Q4 2016 Real-Time Call Brief

Highlights

We delivered on our commitment to grow our core business and our utility parent and other adjusted earnings reflected over 40% growth year-over-year.

Today, we're initiating guidance for 2017.

We're also affirming on three year utility parent and other adjusted earnings outlook targeting a 5% to 7% growth rate acknowledging that some years maybe above or below that range.

In 2016, we invested in projects like substations to serve new industrial customers particularly in Arkansas and Louisiana and we are on schedule to deliver the Lake Charles transmission project a $160 million investment supporting industrial growth in the region by June of 2018.

MISO approved all 48 of our projects which will remain for final consideration totaling roughly $480 million of transmission investment to serve our customers over the next few years.

This year was a pivotal year for our company, the year in which we fundamentally repositioned our business on a path of steady predictable earnings by growing our business with our utility parent and other adjusted earnings increasing by more than 40% year-over-year.

Fourth quarter consolidated results on slide 5; on the left introduced as reported loss of $9.88 included special items totaling $10.19 due to the decision to sell or close EWC nuclear plants.

On an operational view, our consolidated earnings were $0.31 per share in 2016.

This compares to $1.58 a year ago.

Utility Parent: Operational earnings per share decreased $1.07 quarter-over-quarter.

2015 income tax items net of customer sharing were $1.57.

Adjusted EPS normalized for tax items and weather improved year-over-year.

We recorded an $0.08 charge in fourth quarter 2016 related to the Waterford 3 Steam Generator replacement project.

Billed retail sales on a weather adjusted view increased 0.8% driven by residential and commercial segments.

EWC's fourth quarter results summarized on slide 7: Operational loss of $0.04 in the most recent quarter was lower than earnings of $0.16 a year ago.

On the positive side, BOE litigation awards reduced EWC expenses approximately $0.10 in the quarter.

Operating cash flow in the quarter was approximately $750 million.

This quarter was lower than last year due primarily to deferred fuel timing at the utility.

Full Year Results: Consolidated operational earnings for 2016 were $7.11 per share, higher than the $6 reported in 2015.

Both years included income tax items with the earnings benefit of $0.25 higher in 2016.

Utility Parent other adjusted EPS was $4.38 in 2016, slightly higher than the $4.35 guidance midpoint.

The approximately 40% increase compared to $3.08 in 2015 was due largely to higher net revenue from the same rate actions mentioned in the quarterly drivers as well as industrial sales growth.

EWC operational earnings increased year-over-year to $2.01 per share in 2016 and $1.03 per share.

Income tax items and reduced operating expenses from 2015 impairments were the main drivers.

Full year 2016 operating cash flow was just under $3 billion in 2016, around $300 million lower than the prior year again due largely to timing and recovery of fuel and purchase power cost and lower EWC net revenue.

We're pursuing other opportunities at EWC that could result in an incremental $100 million to $200 million of cash over the next five years.

We are initiating 2017 consolidated operational EPS guidance of $4.75 to $5.35 per share with a midpoint of $5.05.

We're also issuing our utility parent and other adjusted EPS guidance range of $4.25 to $4.55 per share with a $4.40 midpoint.

Our $4.40 midpoint expectation in 2017 is up slightly year-over-year.

Projected retail sales growth in 2017 is about 1.4% in line with our expectations.

This increase includes approximately 3% industrial growth and less than 0.25% increase for residential and commercial sales.

We're projecting non-fuel O&M to be about $2.6 billion which represents a $0.45 per share increase over 2016.

EWC's guidance midpoint is $0.65 per share.

Average energy and capacity revenue is just over $50 per megawatt hour based on year-end prices.

If the corporate tax rate decline the value of these deferred tax assets would be correspondingly lower.

If the tax rate were to move to 20% it could result in a onetime reduction of approximately $580 million, about $180 million of that at the utility.