Gentlemen, thank you for standing by, and welcome to the Entergy Corporation First Quarter 2020 Earnings Release and Teleconference. At this time, all participants are in listen- only mode. After the speakers' presentation, there will be a question- and- answer session. To ask a question during the session, you'll need to press star one on your telephone, at which time we'll take one question and one follow-up. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, David Borde, Vice President Investor Relations. Please go ahead, sir.
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 ask no more than one question and one follow-up. 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.
I would also point out that our initial earnings release this morning contained a clerical error relating to the March 31st, 2020 balance sheet, and we have since posted a corrected version of the release on our website. Now I will turn the call over to Leo.
Thank you, David Borde, and good morning, everyone. We appreciate you all joining our call today, and I hope that you and your families are well. The past few months have presented extraordinary circumstances that have been difficult for everyone around the world. Many have stepped up to the plate to help people, communities, and our country in this time of need, and we truly appreciate all of their efforts. Providing safe and reliable power is essential, especially during times like these. That's why at Entergy, we plan and prepare for extraordinary events. Our robust, comprehensive, tried and tested incident response plan contemplates many, including storms, cyber attacks, emergency leadership succession, and pandemics. To ensure preparedness, we run drills routinely so that everyone knows their roles and responsibilities, and when activated, the plan runs smoothly.
In 2007, we developed our pandemic response plan specifically to address events like the one we are facing today. For COVID-19, we mobilized our teams on January 16th, very early on. Our focus has been on four primary objectives. Ensuring the safety and wellness of our employees, maintaining safe, reliable service for our customers, mitigating financial impacts, and ensuring our ability to continue to plan for the future, informed by lessons learned from the event, not only challenges to normal operations, but also improvements that can be made. Our response is working as designed. We are meeting the needs and expectations of our customers and communities. Our major projects remain on track, and our capital plan is unchanged. The actions of our employees in the midst of this pandemic have been exemplary.
They have shown, once again, their dedication and resilience to work through hurdles to safely keep the power and gas flowing for our customers. I cannot express how proud I am of our Entergy family. Entergy has a critical role to play, this is the time that we must step forward, not back. Our customers and communities are depending on us more than ever to power their homes, as many work remotely or have responsibilities to care for children and loved ones at home. Businesses like grocery stores and pharmacies require reliable power to continue to operate and address essential needs. Our healthcare workers are relying on us to keep hospitals, clinics, and care facilities powered. In short, the services we provide are vital to helping our customers, our communities, our families, and our neighbors successfully manage this crisis.
It's a great responsibility that we do not take lightly. Our capital investment plan is also a critical component for our economy and our communities. Our plan is designed to benefit our customers while also creating jobs and stimulating the economies in the states where we operate. We have taken specific actions for each of our stakeholders. For employees still working at plants and in the field, we've implemented preventative measures so they can focus on safety on and off the job. We're suspending disconnects for customers, which is important in times where many may not have a steady income. We are talking with regulators about the importance of keeping our capital plan on track to preserve the reliability and economic benefits for our customers and our communities. We're talking to our largest customers to understand the issues they face and to determine how we can support them.
Our supply chain team is working diligently with suppliers to ensure we have what we need to keep our operations and major projects on track. We're working with regulators to support timely resolution of both special and routine matters. We have received accounting orders to defer costs associated with COVID-19 in four of our jurisdictions, and we expect to receive a similar order for Entergy New Orleans in the near future. We're grateful for the leadership and partnership that our commissions have demonstrated. We are also supporting our communities through a COVID-19 Response Fund. Our charitable foundation, employees, and executive team have already committed more than $1.3 million to help community nonprofits and qualifying customers who are struggling with the financial impact of the pandemic. Looking ahead, uncertainty remains as to the depth and length of this pandemic.
Today, we are affirming our guidance and outlooks as we see a path to achieve those results. The foundation that supports the strength and sustainability of our business remains in place. We have among the lowest retail rates in the country. Our capital plan benefits our customers and our local economies. We have constructive and progressive regulatory mechanisms. We are a leader in critical measures of sustainability. We have one of the cleanest large-scale generation fleets. While we have seen some recent slowdown in industrial activity, our industrial base is among the most economically advantaged in the world, and we expect they will lead the recovery in their respective industries. The foundation that we've established over time remains firm, and we are committed to our objectives and our resolve to be the premier utility. This is what makes Entergy a compelling long-term investment.
In April, our board of directors declared a quarterly dividend as planned. As part of that decision, the board considered our response to the current situation, scenario analysis regarding future uncertainty, and the strength of our business going forward. We are committed to creating sustainable value for all of our stakeholders, including our owners, and the dividend declaration is consistent with that objective. Now, I'll turn to our strategic execution. Today, we are reporting solid first quarter-adjusted earnings per share of $1.14. While the pandemic has affected the way we do business, it hasn't stopped us from making progress against our key deliverables. We placed Lake Charles Power Station in service in March, well ahead of schedule and on budget. This new resource is another milestone in our portfolio transformation strategy to replace older generation with cleaner, more efficient assets, and it will provide important benefits to our customers.
We've also made good progress at the New Orleans Power Station. Commissioning of the plant is in progress, and we recently synchronized the units to the grid for the first time. We expect that project to come online in June. Our other major generation projects remain on track. We are not experiencing any significant equipment or staffing issues. This is a testament to the experience of our capital projects management team and the strength of our relationships with our suppliers and contractors. We continue to deploy automated meters as planned. We're more than one-third of the way through our AMI project with 1.3 million meters installed. We are leveraging the data from these meters to understand changes in usage among our various customer segments. In April, we received approval for Sunflower Solar in Mississippi and Searcy Solar in Arkansas.
These 100-MW resources will be the largest utility-owned solar projects in their states. Large-scale solar facilities provide the most cost-effective solar power for all customers, keeping rates low while delivering the best value for renewables. Both facilities are expected to be in service in 2021. As part of our firm commitment to provide our customers with greater renewable power options, we expect to meet even more of our supply planning needs with renewables as technology and economics continue to improve. Since our last earnings call, we announced two new requests for proposals for generation assets. Entergy Texas is seeking proposals for 1,000 MW- 1,200 MW combined cycle gas turbine in mid-2025 to mid-2026. Entergy Texas will include a self-build option, and submissions are due in August. Entergy Louisiana is seeking 250 megawatts of new build solar resources.
The RFP will accept proposals for owned and contracted projects with targeting service dates of no later than the end of 2023. We continue to implement rate changes through our formula rate plans and riders. New rates recently were implemented in Mississippi, and these included a new vegetation management rider. In Texas, we filed a new distribution rider. Entergy Louisiana plans to request renewal or extension of its formula rate plan, and we will make our annual FRP filing in Arkansas this coming July. In April, we received an initial decision from the administrative law judge in one of System Energy's open dockets at FERC. I won't go through all the details. Feel free to call David if you need additional explanations.
The bottom line is that we disagree with much of the initial decision, and we believe that it incorrectly seeks to resolve the important policy issues that FERC ultimately must opine on. The actions we've taken create significant benefits for our retail customers, and we feel strongly that our positions on the law and the facts are correct. We'll file our brief on exceptions in June, asking FERC to reject the adverse rulings in the initial decision, and we look forward to the FERC's review. There is no mandated deadline for the Commission's decision. At EWC, Indian Point Unit 2 was shut down on April 30th. This milestone brings us one step closer to fully exiting the merchant business. We remain committed to our employees, and all qualified employees who are willing to relocate have been offered positions.
We look forward to them starting the next phase of their careers with us. As you can see, it's already been a very active and productive start to the year. COVID-19 is a global pandemic that is affecting lives around the world. At Entergy, we activated our response plan early, which positions us well to face the challenges head-on. We were prepared, and we will remain diligent, focused, and flexible to ensure we make the right decisions at the right times to mitigate the impacts as best we can. While uncertainty remains for all of us, we have made progress against our key strategic deliverables while meeting the needs and expectations of our customers and communities in this critical time. Our major projects remain on track.
Our capital plan is unchanged, and the foundation that supports the long-term strength of our business and makes Entergy a compelling investment remains in place. We are stepping forward, not back, to be leaders in our communities at a time when they need us the most. Recent events have not changed our objectives to create sustainable value for our stakeholders, or weakened our resolve to be the premier utility that can deliver on its commitments through economic cycles. Before I turn it over to Drew, I encourage you to read our recently released 2019 integrated report, Building the Premier Utility. The report outlines what we believe it takes to be the premier utility and why we're well on our way. I'm also happy to confirm that we still plan to host an Analyst Day this year. Because the situation of COVID-19 continues to be fluid, the event will be virtual.
We also plan to delay the event until later in the year, most likely in late October. We look forward to continuing our conversation with you about our strategy to continue to grow our business for the long term. Stay tuned for more details. I will now turn the call over to Drew, who will review our first quarter results as well as our outlooks.
Thank you, Leo. Good morning, everyone. Similar to Leo's sentiment, I'd like to express my appreciation for all those helping the people and communities affected by COVID-19. The extraordinary efforts of so many are inspiring. That includes our employees, who have quickly adapted to changing working conditions. They have once again risen to the challenge, as they have so many times in the past. I will review the quarter results and then move to guidance and the longer-term outlooks. Before I get to that, I want to highlight the bottom line for Entergy. After a solid first quarter, we are affirming our adjusted EPS guidance and outlooks. We expect revenue to be $120 million-$140 million lower as a result of COVID-19. We are implementing $100 million of identified spending reductions for 2020. We received constructive regulatory accounting orders to defer COVID-19 costs.
Our capital plan remains the same, our liquidity remains strong, and we still do not see a need for equity until 2021. Those are the key takeaways. Our first quarter results were solid, as stay-at-home orders did not begin until very late in the quarter. As you can see on Slide eight, on a per-share basis, Entergy adjusted earnings were $1.14, $0.32 higher than first quarter 2019 due to increased earnings at the utility. On Slide 19, you'll see the primary drivers for the utility's positive quarter were straightforward. We saw the positive effects of rate actions in Arkansas, Louisiana, Mississippi, and Texas. O&M was lower as we took action to reduce spending in response to mild weather, which was apparent early in the quarter. We had favorable tax benefits, a portion of which was shared with our customers.
You'll also see a higher effective tax rate apparent in other, which partially offsets this. Higher depreciation and interest expenses resulting from our continued growth also partially offset the increase, as did the higher share count. On Slide 11, EWC's as-reported loss was $0.55, compared to positive earnings of $0.50 a year ago. Losses on decommissioning trust investments and lower revenue, primarily due to the shutdown of Pilgrim, were the main drivers. Partially offsetting the decline was lower O&M, lower impairment charges, and a tax item recorded in the first quarter of 2019. Slide 12 shows a nearly $160 million increase in operating cash flow. The main drivers were higher collections for fuel and purchased power costs, and a roughly $65 million reduction in the unprotected excess ADIT returned to customers.
The first quarter also benefited from higher nuclear insurance refunds and lower nuclear refueling outage spending at EWC. Unfavorable weather and higher pension contributions partially offset the increase. I'd like to talk about our 2020 guidance and our longer-term outlooks. On Slide 13, we are affirming our 2020 adjusted EPS guidance range of $5.45 - $5.75, and our 2021 and 2022 outlooks remain unchanged. We've laid out the path to achieve our results on Slide 14 so that you can better understand our current expectations. I'd like to give you some context. In 2020, we expect sales to be lower due to the unfavorable weather we experienced in the first quarter and the impact of COVID-19.
On Slide 15, we've developed a point of view on sales for the remainder of 2020 based on extensive discussions with our industrial and commercial customers, and analysis of data available from our advanced meters. On a weather-adjusted basis, we expect commercial and industrial sales to be lower than the original guidance assumption. Commercial sales are expected to have the largest decline at 9.5% for the full year. The most impacted are schools, restaurants, movie theaters, and churches, as stay-at-home orders have shuttered many of these institutions temporarily. Industrial sales are expected to be 7% lower, and our refinery and steel customers have been the most impacted. Although refiners in our region have been less affected than in other parts of the country. This is partially offset by residential sales about 2% higher as usage per customer increases due to stay-at-home orders.
As you can see, we expect the second quarter to be the most impacted, assuming stay-at-home orders start to phase out in mid-May to early June. We expect slow improvements through the year as the economy recovers. We will work to mitigate the impact of lost sales. This includes a $100 million reduction in O&M spending for 2020 on Slide 16. That will not affect safety or reliability. We've already identified where we will achieve these savings. We are reducing employee expenses, reducing contractor and consulting work, prioritizing power generation outages. These are extraordinary times for our customers and communities, and extraordinary times demand extraordinary measures. While we are taking these one-time measures to compensate for the lower sales we anticipate this year, we continue to look for efficiencies in our business to drive long-term value for all of our stakeholders.
Our work over the last few years to improve our regulatory frameworks also helps further mitigate impacts, and we are utilizing efficient regulatory mechanisms available to us. We have formula rate plans in four of our five jurisdictions, and three have forward-looking features. These plans reset rates annually. Two jurisdictions, Arkansas and Mississippi, have look-back provisions to take into account under or over earnings from the previous year. As Leo mentioned, we've received accounting orders in Texas, Mississippi, Arkansas, and Louisiana for the deferral of costs resulting from COVID-19. We are aware that these are very difficult times for our customers and their families. Therefore, we are implementing new customer payment plans to help make bills more manageable. We are developing new tools such as accelerating regulatory liabilities to reduce customer bills now versus in the future.
We are also cognizant of the economic impact COVID-19 is having on our communities, and we're working to keep our capital plan on track while using local workforces so that our customers and our communities can reap the benefits from those investments, such as economic stimulus and improved reliability. Looking ahead to 2021 and 2022, we expect some of the economic effects of COVID-19 to linger, and sales are projected to be slightly below what we previously planned. Our current regulatory mechanism will help, and we will be ready to manage O&M as necessary. For industrial sales, our long-term expectations for growth remain largely intact. None of our planned new or expansion projects have been canceled, although a few have announced delays. Long-term forward commodity spreads remain supportive of key industries in our region.
While there is uncertainty around the COVID-19 recovery and future oil prices, our industrial base remains among the most economically advantaged in the world due to low-cost feedstock, highly flexible modern facilities, economies of scale, world-class infrastructure, a highly productive workforce, supportive communities, and easy-to-access domestic and global markets. We expect they will lead recovery in their respective industries. This is our plan today, but obviously uncertainty remains for all of us as to the depth and length of the COVID-19 impact going forward. In the event things turn out differently, there would be a number of factors to consider. Near term, there is timing as the seasonality of sales could result in different outcomes, and we would look to O&M to help to the extent possible without affecting safety and reliability.
Longer term, regulatory processes would address revenue deficiencies over time, and we would look to continuous improvement to help offset customer impacts. Our liquidity position remains strong. As you can see on Slide 17, as of March 31st, our net liquidity, including storm reserves, was over $3.2 billion. We've had success accessing capital markets despite market volatility, and we've issued nearly $1.1 billion in new long-term debt so far this year. All at the operating companies. This covers the operating company maturities and helps fund our capital plan. In addition, we have renewed the lines of credit at two of the operating companies, which also provides liquidity in times of need. We still plan to access the debt market to fund $450 million of parent bonds that mature later this year. Our credit metrics are outlined on Slide 18.
Our parent debt to total debt is 22.2%, and our FFO to debt is 14.3%. The FFO metric includes the effects of returning $236 million of unprotected excess ADIT to customers over the last 12 months. Excluding this giveback and certain items related to our exit of EWC, FFO to debt would have been 16%. While we remain committed to achieving FFO to debt at or above 15%, our customer support to offset COVID-19 impacts will push our timing to fourth quarter 2021. We have had conversations with the rating agencies on this, and they have publicly expressed their intent to take a long-term view regarding COVID-19 impacts. Finally, we still do not see a need for equity until 2021. Another topic that may be on your mind is pension. As of March 31st, our pension asset balance was $5.4 billion, and through April, this had improved to $5.7 billion.
The March 31st pension asset balance is incorporated into our outlooks. As Leo stated, these are extraordinary times for everyone, and we have a vital role to play to help our customers and our communities successfully manage this crisis. We are well-positioned to manage these challenges head-on. At this time, although economic uncertainty remains, we have a path to achieve our financial objectives. As Leo said, we will continue to monitor the economy and remain diligent, focused, and flexible to mitigate impacts as best we can. Now, the Entergy team is available to answer questions.
Certainly. Ladies and gentlemen, if you have a question at this time, please press star then one on your touch-tone telephone. We ask that you please limit yourself to one question and one follow-up. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Shahriar Pourreza from Guggenheim Partners. Your question please.
Hey, good morning, guys.
Good morning, Shar.
Just a couple of questions here. First, thinking about the headwinds you're calling out at this point, the $100 million-$120 million. You mentioned some relief for COVID costs. Can you just be specific on what those costs are, how we should think about ultimate recovery, how long you can kind of defer them? Then, thinking about the cost reductions you pulled today to offset the COVID impact, are these one-time in nature, or could we sort of think about them as being somewhat perpetual ongoing benefits? I have a follow-up.
I'll address the costs so far. I think there's kind of two buckets of costs that we're looking at. Some are incident response costs, and those include things like more PPE, hand sanitizer, masks, and things like that. There's also cleaning costs associated with that, and then costs associated with moving people around and things like that. Those types of dollars at this point are fairly limited. We expect them for the year to be somewhere in the $15 million range right now. We've incurred less than half of that so far. We're anticipating as we get back to work, there will be more cleaning costs, for example, and more PPE that we have to provide over the course of the year. The other bucket of costs is related to potential bad debt expense.
We haven't incurred anything of that nature to date, and we probably won't for a while. Those costs we would expect to incur as well. In terms of the magnitude of that, historically we've seen about $25 million of bad debt expense. We have in past experiences like 2008, 2009 financial crisis or Katrina, Rita, that kind of environment, we've seen anywhere from $10 million-$20 million of incremental bad debt expense in a year. Of course, this could be a little bit worse than that. We're working hard to make sure that we mitigate that. Leo mentioned new payment plans, working to make sure that our customers have access to LIHEAP funds and information on how to access the Paycheck Protection Program.
As I also mentioned in my remarks, we're trying to accelerate some future regulatory liability payments to today to try and mitigate some of those impacts on customer bills. All of that plays into trying to make sure that customer bills are as low as possible to mitigate what the bad debt expense might ultimately be as well.
Got it. Thank you. Last question is, you guys always have some really good insight into your customer trends, right? How much growth do you see being deferred from 2020? The new assumptions call out 2021 and beyond as potential economic impact as a headwind. Are you quantifying 2021 versus just being slightly lower? Assuming this backdrop is more protracted versus kind of your own internal planning assumptions? Do you have these incremental levers, like today's cost cuts, to mitigate? Could that start to pressure your growth guide maybe through CapEx referrals that may become secondary in nature? It sounded like from Leo's comments, you guys are very confident around the plan. I just want to, under the assumption this is more protracted, do you see any kind of concerns around growth CapEx 5%-7%, or you have enough levers at your disposal, I guess?
All right. There was a lot in that. I will start with the customer trends piece, then talk about O&M, then finish with CapEx. On the customer trends piece, the expectation in our outlook right now is that our sales will be about 1% below what we were planning in 2021 and 2022. Obviously, there's a lot of uncertainty associated with that. We are also running scenarios to think about what it might be if it's something lower than that. Once we get out a couple of years, we should have gone through regulatory processes in each jurisdiction, and that should help us. At the same time, we are also working on, okay, what other O&M management tools might we have at our disposal to work our way through that?
The further we get out, the more sustainable we really need these cost changes to be. Unlike this year. This year, as we mentioned, there's a lot of one-time items. We're trying to look for additional continuous improvement in the O&M category that is more sustainable. We'll really need to rely on our skills to develop those opportunities as we go forward to manage that a little bit more. There'll always be one-time levers within a given year that we have. We will, on a long-term basis, want to rely on continuous improvement. Finally, in regards to growth CapEx, we currently don't have any plans to change our growth capital or our capital at all for that matter. We think it's important for our communities and our customers for us to continue to make those investments.
We think we have the capacity and liquidity to do that. There's no concerns there. If for some reason it was lower for longer from a sales perspective, it might start to shift around the nature of that capital. For example, if we no longer needed some transmission capital to meet NERC reliability standards, there may be other capital that we think would be very important for our customers in the distribution space. There's a lot of levers still to manage things going forward.
Hopefully that answers all of the nuances of your one question.
You got it, guys. Yeah.
This is Leo. I just want to add, from the standpoint of pulling the levers, the process that we're utilizing right now, while it's kind of accelerated a little bit, is the same process we were using last year, for example, to flex up and down. The process had actually, as you'll notice in the first quarter, the process had already begun because we knew we were going to be challenged by a traditional headwind, which was weather in the first quarter.
Those processes, year-over-year, are going to be the same ones that we have kind of developed as part of the culture and the DNA of the company and just the planning process. The continuous improvement that Drew mentioned is something that we were working through as well, and obviously we'll even find some continuous improvement, I think, out of response to the event that will help us going forward. Then I just wanted to really jump in on the capital plan. Obviously the capital plan is a major reliability improvement to our customers, is what it's been about.
Greater than 90% of the capital plan all being about a technological improvement in the reliability and the service level that we provide our customers, whether it's through AMI or even the replacing old generation with new gas-fired generation of renewables that we're adding to the footprint.
All of it is customer-enhancing, and as Drew mentioned, and as we've talked about before, we have a significant amount of opportunity within the distribution and customer solution space that could step up and take the place of any, for example, transmission investment that might get shifted around. An important aspect of where we sit today, and this has been the extent of the dialogue that we've had with the states, whether it be at the administration level or at the regulatory level. The biggest problem that the United States has at the moment is unemployment. In addition, outside of obviously the virus. We are in a position to step forward with the capital plan and to make sure that we keep people working. I'm just going to give you a couple of statistics that might be useful for you to think about.
During the storms that we had over Easter weekend in Arkansas, we obviously had to restore power, that was a pretty significant event. As we restored power, we had about 2,000 people in Arkansas staying in hotel rooms that otherwise they wouldn't have stayed in, eating meals that otherwise wouldn't have been eaten. There was an effective 14,000 nights in hotel rooms that occurred only because Entergy was there. There was an effective 40,000 meals that were served only because Entergy was there. That is the kind of economic impact that we have, not just on the people we hire, whether it be our employees or our contractors. As we go into the community and there's those multiplier effects that we talk about quite often that are significant, that usually are put up there by an economist at LSU or something like that.
These are real people, serving real meals to our employees that were probably working that week, but not the week before or the week after. The capital plan is important for more than just.
Right
the reliability of the system and the service level that we provide our customers. It's important to those communities as well.
Got it. Congrats, Leo and Drew, on this execution, and stay safe. We'll see you soon.
Thank you.
Thanks, John. You, too.
Thank you. Our next question comes from the line of Julien Dumoulin-Smith from Bank of America. Your question, please?
Yeah. Hey, howdy, guys. Thanks for the time.
Hey, Julien.
Just wanted to follow up on the last set of questions, and I'll throw in a quick follow-up. Starting with the last set. How do you think about your FRPs across the various states and those rate caps against the need to ensure earning at your returns, and at the same time, recognizing the consistency of commitment to invest capital? I imagine, obviously twin goals. Seems like you had a little bit more latitude than you had historically, in those annual filings, first off. The second one is just if you can quantify the potential impact of that SERI decision from the ALJ. That's a quick one.
All right. It's Rod. Good morning. I'll start on the FRPs and perhaps Drew will follow up. In Louisiana and Arkansas, Mississippi and New Orleans, we just mentioned that four of our five jurisdictions had FRPs in effect. Those FRPs are working as designed, and to the extent that the COVID cost might operate beyond the FRPs, we have the accounting orders that we just referenced. We're seeking to renew the FRPs in Louisiana and Arkansas. Of course, in Mississippi, we don't have a sunset provision. Those FRPs are working as designed, to address many of the changes in sales as we're forecasting. From an FRP perspective, the efficient recovery mechanism we have in each of the states is giving us the relative confidence we have around what we're forecasting. It's incorporating the various puts and takes with O&M and projected sales. It's working as designed.
It's certainly part of the case we're making to renew them in Arkansas, and Louisiana. From that vantage point, we think the FRPs are working as designed.
I'll just add, you asked about the rate path. Our expectation for the rate path is that we would still be at or below inflation. You have to take into account the excess ADIT that we have been given back last year if you work off of 2019. It's still a very low growth rate for our rates and our bill path. Then, you asked about ROEs. As Leo was talking about, we have an important role to play in the community right now in terms of putting capital to work to not only benefit our customers but also to drive economic activity. In order to do that, we have to make sure that we maintain adequate credit and liquidity. Our retail regulators know that. We've been in conversations with them about that.
They are also committed to make sure that we have the credit and liquidity we need to do the things that are required to support our customers and our communities. I think that will help address some of the ROE question as well.
Thank you. Our next question comes from the line of Jeremy Tonet from JPMorgan. Your question, please.
Good morning. Thanks for taking my question. Wanted to start off, I guess what you guys are seeing across your footprint right now in your different jurisdictions. You start to see certain areas start to open up and just wondering, kind of maybe more real time, what type of trends are you seeing from your larger customers ramping up, and what kind of line of sight have you gleaned from that kind of informs your guidance here?
Yeah. This is Rod again. I think across the customer segments, we alluded to it earlier. Certainly in the residential segment, the stay-at-home orders have certainly driven the expected experience of higher usage per customer in that segment. A lot of variability across the commercial customer segments, as Drew alluded to, where we saw schools and restaurants, movie theaters and churches experiencing the brunt of the near-term demand erosion. In the industrial sector, we've been in constant communication. Aside from the AMI data that we're tracking on a day-to-day basis, we've been in constant communication with those larger industrial customers around their respective outlooks. We're paying as much attention to the various components of their value chain as perhaps they might.
They've given us relative comfort that the data we're receiving from AMI is supportive of our point of view that about approximately 10% demand erosion that we're experiencing in the last several weeks, is likely to be stable until such time as the economy recovers. Certainly in the refining and primary metals segment, we expected those segments to be harder hit in driving some of the downturn, and that's played out in a way that we expected. I say that with all of the uncertainty that still remains around the timing of the economic recovery relative to our ability to get testing and tracing and things of that nature. The engagement, in addition to the AMI data, the engagement with customers, has really reinforced what we're seeing. Certainly it plays out differently from state to state.
The significant presence of our industrial base is in Louisiana and Texas. That's where we've seen the lion's share of volatility within that 10% range.
That makes sense. Maybe just picking up on that last point for the longer term for the industrial petchem load, it seems like the Brent-Henry Hub spread kind of being a proxy for naphtha ethane spread has been a key determinant of the U.S. Gulf Coast competitive advantage across the global cost curve, given the favorable feedstock there. Do you worry that the dynamic of a tighter crude oil to nat gas spread narrows this competitive advantage and kind of adversely impacts future load growth versus prior expectations?
Yeah, this is Drew. We are closely monitoring that spread. That's one of the ones that we pay close attention to as well, for the very reason that you mentioned. Obviously near term, that spread is not as healthy as it has been historically, but we do expect it to return to where it was, and continue to provide economic advantage for our Gulf Coast industrial customers going forward. We do see those spreads, and others like them, being healthy if you look out on a long-term basis. We recognize that near term, they're a little bit more challenged. That does not change some of the other advantages that we do have that I listed off in my remarks. That is one that we are paying close attention to.
Got it. That's helpful. Thank you.
Thank you.
Thank you. Our next question comes from the line of Stephen Byrd from Morgan Stanley. Your question, please.
Hey, good morning. Hope you all are doing well.
Good morning, Stephen. Thank you. You too.
Most of my questions have been addressed. I just wanted to go into tax in a little more detail. I think the change in guidance in terms of the tax is about a net improvement of around $0.18 a share. I wonder if you could just give a little color around what the changes were. I guess I see an IRS settlement and stock-based comp. Could you sort of explain what the changes were in a little more detail?
Sure, Stephen. The main one is the IRS settlement, which we completed in the quarter. That settlement had to do with Isaac securitization costs from several years ago. While there is a tax benefit on the tax line, much of that is offset in the revenue through customer givebacks. That is net about $0.05 only. The other stuff is like the stock-based compensation. That's just annual true-ups that occur each year whenever stock vests and we true up from a tax perspective. There is no true up from a GAAP perspective. That's why there's a difference there.
Understood. Understand the expectation is now for an 18% effective income tax rate this year. Longer term, approximately where do you see your effective income tax rate being? Just so we're trying to think through your longer-term earnings power properly.
It's similar to where we had it previously, around the 22% range.
Great. That's all I have. Thank you.
Thanks, Stephen.
Thank you. Our next question comes from the line of Jonathan Arnold from Vertical Research Partners. Your question please.
Hey, good morning, guys.
Morning.
Just a quick question on previously you said you thought that equity from 2021 would be on the order of 5%-10% of utility investment. With some of this, if you're going to accelerate some of these regulatory liabilities and maybe have a cash impact, is that still a good number? Should we be thinking about recalibrating that scale once we get out after 2020?
I think that's still a good number. We're very careful about the way that we are moving reg liabilities forward. They are either increasing rate base because they are coming out, or we are discounting them to make sure that we are economically neutral such that we have more cash flow in the future. Either way, we should have the financing headroom to move some of those liabilities forward. Those kinds of choices will impact the current year's FFO to debt ratio. There should be a little bit better headroom in that ratio going forward as a result.
Okay. Great. Then you mentioned, Drew, wanting to keep the rate path below inflation. Have your views of inflation as you make in the plan changed, and can you share sort of what your number is that you're using for longer-term inflation?
That's an excellent question, Jonathan. I wish I knew what inflation was going to be. We use 2% as a rule of thumb for that.
Okay.
Kind of the benchmark that we look at. Adding $3 trillion of fiscal stimulus, we don't really know what that'll do for inflation.
Fair enough. Okay. That's good to know what your number is. Just one thing. I was trying to reconcile the Slide 15 on retail sales, I think that shows what you're expecting industrial to be down 7% for the year. Slide 41 has a 1.5% number on industrial. Is that just a typo, or is a different basis of what you're telling us there?
Yeah. They're two different bases. The one on Slide 15 is versus our original guidance. As you will recall, we were planning to be up about 6%.
Okay
6.5%. I can't remember the exact number. You subtract out the 7%.
I get it. Okay. The guidance had the uptick.
Correct.
That's it. Thank you.
Thank you.
Thank you, Jonathan.
Thank you. Our next question comes from the line. That's Steve Fleishman from Wolfe Research. Your question please.
Hi, good morning. Hope everyone is well.
Good morning, Steve.
Morning, Leo. Just wanted to re-ask the question that was asked earlier about the SERI decision on ALJ, and if that were finalized, even though you don't think it will be, what the impact would be.
This is Drew, and thanks, Steve, for picking that up. We didn't quite get to it on Julien's question, so we appreciate you re-asking it. The impact is laid out in the 10-Q. As Leo mentioned, there are a lot of details. There's two components to the ruling that came through associated with lease payments and uncertain tax positions, and the amounts are in there. The lease payment is a little bit unclear because the calculation from the ALJ wasn't provided specifically. The bottom line is we don't think there will be a very large impact there. The larger one is the uncertain tax positions, and as the ALJ laid it out, if you include the refund and the interest, it looks like it's close to about $600 million.
As Leo mentioned, we believe that we have the right policy perspective, and that the ALJ's ruling is interim and that the FERC is the one that would drive policy decisions. We would also note that in that calculation, even though the ALJ wrote about it, the ALJ did not include offsets that you might include in there, like interest that we've been paying to the IRS for the position over time. That would reduce that $600 million down to a little less than, or probably a little bit more than half.
Okay
what the ALJ put out. Of course, the overall impact of that would basically be the financing cost of whatever that number would ultimately be.
That would be obviously a one-time refund. Aside from financing that as a risk, would there be any other ongoing earnings impact, or just a one-time refund?
Well, the lease payment, they indicated that the lease payment would not be able to continue. That's what the ALJ wrote, which is about $17 million a year. Of course, the one time would be a change in our rate base on an ongoing basis for the FERC tax position. There, we'd have that as well.
Okay. One other question. You probably said this, but maybe I'm still just not clear on it. Just in terms of the base assumptions you're using for your kind of sales forecast now, how would we track kind of progress? Reopening soon, and then slow recovery? That's kind of how to think about kind of the base economic-
Yeah. This is Rod.
assumption that you're using?
I'll start, Steve. The base assumption is that sometime in the early summer, that is later in this month into June, we'll begin to see a change in the stay-at-home orders, and that dynamic will begin the upswing in the economy. The outlook through 2020, particularly from an industrial growth perspective, is essentially that 10% reduction in industrial demand that's driving the overall growth for the utility would then begin to see a slower uptick. As Drew laid out, in 2021 and 2022, we expect the drivers of our growth to still be driven by industrials as the commercial and residential sort of normalizes to our pre-COVID point of view.
Steve, I'll just add that the timing of all that matters a lot. If the current economic environment lingers through the summer, and people are more at home than what we're planning because they're not working, that could be a sales improvement for us because of the higher residential load that we typically experience in the summertime. If it were to linger all the way through the end of the year, of course, the summer would end, and it would fall back into what we're kind of expecting on the second quarter, which would not be as positive.
Got it.
does matter.
Okay. Thank you.
Thank you, Steve.
Thank you. Our next question comes from the line of Michael Lapides from Goldman Sachs. Your question, please.
Hey, guys. Thank you for taking my question. Real quickly, the O&M savings, the $100 million, do you expect that to be kind of a permanent savings level, or do you expect all of that to come back, and we should embed it in 2021 or 2022 forecasts?
Yeah. This is Drew, Michael. We are currently considering that to be one time. One time savings.
It's O&M that will go away, but effectively, it would come back in future years, maybe not all in 2021, but over time. Not leading to a permanent kind of O&M reduction.
Yes. It's not permanent. The timing of it, some of it depends. We're already working because some of it is deferrals to 2021. We're working to even offset those in 2021 in our forecast. I would say that they're just one time, and they don't really relate to future periods at this point.
Okay. Can you remind us in your multi-year EPS forecast, what is assumed for kind of an O&M growth rate off of 2019?
We were saying that we were going to come in at about $2.65 billion for utility and parent O&M, and then we were going to keep that flat.
Got it. Okay, great. Last thing. On EWC, can you remind me, do you expect EWC to send cash up to the parent or need cash infusions from the parent over the next couple of years?
We have said that we expect it to be net cash positive to the parent, not by a lot, but by little. As we get closer to the end, it's trending to zero because we're very much close to the end of EWC. Right now, it's still net cash positive to the parent.
Got it. I'll keep one last one. The RFP for new gas generation in Texas, just curious, does the change in the outlook for demand change the need for the size and scale of that unit?
At this point in time, no. As you recall, Michael, the new generation is typically replacing older generation with a much more efficient, lower cost, more environmentally sound unit. This is all part of that portfolio transformation strategy that we've had, where the net adds to our capacity are relatively small compared to the amount of generation that we're adding. I think actually within the next year, we may tear down three old plants. We're deactivating units as well. Up till this past year, when we put a couple of new units in service, we were pretty well as many megawatts as we added, that's what we were deactivating.
As I mentioned earlier, when you look at the capital plan, over 90% of the capital plan is driven by this improvement in the level of service through a technological overhaul across all four functions that we invest in, whether it's generation, transmission, distribution, or customer solutions. That is going to continue. As Drew mentioned, to the extent some of our reliability investment in transmission is kind of like Lake Charles project was a couple of years ago, after the fact, beefing up the system to serve load that had already been there to the extent that that might change. Well, we've got a whole host of distribution and customer solutions opportunities that could take its place, a lot of which actually drive down the cost while they improve the level of service for our customers. They're a good option for us to make.
I know it's a bit of a long answer to your question, Michael, but keep in mind, 90% + of the capital plan is driven by that reliability improvement, technological improvement across the system, and benefiting customers. Then obviously in the nearer term, we're overlaying on that fact that there's a lot of jobs created by the work we do. If there's one thing everybody can agree on, more people need to be working today rather than fewer.
Got it. Thank you, Leo and Drew. Much appreciated, guys.
Thank you, Michael.
Thank you. Our final question for today comes from the line of Sophie Karp from KeyBanc. Your question, please.
Hi. Good morning, guys. Most of my questions have been answered, but maybe I could just quickly follow up on Indian Point. Just checking if there are any disruptions in the process that you're going through from the wide shutdowns in New York State. Thank you.
Hey, Sophie. Thanks. For Indian Point, no change. Indian Point 2 shut down, as Leo mentioned, April 30th. It's currently being defueled. As far as the processes around the sale of Indian Point, those were initially slightly delayed, but we still have plenty of time. We don't expect to close on that transaction until about this time next year. We have plenty of time to continue to work through the processes in New York and at the NRC. We still believe that the interests in New York are aligned with ours. Looking for a way to expeditiously decommission Indian Point is the goal. Working with Holtec to make that happen, we believe this continues to be the best option. No real changes at Indian Point at this time.
Got it. Thank you.
Thank you.
Thank you. This does conclude the question- and- answer session of today's program. I'd like to hand the program back to David Borde for any further remarks.
Thank you, Jonathan, and thanks to everyone for participating this morning. Our annual report on Form 10-Q is due to the SEC today and provides more details and disclosures about our financial statements. As a reminder, we maintain a webpage as part of Entergy's investor relations website called Regulatory and Other Information, which provides key updates of regulatory proceedings and important milestones on our strategic execution. While some of this information may be considered material information, you should not rely exclusively on this page for all relevant company information. This concludes our call. Thank you very much.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. Everyone have a great day.