CenterPoint Energy, Inc (Holding Co)

Good morning and welcome to the CenterPoint Energy's first quarter 2022 earnings conference call with senior management. During the company's prepaid remarks, all participants will be in a listen-only mode. There will be a question and answer session after management's remarks. To ask a question, press star 1 on your touchtone keypad. To redraw your question, press hash. I will now turn the call over to Jackie. Rickard, Vice President of Investor Relations and Treasurer. Ms. Rickard.

Good morning, everyone. Welcome to CenterPoint's earnings conference call. Dave Lazar, our CEO, and Jason Wells, our CFO, will discuss the company's first quarter 2022 results. Management will discuss certain topics that will contain projections and other forward-looking information and statements that are based on management's beliefs, assumptions, and information currently available to management. These forward-looking statements are subject to risks and uncertainties. Actual results could differ materially based upon various factors as noted in our Form 10Q, other SEC filings, and our earnings materials. We undertake no obligation to revise or update publicly any forward-looking statement. We will be discussing certain non-GAAP measures on today's call. When providing guidance, we use the non-GAAP EPS measure of adjusted diluted earnings per share on a consolidated basis referred to as non-GAAP EPS. For information on our guidance methodology and a reconciliation of our non-GAAP measures used in providing guidance, please refer to our earnings news release and presentation, both of which can be found under the investor section on our website. As a reminder, we may use our website to announce material information. This call is being recorded. Information on how to access the replay can be found on our website. Now, I'd like to turn the call over to Dave.

Thank you, Jackie. Good morning, and thank you to everyone joining us for our first quarter 2022 earnings call. I'll run through our latest highlights and headlines as we continue to build on our consistent track record of earnings delivery. First, we have now delivered eight straight quarters of operational execution by this current management team. We are now among the pure-play utilities having sold our remaining energy transfer position and fully exiting our midstream investment well before the year-end 2022 target that we committed to you. The 2022 ET Common and preferred net proceeds were approximately $490 million after taxes, bringing the combined total net proceeds from the ultimate divestiture of Enable to approximately $1.3 billion after taxes. In addition, following our first quarter Arkansas and Oklahoma LDC divestiture, our rate base is now forecasted to be 62% electric based on 2022 year-end projections, getting us into the range of some of our premium utility peers. We utilize the total net after-tax proceeds of approximately $2.9 billion from these two transactions to pay down associated debt and plan to recycle the remaining cash to fund our industry-leading rate-based growth, all without planned external equity issuances. We are also on track to meet our $1.36 to $1.38 non-GAAP EPS guidance for 2022, including the 47 cents we reported for the first quarter of 2022. Keep in mind that the gas LDCs we sold removed 3 cents from earnings this quarter when compared to the first quarter of 2021, and the full year impact of the loss of the divested gas LDCs will normalize to about 2 cents when compared to last year. We also reiterate our non-GAAP EPS annual growth rate guidance of 8 percent through 2024 And from there, the mid to high end of our 6% to 8% growth guidance through 2030. And Jason will get into these details shortly. We also continue to see organic growth across our system, including 11 consecutive years of 2% or greater customer growth in the Houston electric area, a differentiating luxury many other utilities just do not have. We continued working with our customers to identify their needs for increased safety, reliability, and clean, sustainable investments, including Houston's master energy plan called Resiliency Now, which is helping us to determine further capital planning decisions. And we will have more to say on that in future quarters. More importantly, we remain focused on keeping our bills affordable for our customers. We believe that the combination of expected organic growth across our jurisdictions, when combined with our plan to have average reductions of 1 to 2 percent in O&M per year over the course of our 10-year plan, and the securitization charges rolling out of rates in Houston Electric, will create bill headroom to help reduce the impact of new capital spending. Those are our latest headlines. We strive to continue our track record that we've established over the past two years of executing on this world-class investment thesis. Moving to capital investments. We are in year two of our capital plan, which has now increased to $19.3 billion over the next five years. This is an increase from the $19.2 billion we discussed at year end and is our second increase to our five-year plan since our analyst day. Our 10-year plan is still currently expected to be $40 billion plus of investments to support the safety, resiliency, and growth across our system to benefit our customers. We expect that this decade of growth will be achieved through traditional utility investments with no big project or technology bets and minimal regulatory lag. This leads to our industry-leading projected rate-based growth of 9% CAGR over the 10-year plan. In the first quarter of 2022, we invested approximately $1 billion, including the mobile generation leases, and are now tracking slightly ahead of our capital plan for the full year. Today, we are announcing an increase in our estimated spend for 2022 to $4.3 billion, up from $4 billion, as we have accelerated approximately $300 million of work from the latter years of our plan, which Jason will get into shortly. As we execute on the capital investment plan we outlined, we also continue to work closely with our customers to serve their needs including safety, increased system resiliency, and growth to drive further incremental capital investments that are not currently in the $19.3 billion. For example, last quarter we highlighted the initiative called Resilient Now, jointly launched with the City of Houston. We continue to work with the City of Houston and surrounding cities to develop future capital opportunities in the Houston area to help support the community with its continued economic growth, help meet the challenges of more frequent weather events, support the build out of its EV infrastructure, and advance its environmental goals. This includes grid and infrastructure hardening and modernization, residential weatherization, and investments around renewable energy infrastructure. This will be a multi-year investment need. We have made good progress with our customers in identifying the framework for continued grid resiliency and will be excited to discuss more on this topic in the fall of this year. In addition to the city-driven initiatives, the broader Houston port area, which includes the world's largest petrochemical complex, refining industries, and global LNG export facilities, are experiencing unprecedented investment in increased energy needs. We are anticipating increased load demand across our system over the next three to five years to accommodate their continued investment and development needs. This includes at least one gigawatt related to expected projects, which based on current system capacity in that area will likely accelerate our capital investment plans by a further $150 million to meet those needs once these projects are finalized. And there is likely more opportunities as other projects in this area gain further support and move toward final investment decisions. Furthermore, we are also continuing to work with other industrial or manufacturing customers across other areas of our service territory, which could drive further incremental investments. It's fair to say that when our investments are helping support the economic vitality of the communities that we have the privilege to serve, it is an exciting time to be here at CenterPoint. Shifting to customer affordability, as I stated earlier, as we invest in future capital, we remain focused on how to keep customer bills affordable. One way we can do this is with continued discipline on our operating and maintenance expenses. We have opportunities across our system, which we expect will result in an annual average 1 to 2 percent of O&M savings over the course of our 10-year plan. It is our responsibility as a management team to strive to achieve this benefit for our customers, even in these inflationary times. As we look across our system, we still believe there are plenty of ways to do so. One great example of such work is our Intelis smart meter system deployment, which some of you saw in person back at our analyst day. We initially piloted this program in the first quarter of 2021 and began the official deployment here in our Texas gas business last month. These advanced meters are expected to offer safety, environmental, operational, and cost benefits for our customers. For example, they are designed to enable automatic shutoffs to help reduce the risk associated with safety events, allow for remote disconnects, and centralized meter reads. This program will help drive significant savings across our gas system when deployed fully. We'll soon be working towards implementing this in our other service territories as well. Similarly, our continued execution of our coal transition plan in Indiana is helping avoid what otherwise would be significant customer bill increases related to coal generation. Continued operation of our coal facilities would cost customers an additional $50 per month as federal EPA regulations around operating coal plants, which we are obligated to comply with, become increasingly stringent. All things being equal, we currently estimate that the cleaner portfolio of renewables in the gas CT will result in customer bill increases less than the $10 a month we originally anticipated, while also significantly reducing our carbon footprint. Back in our Houston electric territory, there will be incremental headroom created through the continued roll-off of charges from securitization bonds associated with the 1999 electric market restructuring law and Hurricane Ike from 2007. Back in 2019, two transition bonds ended. The charges related to these bonds of almost 7% of the average residential bill was then eliminated. The bill charges related to the upcoming storm bond rolling off in August makes up over 3% of the current average residential bill, while the charges related to the remaining transition bond that rolls off in 2024 is approximately another 5% of current average residential bills. All of these things will help reduce the impact to our customers of capital investments across our system. and we will seek to keep executing on these kinds of opportunities to keep bills affordable for our customers. So in summary, before I turn the call over to Jason, we are meeting our customers' growing needs across our system due to both organic growth and by upgrading the current system's safety and resiliency needs, which we expect will likely lead to incremental capital above our $40 billion-plus over the course of our 10-year plan. And we plan to fund it without issuing external equity and without straining our balance sheet. Despite this growth, we remain committed to providing affordable service by managing our costs, targeting an average 1 to 2 percent reduction annually in our O&M, taking advantage of our organic growth, and benefiting from things like the regulatory charges that are rolling out of rates at Houston Electric. Our current capital investment plan leads into our 10-year rate-based outlook. We project approximately 11 percent rate-based growth CAGR through 2025, which normalizes into an approximately 9 percent CAGR over the full 10-year plan. From that rate base, we expect industry-leading 8 percent annual non-GAAP EPS growth through 2024 in the mid to high end of our 6 to 8 percent range from there through 2030. And we are excited to share with you later this year the impacts of the expected incremental capital that I have discussed. As I stated in my opening remarks, we are excited about the eight straight quarters of execution and all of the employees here at CenterPoint that are delivering results every single day. We heard loud and clear that many of you wanted CenterPoint to exit the midstream industry. We did it in a way we believe was better and quicker than many of you ever expected. Within four months of the merger between Enable and energy transfer, we've sold 100% of our common units at a 20% premium to energy transfer's unit price when the transaction was announced last February. Not a bad outcome for those shareholders who thought we would never get out of this investment, let alone receive approximately $1.3 billion of net after-tax proceeds from it. We listened to our investors. and are now a peer-play regulated utility with continued growth driven by customer demands. And lastly, we remain focused on achieving our value proposition, which is sustainable earnings growth for our shareholders, sustainable, resilient, and affordable rates for our customers, and a sustainable positive impact on the environment for our communities. With that, I'll turn the call over to Jason.