CenterPoint Energy, Inc (Holding Co)

Good morning and welcome to CenterPoint Energy's fourth quarter and full year 2024 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 touchtone keypad. I will now turn the call over to Jackie Rickert, Senior Vice President of Corporate Planning, Investor Relations, and Treasurer. Ms. Rickert?

Good morning and welcome to CenterPoint's fourth quarter 2024 earnings conference call. Jason Wells, our CEO, and Chris Foster, our CFO, will discuss the company's fourth quarter and full year 2024 results. Management will discuss certain topics that will contain projections and other forward-looking information and statements that are currently 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 on 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 statements. We reported $1.58 and 38 cents for the full year and fourth quarter of 2024, respectively, on a GAAP basis. Management will be discussing certain non-GAAP measures on today's call. When providing guidance, we use the non-GAAP EPS measure of diluted adjusted earnings per share on a consolidated basis referred to as non-GAAP EPS. For information on our guidance methodology and reconciliation of the non-GAAP measures used in providing guidance, please refer to our earnings news release and presentation on our website. We 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 Jason.

Thank you, Jackie, and good morning, everyone. I would like to begin by extending my sincere appreciation to all of our frontline personnel that work through the unprecedented winter weather we experienced across our various service territories. We experienced sub-zero temperatures in Minnesota, freezing rain in Indiana, and record-breaking snowfall in the Houston area. Through it all, our team worked to keep the lights on and the gas flowing for our customers. On today's call, I'd like to address four key areas of focus. First, I'll touch on the fourth quarter and full year 2024 financial results. Second, I'll provide a broader regulatory update, including highlights of our recently filed system resiliency plan for Houston Electric and touch on the significant progress we've made in our various rate cases. Third, I'll share an overview of the transaction we have proposed to ERCOT that we believe benefits all stakeholders. And lastly, I want to highlight the impressive growth drivers across the Houston area and how that growth informed the substantiated load filing we recently submitted to ERCOT. Now, starting with our fourth quarter and full year financial results. This morning, we announced non-GAAP EPS of $0.40 for the fourth quarter and $1.62 for the full year. Chris will provide additional details of these strong results in his sections. The $1.62 per share translates to 8% growth over our 2023 actual results. This is now the fourth consecutive year of meeting or exceeding our annual non-cap EPS guidance. It is also important to note that we have rebased our long-term growth targets off these higher earnings levels each year as we seek to deliver value for our investors each and every year. Consistent with this approach, we are reaffirming our 2025 non-GAAP EPS guidance range of $1.74 to $1.76, which equates to 8% growth at the midpoint from our delivered 2024 non-GAAP EPS of $1.62. Over the long term, we continue to expect to grow non-GAAP EPS at the mid to high end of the 6% to 8% range annually through 2030. We also expect to grow dividends per share in line with earnings growth over the same period of time. Now turning to my second key area, an update on our broader regulatory efforts, starting with our recently refiled system resiliency plan at Houston Electric. In line with our commitments, we refiled our system resiliency plan at the end of January. This filing proposes a total spend of $5.75 billion from 2026 through 2028 to improve system resiliency. Five and a half billion of this spend is related to capital expenditures. Chris will discuss the associated capital expenditure increase from our previous plan in his section, but I want to briefly touch on the system improvements we are focused on in this filing. Our plan outlines 39 specific resiliency measures that are designed to strengthen tens of thousands of miles of our transmission and distribution system. The investments included in our filing represent the largest single investment in grid resiliency in our company's history as we work to improve the customer experience for those that live and work in higher risk areas. As a result of our planned work through 2028, we expect that our transmission system will be fully hardened with no remaining wood structures and that nearly all substations will be elevated above the 500-year floodplain. I am proud to say that with our accelerated pace, in less than a year since Hurricane Beryl, we will have more than doubled the number of circuits that have automation on our system, and we won't stop there. With our system resiliency plan, in another three years, we will triple the number of automated devices since Hurricane Beryl. We estimate that our actions over the next several years will save customers more than a billion outage minutes in extreme weather events. In addition to contributing to an improved customer experience, beginning in 2029, these investments are anticipated to result in an estimated $50 million of reduced storm-related costs per year, which naturally support lower electric delivery charges over the long term. As I've mentioned before, this is not the beginning of our journey to a more resilient system, but an acceleration of what we started a few years ago. when we targeted hardening and modernizing the electric transmission backbone, as well as some of our substations prone to flood risk. We believe that these investments, combined with the other actions outlined in our Greater Houston Resiliency Initiative, set us on a clear path to become the most resilient coastal grid in the country. Next, I want to focus on the continued regulatory progress at Houston Electric. As many of you recently saw, we reached a settlement in our 2024 rate case. We believe that the proposed settlement is constructive for both our customers and our investors. The proposed settlement, if approved, includes an annual revenue requirement decrease of $47 million, which translates to a reduction of approximately $1 per month in the average electric delivery charge for our residential customers. It also includes an increase to both our return on equity and equity ratio. These improvements strengthen our competitiveness in the capital markets that we regularly access to efficiently fund capital investments for the benefit of our customers. This unique outcome of lower customer bills with improvements of both the cost of capital and capital structure comes despite the fact that we've increased our vegetation management spend by 45% over the last few years. It also exemplifies our ability to improve customer outcomes while also efficiently executing O&M reductions throughout the business. We'd like to thank all of our stakeholders for working together to submit to the PECT what we believe is a constructive settlement for all parties. Beyond the rate case, we've also made progress on our traditional interim mechanisms and storm cost recovery filings at Houston Electric. Chris will provide further details regarding these items in his section. Now turning to Indiana Electric. A few weeks ago, we received a final order in our Indiana Electric rate case. The final order was approved in line with the settlement filed in May of last year, which included a total annual revenue requirement increase of approximately $80 million and a 9.8% return on equity. We believe this is a fair and balanced outcome as we have continued to invest for the benefit of our customers while also being conscious of the impact of our capital investments on the customer bill. Our move away from older generation facilities has enabled us to eliminate nearly $40 million of O&M directly benefiting our customer bills. We also previously securitized the remaining book value of one of our aging facilities, foregoing profits related to this plant for the benefit of our customers. Moving forward, we will continue to be mindful of our customer bills and their reliability needs and work with stakeholders to achieve balanced outcomes for all parties. Moving to our Minnesota gas rate case. During the fourth quarter, we reached an all-party settlement in our Minnesota gas rate case. The settlement includes a total revenue requirement increase of nearly $104 million for 2024 and 2025, which reflects over 75% of our proposed revenue increase of approximately $136 million. Interim rates for the 2024 increase went into effect in January of last year, and interim rates for 2025 went into effect last month. These rates closely mirror the increased revenue requirement included in the proposed settlement that is now pending a final order from the Minnesota Public Utilities Commission. The Commission has a statutory deadline of July 1st to issue its final order in this case. We also want to thank all stakeholders for working together to achieve what we believe is a strong outcome for all parties. Finally, I want to briefly touch on our rate case for Ohio Gas. At the end of October, we filed our Ohio gas rate case application, which included a revenue requirement increase of $99.5 million. Over the last several years, we've had one of the lowest customer bills in the state. Our request reflects an investment recovery rate that will put us more in line with our Ohio peers. In addition, this larger revenue requirement increase will allow us to more efficiently fund and continue to prioritize pipeline modernization investments that we believe contribute to the overall safety and efficiency of the system. Before closing out my remarks on our regulatory progress, I want to put into context what has been a very busy and constructive regulatory cycle. Over the last 18 months, our teams have been busy as they have filed five rate cases. Of the five, we have received final orders in two and are awaiting approval of settlements for our Houston Electric and Minnesota gas businesses. Together, these four rate cases represent over 80% of our enterprise rate base. Should these cases be improved in line with their current proposed settlements, we will have been able to improve our consolidated return on equity and equity ratio, which naturally increases the earnings power of the company. I want to thank all of our teams for their hard work and dedication for working with stakeholders to achieve such strong outcomes for both our customers and our investors. Now I'd like to provide an update on our proposed temporary generation transaction. Through engagement with a diverse set of stakeholders, it is clear that there is no longer a desire for transmission and distribution utilities in the state to invest in large temporary generation facilities to mitigate the impact of large load shed events. In response to this, We have worked with the same set of stakeholders to develop what we believe is a truly unique Texas solution that benefits Houston Electric customers, other ERCOT customers, and CenterPoint investors. I will briefly walk through the contours of this transaction, and Chris will provide additional details related to the financial impacts. Our proposal to transfer the use of our units to a Texas peer utility will provide a temporary bridging solution for summer peak reliability needs in the San Antonio area. We will make these units available for this purpose for up to two years starting this spring. After that, we intend to market the 15 large units to third parties at what we expect to be prevailing higher market rates. Given current market demand, we believe that the revenues earned from marketing these units after the period that they're in San Antonio will exceed the foregone revenues during the period these units are donated to ERCOT at no cost. We truly believe this Texas solution is a win for all stakeholders. As part of this solution, we will make an unprecedented contribution of value for the benefit of the ERCOT grid. Houston Electric customers will be made whole on charges related to the large temporary units. And finally, our shareholders will receive the benefit of their investment when we take into consideration the anticipated profit from marketing after the period these units operate in the San Antonio area. We appreciate all stakeholders for providing their feedback and working collaboratively to identify this unique solution that ultimately benefits everyone. Now switching gears, I want to highlight the strong organic growth we continue to see, especially in our Texas service territories. While my earlier commentary focused on capital investments related to resiliency enhancements on our system, I want to emphasize that we continue to experience significant electric demand growth across Texas, and particularly the greater Houston area. We are proud to partner with both existing and potential new customers to support their energy needs as our region continues to experience rapid economic development. It is these discussions that have informed our estimated electric load forecast for the Houston region that we recently submitted to ERCOT. I want to briefly touch on what we included in our submission, and equally important, what we excluded. Last year's ERCOT load report was largely focused on Texas electric needs outside of the greater Houston region. We are excited to have now submitted our expected load increase for the greater Houston region this year. Like our peers, we've experienced an unprecedented level of interest in connecting to our grid. In fact, we have received approximately 40 gigawatts in load interconnection requests. Those load requests are incremental to our current peak of about 21 gigawatts. While we're actively pursuing this full set of load interconnection requests, we believe our submission is a more realistic reflection of the load growth that will materialize by 2031. Currently, we are forecasting a nearly 50% increase in peak demand from 21 gigawatts today to nearly 31 gigawatts by the end of 2031. To put that in perspective, the 10 gigawatt increase we are forecasting over the next seven years is more than the increase the greater Houston region has experienced over the last 25 years. Our rigorous approach to forecasting low demand gives us confidence in our projections. Our outlook also benefits from the fact this growth is not driven by a single industry or theme. Houston has clearly earned its reputation as the energy capital of the world, but our types of economic expansion go well beyond this core sector. It may come as a surprise to some that today, energy constitutes only a little more than a third of the area's economy. When looking at Houston's load drivers, we see three economic activities as the catalyst for significant long-term load growth. First, Houston is a major logistics hub for the United States. Boasting the largest port by waterborne tonnage, Houston is a gateway for goods coming from and going all over the world. We forecast that opportunities for port electrification, fleet electrification, and other associated projects will drive approximately 20% of the 10 gigawatt increase through 2031. Second, Houston is home to the largest medical complex in the world, and it is only growing. It continues to expand not only its offerings for patients who come from all over the globe for treatment, but continues to pioneer medical innovation and medical manufacturing. We forecast that its continued expansion, as well as other commercial activities including data centers, will drive 30% of our anticipated low growth by 2031. Third, Houston is and will continue to be at the center for energy refining and energy exports. As the global energy mix continues to evolve, Houston will play a central role in the development and exportation of that energy. This significant growth will certainly require continued and increased investments in electric infrastructure especially with respect to the transmission system. As a reminder, Houston makes up just over 2% of the geographic area of Texas, but is approximately a quarter of ERCOT's peak load. On any given day, we import as much as 60% of the electricity consumed in the Houston area. Prior to formalizing our capital investment plans related to this immense growth, We need the feedback and final decisions from the Texas Public Utility Commission regarding the 765KV or 345KV standard for transmission build-outs. We anticipate further clarity on this topic by May of this year. Regardless of the direction the PUC-T takes, the continued growth of the Houston area is undoubtedly a long-term tailwind and is one that is truly unique to CenterPointe. The diverse underlying fundamentals driving Houston growth gives us continued confidence in our belief that we have one of the most tangible long-term growth plans in the industry. This growth will continue to drive investment opportunities for years to come, but also provide a sustainable platform for our customers whose charges will continue to benefit from the ever-growing population. We are privileged to serve such a growing and vibrant area and look forward to continuing to partner with customers, communities, and other stakeholders to further enable this truly remarkable growth. And with that, I'll hand it over to Chris.