Q4 2019 Earnings Call
Good morning, and welcome to Centerpoint Energy's fourth quarter and full year 2019 earnings conference call with senior management.
During the company's prepared remarks, all participants will be in listen only mode.
Maybe a question answer session after management's remarks.
You asked a question press star one on your Touchtone keypad to withdraw your question press the pound.
I will now turn the call over to David Marty's Director of Investor Relations Mr. Marty.
Thank you Mike Good morning, everyone welcome to our fourth quarter 2019 earnings Conference call John Summer <unk> interim President and CEO and <unk> Executive Vice President and CFO will discuss our fourth quarter and full year 2019 result.
Slide highlights another key area also with US. This morning are several members of management will be available during the Q and a portion of our call.
In conjunction with Oracle, we will be using slides, which can be found under the investors section on our website Centerpoint energy dotcom.
Please note that we may announce material information using FCC filings news releases public conference calls webcast and post at the Investor section on our website.
Today management will discuss certain topics that will contain projections and forward looking information that are based on management's beliefs assumptions and information currently available to management. These forward looking statements are subject to risks or uncertainties actual results could differ materially based upon factors, including weather regulatory actions the economy commodity price.
And other risk factors noted in RCC filings.
We will also discuss guidance for 2020 to provide greater transparency on utility earnings 2020 guidance will be presented in two components guidance basis utility EPS range at a midstream investment TPS range. Please refer to slide 30 in the appendix for further detail.
Utility P.S. guidance range includes net income from Houston Electric, Indiana Electric and natural gas distribution business segment as well as after tax operating income from the corporate and other business segment.
2020 utility EPS guidance range considers operations performance to date and assumptions for certain significant variables that may impact earnings such as customer growth approximately 2% for electric operations and 1% for natural gas distribution and usage, including normal weather throughput recovery of capital invested through rate cases.
Other rate filings effective tax rate financing activities and related interest rate regulatory judicial proceedings and anticipated cost savings as a result at the merger.
The utility EPS guidance range also assume that allocation of corporate overhead based upon its relative earnings contribution corporate overhead consist of interest expense preferred stock dividend requirements.
The other items directly attributable to the parent along with the associated income taxes.
Utility EPS guidance exclude.
Midstream investment EPS range.
Results related to infrastructure services in energy services prior to the anticipated closing of the sale of those businesses and anticipated costs and impairment, resulting from the sale of these businesses.
Certain integration and transaction related fees and expenses associated with the merger severance costs earnings or losses from the change in the value of sand and related securities and changes in accounting standards.
In providing this guidance centerpoint energy use as a non-GAAP measure of adjusted diluted earnings per share. It does not consider a the items noted above and other potential impacts, including unusual items, which could have a material impact on GAAP reported result for the applicable guidance period.
In providing the 2020 <unk> expected range for midstream investments the company assumes a 53.7% limited partner ownership interest in enable and includes the amortization of our basis different differential enable and assumes an allocation of centerpoint energy corporate overhead based upon midst.
Team investments relative earnings contribution the company also takes into account such factors. This enables most recent public outlook for 2020 dated February 19, 2020, and effective tax rate. The company does not include other potential impacts such as any changes in accounting standards impairments or enables unusual items.
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.
Before John begins I'd like you mentioned that this call is being recorded information on how to access the replay can be found on our website I'd now like turn the call over to John.
Thank you David good morning, ladies and gentlemen.
Thank you for joining us today I'm honored to serve as the interim president and CEO of Centerpoint energy and I look forward to visiting many of you in person in the near future.
As you can see on slide five Centerpoint proudly serves more than 7 million customers across eight states. Our core utility business represents over $15 billion, a bright base, which 96% our electric TMT and gas LDC assets located in some of the most dynamic and high growth service.
Territories in the United States.
Centerpoints compound annual rate base growth is projected to be 7.5% over the next five years.
As we streamlined our business mix Centerpoint is poised to deliver even stronger services for our customers and total returns for shareholders.
Alongside our leadership team I'm excited to lead this company to deliver strong result, and drive shareholder value.
I would like to get give you an overview of both our U.S.G. achievements to date as well as art F. G.
Initiatives and commitments going forward central to our E. S. P values as the content, but to serve our customers and our communities. We are honored to have received numerous record newsroom no excuse me recognitions over the past year some of which are detailed on slide six I would like to thank all of our employees for their.
Effort, often going above and beyond their centerpoint roles to be a positive influence in our communities.
Our U.S.G. effort also reflects our environmental stewardship and leadership.
Slide seven provides detail on our profile as well its efforts to reduce greenhouse gas emissions from our generation assets and our gas distribution system.
First and foremost our assets have a low carbon footprint as generation makes up approximately 4% of our overall rate base and electric PND assets represent 51%.
Since 2005, we have reduced our generation based emissions by 20%.
With respect to our gas distribution business. Since 2012, we have invested heavily in our gas distribution system, reducing greenhouse gases by 30% per unit of natural gas to lever.
We have eliminated all cast iron pipe across our legacy Centerpoint systems, and we anticipate removing all cast iron pipe from our Indiana, and Ohio jurisdictions by 2024, turning to slide eight I'm proud to announce our goal to reduce carbon emissions by 70% from center.
<unk> operations from our 2005 levels by 2035, we anticipate achieving this goal by continuing our robust pipeline replacement program continuing to enhance our generation mix supporting southern Indiana and partner and partnering with our suppliers to lowered their method.
Emissions.
Additionally, it is our goal to reduce carbon emissions by 20% to 30% from natural gas customers usage from the 2005 level by 2040, we anticipate achieving this goal by continuing to work with our customers to improve their energy efficiency and supporting research to improve.
Customer auctions next week, we will publish our full carbon policy, which will be located on our investor relations website under environmental social and governance, along with our corporate responsibility report.
Turning to slide nine I'd like to review Centerpoint strong 2019 financial results.
Full year diluted earnings per share on a GAAP basis word dollar and 33 cents and full year adjusted earnings on a guidance basis were $1.70 lives nine cents per diluted share. This was nine cents above the top end of our guidance range of $1.60 to $1.70.
And represents 12% year over year EPS growth relative to 2018 Shaw will provide greater detail regarding the key drivers of our 2019 earnings performance in her comments.
Continuing on slide 10, let me highlight some additional key accomplishments during 2019.
That contributed to Centerpoint strong financial performance the strength of our core utility business continued to drive earnings growth underpinned by $2.5 billion of utility investment as well as strong fundamental customer growth across both our electric and gas utilities.
We reduced year over year annualized on him by approximately $100 million exceeding our annual cost savings targets as we continue to execute our merger integration.
We settled the rate case for Usten electric our largest or jurisdiction, providing earnings and return clarity going forward for our core utility businesses. Additionally, we received approval from our various regulatory filings in 2019, which resulted in annual revenue increases Oh.
Over $100 million.
In addition to settling the Houston electric rate, we executed on a number of other important regulatory fronts in 2019.
These are shown on slide 11.
Texas Commission approved our Bailey to Johns Creek transmission line at an estimated cost of $483 million.
Which we anticipate will be under construction during 2021 in early 2022.
In 2019, we also reached a settlement in Ohio for $23 million <unk> annual rate recovery.
By the end of 2019, we initiated a rate cases.
Or near the end of 2019, we initiated rate cases in Minnesota, and Valmont East, Texas, requesting $62 million and $7 million, an annual revenue increases respectively.
The Minnesota Commission approved the interim rates, which began on January 1st and the amount of $53 million per year.
Looking ahead, we anticipate Houston electric we'll file a transmission cost of service or Ti costs application in the near future seeking recovery of transmission investment put in service during 2019.
We also anticipate Usten electric we'll file a distribution cost recovery factor or de CRM application in April of 2021 seeking recovery of distribution investment put in service during both 2019 and 2020.
Additionally, we anticipate we will file an integrated resource plan in Indiana during the second quarter. This year, we have completed three or four plan stakeholder meetings in Indiana, and we are eager to put forward a plan that reduces carbon emissions maintains grid integrity and provides a reasonable rates for our customers.
Turning to slide 12, as we announced earlier this month, we have entered into agreements to sell both our infrastructure services business and our energy services businesses for combined gross proceeds of $1.25 billion.
These divestitures are anticipated to provide combined after tax proceeds of approximately $1 billion, which we plan to used to retire debt.
These sales improve our business risk profile and earnings quality and strengthen our balance sheet and credit quality.
Our focus will now be squarely on the utilities.
On slide 13, we show our continued transition to be more utility focused and better aligned our investor risk return objectives.
In 2018, our core utility best businesses represented approximately 70% of overall company earnings.
Our acquisition of Vectren, and the sale with energy services and infrastructure services, coupled with our continued robust utility capital investment are expected to increase the utility contribution to over 80% this year and to to near 90% by 2024.
Sure I will detail later, we intend to continue this progress through rate base investment over the decade ahead.
Helping to fund this growth will be our stake and enable and the material cash flow of over $300 million per year that enable is projected to distribute to centerpoint.
This is shown on slide 14.
As we have performed in 2019 after a thorough strategic review, we decided to retain our stake in enable since its formation in 2013 enable has contributed $2 billion and cash flow to centerpoint and does not require any incremental capital investment from Centerpoint.
Going forward enable is projected to provide approximately $1.5 billion of additional cash flow to centerpoint through 2024.
This capital will be efficiently recycled into the significant rate base investment and growth opportunities at our core regulated utility utility businesses and drive utility earnings growth in coming years.
Let me close by summarizing our investor value proposition as shown on slide 15.
Following our successful Vectren merger integration.
Portfolio transformation.
Centerpoint is committed to delivering increase shareholder value in the coming years, our 13 billion dollar capital investment program combined with a strong regulatory strategy and EM and on him discipline are anticipated to drive 5% to 7% utility EPS growth.
Over our planning horizon combined with our dividends, we anticipate delevering, 8% to 10% total shareholder return.
Additionally, we are firmly committed to maintaining solid investment grade credit quality. We believe this framework position centerpoint for long term success and provides a compelling opportunity for our shareholders. Let me now turn things over to shop.
Thank you Don and good morning, everyone.
Well now turn to the consolidated full year guidance basic EPS drivers on slide 16.
Excluding merger impacts and impairment, we delivered $1.79 cents per diluted share compared to $1.60 in 2018, which is 19 bang or a 12% growth year over year.
The primary factors driving that outperforming where our core utility business.
They newly acquired at that time utility provided 45 cents a positive variance.
Oh and savings rate relief and customer growth from our legacy utility provided 27 cents a positive variance.
Additionally, above normal weather as well as favorable tax outcomes were contributing factors to this outperformance.
Partially offsetting these positive variances were underperformance at energy services, and midstream and merger financing.
Overall, we were very pleased with our strong 2019 performing.
Turning to slide 17, like we mentioned earlier to provide more transparency to our core utility operations, we're now providing utility only.
On a guidance basis for 2020.
Let me start from the 2019 adjusted EPS on a guidance basis.
I couldn't combined earnings from midstream investments energy services and infrastructure services of 50 cents per share our utility is delivered $1.29 cents per share in 2019.
Favorable weather contributed five cents per share and onetime tax and other items counted five cents during the year.
Excluding weather and these onetime items and normalized 2019 utility EPS on a guidance basis, what the dollar 19 per share.
Looking forward to 2020, if you think electric rate case dot com and lower equity return is anticipated to have an annualized year over year negative impact of 15 cents. This.
This includes operating income reduction from the Houston electric rate case settlement and its dilution effect from new equity to address the negative impact on Centerpoints FSRU and credit metric.
Customer growth rate relief and one in management, all our projected drivers of the positive difference or 16 cents earnings.
In total we are forecasting utility guidance basis, yes, earning in the range of $1.10 to dollar 24 2020.
This guidance assumes normal weather. So I will note that this quarter. So far we have experienced on favorable weather and we will work to address the anticipated revenue shortfalls during the remainder of the year.
As noted on the slide since utility EPS range Excos earnings from energy services and infrastructure services prior to the anticipated closing of the sale of those businesses as well as midstream investment.
On February 19 enable affirmed their 2020 earnings guidance of $385 million to $445 million.
Including corporate overhead allocation. This translates to 23 to 28 cents per share for Centerpoint.
However, enable indicated on the call that in order for them to perform at or above the midpoint of the range commodity prices and producer activity would need to improve on current level.
Well, our planning purposes, we assumed the lower end up the range of 23 cents per share.
Guidance bases utility earnings per share are projected to grow 5% to 7% per year on a compound basis over the next five years as shown on slide 18.
This robust growth is driven by 13 billion dollar capital investment plan in our core utility businesses, implying a 7.5% projected rate base both paper.
They started regulated growth is expected to be supplemented by strong customer growth and continued discipline in Ellington management.
Through these efforts.
<unk> power utilities, Arne close to their allowed Aro eat and deliver strong earnings growth over the planning horizon.
Turning to slide 19, we outlined a key element of our utility growth strategy.
96% of our current 15 billion rate base is from lower risk gas LDC and elaborate PND businesses.
And only 4% is from generation assets.
Serving over 7 million customers in growing jurisdictions across eight states, we have scale and geographic diversity.
Coupled with our continued open end discipline, we have the ability to earn close to our allowed our lead while keeping our customer rate competitive [noise].
This combination of Roes and efficiency allows us to continue to deploy capital into our utility to serve our customers need.
As discussed earlier, our rate based hager is projected to be 7.5% driven by $13 billion self regulated capital investment over the planning horizon.
Further we won't be recycling over $309 per year cash distributions from enable to find our significant rate based growth, reducing our external financing.
It's also worth noting that maintaining a strong balance sheet and credit profile is critical to efficiently founding our robust capital investment in our core regulated utility.
We remain firmly committed to our solid investment grade credit quality.
Turning to slide 20.
Oh, sorry projected $13 billion I think that's meant approximately 40% or about a billion dollar a year is anticipated to be deployed for Houston electric.
This capital is driven by continued to load growth system hardening and modernization as well as the construction of the belly to Jones Creek transmission project.
Approximately 50% of the capital or about $1.2 billion per year is projected to be spent at our gas utility.
Primarily for system modernization and pipeline replacement.
Indiana that trade is projected to spend 10% of the total capital and then we will provide more details once we file it I RP in the second quarter.
Additional details of capital spending for Houston Electric and natural gas distribution can be found in the appendix on size 31 33.
As it is just now all of this plan investment results and 7.5% rate based growth as shown on slide 21.
Slide 20 to demonstrate our track record of leading utility customer growth, while keeping customer rate below the national average.
Both our electric and gas utility experienced customer growth rate above the national average, particularly across the greater if you think area in Minnesota.
At the same time, our Texas electric customer rate I blow many of our Pearson to state and a gas rates across all of our jurisdictions in aggregate have been reduced by approximately 1.6% compound annual growth rates over the past decade.
Turning to slide 23, we discuss our continued disciplined and I'm management.
2019, our utilities reduced year over year annualized oh, and by approximately $100 million or 6% from achieving merger and other cost efficiency.
Going forward, our goal is to manage on and relatively flat year over year.
We will continue to look for systematic opportunity, including optimization of organizational design process improvement workforce planning and strategic alignment as low as using data analytics to streamline decision, making across all functional area.
Turning to slide 24, we reiterate our firm commitment to maintaining solid investment grade credit quality.
The divestiture of infrastructure services and energy services.
Put away the use of net proceeds retired that materially improves our binges risk profile and credit quality.
Credit quality will be further strengthened by our disciplined and Oh in M. management and rigorous capital allocation process.
We also committed to raising equity as necessary to support our robust utility capital investment on our credit metric.
Going forward, we target a low to mid 14% FFO to debt ratio as defined by the rating agencies.
On slide 25, we outline our anticipated equity needs to found our utility growth and strengthening our balance sheet.
As illustrated on the chart, we expect to rate $800 million of equity by the end of 2020, primarily to strengthen our credit metrics post Houston electric rate case.
Well it 2021 through 20, Tony to expect to rely on ATM and drip to raise $3 million to $500 million per year to fund, 15% to 20% of our significant capital program.
Turning to slide 26, let me remind everyone of our recently declared a quarterly dividend of 29 cents per share of common stock.
This is the 15th consecutive year that we have increased common stock dividend.
Going forward, we anticipate common stock dividend growth rate of 1.3% per year to achieve our targeted long term payout ratio of mid 70%.
Turning to slide 27 in conclusion, we delivered strong results from 29 team by achieving guidance basis, as 19th 10 or 12% above 2018.
Additionally, we made great strides in continuing to focus around core regulated utility.
We resolved a major regulatory proceedings and focused on driving efficiencies throughout our business.
We also are deploying significant capital to meet our customers need.
The agreements to divest the energy services and infrastructure services businesses further support our fundamental strategy of focusing on core utility operations.
Furthermore, using the sales proceeds retired debt I raising equity to found our utility businesses reinforced our commitment to strengthening our balance sheet and credit quality.
Today, Centerpoint is poised to deliver a 5% to 7% utility EPS growth and 8% to 10% total shareholder return well make remaining firmly committed to our solid investment grade credit quality.
I'll now turn it back to David.
Thanks, Joel we will now open the call the questions in the interest of time I will ask you to limit yourself to one question and a follow Mike.
At this time, we will begin taking questions. If you wish to ask your question. Please press star one on your Touchtone keypad.
You withdraw your question press pound the company request that when taking a question collars pick up your telephone handsets. Thank you. Our first question is from sharper raises from Guggenheim partners.
Hey, good morning, guys.
Good morning.
So to just two questions here separately related.
Could we first touch a little bit on sort of the pushes and takes with your utility growth guide of 5% to 7% when you're kinda factoring ongoing dilution and rate base growth that's around seven and a half I guess sort of what are the drivers. There that's offsetting that dilution I have to imagine I want him is definitely a leverage.
You guys have to pull but I'm trying to get a sense on how much are under earning to be able to pull that lever.
A follow up.
Yeah, sorry, I most of the dilute most of the dilution from seven 7.5 to five to seven is driven by the equity is showing.
As we outlined.
We do.
Lever, we're very focused on finding ways to allow the utility to earn at allowed our OE.
But tell we also have as you're aware in some jurisdictions we have the.
Embedded regulatory lag.
That time, we will have to work through but mostly is driven by equity.
Got it.
Sure.
As a sharp indicated.
[music].
We plan to very closely control on M. Foster maintained a flatter or near flat. We do have very good regulatory mechanisms and states and to avoid regulatory lag, but we do have some regulatory lag, but the primary difference is exactly what Shaw pointed Joes is.
Strengthening the balance sheet as well as we're moving through this time period.
That's perfect and then just on the new equity guide.
Does this update sort of account for like any kind of a draconian scenario for instance, if enable cuts as distribution. So I guess another way to ask this is how much sort of balance sheet cushion doesn't you equity guide provide especially as your de risking the business. So what's the capacity there that you over equitize.
In order to prevent you know situation that maybe you have an accounted for.
We we that we project to maintain a low to mid a 14% FFO to debt I know, we think that provide the healthy Cushing NK cells on anticipated events. So we feel good about that on the effort to that copy.
A coverage ratio.
Terrific. Thanks, guys.
Thanks sharp.
Our next question is from Michael Weinstein from Credit Suisse.
Hi, guys.
Hi, Michael.
Just a follow up on first question is.
Is there a.
Their pricing is there any pricing for oil and gas that you're watching in terms of enables earnings.
Where.
The guidance depends on the pricing oil and gas being about a sir.
Okay limits there that you can discuss.
We don't typically comment on behalf of a of enable I can tell you that.
We are.
We focus on cash on their cash coverage on their balance sheet on their internal Oh, and and management, a their maintenance capital and holiday recycle their cash flow. So they do have a 1.3% cash distribution coverage ratio and there is there one I'll say to you.
Midstream players, where they investment grade credit quality.
The man he meant is doing a good job trying to manage internally. So we will continue to work with them to on to focus on on the cash cash coverage.
As sharp pointed.
1.3 times coverage on the distributable cash flow compared to their distributions as solid to their credit metrics and the history of your even when we saw lower commodity prices down closer to $30 range. They have a history of being able to maintain that because of the strength of that business.
Right and did you say going forward as part of that 5% to 7%.
Is that most of that growth coming from the gas utilities.
After she selectric settlement.
At this point.
I think they both all the utilities are growing at a healthy Uh huh rage, and we outlined that in on the fly that you could see a gas LDC businesses are growing faster. So right now they're about the gas LDC season, Houston electric both have a a 6.7.
$1 a rate base.
And as we continued to grow capital a little bit faster in the gas utility eventually they the gas utilities will have a bigger piece of the the pie, but they're they're all growing at a pretty healthy.
Level, Yeah. If you just look at how we're allocating capital it's about 50% to the gas utility for run rate base and have 40% usten jurisdiction, 10% in Indiana. So put out our capital allocation is pretty evenly split between between the two.
Great. Thank you.
Our next question is from Insoo Kim from Goldman Sachs.
Good morning, Thank you.
Just first question is in your guidance for whether it's this you're over at the five year plan. How do you think about what's embedded in terms of enable preferred send any.
Any timing on your assumption about when they're called.
Yeah, we.
That said the base answer is we expect enable it to make the best decision possible for their unit holders. So we're working very closely with them and to in terms of developing our equity needs and the guidance range, we took into consideration the timing of possible redemption.
Oh, the and <unk> of the preferred but I'm just from a FFO to debt standpoint, we wanted to make sure we have enough cushion to to accommodate either way and the from earning standpoint, our range will cover whether or not they call or this year.
Understood.
And when you gave your updated utility capex for the five years, what are some upside or downside items, you know, we could potentially consider or and then capital that's potentially nine your plan that may show up later this year.
I I mean capital the capital a decision we make that on a daily basis, we have Oh, we have a budget for all the utilities, but time there on the ground to trying to make the best decision possible every day, we do have a pretty rigorous capital allocation process in place.
Such that we take into consideration the rate case filing timing the recoverability they.
And we could do we have a portion of the capital we could pull or or put just thing and based on each jurisdiction situation. So I would feel really good about how we manage through that.
And then on top of that you have a rate relief last year like John said, we will receive approval of over $100 million <unk> fun, Oh, sorry, I rate relief and so we think that will add.
The the growth engine for us and and also the gross.
From the jurisdictions from a customer addition standpoint is that is another factor to take into kind of consideration and then we have.
Weather variability, which show Sean mentioned earlier, but with normalization and with some weather hedging we can minimize the impact will be but we still have impact weather and then we have the upside of being able to do what we did last year as part of the integration and that's very very focused management of although.
I am costs.
Understood. Thank you.
Our next question is from Antwan Armen from Bank of America.
Hey, good morning, Thanks, you for a for taking my question.
Hey, So Ah Hey high a question on a on the balance sheet from so those two to five to 700 million equity issuance bring you to a.
To that low to mid 14% afforded that you highlighted.
And more importantly.
Given that these levels are still a sort of below Moody's 15% Dahlgren threshold are you confident this allows you to stay in the mid triple B level and do remain committed to debt rating.
Oh, we remain a close conversation with our rating agencies as we make decisions.
Business portfolio decisions and a we remain very confident that the recent divestiture of infrastructure services, the energy services as well as our execution on the utility frontera ability to to earn at allowed Aro eat all those things will.
Play and the decision by the rating agencies, we remain very confident that they will see the recent decision to execution favorably.
Got it and then just in terms of timing to get to the low low to mid 50, a 14% is it a is it this year after the issuance was it more the leader to a in the planning period.
The way you do I do remind you that we're expecting a billion dollars health net proceeds from the divestiture of those two businesses in the second quarter. So we have tremendous flexibility in terms of I'm getting to the desired FFO to debt ratio. This throughout the year.
Okay got it thank you very much.
Our next question is from Steve Fleishman from Wolfe Research.
Yeah, Hi, good morning, Hey, Shaw.
I guess this question is for John maybe you could just to give a sense of how the board and Youre looking at timing, it's kind of a permanent CEO and and what you're looking for their I guess also <unk> was there any consideration of.
You know just is centerpoints trucker as it is today kind of set up okay. It or is it need to be.
A combo part of a larger organization.
Yeah.
Number questions all in all in one question, Steve but yeah.
Our board is very.
Focused on exactly what we're focused on that they see the value of our utilities. They see the value of our investment in rate base growing those earnings.
They very much supported over this last time period, simplifying the business or the sale of infrastructure services and and energy services.
And so that strategy.
Is what they support and what they believe is appropriate moving forward and we we believe we have a very good platform as centerpoint hasn't structure today and to do that so that that strategy is very much in place very much what we plan to move forward with Oh my own personal issue.
I am interim president and CEO I have no timeline or no time limit our I'm here.
Sorry.
Proud to be here very focused on executing on this strategy for as long as it is required until the right transitioned to a permanent CEO at the right time is made and I'll focus on real obvious things which is.
Our operational excellence everything from P.S.G. performance, which includes safety compliance reliability.
Managing on M. A cost to achieve these outcomes continuing to strengthen our regulatory relationships. We have a history of good regulatory outcomes will make sure. We continue to strengthen wants to have the best outcomes moving forward, we're going to focus on the the balance sheet to make sure.
For that that we strengthened balance sheet and meet that objective that Shaw talked about this year through the combinations of things she talked about and we're going to focus and what I'd expect when when a new.
Pharmacy outcomes and I'm going to focus and we'll continue to focus on meeting with our investors an understanding your concerns needs make sure that our plan is transparent to you that we communicate what our expectations are true you and network and I know when consistently meet them.
So those are kind of our priorities and I hope I answered all your question. Steve you had no that was very super helpful and I apologize I have one other question for Shaw just any color you could provide on on timing of the equity issuance in 2020.
Oh sure and you are fully aware that the current market conditions are volatile and we believe it is very important to be patient and yet poised to act when market conditions a is it.
Present themselves.
As I said, just now that we're anticipating a billion dollars of cash inflow from.
On the divestiture of the assets in the second quarter. So that we could reduce that in 2020 support our coverage ratio. So we have flexibility to execute our plan and on and so we had just remain opportunistic, but John regardless, we might likely set up that.
ATM and turn on the drip to start contributing the equity needs. It but time will remain opportunistic at this point.
Great. Thank you. Thank you very much.
Thanks. Please remember if you wish to ask a question press Star one thank you for your cooperation.
Our next question is from Paul Patterson from <unk> and Glenrock associates.
Hey, how you doing.
I want to sort of just follow up a little bit on Steve's question.
It does sound like you guys have a great.
Opportunity that true to traveling all these things Oh these opportunities and in the value of your properties.
Well <unk>, but I'm just sort of wondering.
In terms of the potential for a strategic additional strategic.
Options.
Are those off the table I mean, I I, just wanted to get a sense as to whether or not.
What the potential might be in terms of a given the management changes and everything whether or not we might see some different the additional exploration in that area.
No that is not our plan our plan is to execute and really focus on execution as as I just talked about what they don't when I answered Steves question. So.
That is what management will do that was what the board supports and that's what we're going to move forward with.
Okay. Thanks, so much.
Thanks, Paul.
Our next question is from Julien Dumoulin Smith from Bank of America.
Hey, good morning team takes the time.
Hey.
Just following up on a on a few different things real quickly here first and enables strategy I I and I think I hear what you guys is able to join the extra explicit about it given your focus on execution you sold several businesses are ready there is no deviation from the commitment on enable and at the same time on the reading side you gotten there.
Sure. It's is that despite having you know still some unregulated piece here that that that Newport loved Fourteens works.
The agency.
Joanne we don't speak on behalf of the rating agencies, the when they're ready. They are they will let you know we do know that time, we we've been remain very transparent conversations with each of agencies and they know exactly what we plan to do and the fact that we executed what we shared with.
<unk> would give us a lot of credibility from our perspective and at the same time.
As you fully aware the largest entered the largest unregulated businesses or are they infrastructure services and energy services businesses post divestiture, we will be 82% a projected to be 82% utility and 18% enable so you think.
Actually we don't have anything else, we have a little bit businesses, but they're not material at all.
Got it and if I could move back to the core business is in brief I'm just to clarify your earlier comments shop.
Around armed our Weve added through the forecast period, just to clarify very specifically what kind of improvement in like are you baking into that I think that goes back to stars question about the reconciliation between earnings trajectory in rate base growth.
Again, specifically on the lag and then also related to that end reconciling that how much equity are you thinking on an ongoing basis through the full capex period that you disclose rather than just two years of financing here.
To be clear about that yeah, I mean, we have a slide we laid out a in the appendix to show you the thinking around that so I answer the second question first on the.
First of all the we we're fully focused very focused on the AFFO thing they generated FFO, including enable a contribution we're mindful about our dividend is <unk>.
The dividend policy and the board will.
Consider going forward, we're very focused on the capital program and wanting to provide a robust a regulated growth.
That take into account, we take all that into consideration then we and we decide how much external funding we would need to maintain our balance sheet. That's that's basically the thinking process. The reason we didn't provide a any guidance beyond the three years is because.
Hi.
When you that outside of the three year window, you would have to take into consideration rate cases.
On the other regulatory decision and some other things that we might not foresee right now so I don't want to get ahead ourselves.
From that regard.
Yes.
Okay all right.
Fair enough.
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Yeah.
On that little bit all my life piece to be extra clear are you assuming.
Any willingness to share a little bit more of the you're supposed to bypass I know that rate cases.
Matter you.
Yeah sure there is not.
Yeah I did forget your first question. So I see he so Houston electric is about 40% of the business you know they're allowed our OE is 9.4%.
So that the team is highly focused on finding ways to get close to 9.4% that include.
Hi.
Revenue opportunities as well as to own and very disappointing owing in management.
So then the rest of the business.
On the gas utilities, they have a a range of allowed aro ease of 9% to 10% on average I'm I'm generalizing each jurisdiction is different so our goal is try to to get closer to the top end of the I'll see a range in the planning horizon.
Got it Okay fair enough one last quick detail in the Capex budget, what do you still being a in Indiana electric with regards to the.
RFP process and just generation procurement.
I know them intensive yeah, I don't think we're ready yet they there they'll file in the next couple of months. So once that filed a wheel well be happy to share any detail you might want.
Okay Fair enough. Thanks, guys for the time all the best.
Thank you.
Our next question is from Charles Fishman from Morningstar.
Just on a housekeeping slide 30 that that 1.2 billion internal note I.
I mean, that's always been out there you're just it's just your listing it has a line item now where you haven't in the past is that correct or is my memory off.
You are right you always knew that it was $1.2 billion have intercompany loan on from the parents, who then midstream.
Okay. So it's just a question you're just listening up now is in your guidance correct, I mean, where it's always been there, though okay. And then the preferred is in the 29 to 34 cents correct your preferred position and enable.
Yeah, we it is $360 million under 10% rate so Betsy.
At the the parameters of fun.
And that's what that's included in the 29 34 cents not in its not an offset to the.
Corporate mother, or anything Oh, I'm, sorry, I misunderstood. Your question you are asking the 30 I'm sorry can you ask the question, Okay, I'm, sorry, I know.
Well you have a you still have this preferred.
Series a.
Investment and enable okay, you've had that for a couple of years now, but that's included if I look on slide 30. That's included in the 29 that 34 cents.
Correct, you're not treating that as the corporate and other line as an offset or anything.
No. We didn't that's that's outside of the of page 30.
Okay.
Hello.
Okay got it.
Thanks [laughter]. Thank you.
Our next question is from Sophie Karp from Keybanc.
Hi, Good morning, Thank you for taking my question maybe.
A little housekeeping question here are there any non utility business is still left in the corporate and other segment I. I believe they used to be something there.
Oh, they're very little you do know we have a the energy services group the as part of the Vectoring acquisition, they represent about 1% of the business.
We have a small.
At home warranty business.
But but not anything major.
Should we expect those to be sold and one of course of the year also.
No I were not considering those right now.
Got it and then so on them when you when I look at the corporate another guidance and what's embedded in it. So it's mostly I guess, a corporate level that's right on preferred.
What do you assume as far as how long that's remains outstanding did that tried throughout the year Oh went when you when you come up with this guidance.
Hi, I'm not sure I, followed your question, what's what's lasting throughout the year.
<unk> for that.
Hi, everybody that say the parent company debt. So we have that that's on our balance sheet.
Right. So how long do you believe it's going to continue to be outstanding throughout the year. When you come up with the guidance, what's what's baked into the guidance for that.
The current parent company debt level that time that we have on our balance sheet embedded in there.
All right income and maybe could you talk a little bit about.
I think when M. I've heard frightened when we know historically.
Well I am not maybe you can grow faster than inflation for standpoint, and a you've been working on identifying a waste to you know fight that how close are you to understanding what what the drivers there are and what particular problems, you're looking at two and bringing them down.
Oh, the coffee thinking.
I'll start I'm sure John has thought on the a part of the big P., a big piece off they own and effort is through our merger integration. So we achieved Oh, we overachieved our synergy.
Target last year through not only head count reduction on year wine, but throughout the year I'm sorry on day, one but throughout the year. So.
They won we removed a certain amount of Oh I'm sorry on.
Head count and that momentum continue throughout the year and how we also had about a close to 300, a different initiatives on to try to tied to improve programs consolidate function and a with continued improvement process.
I think in mind so.
And then on top of that we are.
I'm looking at organizational design looking at strategic alignment and using more data analytics and so forth. So it's a combination of a lot of initiatives together.
I'd just add to that but the good news you talked about the you know a head start on that's what we're doing the process of the integration gave us a real good understanding of many of the cost levers that we can focus on a and you had success in implementing a number of those but there are others that we have identified.
Hi in areas like a supply chain their areas like how we use contractors and manage those issues will focus on on all of them.
Related to that at the same Tom we're fully committed to make sure we.
Spend what we need to do maintain reliability safety compliance so those items and I I've been a positive.
Companies that have managed tightly though those issues for a number of years. So I I look forward to the getting involved and really focus on the on the right way to manage our cost.
Got it.
Would you be able at some point to commit to more concrete in you know on M. reduction targets.
I think we essentially did because as I said, both John and I said that last year, we cut sheet. The annualized a reduction of 100 million Dollarss. If we essentially maintain that at level. So that's a pretty good targets to think about.
And then hold it as we move forward flat or near near flock and the reason Oh, who plays it that way as well, we absolutely will make sure we spend the dollars we need to win in areas like safety, but my history has always been that when you find areas that you're simply need to spend money on those reasons.
You also worked hard to find other areas, where you can reduce cost. So so that one is our target.
I think that's a.
Pretty straight straightforward expectation that we have for ourselves.
Got it. Thank you that's all for me.
Our last question is from sharper Isa from Guggenheim partners.
Hey, guys. Thanks for taking a quick follow up for me just on Sean can you just a follow up question from what Julian was asking was can you without going into detail at least confirm that in Indiana, you're not assuming any outcome from the IR P.I.E., there's not a place holder.
Amount that's in that number.
There's a place holder amount I don't want you to think we didn't put in place holder place holder and mountain embedded in Indiana numbers.
Okay, great. Thanks, guys I was it.
I believe that's our last question. Thank you everyone for your interest in Centerpoint energy, we will now conclude or fourth quarter and full year 2019 earnings call have a great day.
This concludes Centerpoint Energy's fourth quarter and full year 2019 earnings conference call. Thank you for your participation.
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