CenterPoint Energy, Inc (Holding Co)

morning and welcome to Center for Energy's fourth quarter 2022 earnings conference call with senior management. During the company's prepared 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 1-1 on your touchstone keypad. I will now turn the call over to Jackie Rickert, Vice President of Investor Relations and Treasurer. Ms. Rickert?

Good morning, everyone. Welcome to CenterPoint's earnings conference call. Dave Lazar, our CEO, and Jason Wells, our COO, will discuss the company's fourth quarter and full-year 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 10-K, 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 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 use our website to announce material information. This call is being recorded. Information on how to access the replay can be found on the website. Now, I'd like to turn the discussion over to Dave.

Thank you, Jackie. Good morning and thank you to everyone joining us for our fourth quarter 2022 earnings call. It's been nearly two and a half years since I was appointed CEO here at CenterPoint. They have certainly been eventful, and I am pleased with the significant amount of progress that we have made. From managing through a global pandemic to operating through historically extreme weather, to now navigating the highest rate of inflation the U.S. has seen in the last four decades. I believe this is a management team that can take on and overcome any challenge. Since I got here, there really hasn't been a dull moment. But make no mistake, I love leading this company and its many great employees. Through these unprecedented times, CenterPoint employees stepped up and continued to deliver results for the benefit of our customers, communities, and investors. And as most of you have seen, when Jason took over as CNP's President and COO on January 1st, we made a few more management changes to make sure that we are creating a deeper bench and continuing to execute on our succession plan to create a company where our employees have the opportunity to be challenged, grow in their careers, and help us execute our winning strategy. We have a more diverse leadership team than when I first started and one that has certainly become well-regarded in the industry. I firmly believe that we have the right team to execute on what we believe is one of the most tangible long-term growth plans in the industry. And of course, we continue to execute well. I'm happy to share that the fourth quarter of 2022 is our 11th consecutive quarter of meeting or exceeding earnings guidance expectations. Today, we announced fourth quarter non-GAAP EPS of 28 cents and full year non-GAAP EPS of $1.38. This annual 9% growth rate over 2021 establishes a new, higher base from which we will grow our annual earnings for the balance of our plan through 2030. Also keep in mind, we also grew non-GAAP EPS by 9% in 2021. At CenterPoint, we don't use CAGRs for our EPS growth. We are focused on growing off our delivered results each and every year. Today, we are also reaffirming our 2023 non-GAAP EPS guidance range of $1.48 to $1.50, an 8% growth rate at the midpoint from the new higher base of $1.38. Jason and I believe in having transparency with our business operations so we can present our investors visibility into our performance by having one of the tightest guidance ranges and one of the longest duration growth rate targets in the industry. I also want to highlight what else we accomplished just last year. We became a pure play regulated utility with the complete divestiture of our investment and energy transfer in March of 2022. For the benefit of our stakeholders, we recycled those sales proceeds back into our regulated businesses. As a result of this divestiture, well over 95% of our earnings now come from our regulated utility operations. We closed on the sale of our Arkansas and Oklahoma LDCs, for which we received a landmark valuation And once again, we were able to use the sale proceeds to further invest in our regulated businesses for the benefit of both our customers and investors. We completed the final few steps of our Vectron integration, which resulted in a better aligned operational and financing structure to benefit customers and investors going forward. Additionally, We've made great progress on our Indiana Integrated Resource Plan with the approval of the 460-megawatt gas plant earlier this year, the filings for several renewable projects, including our first wind project, and as Jason will discuss, the regulatory approval for the first-of-its-kind Indiana securitization of the A.B. Brown coal facility in early January of this year. As we progress on our IRP, we continue to advance towards achieving our net zero carbon emission goals. And finally, in the third quarter of 2022, we increased our 10-year capital plan by $2.3 billion, taking it from $40 billion plus through 2030 to now $43 billion through 2030. with a focus on additional investments in grid reliability and modernization. This $2.3 billion in additional planned capital should not only allow us to provide safer and more reliable energy for our customers, but should also allow us to continue to reduce O&M over the longer term, which additionally benefits both customers and investors alike. As we have stated in the past, the current capital plan can still be executed with no external equity issuance. On top of the $2.3 billion we formally added to our capital plan, we've also identified an additional $3 billion of other potential capital opportunities. As we've said, we will fold in this additional $3 billion of capital when we believe we can operationally execute it, and minimize the regulatory lag associated in recovering it. 2022 was truly an exciting and productive year here at CenterPoint, and we are confident that this strong momentum will continue into the new year. Now, turning to our earnings guidance. As I stated at the top of my remarks, we earned 28 cents of non-GAAP EPS for the fourth quarter of 2022 and $1.38 for a full year 2022. This represents a 9% growth rate when compared to our 2021 non-GAAP utility EPS. We continue to expect to grow non-GAAP EPS 8% in both 2023 and 2024 and in the mid to high end of the 6% to 8% thereafter annually through 2030. This is an industry-leading growth rate. Jason will provide additional details regarding our financial results later. Now let's move to capital investments. In the fourth quarter of 2022, we deployed a center point record $1.6 billion of capital across our various jurisdictions, bringing our total capital invested for the year to $4.8 billion. The $1.6 billion of fourth quarter capital was approximately $200 million above what we previously indicated on our third quarter call. Some of this increase was due to initial investments made to facilitate the expansion of an already world-class facility, the Texas Medical Center, or TMC, as it begins its expansion to double its size over the next five years or so. Over those next five years, we are anticipating investing over $200 million in the TMC and surrounding community. These investments will consist of a large new substation and several system hardening projects impacting and strengthening the resiliency in the TMC area. This will also include reinforcing transmission and distribution lines and strengthening current substation equipment. The expansion of the TMC exemplifies the continued growth in the Houston area as it remains an attractive city in which to live and work. So for those of you that worried that our organic growth would slow post-COVID, it just has not happened. Let's look at the numbers. Since the COVID recession, the state of Texas has added nearly 1.1 million jobs, a testament to the underlying fundamental strength of the Texas economy as a whole. Looking at things more locally, amazingly, over the past year, the greater Houston area saw record employment growth with an estimated 179,000 jobs added. It also saw its population increase by almost 300,000 people to nearly 7 million. This is now like adding a city the size of Irvine, California to our footprint in just one year. We see this trend continuing as the Texas miracle keeps humming along. Housing starts for the combined Houston and Dallas area over the last year saw a combined 153,000 housing permits in 2022, nearly 40,000 more units than the entire state of California during the same period, which has nearly 25 million more people. This business and residential organic growth continues to drive the potential for the additional upside to our existing $43 billion 10-year capital plan that I discussed earlier. Therefore, our plan also allows for flexibility and potential capital spend upside through 2030 and beyond as we see additional opportunities to support our customers' own growth plans. This growth is just one of the reasons we believe we are uniquely positioned as a company. Despite the many moving parts impacting our plan, we remain confident in our continued ability to execute this industry-leading growth plan. We've taken a conservative approach to estimating organic growth and weather trends, among other assumptions, which we see as potential tailwinds to offset the headwinds of higher interest rates, inflation, and other potential unknown issues that always arise in business. Additionally, our regulatory return assumptions across all of our jurisdictions are generally consistent with what we currently have approved by our various regulators and we are using to manage our business today. With all that being said, one of our key priorities is always to limit the impact of our investments on customer bills, especially during these times of high inflation, rising interest rates, and a potential recession. We believe our capital plan not only benefits customers from a service reliability standpoint, but also from an affordability perspective as well. For example, in the Houston area, which has the highest concentration of our planned capital spend through 2030, we anticipate that these investments, in combination with our O&M reduction goals and securitization charges rolling off, should result in an average customer bill increase of only 2% or less per year, well below current inflation rates. We are also encouraged by the recent decline in natural gas prices, which should create some downward pressure on utility bills. We believe our capital plan around modernization of the grid here in Houston will enhance the customer experience for both our new and existing customers. It will also help accommodate the immense residential and industrial growth the Houston region is now experiencing. These investments should help reduce widespread outages and, in turn, reduce service calls. Fewer service calls, a more reliable system, and a strong, growing organic customer base in the Houston area is also the perfect combination for us to stay on our path of 1-2% average annual O&M reductions over the 10 years of our plan. Next, I want to also briefly discuss where we are in our CFO search. First, Jason and I have been thrilled with both the number and quality of the applicants for the CFO position. So far, the process has confirmed what we already knew. This is a really attractive job at a really great company. We are in the process of evaluating candidates to make sure we find someone who will provide a complementary skill set and be a good fit with the rest of our great team we already have in place. And so to close, 2022 was a great year here at CenterPoint, and all of our customers, employees, and shareholders have a lot to celebrate. But we remain very much focused on building a long-term track record of execution for our investors, and maintaining affordability for our customers. We continue to believe we have one of the most tangible growth plans in the industry, as we are uniquely positioned with great opportunities to better serve our growing customer base. Continued organic customer growth, especially in the Houston area, and our opportunities to reduce O&M give us confidence that we can execute our plan. I think I speak for all of us at CenterPoint when I say that we are looking forward to 2023 and building upon an already strong premium utility investment thesis. Finally, I want to acknowledge and thank all of the CenterPoint employees for a job well done last year, especially those that worked through the year-end holidays to ensure the lights stayed on for our customers during the record cold weather that hit millions across the U.S., and also the recent tornado that devastated the cities of Deer Park and Pasadena and surrounding communities in the Houston area. This tornado stayed on the ground for 18 miles and caused more damage than any tornado in Texas in the past 30 years. This management team and all of the employees here at CenterPoint understand our unique responsibility in all of our service territories and appreciate the opportunity to serve our approximately 7 million metered customers. With that, I'm going to turn the call over to Jason.