CenterPoint Energy's Second Quarter 2023 Earnings Conference Call with Senior Management begins with an operator welcoming participants and providing instructions. Jackie Richert then welcomes everyone and notes that there are forward-looking statements and non-GAAP measures that will be discussed. Dave Lesar then takes over and announces that this is the 13th consecutive quarter of meeting or exceeding expectations, and introduces Chris Foster, the newest member of the management team.

CenterPoint is pleased to welcome a new executive onboard and reported a successful quarter with non-GAAP EPS of $0.28 per share despite headwinds. They are reaffirming their 2023 non-GAAP EPS guidance range of $1.48 to $1.50 per share and their 8% non-GAAP EPS growth target in 2024 and mid to high-end of 6 to 8% annually thereafter. Additionally, they are increasing their 2023 capital spend by 11% to $4 billion without any external equity issuance.

The company's formal capital plan for 2030 has been increased from $43 billion to $43.4 billion, and they are confident in their ability to identify opportunities beyond this amount. O&M planned reductions remain on target, and there have been positive legislative outcomes from across their territories which should benefit customers. Houston's growth continues to be strong, with people and companies moving to the city for its affordable and reliable energy.

Dave thanked the employees and stakeholders who worked to repair Houston Electric's system after a series of major storms, and also thanked the Texas and Indiana legislatures for their support. Jason Wells echoed the gratitude and spoke of the team's dedication to restoring service in Houston and Southwest Indiana. He then summarized the legislative summary, mentioning the commitment to keeping Houston Electric customer charges at or below the 2% historical rate of inflation, and the plan to be out of operating coal generation by the end of 2027.

Texas legislators have passed several bills to improve the electric grid's reliability, such as allowing taxes transmission and distribution utilities to file a resiliency plan for cost recovery and allowing distribution capital investments to be recovered twice per year. These changes will help reduce regulatory lag on recovery investments and minimize bill increases for customers.

CenterPoint was able to achieve a positive outcome for customers by enacting various bills, such as one that allows a utility to write a first refusal to building transmission lines. In addition, Minnesota Gas filed for the approval of 25 proposed projects under the Natural Gas Innovation Act, which includes renewable natural gas and green hydrogen. These projects are designed to help advance a cleaner energy future in Minnesota.

Minnesota's constructive environment has allowed for investment in projects that help customers meet emission targets. In Indiana, the Utility Regulatory Commission has approved a 200 megawatt wind project and reapproved three solar projects. Additionally, a gas pipeline was authorized to proceed by the FERC. Approval and reapproval have been received for 1 gigawatt of renewable generation, with 460 megawatt of gas CT expected to provide generation when wind and sun are not available. Securitization bonds of $340 million have been issued to retire the A.B. Brown coal facility, providing customer benefits. The 2023 IRP proposes the retirement of the third coal facility, transitioning to a cleaner, more reliable portfolio of solar, wind, and gas generation at a lower cost than maintaining the existing coal fleet.

The IRP proposed by the company is anticipated to save customers nearly $80 million over the next 20 years by converting the last coal plant to gas and adding 200 megawatts of wind and 200 megawatts of solar by 2030. The company has slightly delayed the timing of their rate case filing in Texas, and pushed the Houston Electric filing to Q1 of 2024. The Minnesota and Indiana Electric Filings are still on track for the end of the fourth quarter of this year. The company has been impressed with the initiative and innovation of their leaders to reduce O&M while positively impacting customer experience.

Jason, the CFO of CenterPoint, discussed the company's second quarter earnings call. He discussed the company's focus on customer-focused investments and working with stakeholders to support legislative and regulatory outcomes that benefit customers. Chris Foster then discussed the company's earnings progress, financing update, including the Energy Systems Group transaction and further reduction in floating rate debt, and a positive revision to the capital plan.

CenterPoint Energy reported $0.17 in GAAP EPS and $0.28 in non-GAAP EPS for the second quarter of 2023, which is 52% of their full year guidance at the midpoint. Growth in rate recovery contributed $0.07, while O&M was flat for the quarter. Interest expense increased by $0.08 due to rising interest rates on short-term borrowings, but the company is making progress in reducing short-term floating rate debt exposure. CenterPoint is confident their plan has enough conservatism to overcome these pressures.

In the second quarter, weather and usage were unfavorable compared to the same quarter in 2022 due to record-breaking temperatures. To strengthen the balance sheet in the rising rate environment, the company reduced its exposure to floating rate debt by nearly $2 billion through securitization, the retirement of A.B. Brown, the sale of Energy Systems Group, and the collection of elevated gas costs. The company is also carrying $400 million of debt at the parent to fund the higher equity layer at Houston Electric and Texas Gas.

CenterPoint has been focusing on maintaining a strong balance sheet and recently divested Energy Systems Group (ESG) in order to focus on regulated utility businesses. The proceeds from the sale of ESG and the Indiana securitization will reduce near-term floating rate debt exposure and provide additional financing flexibility to fund their capital plan. They have invested $1.2 billion and $2.3 billion year-to-date across their service territories, representing 64% of their beginning of the year target of $3.6 billion for 2023.

The company has increased its 2023 capital target from $3.6 billion to $4 billion, resulting in a 10-year capital plan target of $43.4 billion. This increase is a result of improved operational visibility and efficiency. The remaining $2.6 billion in incremental capital opportunities will require additional financing. The company is targeting customer charges to be equal to or less than the historical inflation rate of 2%, and is aiming for sustainable, year-over-year earnings growth through 2030.

Dave Lesar and Jackie Richert discussed the success of the recent legislative session and the benefits it will bring to CenterPoint's customers, stakeholders, and shareholders. Jason Wells then went into more detail about the $400 million CapEx increase and how it will affect CenterPoint's EPS.

CenterPoint's successful legislative session has provided a tailwind for the company going forward, with the two DCRFs per year providing a benefit of $0.05 to $0.07 per year, and the resiliency bill providing a benefit of $0.01 for every $300 million of CapEx eligible for that resiliency definition. The earnings benefits from these legislations will likely follow the rate case, with the DCRFs beginning to impact earnings in 2024 and the remainder of benefits flowing into the plan in 2025 and beyond.

Jason Wells explains the upcoming regulatory calendar for the company, which includes rate cases in Texas Gas, Minnesota, Indiana Electric, and Houston Electric. He emphasizes that the company is managing its O&M well, which should lead to a flat revenue requirement increase in the Texas Gas and Houston Electric rate cases. He also notes that the capital subject to the Indiana Electric rate case has already been reviewed as part of the company's grid modernization program and generation transition plan.

Dave Lesar asked Chris, the CenterPoint CFO, to answer a question about the headwinds and tailwinds for the remainder of 2023. Lesar noted that Chris is responsible for tracking the headwinds and tailwinds every day.

Dave and Anthony asked Chris Foster why the tailwinds are greater than the headwinds. Chris pointed out that there is an additional $220 million in revenue from 2022 distribution investments and mobile generation filings, and the weather has been more of a mixed bag. On the headwind side, interest rates have been high and they are actively working to improve their position by funding [indiscernible] on a standalone basis, which will reduce their reliance on $450 million of intercompany debt from the parent.

Dave Lesar and Jason Wells of Guggenheim Partners asked Chris Foster of the company about the company's credit ratings and their plans for debt. Foster explained that the company's 39% debt ratio was in line with their plan, and that their revenue requirement increases of $430 million and higher weather receipts would be additive to their operating cash flows. He also mentioned that they were making progress on legislative and regulatory implementation outcomes, which would benefit them over time.

Dave Lesar and Jason Wells discuss opportunities for capital investments outside of the $2.6 billion plan. These investments could be related to grid resiliency, electric transmission, and gas transmission. They believe there is an abundance of opportunities for capital investments to help support the continued economic growth of the Greater Houston area.

Management's focus is on efficiently executing, financing, and recovering capital for both customers and shareholders. They have increased their annual guidance for 2023 by 11%, and will continue to evaluate their ability to finance and recover capital, particularly during rate case periods. Shar Pourreza asked about balance sheet repair, and Jason Wells clarified that there is no balance sheet repair on the plan, and that they are targeting a 150 basis points cushion between their actual metrics and their downgrade threshold.

CenterPoint is focused on delevering this year and looking for opportunities to term out variable rate debt. At the end of the second quarter, they had the tightest set of credit metrics, but these will likely improve in the back half of 2023 when they start to collect on the capital they deployed in 2022. Shar Pourreza asked about expectations for post-rate case spending, and Chris Foster clarified that they will be at an elevated level.

Dave Lesar asked Chris Foster to answer Julien Dumoulin-Smith's question about balancing the rate case equation into 2025. Chris Foster discussed the timeline of the Houston Electric case, which is expected to be resolved by Q1 of 2025, and the potential to give an update on the plan through 2030. He also mentioned the emphasis on maintaining the cushion for FFO to debt and the potential to use the DOE loan program to create cheaper financing for customers. Lastly, he mentioned that a lot of non-growth capital could potentially be eligible for the resiliency filing.

Dave Lesar explains that the definition of resiliency investments will be determined by the rule making proceeding by the end of 2023. He estimates that there could be between $500 million and $1 billion a year of capital that could qualify as resiliency investments. He also notes that the company is eligible for recovering or keeping the growth and revenues associated with customer account increases, and about half of their capital at CE relates to connecting new customers.

Dave Lesar and Jason Wells of Houston Electric discussed the importance of the bill they recently passed in order to improve their ability to earn at their allowed return. They also expressed their appreciation for their current business mix, which is 60% electric and 40% gas, and how it could help with funding needs in the future.

The company does not need to sell any assets and is in a good position to play offense, having preserved their optionality. In response to a question about the Indiana Electric rate case coming up later this year, they expect it to be a fairly standard growth-driven rate case.

Chris Foster responds to Durgesh Chopra's question about the timing of an equity update and a new financing plan, saying that the rate cases are the priority right now, and that the company is well-positioned going into them due to its affordability profile for customers.

Chris Foster, the CEO of CenterPoint Energy, discussed the company's short-term emphasis and their plans to finance their targets and recover revenues. He mentioned that they would look for opportunities to efficiently execute and fund their targets, as well as pull in capital. He concluded the call by thanking everyone for participating in the second quarter earnings conference call.

This summary was generated with AI and may contain some inaccuracies.