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Entergy Company (NYSE:ETR) This autumn 2022 Earnings Convention Name February 16, 2023 11:00 AM ET
Firm Members
Invoice Abler – Vice President, Investor Relations
Drew Marsh – Chief Government Officer
Kimberly Fontan – Chief Monetary Officer
Rod West – President of Utility Operations
Convention Name Members
Constantine Lednev – Guggenheim
Paul Zimbardo – Financial institution of America
David Arcaro – Morgan Stanley
Durgesh Chopra – Evercore ISI
Angie Storozynski – Seaport
Anthony Crowdell – Mizuho
Nicholas Campanella – Credit score Suisse
Operator
Thanks for standing by, and welcome to Entergy Company’s Fourth Quarter 2022 Earnings Launch and Teleconference. Right now, all contributors are in a listen-only mode. After the audio system presentation there will probably be a question-and-answer session. [Operator Instructions] As a reminder, right this moment’s program is being recorded.
And now, I would wish to introduce your host for right this moment’s program, Mr. Invoice Abler, Vice President of Investor Relations. Please go forward, sir.
Invoice Abler
Good morning, and thanks for becoming a member of us. We’ll start right this moment with feedback from Entergy’s Chairman and CEO, Drew Marsh; after which Kimberly Fontan, our CFO will evaluate outcomes.
In an effort to accommodate everybody who has questions, we request that every particular person ask not more than two questions. In right this moment’s name, administration will make sure forward-looking statements. Precise outcomes may differ materially from these forward-looking statements as a result of numerous components, that are set forth in our earnings launch, our slide presentation and our SEC filings.
Entergy doesn’t assume any obligation to replace these forward-looking statements. Administration will even focus on non-GAAP monetary info. Reconciliations to the relevant GAAP measures are included in right this moment’s press launch and slide presentation, each of which could be discovered on the Investor Relations part of our web site.
And now I’ll flip the decision over to Drew.
Drew Marsh
Thank you, Invoice, and good morning, everybody. Right this moment, we’re reporting robust outcomes for one more profitable yr. Our 2022 adjusted earnings per share was $6.42 within the prime half of our steerage vary. That is the seventh yr in a row that our outcomes have are available above our steerage midpoint.
Our regular predictable monetary outcomes are underpinned by our technique to create worth for our 4 key stakeholders, our clients, staff, communities and homeowners. Our technique begins with studying from our clients what they want from us to achieve success, after which we construct an funding plan to fulfill these calls for. In consequence, we’re investing in our energy supply system to enhance reliability and resilience and considerably increasing our clear technology to assist our quickly rising industrial load and the decarbonization objectives of our clients.
This customer-centric strategy has delivered advantages for all our key stakeholders. We’re assured this strategy will proceed to create significant worth properly into the long run. In 2022, Entergy’s 12,000 staff labored each single day to ship operational excellence, obtain constructive regulatory outcomes, construct the inspiration for our long-term progress technique and drive improved affordability for our clients.
Operational excellence begins with security. In 2022, we made necessary strides recording the fewest accidents in our firm’s historical past, and a complete recordable damage fee that ranked within the first quartile amongst EEI utilities. To attain this consequence, we lowered whole accidents, together with staff and contractors by 30% and severe accidents by greater than 50%. That is an enchancment that we’re happy with, our work is not accomplished as a result of we consider zero hurt is feasible. We’ll proceed our relentless give attention to maintaining our staff and contractors protected all day, every single day. Entergy’s operational excellence is persistently on show after we reply to extraordinary circumstances. We noticed this just lately with winter storms Elliott and Mara.
Elliott offered distinctive challenges because of the extraordinarily chilly temperatures. Actually, we skilled a number of the highest winter hundreds that we’ve got seen, together with new winter peaks for Entergy Arkansas and Entergy Texas. Groups from throughout our group collaborated to make sure that the system capability and working sources have been maximized. Energy availability was essential, and our technology services carried out extraordinarily properly, buoyed by contingency planning and enhancements from weatherization investments made after winter storm Yuri. Not solely have been we capable of meet the excessive demand of our clients, however we additionally exported energy to close by methods to assist different utilities meet their demand.
Our groups carried out extraordinarily properly throughout each occasions and for that, I’m very grateful. I am particularly proud that we had no accidents, making certain that every one our staff return house safely. River Bend Station, our nuclear plant close to Baton Rouge started its refueling outage after 675 days of being constantly on-line. That is the longest run in station historical past. River Bend is a crucial — is necessary to the realm it serves offering protected, clear vitality that our clients can depend on and large assist for our communities.
Throughout this outage, we will probably be making a number of tools enhancements to make sure long-term reliability of the unit, together with alternative of condenser tubes and feed water heaters. We additionally made necessary progress on our regulatory aims. Beginning with Texas, we acquired approval from the PUCT to construct the Orange County Superior Energy Station or OCAPS. This new extremely environment friendly CCGT will present near-term advantages, together with decrease gasoline prices, decrease emissions and increasing regional capability to assist progress in our Texas service space. The plant will probably be upgradable to allow future reconfiguration for hydrogen functionality, which can improve gasoline variety and supply long-duration storage in a carbon constrained surroundings.
For Entergy Texas fee case, events have progressed in assemble the settlement discussions and reached a tentative settlement on key phrases. The listening to was placed on maintain to permit time to finalize the settlement. We’ll present an replace on the main points when obtainable. In Louisiana, we acquired approval to get well the steadiness of Hurricane IDA value utilizing securitization. We work collaboratively with our regulators to discover a answer that met the wants of all stakeholders. The order decided that all the prices incurred have been affordable and prudent and Entergy Louisiana will absolutely get well these prices, which is significant for the credit score of the corporate. Whereas the fee accepted our storm restoration, we wish to guarantee you that we heard your suggestions concerning the dialogue on the assembly and the uncertainty within the course of.
To that finish, we’re constantly evaluating our stakeholder outreach practices. Our ongoing objective is a best-in-class stakeholder engagement strategy that achieves alignment round necessary buyer outcomes. We consider there’s settlement with our regulators round our long-term objectives to ship what our clients have to be profitable. Our clients are central to all that we do, and we all know we are able to proceed to work with our regulators to enhance our processes for the long run.
Turning to the federal stage. In December, we acquired an order on System Vitality’s unsure tax place and sale-leaseback criticism. For the unsure tax problem, we consider that the FERC’s treatment is obvious. And because of this, no further refunds are required. The treatment is necessary as a result of the rulings of the IRS are actually identified and the credit score ADIT on a hypothetical foundation underneath info now identified to be incorrect, can be mistaken.
FERC’s Treatment additionally acknowledges that clients benefited from our actions by greater than $100 million in worth, together with a $25 million refund made by SERI in 2021 in step with the quantity of ADIT allowed by the IRS, and a separate $18 million refund for extra ADIT additionally paid in 2021. In the meantime, SERI took on the chance of curiosity and penalties with the IRS to offer that worth. Absent our actions, clients would have acquired nothing. And all through the interval at problem, clients paid not $0.01 extra in charges than they might have paid has SERI not taken the unsure tax positions.
On the sale leaseback. Sorry. SERI is lively on my iPad as properly. On the sale-leaseback merchandise, we’re disenchanted in FERC’s conclusion and we’ve got thought rehearing of that call. The lease renewal was a cost-efficient means to make sure clients would proceed to obtain entry to dependable baseload clear vitality from a various gasoline supply. And general, the sale leaseback saved them over $800 million.
On January 10, SERI issued $104 million in refunds required by the order. We now have made our compliance refund reviews detailing that calculation. FERC might want to evaluate our compliance submitting and problem an additional order. There isn’t any statutory deadline for the order, however we hope to get FERC’s choice quickly. As a reminder, SERI refunded Entergy Mississippi $235 million in November as a part of its world settlement with the Mississippi Public Service Fee, which represents Entergy Mississippi’s 40% curiosity in 13 totally different dockets on the FERC.
We nonetheless consider {that a} world settlement with the remaining retail regulators on phrases just like the settlement with the MPSC can be in the very best curiosity of all events. It might resolve disruptive litigation uncertainty for SERI and our stakeholders, together with our regulators, speed up significant worth to clients, keep away from pricey and pointless third-party litigation charges and permit all events to maneuver ahead with fewer distractions as we work collectively to pursue the necessary priorities and outcomes that our clients demand.
Transferring on to our progress story. Our technique is centered on two key points of our enterprise which are essential to serving to our clients meet their objectives. First, increasing our clear vitality footprint to assist industrial gross sales progress and a rising buyer electrification focus; and second, accelerating the resilience and hardening of our system to enhance outcomes for current clients, whereas giving new clients the boldness to spend money on our communities. Our three yr $16 billion capital plan helps this technique, whereas enhancing reliability and our clients’ expertise. This capital plan additionally offers clear line of sight to our 6% to eight% adjusted EPS progress outlook in addition to our credit score objectives.
We’re aggressively investing in cleaner vitality to profit clients and communities. Of the $16 billion, near $6 billion represents technology investments transferring us towards a cleaner future. This consists of investments in renewables, OCAPS and nuclear. Right this moment, we’ve got simply over 800 megawatts of renewables in service, however we’re nonetheless within the early levels of our renewables construct out. Over the subsequent three years, we plan to extend our renewable portfolio by roughly 4,500 megawatts, greater than 4 instances our renewable capability right this moment, and that pattern will speed up past 2025 with plans for as much as 14 to 17 gigawatts in service by the top of 2031.
With this plan, we count on to attain our 50% carbon depth discount objective upfront of our 2030 goal in addition to our new objective for 50% carbon free capability by 2030. Our plan for accelerated resilience and hardening, referred to as Entergy Future Prepared, can be necessary to scale back storm danger for our clients and different stakeholders. Final yr, we laid out our $15 billion 10 yr plan is predicted to scale back storm outages, cut back future storm restoration prices and supply a basis for progress for patrons who’re depending on electrical energy greater than ever. Our three yr capital plan consists of about $900 million for this work and extra funding could possibly be added to this plan as soon as regulatory approvals are obtained.
We filed our preliminary resilience plans for New Orleans final July and our plan for Louisiana late final yr, and we’re focusing on choices in these jurisdictions by the top of this yr. For Texas, we’re supporting laws that might enable for an accelerated resilience plan. We count on to make our preliminary regulatory submitting within the third quarter of this yr after legislative efforts are accomplished. We’re focusing on a choice from the Texas Fee someday subsequent yr.
Of the $16 billion three yr capital plan, $7 billion represents transmission and distribution investments along with our accelerated resilience program to ship improved reliability and buyer expertise, via initiatives centered on asset renewals, enhancements and grid stability. These investments are additionally designed to arrange the grid for renewables growth and new buyer connections. We have already seen that centered distribution investments make a significant distinction. The place we have applied reliability initiatives, we’ve got seen a major discount within the variety of outages. Past driving necessary outcomes for our clients, our capital plan offers the inspiration for our distinctive financial improvement and industrial gross sales progress story.
We proceed to see very strong growth plans from current and potential new clients, and Kimberly will focus on the important thing drivers. Two current clear vitality bulletins of word are an OCI mission for a 1.1 million metric ton blue ammonia facility close to Beaumont, Texas, and a Linde mission to construct a blue hydrogen facility which can provide the OCI plant. The record of commercial initiatives that we’re monitoring signify an extra seven terawatt hours of progress above our outlook via 2025.
For our planning, we likelihood alter the outcomes as a result of we anticipate that not all of these will obtain operations or which will present up on a slower time line. With this backdrop, we stay assured in our longer-term 6% industrial gross sales progress expectations, in step with what we laid out at Analyst Day.
Affordability stays a core tenant in our pursuit of higher sustainability and reliability for patrons. Aggressively pursuing business and industrial progress can be necessary for affordability because it spreads customer-centric investments over a bigger buyer base. Past gross sales progress, we’re supporting buyer affordability by working to enhance efficiencies and cut back prices, which can translate into advantages for patrons.
We now have traditionally centered our steady enchancment largely on working prices. However given the rising capital must assist customer-centric initiatives, we’ve got expanded our CI efforts to capital investments. To steadiness our clients’ wants, affordability, reliability and sustainability, we should be sure that we make investments capital {dollars} as effectively as potential.
Larger gasoline costs and scorching climate challenged buyer affordability this previous summer time. The excellent news is that pure gasoline costs have come down in current months, and that can enhance affordability for our clients, notably in Entergy Louisiana and Entergy New Orleans, the place their gasoline clauses alter month-to-month. We proceed to work on behalf of our clients to pursue federal funding as a possible means to scale back prices, notably for investments that speed up the trail in the direction of a extra resilient future. To that finish, we’re happy to report all 5 of our working firms acquired encouragement letters to proceed with full purposes for the primary spherical of DOE’s grid resilience and innovation partnerships program.
All of our proposals are to enhance resilience in deprived communities. This spherical of program funding is predicted to conclude this summer time and profitable submissions will obtain funding for half of their mission prices. If we have been profitable on all 5 initiatives, the awards would whole $190 million. Lastly, in 2022, shareholder contributions totaled $25 million. This included $10 million in donations for invoice help packages. We additionally stepped up our efforts on vitality effectivity and weatherization packages to offer long-term invoice reduction.
Our affect for our clients and communities goes properly past charitable donations. Our staff logged greater than 110,000 hours of volunteer service. We helped low-income clients entry $125 million in LIHEAP funding. And thru our volunteer earnings tax help program, we helped place 12,000 low-income households on a path to financial stability by serving to them declare $22 million in earned earnings tax credit.
We’re very happy with the work of our staff and our company social accountability group as they supply essential assist to strengthen the communities we serve. 2022 was one other profitable yr for Entergy, but we nonetheless have lots of work to do. We’re laser-focused on efficiently delivering worth for our key stakeholders. That features executing the capital plan earlier than us and laying the groundwork for the numerous long-term alternatives in renewable technology, clear electrification, and resilience acceleration. It additionally consists of enhancing operational outcomes, constructing alignment with stakeholders, decreasing pointless noise and distractions, and executing financially to strengthen our steadiness sheet and preserve credit score. All of that is foundational to attaining our 6% to eight% adjusted EPS progress plan and delivering necessary advantages to Entergy’s key stakeholders, which can make sure the sustainability of our enterprise for many years to return.
I will now flip the decision over to Kimberly who will evaluate our monetary outcomes for the yr and our outlook.
Kimberly Fontan
Thanks, Drew. Good morning, everybody. As Drew mentioned, right this moment, we’re reporting robust 2022 leads to the highest half of our steerage vary. We executed on key deliverables all year long and as soon as once more elevated our dividend by 6%. We’re assured that we are going to proceed to ship on our commitments, and we’re initiating 2023 steerage and affirming our longer-term outlook.
I’ll start by reviewing outcomes for 2022, after which present an outline of key drivers for our 2023 steerage. Beginning on Slide 3, Entergy adjusted EPS for 2022 was $6.42, $0.40 larger than 2021. Turning to Slide 4, our earnings progress was pushed by robust retail gross sales and the numerous investments we have made to assist our clients. Climate adjusted retail gross sales progress was greater than 3% for the yr as gross sales rebounded from COVID-19 and Hurricane Ida impacts.
Industrial gross sales have been robust, practically 5% larger than 2021, pushed by continued progress from new and growth clients in addition to larger than anticipated demand from cogeneration clients. General, climate in 2022 elevated our retail gross sales. This enabled us to flex our spending for the advantage of clients.
Larger energy supply bills included elevated spending on reliability, security and coaching, and vegetation upkeep, which was partially as a result of inflation. Larger costs for chemical substances utilized in our technology processes contributed to will increase in each nuclear and non-nuclear technology spending. We additionally elevated our name heart assist spending to enhance customer support ranges. Larger prices, which consequence from capital funding particularly depreciation expense, taxes apart from earnings taxes, and curiosity expense have been additionally mirrored in 2022 outcomes.
Slides 5 and 6 present that the basics for our industrial clients remained robust and assist our progress outlook. Commodity spreads, working margins, and utilization charges proceed to be strong throughout key industrial segments that we serve. On a associated word, pure gasoline curves have declined. That is excellent news for buyer payments. Since our EEI replace, the worth curve has dropped roughly $2 for 2023, which can translate into roughly 4% decrease payments for patrons. In the long term, decrease pure gasoline costs would additionally means larger nuclear manufacturing tax credit from the IRA, which might drive further buyer worth.
The outcomes for EWC are summarized on Slide 7 and mirror the wind down of that enterprise, which wrapped up in 2022. With the profitable exit of the service provider nuclear enterprise, EWC will not be a reportable section in 2023, and subsequently, will not be a blanket adjustment. Any remaining exercise from that enterprise will probably be included in father or mother & different.
On Slide 8, working money movement for the yr was practically $2.6 billion, $285 million larger than final yr. Larger utility income was a big driver of the rise. The receipt of Entergy New Orleans storm securitization proceeds in December additionally contributed. Elevated gasoline and buy energy funds on the utility and the consequences of the EWC nuclear vegetation’ shutdowns have been partial offsets.
Transferring to credit score on Slide 9. We count on to attain credit score metrics which are in step with score company expectations by the top of 2023. Since our final replace, we have made important progress in strengthening our steadiness sheet. Deferred gasoline balances have declined practically $450 million within the final quarter. Given the decrease ahead gasoline curves and our environment friendly gasoline restoration mechanisms, we count on these balances to return down considerably in 2023. Entergy New Orleans acquired proceeds from securitization bonds associated to Hurricane Ida storm restoration. This served to ascertain a storm reserve of $75 million and offered roughly $125 million of storm value restoration. Entergy New Orleans is awaiting the council’s ultimate willpower on the prudence of Ida restoration value. We count on their choice within the fourth quarter of this yr.
As Drew mentioned, the LPSC voted to approve securitization of the Ida storm restoration value. We efficiently labored with our Louisiana regulators to discover a answer that lowered the quantity financed by $180 million, which represents the worth that clients obtain from the deferred taxes related to the storm. We count on to obtain Louisiana securitization proceeds within the second quarter and the funds will probably be used to scale back debt. Drew additionally talked about that we acquired orders from FERC concerning SERI in late December. In consequence, SERI paid $104 million in refunds, the vast majority of which we’re interesting. Based mostly on FERC’s December order and evaluation of the remaining litigation, we decided that its current reserve was sufficient.
Turning to remaining fairness wants on Slide 10. In November, we settled 7.7 million shares from our fairness distribution program with money proceeds of roughly $850 million. We used the vast majority of the proceeds to scale back short-term debt. We now have accomplished practically all of our projected fairness issuances via 2024 with simply $130 million remaining.
On Slide 11, we’re initiating our 2023 adjusted EPS steerage and affirming outlooks in step with our earlier disclosures. Our 2023 adjusted EPS steerage vary is $6.55 to $6.85 with a midpoint of $6.70. As you realize, our objective is to ship regular predictable progress for our homeowners. We proceed to count on to attain 6% to eight% annual adjusted EPS progress.
The important thing drivers for 2023 are highlighted on Slide 12. We count on to see progress from continued customer-centric investments together with depreciation expense, curiosity expense, and taxes apart from earnings taxes ensuing from these investments. AFUDC can be anticipated to extend with longer-term initiatives reminiscent of Orange County Superior Energy Station. We count on retail gross sales quantity to be roughly 1% larger on a weather-adjusted foundation. That is largely pushed by strong industrial gross sales progress from new and growth clients primarily in industrial gases, major metals, and petrochemical industries. The expansion for brand spanking new and growth initiatives is predicted to be partially offset by decrease cogen gross sales, which have been larger than deliberate in 2020.
O&M was elevated in 2022 as a result of variable working prices to assist larger gross sales quantity and our flex administration program. We plan for O&M to return to regular ranges in 2023. And we’ve got additionally taken into consideration larger prices for supplies, contract labor, and chemical substances as we’ve got seen costs improve for this stuff. Our objective is to ship regular, predictable outcomes and we’ll make the most of our flex instruments as wanted. We additionally stay centered on steady enchancment to attain sustained company-wide effectivity positive aspects.
Lastly, adjustments in father or mother & different, excluding the consequences of curiosity on intercompany most popular investments which are offset in utility are anticipated to contribute to our year-over-year adjusted EPS progress. The timing of charitable contributions and residual results from the shutdown of EWC are key drivers. Results from larger rates of interest are anticipated to be offset by decrease debt balances. 2023 outcomes will even mirror larger shares excellent. The appendix of our webcast presentation accommodates further particulars concerning the particular drivers. It additionally outlines quarterly concerns and incomes sensitivities.
In closing, 2022 was one other profitable yr for Entergy and we’re happy with what we’ve got achieved. We proceed to ship regular, predictable adjusted earnings and dividend progress and adjusted EPS as soon as once more within the prime half of our steerage vary. Our plan is to proceed this pattern supported by strong fundamentals and the energy of our buyer base. By prioritizing the wants of our clients, we’ll ship worth for all of our key stakeholders. We now have a novel progress alternative and we stay up for sharing our progress because the yr unfolds.
And now, the Entergy group is accessible to reply questions.
Query-and-Reply Session
Operator
[Operator Instructions] Our first query comes from the road of Shar Pourreza from Guggenheim. Your query, please.
Constantine Lednev
Hello. Good afternoon, Drew and group. It is truly Constantine right here for Shar. Congrats on an important quarter. Can we begin off with a query on the 2023 planning assumptions and a number of the transferring items there? I see that the load stepped up from the prior first look as much as 1% and O&M appears to have a slight tick up. Are you able to discuss what drove these adjustments, and what different adjustments are actually embedded versus the early outlook? And on O&M particularly, is that piece attributed to flex O&M or extra of recurring prices?
Kimberly Fontan
Certain. Thanks for that. That is Kimberly. As you identified, our 2023 gross sales are up somewhat bit and our O&M is up somewhat bit from EEI. As you realize that early outlooks are preliminary estimates and we have continued to refine our steerage and our outlooks. And as we did that, we discovered further tailwinds each in conservative planning ideas and extra alternatives in gross sales. There are some modest alternatives in rates of interest expense, and that enabled us so as to add further O&M for customer-centric spending like vegetation, in addition to name heart assist and issues like that.
I’ll word that we proceed to sit down squarely in the course of our steerage vary, and we do plan to make use of flex spending or flex levers that we’ve got to proceed to handle 2023 each from a climate potential results in addition to some other results that come alongside.
Constantine Lednev
Nice. That is very useful. And shifting to SERI, there’s nonetheless a number of proceedings excellent. Simply to make clear a number of the new developments from the December order, how a lot further refund are retail regulators lending? And extra broadly on the method given form of the person complaints at receiving orders and the settlement that — with Mississippi, does that present some visibility to an final decision timeframe? And is there any form of extra constructive settlement dialogue positions at this level?
Rod West
So that is Rod. I will attempt to unpack the procedural points of SERI updates, and I feel I will let Kimberly deal with something because it pertains to any new monetary claims. However two major issues to replace across the unsure tax place and the sale-leaseback. One is the compliance submitting and the opposite being the — our opposing occasion’s request for rehearing. On the compliance submitting, truly right this moment, we’re submitting our response to the regulator’s opposition to our submitting. And there’s no particular timeline that FERC has to behave on that, in order that’s one replace.
The second, per week from now there’s the request excellent by the opposition of — for rehearing on the selections that the FERC made on the finish of the yr. There’s a deadline there that FERC has imposed on itself of February twenty third, so it is truly per week from right this moment. That is the request for rehearing filed by the events there. So two updates there. We’ll must evaluate the order to find out what if any subsequent steps we’ve got in that regard, however these are the 2 major updates for the SERI proceedings across the unsure tax place and sale-leaseback.
Kimberly Fontan
And simply so as to add so far as from a monetary perspective, as you realize, we mirrored the whole impact of the SERI Mississippi settlement for all firms in June. About $235 million of that $550 million roughly cost that was taken final June went to Mississippi and the rest is reserved. I feel Drew talked about as I did that there was about $104 million of refunds out of the choice that got here in December, and people have been paid by SERI to the working firms in early January.
Constantine Lednev
And simply as a comply with up. Does the form of info, does this type of set you up for a greater place for any form of settlement discussions simply given the truth that a few of these points are beginning to get off the desk?
Rod West
Effectively, I will — That is Rod once more. I can reply there to the extent that we’re progressing with FERC being clear about its intentions. It does arrange a transparent path to settlement. And I feel what’s upcoming and excellent that being FERC having a chance to make clear its prior choice in December in addition to addressing any of the problems upon which the rehearing is being requested. Once more, it additional clarifies these excellent points that could be standing in the best way of settlement. Our place is settlements in the very best curiosity of our clients and different stakeholders, and we’ll stay aggressive in pursuing that. But it surely’s in FERC’s nook proper now to make clear their finish of 2022 choice that I feel will information our subsequent steps on settlement.
Drew Marsh
And I will simply add that — that is Drew. At any time when we have been again in December, we did have conversations going every time the FERC did determine that they have been going to place an order out. It halted these conversations to see what these orders have been. And so, pending that info and readability round that as Rod mentioned, we’d hope to have the ability to get again to the desk with them.
Constantine Lednev
That is very useful. Thanks for taking the questions. I will leap again within the queue.
Drew Marsh
Nice. Thanks.
Operator
Thanks. One second for our subsequent query. And our subsequent query comes from the road of Paul Zimbardo from Financial institution of America. Your query, please.
Paul Zimbardo
Hello. Good morning. Thanks, all.
Drew Marsh
Good morning.
Rod West
Hey, good morning.
Paul Zimbardo
Simply a few smaller ones. Simply on the — you set in your slide that pension is much less of an O&M drag year-over-year in 2023. Simply — for those who may quantify that, and in addition how a lot was the pension contribution that you just made final yr in 2022?
Kimberly Fontan
Paul, that is Kimberly. I’ll must get again with you on the particular numbers, however usually, our pension expense is down as you famous because the funded standing has elevated about $500 million to about 85%. We did improve the contribution on the finish of the yr, however I will have Invoice comply with up with the particular quantity on that. Our pension legal responsibility got here down because of the improve in rates of interest, which, in fact, is mirrored within the low cost fee for that legal responsibility, however that was offset by decrease than anticipated returns on the asset facet of our investments. However on a internet foundation, we’re in a greater funded standing place on the finish of the yr.
Drew Marsh
Yeah. The legal responsibility was helped by numerous retirements together with rates of interest. I feel the quantity for the contribution was round $400 million in that ballpark, Paul, however Invoice can provide the actual quantity.
Paul Zimbardo
Okay.
Drew Marsh
And it’ll be within the Okay.
Paul Zimbardo
Okay. Nice. After which additionally, I observed there was a $33 million depreciation adjustment for SERI you had in your earnings launch. Should you may simply give some info on what that associated to.
Kimberly Fontan
Certain. As Rod mentioned, the choice that got here out in December had numerous elements and on the sale-leaseback facet, it had a part round restoration of the price of the portion that is owned by a 3rd occasion and the way that sale-leaseback was. So when the play that again via, the online fee base that was charged over time had been depreciated if you apply the consequences of the sale-leaseback adjustments that the FERC order decide decided or the FERC decided that depreciation is a turnaround of that impact on that fee base that was depreciated over that point. So it is form of — it’s a must to take that piece in addition to I feel you may see one other type of internet legal responsibility there and all these are adjusted out. It is associated to that — these gadgets are all associated to the way you unwind the sale-leaseback part that got here out of that order.
Paul Zimbardo
Okay, nice. Thanks for that. Respect it.
Drew Marsh
Thanks, Paul.
Operator
Thanks. [Operator Instructions] And our subsequent query comes from the road of David Arcaro from Morgan Stanley. Your query, please.
David Arcaro
Hello. Thanks a lot for taking my query.
Drew Marsh
Completely. Good morning.
David Arcaro
I used to be curious concerning the Louisiana Fee not less than a number of the commissioners appear to be centered on reliability and even exterior of main storms. So questioning if there is a path to deal with that facet of issues, form of areas that appear to perhaps fall out of the particular 10-year resiliency plan, simply perhaps regular day-to-day exterior main storm reliability?
Rod West
Yeah, reliability is definitely a component and parcel of our resilience dialog. They’re very a lot linked. And popping out of the again finish of 2022 the place our clients have been experiencing monetary hardship due to rising commodity costs, excessive utilization and the like, the regulators have been on the lookout for reduction and any disruption to our clients was seen as a problem for the regulators. But it surely did not cease our stakeholder engagement technique round reinforcing the necessity for continued funding, customer-centric investments and reliability. And it’ll proceed to be a part of our resilience submitting and it is a part of the case that we have made and the case will proceed to make to the Louisiana Fee. They’re aligned with us on these customer-centric investments, and we count on to see enhancements in reliability throughout the board. So they have been . It has been aligned with our engagement with them to this point. We count on to proceed to have their assist, particularly round our efforts to speed up the investments.
Drew Marsh
And I will add to Rod’s feedback that we had or we’ve got a resilience and reliability program that we have been working for the final years that has proven enhancements in our stats. And once I was mentioning steady enchancment transferring over into the capital house in my remarks, one of many areas the place we’re focusing that’s on this vitality supply house as a result of we’ve got a reliability program. We’re upgrading our resilience program. We even have buyer efforts occurring, integrating these three issues and making it far more optimized. It is a house the place we expect we are able to obtain all of the outcomes that we’re on the lookout for and do it extra effectively. So that could be a place the place all this stuff are beginning to come collectively and never — and are literally separate efforts occurring internally within the enterprise.
David Arcaro
Received it. Thanks. That is useful. And also you alluded to it within the ready remarks, clearly, the final securitization course of was a difficult one and I used to be simply questioning for those who may elaborate? Is there a solution to decrease the chance round storm value securitization processes going ahead in Louisiana? Simply what sort of initiatives are you able to pursue particularly to form of align events extra easily going ahead?
Drew Marsh
I will begin and I will let Rod leap in. However I feel the principle factor that we are able to do is embark on a resilience program collectively. And that could be a huge alternative we’ve got, filings in Louisiana and in New Orleans, and as I mentioned we — we’re planning to try this in Texas later this yr. That is the most important alternative and that can transfer all of our stakeholders ahead when it comes to getting ready for storms and responding extra successfully to storms. So, Rod, I will allow you to…
Rod West
Yeah, and I feel that is the purpose. Our clients are agnostic as as to if the funding is a reliability funding or a resiliency funding, and when there’s a storm and the shoppers are interrupted, they’re experiencing the hardships of that interruption. That is what was a part of the motive force for the heightened stress each in our — from the regulators in addition to our funding plans in pursuing accelerated investments in resiliency as a result of our clients had the recency of the expertise with storms.
And so, Drew’s level is correct on level that if we are able to get alignment round accelerated resiliency investments, our clients will truly expertise higher reliability experiences as properly. They’re fairly linked.
David Arcaro
Yeah, that is smart. Okay, nice. Thanks a lot.
Drew Marsh
Thanks.
Operator
Thanks. One second for our subsequent query. And our subsequent query comes from the road of Durgesh Chopra from Evercore ISI. Your query, please.
Durgesh Chopra
Hey, group. Thanks for giving me time. Hey, simply…
Drew Marsh
Completely. Good morning.
Durgesh Chopra
Good morning, Drew. Simply — simply clarification. What to anticipate on February 2020 — February twenty second? So is the FERC truly going to place out an order the place they’ll form of — you’ve got the compliance refund, will they affirm the compliance refund report? I am simply making an attempt to form of work out what to search for there?
Rod West
We count on them by February twenty third if I am listening to your query appropriately. We predict the FERC to answer the events’ request for rehearing. So any substantive points of that’s unknown to us, however our expectation is that FERC will reply to the events’ request to have sure of these points reheard, not essentially a substantive ruling come what may.
Durgesh Chopra
I see. So in the event that they mainly say no to the rehearing, then I suppose, does that clear means the trail to you form of going via different settlements and placing that to mattress? Is that the best framework that I am fascinated by?
Rod West
Effectively, the events could have the chance to enchantment if they don’t seem to be happy with the result. I feel from our vantage level, there have been sure benefits to provide FERC the chance to reaffirm the preliminary place it took, and we had some challenges with the sale-leaseback a part of the order. And so, what we’re on the lookout for out of this candidly is readability. And we’ll wait to see what — how FERC responds within the subsequent week to order our subsequent steps.
Durgesh Chopra
Understood. Thanks, guys. That is all I had. All my different questions have been answered. Thanks, once more.
Drew Marsh
Glorious. Thanks.
Rod West
Thanks.
Operator
Thanks. One second for our subsequent query. And our subsequent query comes from the road of Angie Storozynski from Seaport. Your query, please.
Angie Storozynski
Thanks. So the primary on FERC and SERI. So FERC scheduled hearings and that is a final problem that talks concerning the prudence of the up charges of Grand Gulf, which I imply by itself frankly, it is arduous to consider that this problem wasn’t outright rejected. So I imply, is there any learn via? Are you listening to something from FERC why these hearings have been even scheduled?
Rod West
Hey, Angie. It is Rod. You are — I am assuming you are speaking concerning the orders — the rehearing order that the FERC launched right this moment the place they declined our movement to…
Angie Storozynski
Sure.
Rod West
Rehear. Yeah. So the order is procedural solely as we learn it. It would not order any refunds or require any additional actions. They usually went as far as to clarify that in setting the prudence criticism for listening to and settlement, it imposes no obligation on us. It would not deny us any of our rights. It fixes no authorized relationships, nevertheless it merely initiates additional proceedings. They usually’re with holding their proper and skill to deal with something substantive alongside the strains. It is not sudden for us, nevertheless it’s — once more, it is a procedural and never a substantive order. So there’s not something to learn from it from a subsidy standpoint.
Drew Marsh
And, Angie, to make sure we admire your sentiment.
Rod West
Yeah. And the subsequent step is the settlement provide March — SERI settlement provide to the events on March 1st, however once more, Angie, taking it as a procedural matter, not a substantive one.
Angie Storozynski
Okay. After which, utterly — altering matters utterly right here. So I imply, I used to be simply questioning there’s this dialogue within the business general about switching from photo voltaic ITC to photo voltaic PTC. Clearly, from a regulatory utility perspective that is useful given no problem with ITC normalization, however is there — I imply, as you have a look at it, proper, particularly that your photo voltaic useful resource can be superior or above common, I imply, is that this shift — would that be truly in any means EPS accretive? I imply, I am simply fascinated by the earnings recognition underneath the — on the photo voltaic PTCs versus the ITC.
Kimberly Fontan
Yeah. Good query, Angie. The best way we take into consideration the PTCs is they supply — and any IRA usually is it offers alternative for incremental funding. We’ll must work with our regulators as we’ve got over numerous years efficiently to offer again the tax credit to clients in a means that gives them the worth, however continues to assist our credit score and our steadiness sheet. And so, we have begun these conversations early, however how these play out will probably be a matter of debate with our regulators. We have talked about utilizing these as credit in opposition to fee base as in comparison with direct credit score, for instance, to clients because it offers us a chance to handle our steadiness sheet in addition to guarantee the chance to clients. And it additionally helps with the volatility related to clients’ payments on PTCs, notably because it pertains to the nuclear PTC.
Drew Marsh
And Angie, that is Drew. I might add to Kimberly’s feedback that we’ve got a 50% planning assumption to the extent that this does assist make us extra aggressive. There could be a chance for incremental funding over and above what we’re planning, however we nonetheless must go obtain that. So we’re persevering with to work to get extra aggressive. And that is actually serving to stage the taking part in subject for us as you mentioned versus the ITC framework. However that is a chance for us that we must go obtain on the market sooner or later.
Angie Storozynski
Okay. After which, lastly, you probably did make feedback about adjustments in ahead energy curves and the quantification of the nuclear PTC profit that might accrue to your clients, however we have not but acquired any pointers from the IRS and it sounds prefer it’s not anticipated till the early summer time. However is there — however have you ever been in discussions with the IRS about how they’ll doubtlessly quantify the present vitality stream that nuclear vegetation are getting?
Kimberly Fontan
Sure, we’re actually working via EEI with our companions and with the opposite utilities on getting clarification on these nuclear PTCs. We’ll clearly have to attend with the remainder of the business on what that truly comes out as, however we do consider that that is a chance for us and we would be eligible for these. And it offers, as Drew mentioned, a chance for patrons, each to handle builds in addition to a chance for incremental funding relying on how these come out. However we’ve got positively been in discussions with them via EEI.
Drew Marsh
And we did anticipate that they might be in all probability somewhat slower on this as a result of that they had extra time. It would not kick in till 2024. And so, we anticipated that they’ll cowl lots of different issues like the company minimal tax and different necessary parts first earlier than they acquired to that.
Angie Storozynski
Superior. Thanks. Thanks, each.
Drew Marsh
Thanks.
Operator
Thanks. One second for our subsequent query. And our subsequent query comes from the road of Anthony Crowdell from Mizuho. Your query, please.
Anthony Crowdell
Hey, good morning. Hopefully, simply two fast ones. I — you’ll have addressed them, however simply curious. I suppose there’s two points occurring with SERI. What’s an affordable expectation if you consider all the challenges that can play out at FERC like what’s an affordable assumption when all that’s over? Is that inside six months otherwise you assume it may carry longer?
Rod West
We won’t say as a result of FERC has — on the problems we simply alluded to, would not have a particular timeline. They’re in command of the schedule there. The updates that I’ve given was the submitting we have been making right this moment that — the place the FERC has no scheduled deadline. That is in regard to our compliance submitting. Then, the opposite was per week from right this moment, the timing that FERC imposed on itself to answer to the request for rehearing from all the opposite events, however it’s in FERC’s area to determine after they make these choices. So I couldn’t give any anticipated timeframes to resolve all of those. That is one other one of many the reason why we’re so aggressive in partaking with the regulators to pursue a settlement to take away the uncertainty inherent in FERC’s operations. No disrespect to our FERC commissioners.
Anthony Crowdell
Nice. And simply lastly, in Slide 9 you undergo some credit score and liquidity metrics there. You discuss perhaps about by yr finish, you hope to be on the vary or higher. Your FFO to debt, particularly with Moody’s making an attempt to be at 14%. I suppose, do you’ve got a focused credit score cushion or a focused stage you hope to be perhaps by 2024 that you can share?
Kimberly Fontan
Certain. As you identified, we’re focusing on to be above 14% by the top of 2023 and shutting out the securitization for Louisiana that was accepted in January is a major assist to allow that. So far as long term, we’re focusing on 15% and we’re focusing on that over the outlook interval. So you may see us proceed to give attention to strengthening our steadiness sheet over the outlook interval to get to that focus on of round 15%.
Anthony Crowdell
Nice. Thanks for taking my questions.
Drew Marsh
Thanks.
Operator
Thanks. One second for our subsequent query. And our subsequent query is a follow-up from Constantine from Guggenheim. Your query, please.
Constantine Lednev
Hello. Thanks for taking my comply with up. Perhaps simply to elaborate on the O&M targets and situations that you just’re seeing, you form of talked about a number of the prices escalating, however simply making an attempt to get a way on what share of O&M is topic to a few of these exterior components, and the way do these elevated prices play into regulatory reduction simply given the FRP income improve caps?
Kimberly Fontan
Certain. Thanks for the comply with up. So far as inflation, we do have some inflation prices in our 2023 steerage. We have talked about prices like commodity prices and chemical substances which have elevated. We have seen some labor value improve in our vegetation contracts, for instance. However as I mentioned, we’ve got seen some reduction on that, notably on the commodity facet because it pertains to both the sources that go into our capital plan. Issues like copper, nickel, metal, all these are down year-over-year. So there are some — it is a mix, if you’ll, however we do assume we’ve got some flex levers in 2023 to assist us handle each our O&M and our general — the place we’re within the steerage vary.
Constantine Lednev
So, no form of affect on the regulatory reduction simply given a few of that flex that you’ve. I feel the early outlook has like a 9% utility e-book ROE, any change in pondering round there?
Kimberly Fontan
Yeah. So so far as Louisiana and Arkansas the place Arkansas actually has an FRP, we proceed to work to handle inside that cap. Elevated gross sales which U.S. Metal will are available over the outlook interval will definitely assist us in that regard. From a Louisiana perspective, as you realize, in June is the final submitting of our FRP within the present cycle and we’d count on to have both a fee case or new FRP submitting. These modifications out of these outcomes would assist us transfer up — however you’d see their ROEs transfer up hopefully relying on the outcomes related to these fee mechanisms.
Constantine Lednev
Nice and fast follow-up on the query round credit score metrics. Simply are capital market situations altering your ideas across the course of or form of capital allocation or dividend choices? And form of extra broadly, how are you fascinated by optimizing these financing wants, particularly with CapEx ramps up within the second half of the last decade?
Kimberly Fontan
Yeah. We actually — as we famous from an fairness perspective, we have met our wants via 2024 largely. We now have about $130 million left. We have talked a couple of whole want between 2025 and 2026. We’ve not damaged that out, however as we speed up capital investments and we see further renewable progress within the again half, we’ll positively have to have a look at how we’re financing that almost all successfully. However we proceed to look at rates of interest in addition to different mechanisms to finance, however we do not have something so far as alternate financing or something like that, that we’ve got that is executable at this level.
Drew Marsh
And it isn’t altering our capital combine actually both presently. We’re utilizing the inner device for steady enchancment and making an attempt to flex round these inside choices moderately than attempt to alter what we’re doing on an exterior foundation at this level.
Constantine Lednev
Glorious. That is very useful. Thanks a lot and nice quarter.
Drew Marsh
Thanks, Constantine.
Operator
Thanks. And our ultimate query for right this moment comes from the road of Nicholas Campanella from Credit score Suisse. Your query, please.
Nicholas Campanella
Hey, everybody. Thanks for getting me in right here. Only one from me right this moment. In Louisiana, I do know you are form of on the final yr of the FRP cadence and I suppose you may both file for an extension within the third quarter or a fee case. Are you able to simply give us a way of the place you are leaning there and any further ideas round that? Thanks.
Rod West
Effectively, we’re ready for each tracks and the submitting of a fee case. It would not forestall us from persevering with to work with the fee and our associated stakeholders on an extension or renewal of the FRP. So they’re parallel paths, not inconsistent with the prior as I recall in my two iterations of evaluate. So the method will probably be the identical. Given the truth that we’ve got the accelerated resilience submitting and any anticipated tweaks alongside these strains, we would be trying to determine with our stakeholders what’s essentially the most environment friendly path for us to include the resilience elements other than the remainder of the elements of our capital plan and fee design. So extra to return however parallel paths.
Nicholas Campanella
Thanks for that. Have an important day.
Rod West
Thanks.
Operator
Thanks. This does conclude the question-and-answer session of right this moment’s program. I would like handy this system again to Invoice Abler for any additional remarks.
Invoice Abler
Thanks, Jonathan, and because of everybody for taking part this morning. Our annual report on Type 10-Okay is because of the SEC on March 1st and offers extra particulars and disclosures about our monetary statements. Occasions that happen previous to the date of our 10-Okay submitting that present further proof of situations that existed on the date of the steadiness sheet can be mirrored in our monetary statements in accordance with typically accepted accounting ideas.
Additionally, as a reminder, we preserve an internet web page as a part of Entergy’s Investor Relations web site known as Regulatory and Different Info, which offers key updates of regulatory proceedings and necessary milestones on our strategic execution. Whereas a few of this info could also be thought-about materials info, you shouldn’t rely solely on this web page for all related firm info. And this concludes our name. Thanks very a lot.
Operator
Thanks, women and gents, to your participation in right this moment’s convention. This does conclude this system. You could now disconnect. Good day.
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