Q2 2021 CenterPoint Energy Inc Earnings Call
[music].
Dave was our CEO, Jason Wells, our CFO and Tom Webb, our senior adviser will discuss the company's second quarter, 2020.1 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 and.
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 non-GAAP EPS referred to as utility EPS earnings guidance and our utility earnings.
Growth target and providing these financial performance metrics and guidance, we use a non-GAAP measure of adjusted diluted earnings per share for.
For information on our guidance methodology and a reconciliation of the non-GAAP measures used and providing guidance. Please refer to our earnings news release and presentation, both of which can be found under the investors section on our website.
And as a reminder, we may use our website to announce material information and this call is being recorded information on how to access the replay can be found on our website.
Now I'd like to turn the discussion over to Dave.
Thank you Phil Good morning, and thank you for joining our second quarter 2021earnings call.
This call marks my 1 year anniversary as CEO of Centerpoint and I am excited to update everyone on our results. This morning.
We are now hitting the fast paced organizational stride I want us to have and the length of today's prepared remarks will be more in line with the template I want to follow going forward.
Now, while we are always keen to discuss our great future. We are planning to discuss our exciting longer term strategy updates at our analyst day, which will take place on September 23rd here in Houston, Though this is our second analyst day and less than 12 months, we feel.
It is warranted as we are now well into our strategic transition and we want to use that forum to update our investors on our longer term business plan.
Earnings capacity financial metrics and the net zero emissions target that we will be sharing with you.
We are also excited for the opportunity to spend more time with you and our hometown here in Houston and to see you in person.
Let me quickly remind you of just how far we've come in the last year.
A year ago Centerpoint was going through a strategic review at the direction of our business review and evaluation Committee or Brac.
The goal of the review was to optimize shareholder value and address specific shareholder concerns.
Initially and my role as chairman of the Brac and then later when I became CEO. It was crystal clear to me that while the company had a great asset base and talented employees, we have not unlocked all of our potential and certainly had not taken full advantage of all of our.
Arent opportunities.
Before the break process Centerpoint was targeting modest EPS growth and had reduced capital spending and our regulated businesses.
We had work to do to strengthen our regulatory relations.
The company had previously announced a strategic review of enable but had not found and executable opportunity to actually reduce exposure to it's midstream investments. This frustrated investors.
Our O&M expenses were historically growing and we needed a stronger balance sheet we.
We had minimal renewables opportunities on our radar screen and we were in search of a permanent CFO.
So yes, the list of challenges was long.
I mentioned these not to revisit the adversity as our investors and company, we're experiencing but to highlight for you the aggressive speed and approach used by our new team to attack and resolve the challenges and headwinds we faced let me quickly recap our progress.
And I substantially refreshed and diversified our executive Committee and we now have what I believe is a best in class management team.
We announced and updated 5 year strategy that prioritizes investment and our regulated businesses and boosted our planned capital spending by about 25% to $16 billion.
And we instituted a 10% utility rate base CAGR, well above our peer group average of 8%.
That rate base growth, then supported and increase long term utility EPS target growth rate of 6.8%, which is also above the consensus peer average of 6%.
To efficiently fund our growth, while repairing our balance sheet, we announced the sale of our Arkansas and Oklahoma gas L. D. CS at a landmark earnings multiple of 2 and a half times rate base.
We were instrumental in the enable and energy transfer merger, which once closed will provide us a pathway to eliminate our exposure to midstream.
And we announced a commitment to a 1% to 2% annual reduction and O&M over the 5 years to keep our customer rate growth manageable.
We recently announced changes to our board leadership to bring our governance structure in line with best practices and shareholder expectations, and we will be announcing a commitment to and industry, leading net zero carbon commitment at our analyst day.
And my view, we certainly have walk the talk and through timely and aggressive actions overcome many of the headwinds we faced.
Now it's time for Centerpoint to switch gears, we are going to use the same aggressive approach and organizational speed to take advantage of the tailwind. We have today are strong execution, coupled with a privilege to serve some of the fastest growing regions and our country have created the foundation.
<unk> for Centerpoint to trade is 1 of the premium utilities and the U S. Believe me. We are just getting started our 6 month financial performance and 2021 has been strong.
Today, we are raising our 2021 utility EPS guidance range to $1.25 to $1.27.
This 8% growth projection and 21 puts us at the high end of our 6% to 8% utility EPS annual growth target.
And as a reminder, this increase in guidance is after the dilution impact of the 18% increase and our share count that we experienced in 2020.
When we compare our utility EPS growth 2 analysts long term consensus growth for our peers. We are now in the top decile.
And as you would expect we are also reaffirming both our long term, 6% to 8% utility EPS annual growth target and 10% rate base compound annual growth rate target. This 10% rate base growth also exceeds the average 8% rate base growth.
Of our peer group.
For the second quarter of 2021, we reported strong results, including 28 cents of utility EPS compared to 18 cents for the second quarter of 2020. The comparison to Q2, 2020 is a bit noisy and I believe essentially irrelevant.
Both quarters included a number of 1 off items Q.
Q2, 2020 results also reflected the impact of Covid on our business.
The bottom line for me is to focus on the reality that our utility EPS is expected to grow 8%. This year over last year, and then target 6% to 8% growth from there Jason will go into more detail on our quarterly results a little later and this call.
Our O&M continuous improvement programs have strengthened our results for the first 6 months of 2021.
We are already on track to save over $40 million and total O&M costs. This year alone while maintaining our focus on safety.
This is almost 3% of our annual O&M cost however.
However, when compared to last year's second quarter, our O&M costs are actually up a bit again. This is just more and noise that I don't worry about is last year's second quarter O&M costs were artificially depressed by the impact of Covid and disconnect Moratoriums, we are still absolute.
Totally committed to our continuous improvement cost management efforts and our target of 1% to 2% annual reductions and O&M in fact, as a result of our excellent 2021 results to date, we were in the fortunate place to be able to already make a management decision and begin.
And pulling recurring O&M work forward from 2020.2 into the last 6 months of this year and.
And still be able to hit the 8% utility EPS growth for this year.
This allows us the luxury of reducing near term run rate O&M costs today, and immediately reinvesting them for the future long term benefit of our customers and investors, we continue to see industry, leading organic customer growth rates. Despite COVID-19.
Our Houston Service territory continues its 30 plus years of consistent growth.
Overall, we saw about 2% customer growth for electric and 1% for natural gas for the first 6 months of the year when compared to the prior year.
The growth is supported by the highest level of new home starts and Houston since 2005.
This continued and consistent growth reinforces the value of the fast growing markets that we serve.
This organic growth plays a key role and keeping our service cost reasonable for our customers.
Moving to capital investments.
We have invested approximately $1.5 billion for the first 6 months of this year and are still on track to invest approximately 3.4 billion for the full year 2021more.
More importantly, we now have better line of sight to additional capital investment opportunities beyond the 5 year $16 billion investment plan, we outlined on our analyst day, New Texas legislation provides more tools to transmission and distribution utilities to improve.
And the resiliency of the electric grid and helps minimize the risk of prolonged outages and allows us to put all of this into rate base. Some of these laws include the ability to lease and put into rate base backup battery storage capacity for resiliency and 2.
To assist with restoring power.
Next the ability to lease and put into rate base emergency generation, which may include mobile generation capabilities.
The ability to immediately procure store and put into rate base long lead time items related to restoring power.
And the allowing of economic versus resiliency justifications for new transmission projects.
Just on initial analysis. These legislative changes provides support to increase our 5 year capital investment plan by at least $500 million.
Now this is on top of the 1 billion and reserve capital investment opportunities. We previously identified during our last analyst day, but were not incorporated into that plan.
Just as.
Important we will have the ability to efficiently fund 1.1 billion of these incremental opportunities.
This is primarily due to the incremental proceeds expected from the sale of our gas L. D. CS and the execution of tax mitigation strategies, which Jason will discuss shortly as well as additional debt.
Assuming a roughly 50.50 cap structure.
Even better all of this is before the additional proceeds we anticipate from the sale of energy transfer units.
Given the significant appreciation and value.
Since they enable and energy transfer merger was announced.
We are in the midst of quantifying what the whole new slate of organic opportunities will look like and will be and are positioned to provide more detail at our analyst day in September.
However, just as a teaser we are confident that we will be and are positioned to announce and increase to our previous 5 year investment plan.
And that increase with no incremental equity and.
And execute on projects that will continue to improve the resiliency and safety of our systems for the benefit of our customers.
A very nice trifecta.
Now I will briefly touch on strategic initiatives, which we have announced over the recent months, including our gas LDC sale and our planned exit of our midstream investment.
We know that investors are highly focused on the ultimate completion of these initiatives and we believe we will achieve our timing expectations.
We continue to make progress on the gas LDC sale and still anticipate closing by the end of the year. We are working closely each day with summit to secure regulatory approvals for the sale and to successfully transition that business.
Turning to the enabled transaction.
We still anticipate the transaction between enable and energy transfer to close and the second half of the year.
We remain absolutely focused on reducing and then eliminating our midstream exposure through a disciplined approach.
Now to be clear it.
It would be very unlikely for either of these transactions to close prior to our September analyst day.
And finally to reiterate what we said when we announced the news of these 2 transactions and on our last quarterly call. Completing these transactions will not change our industry, leading 6% to 8% utility EPS growth target or 10% rate base compound annual.
Growth rate target.
Finally, I want to highlight the natural gas innovation Act that recently passed and Minnesota.
This is a landmark law that establishes a new state regulatory policy that creates additional opportunities for a natural gas utility to invest and innovative clean energy resources and technologies, including renewable natural gas green hydrogen and carbon capture.
And further demonstrates the forward thinking mindset of the jurisdictions that we serve this is a successful outcome for all stakeholders as we work to collectively achieve lower greenhouse gas emission reduction goals.
With the approval from the Minnesota Public utility Commission and utility can invest up to 1.75% of our gross operating revenue in the state annually. This opportunity increases up to 4% of gross operating revenues by 2033 and.
Under the new law, we expect to submit our first innovation planned to the PUC next year.
This law aligns with our steadfast commitment to environmental stewardship and more specifically our carbon reduction goals are.
Our customers are asking for ways, and which we can deliver not only safe and reliable, but cleaner electricity and gas and we are working to achieve that.
Across jurisdictions, we are collaborating to find ways to introduce more renewable fuels into our systems as we firm up our goal to achieve a net zero target.
We look forward to unveiling this and September during our analyst day.
For now I'll, just remind everyone how thrilled I am to be able to deliver these messages as Ive said. This marks 1 year from me as CEO and a lot has changed I look forward to these calls every quarter. So I can proudly share our team's accomplishments with you.
I strongly believe the strategy, we have laid out and the progress we've 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 to all of you for joining US. This morning for our second quarter earnings call well I don't quite have a full year with Centerpoint under my belt I am just as energized as Dave by our recent execution and more importantly about the path, we're on and becoming premium utility.
Let me get started by discussing our earnings for the second quarter of 2021.
On a GAAP EPS basis, we reported <unk> 37 for the second quarter of 2021 compared to 11 for the second quarter of 2020.
Looking at slide 4 we reported 36 cents of non-GAAP EPS for the second quarter of 2021 compared to 21 for the second quarter of 2020.
Our utility EPS was 28 cents for the second quarter of 2021, while midstream investments contributed another 8 cents.
As Dave mentioned, there were a few 1 time items for both quarters that made the comparison a bit noisy.
This included favorable impacts from the second quarter of 2021 inclusive of 5 attributable to deferred state tax benefits.
Of this 5 cents and totaled 3 cents of the benefit was related to legislation and Louisiana that eliminated the NOL carryforward limitation period.
This amount is included in our utility EPS results the.
And the remaining 2 cents of benefit was due to Oklahoma's revision of the corporate tax rate, which is a favorable driver and our midstream segment.
Our 2020 utility EPS included a negative <unk> impact due to COVID-19.
Beyond this.
1 time items. Other notable drivers for the second quarter 2021 include customer growth and rate recovery, which contributed about 4 cents a favorable impacts as well as miscellaneous revenue contributed another 2 cents of favorable impacts.
These were partially offset by a negative <unk> <unk> impact from the share dilution, resulting from the May 2020 issuance and a negative 3 for unfavorable O&M variance.
So theres a lot of noise when comparing to second quarter of 2020 and that was the quarter most impacted by Covid worldwide.
I look through that noise and I think you should to the bottom line is we expect to grow our utility EPS, 8% this year and target, 6% to 8% thereafter, and that's what we should all focus on.
As Dave mentioned O&M as a bit noisy this quarter as well the key takeaway is we are delivering on our planned efficiencies to over $40 million and cost reductions for the year.
And are now beginning to accelerate O&M work from 2022. This will help improve reliability of our service for our customers while sustaining growth for our shareholders.
With 2 quarters of financial results behind US we have good line of sight to our full year 2021 earnings per share outperformance, our disciplined execution and tailwind led us to raise our utility EPS guidance range to $1.25 to $1.27 per share for the full year, which is at the high end of our 6% to 8%.
Annual utility EPS growth target.
Beyond 2021, I want to reiterate we are focused on growing utility EPS at 6% to 8% each and every year no CAGR is here and we look forward and discussing incremental drivers over a longer term horizon during our September analyst day.
Moving to a discussion of future capital opportunities as shown on page 5 we are currently developing our full analysis of additional capital opportunities, resulting from bill signed into effect and Texas. During the last legislative session and there'll be some shorter dated opportunities that develop such as the ability to procure long lead time items or 2.
A lease a portion of battery storage or backup generation across our footprint and then some longer dated projects such as transmission opportunities.
Through economic justification.
Based on our first look we have confidence the new Texas legislation will support at least $500 million of incremental capital investment opportunities over just our current 5 year plan.
This number will likely increase as we work with stakeholders to refine the implementation of this new legislation and develop the longer dated plan to incorporate some of these opportunities.
We are confident the new tools, we have been providing will help create a more resilient electric grid and help reduce the risk of prolonged outages.
Regarding our previously identified incremental $1 billion, we may be able to deploy above our 2020 analyst day plan of $16 billion. This incremental capital spending is likely to be allocated towards our current system improvements to accelerate the improvement and resiliency reliability and safety of our services.
We will provide a more comprehensive update on this additional capital spend and our upcoming analyst day, but and it's important to highlight any incremental capital. We include in this plan won't begin contributing to earnings until 2023 at the earliest as we will begin recovering incremental spend the year following the investment.
As far as the funding sources from these incremental capital opportunities. We continue to take advantage of a number of tailwind that will allow us to incorporate additional capital spend.
As we reported last quarter and Dave reinforced we will receive and an incremental $300 million of proceeds above our original plan once the gas LDC sale closest.
Additionally, we have continued to refine the estimate of the incremental benefit for the method, we use to determine the amount of repairs expense that can be deducted for tax purposes.
While we are still a refining this study we have confidence that the benefit will generate at least $1 billion and incremental tax deductions, resulting and at least $250 million and additional cash to us and likely more this enhanced method for determining and repairs expense is and efficient way for us to fund these capital investment opportunities, which improve the resiliency and safe.
And of our systems for the benefits of our customers.
The combination of these improve sources of funding coupled with debt that will be authorized under our regulatory capital structure supports incremental investments of at least $1.1 billion.
And importantly, this amount is before we consider any additional proceeds due to the unit appreciation of energy transfer.
Moving to the financing updates we closed our $1.7 billion debt issuance and May which was comprised of $700 million of 3 year floating rate notes $500 million of 5 year fixed rate notes at 1.45% and $500 million of 10 year fixed rate notes at 2.65.
5%.
Use of the proceeds was to refinance $1.2 billion of near term maturities at the parent as well as to pay down commercial paper.
Based on our current financing plans, we have no further issuance needs for 2021.
Our current liquidity remains strong at $2.2 billion, including available borrowings under our short term credit facilities and unrestricted cash.
Our long term F. OTA that objective is between 14 and 15% and.
Lining with the Moody's methodology and is consistent with the expectations of the rating agencies, we continue to actively engage with them and they have informed us that they are comfortable with the outlook and thresholds we've indicated.
Based on our current financing plans, we will not issue any incremental equity through and aftermarket equity program and 2022 as previously discussed and are evaluating if or when we would initiate it beyond that.
As we said in the past, we take our commitment to be good stewards of your investment very seriously and realized our obligation to optimize stakeholder value.
I am energized with our execution over the last year and I am confident we are positioning centerpoint to be a premium utility moving forward.
Those are the updates for the quarter as mentioned, we'll be hosting an analyst day here in Houston on September 23rd we look forward to the opportunity to engage and introduce you to the depth of the Centerpoint team then.
And with that I'd now like to turn the call over to Tom Webb, Our senior adviser and this will be Tom's last call with us as Tom's work here at Centerpoint is winding down.
I want to extend our sincerest appreciation to Tom for his counsel and support over the past year I have and I know, we all have benefited greatly from his time here, Tom will be joining us and September for our analyst day for a final event with Centerpoint and I Hope you can all join us for celebratory toast and person to acknowledge all that Tom has done for Centerpoint.
Thank you Jason.
And thank you Dave.
I finally, remember your visit to Kalamazoo, a year ago, when overdone, and cooking and a bottle of nicely age Bordeaux wine I explained how I was busy and retired you were persuasive.
I was humbled to be asked and honored to help and a very small way on your extensive checklist.
Top of your list was identifying and attracting 1 of the very best Cfos and the business check.
Thank you Jason Thank you for taking the challenge.
You already have made immediate critical improvements that will be lasting.
Centerpoint has transformed in less than a year selling non core and non utility businesses think enable securing more efficient financing think LDC sales.
Driving clean energy, Inc. Coal closures.
Renewable growth and a lot more to come and accelerating performance think continuous improvement.
We are witnessing the emergence of a premium utility with sustainable predictable EPS growth every year.
And I Trust you see it feel it we truly do sweat the details. So you don't have to you'll.
You'll see bumps in the road serious challenges like the winter storm that impacted many utilities.
And that you had doubts.
But watch Centerpoint. This team promptly addresses challenges to protect our customers.
And deliver for you our investors.
With important capital investment to deliver needed improvements for our customers our rate base growth target at 10% substantially outstrips the peer average at about 8%.
Our resulting annual utility EPS growth target of 6% to 8% is strong we expect it to be at the high end of the range This year and as Dave mentioned, that's top decile custom.
Customer growth of 2% is just the level our peers would celebrate coupled.
Coupled with O&M reduction of 1% to 2% a year. This creates a lot of headroom for needed capital investment.
Our 5 year plan includes 1% to 2% cost reduction every year. Our plan for this year is for a fast start down more than $40 million or 3% and with a fast start we already are pulling work ahead from 2022, the cost reductions favorable tax changes lower financing costs economic recovery and.
More allow us to reinvest $20 million for our customers now and possibly more later.
This performance reflects good business decisions and continuous improvement it comes from management commitment experienced teams and ground up process improvements that enhance safety every day quality doing things right. The first time delivery doing things on time cost, we see and.
Eliminate waste and morale and higher every day.
This continuous improvement process is powerful it shifts dependence from heroic individual work to better processes that are repeatable as we eliminate human struggle that cost fall out.
And 1 of my favorite charts is on the right is Dave often observes we take on the headwinds we take advantage of the tailwind we deliver our earnings per share commitment consistently every year.
We deploy surplus resources to our customers. It is all about our customers and our investors. We did this last year, we're doing it again now no ores just ends here.
Fun to be part of our premium winning utility.
Thank you Dave Thank you, Jason and thank you team. Thank you for allowing me to join the ride Centerpoint is a great company with wonderful people.
And a huge investment opportunity godspeed.
Good morning, Congrats from me.
Good morning, Yeah, loud and clear.
Great.
And so not trying to front run the upcoming analyst day too much but yeah, David touched on slide 5 to 500 million of opportunities and Texas.
Just hoping to dig in a little bit more on the timing of these incremental investments and how you're looking at the regulatory treatment.
And also where do you see the best opportunities across the platforms, whether it be energy storage generation transmission.
And again, I'll I'll pile on a little bit more but any additional thoughts on the scope of the growth beyond this initial deal and when you'd be in a position to kind of talk a little bit more about this.
Yeah, I mean, it's certainly.
Not going to front run our analyst day, and we and and for 1 main reason is we are still trying to assess the all the details and the bills when they go effective and what is.
Essentially a practical time when they can come into effect I think another another thing to focus on a lot of people think that these were tools put in our tool kit basically to face a winter storm and reality, but they really help us more for as hurricane season, and Thats more likely that we'll have.
Hurricane before we will have another year in terms of the territories that we serve so I think it's a good set as we said and the call. The initial view is at least another $500 million and capital I'll, maybe I'll, let Jason give a little color on.
And what those were.
That 500 may land and sort of what the timing might be.
Thanks, Dave.
And I would say, we're obviously very appreciative of all the work the legislature went through to give us.
Tools to reduce the risk of a widespread outage.
And in terms of timing I would say about half of that 500 million likely to be deployed over the next call. It about 2 years with the remainder over the back half of the 5 year plan.
We see the tools coming through and sort of a couple of different ways. Our system was designed to <unk>.
<unk> about 3 gigawatts of load and.
And sort of widespread outage events.
Past Winter storm, we were asked to reduce about 5 gigawatts of load and so what we see sort of as an immediate opportunity for us is the.
And the opportunity to own emergency generation.
4 outages that are expected to be longer than 8 hours, we will be deploying mobile generation at the substation that within combination with a year round demand management program will give us the flexibility to shed much more significant LOE for ERCOT, yet still provide power on.
A rolling basis for our customers and Thats some of the work that we will pursue aggressively.
And then some additional opportunities related to owning and battery storage and events.
Grid level resource as well as.
Bill that introduced and economic dimension to siding new.
Electric transmission lines.
And that those tools will help provide congestion relief and ensure even better reliability of our electric grid, but those programs will likely take a couple of years to site and build and so I would think about half of the $500 million is coming in over the next couple of years with the remainder over the back half of the 5 year plan.
Great. Thanks, so much from that detail I appreciate it guys.
Your next question is from David Peters with Wolfe Research.
Hey, good morning, guys good morning.
So the Capex plan you maintain a 16 billion from 5 years, but clearly youre pointing to that moving higher and I.
Thank you said Theres no equity needed for that that $1.5 billion, but.
Could you maybe just talk more about the sources of funding for that.
Specifically I think you kind of took Tom talked on the tax efficiencies, but even to the extent that you see kind of more upside above that $1.5 billion is it still fair that we shouldnt expect any additional equity.
And Thats, a question Thats, right and Jason's wheelhouse and I'll, let him answer it.
Thanks, Dave.
I think thats a fair assumption.
As you pointed out we outlined back in December a 5 year capital investment plan of $16 billion at that time.
We acknowledge that we held back about $1 billion of what I would consider to be sort of routine capital investment spend we really wanted to make sure that we can efficiently grow into the increased level of capex as well as fund it efficiently and we're gaining that level of confidence and then as I just mentioned and we just discussed.
See the opportunity for at least $500 million of incremental capital investment related to the recently passed legislation here in Texas and so.
The combination of those factors allow us to at least increase our 5 year Capex plan up to about $17.5 billion.
In fact, and central part of your question around funding it.
We've had a couple of strong tailwind that gives us the ability to fund it without any incremental equity first as we announced on the first quarter call.
We have about $300 million and incremental proceeds above our original plan from the sale of our gas ldcs.
And as we talked about on today's call and our prepared remarks, we're seeing at least 250 million in after tax cash benefits.
From the implementation of the tax repairs method change.
And that we will put in place and think about that as providing 550 million of equity related financing until we could effectively double that with that that would be authorized under our regulated capital structure and so it gives us at least $1.1 billion to fund that capital investment and increase.
<unk>.
And these figures are all before we take into consideration any of the significant unit appreciation from energy transfer so and sure we have significant capital investment opportunities above that $16 billion plan that we outlined in December and we have confidence, we'll be able to fund that without any incremental equity.
As we move forward.
Thanks.
And then maybe this is something for the analyst day, but just the 6% to 8% going forward. Given I think you said a lot of this 1 sir contributing until 'twenty 3 should we maybe think of it as like a step up at that point or just a bias towards the top and through through 25.
And we're focused on this year on delivering on the high end of the 6% to 8%.
Utility EPS range that we had outlined.
Reserve further comments on long term growth for the analyst day later this year, but I think you highlighted and an important element and as we spend is incremental capital likely beginning here towards the end of 'twenty 1 'twenty 2.
And it really will not drive earnings until 2023, and so thinking about this as a long term tailwind from.
And we look forward to sharing more at our upcoming analyst day.
Fair enough thanks, guys.
Thank you.
Your next question comes from the line of Shah <unk> with Guggenheim.
Good morning team and it's actually Constantine here for Shar and congrats on the strong quarter and congratulations Tom on a job well done.
Thanks.
Just in regards to the Capex plan and a bridging the new disclosures.
And maybe elaborating on the $1.5 of incremental opportunity and that you are now presenting.
Do you feel that there is more work to be done beyond the current ERP and Indiana.
And is that number inclusive and all of any upsides, and Minnesota and kind of do you anticipate that this will be reflected at the analyst day.
I'll, let Jason handle that he has done a roll handling capital questions. Today, Scott. So can you repeat the question around Minnesota.
And the $1.5 and I will say and upsides and all inclusive of.
The new legislation, and Minnesota, like R&D, and and or any reliability enhancements.
Yes, and the natural gas Innovation Act up and Minnesota.
The $1.5 billion figure that we've been discussing is prior to any incremental capital related to that new innovation gas act up and up in Minnesota.
I would say.
And.
We do have incremental upside related to Indiana, and the coal transition plan as a potential right now we've outlined.
And is part of the $16 billion capital investment plan.
The cost associated with the.
Closure and transition of 2 of our 3 coal facilities and Indiana.
And we will be looking at that third coal facility as part of the upcoming.
Integrated resource plan that we will file and 2022 and Indiana.
And the extent that that.
And finally changes sort of timing around the closure of that third and final plant and.
And coal plant in Indiana that potentially could provide further tailwind to the capital investment opportunity up there.
So overall, we still have.
As we've tried to indicate I think additional tailwind beyond what could be about a $17.5 billion 5 year capital investment plan those would come from increased opportunities as we continue to work with stakeholders.
And the Texas legislation as we pointed out here the opportunities around the natural gas Innovation Act and Minnesota.
And as well as further work on the coal transition plan.
Sounds great momentum is good.
And can we shift to O&M and maybe some updated thoughts on cost savings targets are staying the same but are you finding it easier to reach those targets at this point and what sort of visibility do you have for 'twenty 2 and.
And just as a quick follow up to that kind of post enables sale.
And what trajectory do you see for the remaining parent costs.
But let me let me handle.
And 50000 foot view of that and I'll, let Jason come in and sort of fill the blanks and.
And our commitment is to have 1% to 2% reduction every year and we have every intention of living up to that commitment.
I think as we tried to provide some color on the call here. This morning, and as we have the luxury is we're running ahead of the 1% to 2% this year and.
Think of the 1% to 2% is averaging over the 5 year horizon and that we're talking about work. We're actually ahead of that which gives us the ability to pull forward 'twenty 2 into 'twenty 1.
And so we are taking and run rate O&M out and.
I view it as that just turning around and immediately invest day net and set of opportunities to save.
And the longer run so I think works and we're dead on track on an O&M, we've learned a lot from Tom about.
Going from sort of O&M reductions to the thought of continuous improvement, which is just grinding out a more efficient operation quarter after quarter and clearly as we start to think about 'twenty..2 maybe we're halfway through 'twenty, 1 and so we're having a lot of dialogue right now.
And what 22 looks like where we're going to spend our money, where we're going to get savings.
And clearly that is and and high focus for us right now.
And now Jason do you want to add anything else there I think I've covered it.
Okay.
I'll spend a minute on <unk>.
Providing a couple of examples that that we're really proud about and we've talked about.
Some big opportunities.
Things like.
And finally integrating the legacy Vectren companies onto our SAP platform, we went live with that integration and summer and so.
We tackle big events like that that allows us to reduce significant cost, but importantly, what we're seeing is real beginning of adoption of a continuous improvement mindset on previous calls we've highlighted a focus on.
Reducing truck rolls and the field and.
We had some success and the second quarter this year and our.
Our electric business by bundling some of our major underground work bundling both the capital and the expense worked we executed at the same time and so we saw not only the benefit of reducing truck rolls, but also reduce reducing a lot of the support costs behind the scenes and so we are very pleased with the continuous.
Improvement mindset that is building and giving us confidence and 22 I know you also asked about sort of post enabled parent.
And we see some opportunity for parent and costs.
And coming down as we use the proceeds from the sale of the what will be the energy transfer units too.
To delever at the parent level as well as.
The reset of the preferred dividends and our series a preferred stock and 2023 and so we do see an opportunity over the next few years as well to see sort of those parent company costs also come down and help further support and overall production and our cost structure.
I think thats the reason that we keep emphasizing that post the sale of the LDC and post the elimination of the midstream we are absolutely confident and around our 6% to 8% growth. We don't want to leave the impression that losing that earnings stream means that we are going.
And 2 to back off of that 6% to 8% growth.
And that's very helpful. Thanks, Thanks for taking my questions.
Your next question is from the line of Julien Dumoulin Smith.
With with Bank of America.
Good morning Julien.
Hey, its actually Coty Clark on for Julian and good morning.
Cody.
So first can you give a little bit more color on the gas cost recovery process in Minnesota and no there is.
Hearing on the matter yesterday, but just wondering what the latest feedback is from parties and and when are you expecting a resolution there.
Jason you want to take that 1 and happy to let me first start sort of overall with kind of where we expect to be with gas cost recovery I think the punch line is.
We expect to recover about 80% of those incremental gas cost by the 1 year anniversary of the store and that's really going to be largely driven by.
The issuance of the securitization here in Texas, the reimbursement for the incremental gas costs, and Arkansas and Oklahoma as part of the sale of summit.
As well as the.
The.
Recovery that has begun or will be.
Beginning here shortly in the remaining states.
Back to Minnesota later today the commission there.
We will likely vote on a proposal to begin recovering costs over 27 months and we've been working with stakeholders. There we understand that it is a significant amount of money for our customers and we appreciate.
The commission and and others work to try to find a balance between timely recovery of those costs as well as helping mitigate the bill impact for our customers up there and I think the proposal that will be heard.
Strives to strike that appropriate balance.
And we're obviously very appreciative of the work. We are also looking forward and working with regulators and each of our states going forward to see what tools, we should put in place to help mitigate this risk going forward, but a lot of work has been done and we expect to hear more.
Later today.
And in Minnesota, The Commission considers our proposal for cost recovery.
Got it okay.
And then utility results have been strong year to date, so I'm kind of wondering how you're thinking about the drivers and the balance of the year. What are the factors that would put you towards the top or the bottom end of the range.
And you talked about them a little bit already but if you could just give a little bit more detail that'd be helpful.
And certainly very strong results driven by a few things obviously the continued growth that we see and our business rebound and the economy sort of post COVID-19 and some 1 time.
Tax changes that that we've highlighted on today's call what I would say those some of those 1 time event.