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Entergy Corporation (NYSE:ETR)
Q4 2017 Earnings Conference Call
Feb. 23, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Entergy Corporation Fourth Quarter 2018 -- I'm sorry, 2017 earnings release and teleconference. At this time, all participants are on in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. If anyone should require operator assistance, please press * then 0 on your touchtone telephone. As a reminder, this conference call is being recorded.

I would now like to turn the conference over to David Borde, Vice President of Investor relations. You may begin.

David Borde -- Vice President of Investor Relations

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 an effort to accommodate everyone who has questions, we request that each person as no more than one question and one followup. In today's call, management will make certain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additional information concerning these risks and uncertainties is included in our earnings release, our slide presentation, and the company's SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentations, both of which can be found in the investor relations section of our website.

And now, I will turn the call over to Leo.

Leo Denault -- Chairman and Chief Executive Officer

Thank you, David, and good morning, everyone. Today, we are reporting strong results for another productive year. Utility, parent, and other, our core business, exceeded our adjusted EPS guidance, and our consolidated operational earnings were in the top half of our guidance range and also higher than expectations, than our expectations. [Audio cuts out] time, we executed on our key 2017 deliverables. At the utility, we had an active regulatory calendar, and we continued to gain certainty for major product projects in our capital plan. We received approval to build two new highly efficient gas fire-generating resources. All of our jurisdictions approved our plans to implement AMI in their respective service areas. For transmission, we completed another MTEP cycle. We made significant progress in the certification of the New Orleans Power Station. We completed three annual formula rate plans in Arkansas, Louisiana, and Mississippi, and we implemented two cost-recovery factory increases in Texas. We are in discussions to extend Entergy Louisiana's annual FRP. We continued along a path to continued clarity on our exit from the merchant business in 2022. And we raised our divided for the third consecutive year, a trend we expect to continue, subject as always, to board approval.

Our accomplishments this year are simply a continuation of the path we set several years ago, a path to become a world-class utility that prospers by creating sustainable value for all its stakeholders. We set out to be a company that delivers strong financial results to its owners, invests in its employees to create a workforce for the future, and is an environmentally and socially responsible growth engine for its communities while maintaining some of the lowest rates in the country for customers.

Our key deliverables support this aspiration for our company. As we look ahead to 2018 and our three-year outlook period, our success is less dependent on strategic initiatives and more on our own operational execution. As a result, today, we are initiating 2018 guidance consistent with our previous disclosures, and we are affirming our utility, parent, and other longer-term outlook through 2020. Beyond that, we continue to see a good path for steady, predictable growth at our core business as we continue to modernize our infrastructure. We are laying the foundation now to be the sustainable solutions-oriented utility of the future that provides customer-focused innovation in a changing world.

Shifting now to 2017, let's review some details behind our key accomplishments that keep us on track to attain both our near-term goals and our longer-term aspirations. On the regulatory front, we successfully completed Entergy Arkansas's second forward test year FRP with rates effective last month. The Commission approved our comprehensive settlement agreement which, among other matters, verified the prudence of the nuclear cost included in the 2017 and 2018 test year filings.

Entergy Louisiana filed a request with the Louisiana Public Service Commission to extend its formula rate plan for another three years. While the settlement talks have slowed to ensure parties understand the implications of tax reform, discussions have been productive and are ongoing.

With respect to our large generation projects, we received approval to build the Lake Charles and Montgomery County power stations. With the St. Charles power station, these projects are an important part of our investment plan to modernize the electric grid and improve reliability. All three are on schedule, and we are confident in successful, on time, and on budget execution.

We've also made significant progress in the certification of the New Orleans power station with the council utility committee's approval of the project earlier this week. We expect the full council to take up the certification for a final decision on March 8th.

We also made strides in transmission. We invested approximately $1 billion and placed more than $900 million of capital projects into service. We also made significant progress on the Lake Charles transmission project. This is our largest transmission endeavor to date, and it includes 30 miles of extra-high voltage transmission line and addresses reliability needs driven in part by load growth in southwest Louisiana. We expect to complete the project in second quarter 2018.

We wrapped up the 2017 MTEP review and MISO approved 70 projects in our service area, totaling approximately $1 billion.

Regarding the growth and transformation of our distribution system, we have now received regulatory approvals for the deployment of advanced meters in all of our jurisdictions. The IT infrastructure, communications networks, and meter data management systems that will enable the meters to be smart are being constructed. We are pleased with the progress we've made on AMI in each of our jurisdictions, and the positive feedback we continue to receive from our stakeholders, especially regarding the benefits and future opportunities this technology will provide for our customers.

The investments we make in our core business also improve our environmental footprint. We have one of the cleanest generating fleets in the United States, and a principle objective is to remain an environmentally sustainable fleet for the communities we serve. The cornerstone of this objective began when we were the first U.S. utility to commit voluntarily to stabilizing CO2 emissions in 2001. Ten years later, our commitment went beyond merely stabilizing CO2 emissions. In 2011, our Environment 2020 commitment included a voluntary pledge that through the year 2020, we would maintain our carbon dioxide emissions at 20% below year 2000 levels on a cumulative basis. I'm pleased to report that we are meeting our commitments, and the investments we are making will enable us to continue to lower our emission rates at the utility. For example, highly efficient combined cycle power stations such as St. Charles, Lake Charles, and Montgomery County will produce fewer carbon emissions than the legacy units they replace, improve our average fleet efficiency, and use less water. Nuclear generation is also an important non-emitting baseload resource. Prudently investing to preserve these valuable assets is an important part of our strategy to deliver sustainable value to all of our stakeholders. Our planned investments in new technologies to modernize our grids, such as advanced meters, will further improve efficiency. On top of that, our customers of all classes are interested in the deployment of renewable resources, and we are working to meet these expectations. To that end, over the next three years, we expect to contract for over 800 megawatts of renewable resources. Of these, approximately 180 megawatts are the two power purchase agreements in Arkansas that we have discussed with you on previous occasions. Of the remainder, approximately half represent ownership opportunities. These are just a few illustrations of the many investments that we are making today to develop an electric generating and delivery system that is well positioned for operations in a carbon-constrained economy, whatever that may look like in the future.

Turning to EWC, we've taken important steps to provide a clear path to exit that business in 2022. We reached an agreement to cease operations at Indian Point in 2021 and submitted our deactivation notice to the New York ISO. The ISO concluded there will be no reliability issues resulting from Indian Point's retirement. We sold FitzPatrick, preserving the plant's benefits for its employees and community, and we decided to continue to operate Palisades through the spring of 2022, a cash-positive decision.

Finally, in 2017, we received a number of awards that recognized our accomplishments, values, and commitments. We were once again included in the Dow Jones Sustainability North America index. We were named one of the top-ten utilities in economic development by Site Selection magazine. Women's Business Enterprise National Council listed Entergy as one of America's top corporations for women's business enterprise. We were one of Corporate Responsibility magazine's 100 best corporate citizens. And we received EEI's Emergency Recovery and Emergency Assistance awards for our storm restorations efforts.

Our commitment to our communities if further evidenced by our charitable contributions which total approximately $16 million annually, including investment in workforce development across our jurisdictions. Our employees and retirees are also generous with their time, volunteering some 100,000 hours annually. All of our accomplishments and successes are the result of our employees' first-rate level of professionalism, dedication, and hard work every day. I want to thank the more than 13,000 men and women of Entergy for living by our values, working safely, and acting with integrity. Their ideas and can-do spirit make Entergy a better company.

Looking ahead, our 2018 plans support our financial outlooks as well as our aspirations for the future of our company. As I mentioned earlier, the foundation for success this year is largely in place and less dependent on strategic initiatives than on our own operational execution. We'll be building projects that have already been improved, continuing with the annual MISO MTEP process and making regulatory filings in the normal course of business. Two major transmission projects we will complete this year are the Lake Charles project, noted earlier, and the $130-million Southwest Mississippi Improvement Project. We look forward to their completion and the benefits they will provide to our customers and to our region. We will also complete AMI's core IT system implementations and initiate deployment of the communications network. This will support meter installations beginning early next year when customers will start to see the benefits this technology provides, giving them the ability to manage their usage and their bills.

Another important goal for 2018 is for ANO to exit column four. Over the past few years, we have worked with the NRC as well as our peers, and we have systematically completed the actions outlined in our confirmatory action letter. ANO is on track to return to normal oversight this year. As for our regulatory agenda, we are working with each of our regulators on the effects of tax reform, and we welcome the change for our customers. On an ongoing basis, the lower tax rate means that customer bills will be lower than they otherwise would have been. That's important to us as evidenced by the fact that our rates are among the lowest in the country. We plan to make rate filings in each of our jurisdictions this year, and we expect tax reform to be addressed in the normal course of those proceedings. We are also focused on efforts to address customer needs in unique ways. For example, in Mississippi, working with the Public Service Commission, we are teaming up with C Spire on a fiber infrastructure project. This project will span over 300 miles in 15 counties to bring next-generation broadband services to consumers and businesses in some of the most isolated and rural parts of the state. These services will open doors that were not previously available in those areas. At EWC, we will remain focused on safe and reliable operations to finish strong in the last few years of operation.

Regarding our VY Northstar transaction, we have made substantial progress toward finalizing an agreement, and we filed a status update with the Vermont Public Utility Commission earlier this week. As the report states, the parties anticipate filing a memorandum of understanding by March 2nd which some or all of the parties will join. The MOU will address financial assurances and site restoration standards. We will target closing the transaction by the end of 2018. All of these plans support our guidance and are the foundation for our long-term outlooks which we affirm today. Drew will provide additional color around our forward-looking commitments.

2017 has been another year of significant accomplishments for our company, accomplishments that will help provide the foundation for our pursuit of the much broader aspirations we have set for ourselves. Today, we are a very different company than we were just a few years ago. We are a simpler company and a stronger company for the benefit of all of our stakeholders. For years, we've been committed to creating sustainable value for our owners, customers, employees, and communities, a commitment that many investors are recognizing as essential to success over the long-term. That has been reflected not only in the steps we have taken to exit the EWC business and strengthen the utility, but also in our leadership position among utilities and critical measures of sustainability, including our recognition as an environmentally and socially responsible utility. Our operating and financial positions are solid, and our strategic direction is clear. All of this prepares us to meet the challenges of an evolving industry. Over the next three years, we will continue to strengthen and deliver on our commitment to our stakeholders. We will place into service new, clean, efficient generating resources, new transmission projects throughout our service territory, and of course, AMI. AMI and its related technologies will service the foundation on which we plan to build the Entergy of tomorrow.

As new technologies, data, and analytics continue to improve, so too will our ability to deliver tailored customer solutions that better meet our evolving customer expectations through a dynamic, integrated energy network, and new products and services beyond basic power delivery. We want to be in a position to deliver the most accessible, affordable, reliable, and sustainable energy mix for the future, a future that offers transformative change and once-in-a-lifetime opportunity, and we are eager to lead the way.

Before I turn it over to Drew, I'm excited to announce that we will host our analyst day conference in New York City on June 21st. Our main objective will be to give you a view of our five-year outlook and our plan for operational execution. We will also continue the conversation on how we define our company beyond five years. Stay tuned for more details.

I will now turn the call over to Drew who will provide more detail on our 2017 financial results, the implications of tax reform for our company, 2018 guidance, and our three-year outlooks.

Andrew Marsh -- Chief Financial Officer

Thank you, Leo. Good morning, everyone. As Leo mentioned, 2017 was another productive year for us with significant accomplishments. Before we get into the details, for Entergy Consolidated, we finished in the top half of our operational guidance range, exceeding our expectations for the year despite the negative effects of weather. This is better than we told you to expect on our third-quarter call, primarily driven by two factors. First, at the utility, we experienced strong sales growth led by our industrial sector which came in at 7% quarter over quarter. Second, we saw benefits from our continued efforts to de-risk our EWC business. For utility, parent, and other, on an adjusted view, we also ended above our expectations and above the top end of our guidance range due to the strong sales growth.

Beyond the financial results, we also know that tax reform is on your mind. Leo mentioned that new legislation will provide significant benefits to our customers. Over time, we'll return approximate $1.4 billion for the unprotected portion of the excess ADIT in one form or another, whether through customer refunds, cash investments in new assets, accelerated depreciation, or other options our regulators may consider. And on an ongoing basis, the lower tax rate will translate into lower bills than our customers would have otherwise. In addition, our 2018 guidance and the longer-term outlook we are affirming today include expectations for the effects of tax reform.

We'll now turn to some of the drivers for our fourth-quarter results in more detail starting with our core business, utility, parent, other, on slide six. On an adjusted view, earnings were $0.21 higher than fourth quarter 2016, driven by strong sales growth. For the industrial class, we saw robust sales from existing customers largely from the chloro alkaline and primary metal sectors as well as new and expansion customers. We also recorded non-returning regulatory charges totaling $0.10 in fourth quarter 2016. Higher non-fuel O&M partially offset these benefit, primarily due to higher nuclear spending as we continue to drive our nuclear strategic plan.

At EWC, on slide seven, operational earnings increased $0.39 quarter over quarter. FitzPatrick contributed a $0.11 loss to fourth quarter 2016 results, and the sale of that plant in 2017 affected variances for multiple line items. Excluding the effect of FitzPatrick, earnings increased $0.28 due largely to higher income from realized earnings on decommissioning trusts which we highlighted as an opportunity on our third-quarter call. Strong market performance increased trust value to a level where we locked in gain by rebalancing some of the trust investments toward lower volatility, fixed-income instruments.

On slide eight, operating cash flow in the fourth quarter was $911 million, approximately $165 million higher than a year ago. The increase is primarily due to collections of fuel and purchase power cost at the utility.

Now turning to the full year on slide nine, consolidated operational earnings for 2017 were $7.21 per share, higher than the $7.11 in 2016. It was also above our guidance midpoint despite negative weather and better than our expectations in October. As I mentioned, drivers for the change versus our expectations included strong sales growth at the utility and higher realized earnings on decommissioned trust.

Utility, parent, other adjusted EPS on slide ten was $4.50 in 2017, $0.18 higher than 2016. The increase is due largely to rate actions to recover productive investments that benefit our customers as well as residential, commercial, and industrial weather-adjusted sales growth. This increase was partly offset by higher spending on nuclear operations and other operating expenses.

Slide eleven summarizes EWC operational earnings which increased year over year to $3.24 per share in 2017 from $2.01 in 2016. Excluding FitzPatrick, this increase was due largely to income tax items as previously mentioned, higher realized gains on decommissioning trust funds. 2017 results also reflected higher decommissioning expense, primarily from the establishment of decommissioning liabilities at Indian Point 3 in August 2016.

Full-year 2017 operating cash flow, shown on slide 12, was approximately $2.6 billion in 2017, $375 million lower than last year. Higher refueling outage costs as we completed seven refueling outages this year at both the merchant and the utility fleets, unfavorable weather at the utility, and lower EWC net revenue were the main drivers. Today, we are issuing our 2018 consolidated operational EPS guidance of $6.25 to $6.85, and utility, parent, and other adjusted guidance of $4.50 to $4.90.

On slide 13, starting with utility, parent, and other on an adjusted view, our ranges are consistent with the outlook we presented at the EEI Financial Conference last November. Walking through a few of the key drivers, let's start with the top line. Our projected sales volume in 2018 is largely in change from our view at EEI, and our guidance reflects a slight decline year over year. However, we expect volatility from quarter to quarter. For example, we expect industrial sales growth in the first quarter as new customers become fully operational, but we expect sales declines over the remainder of the year as existing customers return to normal operations and take maintenance outages following strong performance in 2017. Despite the temperate outlook for our industrial sales growth in 2018, we see growth resuming in 2019 and 2020 as new projects come online. We are projecting non-fuel O&M to be approximately $2.6 billion, which represents a slight increase compared to 2017. This reflects slightly higher pension expense due to a pension discount rate assumption of 3.78% which is lower than our previous expectation. Return of excess ADIT affects the top line, but is essentially offset in income tax expense. 2018 also assumes normal weather and no income tax planning items at utility, parent, and other. Additionally, as a result of tax reform at parent and other, we'll see a lower tax shield on that segment's loss. We also expect higher financing costs. At the utility, the tax change will affect each operating company differently, and we expect the more significant impact to be at Entergy Arkansas. Because of the mechanics of the FRP, Entergy Arkansas can earn closer to its allowed return in 2018. This is a key driver that helps offset the negative drag at parent this year. At EWC, we expect earnings to decline in 2018, largely due to income tax planning items. As you recall, in second quarter 2017, EWC recorded an income tax benefit contributing $373 million to operational earnings. This year, we are assuming that EWC will record another tax benefit, currently estimated to be approximately $100 million. In addition, we expect lower net revenue largely due to lower energy prices and higher non-fuel O&M due to higher projected nuclear spending, partly due to the decision to operate Palisades until 2022. These decreases are offset by lowered depreciation expense also due to the Palisades decision and higher earnings on decommissioning trusts due to the change in accounting rules that will require us to mark the equity portions of those investments to market. Right now, our guidance reflects a return assumption of 6.25%, which equates to approximately $1.00 in earnings per share. We also expect lower income tax expense due to the lower income tax rate.

Before we leave EWC, I'll give a quick update on our cash position. We now see neutral to positive cash flow from EWC to parent from 2017 to 2022, and this includes our current view on potential decommissioning trust contributions. This is slightly better than last quarter due to looking in strong nuclear decommissioning trust returns and continued strategies to mitigate nuclear decommissioning costs.

Tax reform will also affect our cash needs and as is shown on slide 14, we will require incremental financing. The two primary needs are from first, the return of excess deferred taxes, and second, lower tax expense and rates. We expect to finance this reduction through a combination of utility company debt, parent debt, internal cash generation, and external equity. We plan to issue approximately $1 billion of equity over our outlook period, and currently we expect that all to occur before the end of 2019.

Moving to the longer-term view on slide 15, our earnings expectations continue to firm up as we execute on key deliverables. Our outlook through 2020 is unchanged despite the parent drag that I previously noted. That's in part because we will see increased rate base as we return excess ADIT to customers over time. Also, before tax reform, we were trending at the upper end of our ranges in '19 and '20. Collectively, these allow us to maintain our outlooks. While I don't normally talk about where in these outlooks we see ourselves, given the significant changes in tax reform, you should know that we do not see ourselves at the bottom of the ranges.

Of course, these are our current expectations, but ultimately, the amounts and timing of earnings and cash impacts from tax reform will depend on the regulatory treatment. All of our jurisdictions have opened the docket in one form or another, and rate-making regulatory proceedings are scheduled this year in each of our jurisdictions. We will work with our regulators through these proceedings to address the effects of tax reform and develop the appropriate path forward so that this opportunity gives value to our customers as fast as possible. It also provides all of our Entergy stakeholders with a fair and reasonable outcome.

Finally, our cash and credit metrics as of the end of the year are shown on slide 16. The reduction in cash from tax reform will also put pressure on our FFO to debt credit metric. Even though this metric would be adversely affected, we are focused on maintaining the financial integrity of the utility's credit profile by internally identifying the opportunities to improve cash flow and externally working with our retail regulators. Throughout, we expect to continue to hold an investment-grade rating.

As I mentioned earlier, 2017 was another strong year of results, and we look forward to 2018. The foundation for success this year is largely in place as we focus on building projects that have already been approved, advance our operational capabilities, work with our regulators to implement appropriate changes in light of tax reform, and prepare for the customer-centered and opportunity-filled future that Leo described in his remarks.

...

And now, the Entergy team is available to answer questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, simply press * then the 1 key on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the # key. In order to allow time for others, we ask that you please limit yourself to one question and one followup.

Our first question comes from the line of Julien Dumoulin-Smith of Bank of America. Your line is now open.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Hey, good morning. Congratulations. Hey, so first quick question, just on tax reform to kind of nail this down early on. In terms of FFO to debt, where does the billion-dollar equity raise get you on kind of a pro forma and run-rate basis, and how is that relative to where you want to be, obviously looking at 2017 trailing, kind of what are the rating agencies wanting from you today, and how much buffer, more importantly, are you looking to have against that?

Andrew Marsh -- Chief Financial Officer

Julien, this is Drew. Right now, the billion dollars will get us around the, you know, 14% range. So, you know, that's where -- that where we're starting from, and we think that will maintain the investment grade as we've talked about and discussed. And of course, we'd like to do better than that. We're looking for other ways to do that by driving internal cash flows and working with our retail regulators, but that's -- that's kind of the place where we see it bottoming out. The amount we'll see that will be varying by the exact timing of the return to customers of any excess ADIT, but that's kind of where we see it bottoming out.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Got it. Excellent. Generally speaking, beyond the building our equity, you would think that you would organically see the growth of the business to support an improvement in the FFO?

Andrew Marsh -- Chief Financial Officer

Yes. Over time, it will improve. But early on, that's what we're seeing.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Excellent. And then on the NDT side, obviously constructive statements in your prepared remarks, but as you see the wider strategic efforts that kind of move that side of the business off your books, where do you stand on that front as well, if any developments?

Leo Denault -- Chairman and Chief Executive Officer

On EWC?

Julien Dumoulin-Smith -- Bank of America -- Analyst

Yes.

Leo Denault -- Chairman and Chief Executive Officer

We are -- I'm sorry.

Andrew Marsh -- Chief Financial Officer

Julien, you are asking about the cash generation of that business. Is that what you're getting at?

Julien Dumoulin-Smith -- Bank of America -- Analyst

No, I was thinking more around the strategic angles around sort of divesting that business more structurally.

Andrew Marsh -- Chief Financial Officer

Okay. So, you know, Leo, in his remarks, and yesterday, or a couple of days ago, you saw the -- the update on the Vermont Yankee process, so you're clear on that. Beyond that, we continue to work through our process to try and duplicate that effort at our other plants, and those processes continue to be ongoing. We are making progress, but the first thing up is going to be Vermont Yankee, and we're really focused on making sure that we bring that one home, and then the others would follow along behind it.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Got it. So you really want to see the case study of VY done, first and foremost, before we [crosstalk].

Andrew Marsh -- Chief Financial Officer

That's correct.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Got it. All right. Excellent, thank you. Best of luck.

Operator

Thank you. Our next question comes from the line of Greg Gordon of Evercore ISI. Your line is now open.

Greg Gordon -- Evercore ISI -- Analyst

Thanks. Good morning. Thank you for the guidance around tax and appreciate you deviating from your normal way you talk about your ranges to give us a sense of that. So just to rephrase back to you what you said in your comments so that I'm sure I got it correctly, given the regulatory outcomes you've seen, like your ability now to earn at your authorized ROEs in Arkansas because of the formula rate plan and the types of demand growth you're seeing, had tax reform not happened, you were looking, given what you know now, at being at the high end of the range, and then the impact of, A, the loss of -- partial loss of tax shield at the parent debt, B, the billion dollars of equity that you need to fund to offset the cash flow impact of tax, and C, the positive impact of rate base going up because of deferred tax, you're still no lower than the mid-point of the range as you see it today?

Andrew Marsh -- Chief Financial Officer

Right. Well, yeah. We said we're not at the bottom of the range, so I think you would be -- I will not characterize around the mid-point specifically, but we're not at the bottom of the range.

Greg Gordon -- Evercore ISI -- Analyst

Fair enough. I'm not trying to put words in your mouth, but generally speaking, as I think about the moving parts, have I missed anything salient?

Andrew Marsh -- Chief Financial Officer

No, those are the correct pieces, Greg.

Greg Gordon -- Evercore ISI -- Analyst

Okay, thanks. And what can you tell us on the margin has changed between your last disclosure and your current comments on the cash flow impact of exiting EWC? What on the margin has changed, puts you in a position to say you think it'll be neutral to positive?

Andrew Marsh -- Chief Financial Officer

I think the main pieces are, you know, the strong performance in the trusts and as you'll see in our K when it comes out early next week, the decommissioning -- actually, I think it's in the back of the disclosures in the appendix today -- the trusts are up over $4 billion at this point, so we've seen strong performance in the return of the trust, and then secondly, you know, we continue to work through our expectations on what it would cost to decommission facilities in the northeast. And as we work through that, we are finding that we may be able to reduce our cost expectations there. So the combination of those two things is what has given us the confidence to continue to move our expectations on the overall cash need at EWC.

Greg Gordon -- Evercore ISI -- Analyst

Great. Last question. Had you not -- let me rephrase this. All things equal before the things you've done to offset the impact of tax reform on your credit metrics, how much of a negative impact on your FFO to debt metric, before the -- this is obviously before the things that you've done to offset it, did tax reform have as an impact in a vacuum? I mean, you say you're going to be at 14%. Where would you be had you done nothing to offset it?

Andrew Marsh -- Chief Financial Officer

We would have probably been around the 16-17% range FFO to debt.

Greg Gordon -- Evercore ISI -- Analyst

Perfect. Thank you guys.

Operator

Thank you. Our next question comes from the line of Praful Mehta of Citigroup. Your line is now open.

Praful Mehta -- Citigroup -- Analyst

Thanks so much. Hi, guys. Morning. So on the equity, just wanted to understand, which piece is more correlated with the timing? Is it from a regulatory perspective if you get decision in the unprotected piece for the DTL and the timing of the refund? Is that going to drive the timing to be more 2018 versus a 2019 event? Just wanted to understand how should we think about that timing?

Andrew Marsh -- Chief Financial Officer

I think that it's more of a back-end question, Praful. So, you know, we will probably start executing in the second half of this year, even though our processes aren't complete, based upon expectations for having to go and do some no matter what. And then the question will be, you know, how quickly we get to certainty and we go ahead and how fast we begin to return those cash flows to customers. If it's -- if it's very quick, then we would accelerate the back end forward, but if it's slow, obviously we wouldn't need the cash until later. Does that make sense, Praful?

Praful Mehta -- Citigroup -- Analyst

I understand. Yeah, it does. That's super helpful, thanks. So on the second question, on EWC, clearly it was good to see the decommissioning trust performing well, and the fact that you've locked down those gains. But just obviously it opens up the question to if it performed well now, there's also now the risk that, you know, if it doesn't perform well, what happens then given now you're in a positive position from a cash flow perspective? Just wanted to understand how do you protect against that risk of downsides on the decommissioning trust now that it's performed. And secondly, now that you have these assets at a good position, is this a better time to execute sales with people who are experts at decommissioning these assets?

Andrew Marsh -- Chief Financial Officer

Okay. So on the first question, we have been actively trying to de-risk our portfolio, particularly for Vermont Yankee, for example, as that trust has grown. We do know we have, you know, expenses that are coming. So we've taken them ahead of schedule out of, you know, sort of an investment profile and putting them more into a cash profile to de-risk because our trust has grown to higher levels. Similar for Pilgrim as we prepare for the retirement of that asset next year, plus Pilgrim's trust by itself is up over $1 billion, so it's very well-funded. We've been actively de-risking in that way. And then the second question was -- what was your second question again, Praful?

Praful Mehta -- Citigroup -- Analyst

In terms of executing on sales for these assets.

Andrew Marsh -- Chief Financial Officer

Yeah. And so of course, it makes it much easier to manage that sale process as those trusts become higher. That is true.

Praful Mehta -- Citigroup -- Analyst

All right. Great, thank you guys.

Operator

Thank you. Our next question comes from the line of Shar Pourreza of Guggenheim Partners. Your line is now open.

Shar Pourreza -- Guggenheim Partners -- Analyst

Hey, good morning, guys. Let me just follow up on Greg and Julien's question for a sec on the EWC. So it's nice to see that it's, you know, you've got a higher cash flow trajectory upon an exit, but sort of how does the cash flow trajectory look under an assumption that you sell the decommissioning trust? So in light of the performance of the funds, would it be cash flow diluted for you to exit the decommissioning trust funds?

Andrew Marsh -- Chief Financial Officer

Not necessarily, because we wouldn't necessarily have access to those decommissioning trust funds except to do the decommissioning until well down the road. So the fact that it is performing better, and I guess maybe to Praful's question, helps us to move toward a transaction, but it does not necessarily move more cash into the business.

Shar Pourreza -- Guggenheim Partners -- Analyst

Got it. Okay, that's helpful. And then just on the Louisiana FRP extension, sounds like Leo, obviously from your prepared remarks, that you're confident in the second quarter settlement. So has tax reform sort of improved the conversations you're having in the settlement talks, and then can you just remind us how much capital in O&M on the nuclear side is embedded in this current filing?

Rod West -- Group President, Utility Operations

I'll address that first part. This is Rod. Yeah, the conversation around taxes has slowed down our negotiations, but to the point that you just raised, we still feel good about our ability to settle the -- to settle the FRP. And our regulators, they issued the accounting orders as sort of a flag post to account and track the -- how the tax reform would flow through that FRP before we close out the settlement discussion. Just keep in mind that our objective is still to resolve the issue to have rate effect changes happening in September. As it relates to the nuclear -- the nuclear cost embedded in the FRP, I'll have to get back to you on the actual number because I'm not sure whether we've disclosed a specific nuclear -- nuclear number in the -- in the FRP filing. But I'll make sure that David gets a specific number to you if it's public.

Shar Pourreza -- Guggenheim Partners -- Analyst

Okay, excellent. And let me then just rephrase it. Did the Arkansas order improve sort of what you're looking to do in Louisiana?

Rod West -- Group President, Utility Operations

Well, remember we talked about that in prior discussions. The nuclear issue is less of a -- has been less of a conversation in Louisiana. Our focus, because of the size of our capital plan, has been around the transmission conversation. So nuclear is a much smaller component of Louisiana's capital plan, and as a result, hasn't been -- hasn't been a line item, if you will, in the negotiations. So it's been less of a -- I'll just say less of an issue.

Shar Pourreza -- Guggenheim Partners -- Analyst

Got it. Thanks so much, guys.

Operator

Thank you. Our next question comes from the line of Michael Lapides of Goldman Sachs. Your line is now open.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys. Couple of questions. I just want to make sure I understand a few things. First of all, Drew, what is the O&M growth rate year over year you're assuming in '18 versus '17 at the utilities?

Andrew Marsh -- Chief Financial Officer

I'm trying to think about the percentage. It's probably one to two percent, Michael. It's small.

Michael Lapides -- Goldman Sachs -- Analyst

Okay. So inflationary. And then do you see significant opportunity for O&M cost saves post 2018 at the utilities, or do you think that's kind of a normal run rate, and you go from there? I'm just asking because of the heightened nuclear spend that you had in 2017.

Andrew Marsh -- Chief Financial Officer

Right. And we are still actually ramping up some of those nuclear costs, and I think a big piece of the driver for us is the pension expense and where that will go. But beyond that, operationally, you know, we have several programs internally to try and drive operational efficiency within our organization. And as we begin to roll out our automated metering efforts in the next year and we start to install meters, and then we start to put all the other parts together with that new operational and management distribution systems and asset management systems and linking all those things together, we would expect to begin to realize some operational savings going forward for our customers. And you know, as we realize that, I think that'll create headroom for incremental investment, but it would not -- at least maybe on a temporary basis, it might drop to the bottom line, but we would expect that it would be recaptured in rates fairly quickly.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. And then Arkansas -- and Rod, I want to make sure I understand the puts and the takes that are happening here. Can you walk us through how tax reform helps get you closer to earning authorized? Is it simply because the four-percent cap is no longer as big of a deal because you're reducing rates this year, or is there some other driver there?

Rod West -- Group President, Utility Operations

The straightforward answer is the revenue requirements, because of the lower tax expenses is less and as a result, you're closer to your allowed rate of return, thus you're not having to worry about a carryover year over year for the true up. So you're actually earning allowed ROE in the year because the tax expenses presume to be lower.

Michael Lapides -- Goldman Sachs -- Analyst

So I want to just kind of think about the Arkansas income statement, because this is actually a pretty big deal for you guys. So tax rate goes down, but revenue goes down to adjust for the tax rate. But that's -- that's earning --that would be earnings neutral by itself, but because you didn't get the full increase that you could have been authorized to due to the 4% cap, now you can actually get that full increase in 2018?

Rod West -- Group President, Utility Operations

No, tax rate goes down. The revenue requirements, that is the amount of revenues that are embedded in our rates, don't go down. Remember, we're over. So all I'm saying is the overage that we wouldn't be earning on that would be subject to a true up is actually less in '18. So we're actually earning closer to our allowed rate of return because of the -- the taxes that we're not paying, that the overage is not as great as it would otherwise have been.

Andrew Marsh -- Chief Financial Officer

So Michael, maybe think about it this way. Our original revenue requirement request was about $130 million. The cap limited us to I think $70 million-ish dollars. And so we were short by $60 million. We were under-earning by that amount. What I think Rod is saying is, you know, under the lower tax regime, the revenue requirement gets something closer to that $70 million. So, you know, you could think of it as our revenue requirements kind of -- our revenue line, if you're thinking about our 2018 income statement, our revenue line is about the same. Oure tax expense will be lower. And all of it will kind of balance out to where we get close to our allowed return in Arkansas. Of course, next year, you know, we will be moving through the FRP and we'll have an expectation for a lower tax expense next year as well and, you know, we'll just continue to roll forward in the FRP process in that way.

Michael Lapides -- Goldman Sachs -- Analyst

But thinking about the post-2018 world in Arkansas because of the legislation and the change in rate making, are you thinking that '19 and beyond, barring any unforeseen things, you should be very close annually to earning authorized there now?

Andrew Marsh -- Chief Financial Officer

We should get -- we should get much closer, yes.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Okay. Thank you, guys. Much appreciate it.

Operator

Thank you. Our next question comes from the line of Jonathan Arnold of Deutsche Bank. Your line is now.

Jonathan Arnold -- Deutsche Bank -- Analyst

Yeah, good morning, guys. I just -- Leo, I noticed the comments about the 800 megawatts of renewables potentially over three years and if I heard you right, the -- about 180 is PPAs, but then you said that the remainder, I guess 600 or so, would be about half of that would be ownership opportunities. Did I hear that right?

Leo Denault -- Chairman and Chief Executive Officer

Yes, yes. And over the next three years, we would anticipate entering into contracts for those. The projects themselves would be kind of more toward the back end of the period or beyond.

Jonathan Arnold -- Deutsche Bank -- Analyst

So my -- I guess how do you have confidence in that split at this point, and which jurisdictions are we talking about?

Leo Denault -- Chairman and Chief Executive Officer

Well, we're in the process right now in some of those jurisdictions with -- with you know, some discussions around those. I really don't want to get into any detail about it at the moment, because those discussions are going on. But we've been looking at them for a while. It's obviously -- as the price point of renewables and everything comes down, it begins to make sense in certain instances around the system, so we're pursuing that.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay. Thank you for that. And then just on the comments about FFO metrics and I think you said a couple of times you're obviously intending to remain investment grade, but with, you know, the Baa2 Moody's rating, are you -- are we to understand that, you know, you might be willing to wear a notch of downgrade, or are you also pushing to try and defend the current rating as opposed to just staying investment grade?

Andrew Marsh -- Chief Financial Officer

Right. So we're committed to investment grade, but we still wouldn't prefer to keep our current credit rating. So certainly we're not giving up on that. And so we are going to be continuing to look for ways to manage to our current credit rating while we maintain our earnings outlooks that we've committed to you all to achieve. So I wouldn't say that -- that our current credit rating is going to necessarily fall down a notch, but our commitment is to maintain investment grade.

Jonathan Arnold -- Deutsche Bank -- Analyst

If I'm not wrong though, they've got downgrade thresholds around 15%, so you know, would you -- would you consider more equity to stay where you are, or in that instance, do we -- I guess I'm just pushing for how -- how hard you'd defend the current number, the current --

Andrew Marsh -- Chief Financial Officer

Well, I mean, we will also endeavor to maintain our earnings outlooks, so that's going to be the balancing mechanism.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay, perfect. Thank you guys.

Operator

Thank you. Our next question comes from the line of Paul Freemont of Mizuho. Your line is now open.

Paul Freemont -- Mizuho Securities -- Analyst

Thank you. Can you quantify the tax reform impact on your rate base?

Andrew Marsh -- Chief Financial Officer

Sure. This is Drew. It's going to depend mostly upon the amount of cash that's ultimately returned to customers, because that will represent sort of incremental rate base. If there is some of the excess ADIT that turns into accelerated depreciation of existing assets or is put into sort of pay for assets that we were already planning to put into rate base, then that would be kind of neutral. Right now, we would expect that we would grow the rate base by a little over $1 billion over the three years.

Paul Freemont -- Mizuho Securities -- Analyst

Okay. And then also --

Andrew Marsh -- Chief Financial Officer

Incremental to what we already had.

Paul Freemont -- Mizuho Securities -- Analyst

Right. So, in that sense, I mean, you're issuing equity, but you're issuing equity to build rate base over and above what you had in your original plan?

Andrew Marsh -- Chief Financial Officer

That's correct.

Paul Freemont -- Mizuho Securities -- Analyst

Okay. And then can you also, on the unfunded pension for 2017, can you give us an idea of where you ended 2017?

Andrew Marsh -- Chief Financial Officer

Yes. So, we ended 2017 with about -- pension trust assets around $6.1 billion, and pension liability around $8 billion. So we're at about $1.9 difference there.

Paul Freemont -- Mizuho Securities -- Analyst

Okay. So you're actually improved there relative to where you were last year, so that should also help in terms of the FFO to debt metrics, right?

Andrew Marsh -- Chief Financial Officer

It will, but it's not improved all that much. I want to say it's improved by $50-60 million. You know, the rates have been going up, but the -- but the pension discount rate at the end of the year, you know, versus the end of the prior year, was still lower because, as you know, corporate spreads have tightened, the curve had flattened, and most of our liabilities are longer dated. But liability went up more than we were anticipating despite the fact that we had strong returns and $400 million of contributions into our pension last year. And by the way, we would expect to put about $400 million in this year as well.

Paul Freemont -- Mizuho Securities -- Analyst

And then beyond that, I mean, should we assume that $400 million number continues as a run rate, or should we look at those more as just, you know, one-offs?

Andrew Marsh -- Chief Financial Officer

Well, that was, you know, this year will be the end of a -- of a five-year effort to put $2 billion of incremental assets into the pension trust. I don't know that it would necessarily continue, but that's something that we're investigating.

Paul Freemont -- Mizuho Securities -- Analyst

Okay. Thank you very much.

Operator

Thank you. And our final question comes from the line of David Paz of Wolfe Research. Your line is now open.

David Paz -- Wolfe Research -- Analyst

Hey, good morning. I believe you said the billion dollars of external equity will depend on the timing of out of the rate case or the rate filings. Do you have an at-the-money or dribble program?

Andrew Marsh -- Chief Financial Officer

David, we don't have one currently established. We would need to go get authorization starting with our board, but also with the SEC to make that happen. We would anticipate that probably occur in the second quarter or so.

David Paz -- Wolfe Research -- Analyst

Got it. Okay. And what's the capacity of your internal equity programs, like DRIP?

Andrew Marsh -- Chief Financial Officer

We don't actually have one established right now.

David Paz -- Wolfe Research -- Analyst

Okay. Got it. And I believe you may have just addressed this. I apologize if I missed it, but could you explain why your pension discount rate assumption is falling again, given the rate environment we're seeing?

Andrew Marsh -- Chief Financial Officer

Yeah. Well, it's set at the end of the year, so it's a once a year snapshot, so you compare it to 12-31-16 versus 12-31-17, and you know, if you look at that timeframe, you know, sort of the 10-year treasury, it'd actually come down a little bit even though the front end, the shorter term treasuries had come up meanwhile. So, you know, you had the flattening of the curve, and then you also had corporate spreads which had tightened to that. So, you know, using a longer-dated curve, corporate rates were a little bit lower than what they had been previously. So that's --those are the two comparison points.

David Paz -- Wolfe Research -- Analyst

Got it, great. And actually, just sneak in one more on your sales forecast. I know you said that there's some volatility within the year and that you see forecast sales growth beyond this year rising. I mean, just can you characterize whether these are using conservative assumptions about industrial growth or you know, are you kind of fairly comfortable with your assumption now? Just any room for further improvement or further upset?

Andrew Marsh -- Chief Financial Officer

Yeah, so this is Drew again. On the industrial side, I would say that we have -- we're kind of middle of the road on our expectations for industrial growth. You know, for our large customers, it's based upon our expectation for projects that we can see under construction right now through 2020 and, you know, what our expectation for them is in the marketplace. So I would say that's fairly middle of the road expectation on industrial. For residential and commercial, you know, there may be a little bit of near-term opportunity in '18, but beyond that, you know, we expect that the effects of automated meters and getting our customers better information about how to manage their -- their energy usage would allow them to -- to be more efficient and conservative on the way that they actually use their electricity. So, we have actually built in an expectation that over the longer term, we would expect to see a decline in residential and commercial sales.

David Paz -- Wolfe Research -- Analyst

Great. Thank you so much.

Operator

Thank you. And that is all the time we have for questions. I'd like to hand the call back to David Borde for any closing statements.

David Borde -- Vice President of Investor Relations

Great. Thank you, Nicole, and thanks everyone for participating this morning. Before we close, we remind you to refer to our release and website for safe harbor and Regulation G compliance statements. Our annual report on form 10K is due to the -- is due to the SEC on March 1st and provides more details and disclosures about our financial statements. Events that occur prior to the date of our 10K 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. And this concludes our call. Thank you.

...

Operator

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone, have a great day.

Duration: 59 minutes

Call participants:

David Borde -- Vice President of Investor Relations

Leo Denault -- Chairman and Chief Executive Officer

Andrew Marsh -- Chief Financial Officer

Rod West -- Group President, Utility Operations

Julien Dumoulin-Smith -- Bank of America -- Analyst

Greg Gordon -- Evercore ISI -- Analyst

Praful Mehta -- Citigroup -- Analyst

Shar Pourreza -- Guggenheim Partners -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Jonathan Arnold -- Deutsche Bank -- Analyst

Paul Freemont -- Mizuho Securities -- Analyst

David Paz -- Wolfe Research -- Analyst

 

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