Good afternoon, ladies and gentlemen, and welcome to the Entergy Corporation 4th Quarter 2018 Earnings Release and Teleconference. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr.
David Vord, Vice President of Investor Relations. Please go ahead.
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 March, 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 measure are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now, I will turn the call over to Leo.
Thank you, David, and good morning, everyone. Today, we are reporting strong results for another successful year of significant accomplishments. For our core utility parent and other business, adjusted EPS were in line with our guidance and growth expectations and our consolidated operational earnings came in above our guidance range. A year ago, I told you that the foundation for our success in 2018 was largely in place and we laid out what we needed to do to stay on track to achieve our outlooks and aspirations. We've checked off every deliverable on that list as well as a few more and our success keeps us firmly on track to achieve our strategic and financial objectives in 2019 and beyond.
As a result, we raised our dividend for a 4th consecutive year, a trend we expect to continue subject as always to approval of our Board. At EWC, we made important progress toward exiting that business. At the start of the year, we have made shutdown decisions on all EWC nuclear plants and we had an agreement in place to sell Vermont Yankee, a first of its kind transaction. Since then, we completed the sale of Vermont Yankee and we announced agreements to sell Pilgrim and Palisades. The Vermont Yankee transaction is an important milestone, not only for our strategy to completely divest our merchant nuclear assets, but also for the nuclear decommissioning industry.
It establishes a model for the sale of nuclear plants post shutdown, which benefits the industry and key stakeholders by accelerating the decommissioning timeline, drawing on industry leading decommissioning and site remediation expertise and experience and laying the foundation for future business development opportunities in the regions. We are also making progress on the sale of Pilgrim to Holtec. Holtec submitted its post shutdown decommissioning activity report to the NRC and we submitted the license transfer application. We will shut down Pilgrim no later than May 31st and we expect to close on the sale of that plant by the end of the year. Since announcing our intent to exit the merchant business, our progress has been deliberate and on the mark.
We've sold 5 facilities, 2 Wind Ventures, the Rhode Island State Energy Center and 2 nuclear plants, leaving EWC with 3 nuclear plants. We have agreements in place to sell 2 of those and we are now actively working towards a post shutdown sale of the 3rd Indian Point. All of this work and success significantly advances our clear strategy to transition to a pure play utility. This past year, we also saw solid achievements at our core utility business. At Analyst Day, we demonstrated our ability to successfully execute our plan to improve technology across our business.
Our disciplined capital projects management organization and rigorous processes give us confidence that we can grow the business through investments that benefit not only our customers, but all our stakeholders. These investments are important because they help sustain and modernize our system, provide lower production cost and lower carbon emission rates, enhance reliability, support customer growth, bring jobs and economic development to our communities and provide opportunities for our employees. Our new build CCGT projects remain on budget and on schedule with the St. Charles power station slated to be in service in mid-twenty 19. We also received regulatory approval from the Louisiana Public Service Commission for the acquisition of Washington Parish Energy Center and we expect to close on that plant in 2021.
More recently, we entered into an agreement to acquire the Choctaw generating station in Mississippi. We've cleared review under HUD Scott Rodino and have requested approval from the Mississippi Public Service Commission. We will also be requesting approval from the FERC in the near future and we expect to complete the transaction by the end of 2019. We continue to make progress on adding renewable generation to our portfolio. We are committed to providing our customers with renewable power options, which are playing an increasingly important role in our resource planning.
We have approximately 1,000 megawatts of renewables in various stages of development and specific projects include 2 solar PPAs in Arkansas, totaling 180 megawatts, one of which is operational. A 100 Megawatt utility scale solar project at Entergy Mississippi, 3 utility scale solar projects for Entergy New Orleans totaling 90 Megawatts, multiple rooftop solar projects in New Orleans totaling 5 megawatts and a 50 megawatt solar project selected in Entergy Louisiana's renewable RFP. Each of these projects is in process and their in service dates range from 2019 to 2022. Entergy Arkansas recently announced its intent to issue a solar RFP. The company is interested in procuring up to 200 megawatts of solar PV resources through an asset acquisition.
Renewables are an important resource beyond their obvious environmental attributes. They can provide cost effective energy supply, fuel diversity and advance the adoption of distributed energy solutions for our customers. As the economics, performance and reliability of these resources improve, we will continue to engage with our regulators and stakeholders to solve technical challenges associated with expanding the use of renewable energy across our service area. Last month, we hit an important and very exciting with plans to activate 1,000,000 new meters in 2019. We are pleased with this progress, especially in light of the benefits this technology will provide our customers from faster outage restoration to enhanced customer service and cost savings.
Additionally, with these meters, we will have more tools to help our customers manage their energy usage and lower their bills. AMI will also serve as a foundation for future customer solutions as we evolve from being a supplier to a partner with our customers. We are excited about this next chapter and are actively studying other opportunities to prepare our distribution system for the future. We will provide updates on our progress when appropriate. Successful execution also includes our nuclear operations.
In 2016, we rolled out our 5 year roadmap to invest in our people, our plants and our processes to achieve operational excellence. Today, we are about halfway through that journey and our performance to date is in line with our expectations. In 2018, we realized an important milestone when ANO returned to column 1 of the reactor oversight process matrix. As planned, we expect Pilgrim to also return to column 1 this quarter. These are just a few illustrations of the many investments that we are making to develop an efficient, sustainable electric generating and delivery system for our customers.
We also had an active regulatory calendar last year with proceedings in each of our jurisdictions. It started with tax reform and customers are now seeing benefits in their bills. We worked with our retail regulators and resolved the return of more than $1,000,000,000 of benefits to customers and we were able to return the benefits on an expedited basis. This not only helped our customers, but also provided financial clarity, which was important to solidify our credit as illustrated by Moody's moving our outlook to stable in November. Entergy Louisiana extended and modified its formula rate plan to include a new mechanism to recover incremental transmission investments, excuse me, 8 months beyond any historic test year.
In the Q4, we resolved 2 base rate proceedings. The Public Utility Commission of Texas approved the rate case, which was a good step toward improving earnings and returns in that jurisdiction in the near term. The Arkansas Public Service Commission approved our partial settlement in the annual forward test year FRP and new rates are now effective. And Entergy New Orleans rate case is still ongoing and is expected to be completed by August of this year. In addition, recently filed legislation in Texas could help reduce regulatory lag on generation investment in that jurisdiction.
If passed, it would allow the commission to approve a rider to recover reasonable and necessary generation investment, which would be more timely and less burdensome than a base rate case filing. This legislation is consistent with our desire to align regulatory structures with customer benefits. Overall, the resolution we achieved on all of the regulatory matters we undertook last year provides clarity to our plans and solidifies the financial commitments we've made. At Entergy, we are dedicated to sustainability efforts. Once again, we were named to the Dow Jones Sustainability North American Index, which measures performance in economic, environmental and social dimensions against industry peers around the globe.
We earned top scores in areas of policy influence, climate strategy, water related risks and corporate citizenship and philanthropy. This is the 17th consecutive year Entergy has been included on either the World or North American Index or both. We are recognized by the U. S. Chamber of Commerce Foundation, who named Entergy a finalist in its 2018 Corporate Citizenship Awards in the Best Economic Empowerment Program category.
The award recognized Entergy's 5 year $5,000,000 workforce ready initiative aimed at promoting economic development for communities throughout our service region. At Entergy, creating a diverse and inclusive workplace is one of our shared values and we are committed to leveraging the richness of a diverse workforce. In recognition of our efforts, Black Enterprise Magazine has recognized Entergy as one of its 2018 50 Best Companies for Diversity. The list highlights companies that champion professional inclusion of people from all races and demographic groups. This is the 5th consecutive year that we've been included on that list.
2018 has been another successful year for us. We executed on our strategy and we expect 2019 will be no different. Our operating and financial positions are solid and our strategic direction is clear. 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 our stakeholders.
We have an industry we are an industry leader in critical measures of sustainability. We have among the lowest rates in the United States. We operate 1 of the cleanest large scale fleets in the country. We operate in a region that benefits from strong industrial growth. We invest in our employees to create a workforce for the future.
We are recognized as a socially responsible growth engine for our communities and our aspirations for our customers are aligned with the goals of our regulators. These attributes alone make Entergy a compelling long term investment today. But this is also the foundation on which we will grow, innovate and expand our investment profile for tomorrow. We will invest in new technologies and new revenue streams that offer promising returns for our owners. We will embrace innovations that will transition us from an energy provider to delivering new outcomes and solutions that our customers want.
We will continue to promote the well-being of our communities by partnering to improve education, eradicate poverty and protect the environment. And we will remain at the forefront of our industry's efforts to address climate issues, while also maintaining reliable and economic service for our customers. We are in the early days of our industry's transformation. Innovation is changing how we see the future of our industry, a future that offers a significant opportunity for continued long term growth and we are well positioned to lead the way. I will now turn the call over to Drew, who will provide more detail on our 2018 financial results, 2019 guidance under our new single measure and our 3 year outlooks.
Thank you, Leo. Good morning, everyone. As Leo stated, we are reporting strong results for another successful year. We executed on all our planned deliverables and this progress is reflected in our financial performance. For Utility, Parent and Other, on an adjusted view, we ended the year in line with our expectations.
And for Entergy Consolidated, we exceeded our expectations for the year. We are pleased with these results and we look forward to continuing this momentum into 2019. For the next few minutes, I'll review the results of the Q4 and then the full year. We're also issuing 2019 guidance and the 3 year outlook under our new Entergy adjusted measure. Starting with the quarter on Slide 6, our adjusted utility pair and other earnings were $0.04 higher than Q4 2017.
The key driver was lower nonfuel O and M driven by lowered nuclear costs this quarter. Also contributing to the increase were favorable base rate actions. Partially offsetting these drivers were regulatory provisions for 2 items I highlighted for you on the last earnings call. First, the $25,000,000 refund to Entergy Texas customers from the lower tax rate retroactive to January 2018 and second, because Entergy Arkansas and Entergy Mississippi performed above expectations such that future true ups would result in amounts due back to customers, we have accrued those in 2018. We also had lower income tax expense and higher depreciation expense.
Before we move on, I'd like to point out that starting next quarter, we will revert back to showing our variances on an EPS basis only since the statutory tax rate period over period will be the same again. This will simplify our variance views going forward. Moving to EWC on Slide 7, operational earnings decreased to $1.22 from a year ago. This was largely the result of lower returns on decommissioning trust investments during the quarter and to a lesser extent lower net revenue from lower nuclear volume. Lower non fuel O and M and lower income taxes helped partially offset the decrease.
On Slide 8, operating cash flow in the quarter was $526,000,000 $385,000,000 lower than a year ago. The decrease is primarily due to the return of the unprotected excess ADIT to customers at the utility as well as lower net revenue and higher severance and retention costs at EWC. Now turning to the full year on Slide 9, consolidated operational earnings for 2018 were $7.31 per share, higher than the $7.20 per share in 2017. These results exceeded our guidance range primarily due to favorable weather and favorable non fuel O and M at EWC. We also had tax items and losses on EWC decommissioning trusts that mostly offset each other.
Excluding these items, results would have been firmly within our guidance range. UP and O adjusted EPS on Slide 10 was $4.71 in 20.18, dollars 0.14 higher than 2017. The increase in 2018 was due largely to base rate actions. This increase was partly offset by higher non fuel O and M and other operating expenses as well as higher interest expense at the parent. We also had lower income tax expense as a result of the lower federal income tax rate, which is offset in net revenue.
Slide 7 summarizes EWC operational earnings, which decreased $2.22 year over year, losses on the decommissioning truck fund investments and less favorable income tax items in 2018 as compared to a year ago are key drivers. Lower net revenue from lower prices and lower volume also contributed. Partially offsetting these decreases were favorable depreciation and decommissioning expenses. Full year 2018 operating cash flow shown on Slide 12 was approximately $2,400,000,000 in 20.18, $239,000,000 lower than last year. A main driver was the return of the unprotected excess ADIT to customers, which reduced cash flow approximately $600,000,000 Lower net revenue at EWC was also a driver.
Favorable weather at the utility and lower severance and retention payments at EWC partially offset the decrease. Moving to Slide 13, as we mentioned last quarter, with the progress we've made on our strategy to exit our EWC business and transition to a pure play utility, we are moving to a single simpler measure that better reflects the nature of our business going forward. Today, we are initiating our new Entergy adjusted EPS guidance and 3 year outlook. The new measure excludes all of our EWC earnings and is similar to our previous UP and O adjusted measure with the following exceptions. We now exclude large tax items as opposed to normalizing to a statutory tax rate and we no longer normalize the effects of weather.
While we have not changed our views of the underlying business, our Entergy adjusted guidance is higher than our previous UP and O adjusted disclosure. The change is only attributable to our expectation for lower than statutory tax rates in those years. The lower tax rates are created by the return of protected excess ADIT and AFUDC from the significant capital investment we are making at our core business to benefit our customers. The effective tax rate is lower in 2019 versus 2020 2021, primarily due to higher AFUDC in 2019. Reconciliation of the UPO adjusted measure to the new Entergy adjusted measure can be found in our appendix.
Starting next quarter, we will report actual results under this Entergy adjusted measure only and our disclosures will be revised accordingly. The Entergy adjusted guidance range is $5.10 to $5.50 with a midpoint of $5.30 I will note that this is the same midpoint we showed at our Analyst Day in 2016, except for the $0.20 improvement related to the lower effective tax rate. On Slide 13, you'll also see a few of the key drivers for 2019 guidance. Starting on the top line, our projected sales volume in 2019 is expected to increase about 1% year over year, driven by strong industrial sales of approximately 2.5% to 3%. We continue to expect volatility from quarter to quarter, with slightly positive residential sales in the first half of the year turning slightly negative for the second half of the year as advanced meters go in service.
Additionally, a full year of 2018 rate activity in Arkansas, Louisiana and Texas contribute to 20 nineteen's results, along with the 2019 FRP filings in Mississippi and Louisiana. Recovery of the St. Charles power station is expected to begin mid year when the plant goes in service. We project non fuel O and M to be approximately $2,700,000,000 which represents 3% increase about a 3% increase compared to 2018. This reflects our ongoing capital intensive construction plan, which creates higher spending on fossil and transmission operations.
We expect 2019 to be the last year for incremental nuclear hiring under our nuclear strategic plan, and there are a few costs anticipated for cybersecurity, grid modernization and customer initiatives to begin to explore new technologies and services building off of our AMI platform. We expect other expenses such as depreciation, interest and property taxes to increase as we continue to make productive investments to benefit our customers and our communities. And 2019 also assumes normal weather and no income tax planning items at the utility. Finally, as a result of settling a portion of our equity board in late 2018 and the remainder planned for Q2 2019, we expect dilution of approximately $0.35 Even though EWC's results are excluded from the Entergy adjusted EPS guidance, we will continue to provide our expectations for EWC's financial performance through 2022. This information can be found in the appendix of our webcast presentation.
I'd also like to give an update on our cash position at EWC. While weak market performance led to lower returns on our nuclear decommissioning trust investments in Q4 2018, we still expect EWC to provide positive net cash to parent in 2019 through 2022, and this includes our current view of potential decommissioning trust contributions. Additionally, we continue our efforts to reduce risk at EWC. We have rebalanced EWC's decommissioning truck portfolio such that we eliminated its equity market exposure. Pilgrim's de risk NDT along with the close of the VY sale earlier this year are notable steps in our transition to our pure play utility.
Moving to the longer term view on Slide 14, you'll see our 2020 2021 outlooks have been updated to reflect the new measure. And as I previously mentioned, our longer term view of our business has not changed. We continue to target a 5% to 7% growth rate for adjusted earnings. Finally, our cash and credit metrics as of the end of the year are shown on Slide 15. Our parent debt to total debt ratio has improved to 22.6%.
This was largely due to the settlement of a portion of our equity forward in December. Our operational FFO to debt is 12%, but this includes the effects of returning $600,000,000 of unprotected excess ADIT to customers. Excluding this give back, operational FFO to debt would be 15.3%. As I've noted on previous calls, we remain committed to our targeted ranges at or above 15% for FFO to debt and below 25% for parent debt to total debt, as well as maintaining our investment grade profile. Additionally, we continue to de risk our balance sheet by managing our pension liability.
2018 pension obligation is lower by almost $600,000,000 from last year and we've lowered our return on assets expectation by 25 basis points for 2019. As a reflection of these collective efforts, Moody's upgraded our outlook to stable in November. 2018 was another year of strong results and we're proud of what we accomplished. We made significant progress in our exit of the EWC business and we continue execute on our customer centric investment plan at the Utility. As Leo stated, we are committed to creating sustainable value for our customers, employees, communities and owners.
I look forward to another successful year in 2019. And now the Entergy team is available to answer questions.
Our first question comes from the line of Julien Dumoulin Smith from Bank of America. Your line is open. [SPEAKER JULIEN DUMOULIN
SMITH:] Hey, good morning. Congrats.
Good morning, Julien. [SPEAKER JULIEN DUMOULIN SMITH:] Good morning, Julien. [SPEAKER JULIEN DUMOULIN SMITH:] Good morning, Julien. [SPEAKER JULIEN DUMOULIN SMITH:] Good morning, Julien.
[SPEAKER JULIEN DUMOULIN SMITH:]
Hey, so just a quick clarification here. Obviously, well done on 2019 and onwards guidance. But I wanted to understand, structurally, as you think about beyond even 2021, is this 0.10 dollars sustainable in sort of the upside tied to the new effective tax rate you all were talking about? I just want to understand how sustainable it is.
We believe it is sustainable, Julian. With the tax reform, there is a structural change in the way that, that effective tax rate is going to come out due to the protected excess ADIT. As you know, that's going to go on for many years and it will lower revenue, also lower the tax expense that you see. And so it won't be exactly dollar per dollar like the unprotected piece, but it will be in there on an ongoing basis. And so we expect to see a lower effective tax rate going forward.
Got it. Excellent. If you can just quickly follow-up, it seems like utility CapEx went up a little bit from the preliminary guidance you guys all gave back at EEI. Can you elaborate a little bit on what's moving there? I mean, it sounds like there might be some well, I'll let you elaborate.
Okay. Well, thanks for noticing that. It did go up a little bit. The primary there's 2 areas. It's primarily in the distribution and the transmission area.
The distribution area is continuing to increase our grid mod investments and specifically in the area of distribution automation, as we continue to push into that. And then on transmission, it's continuation of, just needed transmission upgrades as part of the MTEP process. And so those are investments that we recognize out of the MTEP process and so we've added to the capital plan.
Understood. I'll leave it there. Thank you.
Thanks, Julien.
Our next question comes from the line of Praful Mehta from Citigroup. Your line is open.
Thanks so much. Hi, guys.
Good morning, Praful.
Good morning. So on the EPS outlook going forward, just wanted to understand the change is driven only by the effective tax rate or also by the AFUDC going forward or is the AFUDC fall off only from 2019?
Yes. So both of those are what we're citing is affecting the effective tax rate. The main change is the effective tax rate. There isn't really much change in the AFUDC expectation, not in our guidance outlook. But as the AFUDC comes down from 2019 to 2020, the effect that that has on the effective tax rate is going to diminish.
And so it actually pops back up afterwards, but the protected excess ADIT piece starts to come off. So it's going to level out at around the $0.10 effect. It's just a little bit more this 1st year, as we have 3 large combined cycle gas turbines under construction that are long dated construction assets. There's just going to be more APDC on the books this year.
Got you. That's super helpful, Drew. And then in terms of Grand Gulf, I know there was an NRC review ongoing. Is there any update on the status on that?
Good morning, Praful. Yes, we have expectations of a formal exit with the NRC next week. We have 2 self identified issues that are determined to be non sighted violations or the lowest safety significance. We're very pleased with our operator response to the issue and we expect the formal inspection report in about 45 days. So there's no significant issues identified in the inspection.
Understood. And so is this effectively is there any change needed effect in terms of how you operate nuclear in general? Or do you see this within the plan of what was expected?
No. We believe we're on track with our plan, and we don't see any need for change.
Okay, understood. And then just the last thing on the credit side, Drew, the 15% target, obviously, you are much below that, obviously, driven by the ADIT in the short term. How comfortable is the rating agency view around that metric? And like how much time are they expecting you to kind of grow back into that 15% level? Are there any levers that you can pull if the metric is delayed in terms of the improvement?
Just wanted to understand kind of what's the flexibility you have on that metric? Yes.
Well, the expectation is that we would get above the 15% by 2020 next year. And we are still on track for that. We've had ongoing conversations with the rating agencies. They're fully aware of the plan and they can see the expectation for the excess the unprotected excess ADIT going back to customers quite rapidly. In fact, that's one of the things that they cited as positive is that we are getting that behind us so that you can see our FFO to debt measure move higher more quickly instead of drawn out.
When we discussed it with them, the expectation was that if we're going to have to deal with this on an ongoing basis, this how we're recalculating it to show you the effect of it back to 15% in the materials today. If we had to do that on an ongoing basis, it would be much harder for them to get comfortable with our outlook. So they are very comfortable with it and they see the full depth of it and we all expect to get back by 2020.
Understood. Thanks so much guys. Appreciate it.
Thanks, Praful. Thank you.
Our next question comes from the line of Craig Gordon from Evercore ISI. Your line is open.
Hey, good morning. How are you?
Good morning, Greg. Good morning, Greg.
Couple of questions and I apologize if I'm making you repeat yourself. It's been crazy earnings morning. With the changes in the current EBITDA outlook for EWC, where do you stand in terms of your aspirations as sort of fully exiting on a cash neutral basis or cash positive? I mean, have the numbers moved around a little bit in terms of where you expect to exit on an NPV basis?
Yes. Well, I mean, there's as the world turns, things are continuing to evolve. We have affirmed our expectation that we would be cash positive from net cash back to parent out of EWC 2019 to 2022. And the market has moved around, the equity capital market has moved around. As you know, it dipped down in the Q4, it's rallied in January.
The rally in January, of course, was helpful for us, and also allowed us to finish the derisking of Pilgrim. And that was very helpful in terms of getting us more comfort towards our expectation of keeping that cash outlook. We've also continued to find ways to manage our O and M and capital costs and those efforts are ongoing within EWC. And some of those were realized in the Q4 of 2018 in the form of some significantly lower O and M. And so those things are helping us keep our expectation for positive cash flow out of EWC and that back to parents over the next few years.
Fantastic. And then I think you just answered my next question, which was, you expect to be very solidly inside your metrics through time here. So any significant incremental equity issuance is probably not in the cards here that you are where you need to be?
Yes. No change from what we said at Analyst Day last summer. We will finish up our last year's equity issuance. We have that in escrow right now. We should draw that out sometime in the Q2, and then we wouldn't need to look at anything until 2021 and beyond.
Fantastic. Thank you, guys.
Thank you. Thanks, Greg.
Our next question comes from the line of Michael Lapides from Goldman Sachs. Your line is open.
Hey, guys. Thanks for taking my questions. Actually, I have a handful of them. First of all, on the generation rider in Texas, can you talk to us just about the process behind that in terms of getting that finalized potentially? And then whether it needs whether it's this enabling legislation and therefore you need regulation to come with it, that kind of outlines how it will work?
Hey, Michael, good morning. It's Rod. From a process standpoint, we have proposed legislation in Texas in both the House and the Senate. And you are correct, it is enabling legislation that if passed would give the PUCT an option to enact a generation recovery rider or something to that effect that would essentially match from a better timing perspective our investment with recovery. And so there will be the passage of the legislation if we're successful and then it would enable the PUCT through the regulatory process to implement a generation ride.
Got it. And then one question on all the generating plants that you have coming into service over the next couple of years. Can you just remind us how those all get into utility rates? Meaning, do they go into rates as a special rider when put in service? Do they go in only when the annual formula rate plan process is implemented like Louisiana?
I think it's implemented in after the summer like in September each year and Mississippi is a different timeline. Like how should we think about the timing of when those rate step ups occur?
One of the reasons why we were seeking to get the law changed in Texas was to allow Texas to be more like the future forward test years of Mississippi and Arkansas. And to your point, in Louisiana, our largest jurisdiction, the moment the plant comes online and into service, it automatically goes into rates. And so we were trying to bring Texas forward. So all the other jurisdictions, with the exception of Texas, through a special recovery rider or through the formula rate plan, the moment that plant goes into service, we begin recovering through the rate regime. So Texas is we're trying to get Texas in line with the other
3, really 4 with New Orleans.
And I'll just add, Michael, in Mississippi, we're not building a plant, we're buying a plant, the Choctaw asset, and it should act it should go the same way that Ron just described in rates when we're able to close.
Got it. So when I think about the other plants in Louisiana that are coming online, just as they come online, assume a step change that incorporates the O and M, the capital, the return on and recovery of capital, etcetera?
That is correct.
Got it. Last item, just on Indian Point, when is the last I don't want to use the word when does the state have to make a final decision about the Indian Point retirement in 2020? Meaning, when do you reach a point of no return where if the state hasn't said, hey, do a refueling, get it ready, we need it to operate longer, let's talk contracts. When do they actually have to tell you that by?
I don't think that there is any process associated with the state, but in terms of a point of no return, I'll let Chris
answer that. Yes. We're at the point where Unit 2 was refueled for its last cycle and will operate until the spring of 2020 and Indian Point Unit 3 will refuel shortly and it will then run to the spring of 2021 and then that's it. I mean, we do not intend to refuel the units again.
Got it. So if the state were to change its mind, it's got to happen within 6 months to 12 months before you'd have to do another refuel?
We would need considerable warning and that's something that we would have to discuss in the state. But to be very clear from our end, we have not made arrangements to purchase additional fuel and have no intentions of doing another refuel outage beyond the one that's this spring.
Okay.
And then we also need incremental capital, that would need to go into plants likely as well.
Got it. Thank you, guys. Much appreciated.
Thanks, Mike. Thank you.
Our next question comes from the line of Jonathan Arlund from Deutsche Bank. Your line is open.
Good morning, guys.
Good morning, Jonathan.
Quick question on just on the new guidance basis. Am I do we understand it correctly that when you say that you will not include, I think significant tax items in there? What's the do you have a threshold in mind that we should think of that you'll effectively exclude from evaluating yourselves against this guidance?
Well, I think I can give you a framework for it. In 2018, we had about $1 of tax items over a couple of quarters. We had 1 in the 4th quarter related to the restructuring in Arkansas and then 1 in the second quarter, I think, related to an IRS settlement. Those two things added up to a buck. We would have excluded both of them.
And we would have had an effective tax rate in 2018 of about 21%, excluding those items and the effect of the unprotected excess ADIT.
Okay. Those would seem to be clearly material. Should we think about this as sort of way you all manage around having weather in the guidance perhaps? I'm not just trying to get a better sense of how you will evaluate your performance on this new metric.
Well, I mean, I think we are trying to build flexibility into our business to help us do that, not use taxes. So we are actively working on ways that we can manage our business in light of the fact that we're going to have weather volatility in our numbers. And I think that's the primary measure. You're not going to see a $0.75 tax item show up at the same time to kind of rescue us. That's not the plan.
Okay. That's clear enough. Look forward to seeing it play out. And just a second issue. Leo, you had used I think you talked about working towards a post shutdown sale of Indian Point when you talked about the decommissioning transactions.
Does that should I take that to mean that you wouldn't anticipate a deal for Indian Point until after the shutdown or more that such a deal wouldn't close obviously till after shutdown? I just wasn't sure if you were trying to give us some indication of timing on reaching a similar agreement.
So the transaction would not close until post shutdown. What I was indicating is that we have begun work on a transaction that as we've mentioned before, we would expect to complete sometime between now and the end of the year.
Okay. So that is something you think is a reasonable prospect for 2019 because I was also going to ask why it wasn't on the 2019 items?
That's correct. It is something that we would as we've mentioned before, in order to close the transaction post shutdown of the units, we would like to get into the regulatory process in such a time that we would want to have a transaction signed and announced by the end of the year. Obviously, we've also mentioned we recognize from your standpoint sooner would be better than later, but that's the timeline that we've got. But what I was indicating is that we've actually started that work.
Perfect. Thanks, Leo. I appreciate the clarification.
Sure. Thank you, Jonathan.
Our next question comes from the line of Paul Ridzon from KeyBanc. Your line is open.
Good morning. Thank you. Can you just for your 2019 2020 guidance, what your assumptions are for effective tax rate?
So for 2019, I think it's about 22.5 percent And for 2020 2021, it's a little higher. It's more like
A dime higher basically? Yes. And then just kind of got lost on your comments about you will no longer weather normalize or you will continue to?
We will no longer weather normalize. I will still report what we think the effect of weather is on our results, but we aren't going to adjust our results because of that.
Okay. Thank you very much. Thank you.
Our next question comes from the line of Shar Pourreza from Guggenheim Partners. Your
trust, did that have an indirect impact to the viability of the sale that you're looking at for Indian Point Trust sometime this year? And then the other question is, the transaction that you're sort of working on, can you just confirm whether it's with one bidder or you're still working through a couple of bidders?
I'll start with the second part of the question. We're not going to comment on that. Okay. There's no questions I get to answer. I know we're no coming.
Merely just wanted to point out that we've begun that activity.
And Shar, this is Drew. On the first part of your question, so we are the de risking activities were related to Pilgrim, not related to Indian Point. As we have a transaction set there and we have expectations there that we want to make sure we meet. And so that's why the de risking activity took place there. Any point is a different transaction.
It will have its own set of expectations around the trust, and we'll act accordingly on de risking or otherwise when that's appropriate.
Got it. But we could sort of use could you use the proxies for the existing assets that you have right now as far as we think about return thresholds for this current transaction given some of the other assets are still operating, but the decommissioning funds are presold?
I don't I'm not sure I'm following your question exactly. The de risked elements around Pilgrim, they're going to return some sort of fixed income element around 2% or so. The Indian Point from a returns perspective is unchanged at this point. Okay. And so once we get to a spot where we have clarity around what our expectations are for that trust, then we will act accordingly then.
Okay. That's those are trying to get at. Thanks so much.
Okay. Thank you.
Our last question comes from the line of Angie Storozynski from Macquarie. Your line is open.
Thank you. I have two questions. I know lots of questions about the decommissioning trusts for EWC assets. But when I think about Indian Point, in the past you had mentioned that given that it's a 2 reactor site, it could have some economies of scale related to decommissioning of these assets. So when you talk about your expectations for EWC to actually return cash to you, do you already account for those efficiencies?
Or is this based on the assumption of that minimum balances of those decommissioning trust as stated by the NRC?
Yes. Angie, this is Drew. So when we're thinking about that return of cash back to the parent, we're thinking about basically operating cash flows and working capital in the current business, in the operating business and any associated retention payments and capital requirements. We still have one refueling left, etcetera. All that is baked into our expectation for return of cash back to the parent.
The decommissioning activities are strictly matched up against the decommissioning trust. And so that we do anticipate economies of scale. We think that'll be helpful. That helps us mitigate any expectation of actually having to put money into those trusts. But other than that, it's mostly the operating expectations that are dictating our expectation that we would be positive cash flow out of that business net to parent through 2022.
Okay. And separately on your new guidance and the effective tax rate assumption. So is it does it matter where this tax benefit is going to be realized, I. E, if it's at the parent level or at the regulated utilities level? And if it's the latter, is there any risk that as you go through your rate cases, some of this benefit would actually be transferred to your customers, I.
E, it wouldn't be retained in earnings because you would have to basically embed the lower effective tax rate in your customer rates?
Yes. I think actually a lot of it hopefully will. That's one of the strategies that we employ to help keep our customer rates low. And one of the drivers, of course, is the protected excess ADIT, which is basically money that's going back to customers that we collected over time for the higher tax rate in previous years. So that's going to be kind of dribbling out over time.
That's really the source or one of the two sources of the lower effective tax rate and that is going directly back to customers over time. And then the AFUDC piece, that is AFUDC is recognized by books, it's not recognized by tax. So that's just a structural element that's in there associated with that. That will get reflected in rate base ultimately. But those are the 2 main drivers of the positive change in the effective tax rate.
And of course, when we are finding tax items, we're not including those in our numbers going forward, but often we are working with retail regulators to share those benefits with customers. And as we do that, those monies would flow back to customers as well.
Great. Thank you.
Thank you, Angie.
We have no further question at this time. I will now turn the call back to Mr. David Thornton.
Thank you, Charlie, and thanks
to everyone for participating this morning. Our annual report on Form 10 ks is due to the SEC on March 1 and provides more details and disclosures about our financial statements, events that occur prior to the date of our 10 ks filing that provide additional evidence of conditions that existed at the date of the balance sheet would be reflected in our financial statements in accordance with generally accepted accounting principles. Also, as a reminder, we maintain a web page as part of Entergy's Investor Relations website called Regulatory and Other Information, which provides key updates of regulatory proceedings and important milestones in 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. And this concludes our call.
Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. Have a wonderful day. You may disconnect.