Q3 2019 Earnings Call
Good question Press Star one in your touched some keypad to withdraw your question press the pound key I will now turn the call over to David more do you director of Investor Relations Mr. Morty. Please go ahead Sir.
Thank you tomorrow.
Good morning, everyone welcome to our third quarter 2019 earnings Conference call, Scott Prohaska, President and CEO , and Charlotte Executive Vice President and CFO will discuss our third quarter 2019 result, and provide highlights on other key area.
So with this this morning are several members of management, who will be available during the Q1 a portion of Oracle.
In conjunction with Oracle, we will be using slides, which can be found at the investor section on our website Centerpoint energy dotcom for a reconciliation of the non-GAAP measures used in providing earnings guidance in today's call. Please refer to our earnings news release and our slides on our website.
Please note that we may announce material information using SEC filings news releases public conference calls webcast and posted the Investor section of our website in the future. We will continue to use these channels to communicate important information and encourage you to review our our website.
Today management will discuss certain topics that will can check contain projections and forward looking information that are based on management's beliefs assumptions and information currently available. The management. These forward looking statements are subject to risks or uncertainties actual results could differ materially based upon factors, including weather regulatory action the economy commodity.
<unk> and other risk factors noted in our FCC filings, we will also discuss guidance for 2019.
2019, 19 guidance basis, EPS range excludes variables as provided in our press release, including certain merger impacts such as integration and transaction related fees and expenses, including severance and other cost to achieve and merger permanent financing impacts in January prior to the completion of the merger and potential impacts.
Pending Houston electric rate case.
The 2019 guidance range considers factors described in our press release and slides, including operations and performance to date and assumptions for certain significant variables that may impact earnings such as normal customer growth usage and weather throughput commodity prices recovery of capital invested through rate cases, and other rate filings, but excluding any.
Potentially impact from the current Houston electric rate case.
As well as the volume of work contracted in our infrastructure services business.
The range also considers anticipated cost savings as a result at the merger and assumes the lower end of enable midstream partners 2019 guidance range. That's provided on enables third quarter earnings call on November six 2019.
Providing this gotten centerpoint energy use and non-GAAP measure of adjusted diluted earnings per share that does not consider other potential impacts such as changes in accounting standards or unusual items, including those from enable earnings or losses from the change in the value of this ends in related securities or the timing effects of mark to market accounting in the company's energy services business, which.
Along with that certain excluded impacts associated with the merger and potential impacts of the pending Houston electric rate case could have immaterial impact on GAAP reported result for the applicable guidance period.
Centerpoint energy is unable to present, a quantitative reconciliation of forward looking adjusted diluted earnings per share because changes in the values and and related securities and mark to market gain or losses, resulting from the company's energy services business or not estimable.
As they are highly variable and difficult to predict do the various factors outside of management's control.
Before Scott begins I would like to mention that this call is being recorded information on how to access the replay can be found on our website I'd now like to turn the call over to Scott.
David and good morning, ladies and gentlemen, thank you for joining us today and thank you for your interest in summary on energy.
Very pleased to report we had an excellent quarter.
Turning to slide five excluding merger impacts. This morning, we reported third quarter adjusted earnings guidance basis of 53 cents per diluted share compared with 39 cents in the third quarter of 2018.
Given the strong performance, we expect full year guidance basis EPS to be near the upper end, our EPS guidance range of $1.60 $2 70.
John will cover our financials in greater detail shortly.
Turning to slide six let me begin my update on Houston electric by sharing what sets Houston electric apart.
Since the beginning of this decade, Houston Electric has added over 400000 customers an increase of more than 20%.
To keep pace with this growth and address needs for enhanced reliability resiliency utility has invested close to $8 billion on transmission and distribution infrastructure, including approximately $1.5 billion of investment that is serving customers today, but it's not yet and rigs.
We work hard to provide safe reliable value added service for our customers every day and we have helped the city of Houston, whether numerous storms, including Hurricane Harvey.
In 2018, we were the recipient of the Edison Electric Institute Emergency Recovery Award for a restoration efforts following hurricane Harvey and other severe storm incident.
Our performance can be largely credited to the investments we've made to harden and advance our system.
Meanwhile, we've been able to keep rates low while achieving the highest residential customer satisfaction ranking among investor owned utilities.
Moving now to the status of the Houston Electric rate case, let me comment on the proposal for a decision or P.F.D. put forward by the administrative law judges.
This document is an interim step on the process and the outcome will ultimately be decided by the commissioners other public utility commission of Texas or PCT.
On slide seven we show the reduction in operating income and funds from operations or FFO as compared to our request and the amount we would have to write off from our rate base. If the P.F.D. were adopted in full.
The proposed reduction in operating income of almost $30 million compared to current rates and the reduction in F. FFO of over $100 million was not anticipated in our prior 2020, EPS guidance, nor our five year earnings growth projection.
We expect at a reasonable increase of operating income from today's rates and a full recovery of our capital investment.
The proposed reduction in earnings is inconsistent with our rate filing which was heavily driven by recovery of over $1 billion in capital that has already been put in service for our customers through 2018, but has not yet being recovered in rates.
Let me remind you that the P.F.D. is not an order from the PCT, we have faith in the fall regulatory process and remain hopeful the commissioners will make a balanced decision that will allow Houston electric to recover all of its capital investments and maintain its credit quality financial integrity and current high quality operations and customer service.
We look forward to a constructive resolution of this case.
Slide eight outlines an estimated timeline for the case going forward. We anticipate our case will initially be addressed at the next PCT open meeting on November 14th and continuing if necessary at the December 13th open meeting.
After the PCT issues. The final order new rates will go into effect 45 days later.
Our natural gas distribution businesses are also performing well.
Looking at slide nine since the beginning of this decade, Centerpoint energy legacy gas utilities have increased customers by nearly 10% and invested over $5 billion on infrastructure.
In addition, we added over 1 million gas utility customers from the merger earlier this year.
Today as a combined gas utility are expected investments for 2019 is over $1 billion.
We work hard to provide safe reliable and value added services to our customers every day.
Additionally, we achieved the highest residential customer satisfaction ranking from JD power among large southern region utilities and have kept rates low.
Our natural gas distribution as shown on slide 10, that's the last call. We have received approval for an aggregate of $41 million of annualized revenue increases.
Specifically, we settled the Ohio rate case, receiving a 23 million dollar increase in the annual revenue requirement.
We also received approval for our distribution replacement writer filing in Ohio, and Formula rate plan filing in Arkansas, resulting in annualized rate relief of $11 million and $7 million respectively.
Additionally, a conservation incentive plan bonus of $11 million was approved in Minnesota.
Furthermore, we recently filed mechanisms in Indiana, and Louisiana as well as a general rate case in Minnesota requesting a 62 million dollar increase in the annual revenue requirement and $53 million for interim rates proposed to go into effect at the beginning of next year.
Lastly, we anticipate filing a general rate case for Beaumont East, Texas Division later this year.
Turning to slide 11, we're on track in Indiana with developing our integrated resource plan or I RP and we continue to anticipate filing the plan during the second quarter of next year.
We are eager to put forward a plan that reduces carbon emissions.
Contains grid integrity and provides reasonable rates for customers.
Following the completion of the IR, Pete we will submit a new investment request plan to the Indiana utility regulatory commission that reflects the IR p. outcomes.
On Slide 12, let me give you some highlights noted on enables earnings call yesterday.
First they're focused on executing growth projects, including Gulf, Ron and the merge Arkoma Scoop and stack transportation project.
Second despite the decline in rig count rig efficiencies continue to help support volumes.
Third enable continues to generate strong cash flows and they forecast a strong distribution coverage for 2020.
Lastly, enable announced their 2020 guidance of $385 million to $445 million of net income attributable to common units.
On slide 13, we show that since its formation through our ownership of common units enable has provided approximately $1.8 billion in cash distributions to centerpoint and we expect the total to amount to grow to more than $3 billion by the end of 2023.
The distributions from enable provide an efficient source of cash to support our utility infrastructure investments.
Let me close by saying that I'm very pleased with our performance in the third quarter and anticipate a strong finish to 2019.
As noted on slide 14, as part of our overall strategy to improve earnings quality through increased relative contribution from our utilities.
We continue to focus on the areas I outlined on the last earnings call executing on merger integration and regulatory proceedings, managing all him and continuing to invest in our utilities.
Our nonutility businesses continued to provide cash which helps fund the investments needed to serve our regulated service territories.
I look forward to continuing to provide updates on our merger progress and delivering on the financial goals, we set forth.
Now, let me turn to Shaw for the financial.
Yeah.
Thank you Scott and good morning, everyone.
I'll now turn to the consolidated quarter over quarter guidance basis, EPS drivers on slide 16.
Excluding merger impact for the quarter, we delivered a 53 cents per diluted share compared to 39 cents for the same quarter last year.
Our utilities provided a 23 cents Cagatay then.
I would like to highlight four areas, which contributed to our utility strong performing.
First operating income of the acquired it vetting utility added 10 cents for the quarter.
Credit I want him savings provided a positive variance of eight cents.
Third rate relief and customer growth provided a positive impact five cents.
Lastly, warmer than normal weather in our existing electric service territory provided approximately three cents a positive impact for the quarter.
Our utilities continue to deliver strong results and we're very pleased with their performance this quarter.
Our nonutility businesses provided a combine to positive variance of 10 cents quarter to quarter.
Energy services and infrastructure services performed as expected, providing a positive variance of 11 cents.
Midstream investments provided a one cents negative thing.
Merger financing an interest expenses are the primary drivers for the remaining negative variance of 19 cents.
Partially offset by a positive variance of three cents driven by lower effective income tax rate.
Turning to slide 17.
Let me provide you some additional color on our utility businesses strong performance in the third quarter.
If you think electric added more than 48000 customers year over year, which equates to approximately 2% growth.
Our natural gas distribution business added more than 47000 customers year over year in our legacy jurisdictions.
Which equates to approximately 1.4% wells.
Including the over 1 million customers acquired from the merger our natural gas distribution business is now the nation second largest gas utility by customer count.
Serving more than 4.5 known customers.
As Scott mentioned, we continue to see momentum from our focus on one end management.
Looking at Slide 18, we're forecasting a positive year over year, Oh, and invariant of close to $100 million for 2019 across all 15 regulated jurisdictions.
This represents 6% year over year reduction.
This is a combination of merger savings and our January one and disappointing efforts.
This holistic expense management approach well continue to be our focus going forward.
In terms of utility capital investment, we expect full year 2019 to be approximately a $100 million higher than originally planned.
The Additionally investment is related to system modernization at Houston Electric and increase the pipeline replacement work for our natural gas distribution businesses.
As discussed on our last call, we anticipate the overall amount of capital investment in utilities for 2020 to 2024 period well be maintained at the level from the previous five year plan.
Our capital planning process is in full swing and we plan to provide a comprehensive update on our capital investment program.
Our earnings call.
We must become more efficient while maintaining our strong focus on safely operating our businesses and investing in infrastructure to provide clean safe reliable and affordable services to our customers.
We will remain focused on managing expenses.
Recently, allocating capital and earning close to our allowed our E.
Turning to slide 19, you will see a breakdown of consolidated diluted guidance based vps and performance expectations for the remainder of 2019.
On the guidance basis, and excluding merger impact year to date through September we have delivered about a 34 per diluted share 10 cents higher compared to the same period last year.
Looking forward to the end of the year operating income from our utility businesses for the year is expected to be 65 cents higher than 2018, driven by rate relief customer growth I went in management weather as well as newly acquired jurisdictions.
Operating income from energy services and infrastructure services is expected to be 13 cents higher than last year, primarily driven by an 18 cents increase from the newly acquired infrastructure services offset by a five cents decrease from energy services.
We expect earning from midstream investments to be six cents short of the performance from last year, reflecting the lower end of enables earnings guidance for the year.
Hey, remaining 63 cents negative variance is driven by 65 cents a suitable to merger financing impact.
Actually offset by a positive variance of two cents are the result of interest expense and pack.
In summary, excluding potential other variability as noted on this slide we expect to deliver full year 2019 guidance basis EPS near the top end of our daughter 60 to $1.70 guidance range.
I understand investors are eager to hear clarity around some of the development surrounding our 2020 guidance EPS growth forecast.
Slide 20 provide a high level the timeline outlining several key activities over the next few months.
Yesterday enable provided their 2020 earnings guidance.
In the coming on we expect clarity on the pending Houston electric rate case.
Further refinement of the five year capital plan, including technology integration costs.
And the resulting financing plan.
Let me share some thoughts on how we plan to provide guidance on the fourth quarter call.
First of all with respect to merger related synergies, we're on track to exceed 50 million targeted for 2019.
And given our year over year on end reduction is approaching a $100 million. This year, we're already on targeted for our anticipated synergies for 2020.
Following this year, we will focus on consolidated all in and management, rather than discussing synergies separately from general Olin and management.
Second we're on track with respect to merger integration and expect total cost to achieve to be between $210 million to $230 million for 2019.
We are in the process, we're finalizing our technology integration plans and expects to provide an updated estimate cost to achieve beyond 2019 on the fourth quarter earnings call.
Given that these costs are not reflective of ongoing earnings potential we intend to continue to exclude cost to achieve from guidance going forward.
Third we intend to provide a 2020 earnings guidance for Centerpoint businesses, excluding enable earnings.
Separately, we will provide an earnings range from enable based on the public guidance they have provided.
In addition, we plan to provide multi year utility EPS growth target.
We believe this approach will better highlight many important aspect of our utility businesses, including capital expenditures rate based growth rate as well as financing requirements associated with associated with the capital programs.
While some issues are still open with respect to our 2020 outlook. Let me remind you at our core business fundamentals are sound.
Customer growth remained steady in our service territory.
We continue to make capital investments in our utility to address growth safety reliability, resiliency and customer service needs across our service territory.
We continue to be committed to maintaining solid investment grade credit quality as we firmly believe that a strong balance sheet is fundamental in providing long term value to our customers and shareholders.
In conclusion, we delivered another strong quarter and remain confident in achieving near the top end of our 2019 guiding basis as range.
We are executing our merger plant and achieving synergies.
We are focused on driving efficiencies throughout our business.
We are deploying significant capital to meet our customers need.
We are using the cash from our nonutility businesses to partially fund the utility capital needs.
Finally, we anticipate utility earnings will make up approximately 75% of our overall earnings this year.
This performance reinforces our commitment and ability to effectively manage the business and deliver on share.
Patients.
I'll now turn it back to David.
Thank you Shaw, we'll now open the call the questions in the interest of time I will ask you to limit yourself to one question and a follow up higher.
At this time will begin taking questions. If you wish to ask your question. Please press star one on your touched him keypad to withdraw your question press pound the company request that when asking a question colors pick up the telephone handsets. Thank you.
Our first question is from Ali Agha and Suntrust.
Thank you good morning.
Early.
Morning.
Scott I believe it was actually Isnt as the last earnings call.
At which you had reiterated eight consolidated long term rotate the 5% to 7%.
Centerpoint off the 18 action base is that no longer operative though.
Ali we have.
Postponed talking about the growth rate until we get clarity on the earnings are on the CE rate case, and I think show also indicated that going forward, we intend to talk about growth excluding enable so those are the two pieces that have.
Entered into the equation now but of those to the biggest is really getting clarity on the Houston electric rate proceeding.
And on the rate proceeding or can you at this give us a I know you laid out some occurs in the slide deck, but.
You know.
Well, they're doing some context.
Can you give us some central if this fall decision does become final.
Relative to expectations channel, how big of a negative it should be.
Yeah, it's a clearly the PFT is not a.
It's not a good outcome, we've tried to communicate that maybe one way to think about it is.
Relative to current rates, we've assumed that we would at least the recovering the additional investments the overbuilt. They execute the billion dollars plus of investment that we have already put in service that is not yet in rates. If we just recovered that piece of that would be.
Hey increase if you will in rates from where we were whereas the PFD has suggested a decrease so.
That is a that's a sizable or a notable difference. Additionally, the.
Reductions NFV FFO.
We're not anticipated as well.
We.
We'll be in a better position to describe the actual impacts of that as we get clarity and I just want to reiterate while the PFD as challenging the commission has yet to weigh in on this and we remain.
Confident in the process and hopeful that they commission will reach a more balanced decision as they look at the effects.
Right and just one quick follow up.
You will still committed to all the knowledge, Italy businesses. This is considered core as well as youre concerned.
The the nonutility businesses, our source of cash generation for us for.
For our utilities, that's how we look at them.
We mentioned on the last call and I'll, just reiterate that our regular.
Our regular cadence of activity is to continually evaluate each of our businesses to figure out if they're providing the maximum value possible to shareholders and we continue to do that on an ongoing basis.
Thank you.
Thank you all they.
Our next question is from Michael Weinstein and credit Suisse.
Hi, good morning.
Good morning.
Could you comment.
Little bit about your strategic.
Plans for the non regulated businesses.
Particularly.
The infrastructure services business.
Going forward.
Tend to hold onto them long term are we.
Looking at Oh sure at some point.
The best way to answer that is maybe a reiteration of what I had just mentioned to Ali and that is.
We see those businesses today as a source of cash for investment in our utility businesses.
And as part of a regular course of management, we evaluate whether businesses are providing the maximum value to shareholders as they they possibly can we look at that on a regular basis as does.
Our board so.
We we continue to think about our businesses in that context with an eye towards.
Value maximization.
And for she I'm just wondering if it looks like you found about $100 million going I'm reductions.
So far and I'm wondering if just generally speaking ahead of.
The fourth quarter review our you.
Pleasantly surprised with what you're finding are you optimistic about the future.
How's the review going so far.
Hi, it's going very well the part of the hundred mailing is what we expected which is the synergy that we set forth a target of 50 plus million dollars. This year. So we are ahead of Oh, that's I think the team has done a really good job from day one.
Line getting cost out 10 continue to focus on basically turning every rock to see where we can.
We can find additional synergies. So the team has done a really good job this year, improving processes and achieving synergies at the same time, we I reiterated our focus on overall Olin and.
Efficiency.
So over the past several quarters that we have seen the result from the continuing to focus on that I think all businesses has.
Their commitment in asking ATSI overall.
Spending plan and make sure we are.
Basically.
Everything we can to become more efficient so I'm very optimistic about about the future about our continued focus on that asset at the same time I think he would allow us to continue to focus on capital deployment and.
Well our utility infrastructure.
Thank you very much.
Our next question is from sharper and Guggenheim.
Hi, Good morning, it's actually conferencing care for sure I just want to congratulate you guys on a good quarter.
Thank you got something.
A couple of questions here of.
Understanding that it's a it's an early outlook on the capital plan, but can you kind of give a little bit of color on any moving pieces that you've kind of seen that you can address at this time versus prior expectations.
And how does that early outlook kind of correspond to keeping the utility growth intact or is there anything incremental.
Yeah sure if the as I shared I checked now we expect about it over $100 million increase from for 2019 compared to what we previously communicated with you for the year.
For the 2020 to 2024 period, a we expect the overall aggregate amounts to be similar to what we shared with you from the prior five year plan on the timing off it could be different and at that one key factor is the I RP refinery.
Rising the I RP in Indiana, so the timing of that well be incorporated.
As well as the new continued need from our legacy utility them I'm from the new acquired a gas. So I would say I would say that overall from an aggregate standpoint, we see we maintain at a similar similar level for the next five years.
Perfect and so kind of as of this kind of plan gets formulated and can you give a little bit of color how it fits with the kind of strategic objectives that you outlined of kind of growing to utility earnings does that kind of a purely organic objective at this point.
Yes, well utilities are continuing to focus on.
Oh and management and tried to be smart about allocating capital and try to achieve closer to our allow our OE.
And is one quick follow up on that so we've kind of the owner management kind of that you highlighted on this call.
It looks like some pretty good numbers.
From kind of where we're setting.
Is there kind of specific programs going forward that you see going on and kind of how how deep you see that pool and just if you can any kind of statements on that kind of recurring nature of.
Savings program going of moving past 2020.
I think the best way to answer that.
And we're very pleased with where we are so far and we're pleased about the projected year end numbers and we think that will be a good starting point going forward I know as we apply a similar disappointing we expect the momentum to continue into the future years.
Perfect. Thanks.
Our next question is from Julien Dumoulin Smith and Bank of America Merrill Lynch.
Good morning team.
In Joanne.
Hey, so a couple of follow ups here on the strategic decisions here, how do you think about the balance sheet, and a 2020 and potential needs to raise capital against.
Also I think if I can square at your your slides also specifically say a five year utility outlook, obviously ex enable but I just want to make sure I understand I mean.
Are we are we to think about the other X enabled businesses is being potentially on the table here to address balance sheet needs or how are you thinking about them at this point.
And then follow up.
So.
In the way I would think about it is what I've said earlier right today, we the non utility businesses and the non enable nonutility businesses are a source of cash for us today.
So when we talk about providing a.
Look going forward it would be for the portfolio excluding.
Enable that's one way to think about it.
You had another part to your question the balance sheet balance sheet I'll, let Sean I'll talk to the balance sheet Julianne. The the CD rate case will be very important component of that decision and that's part of the reason why we.
We are not ready to share the equity financing.
Number yet because.
Scott mentioned to SSL reduction that in itself would impact.
The financing need to maintain similar credit metrics.
So we're not quite ready to address that yet, but we are fully aware that maintaining our credit very important continue to find ways to a in to strengthen the balance sheet is another priority.
Got it alright fair enough and then again you could have on the cost cuts. This year. Indeed can you talk briefly about how you think about that going forward I mean, obviously, we've got a big pending rate case I understand that at the same time, how do you think about narrowing that gap going forward. How do you think about earned returns across.
The utility business.
This year and into next and potentially continue to narrow that gap.
Yes, Joe and I'll start maybe show, but want to add we we have their intention of.
Continuing our discipline around expense management I would say you know the the driving force that allowed us to make a sizable move this year was the was the merger.
But we think of the savings that we have today as a new starting point from which to manage our expense equation going forward.
And we will continue to be.
Very focused on managing expense the actual.
Numbers associated we're still working those out but we see the gains that we've made to date as establishing a new level from which to work.
But to clarify briefly if you can what kind of GAAP are we talking about today versus prospectively, let we can achieve if you will.
From an open end perspective.
Yeah as in urban earned return perspective, how much of a gap is there 10 narrow in your mind.
Given some of the cost reductions that were talking about.
Yeah Julien.
You know.
Fine too I think this year, we are a we close some of the headroom related to from the.
Expected returns versus the allowed returns so, particularly our natural gas.
Hi businesses are doing a really good job and just focusing on every dollar isn't the same so where do we deploy make sure that we provide safety reliable service at the same timing really smart about where to deploy that next incremental dollars.
He the you know the timing of filing a ti costs and Bcr asked that in itself will continue to have allowed us.
For instance, the time you file Ti cost versus time, we see the revenue there. This three months' delay and DCR AFE is falling in April and getting rates in September so the inherent.
I regulatory lag that well continue to be there are the same time I think they continued focus on all of them will give us at.
Some ability I don't think we could close completely the or the gap.
The allowed our OE, but that definitely as it is a focus for us going forward.
Got it alright fair enough guys I'll, let me. Thank you. Thanks.
Our next question is from Insoo, Kim and Goldman Sachs.
Thank you maybe starting with the future rate case, I understand theres a lot of moving parts that go into the 2020 kind of said will be provided in February but Scott when you mentioned that.
Just one we're trying to put some pieces together your original guidance, which they wanted to mid point had about.
Just a billion dollars of spend that you weren't getting the recovery in return on.
And the PFT would result in $27 million of operating income decreased from the current rates. If I just take the rate base mass of the billion and then also.
Small difference.
And the operating income and the PFP that would you know I would calculate something like a 12 13 cents difference all else being equal if that's the way I should think about just how easy Mount was included in the original guidance on what the PFT would imply.
And so I think the math and the way you're thinking is the right line of thinking.
Couple of things. So you know that doesn't include the impacts associated with the reduction in EFO. That's just the kind of the earning side.
Sure I talked earlier about a significant reduction in EFO.
Could.
Accelerate the needs for for equity for example to maintain the current metrics. So it doesn't include that nor does it include what I would consider management response, because depending on the outcome. We would consider what actions we can take to help mitigate the than the negative effects of a of an outcome.
That's why I said, there's a lot of moving parts here and while we're trying to provide clarity about what the Pf. The says I just want to reiterate the processes and over in the commissioners have not yet opined on this and we are very hopeful that the commissioners will have a different view of what's appropriate.
So I'll just add quickly in the original guidance, we also had expectations on enable and any other.
On.
In our utility businesses and you're aware about the development, particularly related to enable they got into the lower end up this year and they just their 2020 guidance that was another component.
Guidance range, yes.
I totally understand all the other moving parts I just didn't want to open up all kind of warms and all those some moving pieces.
Appreciate that maybe secondly related to sticking with C.
If the results of the PST to hold with the associated tax allowances, how does that impact your thoughts going forward on top future capital spend at the utility.
And what type of investments you may make or may not make given the current rate case decision.
Well I'd say look we still have an obligation to serve the customers.
In our service territory and the needs of our customers ultimately are the ones that.
Drive our thinking about about capital.
There is.
A little bit of discretionary capital from a timing perspective, but by and large the capital we spend is needed to.
Serves the needs of of the community.
So we we would have to for example, if there were disallowances upheld we would have to get clarity on.
Views around what is acceptable spend.
Before we go down the path of making the spend that's one example of some management action that we would need to take here.
But the capital itself would be driven by.
Primarily by its going to be driven by the needs of the community as opposed to the necessarily the outcome of the proceeds.
Understood. Thank you very much thank you.
Please remember if you wish to ask a question press Star one. Thank you for your cooperation. Our next question is from Chris to newer and of JP Morgan.
Hi, Good morning, the only question that I had left for you guys was on kind of where you're out right now with Houston electric credit metrics, just kind of where they're at including outlooks.
When you last got update from the agencies and if they use has been part of the discussion at all with fee intervenor, So far and Texas.
Our rating agencies are fully aware of where we are committed the hearing pay standpoint, we keep the communication very transparent open with them I think.
They are just like eager to find out what the final outcome will be from the PTC ruling. So one thing is we're aware of the PSD recommendations, but the other thing like Scott said its couple of times.
We remain hopeful that the final outcome.
Isn't more balance and constructive outcome, so depending on the outcome I think the rating agencies will communicate again with the rating agency about where we are Chris I would also add I think the convener, the interveners or certainly very aware of the.
Views of the rating agencies.
About this the condition that sees in relative to the rate proceeding as well as.
The commission and others as the information.
In views around this have have and concerns quite frankly have been shared as part of the process.
Okay, because certainly some of your peers have.
That is part of their discussions and recent rate case processes there.
Finally, after rising equity layer and other things, yes, absolutely part of our discussion.
So it sounds like certainly part of the discussion, but also nothing is changed there in terms of the focus or lack of focus on that versus prior discussions for other rate cases.
Well again, the only the only information we have so far is the judges view of PFT. That's the only piece of information that's come out about how to think about this the commission has yet to weigh in on this particular issue.
But we made it very clear.
Going into the rate case and throughout the periods in which we can respond to comment and provide our own comments.
Of the issues associated with.
The subject around credit metrics.
Caused by different factors. So everyone is very all the key parties are very aware of this issue.
Great to your point the recommendations from the ALJ, Jay Didnt take that into consideration.
Okay helpful color. Thank you guys Yep.
Our next question is from Charles Fishman and Morningstar Research.
Thank you.
Scott on slide eight you seem to imply.
The decision might not be reached next week, but it seems like everything is cued up for the commission to make that decision as or there's something there are still waiting on or what does your.
Why might they not make a decision next week.
Well.
It could be a number of things that could be that they theres a number of issues that were asking them to opine on there is a.
Full agenda for example at the meeting.
On the 14th.
There are just a number of things going on and while we would perhaps like them to work through every one of our issues and debate and make a decision.
Maybe from a timing standpoint that they don't get through everything in it just gets pushed to the following meeting there not obligated to kind of make a decision.
At this upcoming meeting so thats why we think it's possible that could begin dialogue and push it to another meeting. It's also possible they could get to an endpoint, but nothing other than just the number of issues to be debated and the the size of the agenda.
That will make us thinking it would be pushed sounds like administrative then more than.
And again.
Okay, and then second question on Slide 24.
First nine months on the.
Operating earnings or guidance basis earnings.
29 cents from the utilities positive from the utilities.
Acquired in the merger or 14 cents from the.
Services business, if my math right that's 43.
Yes, 48 cents negative from the merger financing.
It is that's being unfair to say this transaction looks pretty dilutive for the first nine months or should some of that seven cents, a one m. management be credited towards the merger.
Yes, some of the on and management should be credited toward the more merger I think the merger financing itself is around 48, if you add the.
The pickup from the acquired jurisdiction.
Indiana Electrics year to date added 16 cents.
On legacy Vectoring gas added 13, the infrastructure services added 14, and then some of the owing in print management should be credited to the variance you should compare those moving parts to the merger financing. Okay. So at this point through at least through the first nine months of fight site.
Take some credit for the I want to management.
The transaction is roughly breakeven.
Yeah, that's a good way to think about it okay. That's all I had thank you.
Our next question is from Ashar Khan and version.
Hi, Good morning, good earnings going interest of.
The two sets will be providing the peak of four to utility business based on the four cost for this year 2019, and if we come to zone, we ought to be up and.
How much would utility earnings come out to be in that scenario. So wanted to start off with the besins.
Just wanted to get a good idea so under your current guidance for 19 worked toward the utility guidance piece.
Roughly 75% of the Oh our earnings.
Expected to be from the utility keeping in mind or there are several moving parts in there we had some favorable weather.
In there and we also had a favorable some favorable income tax items that time mountain that might not necessarily repeat itself, but roughly the way to think about it is the utility is 75% of the earnings.
Expectations and that's based on todays CP.
Going to treat contract so the outlook for TV.
So the big 75%, though $1.70 it's $1.27.
And how much would you say is whether in the tax items could you just to quantify those.
To date, how much would those yeah, yeah happy too so year to date weather roughly three cents positive.
Okay.
And the favorable tax item for this year alone is roughly five cents.
Okay. So we are running approximately a $1.20 business this year to normalize for Texas and led to a as its public utility would that be spread number yeah close to.
Okay. Thank you so much.
Our last question is from Anthony Crowdell and of Mizuho.
Hey, good morning, hopefully an easy question.
What's the process on the motion for rehearing in Houston quite a timeframe and how long does like.
I guess the clarity on the motion free hearing.
Jason you want to come down here and answer this for me.
And bring our regulatory expert down here.
To make sure he doesn't have to correct me on the timing.
Good morning, Jason Ryan.
So the process for rehearing is that a couple of weeks after.
The border issued by the commission motions for rehearing are due.
And then the commission has up to 100 days from the date of their order.
To rule on.
Motions for hearing.
Or they're just overruled by.
The passage of time.
Do you have any like historical preference in Texas of.
Maybe when orders have been changed true rehearing is that something you guys.
Have or can disclose.
So.
Motions for rehearing are granted and denied depending on the issues that they raise sometimes the.
Motions for rehearing are granted to correct purely administrative item versus changing a substitute.
Ruling sometime.
The there are changes to the substantive rulings.
It does.
On slide 18 states new rates go into effect 45, there. So that you see order becomes final is if you file for a motion for rehearing what does that final date when the motion for rehearing is either granted were denied is that the final date.
Yes.
Got it that's all my questions. Thank you.
And at this time there are no further questions I will now turn it back over to David morning for any closing remarks at this time.
Thank you everyone for your interest in Centerpoint energy, we look forward to seeing many of you at the Edison Electric Institute Conference. Shortly we will now conclude our third quarter 2019 earnings call have a great day.
This concludes Centerpoint Energy's third quarter 2019 earnings conference call. Thank you for your participation you may now disconnect.