CenterPoint Energy, Inc (Holding Co)

Good morning and welcome to Centerpoint Energy's second quarter 2025 earnings conference call with senior management. During the company's prepared remarks, all participants are in listen only mode. There will be a question and answer session after management's remarks. To ask a question, please press star one one on your touchtone keypad. I will now turn the call over to Ben Vallejo, director of investor relations. Mr. Vallejo.

Good morning, and welcome to CenterPoint's Q2 2025 Earnings Conference Call. Jason Wells, our CEO, and Chris Foster, our CFO, will discuss the company's second quarter 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-Q and other SEC filings, as well as our earnings materials. We undertake no obligation to revise or update publicly any forward-looking statement. We reported diluted earnings per share of 30 cents for the second quarter of 2025 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, Ben, and good morning, everyone. On today's call, I'd like to address four key areas of focus. First, I will touch on our second quarter financial results. Second, I'll provide an update on the strong growth that our Houston Electric Service territory continues to experience, fueled by a diverse set of economic drivers. I'll touch on our recent announcement to efficiently recycle proceeds through the proposed sale of our Ohio Gas LDC. And lastly, I'll discuss today's announced $500 million increase to our capital investment plan, which will be deployed this year. Today's added customer-driven investments represent our third capital increase this year, now totaling $5.5 billion. Importantly, these increases to our capital investment plans will be funded without the issuance of incremental common equity. Now starting with our second quarter financial results. This morning, we announced non-GAAP EPS of 29 cents for the second quarter. Combined with our reported first quarter non-GAAP EPS, we are approximately 46% of the way to the midpoint of our full year earnings guidance range of $1.74 to $1.76. This quarter's earnings are in line with our expectations for the first half of 2025. As we discussed on our first quarter call, we anticipated earning 40 to 50% of the full year 2025 non-GAAP EPS guidance in the first half of this year. In short, we are right on track. As such, we are reaffirming our 2025 non-GAAP EPS guidance range of $1.74 to $1.76, which equates to 8% earnings 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 our 6% to 8% range annually through 2030. We also expect to grow dividends per share in line with the earnings growth over this same period. Now I want to provide an update on our strong load growth outlook for the Houston Electric Service Territory, which continues to be catalyzed by a discrete and diverse set of economic drivers. Over the previous two quarters, we have shared the drivers of the substantial growth opportunities ahead. By 2031 alone, we expect a forecasted peak load increase of 10 gigawatts, which represents a nearly 50% increase in peak demand on our system over the next six years. We have strong conviction in this forecast as we've made conservative assumptions related to the projects in our load interconnection queue. Notably, Since our first quarter call, our load interconnection queue has grown by six gigawatts, or more than 12%. What differentiates this potential increase is that it continues to be propelled by a diverse set of drivers, including data centers, advanced manufacturing, energy development, and energy exports. Together with a seven gigawatt increase we discussed in our first quarter call, this additional six gigawatts of growth results in a cumulative increase of over 30% to what we included in our ERCOT load filing we made earlier this year. At this time, we are not formally increasing our load forecast above the nearly 50% growth target by the end of the decade. However, these positive trends in customer demand only serve to reinforce our confidence in our load growth forecasts. Most importantly, this growth is already beginning to materialize when observing year-over-year sales trends. Through the first half of this year, weather normalized commercial and industrial sales were up 8% compared to the first half of 2024. The growth we're currently experiencing, in addition to the significant growth we are forecasting, requires the construction and regional build out of our electric transmission system that we will begin executing on in the near term. To fund this exponential growth in our Houston electric service territory, we have continued to evaluate the most efficient forms of financing. This, along with a timing needs for growth-driven capital, ultimately led to our announcement of our Ohio Gas LDC sales process kickoff during the quarter. I'd like to share some additional color around our decision to efficiently recycle capital through the proposed sale of our Ohio Gas LDC. I want to begin by saying that these decisions are never easy. We value this constructive jurisdiction and our great employees that execute and deliver for our Ohio Gas customers every day. However, as our Houston Electric and Texas gas jurisdictions continue to experience increased and accelerated growth, we have decided to shift our strategic focus even more towards Texas. In connection with this shift, we believe the proposed sale of our Ohio gas business makes sense at this time, principally for three reasons. First, this sale will allow us to efficiently recycle cash proceeds to support our continually increasing investment programs. We have previously demonstrated our ability to monetize assets above book value and efficiently reinvest those funds back into our regulated business. This transaction is yet another opportunity that we believe we can execute to finance our increasing capital needs efficiently. Second, we anticipate that the sale of the Ohio gas business will allow us to reprioritize nearly $1 billion of capital expenditures through 2030 to support our Texas jurisdictions. This reprioritization of $1 billion will help support the ongoing set of customer and community needs in Texas. In addition, we anticipate that the investing of these proceeds will result in a higher consolidated cash return in the future. We believe this improved cash flow profile will allow us to more efficiently self-fund our future investments and potentially allow us to rely less on common equity issuances. Third, as we look to optimize our portfolio, it makes sense for us to focus our time and resources in jurisdictions where we have both gas and electric service or we have a larger customer presence. We anticipate that the recycling of cash proceeds from the sale of our Ohio gas business, in addition to this reallocation of capital, will result in Texas constituting over 70% of our portfolio after the close of the sale. The proposed sale of our Ohio gas business and our de-risk equity needs through 2027, which Chris will touch on in his section, has allowed us to increase our capital investment plan by $5.5 billion since the beginning of this year. All of these increases are anticipated to be funded without incremental common equity. In addition, we believe any further increases to our capital plan this year can be achieved without the need for additional common equity. I now want to discuss the $500 million increase to our 2025 capital investment plan, which, as I mentioned, is on top of the $5 billion of increases already announced this year. The $500 million increase announced today will be invested in 2025 as we continue to make targeted system enhancements for the benefit of our customers. This increased capital investment will also help partially offset the loss of Ohio investments upon the closing of the sale. As I discussed earlier, our forecasted load growth will necessitate significant investments in our transmission system in both the near and longer term. To address these forecasted needs, we are taking a leading role with peer utilities in ERCOT to advance the key planning studies and proposed projects that will help us enable the tremendous economic development in the eastern part of Texas. Through our own work with ERCOT's regional planning group, in addition to our own internal work, we have identified approximately 200 projects that we will look to execute over the next 10 years. We believe we are well positioned to execute these projects over this relatively short period of time. Unlike many other transmission systems, we have a significant number of brownfield opportunities where existing transmission structures are already in place, reducing construction costs and increasing speed to energization. Although we've already significantly increased our capital investment plan this year, With our plan now at $53 billion through 2030, we have three significant investment drivers outside of electric transmission that continue to reinforce an upward bias to our capital investment plan. The first of these opportunities is related to furthering our resiliency-based work as we aspire to be the most resilient coastal grid in the country. Over the last 12 months, we've made targeted system improvements through our Greater Houston Resiliency Initiative, which have already yielded improved outcomes for our customers. Notably, through May of this year, the average duration of outages our Houston Electric customers experienced has gone down by nearly half as compared to the comparable period in 2024. This is a significant improvement, and we are proud of our teams and our field crews' focus in executing on our system automation strategy and pole replacement program at such an accelerated pace. However, we know there's still more work to be done. With this in mind, we still see incremental resiliency capital investment opportunities through the end of the decade that go well beyond our current system resiliency plan, which will likely run through 2028. Chris will discuss the progress we've made on our current related regulatory filings in this section. The second driver of incremental capital investments I want to highlight is related to the revitalization of downtown Houston, which our plan does not currently include. This work will require substantial investments to support both growth and modernization of our underground electric system and our substations that support the downtown area as the city is in the process of undertaking a very exciting set of infrastructure plans to dramatically change the downtown landscape. The third driver of potential incremental investments is in our Texas gas service territory. that we've previously mentioned on our first quarter call. This relates to the opportunity to build a high-pressure distribution system in our Texas gas business, which currently relies on a series of contracts that are more costly for customers to move our owned gas throughout the greater Houston region. We're excited to share more about these capital investment opportunities later in the third quarter when we plan to provide a new comprehensive 10-year plan. We continue to believe that we have one of the most tangible long-term growth plans in the industry. The growth our businesses have continued to experience has resulted in $5.5 billion of increased capital investment so far this year, including the $500 million increase we announced this quarter. Even with these announced increases, we believe there is still further upside to our capital investment plan that runs through 2030. Our ability to efficiently fund our plan has allowed us to take our capital investment plan from $47.5 billion at the end of 2024 to $53 billion without introducing additional common equity. In addition, we have de-risked our modest common equity needs through 2027 through executing a forward sale of our common equity earlier in the second quarter. We believe we are well positioned with tailwinds exceeding headwinds, and we are excited to share a refreshed, comprehensive 10-year plan by the end of the third quarter of this year. And with that, I'll hand it over to Chris.