Q3 2020 CenterPoint Energy Inc Earnings Call
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Good morning, and welcome to Centerpoint Energy's third quarter 2020 earnings conference call with senior management.
During the company's prepared remarks, all participants will be in a listen only mode. There.
There will be a question and answer session after managements remarks.
To ask a question press star one on your Touchtone phone.
To withdraw your question press the pound key.
I'll now turn the call over to David Mordy Director of Investor Relations Mr. Mordy.
Thank you and good morning, everyone welcome to our third quarter 2020 earnings Conference call Davis, our CEO and Jason Wells CFO will discuss our third quarter 2020 result, and provide highlights on our strategy today management will discuss certain topics that will contain projections and forward.
Looking information that are based on management's beliefs assumptions and information currently available to management. These forward looking statements are subject to risks or uncertainties actual results could differ materially based upon various factors, including weather regulatory actions, the economy and unemployment commodity prices and the impact of COVID-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 into component.
Providing this guidance Centerpoint energy uses a non-GAAP measure of adjusted diluted earnings per share in.
In summary, our guidance basis utility EPS range includes net income from our utility segment as well as after tax corporate and other operating income.
This guidance range considers operations performance to date and assumptions for certain significant variables that may impact to earnings as noted in our earnings release the.
The range reflects dilution and earnings as if the series C preferred stock were issued as common stock and incorporates anticipated COVID-19 impacts.
Finally, the guidance basis utility EPS range assumes an allocation of corporate overhead based upon its relative earnings contribution.
Our guidance basis utility EPS excludes the 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 the merger integration and business review and evaluation committee activities severance costs earnings or losses from the change in the <unk>.
I'll use ends and related securities and changes in accounting standards.
In addition to these exclusion Centerpoint Energy's guidance does not consider unusual items, which could have a material impact on GAAP reported results 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 todays call. Please refer to our earnings news release, and our slides, which can be found under the investors section on our website.
As a reminder, we may use our website to announce material information.
Before Dave begins I would like to mention that this call is being recorded information on how to access the replay can be found on our website Dave.
Thank you, Dave and good morning.
Since we last talked 90 days ago. It has been a very busy time for both me and Centerpoint. These are exciting times for us I'm, even more optimistic about where we can take this great company in the future than I was 90 days ago.
I want to share with you why I'm so optimistic.
Today I will also bring you up to date on where we are on our Brac recommendations, but first I want to discuss some of my general observations on the last 90 days.
To start we now have a newly energized leadership team made up of a great combination of experience centerpoint executives and external hires.
Our management team is now more diverse and bring significantly higher level of utility experience to the table.
The team is eager to embark on our new strategy, where we can take advantage of industry, leading organic customer growth.
We also have greater opportunities to invest more in growing our current rate base.
We have all the right pieces to deliver what our investors and our customers want and expect from premium utilities.
Throughout the many challenges Centerpoint has had during 2020, our employees have always stepped up I.
I, especially want to thank our frontline crews for going into the field and providing reliable service to our millions of customers every single day.
They have done an excellent job in helping the neighboring utilities get back up to speed after multiple storms during the last quarter, we sent Centerpoint mutual assistance crews as far away as New York, Georgia, and Florida and of course to Louisiana, where I spent some time with them as they worked.
In difficult conditions to restore power in hard hit Lake Charles.
Im impressed with their dedication to both customers and to maintaining a safe working environment and I'm very proud of them.
Our performance this quarter puts us right, where we want to be in terms of delevering with on our newly increased 2020 utility guidance range, which we highlighted in our press release this morning.
Our focus going forward will be on consistently providing improved utility driven earnings and you're going to hear a lot about that today and how we're going to execute and make that happen.
In this quarter I also focused on enhancing our management team.
We had several new additions to an already strong performing management team.
I am thrilled to have Jason wells on our team.
Jason is well known to you and brings a sharp intellect deep industry knowledge and a firm commitment to success.
Jason has really hit the ground running and has been heavily involved with me and finalizing the brac recommendations and our new strategy.
I also brought Tom Webb onboard as senior advisor to Centerpoint.
Not only is Tom helping us accelerate our implementation of proven utility value drivers, but he is also a critical and identify and Jason as our new CFO.
With his vast experience in the industry. He has also been instrumental in helping US set centerpoint on a path to focus on and execute a continuous improvement program not only as a day to day mindset, but also as an ongoing discipline.
In addition, we brought in Greg Knight to join the team Gregg joined Us from National grid, and he has a proven history of driving excellent customer service.
Our company also needs to learn to deal better with adversity.
I strongly believe a first rate management team deals with whatever challenges it confronts and effectively manages through them.
No matter, if it's cold bid the weather or any other challenge our organization must learn to confront and overcome any headwinds.
In the future whatever impact these items may have on our business.
We will work our way through them like any good management team would and deliver consistent results.
And our team has truly embraced that mentality.
Now, let's move on to the update I suspect you are most eager to hear about.
As you know we concluded the business review and evaluation Committee work in October and provided recommendations to the entire Centerpoint Board.
We had a requirement to hold an analyst day by the end of Q1 2021.
But I did not believe it was fair to shareholders.
To have you wait until then to hear the outcome of this effort.
Therefore, I have accelerated the timing of our Investor day to December 7th just a few short weeks from now.
We of course are clearly eager to introduce our new strategy to you.
And while our Investor day will be full of details on our strategy I believe it is only write to share with you some of our conclusions this morning.
First increasing capital investment.
The most positive and striking outcome from the Brac review is that we are absolutely flush with incremental capital spending opportunities way way beyond our prior stated plans.
Apart from safety our number one goal is of course to grow our premium regulated utilities and maximize the advantage of this growth for customers and shareholders. So organic growth opportunities are a great place to start this conversation.
One of the most exciting advantages, we have at centerpoint or the organic growth opportunities in our core regulated markets.
Consistent organic growth is a luxury most utilities simply do not have.
On a rolling 12 month basis, our organic customer growth across our electric utilities was 2.4%, including 33 years of consecutive growth in our Houston territory.
This growth highlights what an unappreciated crown jewel, we have in both our regulated electric and gas utilities in the Houston area.
As you will see Houston electric will be one of our main earnings drivers going forward.
And even when you include all of our gas distribution utilities, our total company organic growth was over 2%.
Now that's pretty amazing given the diversity of states, where we currently operate in.
And as you know organic growth drives incremental demand.
Which drives the need for significant incremental rate base investment.
And helps to keep customer rates lower during.
During the Brac process, we did a complete ground up review of capital investment opportunities available to Centerpoint.
I took the approach that we should look at all available capital investment opportunities without considering balance sheet constraints.
Using this ground up approach allowed us to determine how much we could increase capital spending on both our base regulated business and these great organic growth opportunities.
We found increased capital investment opportunities, we are driven not only by these organic growth opportunities, but the continuing need to harden our grid take advantage of renewable opportunities and provide safe reliable and greener energy for our customers.
The upshot is we will be able to increase our 21 to 25 capital investment plan by $3 billion to $16 billion. This 3 billion dollar increase span is now expected to deliver a rate base growth of approximately 10% per year.
This 10% rate base growth will put us at or near the top of the entire utility industry.
Thank for a second or two about what 3 billion more in capital spending and a 10% annual rate base growth will do for us.
Well I'll, let you do the math for now.
It will of course provide impressive future earnings growth power and we believe will push us towards the top end of our 5% to 7% guidance basis utility EPS growth.
And that's not all during this same 21 to 25 timeframe. We've identified an additional 1 billion plus of capital spending opportunities on top of that incremental $3 billion that we can use to even further increase our spend.
We will begin to look at spending this additional $1 billion. Once I am confident we have built up our internal resources to efficiently spend it.
So at this point these additional $1 billion in capital spending opportunities are not even included and our stated 10% rate base growth plan.
Second we're going to add renewables to our portfolio.
It is critical that we take advantage of current opportunities to provide renewable energy for our customers. This includes aggressively pushing to build renewable generation outlined within our Indiana, I RP, where we now plan on investing $950 million in both.
Wind and solar generation that we will own as a company.
This will have the added benefit of providing tax credits to Centerpoint is something that we have not had in the past.
We will also be advancing our LNG and hydrogen renewables in Minnesota.
We're also exploring building new transmission interconnects with renewable generation in other parts of Texas, but.
But more importantly for us in the near term or the renewable generation investment opportunities that are now being built in our Texas service territory.
Jason will have more on these great opportunities in a few minutes and we will share even more details on these exciting additional renewable opportunities with you at our Investor day.
Third enhancing balance sheet Optionality I would like to share some of our conclusions on how we will finance the $3 billion plus an additional capital spending opportunities.
First and to eliminate any initial anxiety you may have I want to immediately emphasize that our plan does not require any block issuance of new equity.
Require a reduction to our current earnings per share to.
To prime the pump on achieving this plan.
We plan to sell one or two of our natural gas LDC utilities.
Now all of our gas ldcs are good assets in constructive regulatory environments, and we hate to sell any of them, but a hard capital allocation decision needed to be made and I made it.
The LDC assets, we plan to sell our well positioned in the states they operate in and should be attractive to a wide range of buyers. These.
These LDC sales will have the additional benefit of more heavily weighting our portfolio towards growing our regulated electrical utilities.
I will not comment on which ldcs, we plan to sell today, but we will share more details with you during our upcoming Investor day.
We also value and understand the importance of our ongoing engagement with the rating agencies in area, where both Jason and Tom not only have significant experience, but excel.
In summary, we expect to finance this increased capital spend with enhanced internal cash flow restructuring our debt profile.
LDC asset sales, a more efficient operating structure and a small amount of routine equity bias such things as reinstituting, our drip, which Jason will discuss in more detail.
Fourth operations and maintenance cost discipline over.
Over my 20 year career as a CEO I have worked in very competitive industries.
Therefore cost discipline has always been important to me.
This year at Centerpoint the cost discipline, we have implemented has been vital to maintaining our profit guidance.
As we work through our many challenges.
We are now quickly transforming this current year cost disciplined mindset into a culture of continuous cost improvement.
This is an area, where Tom Webb has been invaluable in helping me to accelerate my thinking about how to get more value for less cost year after year now.
Now that's very doable at Centerpoint and after having been here only a few months I believe that Tom fully agrees.
So going forward, we plan to deliver a 1% to 2% in all one m. reductions every year.
And once again think about what that will do for our earnings profile as this effort will benefit not only our customers, but our investors.
The most critical part of delivering on these reductions is instituting that can do culture across the entire organization and I can tell you we will institute that cultural change at Centerpoint.
Fifth enable.
As you can appreciate I will only comment on enable within our prepared remarks, and we will not be addressing additional questions. We.
We continue to evaluate enable options to.
To do this effectively we believed it was important to regain strong alignment with ogone regarding our enable interest.
Investors may have noticed ogone his appointment of loot Corbett to the enable board as well as recent commentary from Ogone that Centerpoint and Ogone are now well aligned in our desire to maximize the value of enable.
Luke has tremendous depth in midstream experience and join Centerpoints to enable representatives al Walker and Bob Gwin Luke.
Luke knows al and Bob well and we believe these three will help enable determine the best way to maximize stakeholder value.
Six regulatory relationships I.
I have now personally met with all of our eight states regulators, except for Minnesota, where we have an open rate case.
Now there's been a perception among investors that we do not have good regulatory relationships at Centerpoint not.
Nothing could be further from the truth.
We operate in business friendly states and have very strong relationships with our regulators.
We enjoy rate mechanisms that greatly reduce regulatory lag, allowing us to efficiently recover on any investments we make.
I would also like to point out that despite the commonly held negative view our results in the Houston Electric rate case earlier this year were.
Were in line were actually better than that received by peer utilities in Texas now.
Don't get me wrong, I'm, not making excuses for the fact that we misread both the depth of our Texas regulatory relationships and the shifting regulatory realities in Texas.
That is a fact I do know that right now the relationship with the Texas Public utility Commission is getting better as we have staffed up resources and I spend more time in Austin.
Above all Texas remains an excellent state for regulated investment as do our other premium utilities within the central United States.
It's also important to note that we are earning at or near our allowable returns in almost all of our jurisdictions.
Now, let me wrap up by saying that I will not be satisfied until we are recognized as a premium utility one with high organic and rate base growth and a management team that is focused on delivering consistent quarter over quarter results, increasing stakeholder value and getting the most.
Out of our assets and people.
I look forward to seeing everyone on December 7th and on giving investors the chance to see our new management team in action.
With that in a few minutes I will turn the call over to Jason Wells.
Jason will provide additional details on results and delve further into our strategy and upcoming plans.
But before we do that Tom Webb would like to say a few words, so like a blast from the past here is Tom Webb.
Thank you, Dave and my Thanks to all of you on our call today I'm delighted to be a part of Centerpoint as a senior advisor, although the title doesn't make me feel a little older.
From that gave me, Dave and I met at my home in Michigan over a glass of wine and well that's not a surprise to most of you.
I was convinced that his leadership at Centerpoint would make a real difference.
My first assignment from Dave was clear hilt find a world class CFO to partner with us.
Hi, two in thrills adjacent agreed to join.
Dave's vast experience as a CEO and his drive to excel, coupled with Jason's deep utility knowledge and skill is a perfect stunning match.
Dave's assembled a world class leadership team and established a clear we'll make it happen plan.
Centerpoint is fortunate to operate in one of the few strong growth markets in the us.
The team is unlocking powerful centerpoint strengths it's impressive.
Just two of these strengths include points, Dave just mentioned imply.
Implementing $3 billion of new investment and embracing continuous improvement.
To raise quality and reduce cost 1% to 2% every year.
As we all know growing revenues in shrinking cost provide valuable customer rate headroom.
Headroom to fund set.
Sector, leading capex growth, what a win win for our customers and you my old friends our investors.
I look forward to working with Dave and Jason along with the management team on this journey laser focused on delivering high end EPS growth every year.
We'll sweat the detail.
So you don't have to discuss.
This commitment to a premier utility business model is not new to me.
Anyone can do it.
Only premier utility teams do.
Centerpoint is position now to become one of those admired premium companies.
Ladies during the third quarter and on a year to date basis, which is giving us confidence to raise the low end of our 2020 guidance range.
Second we now have confidence in our annual rate base growth of 10% for the next five years.
And finally that rate base growth provides a solid foundation for earnings per share growth at the high end of our 5% to 7% long term guidance range.
For the quarter, our diluted earnings per share was 13 cents.
Our third quarter guidance basis utility EPS was 29 cents as shown on slide five.
Including midstream investments, we delivered 34 cents on a guidance basis up modestly from analyst estimates.
Year to date guidance basis utility EPS stands at 95 cents versus a loss of $2.10 on a GAAP basis, primarily due to midstream impairments recorded earlier in the year.
We overcame the kobin related impacts in the increased share count with customer growth more favorable than modeled in backs from our rate cases on m. reductions lower.
Lower tax rates and lower interest expense.
Given the strong performance through the third quarter. We are pleased to raise the low end of our utility guidance range and present, the revised guidance of $1.12 to $1.20 per share for the full year.
Now turning to slide six as David discussed we have fundamentally we reevaluated our focus as part of the Brac process and I'd like to take a few minutes to highlight our approach to the business going forward.
We are fortunate to have sustainable capital investment opportunities and as you know that is the fuel for growth in our business.
As Dave mentioned, we have plans to invest $16 billion over the next five years, which is approximately $3 billion above our previous 2020 through 2024 plan.
We will build on this growth opportunity by accelerating our disciplined approach to operational excellence enhancing the quality of our service for our customers.
All while conducting our business more efficiently.
We will seek to lower our own am cost by 1% to 2% a year.
Couple that with organic customer growth and constructive regulatory environments in our service territories and we have a simple model that delivers for our customers and you our investors.
Slide seven provides a little more detail behind our new five year Capex plan of $16 billion.
Two thirds of the incremental $3 billion of Capex is anchored by new investment opportunities in our electric businesses in Houston in Indiana.
Presently we see the opportunity to invest an additional $1 billion over the next five years in our Houston electric business, which will bring us up to about $6 billion for the 2021 through 2025 plan.
These opportunities include equipment to support organic customer growth, improving reliability and resiliency hardening, our transmission systems against the increasing frequency and intensity of tropical storms.
Dave also mentioned the additional investment needed to support the growth in renewable generators, who are building more solar farms in our Houston service territory.
There are currently 10 solar projects with an Investor Green light inside our Houston Electric service territory and at least twice that number being contemplated.
As these projects come to market they will require significant investment in an expansion of our transmission grid to connect them.
In Indiana, we're right in the middle of a major transition from age cogeneration to new cleaner natural gas and greener solar and wind generation.
This is a wonderful opportunity to provide our customers with more cost efficient clean energy compared with upgrading our old coal generation units.
We think this will be a win win for our customers and again for our investors.
Dave mentioned, we would aggressively push to build the Iraqi outlined generation.
The new plan has $1.3 billion of planned capital for Indiana generation includes $950 million of wind and solar to be owned directly by Centerpoint.
And for our gas Ldcs, we plan to increase our capex by approximately $1 billion over last year's five year plan driven by the continued focus to modernize our systems, replacing old vintage transmission and distribution pipes.
These are large important projects that we believe will advance the safety and efficiency of our systems.
In total these capital investments will result in long term annual rate base growth of approximately 10%, which is at the top of our industry.
The confidence in this level of annual rate base growth gives us clear line of sight to growing utility earnings per share on a guidance basis at the high end of our 5% to 7% range and remember none of this includes the additional $1 billion plus and opportunities we have on top of this $16 billion capital investment plan.
Turning to slide eight part of our capital investment plan includes improving our quality of service and reducing one m. cost by a target of about 1% to 2%. Each year. We are on track to deliver over a 1% reduction in own AMD. This year, and we will strive to find new ways to continuously improve our processes, resulting.
And better quality delivery and cost.
Building on what Dave and Tom have discussed our cost reduction efforts will include using advanced technologies.
Like increasing the use of drones automation and machine learning with our offices and call centers.
Further imagine being able to spend less time rolling our trucks out the door. Each morning, because we are better prepared with the right equipment parts and tools that permit us to do our job on time and get it right. The first time.
Our quality goes up and our cost decrease.
Implementing new technology and processes sounds easy, but it's not improving these processes will be good for our customers and our investors.
We're Dave spoke of organic customer growth I am a personal example of that growth.
This model is summarized on slide 11 is available across the utility sector.
It's simple the best utilities use it.
They apply it well starting today, we will to capital investment growth provides EPS growth and recall our annual investment over the next five years is expected to be $3 billion above our prior plan.
Our strong focus on cost reductions and service territory with growing sales provides substantial headroom for our customer driven capital investment.
Thats, what makes such a large investment programs to improve the quality of our service for our customers sustainable over years to come.
We are also laser focused on efficiently and sustainably financing these investments for our customers and our shareholders.
We plan on financing this new investment with incremental authorized levels of operating company debt, a small amount of routine equity from reinstating our dividend reinvestment plan and beginning in 2022, introducing a small annual aftermarket equity issuance program.
Overall, we anticipate growing to an annual issuance of approximately $75 million in incremental equity through highly efficient programs by 2022.
This modest level of equity will help us maintain a strong balance sheet with ample access to low cost financing.
In addition, as Dave mentioned, we are exploring the potential sale of one or two of our gas LDC businesses to efficiently raise the capital for our growth, while preserving balance sheet health and to simplify our service territories.
We'll go into this in much more detail with you at our Investor Day on December 7th.
Before I wrap up to take questions, let me share to more important points.
David is instilling a commitment to consistent strong EPS growth every year throughout the management team and the organization.
During the year, good and bad things will occur every quarter every month as has become more evident given the events of 2020.
It's our job to Java management to deal with that change and to deliver to you our investors consistent earnings growth.
We manage the business. So you don't have to worry and capitalize on opportunities to reinvest surpluses to accelerate planned improvements for our customers.
For example, if the weather was favorable to earnings we could accelerate tree trimming to improve customer reliability, even faster than planned.
Our job includes maximizing service for our customers and delivering the high end of our 5% to 7% EPS growth range for our investors.
David I. Thank you for your patience your time and interest in Us and now Dave has a few closing remarks.
Thanks, Jason.
My final remarks will be short.
They are really just the headlines I want you to take away from today.
First we are on the launch pad and about to unleash our strategy for accelerated our earnings results at Centerpoint.
Next we have industry, leading rate based growth opportunities driven by $3 billion in incremental spend above our prior plans.
In addition, we have more than a $1 billion in capital spend on top of those opportunities.
We are aligned around maximizing the value of enable.
We can execute our plan with no block issuance of equity.
We plan to sell one to two of our ldcs to help finance our capital spend we.
We are committed to better cost control.
We are going to become a larger player in renewables.
We will manage the business. So you don't have to worry and we plan to earn at the high end of our expected range of 5% to 7%.
And without a doubt I can't wait to show you how all of this fits together on December 7th.
Thank you, Dave we will now take questions until nine o'clock eastern as our prepared remarks covered both the quarter and the brick updates we've a bit less time for question. So I'll ask you to limit yourself to one question, but rest assured we will cover a lot more of your questions. During the conference and on December seven.
Maria.
At this time, we will begin taking questions if.
If you wish to ask a question. Please press star one on your touched upon that.
To withdraw your question press the pound key.
The company requests that when asking a question on the colors pick up the telephone handsets. Thank you.
Our first question is from Anthony Crotwell Mizuho.
Hey, good morning, Dave Good morning, Jason and congrats on a great quarter.
Also Jason that best of luck at the new job.
You are moving to a city that has the professional football team with more wins that same amount of both of our New York team. So good luck there.
The Tory mechanisms that we have to recover our capital investment timely there is still a small lag in certain jurisdictions. So for example in Houston.
For Houston Electric we are able to file for incremental recovery of our capital investment on the distribution side annually on the transmission side, we're able to file twice a year, but that small little lag.
Survive some of or causes some of that that leakage.
The second item that I'd point to is exactly what you, which you highlighted we do have some parent company debt that is kicking off some interest expense that's not recoverable from customers.
As that space or have either past, we're in the process of.
Proposing legislation to ban those local ordinances. So we are fortunate to.
To serve communities that prioritize the clean nature of natural gas and I think that will be recognized by the universe of of potential buyers.
Great. Thanks for taking my question, we'll look focusing.
Okay.
Our next question comes from the line of sharp <unk> of Guggenheim Partners.
Transaction on the seventh you have buyers kind of already there and then should we really be thinking about this as a sale versus maybe an asset swap without a counterpart.
No I think I think the answer is now we won't have a sale to announce on the seventh week clearly will share with you, which ldc's. We have that we're gonna be putting in the market and then you can sort of extrapolate from there what the potential buyer universe will look like but.
I think back to the side of the prior question to maximize the value on these things you want to go through a very rational and direct sales process and it's not something we have to hurry. We have the luxury of time here and we might as well take it.
Terrific Congrats guys when the results from a nice day here, Tom and J here on the call.
As a reminder, ladies and gentlemen, if you'll please limit yourself to one question.
Our next question comes from like a Steve Flashman of Wolf research.
Hey, Steve Hey, good morning.
Had a little deja vu listening to this call. This you know what I mean, Tom.
A good way and but just my question is back to the one about the difference between the.
Steve.
Obviously won't recover what I provided earlier I will say, though that as we were looking at this plan and.
And I have talked about this about 100 times since he's been on board.
Thanks, Julian for the the question in terms of the growth from here forward. It really is on the utility guidance basis range of a $1.12 to $1.20 per share given where we are in the year I think it's likely that we we end the year right at or slightly above the midpoint of that revised guidance range and so.
I'd use that as the factor two to grow earnings on a 7% basis going forward.
In terms of.
Competence ability to deliver it to the 7% range. We still continue as I've indicated a couple of times have confidence.
Our ability to address.
Some of that drag part.
Part of our plants coming out of the Brac is to restructure the balance sheet, we have been.
Issuing parent company debt to fund operating company debt needs, we will address that over time reduce some of the leakage from the excess interest expense as I said.
And taking advantage of those opportunities will help us grow to that.
And deliver at that 7% EPS growth range.
Got it and the top in their assumes earning your ROE is across all the utilities.
Give me or targeting earn at or slightly below all of our operating company our lease there is.
As I've indicated a couple of times there is a small delay in capital recovery. These are very constructive mechanisms that allow us to layer in that incremental expense, but there is some time delay with that and so as a result, there are periodically small differences in our allowed return, but I think it.
Important to know that we sort of operate the business on a portfolio basis and across all the utilities or is assume.
Assuming that we earn the allowed return on equity sort of across the enterprise over that time period.
Got it okay actual 20 for the starting point for some it correct.
Thank you.
Our next question comes from the line of Tim of Goldman Sachs.
In line with how our regulators have set up the systems sort of more broadly as it relates to customer rates were very attuned to impact the cost of our service for our customers and our communities. We have the privilege to serve and I think all in we're looking at growing hour.
Right in line with inflation, there might be periodic deviations from that but over time, we see the opportunity to grow our rates in each of the states generally in line with inflation, that's really driven by those factors that I discussed the fact that we've got growth.
And the majority of the states, we serve that we have O&M discipline.
Around our cost structure, and so that helps balance that incremental capital investment that we shared with you. This morning.
Of jurisdictions, we have the privilege to serve we recognize that the case that isn't the case today, but we.
We plan to get there over time as we deliver on the strategy that we've outlined today, but recognizing we're not there today and to Dave's point in terms of priming the pump on.
On this capital investment plan, we see the opportunity to sell one to two gas ldcs at well north of one and a half times rate base to reinvest those proceeds at one times rate base without losing any earnings power company.
Let's see here and are there any other large projects me a plan we should be thinking about.
We're going to be sharing a lot more detail around this capex plan at the analyst day, but let me just give you a little bit of color today, I think outside of the generation plan in Indiana.
Capex plan that were.
Highlighting here is really made up of a series of <unk>.
<unk> sort of routine project. A classic example of that is targeting sort of a low voltage transmission lines in and around the Houston area are 69 kv lines, it's about a 10 year replacement plan.
That that provides us sort of certainty for ongoing kind of capital investment.
And so I would say again outside of the generation planted Indiana. These are a series of routine and sort of repetitive programs.
We will definitely be sharing a lot more detail with you at the upcoming analysts that.
Got it all makes sense. Thank you.
Great well. Thank you everyone for your interest in Centerpoint energy I know, we didn't get to all of the questions today, but I wanted to encourage everyone to reach out to US. We're here to help you understand our strategy and the potential of what we've laid out today have a great day.
Thank you. This concludes centerpoint entities third quarter of 2020 earnings Conference call. Thank you for your participation you may now disconnect.
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