Entergy Corp. plans to issue $1 billion of equity over the next two years, its CFO said Feb. 23, making it yet another utility with plans to tap equity markets to offset the impacts of federal tax reform.
Entergy Executive Vice President and CFO Drew Marsh told analysts on an earnings call that tax reform will affect the company's cash flow needs, prompting incremental financing to address the return of excess deferred taxes and lower tax expense in rates.
Marsh said Entergy expects to finance this reduction through a combination of utility company debt, parent company debt, internal cash generation and external equity. The $1 billion equity issuance is expected to occur before the end of 2019, he added.
Chairman and CEO Leo Denault said Entergy plans to make rate filings in each of its jurisdictions in 2018 and tax reform is expected to be addressed in the normal course of those proceedings. "We are working with each of our regulators ... and we welcome the change for our customers." Entergy has electric utilities in Arkansas, Louisiana, Mississippi, New Orleans and Texas.
On the company's equity issuance schedule, Denault said, "We will probably start executing in the second half of this year, even though our processes aren't complete, based upon expectations for having to go and do some no matter what."
"And then the question would be how quickly we get the certainty in, and how fast we begin to return those cash flows to customers," he continued. "If it's very quick, then we would accelerate the backend forward. But if it's slow, obviously we wouldn't need the cash until later."
Marsh said the $1 billion equity issuance will get Entergy to "around the 14% range" for its funds-from-operation-to-debt ratio. "That's where we're starting from, and we think that will maintain the investment-grade [ratings] as we've talked about and discussed."
"Of course we'd like to do better than that," he continued. "We're looking for other ways to do that by driving internal cash flows and working with our retail regulators. ... The amount will be varying by the exact timing of the return to customers of any [accumulated deferred income taxes], but that's where we see it bottoming out."
Entergy is aiming to keep its current credit ratings rather than experience a downgrade, Marsh said. "Certainly we're not giving up on that. So I wouldn't say that our current credit rating is going to necessarily fall down a notch, but our commitment is to maintain investment-grade [metrics]."
If the company had done nothing to offset tax reform, Entergy's FFO-to-debt ratio "would've probably been around the 16%, 17% range," he said.
Marsh was firm in declaring that Entergy is on track within its 2018 EPS guidance. "We're not at the bottom of the range," he said. "I will not characterize around the midpoint specifically, but we're not at the bottom of the range."
The company initiated its 2018 consolidated operational EPS guidance of $6.25 to $6.85 and $4.50 to $4.90 for the core unit Entergy calls "Utility, Parent & Other."