Q2 2019 Earnings Call
During the company's prepared remarks, all participants will be any listen only mode.
There will be a question and answer session. After managements remarks to ask a question press star one on your Touchtone keypad.
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I will now turn the call over to David Mordy Director of Investor Relations Mr. Mordy.
Thank you Catherine good morning, everyone welcome to our second quarter 2019 earnings Conference call.
Got prochaska, President and CEO , and Charlie who executive Vice President and CFO will discuss our second quarter 2019 result, and provide highlights on other key areas also with US. This morning are several members of management, who will be available during the Q and a portion of our call.
In conjunction with Oracle, we will be using slides, which can be found under the investors section on our website Centerpoint energy dotcom.
For a reconciliation of the non-GAAP measures used in providing earnings guidance in todays call. Please refer to our earnings news release and our slot.
They have been posted on our website as has our Form 10-Q .
Please note that we may now it's material information using SEC filings news releases public conference calls Webcasts and post to the investors section of our website.
In the future we will continue to use these channels to communicate important information and encourage you to review the information on our website.
Today management will discuss certain topics that will contain projections and forward looking information.
Are based on management's beliefs assumptions and information currently available to management. These forward looking statements are subject to risks or uncertainties actual results could differ materially based upon factors, including weather variations regulatory actions economic conditions and growth commodity prices changes in our service territories and other risk factors noted in our SEC filings.
We will also discuss guidance for 2019 2019 guidance basis EPS range excludes the following impacts associated with the Vectren merger.
Integration and transaction related fees and expenses, including severance and other costs to achieve the anticipated cost savings as a result of the merger and merger financing impacts in January prior to the completion of the merger due to the issuance of debt and equity Securities to fund. The merger that result in higher resulted in higher net interest expense preferred stock dividend requirement at higher common stock share count.
The 2019 guidance range considers operations performance to date and assumptions for certain significant variables that may impact earnings such as customer growth approximately 2% for electric operations and 1% for natural gas distribution and usage, including normal weather throughput commodity prices recovery of capital invested through rate cases, and other filings effective tax rate financing activities and related interest rate and regulatory and judicial proceedings as well as the volume of work contracted and our infrastructure services business.
The range also considers anticipated cost savings as a result of the merger.
The range assumes the lower end of enable midstream partners 2019 guidance range for net income attributable to common units provided on enable second quarter earnings call on August six 2019.
In providing this guidance Centerpoint energy uses the non-GAAP measure of adjusted diluted earnings per share that does not consider other potential impacts such as changes in accounting standards or unusual items, including those from enable earnings or losses from the change in the value of zens and related securities or the timing effects of mark to market accounting in the Companys energy services business, which along with certain excluded impacts associated with the merger could have a material impact on GAAP reported results for the applicable guidance period Centerpoint energy is unable to present, a quantitative reconciliation of forward looking adjusted diluted earnings per share because changes in the value of sense and related securities and mark to market gains and losses, resulting from the company's energy services business are not estimable as they are highly variable and difficult to predict due to various factors outside of managements control.
Before Scott begins I would like to mention that this call is being recorded information on how to access the replay can be found on our web site I'd now like to turn the call over to Scott.
Thank you David and good morning, ladies and gentlemen, thank you for joining us today and thank you for your interest in Centerpoint energy.
I'm pleased to report that we have delivered a solid second quarter driven by consistent strong performance in our utility operations backed by strong cash contributions from our non utility businesses.
I'd like to begin with slide five.
This morning, we reported second quarter 2019 income available to common shareholders of $165 million.
Or 33 cents per diluted share.
Compared with a loss of $75 million or 17 cents per diluted share in the second quarter of 2018.
On a guidance basis, and excluding merger impacts second quarter 2019, adjusted earnings were 35 cents per diluted share compared with 30 cents per diluted share in the second quarter of 2018.
Sure I will cover our financials in greater detail shortly.
It's been approximately 180 days since we successfully closed on our merger with Vectren.
With the addition of Indiana, and Ohio to our regulated operations, we have increased our collective rate base by 45%.
Through the merger, we created a growing energy delivery company that is expected to drive value for our shareholders.
Turning to slide six I would like to take the opportunity to outline Centerpoints post merger long term value proposition.
First we intend to increase the earnings contribution from regulated utilities through capital investment to serve our utility customers.
We continue to expect approximately 8% compound annual rate base growth through 2023, which will drive utility growth and overall earnings.
Second the cash from our non utility businesses will continue to be an important source of funding for our growing utilities.
Third we are committed to solid investment grade credit quality and a strong balance sheet and fourth we expect to deliver strong shareholder returns through EPS growth of 5% to 7% along with consistent dividend growth.
Turning to slide seven as many of you read on Monday in our amended 13D filing we no longer intend to sell our common units of enable midstream partners.
Much has changed since we first considered the sale of enable common units.
Following the close of our recent merger, we have increased utility capital needs and midstream investments now represent a smaller percentage of our earnings.
Enable has taken several steps to de risk its business, including moving to more fee based gathering and processing contracts, securing new sizable transportation agreements and successfully strengthening its coverage ratios.
Enable has maintained a strong balance sheet and provided consistent cash flows over the past five years.
Enables continued solid performance and strong coverage ratio allowed it to increase quarterly common unit distributions by approximately 4%.
The 33.05 cents per common unit.
Its first increase since 2015.
Since its formation through our ownership of common units enable has provided approximately $1.7 billion in cash distributions to centerpoint.
And we expect the total amount to grow to over $3 billion by 2023.
The distributions from enable provide an efficient source of cash to support our utility infrastructure investments.
Slide eight shows the steady cash and adjusted EBITDA, our nonutility businesses generate to support our utility growth.
You can see that in addition to the consistent cash distributions from enable energy services and infrastructure services are also steady generators of adjusted EBITDA.
The adjusted EBITDA, they generate more than offsets the capital investments required by these businesses.
In the near term we have identified four focus areas. This is shown on slide nine.
We must continue to execute merger integration.
Execute our regulatory strategy.
Manage on M. spending.
And strengthen utility infrastructure to provide long term customer value.
We're making great progress with merger integration activities.
Centerpoint close the merger with vector and less than 10 months. After our announcement. This reflects the constructive regulatory environment of our entire footprint.
We remain committed to planning and executing a very focused integration effort.
In 2019, our attention has been on implementing process improvements and achieving synergy targets.
We took immediate actions to begin savings on day, one and remain on track towards our 2019 target of over $50 million of savings.
We continue to estimate $75 million to $100 million in merger savings for 2020.
Beyond 2019, we expect our primary merger related activities will be integrating technology systems.
The design and implementation of these activities is still being developed and will be finalized later this year.
This important work includes creating a single set of systems across the company for finance accounting supply chain operations and customer experience.
Slide 10 details recent regulatory developments.
With respect to the Houston electric rate case, we anticipate receiving a recommendation from the administrative law judge in September .
And a decision from the public utility Commission of Texas in the fourth quarter of 2019.
We have constructive relationships with our regulators and other stakeholders and believe our operational performance our commitment to our customers and the investments we make all of which support Houston's continued growth.
Will help provide for a fair and appropriate outcome in this case.
For natural gas distribution, we have received rate relief through the gas reliability infrastructure program in Texas, and the compliance and system improvement adjustment in Indiana.
We expect to receive the final order in our Ohio rate case in the second half of 2019.
We have also filed for additional rate relief in Ohio and other jurisdictions.
In Indiana, where in the process of creating a new integrated resource plan or I RP.
For Indiana Electric and we show time tied on slide 11.
We are currently working with stakeholders to determine the appropriate solution for generation in southern Indiana.
We continue to anticipate filing the new I. RP during the second quarter of next year.
We will look to begin new construction on appropriate generation solutions. Following the completion of the RFP process.
On slide 12, I'd like to highlight our SG efforts, particularly our commitment to environmental stewardship.
We are proud of our progress to date and we will continue our efforts to further improve the environments of the communities we serve.
The most significant contribution we make in reducing greenhouse gases through our natural gas distribution business pipeline replacement program.
Which is the largest component of our $5.3 billion five year natural gas distribution capital plan.
Since 2012, we have replaced over 700 miles of cast iron pipe across our service territory.
These specific cast iron replacements as well as our other pipeline replacement modernization programs.
We have helped reduce our annual gas emissions by over 30%, 30% per unit of natural gas delivered since 2012.
These investments not only better enable us to safely serve our customers. They are also beneficial to the environment.
We're proud of the progress we have made in this area.
Additionally, as you may be aware electric generation owned by Indiana Electric comprises approximately 3% of our fixed assets.
Between 2005, and 2018, Indiana Electric has made significant progress to reduce greenhouse gas emissions by approximately 20%.
We were also one of the first utilities to implement advanced metering system automation across our Houston electric footprint.
Reducing truck rolls and avoiding more than 17000 tons of greenhouse gas emissions since 2009.
Additionally, energy services has been purchasing green gas also known as renewable natural gas for more than 10 years.
While the amount purchased each year is relatively small the demand for green gas continues to grow.
Let me close by saying that I am pleased with our performance in the second quarter and despite a challenging first quarter, we have taken steps to achieve our financial objectives.
I remain confident in Centerpoints long term value proposition.
And the continued near term focus areas to achieve our goals.
I look forward to continuing to provide updates on our merger progress and delivering on the financial goals, we set forth.
Now, let me turn to Shaw for the financial update Shaw.
Thank you Scott and good morning, everyone I'd like to begin my comments with some good quick thoughts on my first 90 days.
Since joining the company I've spend valuable time, immersing myself in to Centerpoint businesses and strategies.
I must say today I'd be regulated utility serving growing jurisdictions.
And your point offers a compelling long term value proposition.
I'm excited about the future of Centerpoint and I look forward to continuing to work alongside Scott to help lead the company forward.
Turning to slide 14, our utility businesses performed well in the second quarter.
Do you think that take added nearly 40 43000 customers year over year, which equates to approximately 1.7% growth.
Our natural gas distribution business added more than 48000 customers year over year, and legacy jurisdiction, which equates to approximately 1.4% growth.
As a result of closing the merger in February this year, we added more than a 145000 electric customers in Indiana, and nearly 1.1 million customers in our natural gas distribution business.
Our natural gas distribution business now the nations second largest gas utility by customer count.
As Scott discussed earlier, one of our near term focus areas continued on an expense management to achieve operational efficiencies.
Earlier this year, we highlighted the importance of this effort and took steps to control costs I realize merger savings while safely operating our business.
This discipline has resulted in a positive variance in the second quarter.
We expect this discipline will continue within each of our assumptions and business.
We won't name.
Fast and laser focused and delivering our merger related savings.
Another focus area to strengthen utility infrastructure to provide long term customer value.
In terms of capital expenditures, we anticipate an increase of system modernization investment for Houston Electric and an increase in pipeline replacements work for our natural gas distribution businesses over the next couple of years.
Despite the anticipated delay of some capital at Indiana electric beyond the 2023 timeframe.
We continue to expect the overall amount of capital for the 2019 2023 period will be maintained at the levels. We provided in our last 10-K.
Consistent with our past practice, we plan to provide a comprehensive update on our capital investment program on the fourth quarter earnings call.
I will now turn to the consolidated quarter over quarter guidance basis, EPS drivers on slide 15.
Excluding merger impact for the quarter, we delivered 35 cents per diluted share on a guidance basis compared to 30 cents for the same quarter last year.
I would like to highlight three areas that contributed to our utilities strong performing.
First operating income of the newly acquired a veteran utility added eight cents for the quarter.
Second rates really provide a positive impact of four cents, mainly attributable to the transmission cost of service timing, you think metric and the Texas gas reliability infrastructure program filings for natural gas distribution.
Lastly, I want and provided positive areas of two cents.
Overall, we are very pleased with the utilities performing for the quarter.
Next turning to slide 16, I will provide some details of the operating income for Centerpoint energy services and infrastructure services.
For energy services, lower gas prices and lack of price volatility we experienced in the first quarter continued into the second quarter.
Price volatility we experienced this year has been more limited than any of the prior three years.
This was the primary driver for the $8 million unfavorable variance quarter over quarter, excluding mark to market impact.
We have revised our forecast for the remainder of 2019 to reflect estimated gas sales margin consistent with those earned through the first six months.
Andrew flaps reduce expectations, whether driven storage activity relative to 2018.
We are now estimating total operating income for the year of 35 to 45 million, excluding mark to market impact.
Our infrastructure services business performed well in the second quarter, achieving operating income of $31 million, excluding merger related expenses.
For reference the business second quarter operating income in 2018 with $28 million as part of that chain.
Excluding merger related impact the full year operating income is expected to be $84 million to $94 million, excluding the $10 million operating loss in January as part of that change.
We anticipate that full year results will be driven by both transmission and distribution work as we continue to work with a stable core group of customers in our footprint.
We look forward to continued strong performance from infrastructure services for the remainder of the year.
Turning to slide 17, you will see a breakdown of consolidated diluted EPS on a guidance basis and performance expectations for the remainder of 2019.
On a guidance basis, and excluding merger impact year to date through June Thirtyth, we have delivered 81 cents per diluted share four cents lower compared to the same period last year.
Absolutely and weather and potential other buyer variability as noted on this slide we expect to deliver 84 cents per diluted share in the second half of the year, which translates into full year guidance basic EPS of $1.65 the midpoint of our guidance range.
This represents a nine cents increase compared to the second half of 2018.
For the year operating income from our utility operations is expected to be 62 cents higher than 2018.
Driven by rate relief customer growth on and management as well as newly acquired a jurisdiction.
Operating income from energy services and infrastructure services are expected to be 14 cents higher than last year.
Primarily driven by 18 cents from the newly acquired infrastructure services offset by a four cents decrease from energy services.
We expect earnings from midstream investments to be six cents short okay performance from last year, reflecting the lower end of enables earnings guidance for the year ended two cents dilution and we recorded in the first quarter.
The remaining 65 cents variance is mainly driven by merger financing impact post February onest and interest associated with data acquired in the merger, partially offset by lower income tax expense.
For the full year, we anticipate roughly 75% of earnings to be from our utility.
We are reaffirming the 2019 guidance basis, EPS range of $1.60 to $1.70 and continue to target a 5% to 7% EPS growth CAGR through 2023 as shown on slide 18.
In terms of 2020.
Let me remind you that our business fundamentals are strong.
And our key drivers for earnings growth continued to be strong rate based growth from increased capital investment in our utility.
Steady utility customer growth.
Execution of our regulatory strategy and rate relief as well as a full year contribution from the Vectren utility.
As you know, we anticipate more clarity on the Houston electric rate case, and enable 2020 and earnings guidance later this year.
As well as technology systems integration costs.
We're beginning our normal planning process for the 40 year EPS forecast, which will incorporate these factors and culminates in our providing the 2020 EPS forecast on the fourth quarter earnings call.
Before I conclude I'd like to remind everyone of centerpoints commitment to solid investment grade credit quality.
Our focus on improving credit quality is essential to providing long term value to our customers and shareholders.
Let me also remind everyone of our recently declared a dividend of 28 point 75 cents per share of common stock.
This is approximately a 4% increase relative to a year ago and consistent with our 4% annual increases in dividends over the last several years.
To summarize we had a strong quarter and are well on our way to achieve our 2019 guidance basis EPS range of $1.60 to $1.17.
We intend to hold our investment in enable to help phone a robust capital plan for our combined utility.
Finally, we continue to target a 5% to 7% EPS growth Cagar based largely on anticipated utility growth.
And your point is a strong geographically diverse company with a sound value proposition.
We are well positioned operationally and strategically to deliver for our customers and provide financial growth to enhance shareholder value.
I'll now turn it back to David.
Thank you Sean we will now open the call to questions in the interest of time I will ask you to limit yourself to one question and a follow up Kathryn.
Yes at this time, we will begin taking questions. If you wish to ask a question. Please press star one on your Touchtone keypad to withdraw your question press the pound key.
The company's press that when asking a question colors pickup their telephone handset. Thank you.
Our first question comes from the line of Insoo, Kim with Goldman Sachs.
Good morning, Thank you.
Maybe just starting right off the bat with the 2020 guidance appreciating all the different levers.
And drivers that you will need to go through to provide us with an update but as of today just given the prior guidance I was in place with a midpoint of 182.
At least on the regulated side are you able to confirm that the regulated growth that you had embedded previously is still intact for 2020.
Hi, Good morning, this is Scott.
As we said earlier, we are going to go through the whole exercise of updating.
Our guidance through the process of planning.
But as sharp pointed out we are continuing to invest in our utilities and the utilities get their growth through investment and then subsequent recovery so the growth.
Potential for our utilities is still very very much intact.
But we're going to provide more clarity on exactly what that looks like as we complete this planning process.
Understood I guess.
Understanding that enable or other nonregulated businesses, there may be more volatility associated with it but I just didn't know if there were developments on the regulatory side.
On the regulated side.
Since a few months ago that as.
Made any changes to your share assumptions.
No Theres no. We haven't said, we have gone through that process, but as we sit here today, we still have the same issues and levers and opportunities facing that business as we did before.
Understood.
And thank you for the slide on all the cash contributions coming from the various non REIT businesses.
Just when you look out into the capital plan over the next few years.
Is there an updated thought on the first time, you may need more meaningful equity.
Agencies alike.
Scott pointed out the capital program for the utility.
Yes.
We think 2000 2019 to 2023 I will be consistent with what we disclosed before at our last 10-K.
The timing of the the capital like Scott pointed out could move around within the five year window. So in terms of a five year equity issuance, we are not expecting a change at this time.
The timing of it may be slightly different.
Understood. Thank you very much.
Thank you.
Your next question comes from the line.
Christopher Turnure with JP Morgan.
Good morning, guys one follow up.
On the last question about 2020 guidance.
And the decision to maybe not reiterate that Im you did reiterate the 5% to 7% growth off the 28 team base and the bottom end of that is a buck 76, so that would be kind of in line with your prior bottom end.
I just wanted to make sure that your message is clear on that 5% to 7% growth rate over the long term at least that is that is that is still very clear, yes, it's still very much intact.
Okay and then.
The decision to take the enable sale off the table I think is is pretty clear and you articulated the rationale behind that and in the comments, but.
Maybe you could give us more detail on the the timing choice as to why the decision was made.
Yesterday and.
The idea that.
Enables one of many businesses you have that are non utility how do you think about the rest of the businesses and their contribution to the portfolio casher or business risk and otherwise.
So from a timing standpoint, it's simply the result of us having completed.
An evaluation of our thinking about that ownership and it just culminated.
Following some discussions with our board.
And we chose we chose Monday to disclose the following those discussions with our board. So thats. The only the only thing that went into the timing and it was really driven by as I said earlier the.
The post merger environment.
Given where we sit today with our capital requirements, given what unable to done to de risk their business.
Observing the consistency of the cash flows and of course as we know the markets are really constructive for unit sales. So it.
It all.
It all felt together for us to make this change and.
Ics communicate the value of the cash flow that enable brings to our to our capital needs.
I think your second remind me of your second question if you would.
It was just kind of the broader picture with the contribution of the other non regulated businesses to the company cash flow and business risk, how you think about them.
So we look at them as a as a source of cash.
As Sean noted earlier there.
Their EBITDA exceeds their capital requirements. So.
We look at them as a source of cash for funding.
There is.
More risk in those businesses certainly than the utilities.
But we look to.
Operate those in a way where we can mitigate those risks we do see the value there being the cash.
Okay. So I guess.
No change from from prior in terms of those businesses being core to the company.
We we as I said earlier, we appreciate and then.
Enjoy realizing the cash that comes off of them, but.
We constantly have to challenge ourselves to to think about ways. Each of our businesses can create more shareholder value. It's just part of our process and a great example is exactly what we did with our unable evaluation of the decision we made around keeping those units.
Okay, and then just one clarification kind of within this this line of questioning.
Your your prior for I guess current guidance still is that you don't need equity this year or next.
Remind me if selling enable shares was part of that or selling enable shares as part of your funding plan over the long term kind of.
Discreetly.
Yes, Chad selling enamel.
Units, where it was definitely a part of the in the mix.
Thats why we were actively out there, saying that that was one of the strategic.
Strategic options for us.
So now we have made a decision to keep enable any knutsen investment. So as I've said before I think the equity needs will be driven by primarily by the timing of capital as for as example, so that's sort of the five year window between 29, and 2019 and 2023, if we see Tuesday electric or the or the natural gas.
On utility needing more more capital more up more front ended.
Potentially could advance the equity issuance that because the total capital we we right now what we know today.
On does not projecting to be different for the five year window I think from an overall standpoint.
The timing of the equity could be different by the overall five year impacts should be the same or similar.
Okay, that's clear and.
From that.
In the current plans that you have there is no equity needs in 19 or 20.
Unless we as I said before and as we realize we're in the process of updating the details of the capital needs.
And then on Tuesday electric signed on.
Additional capital needs that we would need to sonic sooner than before then we might consider turning on to our other options in the near term.
But we don't know that yet were going through the process of planning process right now.
Okay, that's clear.
Thank you for the clarification.
Your next question comes from the line of Aliana with Suntrust.
Thank you good morning.
Morning Ali Wall Lauding first question just looking at the current year Scott on the road.
As you point out you just gave you ought to energy services expectations now.
And rather than it being flat it would be down about four cents year over year can you highlight or remind us what is the offset to that.
Four cents hit that keeps you in your range for this year.
Absolutely you you see our EPS walk for the year 2019, we expect 62 cents from our utility 62 cents increase compared to the same period until 2018.
So in other words, our utility that we expect for utilities to.
Offset the CES. We also have some favorable income tax expense items.
So we are maintaining the midpoint of $1.65. Despite only four cents decrease expected in the past.
So just to clarify that Shah so are you, saying that.
The tax benefit perhaps was not factored into your previous budget thought that the utilities are going to do better than what you would and spending.
Just trying to reconcile.
Hi, Lisa.
It's both if you look at the second quarter, so quarter 2019 versus second quarter 2018.
We had five cents of of.
Positive variance.
And Thats comprised of.
Better utility performance and a little bit higher income tax.
Favorable income tax.
No that was not that was not planned but some of the tax items that you were aware of that we recorded last year. We did plan, though so there are some positive income tax variances that we didnt plan.
I see and my second question again, a clarification.
Again, you walk through some of the drivers.
That will influence the 2020 outlook just on lifted it gave us some costs et cetera.
So in summary, just to benchmark it for all of US is that if the pressure it is to probably quarterly downward.
Headwind to the 2020 that you were looking at a few months ago or does it not change that does it move it slightly higher can you just delve a bit there. So we have a better sense of framework of how 2020 shipping up today versus last quarter.
We're not ready to comment on the 2020, we've gone through the normal planning process, we want to build a bottom up plan.
Incorporate all the newly acquired.
Jurisdictions.
On to really go through a disciplined process to give you.
Clear picture about 2020, so we need time to do that as Scott.
It's rated just now we do expect strong utility capital investment program, we do have and Weve folk laser focused on Ellington management. So.
The business fundamentals are still the same but we need to go through the process, we need to hear.
Enable.
2020 guidance.
And all that is to lead us to want to take a pause and really lets say normal process do its work and and gave you a guidance.
On the fourth quarter call.
Right and just to clarify that again.
Is it anything you heard or seen that enable today that is looking different.
Then what you what as you make when you did the 2020 guidance out for us originally.
We're not comment on enable and the one thing you did you Didnt know is we took the lower end of the guidance range to two development development 2019.
S Locke.
Great. Thank you.
Your next question comes from the line of Julien Dumoulin Smith from Bank of America.
Hey, good morning, Jay.
Blank joined shot.
Hey.
Morning, So a lot of little cleanup items here from the last two questions, maybe just taking things off.
Can you just a firm you obviously put the five year CAGR out there once more can you can you can you give us a sense is the individual.
Five years still intact, maybe this is another way to reconcile that's when the guidance.
Julian I think you were breaking up a little bit there, but could you just restate your question.
Please do the five year CAGR, using but each of the individual years implied from that.
Compounding growth factor.
Still intact with respect to each of the individual discrete years.
Well, they Julian probably the best way to answer this is what we're looking at.
The the five year plan.
The focus is on the effects of.
Investment over a longer period of time.
Getting out to the end what the actual impacts are for a given year and in particular as we think about 2020 is going to really become clear as we complete this planning process.
So while well we've got confidence in our CAGR I would say that what we what this planning process needs to do is really zero in on what our 2020 number looks like as we build it up from a combined company perspective as opposed to.
The way, we had been building it up which was based on a prior plan and making adjustments to the prior plan.
So I don't want to I don't want to get out in front of my answer on 2020, but I do know I can tell you that as we think about the.
Performance of our business on an annual basis, it's still very much driven very heavily by the investments we make in our utilities and the recovery of those investments.
Got it excellent and then following up here on the Capex you talked about.
Remaining impact with respect to the 10-K from 2018 does that assume no vectren electric generation men through 23, you, obviously caveat that the timing might be post 2023, and then separately we understand coal ash is perhaps a relevant factor here.
The state as well as both with respect to both generation and coal Ash. If there is indeed, the RFP executed. According to plan, we see either of those items put back when would that be incremental to the 10-K at that point.
We are assuming we were not we don't want to get ahead of the process. The RFP process. The team is working very hard on the ground.
To work with the stakeholders for solutions.
But we we we would expect some.
Spending through 2023 related to the IRS.
On it probably would not be to the amounts that we originally shared with you on but we also know that.
The.
Pipeline replacement program requires additional capital we also know that the system into system modernization.
Program at Sidoti.
Hi requires more capital so I would say that.
Overall from the overall standpoint, you would you would look at the five year average.
It would be very similar on from.
You had before.
And then quickly on the utility side, what are the prospects for settlement at this point, given where we stand in the case of the especially turning into September .
Julian there's always an opportunity for settlement in these cases.
I would say at the moment that.
Conversations are.
Being had but they're not overly active so.
We'll still have time between now and when the commission mates too.
Pursue one.
I don't know how to handicap it I can't say that settlements have occurred in the state before but there are also many cases, where the the rate case has actually gone to the commission for decision. So.
Tough to handicap this one but I don't want to say that settlement is off the table.
Got it great and sorry last quick clarification, the integrating the technology systems that different set of assumptions in the synergy assumptions you initially articulated and I think reiterated today of $75 million to $100 million.
Yeah. Those are the systems that we talked about the systems integration work is.
More in line of the cost to achieve dollars that would be spent.
So its those are what I'll say cost to achieve dollars and theyre not going to impact the 75 to 100 million of savings that we have planned for 2020.
Okay fair enough there a net against that rather at least for 20.
What do you mean by a net against.
The reduction to the synergy savings that youve targets are targeted.
To the extent that there is cost to achieve dollar spent in 2020 that would obviously come out of our financials.
If that's what you're asking.
Yes, Okay fair enough I'll I'll leave it there. Thank you guys.
Okay.
Your next question comes from Michael Weinstein with Credit Suisse.
Hi, guys.
Michael Good morning.
Hi, good morning, a lot of questions have been answered but.
On system integration costs would you say that those are weighted in any kind of way between 2019 in 2020 is it or is it evenly spread over the two years.
We're in the process of.
Finalizing the estimate on the integration costs.
I think we have an appendix slide in the earnings that that fleet, we describe the details out for year to date fan.
And at the year to date, roughly we have $750 million.
And so we continue to expect a similar range. We previously disclosed we view the timing of it depending on the system integration costs.
Estimation process could be.
Slightly different from prior but the total amount should that should be relatively.
The same thing.
And I am just trying to get a sense of how the timing might be changing and whether that's a significant source of uncertainty in the 2020 number that caused you to pull the guidance for the year.
It wasn't that it wasn't I think we want it to go through again goes through the rigorous process to build out the.
Plan and to to have visibility about the very variability.
Factors we described.
On one thing we are thinking about is if the integration process goes beyond 2020, how should we treat the cost to achieve.
And with that are outside of the guidance range.
Well currently it's inside the guidance range right its actually included.
Currently yes.
Right. So I mean, it's actually my question would be whether whether it might be more appropriate to exclude them.
But.
Yes, I mean, if they can if they do continue past way 20, then you might consider including them I guess, but.
Already do yet.
I think you said it very well if they do past 2020, the likelihood is that we would add excluded from guidance going forward.
Oh I see so long they last the more likely you might be to exclude it and that would directly from 2020 as well.
Threat.
I see okay. Thank you very much.
Your next question comes from the line of Greg Gordon with Evercore.
Thanks, Good morning, everyone.
Morning, Greg.
I think the.
Before waterfront.
Questions is.
The Nash.
I do have one.
Sort of.
Incremental one, though with regard to as you're thinking about.
Tightening up your.
You know in reissuing your guidance range from.
For 2020 amongst the other things that you're that you're that you.
Trying to.
Died down the hatches on it is one of them that.
Sort of the there's been a little bit of a moving target with regard.
The cash flow and financing needs as it pertains to enable and the underlying.
As you pointed out earlier, Scott you know just higher level of volatility in the.
The unregulated suite of businesses, notwithstanding the fact or small piece of the overall company.
But as the denominator not just enumerate or part of the sort of the re stocking of the guidance.
And that you have to make sure you've got your financing sources and uses tighten them.
Absolutely that's definitely part of the equation.
Okay. Thank you have a great day.
Your next question comes from the line of Ashar Khan with information.
Hi, Good morning, I, just wanted to check some remarks that to me.
So in the second quarter in slide 15.
In the other six and you have four cents of reduced income tax expense.
Are you, saying that's like the north to repeat itself as we build next year in 2020. So that's.
Something that is onetime in nature for this yet and its not repeatable for next year.
Correct.
Okay. So that is if I'm going up there.
When I say correct, we the.
The positive variance this year we experienced.
It was driven by some state law change related to state income tax so the state law change well today, we we expect the the law to stay the same in 2020. So you wouldn't see it another positive variance it doesnt mean that the attach rate was going.
Up next year, so I want to make sure I'm not misleading you when I say, it's a one time.
Hi, Chris.
It makes sense, but so it's like it's a it's a permanent change so it really means that going forward.
Correct.
Yes.
Okay, just wanted to kind of looks like looks like.
And then.
The neighborhood said that.
They're going to take the write off I guess in the fourth quarter right. So then the Lord <unk> guidance that you have for the second half is that primarily in the fourth quarter as we look into the third and fourth quarter.
I don't have the quarterly breakdown is projected to be.
For the year six cents, our you know year to date.
And they are positive to silver segment for the second half of the year, we have we have eight cents.
Downside compared to the same period last year for the for the full year is six cents down.
Okay. Okay.
Okay. Thank you so much.
Your next question comes from the line of Paul Patterson with Glenrock Associates.
Hey, how are you guys doing.
Good morning, Paul.
Just wanted to follow up on on enable a little bit you mentioned this through the enhancements that you see in terms of.
De risking and.
And increase.
In the distribution to everything but.
What sort of is left out is sort of the valuation, which as you know it's gone down a bit.
And then just sort of wondering if you could elaborate a little bit more on.
Sort of how you guys look at enable through longer term here.
And held the.
The actual.
Devaluation of the of the.
The company has in any way influence to where the ability to execute getting out of it and what have you just how should we think about that.
So just a couple of thoughts one clearly the devaluation issues that the sector is seeing is a factor in terms of the ability to sell those units without.
Incredible tax leakage and therefore.
Very.
Non value, creating transaction for shareholders. So the market clearly.
Has made.
The idea of selling something more challenging but the fundamental issue for US was just want around given where enable sits today and its financial health and how they have de risked their business.
Their ability to continue to provide cash to us that we use for investment we feel better about today, perhaps than we did years ago. So.
With their their change in there.
Their coverage ratios and was there.
Some of the shifts in their contracting and some things that they've done to de risk their business.
And knowing that they made it through the the more severe downturn years ago without having to cut distributions, we see the real value of enable being as a source of cash for our capital needs.
Okay. So.
We should think about perhaps that changing much even if there is a significant change in valuation is that correct.
Well, obviously there is at some point you guys will sell anything I assume but that just yet, but but outside of that sort of a.
A huge change we really shouldn't think of you guys, making much of it.
Well the change in your view.
Your own is that correct.
That is correct. We you know we went through a went through an analysis. We've spent time as management team certainly with our board around our position on this and have arrived at the.
Conclusion that we believe it's a it's more valuable now to keep and utilize the cash flows than it is to sell okay. And then just on the.
On the the Vectren legacy.
Non rig stuff or.
Non rig stuff, how should we think about what you what your experience has been so far in those businesses.
Your ability to integrate them and what have you and.
And what's your outlook for them is is it the same as as you as it was during when you guys announced the merger just because it had more time to kick the tires here and what have you any thoughts about how the composition of that might change or just how the performance of that the outlook for that going forward.
Our view on that business has it really changed we.
We've got a good quality management team that came over with the acquisition of the management team over there knows this business well and operates it extremely well.
They have as you've noted increase their their business. So their business performance. This year is anticipated to be better than last year. That's as a result of.
Expanding both their distribution business and some other transmission business.
We continue to see strong demand for that type of work out of the market.
So as we sit here today, we see that as a as a business that has good fundamentals to keep.
To keep driving its performance.
Okay, great. Thanks.
Most of my other questions were answered. Thank you okay. Thank you.
Thanks.
Please remember if you wish to ask a question press Star one thank you for your cooperation.
Your next question comes from the line of Charles Fishman with Morningstar.
Good morning.
Turning to slide 14.
So you're.
This is the three bullet points at the bottom you are taking capex from Indiana Electric and I would assume most of that would have been subject to a traditional rate base, you're pushing you to natural gas distribution pipe replacement and grid modest Houston electric lot of that is covered by rate trackers or at least.
More regularly scheduled type rate adjustments without going through a full blown rate case.
I would think on that Capex piece that piece you should have some pretty good clarity am I, correct or am I missing something.
Clarity and with respect to the.
Additional dollar amount or clarity over with respect to how we would recover the investments recover the investment in earnings power. You are you are correct. We do have clarity on that Thats right. Okay.
Okay. So then in another another question on Slide 14, you list are the customer growth for use in electric customer growth for natural gas distribution do you have some staff.
What kind of customer growth, you're experiencing at Indiana electric going back a year ago when veteran owned it.
They stayed pretty flat, but it's a very small portion of our total customer accounts and accounts for 145000 customers for the entire.
Indiana electric Okay. So, it's just really not moving the needle whether it's grown rally that got it that's correct you got it okay Thats all I had thank you.
Thank you.
And there are no further questions at this time.
Thank you everyone for your interest in Centerpoint energy, we will now conclude our second quarter 2019 earnings call have a great day.
This concludes Centerpoint Energy's second quarter 2019 earnings conference call. Thank you for your participation.