioned a moment ago. Breaking down the results starting with Utility, Parent and Others on Slide 5, adjusted earnings were $0.11 higher than the prior year. Excluding the $278 million of unprotected excess ADIT, net revenue increased as a result of higher unbilled sales and positive rate actions in Entergy Arkansas and Entergy Texas. Similar to last quarter, regulatory provisions to return benefits of the lower tax rate to customers and Entergy Louisiana and Entergy New Orleans, partially offset the quarter's increase. Other factors included higher non-fuel O&M due largely to powerful average cost as well as energy efficiency and storm reserves, lower income tax expense due to the reduction of the federal income tax rate and lastly other drivers related to our growth such as higher depreciation and interest expenses. Moving to EWC's result on Slide 6, operational earnings was $0.14 excluding last year's tax item; the key driver for EWC was higher net revenue due to higher sales volume as a result of fewer outage days in second quarter 2018. Lower energy pricing somewhat offset this increase. Before leaving EWC, I would like to mention a few details regarding the progress of efforts to reduce risk at EWC and transform our company. As Leo said, the Pilgrim and Palisades transaction-- with the Pilgrim and Palisades transactions, we have now solidified plan to fully divest three of four remaining EWC nuclear sites. And these transactions support our expectation for EWC to provide positive net cash to parent through 2022. Energy sales are approximately 90% hedged for the remaining life of our merchant assets significantly reducing our revenue risk. We've improved operations through the focus work of our dedicated nuclear employees and expect Pilgrim to return to Column one before the plant closes in 2019. As Leo also mentioned, the VY, all the remaining nuclear fuel has been removed from the spent fuel pool and would soon loaded to dry fuel cash for long term storage. These collective actions significantly further our strategy to transition to a pure play utility. Turning back to the quarter; Slide 7 shows operating cash flow totaling $523 million, approximately $230 million higher than year ago. The increase is due to lower nuclear refueling outage spending, lower severance and retention payments in EWC and increased collection of fuel and purchase power cost at utility. However, return of the unprotected excess ADIT to customers partly offset the increase. Slide 8 and 9 contain our 2018 earnings guidance ranges and our longer-term Utility, Parent & Other adjusted outlook, both of which we are affirming today. For 2018, we expect results to come in around the midpoint for Utility, Parent & Other adjusted and in the top half of the range for consolidated operational. Also, as we mentioned on last quarter's call, our consolidated operational guidance assumes a $100 million favorable tax item at EWC which we still expect to materialize in the third quarter. Our credit metrics are shown on Slide 10. Our FFO to debt percentage remained at 15.4% and our parent debt to total debt have increased to 24.1%. The increase in parent debt to total debt is timing related due to the return of the unprotected excess ADIT and capital investments for growth. This measure should move lower later this year with incremental debt issuance that the utility and realization of a portion of the forward equity sale. We remain committed to our FFO to debt target at or about 15% by 2020; and our parent debt to total debt at or below 25%. Before we turn to Q&A, I want to thank you for joining our Analyst Day either in person or through the webcast. As we demonstrated, we have compelling strategy that translates into strong financial growth and value for our investors. With our capital plan largely ready for execution from a regulatory approval standpoint and good visibility on our rate growth, we are confident in our 5% to 7% UP&O adjusted earnings growth trajectory. Our accomplishments this quarter directly support our plan and objectives, and we're firmly on track to achieve our full year guidance and longer-term outlooks. And now, the Entergy team is available to answer questions.

[Operator Instructions] And our first question comes from the line of Shar Pourezza from Guggenheim & Partners. Your line is now open.

Good morning, guys. So, congrats on the Pilgrim and Palisades decom sales, just one question mainly about Indian Point, anything to read into the fact that Indian Point wasn't sort of part of this package deal, is there sort of some logistical challenges that are pertinent to Indian Point, so how we should think about the last remaining asset that you guys own?

There is no challenge associated with that Shar. It's really a function of, if you recall, at up until a little while ago, Palisades was going to be the first plant that we will close. Since that didn't come to fruition we continued on the path of the package deal with Pilgrim and Palisades because they were originally the first after VY, the nest two in line. So, nothing to read into it. I think the only thing to read in is that, as we have mentioned before there is a developing market for this kind of activity as we-- and as you have seen others started after decommissioning these plants.

Thank you. And our next question comes from the line of Praful Mehta from Citi. Your line is now open.

Hi, guys. Thanks. So, again congrats on Pilgrim and Palisades, just any more color you can provide in terms of the price-- have you provided some terms which-- wanted to get a little bit color around the transaction and what are the-- what are the challenge is you think in terms of approvals?

Sure, Praful. It's Drew. In terms of the price, I think what we said it was a nominal amount which I mean, I think that probably means that you could afford it if you can demonstrate the capability to decommission a nuclear plant, but it's not a lot of money, and so the main objective for us, of course is to move the risk to a party that is capable of doing it and doing it much quicker than we can. And that will benefit our communities and/or other stakeholders much better. So, I think that's the main point of that.

Got you. And from an approval process perspective, you would see a similar path that you went down with VY as an NRC kind of the key driver or do you see other kind of approvals that may take longer here in these transactions?

Sure. From an approval perspective, it's really just the NRC in this case, and we don't see specific state regulatory role right now.

Got you. Thanks. And then finally as you continue to make this successful transition to the pure-play utility story, wanted to understand, again strategically, if there is anything else we should be thinking about, as you step back and look at the path going forward, is there anything in terms of utility growth or in terms of your own portfolio optimization, anything you should be thinking about as you look at the utility story going forward?

I think it's all the same-- the same story that we were telling you-- a little over a month ago in Analyst Day, we continue to see robust capital plan at the Utility. We continue to see the mechanism that we have in place that currently match up with that plan and your changes around the edges to a regulatory constructs to match new types of investments as we go forward. So really, this has given us between all the things Drew mentioned in terms of the hedging and the operations, the sales of these facilities gives us a lot of capacity financially, operationally, management, bandwidth et cetera to really focus on the growth of the utility and the benefits that our customers will see through those types of investments, whether those are the new generating plants that we are building, the renewals that we are putting in place, AMI and whatever comes after that. So, really, just a big focus on making investments that fuel the growth of the business, but as you can see we continue to be one of the lowest priced options as far as the provision of electricity in United States, and we are trying to hold on to that while we grow the bus rapidly.

Thank you. And our next question comes from the line of Nicholas Campanella from Bank of America. Your line is now open.

Hey, good morning. Congrats on the recent announcements. Just keeping up with the EWC business quick, can you give any additional color on how to think about the cash flow impact for the agreement? I am specifically thinking about kind of the NRC minimum site costs required versus the NDT balances that you disclosed in your slides?

This is Drew. So, on an overall cash flow basis, like I said in my remarks our expectations from EWC is that we would have positive net cash flow back to the parent through 2022. That's still the case, and as it relates to NDT expectations, we do not expect to-- have to contribute any more funds to those NDTs prior to transaction for Pilgrim and Palisades.

Thanks. Just switching to UP&O quick, I know that there has been higher authorized asks at Arkansas specifically, in the 5% to 7% forecast for UP&O how do you kind of think about the high-end versus the low-end of the forecast and your assumptions for equity layers? If we kept equity layers kind of flat through the period, where would that put within your guidance range?

Well, our expectation is-- and we have talked about this a little bit on Analyst Day is that we would have to see the equity layers at the utility grow a little bit over time and so we are getting around 49% over the next few years. So, if you-- I don't have forecast that would say we keep it flat. If we did that, I think it would obviously change things a little bit; it would lower our current debt for sure, and so that would be helpful from a parent-debt perspective, but I think overall it might be slightly negative. But the-- our objective is to raise our equity layer on utilities over the next few years.

Thank you and our next question comes from the line of Paul Fremont from Mizuho. Your line is now open.

Thanks. So with agreements in place for three of the nukes and also a significant amount of hedging through everybody's remaining life, can you just give us a sense of what the cash flow associated with those three units is going to look like through 2022?

That the - you are talking about Pilgrim, Palisades and Indian point?

Well Pilgrim, Palisades and I guess Vermont Yankee, right because--

Okay, you are talking about--

Because, Indian Point still isn't resolved, right?

Right. So Vermont Yankee, of course is in decommissioning now, and its funds are primarily coming from the trust, and hopefully we will close by the end of the year, which is our expectation. And then those cash flows - there wouldn't be any significant cash flow on an ongoing basis in that regard for decommissioning there. The Pilgrim and Palisades are really no different from what we were showing before. I guess they're from a cash flow perspective once Pilgrim was going to close. Again those dollars in our forecasts we're going to be coming from the decommissioning trust, as well as Palisades. But Palisades was pretty much at the very end of our forecasts that we showed you at Analyst Day. So net --net, our cash flow forecasts overall for EWC which includes our expectations for shutting down those plants, and then completing the sales of them is positive net cash back parent through 2022.

So is it fair to assume that for Pilgrim and Palisades, its likely sort of a negative cash flow profile that's offset by the contract revenue that's coming in from Indian Point?

I'm not sure. There's isn't contract revenue at Indian Point. There is one at Palisades.

I'm sorry the hedge --in other words, the hedge run is still coming in -

Yes. Palisades is our most cash flow positive plant to be sure during the contracted period. On a merchant basis of course that's a different question. But you there is positive cash flow at Palisades through 2022.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the call back over to David Borde for closing remarks.

Thank you, Glenda and thanks to everyone for participating this morning. Our Annual Report on Form 10-Q is due to the SEC on August 9 and provides more details and disclosures about our financial statements. Events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet would be reflected in our financial statements in accordance with generally accepted accounting principles. Also, as a remainder 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 we should rely exclusively on this page for all relevant company information. And this concludes our call. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. And you may now disconnect. Everyone have a great day.