Executive Summary / Key Takeaways

• Strategic Transformation: Entergy New Orleans, LLC (ENO) is undergoing a significant strategic shift, marked by the recent divestiture of its natural gas distribution business, allowing for a sharpened focus on its core electric utility operations and substantial capital investments in grid modernization and resilience.
• Robust Capital Investment Plan: ENO has outlined an ambitious capital investment plan of $785 million from 2026 through 2029, targeting enhanced reliability, resilience, and customer experience through upgrades in distribution, transmission, and utility support infrastructure.
• Stable Regulated Earnings: As a regulated utility, ENO benefits from predictable revenue streams and cost recovery mechanisms, which underpin its financial stability despite fluctuations in volume/weather and operational costs.
• Focus on Resilience and Efficiency: ENO's technological differentiation centers on continuous investment in hardening its grid against extreme weather events and improving operational efficiency, a critical advantage in its service territory.
• Competitive Landscape: While smaller in scale than diversified peers like Southern Company and Duke Energy, ENO leverages its deep local regulatory expertise and focused infrastructure investments to maintain a strong competitive position within its specific market.

The Resilient Core: Entergy New Orleans' Strategic Path Forward

Entergy New Orleans, LLC ($ENO), a vital subsidiary of Entergy Corporation (ETR), operates as an integrated electric utility, providing essential power generation, transmission, and distribution services to the vibrant City of New Orleans. The company's business model is fundamentally shaped by its regulated nature, ensuring a stable framework for revenue generation and cost recovery. This regulatory environment, while providing predictability, also necessitates continuous strategic adaptation to evolving market demands, environmental challenges, and technological advancements. ENO's history is one of consistent service in a dynamic region, now underscored by a clear strategic pivot towards enhancing its core electric infrastructure and divesting non-core assets.

A significant recent development in ENO's strategic evolution was the sale of its regulated natural gas local distribution company business on July 1, 2025. This divestiture, completed for a base purchase price of $288 million, represents a deliberate move to streamline operations and concentrate resources on the electric utility segment. The transaction resulted in a $7 million gain for ENO, net of $18 million in transaction costs, though $4 million of this gain was deferred as a regulatory liability to be amortized as customer credits over three years starting September 2026. This strategic streamlining allows ENO to intensify its focus on its primary mission: delivering reliable and resilient electric power.

The broader utility industry is currently experiencing transformative trends, notably the escalating demand for electricity driven by the proliferation of artificial intelligence (AI) and large-scale data centers. This "generational growth" in power demand, as highlighted by industry analyses, presents both immense opportunities and significant challenges for utilities. While ENO's direct service area may not immediately see hyperscale data center development on the same scale as other regions, the underlying trend underscores the critical need for robust and reliable electric infrastructure. This industry-wide shift reinforces ENO's strategic emphasis on grid modernization and resilience as foundational to its long-term viability and growth.

Technological Edge: Fortifying the Grid for the Future

For a regulated utility like Entergy New Orleans, technological differentiation is less about proprietary product manufacturing and more about the strategic application of advanced infrastructure and operational technologies to enhance service delivery. ENO's core technological focus is on building a more resilient, reliable, and efficient electric grid, a critical advantage in a region prone to severe weather events. This involves substantial investments in distribution and transmission hardening, asset renewals, and grid stability projects.

The company's capital investment plans directly reflect this technological commitment. While specific quantifiable performance metrics for ENO's proprietary technology are not detailed, the strategic intent is clear: to improve system performance and customer experience. For instance, investments in grid hardening aim to reduce outage durations and accelerate recovery times following storms, directly translating to enhanced service reliability for customers. These efforts are crucial in mitigating the financial impact of storm-related damages and ensuring business continuity.

Furthermore, the broader Entergy Utility Group is actively pursuing advanced generation technologies. This includes the development of hydrogen-capable simple-cycle natural gas combustion turbine facilities and projects enabled for future carbon capture and storage. While these specific generation projects are primarily undertaken by other Entergy subsidiaries (e.g., Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Texas), they represent the group's collective technological roadmap towards decarbonization and a more sustainable energy future. ENO, as part of this larger utility group, benefits from shared expertise and potential future access to these advanced, lower-carbon generation resources, which could contribute to its long-term energy supply and environmental goals. These group-wide initiatives demonstrate a commitment to leveraging emerging technologies to meet evolving energy demands and regulatory requirements.

Competitive Landscape and Positioning

Entergy New Orleans operates within a competitive landscape characterized by large, integrated utilities. While its operations are geographically concentrated in the New Orleans area, it faces indirect competition from alternative energy solutions and broader competitive pressures within the utility sector. Key direct competitors in the broader southeastern U.S. utility market include Southern Company (SO), Duke Energy (DUK), NextEra Energy (NEE), and Dominion Energy (D).

Compared to these larger, more diversified players, ENO's market positioning is defined by its localized expertise and strong regulatory relationships within Louisiana. This allows ENO to be agile in responding to regional demands and navigating local regulatory frameworks, potentially leading to greater efficiency in disaster recovery and tailored service delivery. For example, ENO's focus on hurricane preparedness and resilience is a direct response to its operating environment, a specialized area where its local knowledge provides a distinct advantage.

However, larger competitors often possess greater scale and diversification, which can translate into stronger overall financial performance and more robust investment in advanced technologies. For instance, Duke Energy is recognized for its advanced smart grid implementations, and NextEra Energy leads in clean energy innovation and efficient renewable integration. While ENO is investing in grid modernization, it may lag in the sheer innovation speed or R&D investment capacity of these larger, more diversified rivals.

From a financial perspective, ENO's latest trailing twelve-month (TTM) P/E ratio stands at 5.27, significantly lower than Southern Company's 22.55, Duke Energy's 20.24, NextEra Energy's 26.02, and Dominion Energy's 21.81. This lower P/E ratio could suggest a more conservative valuation relative to its peers, potentially reflecting its smaller scale or regional concentration. ENO's TTM Dividend Yield of 5.99% is competitive, offering an attractive income component for investors, especially when compared to Southern Company's 2.63% P/B ratio, Duke Energy's 1.89% P/B ratio, NextEra Energy's 3.12% P/B ratio, and Dominion Energy's 1.84% P/B ratio. The company's Debt/Equity ratio of 0.00% (TTM) indicates a very strong equity position, potentially offering financial flexibility for its capital investment plans.

Financial Performance and Liquidity

Entergy New Orleans' financial performance for the nine months ended September 30, 2025, reflects both the strategic divestiture and ongoing operational dynamics. Total operating revenues for the nine months ended September 30, 2025, were $611.35 million, a slight decrease from $624.82 million in the prior year period. This decline was primarily attributable to the absence of natural gas revenues following the July 1, 2025, sale of the natural gas distribution business. Electric operating revenues, however, showed a modest increase in the third quarter of 2025, rising to $220.29 million from $213.66 million in the third quarter of 2024.

Net income for the nine months ended September 30, 2025, saw a substantial increase to $50.80 million, up from $11.29 million in the same period of 2024. This significant improvement was largely driven by a $78.50 million regulatory charge recorded in the first quarter of 2024, related to a settlement with the City Council for sharing income tax benefits. This positive impact was partially offset by a $12.80 million charge in the third quarter of 2025 for the write-off of retained natural gas plant assets not included in the recent sale, and higher interest expense.

Operational expenses also saw shifts. Other operation and maintenance expenses decreased in the third quarter of 2025 due to the absence of gas operations expenses and a $2.40 million gain from the natural gas business sale. Depreciation and amortization expenses remained relatively stable for the nine months ended September 30, 2025, as new plant additions largely offset the absence of expenses from the sold natural gas assets. Interest expense, however, increased by $8.80 million for the nine months ended September 30, 2025, primarily due to higher carrying costs on regulatory liability balances.

Liquidity remains a key focus for ENO. Net cash flow provided by operating activities decreased by $26.10 million for the nine months ended September 30, 2025, compared to the prior year, mainly due to the timing of vendor payments and higher fuel and purchased power costs. Conversely, net cash flow from investing activities provided $156.90 million, a significant improvement from a net use of $124.60 million in the prior year, primarily driven by the $288.30 million in proceeds from the natural gas distribution business sale. Financing activities used $217.70 million for the nine months ended September 30, 2025, reflecting common equity distributions and debt repayments. ENO's debt to capital ratio stood at 52.10% as of September 30, 2025, with a net debt to net capital ratio (non-GAAP) of 49.30%, indicating a sound financial position.

Outlook and Guidance

Entergy New Orleans is embarking on an ambitious capital investment plan, anticipating $785 million in capital investments from 2026 through 2029. This includes $225 million in 2026, $160 million in 2027, $185 million in 2028, and $215 million in 2029. These investments are strategically allocated to distribution and utility support to enhance reliability, resilience, and customer experience, as well as transmission spending to improve reliability and resilience. This forward-looking guidance underscores ENO's commitment to modernizing its infrastructure and ensuring long-term service quality.

The company's outlook is closely tied to regulatory approvals for these capital projects and the ability to recover associated costs. The Generating Arkansas Jobs Act of 2025, while specific to Entergy Arkansas, signals a broader regulatory environment that is increasingly supportive of utility infrastructure investments, potentially setting a precedent for similar frameworks in other operating regions.

Risks and Challenges

Investing in a regulated utility like Entergy New Orleans carries inherent risks. Regulatory constraints and requirements pose a continuous challenge, as capital expenditure plans and cost recovery mechanisms are subject to review and approval by the City Council and other regulatory bodies. Changes in regulatory policy or adverse decisions could impact ENO's financial performance and its ability to execute strategic initiatives.

Operational risks, particularly those related to extreme weather events, remain significant. Hurricane Francine in September 2024 caused widespread power outages and substantial damage, leading to approximately $13.10 million in storm restoration costs that ENO is seeking to recover. The frequency and severity of such events, potentially exacerbated by climate change, represent an ongoing threat to infrastructure and operational continuity.

Furthermore, broader economic conditions, including inflation and interest rate volatility, can affect capital costs and customer demand. International trade policies and tariffs also present a risk, potentially increasing costs associated with capital investments and supply chain disruptions. ENO's ability to attract and retain a talented workforce with specialized skills is also crucial for executing its growth strategy and maintaining operational excellence.

Conclusion

Entergy New Orleans, LLC stands at a pivotal juncture, strategically refining its focus on its core electric utility business following the divestiture of its natural gas operations. The company's investment thesis is firmly rooted in the stability of its regulated earnings and its proactive, substantial capital investment program aimed at enhancing grid resilience, reliability, and customer experience. While ENO operates on a smaller scale than some of its more diversified peers, its deep local market understanding and focused approach to infrastructure modernization provide a distinct competitive advantage in its service territory.

The ambitious capital expenditure plan for 2026-2029, coupled with ongoing efforts to leverage technological advancements in grid management and potentially benefit from broader Entergy group initiatives in decarbonization, positions ENO for sustained, albeit regulated, growth. Investors should monitor regulatory developments, particularly regarding cost recovery for infrastructure projects and storm-related expenses, as these will be critical determinants of future financial performance. Despite the inherent risks of operating in a weather-prone region and the capital-intensive nature of the utility business, ENO's strategic clarity and commitment to foundational infrastructure improvements offer a compelling long-term investment opportunity for those seeking stable returns from a resilient utility.