Entergy Corporation (ETR) Earnings Call Transcript & Summary

Good morning. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Entergy's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Liz Hunter, Vice President of Investor Relations for Entergy Corporation. Please go ahead.

Good morning. Thank you, Jay, and thanks to everyone for joining this morning. We will begin today with comments from Entergy's Chair and CEO Drew Marsh; and then Kimberly Fontan our CFO, and will review results. 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 earnings release, our slide presentation and our SEC filings. . Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now I will turn the call over to Drew.

Thank you, Liz, and good morning, everyone. Today, we are reporting very strong progress for the quarter. That includes not only financial results, but also business and regulatory accomplishments. Our adjusted earnings per share was $1.98 driven by growth in a hot summer. With results to date and our biggest quarter behind us, we are narrowing our 2026 adjusted EPS guidance range, raising the bottom by $0.10. In addition, the hot summer allows us to reinvest in reliability and resilience for the benefit of our customers and communities. We also remain very confident in our longer-term outlook. Kimberly will review our financial results and outlook in more detail. Turning to our customer update. I'll start with Energy Arkansas's recently announced service agreement amendment with Google for the expansion of its West Memphis campus. Consistent with our fair share plus pledge and the rate payer protection pledge, this agreement ensures that Google will cover its fair share, which includes the cost of the new investments as well as their share of system costs. The expansion will create incremental bill benefits for our Arkansas customers, increasing Entergy Arkansas's expected fair share plus customer bill savings by at least $500 million and bringing the total to at least $7.5 billion across Entergy's utility companies. We anticipate that Google's expansion will generate new jobs, new tax revenues and economic activity, which will significantly benefit the West Memphis community. In connection with the agreement, Entergy Arkansas filed request for approval of its contract with Google, $600 million of investment for battery storage systems and a purchase power agreement for Big Island Solar to provide clean attributes. Pending commission approval targeted for the first half of 2027, the expansion is expected to begin ramping in 2028. Beyond Arkansas, we continue to see several positive indicators, which will support further growth. For example, Entergy states rank among the top 10 nationwide for growth in new business applications. GDP has risen significantly across all of Entergy's regions since the pandemic, reflecting sustained economic expansion and a study by the Louisiana Economic Forecast Group projects that the state will add more than 55,000 jobs over the next 2 years. Entergy's advantages, including the one-stop shop of our vertically integrated business solid strategy for operations, operational success and commitment to our customers continues to drive customer interest in our service area. And we are putting in the legwork to attract new businesses to our states. To that end, we were named a top utility and economic development by Site Selection magazine for the 19th straight year. All of this is why we have a strong pipeline of projects in varying stages that are not in our base plan. Data center interest remains strong and in the range of 7 to 12 gigawatts. Our traditional industrial segments continue with discussions for 3 to 5 gigawatts. We see these projects as having the potential to convert into signed agreements within the next 24 months and we don't include every call that we receive, which would be significantly larger. I'm also proud to note that Entergy is 1 of 5 recipients of EEI's 2026 National Key Accounts Award for outstanding customer engagement. Importantly, this award is determined by corporate customers themselves. This is a validating milestone for our ongoing efforts to put our customers at the forefront of every decision we make. At the same time, we remain excited about the opportunities still ahead to do even more. As our work to meet our customers and communities' expectations has ramped higher over the last few years, our employees have transformed every corner of our company, in some cases, multiple times. While our work has expanded, our number of employees has not increased significantly. That's because our employees are working smarter and developing innovative solutions that leverage our execution strategy of scale, strategic partnerships and standardization to manage risk, schedule and cost efficiency and help us better -- create better outcomes for our customers' communities. I am profoundly grateful for their innovation as well as their hard work and dedication. I mentioned the hot summer earlier, we also had strong industrial sales growth, and we saw new records for peak demand. In August, our system experienced more than 24,000 megawatt hours of coincident peak demand, up 2% from the previous peak. The largest change came from Entergy Mississippi, which was 11% higher as a result of data center ramping. Through it all, our employees performed very well, maintaining system reliability and managing costs. The Orange County Advanced Power Station, or OCAPS, is complete and operational delivering 1,200 megawatts of power to our Texas customers at a cost far less than a similar plant would require is starting construction today. This plant is an important addition for Entergy Texas, where we are experiencing strong population growth and industrial expansion. In addition to much needed capacity, the plant is among the most efficient in the world and will support reliability for all customers of Entergy Texas. OCAPS is the first of many new power plant projects. and our employees and contractors are taking lessons learned from this plant and applying those innovations to other projects. In fact, a significant portion of our workforce from OCAPS is now at other project sites bringing our expectations on continuous improvement as well as health and safety culture. At the same time, employees from our other sites participated in the commissioning and start-up of OCAPS, to lower risk ahead of their own commissioning. In addition, our standardized design has allowed us to improve efficiency and schedule to a roughly 50% reduction in the time required for engineering, which helps mitigate exposure to rising labor costs. Similarly, the standardized design combined with our scale has allowed us to perform batch purchases of construction materials and create access to construction heavy equipment to improve outcomes on cost and schedule versus market benchmarks today. Finally, we are deploying technology in the form of drones to inspect equipment, types and the site overall as well as robotic welding technologies to improve quality and speed of outcomes. All of this allows us to remain very competitive in the construction of combined cycles. With the completion of OCAPS, we now have 23 gigawatts or 31 natural gas plants in the queue. 10 plants are in various stages of construction. We also have 9 plants in regulatory review in Louisiana with schedules to support decisions later this year. We have an additional 4 plants that are in our supply plan, but later in the cycle. That leaves 8 units that are available for new growth opportunities. For transmission, we have more than 1,000 miles of lines planned primarily in Louisiana and Texas and 85% of which are 500 kV lines. Approximately 70% of the investment is already approved with 2 projects currently under regulatory review expected to conclude this year. And about 1/3 of the line miles are already under construction. These projects will support growth from our traditional industrial customer base as well as from data centers. The work will also create efficiency and resilience benefits for all our customers. Similar to our generation projects, these transmission projects demonstrate our employees' capability to execute at scale with innovation. Much of the terrain for these new lines is remote and difficult to access. Our teams have responded with innovations in foundations and pole design that make more cost-effective equipment available to do the work. You may recall the video from Investor Day that demonstrated an innovative design that allows hands-free setting of cross-arms using helicopters. And today, the team is making pioneering use of drone technology to string the high-voltage power lines in a fraction of the time. The combination of these innovations significantly reduces the risk of injury, the number of workers and the time required for construction. In addition, these innovations are helping mitigate much of the material and labor cost pressure we are seeing across the industry. Originally deployed on the Commodore to Waterford project, we can replicate these gains across our other projects as we continue to seek more innovation to drive even better outcomes for our customers and communities. To fuel this growth and in this case, quite literally, in the third quarter, we signed natural gas firm transportation agreements with large midstream and pipeline companies for 1.325 billion cubic feet of natural gas per day. That's enough for Entergy to supply fuel to 10 new combined cycles in Louisiana. This supports our generation growth and also help build new pipeline capacity that benefits our industrial customers' growth. We continue to make progress on resilience to better serve our customers with our $2 billion Phase 1 accelerated resilience programs. For example, Entergy Louisiana is now working on a $270 million grid resilience project just outside New Orleans. -- that will replace more than 500 poles in other electrical infrastructure, enhancing resilience and reliability for our customers. Brands are also a way to support resilience with affordability, delivering benefits to customers at a much lower cost. Entergy New Orleans broke ground on a grant-funded grid hardening project that will upgrade 94 poles and directly benefit more than 1,900 customers. In addition, the Department of Energy's Spark program recently awarded our utilities $14 million to deploy advanced dynamic line rating technology across more than 14 million -- across -- excuse me, more than 1,000 miles of existing transmission lines in Arkansas, Louisiana and Mississippi. This investment will boost the amount of power we can safely move using the infrastructure we already have. Ultimately, our grid will be stronger and more reliable to support the region's economic growth. We appreciate the DOE's partnership and its commitment to strengthening energy resilience in our region through innovation. Moving to regulatory matters. Putting our customers first remains a cornerstone of outcomes that benefit all stakeholders. Over the past quarter, we continued to move steadily through multiple proceedings. Beginning with the rate case in Arkansas, customer growth as well as disciplined capital and operational management allowed Entergy Arkansas to settle with staff on terms that result in essentially no rate change. Important components included 9.7% ROE and a 47.5% equity capital structure after adjusting for deferred taxes. We anticipate a commission decision before the end of the year. We appreciate the staff effort to get to a settlement to support credit, which is a piece of the puzzle that enables benefits for our stakeholders, especially customers by keeping financing costs low. Working together, we are able to bring new businesses to the state, new jobs for our service area, more revenues for our local economies and significant business benefits to our existing customers through Fair Share Plus. Our stakeholders in Arkansas remain aligned to do this work together, and we can do our part to support economic development and protect our customers when we have a strong balance sheet. In Louisiana, we filed a settlement agreement with staff and Walmart in our EVAS docket, which covered the majority of key issues. The hearing was held in early October and we expect the commission to take up the matter at its December business and executive meeting. Louisiana Public Service Commission also approved the $1.2 billion Babel to Webre transmission project at its October meeting. This enables us to support the strong growth in the state, also providing reliability and resilience benefit for all our customers. We've requested approval for additional resilience and reliability investment in Louisiana and Entergy Louisiana also requested to extend its formula rate plan for 1 year. We are targeting a decision in that docket by the end of the year. Finally, Entergy New Orleans received approval to extend its formula rate plan for 4 more years into 2030. As you know, it's been a busy regulatory year. and we still have much to go before the end. We're continuing to work constructively with our stakeholders to resolve concerns and create value for our customers and communities. We'll see many of you at the EEI Financial Conference, where we'll continue to share our differentiated growth story. It is anchored in what I just said, a firm commitment to create value for our stakeholders, starting with our customers. We are delivering generational growth for our region and economic development that benefits the customers' communities we serve. Kimberly Fontan and I will be there along with our operating company CEOs and including David Board in his new role as Entergy Texas President and CEO. Many of you may remember David from his days in Investor Relations. We look forward to continuing this conversation with you at the conference. And now I'll turn the call over to Kimberly, who will review our financial results and outlook.

Thank you, Drew. Good morning, everyone. We had another very productive quarter. I'll walk through our financial results as well as our guidance and outlook, and I'll provide a look ahead to EEI. Our adjusted EPS was strong at $1.98, as shown on Slide 4. This was higher than last year due to several drivers. As Drew mentioned, it was warmer this year. Even after normalizing for weather, we saw strong sales growth in both the residential and industrial sectors. Industrial growth included data center and primary metals ramping consistent with our expectations. . We also saw the effects of investments made for our customers, including regulatory actions as well as higher depreciation expense, taxes other than income taxes and financing costs. Other drivers consistent with last quarter's progress against guidance comments, including higher other O&M as we deploy dollars in vegetation management and other maintenance in support of reliability for our customers. higher interest expense at parent and a higher share count from settling equity forwards. Slide 5 summarizes our credit ratings and affirms that our credit metric outlooks remain better than rating agency thresholds. For financings in the quarter, we settled equity forward totaling just over $900 million in September. We issued junior subordinated notes totaling $1.5 billion, which received 50% equity treatment supporting balance sheet health and managing equity needs for our growth. And Entergy Louisiana issued $1 billion in bonds, the majority of which will finance new growth. We split the notes between 10- and 30-year tenures with an average rate of less than 6%. Our planned financings for the year are now complete. We will provide credit outlooks at EEI, but I'll give you a preview. We continue to expect strong FFO to debt throughout the outlook period. And we expect Moody's FFO to debt metric to be at 15% or better in all years. As we roll forward a year, our outlook will shift from the 5-year view we provided at Investor Day to 4 years of 2027 through 2030. Our equity plan is summarized on Slide 6. We have been proactive in addressing our equity needs. We've taken significant price risk off the table, and we have ample time to raise capital. For our 2027 through 2030 need, more than 40% is already contracted, which takes us well into 2028. Our equity needs for the 4-year outlook period are just below our targeted range of 10% to 15% of our total capital plan supported by a number of elements including strong operating cash flows from the business backed by our disciplined capital prioritization and constructive regulatory mechanisms. Production tax credits and investment tax credits are credit supported in the near term and provide customer benefit over the longer term. In October, we received $256 million in cash from the sale of our 2025 production tax credits. As a reminder, we only include nuclear production tax credits in our forecast once they are earned. We've accessed traditional sources of capital, including through our ATM program and junior subordinated notes. We've also expanded our tools and our approach to customer contracting with hyperscale customers, ensuring these customers pay their Fair Share, protecting other customers and supporting our credit. We've been innovative in expanding our investment capacity by accessing less traditional markets. For example, in October, we closed on our second build-to-suit lease. This one for Entergy Louisiana's Waterford 6 plant. These structures are competitive with traditional financing, supporting our credit and managing our equity needs during the construction period. And we are listening to our customers as we continue to advance additional growth opportunities. We're exploring other nontraditional financing tools, which will continue to support more growth and our credit and expand our investment capacity while ensuring large customers pay their Fair Share. This work is in the early stages and is expected to support longer-term projects that would close beyond our 4-year outlook period, further extending our growth rate past 2030. Our adjusted EPS guidance and outlooks are shown on Slide 7. As Drew mentioned, we are narrowing our 2026 guidance range, raising the bottom by $0.10, higher-than-planned retail sales year-to-date enable us to manage the business and flex spending in areas that benefit our customers. Looking beyond 2026, our outlooks remain unchanged as we continue to expect strong sales to support our greater than 8% trajectory. Drew discussed Entergy Arkansas' contract expansion with Google. We added approximately $600 million to our plan as a result of this development. In total, we increased capital approximately $1.5 billion for 2027 through 2030, inclusive of the investments to support the Google expansion. The incremental spend also includes transmission investments and updates that come out of our annual planning cycle. The expected earnings impact from this increase moves us into the upper end of our outlook ranges. Drew and I, along with our operating company leaders will be in Phoenix in less than a week where we will talk about our strong customer growth story as well as our plans to invest in reliability to better serve our customers. We have a solid base plan consistent with our strategic objectives. We'll also talk about upside opportunities from the potential for higher sales growth as well as other investments. Today, we have provided our adjusted earnings per share outlook and a high-level view of our preliminary capital and equity plans through 2030. At EEI, we will provide more details on these outlooks. We have clear line of sight to achieve our outlook, and we have significant opportunities before us. And now we're happy to take your questions.

[Operator Instructions] Your first question comes from the line of Shahriar Pourreza of Wells Fargo.

It's actually Constantine here for Shahriar. Congrats on a great quarter. Maybe starting off on the moving pieces with the new 4-year CapEx plan looks like a modest step-up versus the prior plan. Does that fully account for the data center deals, including the transition in the clean gen options that were mentioned before or maybe another way to ask, is there any other moving pieces that would contribute to potential upside kind of beyond what the 4-year plan currently in the case?

Sure. Constantine, the $1.5 billion that was added was the $600 million the Arkansas Google expansion, which was primarily the 2 batteries. And then just general puts and takes in the normal capital process. You'll see that in transmission and generation. What's not there -- as you may recall, there's about $1.4 billion of transmission related to the Entergy Louisiana transaction that's pending before the Louisiana Commission, we have not added that. We're for that decision to come out of the regulatory environment. And then certainly, there's still the clean opportunity that you referenced. So to the extent that our customers have asked for incremental clean in many of their contracts, as those get selected, fees or through self-build processes, those will get added as well. So opportunity to add capital in the plan, but this is really just those few things that I mentioned at this point.

And just to clarify that wouldn't kind of be rolling into the rate base EPS outlook at the EEI, correct?

Yes. I wouldn't expect that to come in at EEI now.

Okay. Perfect. And then maybe shifting to the regulatory outcomes with Arkansas and flat revenue. Obviously, a great outcome is flat base rates something that you would anticipate to occur kind of more often going forward? And given the revenue sufficiency, does that imply a narrowing of the ROE lag, maybe just any areas of focus for '27 like the Texas GRC or FRPs?.

Well, I think -- this is Drew, David. So I think that the -- Constantine, sorry. I think that the other jurisdictions will depend more upon what the investment requirements are relative to the customers themselves. So in Louisiana and Texas, for example, we had significant resilience investment ongoing. And we also have just traditional sales growth that is requiring generation ads and transmission. So those do not have data centers covering all their costs. Now in the case of Louisiana, there is obviously, a large data center there, and that is helping contribute to offset some of those costs, but not necessarily to make it go back to flat like we were in Arkansas. I think overall, our build trajectory is still around 4%. So we're still continuing to work on that and find ways to make it even lower. But that is reflecting growth in our traditional our traditional customer base.

Excellent. Understood. Separate congratulations from the team to data board you guys soon. .

Awesome. Thanks, Costa. .

Your next question comes from the line of Jeremy Tonet of JPMorgan..

At the Investor Day and earlier in the commentary on the call, you spoke about Energy's ability to enhance self-build capabilities. And where do you see this progress, I guess, so far and specifically helping competitiveness in RFPs and when we think about the renewables there. Just wondering how you think progress has been made and enhances your competitive position there?

That's a good question. So we are continuing to work on that in both the solar area and in the CCS space. We are making good progress, but we don't have any specific announcements to make right now. We continue to work on it. We are finding real progress in the CCS space, in particular with innovations to try and bring the overall construction cost down and make that technology much more competitive and hopefully to fit within the frameworks of the incentives that are available today. . But we're not at the point yet where we can announce success or a commercial transaction. And we are having conversations with customers about these things and trying to find our way through. So we remain optimistic, but we don't have an opportunity to announce anything right now.

Got it. That's helpful. Maybe continuing just a little bit more here. I think you talked about 2.5 gigawatts renewables investment to serve Meta's Vista project and part of the upside potential there. And so how should we think about, I guess, timing, your competitiveness here? What could possibly fall into plan over time?

Jeremy, it's Kimberly. As we've talked about the solar, I would expect the solar investments for that could certainly come in, in the back end of the current forecast period and then extend beyond our 2030 period. That process, many of those go through our RFP processes. Drew talked about expanding our build -- our own build to build capability. But certainly, we could see some upside in this period and then beyond that as well.

Got it. That's helpful. And then just a quick last 1 for me. Resilience pla Phase Ia filed for an investment that's in the plan period. Can you remind us of expected timing of Phase 2 and beyond? And -- could this -- could there be any overlap in timing of the plans here? Or is this kind of like beyond the plan period?

We haven't given a whole lot of thought to Phase 2 at this point, although we certainly would expect that there would be one. We're working right now on 1a. Phase I would, I think, be near the end of the outlook period at the earliest.

Your next question comes from the line of Paul Zimbardo of Jefferies.

The first, just a clarification, I think for Kimberly. On the upper half of the range, does that applied for the '27 through 2030 range? Or is that later in the plan? I just wasn't clear if that's for every year of the plan.

Yes, that's a look at just the before year period, the reference to the full 4-year period. .

Okay. Okay. Great. And then the other one more a big picture question. Just I know you've talked about in the past, could you provide an update on any efforts on exploring some more speed-to-market generation options, whether reciprocating engines or something else for those customers looking for more speed to market?