Q1 2020 Earnings Call
Participants will be in listen only mode.
We'll be a question and answer session after management's remarks.
The question 'cause Star one.
Touched on keypad to withdraw your question 'cause pound.
I'll now turn the call over to David Muddied Director of Investor Relations Mr. Marty.
Thank you Joe Good morning, everyone. Welcome to our first quarter 2020 earnings Conference call John Summer holder interim President and CEO and Christy, calling it a room executive Vice President and CFO will discuss our first quarter 2020 result, and provide highlights on other key areas also with US. This morning are several other members of man.
Judgment, who will be available during the Q and a portion of our coal.
In conjunction with our call we will be using slide which can be found under the investor section on our website Centerpoint energy dotcom.
Please note that we may now material information using SEC filings news releases public conference call webcast and posted the Investor section of 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.
Forward looking statements are subject to risks or uncertainties actual results could differ materially based upon factors, including weather regulatory actions.
The economy and unemployment commodity prices the impact of cobot 19 pandemic.
And other risk factors noted in our FCC filings.
We will also discuss guidance for 2020 to provide greater transparency on utility earnings 2020 guidance will be presented two components.
Guidance basis utility EPS range, and midstream investment TPS expected range. Please refer to slide 26 in the appendix for further detail.
Utility EPS guidance range includes net income from Houston Electric, Indiana Electric and natural gas distribution business segments as well as after tax operating income from the corporate and other business segment.
The 2020 utility EPS guidance range.
Considers operations performance.
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, and other rate filings effective tax rate financing activities related interest rate regulatory Judy.
Oh proceeding anticipated cost savings as a result of the merger.
And reflects dilution in earnings as if the newly issued preferred stock were issued as common stock. In addition guidance incorporates a kobin 19 scenario range of five to eight cents, which assumes.
Reduced demand levels with April was the peak.
The next anticipated for Olin recovery of incremental expenses, including bad debt. The covert Nike scenario also assumes a gradual reopening of the economy in our service territories, leading to a diminishing levels.
Demand reduction, which would continue through August to the extent actual recovery deviates from these kobin 19 scenario assumption. The 2020 utility EPS guidance range may not be met at our projected full year guidance range may change utility EPS guidance range also assumes an allocation of corporate overhead based upon its relative earnings contribution.
Corporate overhead consists of interest expense preferred stock dividend requirements income on enable preferred units and other items directly attributable to the parent along with associated income taxes utility EPS guidance excludes midstream investment TPS range.
Ultra related to infrastructure services in energy services, and anticipated costs and impairment, resulting from the sale these businesses.
Certain integration and transaction related fees and expenses associated with the merger severance cost earnings or losses from the change the value of ends and related security and changes in accounting standards.
Providing this guidance Centerpoint energy use is a non-GAAP measure of adjusted diluted earnings per share that does not consider 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 bps.
Expected range for midstream investment.
The company assumes a 53.7% limited partner ownership interest in enable and includes the amortization ever basis differential in enable and assumes that allocation of Centerpoint energy corporate overhead based upon midstream investments relative earnings contribution the midstream investments as expected range reflects dilution and earnings is.
The Centerpoint energy newly issued preferred stock were issued as common stock. The company also takes into account such factors as enables most recent public outlook dated ER for 2020 dated may six 2020 and effective tax rate. The company does not include other potential impacts such as any changes in accounting standards impairments werent.
It was unusual items.
For a reconciliation of the non-GAAP measures use in providing earnings guidance in today's call in today's call. Please refer to our earnings news release and our slides on our website.
Before John begin I would like you mentioned that 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 John.
Thank you David and good morning, ladies and gentlemen, we will start with slide four.
Let me begin by thanking our employees and field, our lineman service technicians, and other field employees or central personnel vital to supporting the communities we serve.
During these unprecedented times, we're extremely proud of the tremendous effort. Our employees are making every day to continue providing safe and reliable electricity and natural gas to our customers.
Thank you all four representing Centerpoint, well and living up to our brand promise Sabine always there.
This morning, our company announced strong fourth quarter results along with several other key announcements highlighted on slide five.
Over the past year Centerpoint Energy's portfolio transformation has shown the company's strategic commitment to increasing this focus on the regulated utility sector.
This portfolio transformation is better aligned with our investors risk return objectives and is on the support of several highly credible investors.
Results today, the company announced a 1.4 billion dollar transactions, which was compromised of 700.
Comprised of 725 million of shares of Detroit convertible preferred stock and $675 million UBS shares of common stock as detailed on slide six this transaction in combination with the cash proceeds received from the recent sale of more pipeline.
Wine and Minnesota limited for her infrastructure services business and the pending sale of Centerpoint energy services.
We'll be used to de lever centerpoints balance sheet further strengthening its investment grade credit metrics and overall credit profile.
As a result of this action and the measures we announced on April 1st we anticipate that the company will not raise additional equity capital through 2022.
These.
Equity issuances highlights and substantial value proposition of Centerpoint as a premier regulated utility with high growth opportunities.
Companies robust five year $13 billion capital investment program.
Bonds with a strong regulatory strategy and keynote end discipline.
Our anticipated to drive 5% to 7% utility arms compounded annual growth over the planning horizon, all while keeping customers rates low.
Centerpoint is uniquely positioned to operate from a place of heightened strength and flexibility while remaining focused on providing safe reliable and affordable services to its customers and executing on a wide range of long term proper training opportunities across its utility businesses.
Additionally, probably the slide seven the company has also appointed to do outside directors to serve on the company's board, bringing the total number of directors on the board to 10.
These directors come to the board with exemplary leadership experience unique backgrounds, and well matched skillsets tailored for the needs and opportunities ahead for Centerpoint.
In addition to the new director appointment.
Board has formed a new advisory business review and evaluation Committee of the board.
The New committee will assist the board in evaluating strategic business actions and ultra until well I did the centerpoints portfolio businesses assets and other ownership interest further enhance the companys financial strength positioning and value proposition.
I would now like to provide an update on the cold 19 pandemic.
Turning to slide eight safety is our top priority and we have implemented social.
Sensing protocol rotational chefs and alternative work facilities in order to enhance the safety of our customers employees and contractors.
Centerpoint Energy Foundation has also created a 1.5 billion dollar relief fund to assist nonprofit organizations within our service territories with the effects of the pandemic.
The covert 19 pandemic has impacted almost every facet of our customers wires and we believe it is more important that average four communities that we sure.
We continue to deliver the same reliable service our customers right rightfully expect from us since the start of NIPT pandemic, we'd have not experienced material interruptions in our supply chain, our safety precautions allow us to continue movie for the planned capital projects and we continue to I anticipate fire.
Okay, and integrated resource plan in Indiana, and the second quarter moving to slide nine.
We delivered first quarter guidance basis utility bps up 50 cents per share.
Excluding impairments compared with 41 cents for the first quarter of 2019.
Rate relief customer growth on M. savings and favorable tax impacts associated with the carriers Act as well as having a full quarter for the legacy Vectoring utilities were the primary contributors to the improvement.
For full year 2020, we are reiterating our utility guidance basis, he P.S. wage projected to de lever a dollar Chen to $1.20 and adjusted earnings we're projecting that earnings dilution from a higher share count attributable to the equity issuance, we announced this morning.
And the negative earnings impact from Cobot, 19 will be offset by the previously announced on M. reductions as well the tax benefit from the cares.
Turning to slide 10 regulators have been broadly supportive of the recovery of increase bad debt and other incremental Tobin 19 pandemic related expenses nearly 70% of our jurisdictions have a form of pandemic mechanism in place.
In our largest service territories, the public utility Commission of Texas approved the mechanism to assist the retail electric providers with increased bad debt expense as well as to tableau 10, Debbie related expenses Houston Electric will encounter as a reminder, approximately 70 retail I'd love to providers.
Make up the customer base of Houston electric.
We will continue working with the regulators all the states we serve to ensure customers impacted by the pandemic pandemic are supported.
During the first quarter, we experienced very minimal demand impacts associated with coping 19 essence stay at home restrict restrictions began to take effect across the communities. We serve towards the end of March.
Slide 11, we have provided an early estimated demand impact for April and the anticipated impact on our full year guidance assumption.
The result of stay at home practices, we estimate a modest decline in April demand for our commercial and small industrial electric customers, partially offset by increased residential usage due to folks stain and and working from home.
Natural gas distribution commercial and industrial demand reduction was influenced primarily by restaurant retail manufacturing.
Manufacturing closures.
In total we estimate that reduced demand impacted utility EPS by about one to two cents in April overall based on past experience. We believe our rates have become less sensitive to demand Shaw as a result of rate design efforts in recent years I will note that the U.S.
In electric sensitivities incorporate the new rates that went into effect in April.
For the purpose of our full year 2020 guidance. The range assumes April to be the peak of reduced demand levels and reflects anticipated deferral and recovery again from our expenses include in bad debt.
States are beginning to loosen stay at home restrictions, we assumed a gradual reopening of the economy and our service territories, leading to diminish levels of demand reduction, which would continue through August in our guidance under this scenario, we projected full year Kobin 19 impact.
To be in the range of five to eight cents of utility EPS.
To the extent actual recovery deviates from our cold, but 19 scenario assumptions are projected full year guidance range may change.
Turning to slide 12 on April might we completed the sale of our infrastructure services business, providing approximately 670 million of cash to pay down debt net of taxes.
Completing the sale along with the pending energy services sale.
Proves our business risk profile strengthens our credit quality and reduces our earnings volatility.
Although it is aligned with our strategy to increase the contributions of earnings from utilities.
These divestitures highlighting our commitment to focus seen squarely on high organic growth utilities.
Turning to slide 13, many shareholders have asked about enables overall health, especially given the distribution cuts that was announced on April 1st.
We are confident and enables ability to whether the current downturn for number of reasons first and foremost enable has a strong balance sheet at a healthy coverage ratio second approximately one third from enables business is associated with transportation storage, which we anticipate will provide earnings stability debt.
During the current commodity downturn.
Third dry gas drilling and completions in Haynesville remain in line with expectations.
As oil wells and associated gas and other shale plays or.
Being shot him.
Finally enable has both olin EM and capital levers. They can use will utilize to help maintain cash flow if volumes drop lower than currently anticipate.
Let me close by summarizing our investor value proposition as shown on slide 14.
Following our successful Bakken merger integration and portfolio transformation Centerpoint is committed to delivering increased shareholder value in coming years.
13 billion dollar capital investment program combined with a strong regulatory strategy and on M. discipline are anticipated to drive 5% to 7% utility EPS growth over the planning horizon, but.
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 shareholders.
I'm very pleased to have Christy cold and discuss our financial results in greater detail Christy has been integral to the success of our finance organization for over 30 years and has outstanding not knowledge at every facet of our business.
Over the past month, she has more than resin to the challenge of leading our finance organization and I'm eager to have her interact more with the investment community in the months ahead Christie.
Thank you John and good morning, everyone I'm honored to serve as the interim executive Vice President and CFO of Centerpoint energy and I look forward to meeting many of you in the near future turning to Slide 15, Let me highlight some key accomplishments within utility operations during the first quarter.
We deployed approximately $600 million of utility capital investment and achieved strong fundamental customer growth across both our electric and gas utility. Additionally, today, we have identified approximately 60% of our targeted 2021 m. reduction.
We remain steadfast in our focus on disciplined I went in management to support long term earnings growth and maintaining investment grade credit metric on the regulatory front, we made various weight really filings, including the Houston electric transmission and Texas gas jurisdictions capital recovery mechanism.
Moving to slide 16, I would like to comment on the non cash impairments recorded in continuing operations.
In the first quarter of 2020, Centerpoint recorded an after tax non cash impairment charge of approximately $1.2 billion related to our investment and enable and the company share of impairment charges recorded by enable for goodwill and long lived assets and $185 billion related to.
Indiana electric.
It is important to note disease. These impairment do not affect the company's liquidity cash flow our compliance with debt covenants.
The impairment charge related to our investment in enable recognizes the severity of the decline in the estimated fair value of our investment.
Decline is primarily due to the macro economic conditions related in part to covert 19, and the excess supply and depressed prices, a natural gas and oil impacting the midstream industry.
Combined with a neighbor the now since last month to reduce its quarterly distributions per common unit my 50%.
With these noncash charges, we have reduced our balance sheet investment enable midstream.
Currently 2.4 billion to $848 million.
Now I'll provide some context regarding the noncash impairment charge recorded at Indiana electric of $185 million.
On acquisition of this business and the Vectren merger in February 2019, the carrying value of this business unit approximated fair value. Therefore, there was minimal cushion to absorb the significant decline and current market conditions as a result of the pandemic.
We do not believe that this impairment is indicative of the long term value of this utility which continues to deliver strong earnings with continued significant capital investment need.
I would now like to review the first quarter the quarter over quarter utility operations and midstream investment guidance basis EPS driver on slide 17.
Excluding impairment charges utility operations delivered 50, 50 cents per diluted share and midstream investments provided 10 cents per diluted share for the first quarter of 2020 compared to 41 cents and five cents, respectively, and the first quarter at 2019.
Utility operations delivered a solid performance this quarter, providing nine cents of positive variance.
Rate relief contributed seven cents a positive variance largely as a result at the capital recovery mechanisms and the Indiana Electric and Texas gas or section along with the implementation of animal rights in Minnesota. Additionally, the first quarter 2020 benefited approximately five cents.
From an additional month of earnings associated with the jurisdictions acquired through the merger in February 2019.
What im savings provided three cents of favorability lastly, Centerpoint Energy's continued strong customer about primary along the Texas Coast and our Minnesota Service territory provided for two cents a positive there.
Partially offsetting these positive variances were higher depreciation and amortization and other tax expense lower usage and lower equity return primarily due to the annual true up of transition charges.
The lower usage experienced across our natural gas distribution and Indiana Electric service territory was partially driven by warmer than normal weather, which accounted for approximately one cents a negative earnings variance versus normal overall, we were very pleased with the performance of our utility.
Turning to slide 18, we discuss our continued discipline and a one in management.
Here are company made great strides to our diligence and team focused on I went in management by achieving approximately $100 million an annualized year over year, a one m. saving the merger and other cost efficiency.
Further building on the momentum from 2019 early last night Centerpoint announced that we are targeting approximately $40 million an incremental owing in savings for 2020 relative to full year 2019 level, we expect to achieve approximately half of the target an incremental 2020 I went in savings.
<unk> lung function, we will continue to look for systematic opportunities to align work activities and organization one coaches in support of our utility focused strategy.
This comprehensive opposed to own and management will continue to sport escrows and maintaining investment grade credit metric.
On slide 19, as John previously detailed the equity issuances announced today demonstrate centerpoint commitment to a strong balance sheet and further strengthening of our investment grade credit metrics and overall credit profile.
Our rigorous capital allocation progress process and ongoing disciplined I went in management further support this commitment.
These equity issuances eliminate the anticipated equity needs do 2022, and we will target 14 of 14 and a half that I didn't get over the long term planning period.
Turning to slide 20, we are really integrating our 2020 readynas basis, EPS range of $1.10 to $1.20 and a 5% to 7% five year EPS growth CAGR. The 2020 Guy frames takes into consideration earnings to loosen ever sold of the higher share count.
From the announced equity transaction and the potential range of earnings impact of five to eight cents per diluted share associated with the coven 19 pandemic that John previously discussed.
These items are expected to be offset by strong first quarter result, the benefits received from previously announced targeted Oh nm reductions as well as tax benefit from the care that.
To the extent actual recovery deviate from these coven 19 scenario assumptions are projected full year guidance range may change in closing the first quarter presented new challenges for not only our business, but the entire industry and global market our company with proactive in tackling the challenges presented by.
Well the 19 leadership remains focused on our core value of the safety of our employees and communities, we serve delivering reliable and affordable energy.
Endpoint energy is poised to deliver 5% to 7% utility E. P. S froze the execution of our utility strategy and disciplined Oh, one in management, while remaining firmly committed to our solid investment grade credit column.
I'll now turn it back to David.
Thank you Christine 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 up [noise].
Sure.
[noise] you at this time.
Oh, we will begin taking the questions. If you wish to ask a question. Please press star one.
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Thank you.
Our first question comes from sharper as out with Guggenheim Partners. Your line is now open.
Hey, guys.
Good morning.
So just two questions here first starting sort of would that strategic level you have obviously review processes in place now and it should we think about the range of outcomes that you are forcing with this could we get a little bit in the sense of core versus non core stronger jurisdictions versus maybe.
There was that required bit more work from your perspective and sort of within analysts. They said that's sort of imply that an outright sale to companies not part of this kind of internal review process.
I've a follow up yeah.
Yeah, I'll start with the with the last question, Yes, that's that's correct.
This is a we have strong support for the business and the model we have now and so what we're going to do his review those businesses to see where we can optimize those and clearly our focus is on our utility businesses and we feel like all of our utility businesses have good regulatory.
Tom packs and we will always continue to look at how we improved those moving forward and the mechanisms for recovery, but this will be a comprehensive view of all of our businesses. So that we can optimize those as it has a company moving forward.
Got it and then I'm just lastly, you reiterated the utility guidance for 2020 in the 5% to 7% growth, which is no very constructive tweak it maybe a little bit more specific around the moving pieces mic maintaining these figures there's a lot of moving pieces.
He called that Colvin headwinds is that entirely kind of offset by corporate cost, what's implied with future cost cuts at the parent what mitigates the dilution in the near term. So I'm just trying to get a bit of the sense on how all the drivers kind of net out even as we think about beyond 2020 [noise].
Thank you, okay, how small I'll start out.
I'll start out with a 2020 and then not Christy can add to it and then talk a little bit about about moving forward. I mean, we took several steps that we announced back at the beginning of April some of them more more more driven by credit credit to make sure. We have very solid credit metrics as we move.
Through this year.
And so reducing capital by 300 million.
Hello helped us there, but we announced $40 million of on them because it was as well, which which we had good line of sight as Christie said about 60% of that.
So the combination of a good first quarter those owing him savings.
And and the carriers that that has a tax benefit Christy can speak more to that offsets the impact of our expected range on cobot die team as well as the dilution.
As a result of the 1.4 of equity issuances. So those generally that group generally nets out for 2020, and then as we move forward, we have the benefits of maintaining that $40 million little and in savings.
As well is the fact that we had anticipated raising about this amount of equity over the next three year time period, maybe slightly slightly more already so so that that dilution from there.
This is not as material as we as we move forward and then we have the announced dividend or our dividend cut which.
Gives us additional retained earnings so it's really the combination of all of those that allow us to reiterate 2020 guidance and also reiterate spot rate base growth and EPS growth of 5% to 7% Christy would you like to add anything to that.
I think you covered it well.
Terrific. Thanks, guys. So much congrats on moving forward and congrats on the deal with Jeff from team Congrats.
Thank you very much.
Thank you.
Our next question comes from into Kim with Goldman Sachs. Your line is now open.
Thank you My first question is regarding I'm just financing.
With the 1.4 billion dollar rate said you guys did how do you think about.
Yeah, the buffer that you have or maybe the potential levers that you could pull in the hypothetical scenario that enabled me to cut its distribution again.
Yeah, I'll start out a first off on enable and that is for the reasons.
I talked about and when I went through my presentation.
We look at a number of scenarios and they were downside scenarios lower oil prices for longer.
And and and when we made the decision the car distribution by 50%. We felt very good that that was the right level.
Even though we have seen because of physical constraints from some shutdowns we've seen some positives too. So we still we still remain confident and enables ability to maintain that 50% distribution and pulled their own lovers related to only capital well. So that's the that's the starting point.
But I'll, let christy speak to the to the other part of of our strengthening our balance sheet and how we look at that.
Yeah, I mean, this transaction has strengthened our AFFO to debt.
And.
As John mentioned, we and our not currently anticipating I cut in the distribution from enable.
Just in that scenario that maybe something like that does happen in a very worst case scenario up.
Are you is you're just or your conversations Moodys do you have a little bit more room on episode that side too to absorb some of that additional impact.
Yeah, I think we would have conversations about the increased level of regulated percentage and our earnings and our business.
With the and with the rating agencies at that point.
Understood and just one quick follow up on the strategic review from a Standalone centerpoint standpoint, or is that strategy all things equal still to try to tend toward trend toward that 90% totally earnings like 2024.
Well that that's the foundation, we start on <unk> and and that's that's what we have seen really aligns with what we believe were her shareholders interest. So that's the starting point, but we will comprehensively with that business Review committee a value way evaluates the best or.
Options to further maximize shareholder value. So yes, that's the starting point.
Got it thank you when they say February.
Thank you. Thank you.
Our next question comes from Michael Weinstein with Credit Suisse. Your line is now open.
Hi, good morning.
Welcome.
I just wanted to.
Mike or make it clear yarns art in that episodes that target range for 2020, starting off in that range as you go forward.
And with the equity issuance somewhere a little higher.
Expecting to be a little hires that and 2020 and then our long term range is 14 to 14 and Uh huh.
Okay and in terms of the tend to the of the co bid sensitivities. You know you had it starts off with a pretty bad April that you expect things to get better over the summer and then beyond that.
Do you have you have any kind of.
Kind of a ballpark.
Yes, there were seeing how how much worse the five to eight cents could get yes, let's say for instance, the April downturn of 15, 20% that's useful in commercial and 10 to 15 industrial.
Reductions if that continues at that level you know for the rest of the year for instance, where how much worse when it gets.
Yeah.
Give me some general general ballpark, but again, you know our experience because even though we had reduced industrial will not very sensitive because of the way. The rates are designed on on industrial will not very sensitive there and the commercial downturn was in line with what we had expected and.
We saw positive on the residential side both in the in Houston and in Indiana. So are you know what we saw in April was very much in line with what we had estimated and then if you extrapolate that out for the conditions, we talked about through through August.
Results in that five to.
Eight.
SAS, but you know clearly you can extrapolate that out we don't anticipate that it will impact is through the full year, but you can extrapolate out that one to two cents impact.
For more months and that that's would be in line with what what would happen should that scenario worker.
Kristi you want to quantify.
That's I wonder if you sent per month.
Just a month yeah, you're looking at.
Yeah, Chris do you see a different.
No.
Okay, and maybe just one last question. If you could just maybe comment on the state status of the oil and gas industry and your service territory and what's going on there, but like your assumptions are for oil and gas refining and drilling.
Part of your customer base.
Yeah, I mean, clearly clearly.
You students economy.
Is tied to the oil and gas business the good news.
Less less tied to that business overtime, and we've seen usten do very well through downturns in the past mean robust growth of 2% plus on customer count in good times and we've seen still stay positive even even through downturns. So we still expect very good market area there but.
But yes, we will monitor we will monitor its too early to tell now, but we'll monitor what impact for oil and gas downturn may have on our growth rate moving into moving into next year.
Sure as has we see more that's at this point as we set today, we saw still good growth.
Right up through the end of March on on customer counts.
We still see you know that we're connecting new new developments in new areas. So at this point, we haven't seen but that that but we will monitor closely.
Hi, Thank you very much about a hard work getting done thank you very much.
Thank you.
In Q.
Next question comes from Steve Fleishman with Wolfe Research LLC. Your line is now open.
Yeah, Hi, good morning.
Hey, John So just.
I'm curious if you had conversations on this already with the rating agencies and.
As you get any sense that it would be possible that they might remember the negative outlook or.
Any color there would be helpful.
Yeah I comment first clearly this is positive, but Christy Christy can tell you about the actual conversations and where those could move.
We have had conversations with the rating agency and this should be.
Considered positive we have to get passed the P.S. sale and before I think we would see any change.
From the agency.
Okay, and when are you expecting that to close.
And second quarter.
And all is good on that.
Yeah, Yeah, Yeah, I mean, we're still working very closely with.
With with the buyer on transition.
Putting the organization placement services will will provide employee issues.
As we talk about before you know the agreements that works works very well gives both parties certainty about being able close so right now we feel very good about.
Okay, and then I had one other follow up question just that.
In this business valuation review, obviously the one.
Non utility business left is enable.
And that enable was reviewed by the company you know several years ago.
In India, and nothing really happened as it.
Is there any reason to think that there might be more options or new options. This time then.
And three or four years ago.
Steve I don't know at this point.
Clearly we've reviewed in great detail looked at various options and concluded the path forward that we took back and made the most sense, but but the business Review Committee will will review options related so wait wait too early to speculate though on whether whether other options could be done.
Slide or not.
Okay. Thank you.
Thank you.
Our next question comes from I guess in Nebraska with U.P.S. Your line is how open.
Good morning.
Oh, sorry about that cost savings a 40 million.
As you continue to review what do you think could be the potential upside to this number across your footprint.
And we're targeting 40 million updating.
Yeah, and where we feel very good about that number because.
As Chris you mentioned, we have line of sight directly things, we'd already worked on earlier this year related to our corporate structure and support services and some T.I. us type cost.
That had been identified.
Longer term really as a matter of looking at all types of things from Oh.
From how we use.
Contractors and the car contractors are very important to us, but what's the right approach their supply chain savings use of technologies. Other technologies work management systems. So we'll be digging into those issues in detail now that we've made the decisions and positioned.
The company now with flexibility on strong balance sheet moved forward. So it's too early to say what the potential is right now we're trying to ensure that we have certainty around the $40 million.
And you talk about the moving parts in 2020.
As guidance.
I live in more detail on that Perisher impact from the tax benefits from correct.
Yeah, and the first quarter, we had a 19 million tax benefit from the cares Act.
We also expect to have a future quarter benefit in around a $10 million range.
Turning.
Also with favorable cash flow.
Perfect. Thank you Stacy.
Thank you.
Thank you.
Next question comes from Julien Dumoulin Smith with Bank of America. Your line is now open.
Hey, good morning.
Well the progress here.
Drilling.
Absolutely buzzer up.
I'll close on the.
24 to your can you comment specific set expectations for earning your allowed returns I know that.
You see there's some gyrations in the current year related cobot, but as you see cheating that's five to seven just specifically within that.
Going back to where the first question or started what are your embedded earned returns and how do you think about equity that plant after 22.
24, and then maybe implicit within this just to make sure I'm screens with appropriately given that.
You have this equity issuance in the first couple of years is the plan back half weighted just to kind of thinking about the the equity be.
The answer.
Yeah, actually I'll start out with with the equity piece.
And then comment on returns so some of those issues but.
Actually because of the dividend reduction down to you were targeting 55%.
On on a regulated earnings.
We we have more retained earnings in those out years. So we issue an amount of equity in the through 2022 in.
In the range of 1.1, the 1.4 billion, which is pretty much in the range, we had before maybe slightly slightly lower but because of the retained earnings in the back inside the old forecast a three to 500 per year in that time period actually there's there's lower pressure on that now we believe it will be less.
In the out years, we'll get the benefit of other things we've talked about the on him savings and the dividend cut so not not back end loaded at all in fact more modest needs in the back end of the plan, which which really helps with the 5% to 7% growth when we're issuing one less equity out and in those time periods and have the 40.
Well, you noble and insight into what we're targeting is very much in line with our allowed returns if we look at a Houston electric we target very close to the 9.4% return on equity without without count structure.
And pretty somewhere in the other jurisdictions Christy add to that I have anything.
But I missed on that.
I think you covered it well.
Okay, that's sort of the strategic side of things just real quickly.
Thats clarifying your prior comments here.
What is on the table with respect to the strategic review just to ask it more explicitly in bluntly. If I may you know you commented on the naval here just want to perhaps make sure we're fully encompassing and understand what is contemplated and how do you think about this again against the backdrop as having out process.
[music].
Yes, I mean in the past you know along with the processes.
That went on were were effective and they were there were more led by by the management team.
What we have now is a group, including two new directors.
Two existing directors or three if you count me, but the five of US we'll be looking at this will be a board level with that new set of experiences in symbol and board level.
And it will be comprehensive will look we'll look at you know our businesses in total to make sure that we move forward in the most optimized way so.
It's it's similar in some ways, but you know.
It has the changes I just talked about so we're very very encouraged by that we think it's the right time to further optimize our business.
Yes are we supposed <unk> just in terms of the plan just to clarify this should we expect management updates.
Maintenance prior to the conclusion of the process.
The plan right now and you know is clearly the committee I think will function under its charter through October.
And so normal time, we made we talk about that would be in an investor day early in 2021 that would be the base plan, but obviously if there is something that should be communicated before that we would do that but the normal schedules one it when it first laid out.
Right, So no no updates to management.
In the interim either.
Oh well.
Should anything occur that we need to update.
You all on and make public we would do that but but the plan is to.
Take that amount of time.
And then be prepared to announce.
Changes and direction certainly at the conclusion about process the trailing happened the changes that we would obviously make public.
As appropriate.
Got it excellent. Thank you very much festival lot Phakisa.
Thanks Julie.
Thank you. Our next question comes from Anthony Crowdell with Mizuho. Your line is now open.
Oh good morning, hopefully one question one follow up.
I think a little off the Julians question I'm more on the CEO search any update on the CEO search on timing of when they find out when the board so like selling.
Yes, I mean, the very good news is the committee has been working Uh huh.
For a time well pretty much since we stood that committee up and they've been.
Okay, very very rigorous around that we have a search firm in place they've identified a large number of candidates. They conducted interviews with a number of candidates and so we're now more on the back side of that search process, but you know until until it's the.
Absolutely right person is picked and we can make sure you know what the timing is on.
Grant a transition period.
You know, it's not done until it's done but I feel good that all water. Good work has been done and we're on the back side of of getting that take care.
Great and then lastly, just more fine tuning the $40 million of additional OEM cuts the company's identified in 2020.
And I think you've answered this maybe I missed it.
Are they more parent company are they more at the operating utility company.
I'll start out.
Yeah, you know more than half of it that's been identified as more and stuff.
The company level more support services some of those things as we look at the new Mexico more utility focus some of those Youre just set with how we looked at good support services moving forward.
But there will be some some that each of our.
Business units will will developers as well so there will be solved but a good percentage of them are at the corporate leverage level Christy add to that for me. Please.
No I think that's right it'll be across the board, but again over half we've identified or support level activity.
Great. Thanks for taking my questions and say health is.
Thank you you too.
Thank you Sir our next question comes from Paul Patterson with Glenrock Associates. Your line is now open.
Hey, good morning.
Can you hear me good morning.
Good morning.
So I just wanted to sort of follow up on the on the the business review process I mean last time.
On the fourth quarter it sounded like you guys.
We're really looking at necessarily that wider range of potential.
Business combinations or what have you.
We have a new investors with this this this investment would have you should we think that perhaps the business reviews now perhaps about.
A wider range of potential options that almost anything to be on the table to enhance shareholder value.
Well, you you well well look at it is a.
The business Review Committee will really look at the business plans across all of our business and and think through everything from appropriate regulatory strategies and think through best ways to optimize and how business is fit together. So I mean, that's something you know you.
You do under normal basis anyway. So.
And it brings a fresh set of eyes with good experience with our new directors symbol.
<unk> to the process. So you know I think it's in line.
With what a company normally would do but with really good expertise you know with the opportunities. We have now to really take a fresh look out so.
It is different it's a very powerful.
A process I think we can follow and that they'll make recommendations to the board for the board abdominal timeframe, we talked about so.
We think it's a good thing to do moving forward.
But I guess, what sort of wondering is as you know if there was the potential for four filled the company would have you either.
Is that off the table I guess is what I'm, saying I mean in other words.
Would you guys be willing to look at anything that.
You know, depending obviously what isn't obviously, what the Standalone plan is and what would trout look is should we think it was pretty much anything is on the table potentially as long as as you guys theaters in shareholder value or are there certain things that you feel hey, a that just isn't in our and our game plan so to speak.
Yes, the starting point is truly looking at how our businesses are operating how they function.
Optimizing those making the right business decisions and total you know around around the base of this great southern utility assets. So that's that's the starting point that's the focus.
Every company has got to consider.
The other options that you've talked about that's not where we're starting with US Committee. This committees designed to review the go forward plan as a great set of utility assets and how to.
Optimize those and configure those correctly moving forward.
Okay, Great and then just finding on Indiana electric the the write down with that goodwill I wasn't completely clear when you said the fair value is that they've got anything to do would feel <unk> Bill you sure value accounting with respect to the the rate base or anything or is that is that sort of it could just elaborate a little bit further on on what the.
What the impact is actually at the utility in terms of a if there is one in terms of either equity or or what have you at the utility level in terms of regulatory rate, making what have you.
Yes that was goodwill and it should not impact the regulated utility.
Awesome. Thanks, so much.
Thank you.
Our next question comes from Jeremy Tonet with JP Morgan. Your line is now open.
Good morning, just wanted to kind of build on some of the points you touched on here with regards to the FFO to debt trajectory just wanted to see if something by chance moves against the here like enable a dividend cut or something that just want to see what levers do you have left the pull at this point could that include kind of like me.
Yeah, I'll start out I mean, one of the things we would do we especially with the strength of our balance sheet now heading into that a couple things. We do his work continue to work with the rating agencies, feeling and talk drew the fact that aren't you are regulated versus another.
Thank you ladies mix would be enhanced.
If you know should that.
Should that occur again, we feel good about enables distributions, but that would be where we start.
But clearly.
We've taken some very positive steps, we believe already but clearly under those circumstances, we would look at other alternatives in the type that you mentioned.
Would be things that would be evaluate whether that's oh.
A little less capital or continuing to see if we can optimize on him we'd look at those as other possible ways to make sure we.
The best balance sheet moving forward Christie add to that please.
I think that covered it pretty well.
Got it thanks for that and just a follow up question with regards to covert 19, you know just what do you expect to have clarity on October deferrals for the remainder of your jurisdictions.
[noise] Christy I mean, my understanding is.
We have a large number.
We have good line of sight on or are you taking care of.
My understanding is most of our jurisdictions work too.
To be addressing those issues in the near future to someone have a better time estimate on yeah, I was going to let Jason cover that sort of taken Ryan good morning.
So the Oklahoma Commission.
Voted to approve an accounting order earlier this morning.
The Minnesota Commission is discussing.
That topic I believe as we sit here right now so I don't have an update on where they're headed but they are looking about.
And we've been.
Working with our industry colleagues and regulators in Indiana.
As top in that topic and expect.
To file an application seeking an accounting order either late this week or early now.
So that would that would take care of all of our jurisdictions given that most of them have already I.
Got it.
That's helpful. That's it for me thanks.
Thank you.
Thank you.
Next question comes from Charles Fishman with Morningstar. Your line is now open.
Good morning.
In the current guidance 2020 guidance.
Utility contribution 88% or.
Midstream, 12% John ending April one news release, you when do you.
You anticipated.
Utility earnings contribution increasing no with nearly 100% over the next few years.
That would imply to me.
Your preference and.
Realized she got this or the review board now.
But your preference at that time was to probably either the best completely or partially enable am I reading more into that quote and I should or is there something else going on that I don't understand now.
Yeah I.
I mean effectively what happened is.
When we looked at the enable distribution car, 50%. It was based on the fact that we expect to very little drilling activity to occur.
Uh huh.
This year and heading into next year and this lower for longer period, we're in.
And so the results or we took the proactive step on distribution cuts to really protect the liquidity of it enables they head into lower earnings into next year and even moving a little further than that so just naturally as those earnings go to where we expect him to this.
No.
No.
Significant drilling and some of those basins from time period I talked about that.
Takes the earnings contribution from midstream down.
Just naturally there and then on top of that we're continuing to invest heavily in our regulated business. So you have the positive of the regulated coming up and then just that normal traject trajectory that we anticipated won't be cut distributions to 50% that will result in 95 plus percent.
Thank you.
Regulated earnings mix now Christy there, maybe a little bit more on that related to the impairment and how that that impacts that is that correct.
I mean, there will be bases accretion as a result of these impairments, but we do you still expect that they utility will grow to the 95% add the contribution.
Okay. That's helpful. Thank you that's all I have to stay said gosh.
Thank you.
Our next question comes on the sharp conduit for it in your line is now open.
Hi, good morning, and congratulations I think for the board did a terrific job and congratulations.
I wanted to convention, a little bit, but did what they need help because you know that last.
I think left in this whole picture is the new CEO can be a little bit more what timeframe of course quicker the better but do you have any specific date.
By which we can head that announcement.
I know you know I think we feel positive about the fact the process has moved to this point we are very good identified candidates, but but but as you know until you until you you finalize something and when you're looking for someone that Scott you know.
Really strong track record on utility operations.
These type businesses understands our business.
Focus on strong balance sheet, we want to make sure we take the time to absolutely get took the right person, but but I feel very good about individuals that are being talk to now and so I think it can happen in a reasonably short time period, but until all those issues are worked out I'm, sorry, I can't count more specifically coming.
To an exact time, but like I said I feel good about the that we've made really good progress to this point and that can happen in a reasonably short time period moving forward.
Okay. Thank you and if I may have just Oscar one question on the accounting side or the tax benefits that you mentioned are they only for this year I guess, you mentioned 19 million another 10 million do they go away or.
Due to carry on into next year.
Yes, they go away.
The go away and then you also mentioned that we get some amortizations benefit how much is that in business that keeps on going.
Amortization, referring to the.
Basis accretion or yes, correct, yes that would keep on going that would keep and how much is that.
In itself.
And it Didnt <unk> estimated to bring the 47 million a year up 200 million annually.
100, and starting this year.
I think this year, because it's starting and.
Not in the beginning of the year it would be about 85 million in total.
You are usually 47 million.
So previously you had talked of 47 when you gave the initial guidance and now it is 87.
85, yes, if I said that there's an increase of that and that is going to be at around 100, then how long does that go into lost.
It's still not 28 or 28 or so years.
Okay Quint.
We ended up hardware that primarily impacts the midstream or unregulated earnings I understand I understand but I just wanted to I just wanted to make so what I have the accounting right. Thank thank too so much.
Thank you.
Thank you. Our next question comes from James Stalnaker with BMO capital markets. Your line is now open.
Oh, Thanks, guys can you hear me.
Yes, yes James.
Good morning, Apollo I apologize if I missed it somewhere in the K, but I was just wondering if you've disclosed what the.
In terms of the convertibles were and just trying to understand are you.
In your presentation for 2025% to 7% growth rate are you assuming sort of as issued.
In the share count.
Yes, I think yes between the 8-K and what we posted on our website I think those terms and conditions are are have been disclosed in had not been filed so I think thats in there, but Christy would you take the other part of that question.
Yes as to the calculation of guidance, we will treat the preferred is if it was common.
In the dilution calculation.
Okay, and so the 5% to 7% them would reflect that dilution through the forecast period.
Yes that that's that's correct and they do you know there is a mandatory convert on those 12 12 months out.
Right.
Great.
Thank you very very much.
Thank you.
Thank you.
Last question is found Antwan I'm honored with Bank of America. Your line is now open.
Hey, good morning, Thank so much for taking my question.
And I just wanted to be Hey, how are you just wanted to be clear on equity needs. So total equity needs through 2022 or not materially different from what you had previously.
And you had the three to 500 million in both 21 in 22 as you had mentioned is the idea that the bulk of that will now be met with.
New holdco debt issuance, so more of a timing shift or is it the or what im savings a dividend cut that essentially take care of that.
Yes, the if the question in 23 and 24, we still have some equity needs, but I was based upon what we're looking at now anticipate plan.
Estimated to be lower than the three to 500 million range, we estimated before and Christy can you.
Give more more information on that.
I mean, that's correct. He said with the dividend cuts we did at.
It is lower than anticipated in those years.
And typically I you got it and so since today's announcement.
Take care of equity you need through 22.
That did the 21 and 22 that you were going to issue is that going to be met with the new holdco debt issuance.
Well, we issued 1.4 to today and our plan wants to issue 800 million and 2020, AMAK Tween, three and 500 million and 21 and 22. So at the midpoint of 21 in 22 that would have been 1.6 billion.
This is the 1.4 million, we're doing so we satisfied our need.
Upfront.
For the for these three years.
Got it and to be lastly, could be abundantly clear I have you vetted to date plan would be a rating agencies.
Yes, we have in contact with the rating agencies with regards to plan and we expect.
And then to consider it favorable.
Okay perfect. Thank you so much.
Thank you.
I do not believe we have any more questions. Thank you everyone for your interest in Centerpoint energy, We will now conclude our first quarter 2020 earnings call have a great day.
This concludes Centerpoint Energy's first quarter tiny tiny earnings conference call. Thank you for your participation.
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