Q1 2022 CenterPoint Energy Inc Earnings Call
Good morning, and welcome to Centerpoint Energy's first quarter 2022 earnings conference call with senior management during the company's VP of remarks, all participants will be in a listen only mode. There will be a question and answer session. After managements.
To ask a question press star one on your touch stone keypad to withdraw your question press has.
I will now turn the call over to Jackie Richert, Vice President of Investor Relations and Treasurer, Mr. Baker.
Good morning, everyone welcome to Centerpoint earnings Conference call, Dave <unk>, our CEO and Jason Wells, our CFO will discuss the Companys first quarter 2022 results management will discuss certain topics that will contain projections and other forward looking information.
<unk> 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 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 be discussing certain non-GAAP measures on today's call when providing guidance we use the non-GAAP EPS measure of adjusted diluted earnings per share on a consolidated basis referred to as non-GAAP EPS.
For information on our guidance methodology and a reconciliation of our 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. 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 call over to Dave.
Thank you Jackie good morning, and thank you to everyone joining us for our first quarter 2022 earnings call.
I'll run through our latest highlights and headlines as we continue to build on our consistent track record of earnings delivery.
First we have now delivered eight straight quarters of operational execution by this current management team.
We are now among the peer play utilities, having sold our remaining energy transfer position and fully exiting our midstream investment well before the year end 2022 target that we committed to you.
The 2022, ETE common and preferred net proceeds were approximately $490 million after taxes, bringing the combined total net proceeds from the ultimate divestiture of enable to approximately $1.3 billion after taxes.
In addition, following our first quarter, Arkansas, and Oklahoma LDC divestiture, our rate base is now forecasted to be 62% electric based on 2022 year end projections getting us into the range of some of our premium utility peers.
We utilize the total net after tax proceeds of approximately $2.9 billion from these two transactions to pay down associated debt and plan to recycle the remaining cash to fund our industry leading rate base growth all without planned external.
Equity issuances.
We are also on track to meet our dollar 36 to $1 38, non-GAAP EPS guidance for 2022, including the 47 cents, we reported for the first quarter of 2022.
Keep in mind that the gas L. D. C's, we sold removed three cents from earnings this quarter when compared to the first quarter of 2021.
In the full year impact of the loss of the divested gas L. D. CS will normalize to about two cents.
When compared to last year.
We also reiterate our non-GAAP EPS annual growth rate guidance of 8% through 2024.
From there the mid to high end of our 6% to 8% growth guidance through 2030, and Jason will get into these details shortly.
We also continue to see organic growth across our system, including 11 consecutive years of 2% or greater customer growth in the Houston electric area, a differentiating luxury many other utilities just do not have.
We continued working with our customers to identify their needs for increased safety reliability and clean sustainable investments, including Houston's Master energy plan called resiliency, now, which is helping us to determine further capital planning decisions and we will have more to say on.
That in future quarters.
More importantly, we remain focused on keeping our bills affordable for our customers.
We believe that the combination of expected organic growth across our jurisdictions.
When combined with our plan to have average reductions of 1% to 2% and O&M per year over the course of our 10 year plan.
And the securitization charges rolling out of rates in Houston Electric will create bill headroom to help reduce the impact of new capital spending.
Those are our latest headlines we strive to continue our track record that we've established over the past two years of executing on this world class investment thesis.
Moving to capital investments.
We are in year two of our capital plan, which has now increased to $19.3 billion over the next five years.
This is an increase from the 19.2 billion, we discussed at year end and is our second increase to our five year plan since our analyst day.
Our 10 year plan is still currently expected to be $40 billion plus of investments to support the safety resiliency and growth across our system to benefit our customers.
We expect that this decade of growth will be achieved through traditional utility investments with no big project or technology bats, and minimal regulatory lag.
This leads to our industry, leading projected rate base growth of 9% CAGR over the 10 year plan.
In the first quarter of 2022 we invested approximately $1 billion, including the mobile generation leases and are now tracking slightly ahead of our capital plan for the full year.
Today, we are announcing an increase in our estimated spend for 2000 $22 billion to $4.3 billion up from $4 billion as we have accelerated approximately $300 million of work from the latter years of our plan, which Jason will get into shortly.
As we execute on the capital investment plan. We outlined we also continue to work closely with our customers to serve their needs, including safety increased system resiliency and growth to drive further incremental capital investments that are not currently in the 19.3.
<unk>.
For example last quarter, we highlighted the initiative called resilient now jointly launched with the city of Houston.
We continue to work with the city of Houston and surrounding cities to develop future capital opportunities in the Houston area to help support the community with its continued economic growth.
Meet the challenges of more frequent weather events support the build out of its EV infrastructure and advance its environmental goals.
This includes grid and infrastructure hardening and modernization residential weatherization and investments around renewable energy infrastructure.
This will be a multiyear investment need we have made good progress with our customers and identifying the framework for continued grid resiliency and we'll be excited to discuss more on this topic in the fall of this year.
In addition to the city driven initiatives the broader Houston Port area, which includes the world's largest petrochemical complex refining industries in global LNG export facilities are experiencing unprecedented investment and increased energy needs.
We are anticipating increase load demand across our system over the next three to five years to accommodate their continued investment and development needs. This includes at least one gigawatt related to expected projects, which based on current system capacity in that area will likely accelerate.
All right our capital investment plans by a further $150 million to meet those needs. Once these projects are finalized.
And there is likely more opportunities as other projects in this area gained further support and moved toward final investment decisions.
Furthermore, we are also continuing to work with other industrial or manufacturing customers across other areas of our service territory, which could drive further incremental investments.
It's fair to say then when our investments are helping support the economic vitality of the communities that we have the privilege to serve it is an exciting time to be here at Centerpoint.
Shifting to customer affordability.
As I stated earlier as we invest in future capital, we remained focus on how to keep customer bills affordable.
One way we can do this is with continued discipline on our operating and maintenance expenses, we have opportunities across our system, which we expect will result in an annual average 1% to 2% of O&M savings over the course of our 10 year plan.
It is our responsibility as a management team to strive to achieve this benefit for our customers even in these inflationary times.
As we look across our system, we still believe there are plenty of ways to do so.
One Great example of such work is our Intel us smart meter system deployment, which some of you saw in person back at our analyst day.
We initially piloted this program in the first quarter of 2021 and began the official deployment here in our Texas gas business last month.
These advanced meters are expected to offer safety environmental operational and cost benefits for our customers.
For example, they are designed to enable automatic shutoff to help reduce the risk associated with safety events allow for remote disconnect and centralized meter reads. This program will help drive significant savings across our gas system when deployed fully.
We will soon be working towards implementing this and our other service territories as well.
Similarly, our continued execution of our coal transition plan in Indiana is helping avoid what otherwise would be significant customer bill increases related to coal generation.
Continued operation of our coal facilities wood cost customers, an additional $50 per month as federal EPA regulations around operating coal plants, which we are obligated to comply with become increasingly stringent.
All things being equal we currently estimate that the cleaner portfolio of renewables and the gas C. T will result in customer bill increases less than the $10. A month, we originally anticipated while also significantly reducing our carbon footprint back.
In our Houston Electric territory, there will be incremental headroom created through the continued roll off of charges from securitization bonds associated with the 1999 electric market restructuring law and Hurricane Ike from 2007.
Back in 2019 to transition bonds ended the charges related to these bonds of almost 7% of the average residential bill was that eliminated.
The bill charges related to the upcoming storm bond rolling off in August makes up over 3% of the current average residential bill while the charges related to the remaining transition bond that rolls off in 'twenty 'twenty four is approximately another 5% of current average residential.
Bills.
All of these things will help reduce the impact to our customers of capital investments across our system and we will seek to keep executing on these kinds of opportunities to keep bills affordable for our customers.
So in summary, before I turn the call over to Jason.
We are meeting our customers' growing needs across our system due to both organic growth and by upgrading the current system safety and resiliency needs, which we expect will likely lead to incremental capital above our $40 billion plus over the course of our 10 year.
Plan and.
And we plan to fund it without issuing external equity and without straining our balance sheet.
Despite this growth we remain committed to providing affordable service by managing our costs targeting an average 1% to 2% reduction annually in our O&M, taking advantage of our organic growth and benefiting from things like the regulatory charges that are rolling out of rates at <unk>.
Houston Electric.
Our current capital investment plan leads into our 10 year rate base outlook, we project approximately 11% rate base growth CAGR through 2025, which normalizes into an approximately 9% CAGR over the full 10 year plan.
From that rate base, we expect industry, leading 8% annual non-GAAP EPS growth through 2024.
In the mid to high end of our 6% to 8% range from there through 2030.
And we are excited to share with you later this year the impacts of the expected incremental capital that I have discussed.
As I stated in my opening remarks, we are excited about the eight straight quarters of execution and all of the employees here at Centerpoint that are delivering results every single day.
We heard loud and clear that many of you wanted centerpoint to exit the midstream industry we.
We did it in a way, we believe was better and quicker than many of you ever expected.
Within four months of the merger between enable and energy transfer we've sold 100% of our common units at a 20% premium to energy transfer as unit price when the transaction was announced last February .
Not a bad outcome for those shareholders, who thought we would never get out of this investment let alone receive approximately $1.3 billion of net after tax proceeds from it.
We listened to our investors and are now a pure play regulated utility with continued growth driven by customer demands and.
And lastly, we remain focused on achieving our value proposition, which is sustainable earnings growth for our shareholders sustainable resilient and affordable rates for our customers and a sustainable positive impact on the environment for our communities.
With that I'll turn the call over to Jason.
Thank you, Dave and thank you to all of you for joining US this morning for our first quarter call.
I'll start by covering the financial results for the quarter.
On a GAAP EPS basis, we reported 82 for the first quarter of 2022.
This includes midstream related earnings of five <unk>.
Including the net gain on the sale of the energy transfer common and preferred unit sales and the cost associated with the early extinguishment of the related debt as well as the net after tax gain on our Arkansas, and Oklahoma LDC sale of 30 cents.
Excluding those and other items as noted we reported 47 of non-GAAP EPS for the first quarter of 2022, which was flat to the comparable quarter of 2021 as shown on slide five.
Our first quarter of 2022 earnings were reduced by three cents due to losing their earnings related to Arkansas, and Oklahoma operations, which were divested on January 10, and as Dave mentioned those earnings are seasonally weighted towards the winter months.
Our results included favorable growth and rate recovery contributing five cents this quarter, while weather usage and other contributed <unk> <unk> when compared to the first quarter of 2021.
These positive benefits were partially offset by three <unk> compared to the same quarter last year due to higher ongoing cost management expenses.
One penny of watch was related to interest expense that was previously allocated to our midstream segment in the first quarter of 2021, which will be absorbed in our consolidated earnings going forward.
The remaining variance is related to the timing of our O&M savings in 2021.
On the O&M side and as we discussed throughout last year, we had a fast start to savings in the first quarter.
But we reinvested that savings back into the business throughout the remainder of the year.
That acceleration into last year has driven a higher run rate for O&M in the first quarter of 2022.
But we see this is purely a timing related variance. The bottom line is we fully expect to hit our average annual 1% to 2% O&M reduction over the 10 year plan.
We continue to have confidence in our ability to drive further O&M efficiencies. One example is the meter program that Dave discussed.
We piloted this program back in the first quarter of 2021 and as of April . This year. We are now in photo planar mode for the meter program in Texas and anticipate productivity improvements for the remainder of this year.
We are also reaffirming our full year 2022 guidance range of $1 36 to $1 38 of non-GAAP , EPS, which reflects 8% growth over the comparable dollar 27, non-GAAP EPS results for 2021.
We expect that our earnings for this year will be somewhat back end loaded as some of our recovery mechanisms are skewed towards the latter half of the year such as our D C, our filing which I'll discuss shortly.
The actions we have taken to simplify our story are illustrated on this page we expect to have a simpler more digestible investor story going forward.
Beyond 2022, we continue to expect to grow non-GAAP EPS, 8% each year through 2024 and at the mid to high point of 6% to 8% annually through 2030, our focus is to deliver strong growth each and every year.
Turning to slide six Dave covered a lot of the customer driven capital investment opportunities. We have ahead of us as he said we are in year two of a very attainable and tangible capital investment plan of $40 billion plus through 2030.
Which you can see here on this page. These projects are focused on safety resiliency reliability growth and clean enablement.
One item to discuss on our clean energy side.
Recognizing there is a lot of conversation regarding the availability of imported solar panels.
While we're not immune to the current market factors. Our next facility is not slated to come into service until the fourth quarter of 2023, and a lot can and will happen between now and then.
We are working with our developers and suppliers and feel good about their early attention towards identifying possible alternatives if needed.
We will obviously be learning more over the coming weeks and months, but we remain firmly committed to our long term renewable generation transition and our timeline for our net zero and carbon reduction emission goals will remain unchanged.
It is important to note that while we are only anticipating less than two cents of earnings benefit in 2024 from the generation transition. We have pulled forward. Some other capital work into 2022 from the latter part of the plan to reduce the risk and to continue to invest for the benefit of our customers.
As a result of this acceleration we are now forecasting to spend $4 $3 billion in capital expenditures during 2022 and have increased our five year capital expenditure forecast to $19 3 billion from $19 2 billion.
This is our second increase to the plants since analyst day.
We're also fortunate to have regulatory mechanisms that allow for timely recovery of our capital investment about 80% of the 10 year capital plan is eligible for recovery and expected to be recovered through interim capital recovery mechanisms.
An example of which includes our recent distribution cost recovery factor or D. C. RF rate, which is expected to go into effect September one this year.
This is a filing for Houston electric to recover.
One 6 billion and distribution capital we have made since 2018.
These investments were dedicated to system improvements load growth intelligent grid projects and temporary emergency mobile generation.
Our continued focus on cost controls and other items should help mitigate the bill impact for our customers.
As is often the case with including something new like mobile generation in an existing mechanism, there's more regulatory scrutiny than usual around this year's Tcf, which includes the first tranche of our mobile generation investment we.
We look forward to working constructively with stakeholders to resolve the rate application on a timeline consistent with the <unk> statute.
And our Minnesota gas jurisdiction, we recently filed a constructive rate case settlement with all intervening parties specifying a rate of return on equity of $9, three 9% and resulting in an annual revenue requirement increase of $48.5 million.
The settlement is subject to Minnesota PUC review in the anticipated approval is expected in the third quarter of 2022.
That rate case application use a forward test year, providing timely recovery of our forecasted capital investments in reliability and safety across our system for the benefit of our customers as well as our first green hydrogen pilot project, which recently went into service.
We are excited to now have the green hydrogen production facility online, which will use about one megawatt of renewable generation to produce hydrogen which is then mixed into our natural gas system.
While this is a small pilot project, it's a step in the right direction as we our customers and our regulators progress towards a better understanding of how hydrogen can fit into our long term broader carbon emission reduction goals.
Additional green hydrogen and other renewable gas projects will be considered in future natural gas Innovation Act filings, which we plan to submit later this year.
Turning towards a broader regulatory update.
We have securitization efforts going on and a couple of jurisdictions, which I'll provide an update on this mechanism allows for recovery of certain costs, while once again lessening the impact to our customers by recovering over a longer period of time.
The funds received from securitization can also be redeployed into capital investments for another form of efficient funding.
Lastly from a credit perspective, the rating agencies typically removed the securitization bonds in cash flows from the credit metric calculations.
And the state of Texas, we still anticipate the statewide securitization bonds to be issued in the coming months as the Texas public financing authority is currently in their RFP process.
We expect that this will provide 100% recovery of the $1 $1 billion of gas costs incurred during last years winter storm as well as the carrying costs.
In Indiana and in the coming weeks, we anticipate filing for costs related to the retirement of two coal facilities.
This is a first of its kind filing in Indiana.
The current procedural schedule anticipates a decision by the end of 2022 and if the financing order is approved we would expect a bond issuance in the first quarter of 2023.
Outside of these updates on securitization I'll remind everyone on the regulatory side, we have limited regulatory risks near term with no major rate cases until late 2023.
Turning to strategic transactions, we sold our remaining 51 million energy transfer common units and preferred units this quarter for approximately $700 million of combined net proceeds of roughly $490 million net of taxes, along with the 2021 sales.
We received approximately $1 $3 billion net after tax.
As a 20% premium to the energy transfer unit price when the transaction was announced.
Additionally, in January we received Arkansas, and Oklahoma OTC transaction proceeds of $1 6 billion net of taxes, including approximately 400 million for the remaining outstanding incremental gas costs.
We've now utilized $1 $8 billion of the combined LDC and energy transfer proceeds to reduce debt, including the $1 2 billion discussed on last quarter's call.
As well as paying down centerpoint parent level debt, including $600 million of high coupon senior notes this quarter.
These actions are also in line with our goal to reduce parent level debt to approximately 20% of total debt by the end of this year a goal we are well on our way towards achieving.
We plan to use the remaining proceeds to fund the equity portion of our industry, leading rate base growth without external equity issuances.
Separately and as we discussed at our analyst day and throughout last year.
We've had an ongoing evaluation of our repairs expense deduction methodology, which would be another way for us to mitigate our cash tax position.
Additionally, funding our growth and helping offset customer bills.
We currently expect that this process will result in a onetime cash tax benefit of approximately $300 million in 2022.
And at least an incremental $25 million annually in future years, which over the five year period would equate to at least $400 million of capital that we can redeploy into our business for the benefit of our customers and our shareholders.
This is approximately $50 million more than what we estimated at our analyst day update is yet. Another example of efficiently funding our industry leading growth plan.
Our long term <unk> to debt objective remains between 14% to 15% aligning with Moody's methodology and is consistent with the expectations of the rating agencies.
Additionally, let me remind you Moody's recently revised our downgrade threshold of 13%, noting our improved business risk profile.
And to be clear, we're continuing to focus on retaining its incremental credit Cushing as opposed to using it to fund our growth.
We believe that these improvements in our balance sheet, coupled with our efficient recycling of capital put us in a position of being able to offer industry, leading growth without the need for external equity.
As we continue to express we take our commitment to be good stewards of your investment very seriously and we realize our obligation to optimize stakeholder value for all.
I'll now turn the call back over to Dave.
Thank you Jason as you heard from US today, we now have eight straight quarters of meeting or exceeding expectations and have checked the box on executing on our strategic transactions. We are a pure regulated utility and firmly on the pathway to <unk>.
Premium with incremental growth opportunities driven by our customer demands.
Thank you, Dave I will now turn the Q&A and we'll be cognizant of the busy calendar call call schedule following him operator.
At this time, we will begin taking questions.
Ask a question. Please press star online you touched on key to regaining a question best pumps accompany that.
When asking a question Carlos pick up the telephone handset.
Thank you.
Our first question is from Nick Campanella from Credit Suisse. Your line is open.
Hey, good morning team. Thanks for having me on I appreciate it.
I just wanted to talk quick.
You talked about industrial load and just higher demand leading to incremental capital over the course of the 10 year plan.
Can you talk about not issuing external equity for the incremental capital. So I guess, just if you don't is it that you don't need the equity or that you would look to further portfolio rotation just how should we think about that.
I think if you.
Track all the way back to our analyst day, and what we've talked about since then the proceeds of the enabled transaction. The original LDC sales when matched up against our $40 billion plus plan don't really require us to go into the market for any equity which.
As I have set up north and North star for US right now and nor does it require us divesting of any LDC. So we have sufficient cash flow to meet this plan. While we have tried to signal is that as we identify additional capital opportunities either on.
Top of the five year 19.3 years or so billion plan, we have with a $40 billion cost plan at that point, we would look to selling additional gas LDC, but right now we have sufficient cash flow to meet our needs without issuing any more equity.
Very helpful. Thank you for that and then I guess, just higher level I think into the cadence of your updates through the course of 'twenty two here.
As I look back to 2020 in 2021, you've kind of maintained a pace that's been kind of fairly splashy understand there's been a lot to do also but that story is kind of behind us now and things to your point in your prepared remarks are just a lot simpler. So I guess just to kind of set expectations on the pace of updates.
Are you just kind of planning for this to just be all around a quieter execution year of blocking and tackling on the core metrics or are there larger strategic items in your mind that we should be thinking about.
No I think our blocking and tackling that's probably a good way to summarize it although if you think about each.
Even Q1, it was still a pretty active quarter for US you know we closed on the LDC sales we.
Got rid of the rest of the enabled transaction proceeds we had we continue to execute against a very aggressive way.
Base growth plan, we certainly met our earnings commitment we've reiterated our 8% growth for the next few years in sort of at the top end of the range going forward.
We met the challenges of inflation and supply chain.
I guess I would think about it is yes blocking and tackling I think we did a really good job to Q1, I don't anticipate that changing.
But I think the pace of change that I am trying to drive to Centerpoint is going to continue that's not going to change and we expect to hit all our marks that we have in our strategy.
Thanks, a lot we'll see at Agi.
Okay.
Thank you our next question.
Yes.
Ross Sandler from UBS Your line is open.
Good morning, how are you.
So just just maybe.
Following our next question.
And just looking from the.
The analyst day incremental capital changes so at year end, you accelerated $201 million into 2022.
We added $300 million around this was 500 megawatts of mobile generation that now youre, adding another $100 million into 2022.
Kind of on industrial demand.
That is correct, so that's $300 million.
Of that total $600 million increase since analyst day between 2022, but your point some of that.
From the back end of the five five year plan, So maybe talk a little bit about that shift and that your ability to sort of backfill capital.
Yes.
Airport.
Right.
Sure let me let.
Let me, let Jason handle that one he keeps track of our capital going forward literally on a day to day basis as I think you've picked up today.
Good morning, <unk> and thanks for the question.
And as you pointed out we increased the capex forecast for 2022 by $300 million.
And increased the five year Capex plan by 100 million, what we effectively did was brought forward $200 million from 2023 and 2022.
And then increase the overall plan by about $100 million really that increase relates to routine work at our gas and electric businesses.
That we have the luxury to pull forward because as mentioned in our prepared remarks, we have.
And efficient way to fund that for our shareholders in terms of higher incremental.
Proceeds from the tax repairs deduction as well as higher incremental proceeds from the securitization that's anticipated in Indiana.
And this work continues to help kind of benefit our customers by improving again, the safety and resiliency of the system, which is why we brought it forward. It further helps de risk.
Any impact from solar delays as I mentioned in my prepared remarks.
And so as we look at then sort of a longer term execution to your plan or to your question.
We continue to.
I think make positive momentum working with the city of Houston around being resilient to here in Houston.
We will likely have an update around that work probably around the Q4, sorry Q3 earnings call.
And then as Dave mentioned in his prepared remarks.
Scene.
Increased demand from our industrial customers, both here in Houston, as well as Indiana and.
And as we work to serve those customers needs, we hope to have.
A more holistic update around the longer term impacts to our Capex plans later this year.
So it's an exciting time here at Centerpoint, the best is still yet to come.
Sure.
Thanks, Jason Thanks for that very detailed review.
I'll hop back into the queue ill see you guys at a J.
Thank you your next.
Next question is from Anthony Corrado.
Moving home.
Please ask your question.
Hey, good morning, Dave Good morning, Jason.
Morning.
David Jason doing bolt of blocking and tackling or is he just doing exactly.
Our AG can do about <unk> block and tackle as Ken everybody on our management team today.
That's great just hopefully two quick questions. One is you talked about the O&M targets in your 10 year plan I believe you said, it's about 1% to 2% reduction each year.
Just curious.
Tight labor market supply chain issues.
Just maybe how challenging is it going to be to meet that and I. Also think you kind of highlighted the investment pressures I guess went out in April just wanted to if you give us some color on the rate base opportunity that <unk> represents and plans on getting regulatory recovery of that and I have one more follow up.
Okay, I'll, let Jason handle the <unk> question I think I'll take this out of the former part of your question I guess my view is that's what you pay a management team to do is to sort of take the challenges of.
Of supply chain challenges inflation had on so my view is every utility is experiencing that.
Most companies across the U S are experiencing net and it's coming at US every day believe me.
But I think that we have put a standard out there we're using our O&M, 1% to 2% on average every year and as Jason said, we believe we're going to continue to do that.
I'll, let Jason talk about that.
Yeah. Thanks, Anthony for the question.
Several hundred million dollars over the course of the 10 year plan.
Seek to recover that we started here as Dave mentioned in his prepared remarks in Texas. The recovery will follow our typical capital investment through the grips.
And then obviously the longer term.
Patients of the AA Ami program will be addressed in the.
Gas LDC rate case that we'll file late 2023. So it follows sort of a normal course of events here and we will follow a similar process as we rollout to the rest of our.
Service territory, what I would say and just sort of reinforcing confidence around our ability to continue to meet our O&M objectives. I think this is one of many programs that we highlighted whereas we.
Implement improvements to our system and our lower our O&M cost structure going forward just like we've highlighted the coal transition in Indiana.
I think these O&M.
Reductions from from capital.
The core sort of driver near term of our ability to meet our O&M targets and we continue to.
C.
Adoption of our continuous improvement program throughout.
Our service territory and are excited what that will yield over time as we mature in that area.
Great and just lastly, I get I guess, Dave following up on maybe next question earlier.
We've seen LDC valuations have recovered and are more in line with like electric utility valuations.
And it seems that right now investors are really focused on maybe energy security in the view of an LDC has kind of changed more favorably just I know you don't have any need for funds in our current five year. The 10 year plan, but does the recovery in LDC valuations change your view that you view them more as a source of funds or is it prepaid debit card.
I'll leave it there.
No I think as we've said I think nearly every quarter when we talked about this I do view them as <unk>.
That a prepaid debit cards I guess, that's become less the kind of the industry I guess, we've talked about it so much but my view is it really gives us optionality.
And I do like the fact that their valuations I think are being more accurately reflected in share prices today, but because they are an opportunistic asset for us I don't see any reason to accelerate the divestiture or any of those until we have an opportunity to.
Redeploy that capital back into our electric business. So we're just going to stay the course in that area for now as I said be opportunistic, but as we've said several times in our prepared remarks, we are looking for incremental capital opportunities and I'll trade off selling gas LDC is that a multiple of <unk>.
Base and invest in it at one time at one times rate base every day of the week, we just got to wait for those opportunities to develop and then we will make the decision.
Great solid quarter, thanks for taking my questions.
Thank you so much our next question from Shar <unk> from Guggenheim Partners. Your line is open.
Hey, good morning, guys, Hey, good morning.
Just as we're kind of looking broadly at sort of some of the supply chain issues and inflation and mainly obviously the tariff circumvention investigation going on with the Commerce Department, which could lead to some pricing uncertainty at least through 2003, and maybe beyond I guess, how do these sort of tail risks impact.
Youre thinking about the electric IRB process, especially as we're shifting focus to the upcoming 23.
Yes sure. Thanks for the question, obviously, it's front of mind.
I would say as we mentioned, we're not immune to what's going on in the market. However, we've got a great set of development partners that we're working with constructively to find a solution. We are seeing the price increases that you alluded to.
Sure.
But I think what's important to reinforce that.
Despite the price increases that we are currently seeing.
The path on the KOL transit transition is still substantially less.
And the cost of continuing to operate this coal facilities.
Current estimate given the age of this coal facilities wood.
It would be it would cost our customers in Indiana about $50 a month to continue to maintain and I think we'll come in despite cost increases at a cost of the coal transition of less than $10 a month.
So while we still see sort of short term pressure of this is still the best long term solution for our customers in Indiana and as we think about gearing up for the IRB, we will be going out with a broader.
Request for proposal here. This summer, we will be trying to get kind of the best and latest thinking on pricing technology costs that will factor into the integrated resource plan that we will file next year.
Address the third remaining coal facility and so more to come on this but we've got a great set of development partners that we're working with constructive way to find a solution here.
Got it and then just lastly, I know, obviously with the Texas energy legislation passed you've got resiliency now.
There is a lot of incremental opportunities I guess at what point can we start seeing.
Some of these opportunities kind of materially come into plan versus the small bumps we've been seeing recently.
Sure It is.
I'll take the small bumps every day.
The increase since since analyst day, almost six months or so ago, but that being said I do think by Q3. This year on the earnings call. We should have a better view of the longer term.
Term impact to our capital plans around resiliency not only in the city of Houston, but the surrounding communities.
And then the <unk>.
Pace of the updates around the industrial.
Demand, that's going to be dependent on those customers those industries, but I would likely want to be in a place where we can provide a holistic update to the five and 10 year Capex plan again around the Q3 timing related to that incremental demand as well.
I would just add maybe an editorial comment I know that we are certainties.
Date here for a couple of quarters, but I also think it's important for everyone to understand we are working with the city of Houston here, we're not going to front run the outcome both discussions are ongoing but.
But I think it's just in everyone's best interest to wait until the plan is finalized and we can announce it jointly and we will do so when the city are ready to do it.
Okay perfect. Okay, guys I appreciate it everything else. Thanks.
Thank you so much. Our next question is from Julien Dumoulin from Bank of America. Your line is open.
Hey, good morning team. Thanks for the time I appreciate it so just a follow up and clarify some of the earlier questions around deflation spending.
Spending.
Can you speak a little bit more about the.
The sort of normal course inflationary impacts on Capex budgets, just trying to get a sense, especially across the industry.
Extent is some of the pull forward and allocating this year driven in part by.
Normal course inflation and to what extent does that have sort of an expectation for cascading into your program or said differently is there sort of an assumption that there is some deflation in the back end of the year program or is it the entire program been inflated at this point.
Yes, Thanks Joanne for the question at this point the increase that we've been discussing are related to the this quarter's update is really a reflection of a pull forward of projects less around inflation.
This is discrete work that we had planned in $2023 four to 2022, and then plan the.
Incremental $100 million of the five years is really.
A component of that $1 billion of capital that we hold in reserve to make sure that we have the opportunity to fold and when we can efficiently execute and fund that works. So it really isn't a reflection of inflation now that being said clearer.
Clearly.
We are starting to feel the impacts of inflation.
I think our supply chain team has been working effectively with.
Our suppliers to find long term commitments around work volumes.
That can be of interest not only to their workforce, but.
Interest kind of our plans as well and so I think today, we're managing the impact of inflation, it's I wouldn't consider it a driver I consider a potential risk depending on how long we continue to face. This inflationary pressure, we're not making any assumptions around deflation today on the back end of the plan. We're really just trying to understand how long will be.
And this inflationary cycle and so again, it's really driven by work.
As opposed to inflation at this point.
Right and just to clarify that even to the extent to which that you look at your plan here is there potential further inflationary factor do you reassess.
It costs, you for electrical equipment here and gas equivalent.
Realistically there could be some inflationary impact and we're starting to monitor what that risk.
In terms of.
The cost increase could be but to date, we have not.
Seeing that they need to pull that into the plan yet so it'll be something we continue to monitor and happy to continue to provide updates.
In future quarters around it.
Excellent and just going back to the other Texas conversation on.
ERCOT Jeremy.
Obviously, it's been development in flight with the Q here on transmission any any thoughts or perspective, the add on that front specifically.
Moving past, the Houston, resiliency, and just focusing on an additional transmission integrity.
We can continue to be very excited about the opportunity there was clear coming out of the legislature last year that.
The state of Texas wanted to put a priority around incremental transmission lines, bringing more.
Pathways, if you will.
To provide electricity, we continue to work with the commission.
To see how we can accelerate the siting of new transmission projects.
We can execute on that work. So I would say it's early days, but that continues to be another area, where we may see incremental upside to.
To the plan and we continue to have excitement around.
Okay.
I appreciate it.
Thank you so much. Our next question is from Steve Fleishman from Wolfe Research. Your line is open.
Good morning, Thank you.
Good morning, Dave.
So just a question on the.
I guess, Indiana and the solar projects in ERP.
Theres other utilities in Indiana pretty much all of them are going through the same transition you are so I'm curious just overall political regulatory feedback.
On this.
On this kind of solar anti circumvention.
Do they get is do they have.
Sure.
Do they give you the sense that they understand.
The cost increases and just in the context of.
Obviously everything going on with energy inflation.
Yeah, Thanks, Steve for the question.
It's an ongoing dialogue with.
Commission staff.
You pointed out we're certainly not alone not only.
Other utilities in Indiana, but obviously until it is all over the country are facing.
Inflationary cost pressures as well as kind of impacts on timing of the projects and so I think the broader.
Set of issues around timing and costs are well known.
And I think that the commission is looking at us to work effectively with the developers to find a constructive solution for our customers for their developers and.
The execution of this work and so we'll continue to do so I think it's early days in those conversations but again there I think they are well attuned to kind of the pressures that we're all facing.
Great and then one one just another quick one.
I appreciate you highlighted the shift in the business mix more to electric I think 62% now.
Do you have any kind of target for that long term.
Where do you see that going.
I think Steve if you would if you sort of look at.
$40 billion in capital spend it's clearly biased towards electric so if we did not be now I think you would see that 62% creep up over the five and 10 year plan that we have clearly as we've indicated if we find a big slug of incremental capital.
<unk>.
Two.
To invest in that generally is going to be focused on the electric side.
We would have the commensurate sale of an LDC to fund that so we wouldn't have to issue equity that would push it even more dramatically in the direction of.
Higher bias toward electric, but I think inevitably over time, if we did not they know it's going to bias towards electric and as I said, if we if and when we find the larger slug of capital it'll push at that direction, even more aggressively so.
Instead of a perfect mix I don't think there is one out there.
But at the end of the day.
We will seek the level that makes sense for our investors and for our customers.
Great. Thank you.
Operator.
Top of the hour I think we have time for one more question.
Thank you Sir our last question is from <unk> Kim from Goldman Sachs. Your line is open.
Hey, Thank you for squeezing me in just the first question going back to the.
The capital plan and the increases there.
Talked a lot about the cost side.
<unk> front, but just in terms of labor.
<unk> ability are you not seeing any pressures in finding the labor too.
Dominate an increase in the Capex.
No I think if you remember back two or three calls ago I can't remember, which quarter was again, we highlighted the fact that we recognize that labor was going to be an issue.
Two to basically address the challenges of our capital plans that we actually moved pretty aggressively at that point in time to tie up crews that were sufficiently large enough for us to handle the capital spend plan that we have so at this point in time, we've got those those crews that are tied.
Up and sequence to come in and serve our needs as we do this capital build so certainly there is labor there is labor cost pressure, but the actual bodies I think we're in really good shape on that.
Got it that's good color.
The other question is just on the.
The Houston electric demand growth.
Customer growth is strong and I think weather may have helped this quarter as well, but still pretty impressive numbers, especially on the residential front just more color on what you've seen on the ground. There that's contributing to that versus some other parts of the country that has seen more normalization.
Yes, I think almost any economic indicators you look at I mean huge.
Houston is doing just great I saw a note. The other day that there were more housing starts in the city of Houston in the last two years that anywhere in the United States you look at the turmoil going on in Europe , and all of the size and the pivot toward needing set of more energy exports out of the U S to serve Europe .
And the whole set of LNG and petrochemical complex refinery complex that sits in our territory and in our backyard here in Houston and the number of conversations that are taking place about.
Either starting new facilities upgrading facilities they have here.
The continued industrial growth outside of the ship channel that's taking place in this area continued population growth you just sort of go right down the line.
And you really just got to come here and experience. It just get in your car and drive around Houston and this area you just the sort of the economic vitality is.
Not at all.
Of this study at this point in time.
That makes sense I definitely felt that at the analyst day, there last fall. So thanks for the color. Thanks, Dave Alright.
Alright. Thank you alright. Thank you everyone again for joining us for our 2022 first quarter earnings call and with that operator, I think we can all disconnect with that we'll conclude our call for today.
Thank you Steve recording for this call will be available on our website by 11, a M. Central time today until May 11. This concludes Centerpoint Energy's first quarter 2022 earnings conference call. Thank you for your participation.
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