Q2 2020 CenterPoint Energy Inc Earnings Call

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Good morning, and welcome to Centerpoint Energy's second quarter 2020 earnings conference call with senior management during the company's prepared remarks, all participants will be any listen only mode. There won't be a question and answer session. After management's remarks to ask a question press star one on your touched on keypad.

To withdraw your question pressed pound I will now turn the call over to David Moody Director of Investor Relations Mr. Marty.

Thank you and good morning, everyone welcome to our second quarter 2020 earnings Conference call, Dave was our CEO and Christy colon interim CFO and see a who will discuss our second quarter 2020 results and provide highlights on other key areas.

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. The management. These forward looking statements are subject to risks or uncertainties actual results could differ materially based upon various factors, including weather regulatory actions the economy and unemploy.

But commodity prices the impact of covert 19 pandemic and other risk factors noted in our SEC filings, we undertake no obligation to revise or update publicly any forward looking statement for any reason we will also discuss guidance for 2020 in two components.

In summary, the utility EPS guidance range includes net income from our utility segment as well as after tax operating income from the corporate and other segment.

This guidance range considers operations performance to date and assumptions for certain significant variables that may impact earnings as noted in our earnings release.

The guidance range also reflects dilution and earnings as if the series C preferred stock were issued as common stock and incorporates our covert 19 scenario ranges, which Christie will discuss further in her remarks.

The utility EPS guidance range also assumes an allocation of corporate overhead based upon its relative earnings contribution.

Utility EPS guidance excludes midstream investments EPS range results related to our recent divestitures and costs and impairment, resulting from the sale of these businesses certain expenses associated with merger integration and business review and evaluation committee activities severance costs earnings or losses from the change in the value of sand and reach.

Related securities and changes in accounting standards in providing this guidance Centerpoint energy uses 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 we.

Also provide guidance for midstream investments, which takes into account among other things the outlook provided by enable on their earnings call for further information on our guidance methodology and a reconciliation of the non-GAAP measures used in providing earnings guidance. During today's call. Please refer to our earnings news release, and our slides, which can be found on.

For the investors section on our website as a reminder, we may use our web site to announce material information.

I'd like to call your attention to our upcoming corporate responsibility report, which we anticipate publishing later this year. In addition to carbon reduction efforts. The report will highlight employee and supplier diversity and inclusion covert 19 risk management governance safety and more.

Four day begins I would like to mentioned that this call is being recorded information on how to access the replay can be found on our website.

Finally, I will note that in contrast, with previous conference calls slide should be considered supplemental materials and are not paced with the upcoming remarks I'll now turn the call over to Dave. Thank you, Dave and good morning, ladies and gentlemen.

First I'd like to say, how excited I am to be leading Centerpoint energy and Im honored by the trust. The board has placed in May.

Additionally, I'd like to thank all of our operations personnel for their unwavering commitment and tireless efforts delevering on Centerpoints brand promise of being always there for our customers. During these unique and challenging times presented by cultivate 19 and my.

First 30 days I've tried to hit the ground Ronnie and I can tell you that I am greatly energized about the future of this company.

Before I provide my remarks im going to pass it off to Christie to cover a brief business and financial overview of our second quarter results.

Christy Thanks.

Thank you, Dave and good morning, everyone I'd like to start my highlighting the strong second quarter results from our utility operations as you saw from our news release earlier today, we reported earnings of 11 cents per diluted share on a GAAP basis for second quarter on a guidance basis, our utilities delivered.

18 cents per diluted share for the quarter, which includes six cents a negative impacts associated with Covance 19.

Because of 19 impact was driven primarily by lower natural gas and electric usage and miscellaneous revenues in spite of that our utility has continued to deliver outstanding results and we are reiterating our 2020 guidance basis utility EPS range of $1.10 to $1.20 per share.

An expected, 5% to 7% five year guidance basis utility EPS CAGR, even with the negative impacts of our Kovac 19 scenario range.

I will provide a more detailed review of the quarterly performance drivers and Coven 19 impacts later in the call.

Underpinning our utility strong performance this quarter was robust customer growth disciplined owing in management and execution of our regulatory strategy.

We also deployed over $600 million of utility capital investment during the quarter T support system safety and integrity as well as modernisation and load growth.

On the regulatory front, we received approval for over $40 million of increased incremental annual revenue largely as a result of our capital recovery mechanisms within the Houston Electric and Texas gas jurisdictions. In addition, we now have the ability to recover certain incremental expenses.

Associated with Coven, 19, including bad debt across all jurisdictions.

Also during the quarter, we completed the sale of energy services and infrastructure services proceeds from these sales along with our May equity issuance, we're used to primarily paydown parent level debt. Additionally, search received a rating upgrade at Moody's as a result of the improved business risk profile position.

He served as a pure play regulated natural gas LDC. These transactions highlight our successful execution of a utility focused strategy designed to improve centerpoint energy's business risk profile and strengthen the balance sheet, providing a from platform to capture our robust utility capital investment.

Touching any across diversified jurisdiction with favorable regulatory constructs.

I would now like to review the quarter over quarter utility operations guidance basis, EPS drivers on a guidance spaces utility operations delivered 18 cents per diluted share, which includes six cents a negative impacts from the covert 19 pandemic compared to 23 cents per diluted share in the second quarter.

Of 2019.

This quarter benefited from rate relief largely as a result of capital recovery mechanisms in our Indiana, Ohio, and Texas gas jurisdiction, along with the implementation of interim rates in Minnesota.

Lower only am expenses continued strong organic customer growth.

Merely in Houston, and along the Texas coast as well as net interest expense savings, primarily driven by paying down parent level debt. We're also beneficial to the quarter.

Offsetting these positive variances were lower usage and miscellaneous revenues as a result of covert 19, along with higher income tax expense depreciation and amortization and other tax expense and lower equity return primarily due to the annual true up of transition charges now.

Let me provide a little color on the coven 19 impacts experienced during the quarter.

Because of Cobot 19, we saw declines in demand from commercial businesses like bars restaurants, and other retail as well as some of our small industrial customers on the flipside residential usage was up because people are staying at home.

We experienced declines in other revenues and associated fees across the Indiana electric and natural gas jurisdictions, though bad debt exposure has increased we don't believe it has had a significant impact on liquidity and we anticipate our exposure will be mitigated by regulatory recovery in aggregate.

We estimate that covert 19 impacts reduced guidance basis utility EPS by six cents for the quarter. Let me highlight what has changed from our original covert 19 assumptions laid out on the first quarter earnings call.

We originally assumed the lower levels of demand would gradually decrease after April and will return to normal levels by September.

As we now know the state of Texas is currently experiencing a spike in cases after reopening so the lower level of demand continued through the second quarter for purposes of our full year 2020 guidance. We have adjusted October 19 assumptions to account for the reduced demand experienced in the second.

Quarter as the peak with an anticipated prolonged period of lower demand and reduced miscellaneous revenues.

And based on what we are seeing right now we anticipate another four to nine cents of negative impacts to guidance basis utility EPS for the remainder of the year. However, if the pandemic gets worse or of Texas or other jurisdictions shut down again that range could be higher there.

A few key factors that are expected to mitigate our current updated forecast a full year covert 19 impacts such as.

Continued robust organic growth in Texas more favorable than model impact from rate cases.

Disciplined Oh Nm management and interest savings. Additionally, our guidance assumptions continued to reflect the anticipated deferral in recovery of incremental coven, 19 expenses, including bad debt to the extent actual results deviate from these covert 19 scenario assumptions or than me.

Mitigating factors don't offset the anticipated impacts our projected full year guidance range may change and now I'd like to turn the call back over to Dave.

Thank you Christie.

If you look at Centerpoint energy objectively you see a company that is reaffirming its annual guidance basis utility EPA OS in five year CAGR. Despite the impact of our covert 19 scenario range.

You also see a company with a great regulated asset base and with attractive opportunities to invest more capital across its premier jurisdictions.

This is especially true for our larger service areas in Texas, Indiana in Minnesota.

For example, Texas continues to experience top tier organic growth and as a place we expect future well boss to capital investment opportunities given our footprint the opportunity for continued investment and inherent organic growth and comparing this to where our peers trade.

I believe our share price is too low and trades at an unreasonable discount.

Now after speaking with many of you in the short time I've been here I believe I have a better understanding for the reasons why this discount exists.

Do you believe we have like you down and is certainly my job to address those issues that concern you as we move forward.

I can tell you we take very seriously our commitment to be good stewards of your investment.

And I realize our obligations are to maximize shareholder value.

There are many ways to achieve this objective and we are committed to a thorough review.

Before I address my approach I want to confirm a few things first I want to reiterate our 2020 guidance basis utility EPS range of $1.10 to $1.20 per share and unexpected 5% to 7% five year guidance basis utility SK.

CAGR both despite the impact of our covert 19 scenario range next we will continue to review regulated capital investment opportunities with an eye towards improving and optimizing our capital allocation process as we move forward with our third.

$18 billion five year capital investment plan.

This will include the exciting opportunity to potentially on a larger share of their proposed renewable resources and our new integrated resource plan investment in Indiana.

Confidence in our growth projections are supported by the fact that we have assets and regulated utilities and business friendly states.

With organic growth opportunities and therefore significant opportunity to grow into future by investing additional capital.

For example, one of our Premier utilities, Houston Electric has been consistently adding customers for not years, but decades.

It has a three decades long annualized residential customer growth rate of 2%, including in the most recent quarter during the pandemic, where amazingly, we saw a 2.6% year over year residential customer growth, even with the impacts of culvert 19.

Organic growth is anticipated to continue to drive the need for future prudent capital investments.

In addition, our natural gas distribution business continued to experience year over year customer growth, primarily in our Texas and Minnesota jurisdictions.

The growth and a natural gas business is anticipated to require investments in our utility business at current or even greater rates for at least the next decade.

In Indiana, we see potential to invest capital and simultaneously upgrade our generation to continue to meaningfully reduce our environmental impact.

We are eager to find opportunities to build renewables ourselves and will be examining tax and other financial and operational considerations as we make the determination on who builds that generation.

Overall, we have a tremendous level of regulatory investment runway ahead of us.

In addition, we will continue to review every dollar of our spending and drive to earn at or near our allowed our always across all of our jurisdictions I'm getting a lot of questions from shareholders on our business review and evaluation Committee. So let's talk about that next.

Three months ago, we formed the business review and evaluation committee called the Brock with a mandate of assisting the full board in evaluating and optimizing Centerpoint energy's various businesses.

Assets and ownership interest.

All centralized around unlocking and creating value.

In addition to being the CEO I'm also pleased to chair This committee.

The brackets, Matt four times since its formation and we will meet again next week.

I am driving their process at the Brock dedicated to thoroughly assessing opportunities we have to maximize value for all of our stakeholders I.

I can clearly tell you that nothing is off the table in the Brac review process.

But in the meantime, we believe it is prudent to take advantage of any opportunity, we determined might help us become more efficient or enhance stakeholder value while they're Brock continues its work.

I will mention a couple of those areas in a few minutes.

Let me highlight a few of the brac areas of focus to date.

First efficient cost control.

The company is making great strides in this area and we'll continue to be steadfast on its own m. focus to support long term EPS growth and capital invested.

But like any company. This is an area, where we can incrementally improve our efficiency and I believe that disciplined cost management is something we need to continue to keep top of mind and all that we do.

Second rebuilding regulatory relationships.

In my first 30 days the CEO I've met with the chairman of the Texas Railroad Commission, which regulates the Texas natural gas business.

All members of the Texas Public utility Commission, which regulates our Texas electric business.

Four out of five of the public utility commissioners in Indiana, which covers both the electric and natural gas businesses.

As well as the governor of Indiana.

And I currently our plans to visit the leaders of the commissions and the other states in the next couple of weeks.

Building, new relationships and helping regulators and officials understand the vital role we play any investments necessary to better serve our customers will be a priority of mind not just something we focus on when a rate cases near.

So I believe we were off to a good start in this area and building our relationships.

Third proper business alignment.

We're looking at the business configuration across all of Centerpoint energy's businesses to identify opportunities for additional efficiencies.

A direct result of this was a decision to combine the two electric businesses into one business unit, which was announced earlier. This week. We expect the combination of these two complimentary businesses will better align our resources and further support our efforts to streamline operations.

Leverage on M. efficiencies and maximize the skill set of our human capital.

All of which we believe will ultimately drive value for our stakeholders.

This is an example of my previous comments demonstrating that we're not waiting to take action until a brac completes its work if we see an opportunity to currently make our operations more efficient.

Fourth evaluating enable options.

Traditionally our representatives on the enable board have been the Centerpoint CEO and CFO.

I really did not think maintaining that status quo was the right approach. This is why we made the appointment of Al Walker and Bob Gwin as our representatives to the enable board of directors, which was also announced earlier this week.

Both farmer Anadarko Petroleum senior executives al and Bob are highly accomplished and qualified leaders who bring extensive energy industry experience financial acumen transaction experience deep knowledge about ml peas in a long history of value Craig.

Jason.

Consistent with our goal to take actions that we believe will strengthen centerpoint Energy's long term performance. These appointments allow our centerpoint energy management team to focus on driving regulated utility value well al and Bob focus on driving a value from our enable investment.

This is another example of seizing an opportunity in front of us while the Brac completes its work.

Well I know there's great interest in April I do not intend to discuss Centerpoint energy's stake in enable any further in this call.

Fifth.

Operations and financial peer group performance review.

The Brac has also taken a deep dive across all business units reviewing key operational and financial metrics in comparison to our peers.

And I can say that we are in pretty good shape rounding inefficient business that is near or in the top cortile in operational performance with outstanding comparative scores and customer satisfaction rates versus our peers, but I also believe this is an area, where we can always get better for us.

Example, if we are top quartile, then why can't we strive to be top decile.

Now Unfortunately, the financial comparisons are not as good.

As you all know when looking at our financial metrics versus peers, we clearly lagged the group. That's a fact, that's why we're so focused on trying to understand all of the factors that go into our equity discount and working to address them had on.

Six assessment of non regulated businesses.

Because we are rapidly moving the company to a pure play regulated utility. We currently are assessing their remaining non regulated businesses.

Seven the role of renewables in our portfolio. This is another area, we are giving a lot of attention.

The recently filed integrated resource plan or I RP in Indiana is focused heavily on renewables and would significantly transform our generation mix in a short period of time, providing an avenue to potentially capitalize on the favorable tax treatment around renewal.

Both we're also really excited about a pilot programs starting next year in Minnesota, which is expected to convert renewable energy to hydrogen that will then be blended with our natural gas supply.

And finally.

The brackets, focusing on optimizing our financial flexibility by assessing the makeup of our balance sheet, but.

Borrowing capacity in overall capital structure.

Unlike many utilities Centerpoint energy has numerous incremental prudent capital investment opportunities and we're working hard on our ability to efficiently raise capital.

We believe the optimal outcome is a long term capital structure that allows us to grow the business beyond our forecasted long term earnings growth rate, we have engaged a financial advisor to help us with this important effort.

Now as a reminder.

Our formal timeline is for their brac to provide recommendations to the board in October and we will then hold an analyst day by the end of the first quarter of 2021.

I can tell you I am really eager to host our analyst day, and I will continue to keep investors up to speed at the appropriate time on progress we make between now and that.

Because the work at a Brock is a business sensitive and ongoing process and there are so many moving parts to the effort. This has all I'm going to say today about brac activities.

Because of this as I'm sure you can all understand I cannot take any questions on brac activities in today's call. I have also spent time evaluating employee strengths and have already made various leadership and organizational changes in the past month.

The next big step is solidifying the executive team.

By hiring a permanent CFO.

Building a high performing team with the Rightskill sat will position us to build on our strong regulated utility assets and help us execute our strategy.

Having one spend as CFO I know how important it is to have a CFO with a complementary skill set to the CEO and the rest of the management team.

I use my first few weeks to determine the desired CFO skill set I am looking for and the external search process has now started.

I've also received direct and Frank Investor feedback regarding your view on the Miss alignment around our compensation program and shareholder interests.

I strongly believe good governance and proper alignment of management compensation in tandem with shareholder interest is critical I discussed year feedback at our recent board meeting and I'm committed to reviewing our program with your feedback in mind, we look forward to continued engagement with our investor.

Irrs on this important topic.

So as you can see we have a lot going on.

I believe money good things are happening in our company.

And I can tell you we start from a really good place.

We have a large regulated asset base across diversified growing premium jurisdictions, all with plenty of room to invest it increase our rate base.

But the bottom line is I'm disappointed at our current equity discount.

Our task is really simple we need to run this company efficiently fix what isn't working and get more out of our existing assets people in jurisdictions, we must consistently live up to our commitments and continue to get your feedback and finally, we have to simplify.

The Centerpoint energy story.

I've hit on a lot today, so before we go into questions. Let me summarize what I hope you take away from the call today.

First I'm really excited to be here and our management team is energized about our direction and the path forward.

We are addressing our challenges head on.

Next we are reiterating our 2020 guidance basis utility EPS, even burdened with the 10 to 15 cents per diluted share a full year anticipated impacts.

Of our covert 19 scenario range.

We are reiterating our targeted 5% to 7% five year guidance basis utility EPS CAGR. Unlike many of our appears Centerpoint energy has regulated businesses in large markets with organic growth opportunities and lots of potential to invest capital gain.

Given that I believe we will continue to whether that covert 19 storm as well as anyone.

As CEO of Centerpoint energy and chairman of the Brock I take our obligation to maximize value for all of our stakeholders very seriously.

Our utility focused strategy is clear.

And we remain focused on getting the most out of our regulated assets as efficiently as possible and we will continue to assess all of our options.

In my view the CEO owns the shareholder relationship and I will work hard to restore shareholder confidence.

Once we regain your confidence and you see that we are not only making the hard near term decisions to enhance stakeholder value at the same time, we're taking nothing off the table in the Brac review.

I believe that confidence will be reflected in our share price.

Thank you and let me turn the call back over to Dave Marty.

Thank you, Dave we will now open the call the question.

As a reminder, please limit yourself to one question at a follow up today, we shared with you where we are with the brick at this point.

As Dave mentioned, because the records and ongoing board driven process slated to conclude in October and followed up by an analyst day, we will not be taking any additional questions on the Brett.

Regina.

And as a reminder, in order to ask a question. Please press star one on your telephone keypad. Our first question will come from the line of sharp rise I wouldn't be good time.

Hey, good morning, guys.

Planning.

So congrats on the quarter I mean, obviously you push the coal that assumptions out to year end and still reiterated the 20 guy than your 5% to 7% trajectory.

He has an Indian IR people pulls all which looks to generate a meaningful increase versus the prior iteration. Two we talk about sort of the capex updates and mainly focusing on the moving pieces for 21 at 24, and it's a solid plan. So what could provide upside to this as we think about further capital growth opportunities there.

I would maybe be accretive to your 5% to 7% and have a follow up on strategy.

Sure well.

Thanks for the complement I appreciate it I want to congratulate our team for the quarter. They did a great job.

As I said in my prepared remarks, we have lots of upside beyond the capital plan that we have out there right now if you look at the organic growth in Texas, you look at opportunities we have in Minnesota, you look at the ERP plant in Indiana that to me is why making sure that we're doing crew.

Copper capital allocation is so important because we have the luxury of having more opportunities in front of us than at this point, we can find and therefore, we have to figure out a way to efficiently fund them and be able to drive continued growth and at some point in time, obviously as we said in the call.

I would like to up our growth projections going forward and that's what we would anticipate to do.

Great that's great and that sort of those touch on the fundamentals remain strong and just sort of a two small part strategic question here.

If I may Dave in your prepared remarks, you mentioned quote unquote nothing is off the table, which is a bit of a widening of the language from prior management's comments. So are you, saying that Brett could also be looking at corporate M&A opportunities versus a standalone initiatives that just have a quick follow up to that.

Charges as a reminder were going up we're going to.

Not hit any Brett questions today, just since we have that ongoing and and we'll certainly update folks.

When we have updates on that.

Got it and then the only other thing also.

Dave you talked a little bit about simplifying the the story that you have there with centerpoint.

No there is obviously Indian and Texas, you've highlighted its core to the company.

And you do sort of have some smaller jurisdictions potentially not adjacent jurisdictions, it's about 23% of the rate base is in other states with Ltcs.

You know is is that potentially also an opportunity do you consider potentially monetizing ldcs, capturing pretty healthy multiples as a potential avenues to streamline or simplify your story recycle capital and may be strengthen your balance sheet, even further outside of your core Indiana, Texas.

Yes, I mean, let me comment in this way I mean, I've covered a lot of territory in my first 30 days, but I haven't covered all the ground we have any organization. So.

Let me differ off to probably the next quarter call to address some of those related topic.

When we say simplify the story is as I sort of look back at how we've communicated with shareholders over the past several years, we really have not had a consistent message. We've had a relatively complicated story. We've had a lot of M&A, we've had regulated versus nonregulated, we've had the MLP.

We.

To deal with and so.

I do believe that a simple message to shareholders consistently executed quarter after quarter, well I think how regained the confident the shareholders have in us as a management team and our ability to not only maintain but grow our future revenue and returned stream and.

So I guess at the end of the day give me. Some time there 30 days is not enough time to give you a complete answer but were definitely headed in that direction.

Well congrats on Dave on your first ever utility earnings call. Congratulations. Thank you.

Your next question will come from the line as Steve Fleishman with Wolfe Research.

Good morning, Steve.

Hey, Good morning day that was a hell of a lot you started his career is.

Yes so.

Appreciate that so.

Two questions first on your 0.8.

The optimize financials, you went through that pretty quickly and I think thats a pretty important point. So could you just maybe repeat or maybe give a little more color on your thoughts on on that.

That aspect of what you're looking at.

Yes, I mean, what I said is basically what you want it always do as a company is make sure you optimize your financial flexibility as an organization Yacov. It is a perfect example of why you can't predict the future. So if you can't predict the future you need to to be a spin.

And finally flexible as you, possibly can and so focusing on our financial flexibility and then of course in our case that means looking at our balance sheet looking at our borrowing capacity and then looking at our overall capital structure, where do you Lodge your debt for instance, you put it at the parent that you put it at the individually.

All subsidiaries.

The ultimate goal as I said is to basically have a long term capital structure that allows us to grow the business beyond the 5% to 7% that we have out there and thats an integral part of what we're studying right now and as you know it's a process. We're in the middle of and I don't want to set up.

Presuppose any outcome, which is really why we don't really want to talk about.

Any more of the inner workings of the bracket. This point in time, given a chance to work I think the Brac is working really really well, but we're really only at half time. If you will in terms of what we're doing and what we're looking at that just let me leave it at a.

Got it okay. It sounds like the growth opportunities are there you just need to figure out how to fund them efficiently.

They are out there as they are absolutely there.

Tom I see Kenny Mercado for instance, who runs our electric business. He has a sheet of paper he brings with him with all the extra areas that we could invest just in Houston electric or Indiana.

Got it and then just one other question. This is maybe just the simply logistical question, but.

With the two people that you.

Name to the enable board.

Thanks, Howard how do they communicate.

Back to Centerpoint, what's going on with unable and.

And just could you just maybe give a little more color on.

Just the information flow and in the like there sure. They are our representatives.

They are not independent directors on enable board they represent our interests and enable and just like when Christy was on the board. She would talk to me about what was happening happening in enable they will be in constant communication with up as to their views of that organization.

Okay.

Great. Thank you very much.

Your next question comes from the line of Insoo, Kim with Goldman Sachs.

Thank you good morning, and Chris Congratulations Dave.

My first question is on the cost structure and obviously, that's part of the plant and.

Hey, guys are assessing the overall strategy, but just in your for 30 days as you look at the cost structure Centerpoint and its different parts and if you've had a chance to compare those data versus peers are the utility side on different metrics.

How does that compare and does that get confident that theres a lot of low hanging fruit or runway at all runway of cost opportunities.

Well I mean, I think there there's a number of ways for our company to get more efficient one is set to be draconian and institute cost controls and cost management down.

I think that if you look at our operating metrics as I indicated on the call.

Our OEM per customer our OEM for this metric or that metric.

Our reliability standards are very very good. So I think you come away, saying operationally, our folks Ron a pretty efficient business.

But the reality is that any business can become more efficient and one of the things I have done as I mentioned in the call not only have we trimmed back some of the the seemed more senior management in the organization I have restructured where report work functions report within the organization to put them more.

Jason to places they naturally should fit so customer service for instance, which is a very technology driven.

Part of our business I have put adjacent to the IP Department for now because I can I believe we can share. So at a cost we can share some infrastructure, we can share some management across that so I think one one is just looking at the business differently to is using technology, a little bit more efficiently to.

Help us continue to look at reducing our costs and then the third is as I mentioned, just structurally looking at things like putting the electric businesses together under one management team and trying to harvest the sort of efficiencies you get there. So again I am I don't it I'm not here.

To say I have all the answers 30 days as come and gone very quickly I'm still learning a lot about how we fit together and our stitch together as an organization, but I've been in business, a long time and I recognize that any company no matter, where they are in their life cycle can always be more.

Efficient and I, just need to make sure that we're making prudent decisions around making us more efficient and thats what were doing.

Yes, definitely appreciate that and Oh, sorry for asking I will discuss sensitive and it's only been 30 days.

On the rate base growth opportunity on the on the regulated side. When you look at the electric businesses together in the gas side of things its end, but potential upside they had that each of those businesses have.

What do you see more upside to either of the businesses or are there just.

A lot in both.

No I mean I think that.

It's really let's not let's not get totally focused on electric yes, we have tons of upside and electric we can take on more of the ownership on the renewable side in the IR P. and Indiana renewables is a space that we need to learn to play in.

Not only does it bring some tax advantages, but it really is the wave of the future into it. So it's something that we need to learn how to do because we really havent tiptoed into that area in the path as I've said in my remarks. The now that you know Houston electric is a crown jewel utility.

I mean, it's in a market that has grown consistently for decades as I said earlier, the guy that Guy who runs our Houston electric business carries around a list and his pocket of things he would like to invest in incremental to our $13 billion. We have but also our gas business is good.

And as I mentioned in the call.

Yes, we can invest at or greater into that business for the next decade and so.

That to me is why it comes back to making sure we have an efficient capital structure that allows us to take on those opportunities grow the business beyond the 5% to 7% and do it in a way that doesn't dilute down our shareholders any more than you normally wouldn't half due to grow the business.

Understood. Thank you so much for the color.

Your next question comes from the line of Julien Dumoulin Smith with Bank of America.

Hey, good morning team. Thank you good hey, good morning, and congratulations.

If I can follow back up just to clarify little bit more on the financial outlook in.

Our aspirations just to clarify again, I hope I'm not intruding too much into the ground rules here, but.

I respect your answer to Steve how are you thinking about the needs for capital raising it specifically equity over the forecast crude as it stands today and has that changed at all I want to make sure crystal clear about that and then separately what is the ultimate aspiration of this effort is it to become a fully regulated entity of some.

Short or is it to refine and approve upon the EPS growth target I feel at least the perception is that perhaps you've said both things and through the course. This call. So just want to make sure we're clear on that as well.

Yes.

Number one we're reaffirming the 5% to 7% growth rate that we have out there.

That is built around a 13 billion dollar capital spend base.

So let me use that as the baseline if you will.

My my effort in my goal.

And again I don't have all the answer is after 30 days, but if you look at developing the balance sheet flexibility you look at efficient capital allocation process. You look at the opportunities we have in front of us I believe that when we get through this process.

That we could look at increasing our growth rate I'm, not saying, we're going to do it yet im not declaring that today.

I am saying is that aspirationally for us at this point in time, and we have the biggest building block available to us to be able to do that which is the capital opportunities that exist in our in our Texas businesses, our gas businesses are Indiana businesses. So unlike a lot.

A lot of utilities that may be have the capital available, but not the opportunities we have the opportunities available, which many doubt which is a really great place to start and so that's what I'm trying to convey is our excitement around the opportunity. That's my job in the job of the management team.

Now to figure out how do we get the balance sheet flexibility to take advantage of those opportunities.

If I could follow up exactly along that line of thinking if you will what is reflected in your outlook today with respect, Indiana and the Iraqi and your confidence on being able to self build any opportunities that come out of that process.

Specifically and obviously this is with the the proposal now becoming a little bit clearer and then related type. That's what you just said a second ago isn't it typically bill headroom that sort of is the limiting factor and how are you thinking about the own them that is necessary to create the additional headroom to to invest.

Yes, let me have Christie, let me ask Chris the answer the front part of that and I'll try to come in and bad clean up a little bit.

Well, we had our best guess somewhat our capital would be in the capital plan that we had four Indiana. Thank you, yes over the first years. The total Kevin plan for Indiana within the 300 million range go into 400 million.

And like Dave said, where we hope to be able to do more than what isn't that plan.

Yes, I think Julien the way I think about it is that if you looked at set of our initial view, we had an allocated amount of that 13 billion in capital to the plan at Indiana as I look at the renewable opportunity with respect to that.

Our initial view was is that we would not take on much of that.

I really want to revisit that.

Because I think for two reasons, one I think we need to the we need to be in the renewable space, we need to learn how to operate in that space and because of the taxes. It basically the tax advantages of it we ought to be in that space.

And therefore, we're really right in the middle of US reassessing, what part of that plant and how much do we want to own and how we might find and seek partners for the rest of it.

But it is not or isn't the plant or what what sorry, I just don't make sure heard that right.

So what was in the 13 Bill I'm looking at Christy now what was in the $13 billion plan was about three to 400 million for the IR Pete.

Okay, great. Thanks.

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Tick.

Your next question comes from the line that Stephen Byrd with Morgan Stanley.

Hi, good morning, and Dave Congratulations.

Thanks.

I wanted to just first talk about your dialogue with the rating agencies and and thinking about the your credit statistics.

And the linkage to enable cash flows and weather.

There's a possibility that overtime your credits that's really can be.

Dependent on your core utility businesses, rather than sort of have dependency or linkage to try to enable from a from a credit perspective, which might just given the general sense of where we are now in sort of whats your objectives are there.

You actually this made my pitch.

In terms of what we we want to do.

Yes, we are engaged with the credit rating agencies I've had a lot of experience with them over the years.

I understand it's a matter of laying out a process and a path forward I agree with you that.

That in terms of the credit metrics that were held against today or potentially will be held against in the future.

The dialogue, we have to have with them I think we have to demonstrate a path to growth, which I think we're in the as we've talked today, we're going to be able to do reaffirm where our current commitments are which we are doing today, but then have a dialogue with them that doesn't in effect penalize us for.

For the cash flow that we get off of enable and that that's an ongoing dialogue and.

I hate to keep coming back to it but give me more than 30 days to sort of get those conversations behind us, but they are top of mind at this point in time for sure.

Not respect that.

And then just wanted to go back to one of your Ah the elements of the prepared response in terms of the benchmarking work that you had done and I think you had mentioned briefly that.

Operationally.

You know very solid metrics, but you had mentioned the financial metrics versus peers were were less solid I wondered if you could just talk a bit more about what financial metrics you you focused on and that in that benchmarking work.

I mean, yes.

Basically if you could name that we took a look at it I mean, clearly you look at PE, you look at discount to where we ought to be trading.

With the assets, we have with the growth potential that we have with our affirmation of our earnings per share and the.

The 5% to 7% CAGR that we've put out there.

But I think in instead of all relative market valuation metrics, we lag behind and I think I understand why now.

And a lot of it has to do with what I said in my remarks.

And that if you if you look at sort of the last year of history at Centerpoint Weve letter shareholders down.

And it's my intent and my focus to turn that around again I understand it isn't instantaneous, it's really a matter of engaging with our shareholders listening to our shareholders understanding what the individual shareholder may view as a as shortcoming in the organization but.

They said as I've talked to people I'm, a very high touch individual as a CEO I like engaging with shareholders I liked debating with shareholders and so again, just give me a chance to to get out there get you an opportunity to know me better and I think that we'll rebuild that confidence.

That's really helpful. If I could just one last question just on renewables its its ups and exciting area of growth I know, it's early days, but just as you look at at Centerpoints capability with respect to renewables and and the capabilities needed versus peers versus more established players and and clean energy, how do you sort of scope out.

The capabilities you have additional capabilities you you might want or where do you feel like you do have sort of what you you need to be able to pursue of renewables in a cost effective way.

No I mean, I think I know, we can find that resource to pursue renewables in a cost effective way that you know the question is going to be how much of that do you bring in house and build that capability and how much do you hire.

You know as consultants or or do you seek partners on it.

And I think we're early in that process. We've made the conclusion, we need to be bigger in renewables, we have the perfect opportunity in front of us with the I RP plant in Indiana, We know that in that plant, we can get both into solar end to win and it really now is a matter of doing.

The calculation that Optimizes, what we want our politicians participation to be there, but it's fair to say, we do not have much of that capability in house at this point in time, but it is not such as scarce resource in the world that we can't go out and find it and as I said the display.

And for US, it's going to be how much do we bring in house and institutionalized because we're going to be in this area for a long time and how much do use set of the best the best assets and people in the industry to jumpstart you in this area, we're still going through that assessment, but you know I'm confident we'll hit.

The right balance.

That's great. Thank you so much.

Your next question comes from the lineup Jeremy Tonet with JP Morgan.

Morning.

Hi, good morning.

Maybe starting off at Indiana here.

Just wondering if you could share any early feedback you've received on the IR Pete.

Just want to get a feeling for how that's progressing.

Yes. Thank you know we've been through.

Part of the process of exposing it to the market that the response was very very positive clearly there are the regulatory hoops that we have to jump through and frankly I don't have enough knowledge about how we would do that we've got our head of regulatory affairs here. If you if you want to do a lot.

Little bit deeper dive.

In terms of it but I think it's got a lot of momentum behind that I think the the political process in Indiana. The other political environment has positive I think the reality is that you know you don't think of Indiana is a place that's got a lot of wind and a lot of solar opportunities, but it.

Really does and it's really wind in the north along the great Lakes area and lots of Sun and ability to build solar in the southern parts. So I think the state is behind it because it sees an opportunity not only to develop the generation capability from renewables, but to do it actually in Indiana.

Which brings with it that in the construction jobs you all one m. job and those kinds of things. So I haven't I havent really encountered any major opposition to it at this point in time, but it's still a bit early days.

But we're optimistic at this point.

Got it that's very helpful. Thanks.

And then maybe turn over to covert just wanted to dig in a little bit more there on the assumptions in the back half the year and just kind of how you see.

How long that depressed demand.

Would you know kind of continue in do you see it spilling into 21 or just if you could.

Give us a little bit more feeling for for how you see that unfolding in your neck.

Yeah, I mean, I'll, let Christie ill give you a little more granularity and then I'll say again come in and that clean up on on the back end of the question.

So in our cold in 19 range then the new range, we have assumed that and the recovery would go out because of the ended the year.

And so thick and gradually improved from the second quarter as as like a peak would be.

I would just say this is more anecdotally since I've moved back to Houston now.

You see traffic starting to pick up a little bit up you know if your data points art, how you're living your life everyday I'm seeing more traffic on on the roads, but I'm sitting here in downtown Houston, right now and it's still a ghost town.

And the restaurants aren't opened the bars are an open you know and those are consumers of our products and so as Christie said, if you look at where we've had demand destruction. If you will it's in sort of though the light commercial light industrial part of the business. So.

I think that you know if we could if anybody could predict set of workover, it's going to go they could make a lot of money.

Adding in the stock market, that's not me as I said earlier, we just have to make sure. We have a company that structure it to be flexible enough to handle anything that is thrown at us and what we gave you a set of our best guess of the impact in the markets that were written and if you think back you know.

Big markets are Minnesota, Indiana, Texas, a little bit of Ohio, and Arkansas, Louisiana and Mississippi.

In each of those states a set of approaching the reopening in a bit of a different way. So yeah, we're giving the our best shot at it right now I think Mike it better quicker than we might get shut down and you know well we'll update you you know if we set a very off of the.

The scenario that we laid out.

Got it that makes sense that's helpful. Thanks.

Your next question will come from the line has added some grodsky yes.

Good morning, good morning.

Thank you met with commissioners from different jurisdictions, and then she didn't they mentioned potential for higher capex across electric and gas utilities.

The potential for adding youre, expanding regulatory mechanisms to accelerate recovery of Capex.

Regulatory lag is that something that we should expect.

Let me out let me have Christy answer that one she's our resident expert on regulatory lag in and basically getting our capital investment into our rate base as fast as we can.

Yeah, I mean, as you know on Houston Electric we do have capital recovery mechanisms for both transmission and distribution capital in a Texas gas jurisdictions, we have capital recovery mechanisms as well and there are other jurisdictions decide minnesota pretty much have.

Well I would say, Arkansas, Mississippi, Oklahoma, Louisiana, I'll have cost to service. So again fairly quickly the capital is in the right.

Indiana and Ohio, We also have capital recovery mechanisms. So, it's really Minnesota and in Minnesota, we have interim rates and a rate case pretty much every couple of years to help reduce that regulatory lag. We actually think we're in good shape and as we increase this capital.

We have the mechanism.

I have one follow up question, Chris you mentioned lower interest expenses are helping offset higher call that impact do you expect that trend to continue yes could you quantify how much interest expense are going to be downing.

2019, that's tracking better than you previously expected.

Yes, the interest is better than we previously had in our models for our plan and Dan.

But see in the quarter interest was favorable three cents to last year.

Do you expect that to continue or.

Yeah, I mean, we do expect to see favorable interest going forward.

Perfect. Thank you for taking my question.

Thank you.

Our final question will come from the line of Michael Weinstein with Credit Suisse.

Hey, guys warning David Good morning, David Congratulations Hum.

Some investors have noted the you know you're coming into the job after a long and distinguished career at Halliburton.

And your 67 years old Im just wondering what your how long do you plan staying at Centerpoint <unk>, what do you where do you see your career at this point a should take your take on Israel.

Yeah. It's a good question I guess I.

I see myself is 67 going on 50.

I used the reason the reason I left Halliburton is halliburton has a mandatory retirement age or frankly, I would still be there I've got a lot of energy I like being the CEO I like being a leader and you know to me. This was a perfect opportunity because of the great assets the great jurisdictions that great people.

So that our here so I have not Saudi timeline on my tenure here.

I will note in a board will know it.

When the time is right to add to move on but I think for right now I am totally committed and I as I said earlier I've just move back to Houston last weekend, and I am rare indigo and.

As far as I am concerned disguise the limited at this point in my career.

Sounds good Hey have you had a chance to meet with the regulators, yet and Texas to talk about how the less rate case went on some of the some of the criticisms that I think a lot of people had about that rate case.

And also maybe even meet with the Governor just wondering if yeah why that.

No you clearly I know the governor I know the governor wealth of my days at Halliburton, So having a meeting with the Governor for me would be pretty easy to get you know as I indicated in my prepared remarks, I've actually met with all three of the public utility Commissioners in Texas, I had a that face to face sit down with.

The chairman of the P. you see in Texas.

We did have a frank discussion in dialogue around.

The rate case.

And the outcome, but I, but I think it's really important to 0.1 thing out in that even though there was a lot of noise around our rate case. If you look at the outcome that we got any outcome that others have gotten since then.

We were really that maybe the first company up that was experiencing a bit of a policy change in and around the equity splits and the our OE is that we're going to be allowed to utilities and in Texas and so that was part of the dialogue you know that that I've had with the commissioners.

If you look at where we came out we're pretty much in the middle of the more recent cases that that have been adjudicated through the system in Texas, but that doesn't mean that we're not going to continue and I am not going to continue.

To to have a dialogue them, it's important to have relationships with your regulators every place that you operate their end business to protect the consumers and their particular states and it's our job to provide reliable gas and power to those consumers. So I don't I don't necessary.

We see that has to be an adversarial relationship it really needs to be a partnership really pointed toward making sure there were providing reliable power and gas to the consumers in the states where we operate.

Great well, thank you very much in a good luck and.

No that's speed.

Hey, Thank you. Thanks, everyone. Thank you everyone for your interest in Centerpoint energy that will conclude our second quarter 2020 earnings call have a great day.

Ladies and gentlemen, thank you for joining today's call you may now disconnect.

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