Q1 2021 CenterPoint Energy Inc Earnings Call
[music].
Good morning, and welcome to Centerpoint Energy's first quarter 2021 earnings conference call with senior management.
During the Companys prepared remarks, all participants will be in a 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 to withdraw your question press the pound key I would now like to turn the call over to Phil colder Senior Vice President.
Of strategic planning and Investor Relations Mr holder.
Good morning, everyone. Welcome for Centerpoint earnings Conference call, Dave was our CEO, Jason Wells, our CFO and Tom Webb, our senior adviser, who will discuss the company's first quarter 2021 results.
Management will discuss certain topics that will contain projections and other forward looking information and statements that are based on management's beliefs assumptions and information currently available to management.
These forward looking statements are subject to risks and uncertainties actual.
Actual results could differ materially based upon various factors as noted in our form 10-Q, other SEC filings and our earnings materials, we undertake no obligation to revise or update publicly any forward looking statements.
We will also discuss earnings guidance and our utility earnings growth target.
In providing this guidance, we use a non-GAAP measure of adjusted diluted earnings per share.
We previously referred to our earnings guidance as guidance basis, EPS and will now refer to it as non-GAAP EPS or utility EPS. Similarly, we will refer to our 6% to 8% non-GAAP utility EPS target growth rate as utility EPS growth rate for.
For information on our guidance methodology and a reconciliation of the non-GAAP measures used in providing guidance. Please refer to our earnings news release and presentation, both of which can be found under the investors section on our website.
As a reminder, we may use our website to announce material information.
Call is being recorded information on how to access the replay can be found on our website now I'd like to turn the discussion over to Dave.
Good morning, and thank you for joining us for our earnings call. We are observing a sense of normalcy starting to return here in Texas and in many of our other jurisdictions.
Just as important to me is that I look forward to an opportunity to meet you in person and tell you about the amazing things, we've accomplished in less than a year and what our strategy entails moving forward.
I wanted to share with everyone. Our excitement about the progress Centerpoint is making and our continued belief in the utility assets that we operate.
We believe they are premium assets and want you to believe that two today, we will provide an update on the continued disciplined execution of our strategy that we outlined during our Investor day, just five short months ago.
I hope you see that we are developing a track record of being consistent and accountable against the goals that we set.
As you know I like to lead with headlines and we have some worthy ones to cover this quarter for.
First we delivered very strong results for the first quarter of 2021, including 47 cents of utility EPS.
Because the higher natural gas prices are pass through costs for our business. They did not impact. This quarter's utility results. In addition, our first quarter results are in line with recent historical trends in which the first quarter contributed close to 40% of the full year utility EPS.
We are of course, reaffirming our full year utility EPS range for 2021 of $1 24 to $1 26, and our long term, 6% to 8% utility EPS annual growth target.
We are off to a great start for the year, So let's check the utility earnings box as being on track.
The second Big headline is of course, the announced agreement to sell our Arkansas, and Oklahoma gas L. D. CS which is anticipated to close by the end of the year subject to regulatory approvals.
These are premium assets and this was demonstrated by the level of interest we saw and of course in the price we got for them for.
For the landmark valuation was two five times 2020 rate base. This outcome was well beyond what even the most optimistic observers thought we would achieve we saw extraordinary interest from over 40 parties 17 of which made bids including strategic infrastructure.
Share funds and PE firms.
There are a number of key takeaways from this great outcome.
First it validates our strong and stated belief that our remaining gas L. D. CS are significantly undervalued and investors should rethink their position as to the value of our remaining gas LDC in our share price. This also illustrates the strength viability and value of the <unk>.
<unk> gas LDC industry. The premium multiple these assets garnered in the marketplace shows that investors continue to see natural gas as an essential fuel that is efficient valuable and affordable energy source.
This transaction demonstrates how we can efficiently finance, our industry leading rate base growth.
This is a perfect example of the efficient capital recycling strategy, we committed to you on our Investor day. It's.
It's a simple model you sell at two five times rate base and invest at one times rate base.
Naturally this begs the question if we would consider more LDC sales in the future.
Currently we're content with our utility portfolio mix.
But that being said, if we see another opportunity to recycle capital in a similarly attractive way, we would explore it as part of our broader strategy.
Our Investor Day plan highlighted that we had the opportunity to spend an additional $1 billion over our current 16 billion five year capital plan at this price the LDC transaction will provide us with $300 million of incremental proceeds on an after <unk>.
Tax basis compared to the five year plan. We showed you on our analyst day, we will first look to deploy this $300 million in incremental proceeds into high value utility capital spend opportunities that are part of those additional $1 billion in capital opportunities.
<unk>.
This incremental capital spending is likely to be spent in 2022 and begin to flow into earnings in 2023 and allow us to continue to provide reliable essential services to our customers. Therefore, this transaction will not impact our long term growth plans are earned.
<unk> trajectory on the contrary, we believe this will even more strongly support consistent 6% to 8% utility earnings annual growth rate and our industry, leading 10% rate base CAGR targets. We previously committed to U E. <unk> sales announcement and we delivered on that.
So let's also check that box is being done.
Turning now to the enabled transaction, we anticipate the transaction between enable and energy transfer to close in the second half of the year, we remain absolutely focused on reducing and eliminating our midstream exposure through a disciplined approach and to reiterate what we said when we announced the new.
Use of a transaction back in February completing this transaction also will not change our 6% to 8% utility EPS annual growth target.
Or are 10% rate base CAGR.
So that box stays checked as we remain on track to reduce midstream exposure.
Turning to the impacts from the winter storm Yuri.
Last quarter. Many of your question the incremental gas costs and the likelihood and timing of recovery, we said that the storm's impacts won't change the utility EPS target range and they will not we also said we believe we had a handle on the issue but needed some time to work through it with our regulator.
Let me give you an update on what progress we have made on that front.
First in part by actively engaging auditing and challenging our gas suppliers, we have reduced our incremental gas costs by over $300 million since our initial estimates, resulting in reduced customer incremental gas cost exposure of $2 $2 billion.
We won't stop pursuing these actions because we believe this is the right thing to do for our customers. We are also beginning to seek timely recovery of these costs through early adjustments to our normal cost recovery mechanisms. We have started to recovery in Arkansas, and Louisiana, including some.
Carrying costs, both Arkansas and Oklahoma have also passed legislation for securitization.
In Minnesota, we are pursuing recovery of storm related costs, including some carrying costs due to the existing gas cost recovery mechanism over a two year period.
And in Texas, a state sponsored securitization bill on incremental gas costs has already passed through the house is being considered by the Senate.
We believe there is good momentum behind this bill the gas price recovery process has been well supported politically in each of these jurisdictions. Thanks to the constructive nature of our jurisdictions and our legislatures. So while not completely behind us we are getting closer to checking the incremental gas.
Cost box, we have said all along that we have strong regulatory relationships and that belief is supported by our progress and working through this event on.
On the electric side, the Texas PUC is undergoing a complete turnover and we look forward to building our relationships with the new team. There has also been some legislative progress around their proposal to increased grid resiliency in Texas and Texas. Several proposed bills have been moving that are intended to pre.
<unk> systems and customers from a repeat of the electric disruption. We saw in February we are very encouraged by the progress and we see this as an opportunity for the system as a whole to find better ways to serve our community.
We remain on course for our $16 billion, plus capital spending program and industry, leading 10% compounded annual rate base growth target over the next five years.
For 2021, we are on track to spend the full three point for $1 billion outlined on our Investor day similar to our earnings there is a seasonality to our capital spend where we typically ramp up spending as the year progresses.
As stated previously we have opportunities above our current $16 billion five year plan and the $300 million in incremental proceeds from the ultimate sale of our Arkansas, and Oklahoma LDC assets transaction will provide additional capacity for us to pursue.
Some of these if we so choose so let's check the capital spending box as being on track.
We have talked about our industry, leading organic customer growth rates. Despite the impact of COVID-19, we again saw about 2% growth rates quarter over quarter reinforcing the value of the fast growing markets that we serve that organic growth plays a part in keeping our service cost reasonable.
For our customers. In addition, we take a disciplined approach to reducing our O&M expenses to benefit our customers.
We are on track to reduce O&M by 2% to 3% in 2021, however, given the incremental opportunity set we see to reinvest in our business. We may take the decision to reinvest some O&M savings back into our utility assets. This year. This is a gray.
Luxury to have so for 2021 on O&M, let's check that box as being on track net.
Next up is our commitment to environmental stewardship.
We are well underway in developing and then announcing what we believe will be an industry leading carbon strategy.
On that front a critical constructive piece of news was recently received in Indiana, where we received a very positive, Indiana director's report for our IRB.
Though our Indiana ERP does not require approval. The director's report has provided us with the confidence that we are headed down the right renewable path with both regulators and our communities.
Since our last earnings call. We have reviewed our updated ESG plans with our board and are preparing a rollout of our transition to net zero.
We should be in a place to disclose these exciting plans in the third quarter.
This is still a work in progress we cannot check the box here, but I am very happy with the progress that we're making.
So thank you all for spending your time with Centerpoint. This morning, I've been looking forward to these calls every quarter because we have so many exciting things to share with you as we execute our long term strategy that we outlined on Investor day, I strongly believe that the strategy, we laid out and the progress.
We have made so far more than demonstrates what a unique value proposition centerpoint offers with that let me turn the call over to Jason.
Thank you Dave and thank you for all of you for joining US. This morning for our first quarter earnings call just to Echo Dave's sentiment. We're looking forward to seeing more of you in person in 2021.
To continue the theme of execution and delivery I want to start by reviewing our quarterly results with you as well as provide some incremental details on a few events Dave highlighted let me get started with our first quarter earnings.
On a GAAP basis, we reported <unk> 56 for the first quarter of 2021.
Compared to a loss of $2 40 for <unk> for the first quarter of 2020.
Looking at Slide four we reported 59 of non-GAAP EPS for the first quarter of 2021 compared to <unk> 60 for the first quarter of 2020.
Our utility EPS was <unk> 47 for the first quarter of 2021, while midstream investments contributed another <unk> 12 of EPS.
The notable drivers when comparing the quarters are strong customer growth across all of our jurisdictions and rate recovery, which makes up for <unk> of the favorable impact.
Our disciplined O&M management contributed another <unk> of positive variance for the quarter.
The growth drivers were partially offset by the <unk> <unk> from share dilution due to the large equity issuance back in May 2023.
<unk> due to the nonrecurring cares act benefit we received last year.
Turning to slide five we are very pleased with the high level of interest we received for our Arkansas and Oklahoma gas Ldcs as we've conveyed through the entire process as Dave said, there were interested parties across the spectrum, which are of a highly competitive auction process.
The successful outcome emphasizes the high quality nature and supportive regulatory frameworks that are present in all of our businesses.
We're preparing to commence the regulatory approval process and anticipate a close by the end of the year. The integrated nature of the operations between these two jurisdictions will also accelerate the carve out integration process with the new owners as we work towards closing and will facilitate delivering on our commitment of reducing any remaining allocated O&M.
As shown on the slide this transaction priced at 215 billion inclusive of $425 million of incremental gas cost recovery.
The $1 75 billion in proceeds after the natural gas cost recovery represents a multiple of two five times 2020 rate base and a multiple of 38 times 2020 earnings for those businesses.
This earnings multiple is based on the purchase price of $1 75 billion.
Reduced by approximately $340 million of implied regulatory debt.
<unk> to $36 million of 2020 full year earnings.
This transaction multiple consistent with some of the highest multiples paid for gas ldcs demonstrates that the market continues to see gas otc's, playing a pivotal role in our country's energy supply by providing affordable efficient and lower carbon energy sources for our customers.
The net proceeds from this sale are estimated to be $1 3 billion after tax and closing costs as our Arkansas and Oklahoma assets have a relatively low tax basis of approximately $300 million.
While theres been a lot of focus on tax leakage, we were clear at our Investor day that our five year plan assumed full tax on the gain on sale for these assets given the low tax basis. Therefore, the headline is the competitive auction process will at close result in generating an additional $300 million in after tax proceeds and what was assumed in the original five year plan.
To zero in on the use of the incremental $300 million of proceeds we will prioritize funding an increase in our capital investment plan.
It is important to note this incremental capital will be deployed in 2022 and as a result, we will likely impact 2023 earnings and beyond once the capital has been approved in rate base.
We will also evaluate using some of the excess proceeds to delay the start of our at the market equity program that was originally slated for 2022 for.
We're grateful to have these options.
I would also like to reiterate that this disposition will not change for 2021 utility earnings guidance range. It is also important to reiterate Dave's point that the premium multiple achieved through this transaction as well as the performance of the systems through the recent winter storms reinforces that there are many states that see natural gas as a viable low carbon fuel source.
And the market has been undervalued in these assets.
And as renewable fuels continue to advance our systems will have the proven capabilities to adapt and evolve along with them.
Turning to slide six Dave discussed that we're still on pace to close the enable and energy transfer merger in the second half of this year and then we will look to liquidate our midstream position in a disciplined but efficient manner.
As a reminder, we will have $385 million of energy transfer preferred units.
That we can liquidate at any time after the merger closes.
$200 million of energy transfer common units, we will receive in the merger will be registered through a process that will likely take two to three months after close.
We will have the flexibility to either dribble those units into the marketplace, our sell through up to five block offerings.
As we've noted in the past our negative tax basis that enable will carryover to energy transfer units and will result in an effective 50% tax on the sale.
As previously discussed we continue to explore tax mitigation strategies across the company to offset the burden that may come with a common unit sales and continue to have confidence we can reduce the tax leakage.
As a result, I'd like to reaffirm that the sale of the energy transfer units will not change our utility EPS growth target of 6% to 8% annually.
As Dave mentioned, we are actively worked with suppliers, which has in part helped to reduce the overall incremental gas costs from the winter storm to $2 2 billion down from $2 5 billion, we signaled last quarter and.
In addition, centerpoint regulators and legislators have all been working over the past few months to align on cost recovery methods that suit the needs of all of our stakeholders as laid out on slide seven we have multiple mechanisms available to us for cost recovery two states have already initiated interim recovery. Another two states have enacted legislation.
Relations, enabling securitization and Texas has a securitization bill pending.
Between the securitization the sale of the gas ldcs in the interim rate recovery. We now expect between $1 6 billion and $1 7 billion of the total incremental gas cost to be recovered before the one year anniversary of the storm, assuming the Texas securitization Bill is signed into law.
We are grateful for the diligence of our regulatory team and our constructive support of our commissions across our jurisdictions for getting us to this point.
Turning to our financing updates we closed our $1 7 billion Circ senior notes offering on March 2nd which included 1 billion of floating rate notes and $700 million of fixed rate notes both due in 2023.
The proceeds from the $1 7 billion issuance were used to pay for the incremental gas costs for the winter storm and the notes have an optional redemption date at anytime on or after September <unk> of this year, giving us full flexibility to pay down this debt consistent with our regulatory recoveries.
Recovery of the carrying costs and a majority of the impact of states, such as Texas, Louisiana, Arkansas, and Oklahoma will help offset the incremental interest cost from this debt issuance.
Our current liquidity remains strong at approximately $2 1 billion. After the issuance of the senior notes proceeds and the payments made for the incremental gas costs.
Our long term <unk> to debt objective is between 14% and 14, 5% and is consistent with the expectations of the rating agencies. We continue to actively engage with them and they are comfortable with the outlook and thresholds we've indicated.
I'd like to reiterate we have no large equity issuance needs over our current planning horizon and can now reevaluate the need for our ATM program in 2022, depending on how we utilize the expected proceeds from our LDC asset sale.
I hope, it's becoming clear that our story is streamlining nicely as we prove to you our investors that we are delivering on our plan as outlined we are reducing our exposure to non utility businesses.
Realigning our balance sheet to reduce our reliance between intercompany borrowings and parent debt and committing to efficiently fund our industry leading rate base growth.
These are the updates for the quarter.
Both Dave and I are excited about the direction Centerpoint is taking and we cannot wait to share more good news with you as we continue to execute on our plan throughout 2021 and beyond.
I'd like to now turn the call over to Tom Webb, our senior advisor to discuss one of the important pieces of our plan through which he has been closely advising us.
O&M cost savings and continuous improvement deliver bulls here at Centerpoint over to you Tom.
Thanks, Jason.
Five months after our strategy, revealing investor day Centerpoint as you just turn is well underway executing its strategy.
It's dispensing with volatile non core non utility businesses.
<unk> enable.
Implementing efficient financing thank.
<unk> gas LDC sales.
Introducing clean energy.
Coal closures renewable editions and much more.
And.
Improving performance.
Continuous improvement a whole new culture.
Dave and Jason already have highlighted details about each of these strategic changes or nearing completion, our premium utility operations is humming.
Hope you see it I hope you feel it we really sweat the details so you don't have to.
We have superior rate base growth delivering needed capital investment.
Our growth rate target of 10% outstrips, the peer average of about 7%.
Our resulting utility EPS growth target at 6% to 8% every year is well above the peer average of five.
And our customer growth at 2% is something we would celebrate at my own company.
With top quartile customer satisfaction, we still seek to hold down customer price increases, reducing our O&M costs by 1% to 2% every year.
Coupled with customer growth. This creates a lot of headroom for the needed capital investment.
On slide eight please look at the box on the left five months ago. We showed you our five year plan to reduce costs, 1% to 2% each year.
We added the detail for 2021 during our last call.
And here you can see our progress in the first quarter, we planned for a fast start with 2021 down 2% to 3% with the results in the first quarter faster yet.
Please keep in mind. Some of this is timing, we still expect to reduce costs by about 2% to 3% for the year.
As you know one of our tools is our continuous improvement initiative, we improve our processes from the ground up to enhance safety every day qual.
Quality doing things right. The first time delivery doing things on time.
Cost, we see and eliminate waste and morale higher and higher every day, yes morale each day I observe more who are proud to wear the colors.
Continuous improvement takes time to ramp up it's a powerful process. It shifts dependence from her ROIC individual work to better processes that can be repeated.
As we succeeded eliminating human struggle.
Cost will fall out my.
And my favorite chart is on the right we take on the headwinds we take advantage of the tail winds, we deliver our EPS commitment consistently every year, we really do sweat the details. So you don't have to.
As I have experienced elsewhere. This management team may do so well on cost reductions that he can pull ahead work from next year reinvesting savings to benefit our customers sooner.
We did this last year, we maximize resources for customers and deliver our commitment to you our investors no more no less a win win.
Dave Jason in this superb leadership team know the secret sauce. They are working from both our customers and our investors know or is here.
Thank you for letting me play a small role on the team back to you Dave.
I want to reemphasize, what we consider critical elements as we transform centerpoint into a premium utility we believe it can be.
We will continue to deliver a sustainable predictable and consistent 6% to 8% earnings growth.
Year after year.
With our industry, leading organic customer growth and our disciplined O&M management, we believe we can generate robust capex and 10% rate base growth, while continuing our focus on safety. We also look forward to unveiling our enhanced ESG strategy that will put us as an industry leader.
<unk> for a net zero economy.
We will continue to keep our eyes on maintaining and enhancing our balance sheet and credit profile.
We have executed on our capital recycling strategy, there are announced gas LDC sale at two five times rate base and investing at one times rate base and we will continue to explore opportunities to do more of this.
We remain absolutely committed to delivering an economically viable path to minimize the impact of our midstream exposure and eventually eliminate it and finally as we work to move towards a fully regulated business model. We continue to stay focused on our utility operations.
And improving the experience for our customers.
I Hope you will join us on this path of transitioning centerpoint into a premium utility while myself our team and our employees are only 10 months into this new journey I could not be more pleased by the momentum we have what we've accomplished and the bright future we see for.
For Centerpoint.
What you see is the new Centerpoint, where you can expect consistent and predictable earnings and rate base growth.
World Class operations, and growing service territories, and a commitment to delivering on our promises to you our investors.
We sweat the details so you don't have to.
Thank you David we will now take questions until nine am Eastern if you would please limit yourself to one question and one follow up and reenter the queue. If you have further follow ups to allow for all callers an opportunity to ask their questions operator.
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, perhaps for <unk>. The company requests that when asking a question. Please pick up your telephone handsets.
Our first question comes from the line of <unk> Kim with Goldman Sachs. Please your line is open.
Impact for customers by spreading the recovery out over a much longer period of time and it helps keep the debt off the balance sheet of the gas Ldc's and I think.
Constructive nature of this tool is sort of well understood by all.
And while we remain optimistic that it will be signed into law to your point. It is important to note that the Texas Railroad Commission has been very constructive signalling that the gas ldc's.
Will be eligible to recovery.
Sorry, we will be eligible to recover carrying costs.
As we look to probably recover these costs over about a three year period of time again in the event that the securitization Bill's not signed into law, but but we remain optimistic as I mentioned.
I sighed, Dave and I will be joining Jason Ryan in our team there in Austin in a little over a week to meet.
The new P. C Commissioners the railroad commission in other legislatures to continue to make sure that Centerpoint is supporting other states objectives and as I said I think.
We remain optimistic that this bill will be signed into law here at this legislative session.
Got it that's good color.
Question is for.
After day on the gas utility scale given the color you gave on the number of bidders the amount of interest ultimately multiple that it generated just from your standpoint, how do you balance.
That enthusiasm and what that implied for potential growth opportunity for gas utilities under the investments there.
I'm looking at your other jurisdictions potential for not just pipe monetization, but perhaps items like orangey or hydrogen.
A balanced multiple that you've seen recently versus potentially.
Both organic opportunities that you could take advantage of and your other system longer term.
It's obviously a great set of options to have because I think one of the things that the.
Sales demonstrated is that clearly the value of our gas ldc's that remained behind are worth more than our share price and I think is reflected today.
As I as I said in my comments I think we do have an obligation to sort of look at that price. We got and then look at the overall options. We have is an organization, but I think as we said in our analysts day, we have significant capital spend opportunities in our remaining gas ldc's we like.
Those ldc's, we'd like to markets that were in.
But if we find an opportunity to.
To look at monetizing MSA indicated we have an obligation to do so, but we would certainly not do that unless we saw an opportunity to reinvest it back in our business.
Cash and all and I think.
Systematic approach to looking at doing something different I mean, we clearly as we've signaled have.
$1 billion of capital spend on top of the $16 billion, we discussed at our analyst day, but I always sort of fall back to what is your base strategy and I said when I answered. The last question, we're not going to do anything that is not accretive to our 6% to 8% growth rate. So I think that sort of <unk>.
The timing that we would want to do we're not going to do anything that impacts the.
Fixing up our balance sheet and getting to the credit metrics that we want that would signal I think the timing and it has to be consistent with our strategy of becoming more and more regulated. So I think there is a way to thread that needle.
Analysts day presentation, where we signaled $3 billion of incremental capital over the five year plan effectively that gives us the opportunity to allocate more overhead to capital than than expansion given sort of the ratio of of capital to O&M and so I wouldn't fundamentally see that category.
Lori significantly changing it might modestly changes we bought some of the capital investment opportunities that Dave has been alluding to in but where our focus really is.
Beginning to look at the execution of our core work really driving first time quality and I think thats for we'll see.
Beginning of.
The material opportunities in front of us from a continuous improvement standpoint.
Terrific. Thank you guys congrats on the execution.
Thanks.
Your next question comes from the lineup Steve placement for free to speak your line is open.
Yeah. Thanks, good morning.
So just on the.
On the gas Ldc's sales.
I'm not sure if you can give this color but just.
Would you say that there was a lot of.
Bidders that were kind of.
Close to the range of the outcome such that this is not kind of like a fluke.
Price so to speak.
They were.
Several other bidders above the range that you had been targeting.
Yeah.
Okay I'll answer it let Jason throw anything on there were a number of bidders that were right on top of each other and it was a difficult decision for us.
But in the end, we thought summit was the right answer.
Because of price and certainty of clothes and all the other things you typically would look at and a transaction, but this was clearly not an outlier.
That's very helpful. Thank you and then on the just didn't thinking of your talk of for future sale, obviously being tied to having.
Something to redeploy the money in.
Is there are there are some other.
Right based opportunities beyond that billion dollar kind of increment.
That are starting to come into any view or we'd have to be.
An acquisition or some other just just more maybe extending the.
The plan in the future that would drive that.
I don't ever want to rely on having to do M&A to drive your business and grow your business.
Other than to doing a renewables program there.
Yes, we were.
I am pleased with that debt recently.
Letter by the other director there the Indiana Commission.
<unk>.
We had received some feedback on our original.
Integrated resource plan that had asked us to consider sort of more of a diversity of fuel sources sort of more clarity on <unk>.
We anticipated electric demand.
Proposing.
A smaller percentage of natural gas fired facilities and we incorporated that feedback earlier. This year as we mentioned filed it into the director's report that you are alluding to I think acknowledged the clear progress that that we have made and being responsive both to the commission feedback as well as.
The broader community and customer feedback in Indiana, and so I think it is.
It's reflective of the fact that we feel that there is strong support for the coal transition plan that we have outlined previously.
Okay, great. Thanks, so much.
Sure.
Your next question comes from the line of Joe Gas Chopra, Evercore ISI <unk> share.
Your line is open.
Hey, Thanks, Good morning team. Thank you for taking my question.
Dave I would just kind of curious your comments around some sort of.
You were able to reduce these storm costs I think you said $300 million by audits.
Some sort of.
Looking at your records.
On the gas side of things could you just elaborate on debt I'm just wondering if that's an opportunity for some of your peers to do that as well.
Well I don't know what the cash.
Contracts at our peers have look like.
What we're doing is we're focusing on the excess gas costs that we incurred because as I said earlier there are pass through cost for us and we have an obligation to our customers to make sure that.
That we're paying for.
Per the contract.
We are trying to negotiate we're trying to do everything audit all of the things that we lifted but we are doing them really to make sure that we are getting the best outcome for the for the customers because as I said their pass through cost Jason why don't you can add anything into that but it probably covers it I think it is.
Definitely contract specific and as you can imagine many of the suppliers alleged throughout the event.
Force Majeure clauses.
Challenged some of those I think also some of the gas suppliers recognize the impact that this storm has had on sort of the broader communities. We have the impact to serve and so I think it was a collective effort of as we've talked about sort of challenging some of maybe the contractual provisions how that how the contract was interpreted as well as sort of working to find a constructive.
<unk> again for all stakeholders and I think that.
We're happy with the progress we've made and will continue to advocate on behalf of our customers.
That's great guys excellent. Thank you for the color, maybe just really quickly.
For the extent that you can.
<unk> enables sort of.
Exit here.
Is it sort of a five year plan or a 10 year plan just any any color you can share there. Thank you.
I can guarantee you, it's not a five or 10 year plan.
It's much more aggressive than that but all Jason is going to execute it for so I'll let him.
Answer it specifically, but do not even for a second half in your head as five or 10 years.
Our strategy is to eliminate our exposure to midstream once the energy transfer enable merger closes.
We are still not providing a direct timeline, we want to be disciplined.
And efficient maximize the proceeds from the disposition.
Aggressively eliminate our exposure to midstream.
Once the deal closes.
Alright, guys. Thank you I appreciate you taking my questions. Thanks.
Your next question comes from the line of Julien Dumoulin Smith with Bank of America Julien Your line is open.
Hey, good morning team actually if I can stick with that last conversation to brief can you elaborate what other elements you could pursue here I mean, we've seen some of your peers are valuing litigation et cetera. So what's your sense of confidence to materially bring up that $300 million and reduce costs and bring down that $2 2 billion as you see it have you largely <unk>.
For this or Theres still a good chunk to go here.
I think we've seen probably the largest movement to date, we are continuing to work with a handful of suppliers on what I would consider to be a much more narrow opportunity set so I wouldn't look to see.
Probably as significant and a reduction as we reported today, but we're also at the same time not done with those conversations as I said, we will continue to advocate on behalf of our customers, but I wouldn't expect it to materially change.
Got it and then a little bit more of a detailed here you're talking about reinvestment of O&M back in the utility assets, you talked about having a little bit more capital on hand can you elaborate a little bit more what we should be seeing here in terms of both the financial impact from 'twenty one 'twenty two.
On a net EPS basis, but more importantly, just.
Timing on when you come back just given that you're talking about something that's just so and then in here.
Yes, I think let me again start by answering and throw it to Jason I think if you think that you've got to think of sort of excess capital in two buckets. Here. One is the 300 million plus that we will get from.
The gas LDC sales since we don't expect that transaction to close until about the end of the year or thereabouts, that's really capital we can spend in 'twenty, two which will go into rate base and start impacting earnings in 'twenty. Three we of course have a lot more optionality around the reinvestment of the <unk>.
<unk> savings and I'll I'll, let Jason give a little color on how we're thinking about that where we might spend and how we might spend it.
Yes, I think it's important to maybe take a quick step back Julien I mean, I think we feel like Theres a privilege, we have a privilege to serve.
Some of the most premium jurisdictions here in the U S and we have the privilege to have industry leading.
Rate base growth.
Top of the industry earnings growth.
That said as we think about a premium valuation for the company, we think that that really materializes with consistent delivery on our earnings and so in years, where we maybe accelerate some of the continuous improvement opportunities for we had better than expected weather, we will look to reinvest.
Some of that savings back into the business for the benefit of our customers. We think long term that creates the best possible service for our customers and the path to a premium utility valuation and so as we make progress on O&M.
And if we're doing better than expected, we will likely as I said reinvest that back in the business as Dave mentioned, the capital investment opportunities I'd really think about that as sort of more of a 'twenty three earnings impact just given the.
Time period between executing that capital and then and then putting it into rates for recovery. So hopefully that gives you a little bit of sense of how we're thinking about the O&M and capital opportunity progress.
Awesome, Indeed, alright, well best of luck congrats on all the progress thus far.
Thank you.
Your next question comes from the line of Michael Weinstein with Credit Suisse. Michael Your line is open.
Hey, good morning, guys.
Good morning.
Hey, just to continue the conversation on capital opportunities.
As you, especially as Youre trying to go to net carbon zero.
Maybe you could talk a little bit about.
Opportunities for with <unk> investments.
Methane reduction.
Methane leakage reduction and then also anything on EV charging.
Opportunities that maybe emerging.
Flushing out the plan is this something that are these things that could become upside to your current plants.
You sound like you're sitting in our management Committee Rome is worth discussing.
Other great opportunities that we have in front of us to to get ahead of that.
Moving on the journey towards net zero, but also be able to add to our rate base and.
And again I'll, let Jason give the details on what our thinking is there yes, I think on the gas side, we're really fortunate to work.
Constructive jurisdictions, we've highlighted our green hydrogen pilot up in Minnesota, the work that we've done.
On the renewable natural gas tariff, we clearly see that as a start to what is a long term focus.
We are actively working to develop that next round of pilot projects to make sure that we can efficiently.
Generally for hydrogen we can that our system responds well to that introduction, we are working with suppliers on the R&D front and I think the learnings that we have in Minnesota are certainly.
Experiences that we can.
Utilized more broadly in our gas footprint and so I think that there is certainly more to come with respect to RFG and green hydrogen.
For the company and as you said, we are incredibly excited about the opportunity to play a role in.
The electrification of the transportation sector thinking about here in Houston, It's obviously, the fourth largest city in the U S. But it is a very commute.
Commuter focused city.
And so we see the opportunity to help.
With the build out of distributed charging networks that will help with the conversion of.
Electric vehicles here in Houston and for that matter hopefully up in Evansville, and so I don't see these as materially changing kind of our rate base profile in the next couple of years, but the work that we're doing to gain experience understanding.
And and the support of our regulators I think will help support the long term Capex plan for the company. So there's certainly a lot more to come on these two fronts.
Great and just one follow up on cost savings with $44 million identified for this year, how can we expect that to flow in I guess, a $16 million already flowing in the first quarter is debt is that going to be mostly in the summer or are we going to see a more evenly distributed throughout all four quarters.
I appreciate the question about timing I think what's important to notice.
The company really embarked on focus of continuous improvement.
<unk> with the second quarter last year.
And as you can imagine it was sort of ramping up.
Into sort of building that muscle over the course of the year and so from a quarter over quarter standpoint, we've probably seen the largest variance here in the first quarter.
And that will likely reduce each subsequent quarter as we've kind of built into what was sort of the ongoing run rate at the end of 2020. So again. This is probably the largest variance you'll see this year and then as I've mentioned a couple of times here to the extent that we continue to make incremental progress I think it's a really good opportunity to reinvest.
Vest that savings in the business for the benefit of of our customers and we will look to do so.
Okay, great. Thank you very much.
Your next question comes from the line of Jeremy Tonet with Jpmorgan, Jeremy Your line is open.
Hi, Good morning, Dave Good morning.
You've got quite a pick up with Jackie joining the IR. Their centerpoint is lucky to have her so I'd be remiss, if I didn't say that but let me just so you know she's sitting right next to me with a big smile on her face to hear that Jeremy we're thrilled to have them.
On the team.
Maybe just a quick question here, you've talked a bit about the $1 billion Capex I'm wondering if we could drill down a bit more on this and what it could look like.
Guardrails do you have here or what drivers are milestones could kind of make this real.
Well I think first of all it is real I think if you go back to how we described it at our analyst day I think that is still sort of the operative strategy one is to deploy the capital efficiently.
And with the capital ramp update we have ongoing it really is incumbent on us to make sure that we have the internal engineering resources. The project management resources all of the sort of internal compliance guardrails, you want to have around a fast increase in spend so that one.
You spend a dollar you are spending it wisely youre spending it on behalf of your customer.
You put it into your rate base.
Second is is finding the sort of capital to spend that $1 billion on the LDC clearly helps there the O&M savings help there.
With that other market reaction on the <unk> sale.
With enable sales to ETE, there could be more proceeds there.
I really just want to reiterate something I said earlier I hope you are getting a flavor for adhere to day.
As we have great capital spending opportunities in front of us which is why Ed.
As we sort of accumulate capital maybe above and beyond what we thought we would have in our analyst day to grow the company, we're not forced toward doing M&A, we are going to be able to invest it on a one time investment basis in our business in our territories and grow and protect.
And serve our customers here so as I said a number of times. This is such a great position for us to be in because you throw organic growth on top of all of that that's going to create additional capital spending opportunities. So.
That's why in my view, we're really sitting in the catbird seat here in terms of what we can do with this business going forward not share that answered your question, but debt.
That is helpful. Thank you for that.
Maybe just a quick second one here.
Just wondering broadly on tax mitigation strategies, you talked about the LDC here, but just wondering as it relates to enable the T. If theres anything you can share there on that side.
That is right in the adjacent wheelhouse, so I'll, let him answer that thanks Sharon.
One other things that Dave and I took a look at when we when we joined with the fact that.
On a relative basis, we were paying higher taxes than a number of our peers and I think what has become obvious as we've dug into the situation as we have not necessarily availed ourselves of all of the what I would say to be common utility deductions.
So one classic example would be tax repairs, where you have the opportunity to essentially.
Essentially expense or to adapt immediately some investments that otherwise would have historically been capitalized I don't think we are fully taking advantage of that.
We are currently in the process of conducting our study to support what would be a higher level of deductions.
I am confident it will result in a increase in available tax deductions for the company not yet where we're ready to quantify it as the study is not complete but again just given the progress that we've made.
We're confident that that will.
Meaningfully help reduce some of the tax burden that you mentioned from from the EP sales and so we will likely provide a more fulsome update on that opportunity on future earnings calls this year.
Got it that's helpful I'll leave it there thanks.
This concludes our question and answer session I will turn the call back over to Bill Holden for closing remarks.
Thank you again, thank you everyone for joining us for them for interest from Centerpoint.
This.
With Centerpoint Energy's first quarter earnings conference call. Thank you for your participation you may now disconnect.
[music].
[music].
Okay.
[music].