Entergy unveils $25B capital plan focused on resilience, decarbonization

Entergy Corp. on June 16 rolled out a $25 billion capital plan focused on strengthening the Gulf Coast utility's infrastructure against future hurricanes and ramping up decarbonization efforts.

The company plans to seek regulatory approval for $4 billion in accelerated resilience spending, but so far is including only $2.2 billion in its capital plan, Entergy executives said during an investor presentation in New York.

The increased focus on resilience spending follows several strong storms that have pummeled infrastructure in the New Orleans-headquartered utility's service territories, which include the Gulf Coast in Louisiana and eastern Texas.

Hurricane Ida made landfall in Louisiana in August 2021, causing nearly $3 billion in damages companywide and leaving more than 1 million customers without power. The company said the hurricane, which prompted a citywide blackout in New Orleans, was "second only" to 2005's Hurricane Katrina.

Entergy's response to the storm flared tension with its regulators on the New Orleans City Council. The company even suggested it might divest subsidiary Entergy New Orleans LLC, though Wall Street analysts were skeptical Entergy would follow through.

Entergy executives pointed out that the utility's service territories experienced 14 named storms in five years.

As a result, Entergy plans to spend about $15 billion over the next 10 years on strengthening its transmission and distribution system, including burying about 770 miles of distribution lines. About $13 billion of the proposed spending involves hardening distribution lines and structures with the rest of the funding earmarked for transmission infrastructure.

"If we look at the cost to recover from the storms, the vast majority of it is distribution, probably 80% or so," said Paul Hinnenkamp, Entergy's executive vice president and COO. "The distribution system is not very hardened today, whereas the transmission system is on the order of 40% or so that is hardened."

The company expects a 55% reduction in storm damage in the Gulf Coast region from the accelerated resilience plan.

A cleaner portfolio

The five-year capital expenditure plan includes $9.6 billion in distribution investments and $3.6 billion funneled to transmission outside of resilience programs.

About $2.3 billion of the capital plan for 2022 through 2026 is tied to renewables investments as Entergy eyes growing its clean energy portfolio to 7 GW over the next five years. The company could boost its portfolio to 14 GW to 17 GW of solar, wind, hydrogen, storage and other sources by 2031.

In September 2020, Entergy pledged to achieve net-zero carbon emissions by 2050 through adding renewable resources and energy storage to its portfolio. The company also plans to complete the retirement its coal fleet by the end of 2030 while investing in hydrogen-capable natural gas facilities and pursuing license extensions for existing nuclear units.

Excluding renewables, Entergy's capex plan proposes spending $6.8 billion on generation.

At-the-market equity financing is expected to fulfill the equity needs for funding the capital plan, Executive Vice President and CFO Andrew Marsh said at the company's analyst day.

The equity needs through 2024 remain unchanged while there is about $1.4 billion in equity needs expected in 2025 and 2026.

The CFO, however, said strategic financing options remain under consideration. This could include selling a minority stake in an operating company, according to Marsh.

"If we wanted to do something like a 20% [operating company] sale, that would take regulatory approval," Marsh said. "But it is something we continue to explore because of the valuation differences."

Along with Entergy New Orleans, the company's other utility subsidiaries are Entergy Arkansas LLC, Entergy Louisiana LLC, Entergy Mississippi LLC and Entergy Texas Inc.

Growth potential

At the analyst day, Entergy also unveiled a 6% to 8% adjusted earnings per share growth rate for 2022 through 2026. In addition, the company projects a 7% to 8% compound annual growth rate in rate base from 2021 to 2026.

Entergy also has the potential to grow its capital plan to $30 billion to $40 billion for 2027 through 2031 with investments in infrastructure, generation and accelerated resilience.

"We've executed through some pretty drastic disruptions if you think about what COVID has done to the economy [and] if you think about what the storms that we've faced have done," Entergy Chairman and CEO Leo Denault told analysts and investors. "We're a pretty damn good investment opportunity right now, but if you look at the opportunities that we have in the future, they are even greater."

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