Q3 2022 CenterPoint Energy Inc Earnings Call

November 1, 2022

[music].

Good morning, and welcome to Centerpoint Energy's third quarter 2022 earnings conference call with senior management.

During the company's 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. Please press star one one on your Touchtone keypad.

I will now turn the call over to Jacky, Rick Burke, Vice President of Investor Relations and Treasurer.

This bracket.

Good morning, everyone welcome to Centerpoint earnings Conference call, David <unk>, our CEO and Jason Wells, our CFO will discuss the company's third quarter 2022 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.

Forward looking statements are subject to risks or 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 statement.

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 the non-GAAP measures used in providing guidance. Please refer to the earnings news release and presentation, both of which can be found under the investors section on our website.

As a reminder, we 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 discussion over to Dave.

Thank you Jackie and good morning, and thank you to everyone joining us for our third quarter 2022 earnings call.

Before we get started today I want to congratulate Jason wells at this morning's announcement of its pending promotion to president and COO of Centerpoint energy.

Since joining our team a little over two years ago.

As demonstrated that he is the strategic vision.

Executive mindset.

Deep industry experience and operational knowledge to be a great leader.

Equally important he has the confidence and support of our organization, our board and our shareholders.

This promotion is a product of an ongoing and thoughtful succession planning process and executive development journey that has been a top priority of mine and our entire board.

The board and I have watched Jason grow as an executive over the last two years and believe now is the perfect time to expand his role within our organization.

And for those of you who are wondering hi, I'm not going anywhere I look forward to continuing to monitor and support Jason in his new role and to working side by side to execute on our strategy.

I know I speak for many of you when I say well done Jason.

As you have seen from the press releases, we issued this morning. This has been a very busy quarter at certain points in today's call may seem a bit like a mini analyst day update.

When I became the CEO of Centerpoint, nearly two and a half years ago. The company needed to quickly establish a strategic path forward to among other things realign our relationships with our regulators customers and investors.

We look to immediately set challenging but executable goals by which you could measure progress while collectively adopting a management mindset of over delivering on our commitments.

I want to highlight what that has looked like here at centerpoint over the last two and a half years.

So what we've achieved so far.

First we committed to achieving industry, leading non-GAAP EPS growth.

Now, including this quarter, we have met or exceeded that goal for 10 consecutive quarters.

In addition, we have over delivered on that growth by raising our non-GAAP EPS guidance five times during that two and a half year span and continue to reiterate that we will grow future earnings off of each new and higher base that we achieve.

Second we committed to becoming a pure play regulated utility that was not subjected to the earnings volatility of our now divested midstream investment.

And now more than 95% of our earnings are derived from regulated utility operations.

The approximately $1 3 billion of.

<unk> after tax midstream sale proceeds exceeded your expectations and allowed us to reinvest the money into our regulated utility businesses for the benefit of our customers.

Finally, we committed to funding our increased regulated utility investments without reliance on external equity issuances.

This led to the sale of our Arkansas, and Oklahoma Ldc's for which we obtained a landmark valuation and then recycle those cash proceeds efficiently back into our regulated businesses.

All for the benefit of our customers and investors.

Now, let's look at today, we earned 32 cents in the third quarter on a non-GAAP basis.

We are also reiterating full year 2022, non-GAAP EPS guidance.

<unk> 37 to $1 39 per share, which represents a 9% growth rate at the midpoint.

The comparable 2021, non-GAAP utility EPS of $1 27.

And as Jason will discuss we are also ahead of plan in terms of capital spend for 2022 in spite of supply chain pressures.

And we've deployed more capital than anticipated.

In addition, today, we are initiating our full year 2023, non-GAAP EPS guidance target range of $1 48 to $1 50.

At the midpoint. This represents an additional 8% growth over our previously raised 2022 non-GAAP EPS guidance.

Beyond 2023, we continue to expect 8% non-GAAP EPS growth for 2024.

And at the mid to high end of 6% to 8% annually thereafter through 2030.

I also want to point out.

That these earnings growth rate targets do not reflect any potential earnings from the $5 $3 billion in.

And incremental capital opportunities that we will discuss next.

Our track record of over delivering continues with today's announcement of what is now a third increase to our 2021 analyst day $40 billion 10 year capital plan.

We continue to anchor around this analyst day number to provide consistency clarity.

Clearly mark goalposts for our investors to follow.

Our new incremental capital opportunities are based on customer driven investments that were developed through our increased stakeholder engagement strategy.

Our strategy initially kicked off with the city of Houston on our collective resilient now initiative under the leadership of Mayor Sylvester Turner.

It has grown to include over 30 cities and some of our largest industrial customers.

With their collective input we have developed $5 $3 billion in additional capital opportunities related to increased systems, resiliency reliability and grid modernization as well as to facilitate eventual EV adoption.

Now there is a well known sane that demographics is destiny.

And then looking at its demographics the city of Houston is destined for great things as.

As the only investor owned utility headquartered in Texas, We are fortunate to serve customers in the city of Houston and its surrounding areas.

The Houston area is one of the fastest growing and most ethnically diverse areas in the nation, averaging more than 2% annual population growth over the last three decades.

We believe that this diversity only strengthens houston's future growth prospect, which benefits our customers and investors alike.

Though Houston today is well known as the energy capital of the world not as well known is that it's also home to one of the largest active ports in the nation and the Houston based Texas Medical Center, which is the largest medical center in the world.

For example, the port of Houston is the largest port in the U S by waterborne tonnage and it's also the U s's largest exporter with over $140 billion of goods shipped annually.

This is more than 35% greater than that of New York. The next largest U S shipping next border.

The Houston ship Channel's Petro Chem complex alone both 272 chemical plants.

Binaries and other industrial facilities, which generate about $800 billion a year in business annually.

Just this summer and additional $1 billion project was started to widen and deepen the channel to support our mens future growth.

In addition, the Port authority is now looking at electrifying its port operation.

This will also benefit our customers and communities, who live near the port by helping reduce submissions from idling cargo ships.

Turning to the Texas Medical center or TMC.

This complex was standing on its own would already be the eighth largest business district in the United States.

And just last month was announced at the TMC would nearly double its size in the next five to 10 years.

It is now anticipated that this doubling in size of the TMC will alone create over 100000, new jobs with.

With a greater focus on the biosciences and biomass factoring of critical medical products. The TMC should continue to attract diverse talent for years to come.

Today, it already sees roughly 8 million patients every year so much like the region. It continues to grow.

Lastly, and perhaps the purest illustration of Houston's incredible organic growth there are over 70000 births in the Houston area alone last year, that's a new baby born every seven minutes.

Houston's natural growth and positioning in the Gulf Coast provides a clear competitive advantage. We are also mindful of our exposure to severe weather.

Our Houston electric customers know what's at stake.

A day without power can equal a loss of up to one $4 billion of GDP.

This is one factor that drives that collective community desire for a more reliable and resilient energy supply.

This desire has led to customer driven investment opportunities that we will be folding into our 10 year capital plan through 2030.

For reasons to be discussed next at this time, we are now only incorporating $2 3 billion of.

This additional $5 3 billion in capital into the balance of our existing 10 year investment plan through 2030.

$1 billion of this is expected to be deployed by the end of 2025 and another one 3 billion to be deployed by the end of 2030.

All for the benefit of our customers.

And while we are not updating our analyst day non-GAAP EPS guidance targets previously discussed.

Appointment of this increased capital will clearly increase the potential future earnings power of the company.

The initial $2 3 billion in capital now being added to our investment plan.

Flex the subset of opportunities. We believe we can currently and confidently execute efficiently and is comprised of the following.

One 6 billion to $1 8 billion of this new capital will be dedicated toward our distribution system resiliency reliability and expanded grid modernization.

This also includes strategically underground in certain parts of our system.

Placing poles with higher wind resistant ones and elevating parts of the grid, especially substations to help protect such structures from the threat of flood damage.

We recognize our customers want more resiliency more quickly which is why we have already jumped ahead and began some of these projects in 2022 four.

For example, $300 million of the one six to $1 $8 billion related to this category of capital spend is expected to be completed by the end of this year.

$6 million to $800 million of this new capital will be focused on transmission upgrades.

As we've stated before our Houston Electric service territory comprises just two 5% of the geographic footprint of the state of Texas, but we consume nearly 25% of ERCOT peak summer load.

At the same time, our service territories need to import up to 60% of that load from generators outside our territory.

This requirement to import a significant portion of the energy that is consumed in the Houston area, each and every day creates a risk of disruption.

As this summer as illustrated when Houston endures sustained high temperatures statewide power generation can struggle to keep up with demand and the need for additional transmission lines to deliver a cheaper and more diverse power supply for our customers in the Houston area becomes.

Even more apparent.

On top of the $2 3 billion described above we have separately identified other capital investment opportunities of $3 billion, which.

Which we will opportunistically integrate into our long term capital plan. These.

These additional opportunities include even more grid modernization and system reliability investments.

As well as the increased investments for accelerated electrification in the Houston area, including Evs.

As a reminder, we conservatively estimate that each light duty EV brings.

Brings approximately $80 and margin to us per year.

The Houston area remains a laggard in the adoption with about 30000 Evs on its roads today.

None of the potential future earnings upside from additional EV penetration is reflected in our current earnings forecast.

Furthermore, the $3 billion in additional future capital spend I mentioned earlier does not fully include the potential impact of increased or accelerated EV adoption.

With nearly 5 million cars in the Houston area that is a lot of potential upside.

The remaining $3 billion of opportunities beyond the $2 3 billion that we've added to our investment plan through 2030 also provides capital upside and additional potential earnings power for us.

However, as is our management team's history, we are taking a prudent approach.

Not yet, adding it to our capital plan.

We will start to add these amounts incrementally to our planned capital spend once we are convinced we can access the labor.

Nail down the availability of the equipment and deploy it to the benefit of our customers.

In other words, we fully expect to include the $3 billion balance of the $5 $3 billion.

Of these other new capital opportunities on our plan when we believe we can operationally execute it efficiently fund it.

And prudently recover at.

This approach is no different than our recent history of folding incremental capital into our plan. Once we are convinced we can efficiently deploy it to benefit our customers.

The customer benefits of our revised capital plan are exciting and tangible.

Enhancing both reliability and resiliency, while also helping us to advance the restoration of service during outages.

To summarize this capital spend.

This will increase our current capital plan by $2 3 billion, which now totals nearly $43 billion through 2030.

As I stated today, we are only including $2 3 billion of investments in our updated capital plan, which we believe we have the crews and materials.

Can efficiently finance, while remaining focused on overall affordability at the same time customers are facing rising energy costs.

The remaining 3 billion will be folded in once it also meet that same criteria, which we believe will be achievable through prior securitization charges rolling off.

Our commitment to O&M discipline, and the continued organic growth in our Houston Electric service territory.

Alright.

This increased capital investment will also contribute to our ongoing efforts to reduce O&M over the longer term, which will help continue to keep customer bills affordable.

Included in our capital spend our grid modernization investments such as circuit re closers and other smart grid investments that will reduce the number of truck rolls to restore power, which should translate into lower O&M costs that directly benefit our customers.

The benefit of O&M savings as exemplified by the fact that every dollar saved of O&M roughly translates to $8 that can be invested capital for the benefit of customers.

This ability to reduce O&M.

Along with prior securitization charges coming off the Bill in 2022, and 2024 and continued organic growth creates a perfect opportunity to invest incremental capital for the benefit of our customers, while keeping customer charges affordable.

We believe our continued O&M discipline inorganically growing Houston customer base will also allow us to make these investments.

While customer charge increases stay below the average historical level of inflation of 2%.

This is in line with the increase to our charges that we've seen for Houston electric customers over the last 10 years, which averaged a little over 1% annually.

We also still expect to reduce our O&M by 1% to 2% per year on average over our 10 year plan.

And in case, you're wondering this updated capital plan still does not require us to issue any additional external equity no.

Nor does it rely on the use of strategic proceeds from the sale of any additional regulated centerpoint assets as our cash flow remains strong.

This is a nice combination in a great position to be in today.

Jason will walk you through our capital investment financing plan.

A few minutes.

Importantly, recovering our updated capital plan does not rely on any big bets as approximately 80% of the total plan can be recovered through interim regulatory mechanisms and again, Jason will go into more detail on the funding and financial details.

Of this in his section.

So in summary, before I turn the call over to Jason.

Our management team is committed to executing and what we believe is one of the most tangible growth stories in the industry, which is driven by the growth profile of our largest jurisdiction the Houston area.

Our customer driven investments are focused on meeting our customers desire for reliable and cleaner energy. So they can continue to contribute to one of the country's strongest and fastest growing economies.

We will look to deliver on those investments, while keeping customer charges affordable targeting charge increases at or below an average of 2% annually through 2030.

As we continue to engage with stakeholders, we believe additional customer driven opportunities can be identified and we look forward to furthering those customer discussions to help them achieve their own objectives.

We reiterate 2022, non-GAAP EPS guidance of $1 37 to $1 39, a 9% growth rate over 2021.

Initiating 2023, non-GAAP EPS guidance of $1 48 to $1 50 per share a further 8% growth.

After that we continue to target a further 8% growth through 2024 and at the mid to high end of 6% to 8% annually thereafter through 2030 and industry leading growth rate.

As a result of customer driven initiatives, we have identified $2 $3 billion of new capital and $3 billion of future capital.

Increased resiliency grid modernization as well as to facilitate expanded electrification that will drive additional potential earnings power.

We believe our continued focus on over delivering on our commitments has served our customers and investors well and.

We will continue into the future.

We are proud of our 10 consecutive quarters of execution and look to build on that streak, while also delivering above expectations for the benefit of both our customers and our investors.

Lastly, we remain focused on achieving our value proposition, which is striving for sustainable resilient and affordable rates for our customers.

Sustainable earnings growth for our shareholders 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 third quarter call.

And thank you Dave for those kind comments.

I sincerely appreciate your continued Mentorship and I also want to take a moment to thank the board for their continued support.

I am humbled and honored to work alongside this great team, we have here at Centerpoint and a different capacity starting next year and.

And I will remain committed to continuing to over deliver for all of our stakeholders as I approach this new rule.

Now I'll start by covering the financial results for the quarter as shown on slide five.

On a GAAP EPS basis, we reported <unk> 30 for the third quarter of 2022.

Similar to the second quarter, our GAAP EPS results include a portion of the tax on the gain on sale of our Arkansas, and Oklahoma gas <unk>, which we are required under GAAP to recognize over the course of the full year.

On a non-GAAP EPS basis, we reported 32 for the third quarter of 2022 compared to <unk> 25 for the same period in 2021.

Growth and rate recovery contributed five largely driven by continued organic customer growth and capital recovery mechanisms for Houston Electric which include a T cost and one month of DCF recovery.

Usage for this quarter was a favorable variance of <unk> <unk> when compared to the same quarter of 2021, largely driven by warmer weather than normal that we've been experiencing here in the greater Houston area.

Ongoing cost management was a benefit of <unk> for the quarter and we have been able to pull forward work for the benefit of our customers due to favorable weather through the second and third quarters of this year.

This included accelerating additional vegetation management work into 2022, which began in the second quarter.

We continue to expect to achieve our average annual 1% to 2% O&M reductions over the 10 year plan.

These favorable drivers were partially offset by higher interest expense of <unk> <unk> of which related to absorbing costs previously allocated to our midstream segment in 2021.

Other items contributing another <unk> <unk> of favorable variance over the comparable quarter. In 2021 included in these other drivers or miscellaneous revenues and the disallowance of the 2021 winter storm related extraordinary gas cost recovery by the Minnesota Public Utilities Commission.

As Dave mentioned, we are initiating non-GAAP EPS guidance of $1 48 to $1 50 for 2023, which represents 8% growth over the midpoint of our previously increased 2022, non-GAAP EPS guidance of $1 37 to $1 39.

We continue to target, 8% growth through 2024 and at the mid to high end of the 6% to 8% range annually thereafter through 2030.

Before I turn to the future capital updates I want to note that we are tracking nicely against our 2022 capital plan as seen on slide six.

Through the third quarter, we spent $3 2 billion, which represents nearly 70% of the updated current year $4 6 billion capital plan target.

Again. These figures include the incremental $300 million investment in grid hardening that Dave discussed.

Now shifting to the long term capital plan and its corresponding earnings growth.

As Dave already touched upon we are updating our capital investment plan to include an incremental $2 3 billion of customer driven capital, which now totals nearly 43 billion of capital to be deployed through 2030.

Because we can continue to update on our previously announced 10 year capital plan, which we are already two years into this is really increasing the remaining eight years by $2 3 billion.

Furthermore, we have an additional $3 billion of potential opportunities that we will continue to evaluate and determine the appropriate time to incorporate these in our capital plan.

You may notice on slide 17 of the appendix that the timing of our capital deployment has shifted somewhat from our last analyst day.

As I will discuss later the Posey solar project is now expected to be placed into service in 2024, rather than the end of 2023.

In light of the supply chain delays and in line with what we previously communicated this shift in our capital profile was not completely unexpected and does not change our view of our non-GAAP EPS guidance for 2023 or beyond because of the capital investment we announced we executed on earlier this year.

It is also important to reiterate the recovery of this incremental capital is not based on any big bets.

It is a series of small projects that we expect will be recovered through our routine and recurring interim capital recovery mechanisms.

The result of the incremental $2 3 billion customer driven capital investment will drive a rate base CAGR of over 95% through 2030.

We are not updating our longer term non-GAAP EPS growth guidance of 8% in 2024.

At the mid to high end of the six months to 8% range annually thereafter through 2030. Despite this increase in capital investment.

That is because it's very important to remember that we have a large number of rate cases in 2024 that will begin to set rates in 2025.

We will update our long term non-GAAP EPS growth estimates after those cases are resolved.

However, I want to reiterate this additional capital investment we are announcing today will undoubtedly provide incremental earnings power for the company.

Our goal continues to be delivering industry, leading growth each and every year, while over delivering for our customers and our shareholders.

On the matter of upcoming rate cases, we're taking measured steps to achieve constructive outcomes for all stakeholders.

For example, we have already funded Houston Electric's current capital structure with 45% equity. Despite the current approved capital structure being 42, 5%.

When looking at other non ERCOT, Texas utilities national averages and in fact, we have potential exposure to severe weather. We believe a 45% equity ratio is the minimum level that should be considered going forward.

We've not assumed the increase in our equity ratio and our long term EPS growth guidance, but we will work with our stakeholders to find a constructive resolution in our next rate case.

Now turning to the financing of our capital plan.

As Dave discussed the updated capital plan does not require external equity financing nor does it require the sale of any of our rate regulated utility assets.

The capital plan is expected to be funded through op co debt consistent with our regulatory capital structure and higher <unk> from potential changes in capital structure or the cash currently funding of 45% equity ratio at Houston Electric for which we only have approval for 42, 5%.

I also want to point out that we use some conservative cash estimates at our previous analyst day, specifically around cash taxes associated with the sales of energy transfer units and gas ldcs.

This provided an additional source of cash that we can use to help fund this incremental capital.

We believe we will be able to deliver on its increased capital plan, while still targeting long term <unk> to debt of 14% to 15%.

As of the end of the third quarter, our <unk> to debt was over 15% above our stated target aligning with Moody's methodology.

Shifting gears, there's been some concern amongst shareholders around the level of floating rate debt some utilities have.

To address this topic.

We intentionally entered 2022 with an elevated level of variable rate debt as we knew we were going to delever using the strategic proceeds from the sale of energy transfer units.

In the Arkansas, and Oklahoma gas <unk>.

We have paid down over $1 6 billion in floating rate debt. This year, resulting in a 35% reduction in floating rate debt since the beginning of 2022.

In addition, as of the end of the third quarter of 2022, we have reduced our parent level total debt by nine percentage points from the beginning of the year and projected to be around 20% by the end of the year.

With our continued focus on reducing parent level debt as a percentage of total debt and successful restructuring of the legacy Vectren legal entities next year, we will look to finance Siggi co at the Opco level, which should allow us to reduce parent level debt by another $640 million, resulting in a more normalized and efficient financing structure.

For both our customers and our investors.

One other item to note is we have the ability to file rate cases earlier than previously communicated and we'll likely take this approach research we.

<unk> <unk> filing a Texas rate case in mid 2023, which will allow us to update our revenue requirement for among other things increased interest costs.

Moving on to a broader regulatory update on slide nine.

In Minnesota, we felt the full recovery of the $409 million of extraordinary gas costs incurred during winter storm here.

While at the same time, we sought to minimize the impact on our customers by extending the recovery of that amount to five years.

In may the two administrative law judges that heard the evidence concluded that we acted prudently to procure gas to serve our customers during the extreme event.

Unfortunately in a split decision the Minnesota public Utilities Commission disallowed recovery of approximately $36 million of the total $409 million incurred or about eight 7% of the total.

Similar percentage disallowances were applied by the Minnesota PUC to other companies that had excess gas cost in the state.

As this case continues we will work towards an outcome that we believe is both fair for our customers and centerpoint alike.

We also have a couple of securitization that we continue to make progress towards completing.

In Texas, the securitization related to extraordinary gas cost incurred during winter storm Aerie continues to work its way through the regulatory process and we expect to receive the approximately $1 $1 billion of bond proceeds by the end of 2022.

In Indiana, we continue to work with stakeholders to finalize a first of its kind $360 million securitization of the brown coal facilities that will result in savings for Indiana electric customers.

We are expecting a decision by the end of this year and if the financing order is approved a bond issuance would occur sometime in the first quarter of 2023.

Aside from the extraordinary gas cost and securitization, we have a few other regulatory items I want to highlight.

We had a constructive outcome in our gas rate case in Minnesota, where we settled our rate case, which resulted in a revenue increase of approximately $48 5 million.

In addition, we filed for our second T cost recovery in Texas for approximately $38 million, which we anticipate to start recovering in November this year.

Moving to our integrated resource plan update.

We're focused on delivering on our Indiana generation transition to support our net zero goals and as I. Just discussed we are still on track to receive a securitization order by the end of 2022 and bond proceeds in Q1 of 2023.

Proposal County Solar asset was originally expected to be placed in service in the fourth quarter of 2023. The project is now anticipated to be placed in service in 2024 due to supply chain delays.

This delay the forecasted capital amount for 2023 on the electric side has been shifted to 2024, but as a reminder, we were able to begin recovery as soon as the plant is placed into service.

To enhance the disclosures around our progress of our energy transition. We have also published our first task force on climate related financial disclosures report, which we committed to at our 2021 analyst day.

As we continue to express we take our commitment to be good stewards of your investment very seriously and realize our obligation to optimize stakeholder value.

I will now turn the call back over to Dave.

Thank you, Jason and once again congratulations.

As you heard from US today, we have 10 straight quarters of meeting or exceeding expectations.

We are at pure play regulated utility.

With industry, leading incremental growth opportunities driven by our customer demands.

Thank you Dave operator, we're now ready to turn the call over to Q&A.

At this time, we will begin taking questions.

I wish to ask a question. Please press star one one when you touch tone keypad, the company's request that we when asking a question callers pick up their telephone handsets. Thank you.

Our first question comes from Anthony Codell with Matsuo. Your line is now open.

Great. Thanks, so much for taking my questions Congratulations Jason.

Good luck in her new position.

I guess your new team go shows.

Thanks Anthony.

David if I could the first question just some insight or color into the CFO search are you looking internally to the utilities sector externally just.

Whats the ideal candidate.

Capex question after that.

Okay. No I think this is going to be a really really attractive job for a CFO . So we're going to cast and that really really wide.

Essentially across the.

The whole public sphere in the U S and C C.

See what we can find but as I said I think it's going to be a great opportunity a great job and I expect that we're going to see some really good candidates.

Great and then on slide seven I just wanted to focus on.

$3 billion.

Incremental opportunities just if you can give us some like structure and timing of that is that something that could apply maybe linear throughout the forecast period is backend loaded.

Any color you can give on that $3 billion, where we should be fine.

Yes.

Yes, I think the way to think about this is look at the track record that we've developed as a management team I think we've got a pretty good job identifying sort of incremental capital opportunities finding a way to efficiently execute that find it and bring it.

And to our rate base at the right time, and this is really no different maybe its a little bit bigger than the ones. We've had in the past, but I think from a context standpoint.

Think back to our first analyst day. This is the fifth time that we've raised capital. If you go to our second analyst day. This is the third time that we raised capital. So I think we've got a pretty good track record of identifying and bringing this.

And to not only our execution and then rate base, but then earnings and as we said a couple of times and then hopefully Jason sort of walk you through the numbers our guidance targets do not include any of the earnings from that.

They are really important thing to focus on is that we still continue to believe that we will have industry leading growth.

As we as we.

Basically take on all the headwinds and the tailwind that are thrown at us in this business.

But I think the bottom line.

Bottomline is think industry leading growth.

Okay, if I could just squeeze one in for Jason Jason You talked about you pulled forward some O&M from 'twenty three to 'twenty, two and I think you mentioned, maybe some vegetation management.

To quantify how much O&M you pulled.

Forward to 'twenty two.

Anthony I would think about it as a couple of cents of pull forward work.

We incurred already.

We continue to look to optimize our plan in the fourth quarter and I think this is just.

An incredible luxury that we have to continue to do more work on the system for the benefit of our customers as well as kind of giving us additional flexibility as we enter two.

<unk> 23 from from an earnings standpoint, So we're happy to continue to execute it on it we've incurred about two cents of that and still have some to go in the fourth quarter.

Great. Thanks for taking my questions, David the show's need to weigh in I don't know if we can handle a very successful sports.

Mindset.

Yes.

We're hoping for the vast.

Please standby for our next question.

Our next question comes from Steve Fleishman with Wolfe Research. Your line is now open.

Yes.

Hey, good morning, good morning, Dave Congrats Jason.

So just.

The $2 3 billion of Capex, that's in the plan, but not kind of in the.

<unk>.

And the earnings power how should we.

I assume youre not going to spend that if youre not going to get it recovered. So it's just a matter of kind of.

Getting the <unk>.

Certainty on the visibility of recovery.

Get that into the kind of kind of earnings outlook just earnings power.

Thanks, Steve for the question and Thats right, we wouldn't spend it if we didn't have full confidence that we'll earn on it we continue to stress.

We've got great capital recovery mechanisms here across our jurisdictions. This is capital that our customers are asking for and so we have confidence that as we execute this work we will fold it into rate base in our earn on it.

Really the fact that we haven't.

Increase the long term EPS growth targets.

It's really a function of the point that I stressed in our prepared remarks, I mean, we are entering a period here in 2024, where we will have several major rate cases.

Can you sell electric Texas gas and electric among others.

And I think it's just prudent for us we've taken conservative assumptions as we approach those rate cases, but I think it's prudent for us to kind of get to the other side.

Thank the takeaway though is.

The capital, we're deploying will flow into rate base, we have confidence in that.

Undoubtedly enhances the long term earnings power of the company.

I think the other thing just to point out beyond the capital from the standpoint of our long term earnings power of the company I.

I want to reemphasize, what I shared in my prepared remarks, we've already pre funded a higher equity ratio at Houston electric as well and while we have not assumed that increase in the long term earnings.

Growth rates that we provided should we be successful in.

Achieving the higher equity ratio that presents yet another tailwind without a financing overhang and so I think we are just continuing to put ourselves in a position to.

Over deliver for our shareholders, our customers and continue to enhance what is an already industry leading growth rate.

Okay, Great that's helpful color.

When you talked about.

Kind of incremental Capex going back in the past.

There was also a discussion of potential asset sales.

Because that could potentially help fund it.

I think there's been more concern in the market just on asset sale values given.

Given just the financial market conditions higher rates could you just comment if anything has changed.

And the strategy on asset sales and why maybe that's not discussed as part of this.

Updated plant.

Sure Yes, thanks for the question Steve.

No change in our strategy our strategy is to.

Finance, our incremental capital as efficiently as possible. We're fortunate today as part of this capex up update.

To have.

Identified sources of funding that are more efficient then.

Incremental sales of <unk>.

Utility assets, we've had a handful of conservative assumptions around tax positions, which evolve resolve themselves favorably.

For the company.

As I said, we pre funded the equity ratio at Houston Electric we will either have higher <unk> coming out of that as a result of the higher equity ratio, we can pull back and use the cash to fund.

Capital directly and so I think we have.

<unk> not changed our.

Our approach to strategy, we just continue to find the most efficient sources.

Funding this incremental capital more broadly to your point, though.

We have not seen a softening in the private demand for utility assets as we've talked about extensively over the years.

With our previous communications, we still continue to receive a pretty extensive outreach and interest we just.

I'm not as I said needed to take that approach because we continue to find other sources that are more efficient to fund the capex that we've announced today.

Great very helpful. Thanks.

Please standby for our next question.

Our next question comes from Julien Dumoulin Smith with Bank of America.

Hey, Jason Congratulations and good morning to the team. Thank you guys for the time.

If I may of course, absolutely.

If I, maybe just picking up on Steve's question, there a little bit further here can you talk a little bit about when you get to a position to talk about that mid to high end of six to eight here.

As you describe it youre going to wait until the other side of these cases, which puts you perhaps in the later half of 24 to give that update on the 'twenty five onwards outlook and at the same time, if I can.

During the pendency, presumably have a CE case.

Presumably there might be additional lag given the lack of the tracker follow through how do you think about the step up in 'twenty five earnings call given the additional capex as well as the.

A related step up tied to earnings from the cases.

Given the trajectory of 8% and $24 six to 825.

Okay.

Thanks, Joanne for the question Theres a lot there let me let.

Let me try to sort of unpack that a handful of these items I wouldn't ascribe an exact time line to the to the update.

Sure.

On the long term long term growth rates of the company sort of post these rate cases, as you said we want to.

While our resolve those cases constructively and favorably for all stakeholders.

As we have certainty.

We will provide an update I think what I want to stress around this point, though is.

Would not spend this capital if we didn't assume and have a high degree of confidence that it would be included in rate base and so as you model as others model.

Would look at enhancing and increasing the long term earnings power of the company sort of post. This these rate cases.

I think as it relates to kind of navigating a handful of these timelines.

We have a fair degree of flexibility with respect to the capital trackers, just given the multiple jurisdictions.

Sections that we operate and we will not have access to the capital.

<unk> here in our Texas businesses, while we are in those rate cases.

That does present, a small amount of additional regulatory lag as we as we look to earn on those we have tried to get in front of that issue by accelerating additional capital here end of 'twenty three that we will file for recovery for sorry here in 'twenty two that will file for recovery in 'twenty, three and will be fully into the earnings power.

The company in 'twenty four we also have a fair degree of flexibility in Indiana electric, particularly with the generation transition.

That will coincide with the timing of these rate cases as you may recall, there as we bring on.

Our renewable projects onto lie online, we can begin earning with the month they become operational.

And so there is minimal if any regulatory lag with respect to the investments in Indiana electric and so we're sequencing.

These investments either having accelerated as I said this year or balancing some of the chunkier projects over the next couple of years to sort of seamlessly work through the rate cases that are on the horizon.

But the short of it is.

We wouldn't spend this capital if we didnt believe and have confidence we earn on it and so the.

The takeaway should be this enhances the long term earnings power of the company.

Got it indeed it does.

And if I may just going back to the here and now if you will thanks.

Thanks for the additional details on the reduced variable rate debt year to date, you mentioned accelerating rate cases, and offset you talked about timing of cost and accelerating some of those costs. What are the other mitigation opportunities at corporate or elsewhere, frankly to dampen the impact of these higher financing cost to maintain.

The EPS trajectory, which you obviously have but what other latitude and levers right there exists.

I would say Julian I think you hit on the cost side I think the big one that we talked about that people, sometimes forget about it as soon as we talked about it as our organic growth I mean, we are spreading.

As we reduced our O&M, where we're spreading a smaller amount of O&M across a larger rate base or a larger customer base year after year after year and that's just a luxury most other utilities don't have.

Gotcha, Indeed excellent well good luck and we will see you soon.

Congrats again.

Sure.

Please standby for our next question.

Our next question comes from Jeremy Tonet with J P. Morgan Your line is now open.

Hi, good morning.

Jeremy Good morning here.

Thanks for taking my question here and just wanted to be.

Build a little bit more I guess in Houston opportunity and what milestones are you looking for from Houston to incorporate more of this $3 billion potential.

Incremental capital and just trying to get a feel for timing possible possibilities here.

Yes, Thanks again for the question Jeremy.

A couple of points that I will stress that Dave.

Faded in his prepared comments.

We have had a history here now five times since our first analyst day three times since our second analyst day of.

Increasing our capex. So hopefully we've got the track record that as we identify this capital that's in the best interest of our customers. We look to efficiently folded in I wouldn't again put a timeline on it we're looking at it as kind of balance sheet, probably three factors confidence in the execution, we've been significantly increasing.

Our capex over the last couple of years, we want to make sure that we have access to the materials.

Crews and that we're putting away this capital effectively for our customers.

Yes.

We always are cognizant of where we are with respect to rate increases for our customers and so we try to balance that over the plan and then third and finally, we look to finance the incremental capital efficiently for the benefit of our shareholders.

Investors and so I wouldn't think about this as.

I'm not going to assign a specific timeline I wouldn't also look at this is.

Series, a big chunky projects. This is sort of additional routine spend that we will look to fold and when we have confidence on those three factors and hopefully weaver.

Trust that we have a track record of.

Doing so.

Yes, I would just like to add I think Jason did a great job.

Covering the strategic aspects of it coming in and hit on a really important point at the end there and I hope that with all of you. We've developed the confidence you have the confidence in us that we're always going to do the right thing at the right time.

What's best for our customer and what's best for our investors and I think you should think about this $3 billion and no other context, but that when we kind of identify it will execute it well get it into rate base and it will help our customers.

Operator.

Have time for one more call.

Please standby for our next question.

Our next question comes from <unk> Chopra with Evercore. Your line is now open.

Alright. Thank you. Thank you for taking my question Jason Congrats.

Thanks, Jeff.

Yeah, absolutely just one quick question and then I'll follow up with Jackie on the other one could you just give us what the pro forma variables that amount would be post securitization proceeds what the dollar amount and then.

As a percentage of your total debt. Please thank you.

So the one point.

Well the Texas.

Securitization, because we have two securitization spending the Texas gas.

Amortization, it's $1 $1 billion of <unk>.

Incremental debt that we will pay down.

And then we have the second securitization in Indiana, which is about another $360 million in proceeds that we expect kind of at the end of the third quarter.

That will leave us with about $1 billion of half of variable rate debt as we as we enter next year some of that as I said attributable to our Texas gas businesses that we will file a rate case for in the middle of next year.

It helps reduce.

Any potential long term earnings drag from the.

The higher level of interest cost that we'll see there.

Also $1 5 billion. Thanks, so much guys I appreciate the time.

Alright, operator, thank you so much for the time today, everyone for the call. This will conclude our call and we look forward to seeing everyone at EI.

This concludes Centerpoint Energy's third quarter earnings conference call. Thank you for your participation.

Thank you.

The conference.

Begin shortly.

As Johan during Q&A, you can dial one one.

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Yes.

Good morning, and welcome to Centerpoint Energy's third quarter 2022 earnings conference call with senior management during the company's.

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. Please press star one one on your Touchtone keypad I will now turn the call over to Jacky, Rick Burt Vice President of Investor Relations and Treasurer.

Ms Reckitt.

Good morning, everyone welcome to Centerpoint earnings Conference call, Dave <unk>, our CEO and Jason Wells, our CFO will discuss the Companys third quarter 2022 results.

Forward looking statements are subject to risks or 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 statement.

As a reminder, we 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 discussion over to Dave.

Thank you Jackie good morning, and thank you to everyone joining us for our third quarter 2022 earnings call.

Before we get started today I wanted to congratulate Jason wells on this morning's announcement of its pending promotion to president and COO of Centerpoint energy.

Since joining our team a little over two years ago. He has demonstrated that he is the strategic vision.

Decorative mindset.

Deep industry experience and operational knowledge to be a great leader.

Equally important he is the confidence and support of our organization, our board and our shareholders.

This promotion is a product of an ongoing and thoughtful succession planning process and executive development journey that has been a top priority of mine and our entire board.

The board and I have watched Jason grow as an executive over the last two years and believe now is the perfect time to expand his role within our organization.

And for those of you who are wondering hi, I'm not going anywhere.

Look forward to continuing to monitor and support Jason in his new role and to working side by side to execute on our strategy.

I know I speak for many of you when I say well done Jason.

As you have seen from the press releases, we issued this morning. This has been a very busy quarter etcetera point in today's call may seem a bit like a mini analyst day update.

To immediately set challenging, but executable goals by which you could measure progress while collectively adopting a management mindset of over delivering on our commitments.

I want to highlight what that has looked like here at centerpoint over the last two and a half years.

So what we've achieved so far.

First we committed to achieving industry, leading non-GAAP EPS growth.

Now, including this quarter, we have met or exceeded that goal for 10 consecutive quarters.

In addition, we have over delivered on that growth by raising our non-GAAP EPS guidance five times during that two and a half years span and continue to reiterate that we will grow future earnings.

Off of each new and higher base that we achieve.

Second we committed to becoming a pure play regulated utility that was not subjected to the earnings volatility of our now divested midstream investment.

And now more than 95% of our earnings are derived from regulated utility operations.

The approximately $1 3 billion.

Of after tax midstream sale proceeds exceeded your expectations and allowed us to reinvest the money into our regulated utility businesses for the benefit of our customers.

Finally, we committed to funding our increased regulated utility investments without reliance on external equity issuances.

This led to the sale of our Arkansas, and Oklahoma Ldc's for which we obtained a landmark valuation and then recycle those cash proceeds efficiently back into our regulated businesses.

All for the benefit of our customers and investors.

Now, let's look at it today, we earned <unk> 32 in the third quarter on a non-GAAP basis.

We are also reiterating full year 2022, non-GAAP EPS guidance.

<unk> 37 to $1 39 per share, which represents a 9% growth rate at the midpoint.

The comparable 2021, non-GAAP utility EPS of $1 27.

And as Jason will discuss we are also ahead of plan in terms of capital spend for 2022 in spite of supply chain pressures.

And we've deployed more capital than anticipated.

In addition, today, we are initiating our full year 2023, non-GAAP EPS guidance target range of $1 48 to $1 50.

At the midpoint. This represents an additional 8% growth over our previously raised 2022 non-GAAP EPS guidance.

Beyond 2023, we continue to expect 8% non-GAAP EPS growth for 2024.

And at the mid to high end of 6% to 8% annually thereafter through 2030.

I also want to point out.

These earnings growth rate targets do not reflect any potential earnings from the $5 $3 billion an increase.

<unk> capital opportunities that we will discuss next.

Our track record of over delivering continues with today's announcement of what.

It is now a third increase to our 2021 analyst day $40 billion 10 year capital plan.

We continue to anchor around this analyst day number to provide consistency clarity.

Clearly mark goalposts for our investors to follow.

Our new incremental capital opportunities are based on customer driven investments that were developed through our increased stakeholder engagement strategy.

Our strategy initially kicked off with the city of Houston on our collective resilient now initiative under the leadership of Mayor Sylvester Turner.

It has grown to include over 30 cities and some of our largest industrial customers.

With their collective input we have developed five $3 billion in.

<unk> capital opportunities related to increased systems, resiliency reliability and grid modernization as well as to facilitate eventual EV adoption.

Now there is a well known sane that demographics is destiny.

And then looking at its demographics the city of Houston is destined for great things as.

As the only investor owned utility headquartered in Texas, We are fortunate to serve customers in the city of Houston and its surrounding areas.

The Houston areas, one of the fastest growing and most ethnically diverse areas in the nation, averaging more than 2% annual population growth over the last three decades.

We believe that this diversity only strengthens houston's future growth prospect, which benefits our customers and investors alike.

For example, the port of Houston is the largest port in the U S by waterborne tonnage and it's also the U s's largest exporter with over a $140 billion of goods shipped annually.

This is more than 35% greater than that of New York. The next largest U S shipping next quarter.

The Houston ship channel Petro Chem complex alone both 272 chemical plants.

Binaries and other industrial facilities, which generate about $800 billion a year in business annually.

Just this summer and additional $1 billion project, which started to widen and deepen the channel to support our mens future growth.

In addition, the Port authority is now looking at electrifying its port operation.

This will also benefit our customers and communities, who live near the port by helping me do submissions from idling cargo ships.

Turning to the Texas Medical center or TMC.

This complex was standing on its own would already be the eighth largest business district in the United States.

And just last month was announced at the TMC would nearly double its size in the next five to 10 years.

It is now anticipated that this doubling in size of the TMC will alone create over 100000, new jobs with.

With a greater focus on the biosciences and biomass factoring of critical medical products. The TMC should continue to attract diverse talent for years to come.

Today, it already six roughly 8 million patients every year so much like the region. It continues to grow.

Lastly, and perhaps the purest illustration of Houston's incredible organic growth there are over 70000 births in the Houston area alone last year, that's a new baby born every seven minutes.

Houston's natural growth and positioning in the Gulf Coast provides a clear competitive advantage. We are also mindful of our exposure to severe weather.

Our Houston electric customers know what's at stake.

A day without power can equal a loss of up to one $4 billion of GDP.

This is one factor that drives that collective community desire for a more reliable and resilient energy supply.

This desire has led to customer driven investment opportunities that we will be folding into our 10 year capital plan through 2030.

For reasons to be discussed next at this time, we are now only incorporating $2 3 billion of.

This additional $5 3 billion in capital into the balance of our existing 10 year investment plan through 2030.

$1 billion of this is expected to be deployed by the end of 2025 and another $1 3 billion to be deployed by the end of 2030.

All for the benefit of our customers.

And while we are not updating our analyst day non-GAAP EPS guidance targets previously discussed.

Appointment of this increased capital will clearly increase the potential future earnings power of the company.

The initial $2 3 billion in capital now being added to our investment plan.

Flex the subset of opportunities. We believe we can currently and confidently execute efficiently.

And is comprised of the following.

One 6 billion to $1 8 billion of this new capital will be dedicated toward our distribution system resiliency reliability and expanded grid modernization.

This also includes strategically underground in certain parts of our system, replacing poles with higher wind resistant wines and elevating parts of the grid, especially substations to help protect such structures from the <unk>.

<unk> a flood damage.

We recognize our customers want more resiliency more quickly which is why we have already jumped ahead.

And began some of these projects in 2022.

For example, $300 million of the one six to $1 $8 billion related to this category of capital spend is expected to be completed by the end of this year.

$6 million to $800 million of this new capital will be focused on transmission upgrades.

As we've stated before our Houston Electric service territory comprises just two 5% of the geographic footprint of the state of Texas.

We consume nearly 25% of ERCOT peak summer load.

At the same time, our service territories need to import up to 60% of that load from generators outside our territory.

This requirement to import a significant portion of the energy that is consumed in the Houston area, each and every day creates a risk of disruption.

Is this summer as illustrated when Houston endures sustained high temperatures statewide power generation construct go to keep up with demand and the need for additional transmission lines to deliver a cheaper and more diverse power supply for our customers in the Houston area becomes.

Even more apparent.

On top of the $2 3 billion described above we have separately identified other capital investment opportunities of $3 billion.

Which we will opportunistically integrate into our long term capital plan. These.

These additional opportunities include even more grid modernization and system reliability investments.

As well as the increased investments for accelerated electrification in the Houston area.

Including Evs.

As a reminder, we conservatively estimate that each light duty EV brake.

Brings approximately $80 and margin to us per year.

The Houston area remains a laggard in the adoption with about 30000 Evs on its roads today.

None of the potential future earnings upside from additional EV penetration is reflected in our current earnings forecast.

Furthermore, the $3 billion in additional future capital spend I mentioned earlier does not fully include the potential impact of increased or accelerated EV adoption.

With nearly 5 million cars in the Houston area that is a lot of potential upside.

The remaining $3 billion of opportunities.

And the $2 3 billion that we've added to our investment plan through 2030 also provides capital upside and additional potential earnings power for us.

However, as is our management team's history, we are taking a prudent approach.

Not yet, adding it to our capital plan.

We will start to add these amounts incrementally to our planned capital spend once we are convinced we can access the labor.

Nail down the availability of the equipment and deploy it to the benefit of our customers.

In other words, we fully expect to include the $3 billion balance of the $5 3 billion.

These other new capital opportunities on our plan when we believe we can operationally execute it.

<unk> funded.

And prudently recover at.

This approach is no different than our recent history of folding incremental capital into our plan. Once we are convinced we can efficiently deploy it to benefit our customers the.

The customer benefits of our revised capital plan are exciting and tangible.

Enhancing both reliability and resiliency, while also helping us to advance the restoration of service during outages.

To summarize this capital spend.

This will increase our current capital plan by $2 3 billion.

Which now totals nearly $43 billion through 2030.

As I stated today, we are only including $2 3 billion of investments in our updated capital plan, which we believe we have the crews and materials can efficiently finance, while remaining focused on overall affordability at the same time customers are.

<unk> seen rising energy costs.

The remaining 3 billion will be folded in once it also meet that same criteria, which we believe will be achievable through prior securitization charges rolling off.

Our commitment to O&M discipline, and the continued organic growth in our Houston Electric service territory.

Alright.

This increased capital investment will also contribute to our ongoing efforts to reduce O&M over the longer term, which will help continue to keep customer bills affordable.

The benefit of O&M savings as exemplified by the fact that every dollar saved of O&M roughly translates to $8 that can be invested as capital for the benefit of customers.

This ability to reduce O&M.

We believe our continued O&M discipline inorganically growing Houston customer base will also allow us to make these investments.

While customer charge increases stay below the average historical level of inflation of 2%.

This is in line with the increase to our charges that we've seen for our Houston electric customers over the last 10 years, which averaged a little over 1% annually.

We also still expect to reduce our O&M by 1% to 2% per year on average over our 10 year plan.

And in case, you're wondering this updated capital plan still does not require us to issue any additional external equity.

Nor does it rely on the use of strategic proceeds from the sale of any additional regulated centerpoint assets as our cash flow remains strong.

This is a nice combination in a great position to be in today.

Jason will walk you through our capital investment financing plan in a few minutes.

Importantly, recovering our updated capital plan does not rely on any big bets.

As approximately 80% of the total plan can be recovered through interim regulatory mechanisms and.

Again, Jason will go into more detail on the funding and financial details.

This in his section.

So in summary, before I turn the call over to Jason Our management team is committed to executing on what we believe is one of the most tangible growth stories in the industry, which is driven by the growth profile of our largest jurisdiction the Houston area.

We will look to deliver on those investments, while keeping customer charges affordable tar.

Targeting charge increases at or below an average of 2% annually through 2030.

We reiterate 2022, non-GAAP EPS guidance of $1 37 to $1 39, a 9% growth rate over 2021, while initiating 2023, non-GAAP EPS guidance of $1 48 to $1 50 per share.

A further 8% growth.

After that we continue to target a further 8% growth through 2024 and at the mid to high end of 6% to 8% annually thereafter through 2030 and industry leading growth rate.

As a result of customer driven initiatives, we have identified $2 $3 billion of new capital and $3 billion of future capital to increase resiliency grid modernization as well as to facilitate expanded electrification that will drive additional <unk>.

<unk> power.

We believe our continued focus on over delivering on our commitments has served our customers and investors well and will continue into the future.

We are proud of our 10 consecutive quarters of execution and look to build on that streak, while also delivering above expectations for the benefit of both our customers and our investors.

Lastly, we remain focused on achieving our value proposition, which is striving for sustainable resilient and affordable rates for our customers.

Sustainable earnings growth for our shareholders 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 third quarter call.

And thank you Dave for those kind comments.

I sincerely appreciate your continued Mentorship and I also want to take a moment to thank the board for their continued support.

I am humbled and honored to work alongside this great team, we have here at Centerpoint and a different capacity starting next year.

And I will remain committed to continuing to over deliver for all of our stakeholders as I approach this new role.

Now I'll start by covering the financial results for the quarter as shown on slide five.

On a GAAP EPS basis, we reported <unk> 30 for the third quarter of 2022.

On a non-GAAP EPS basis, we reported 32 for the third quarter of 2022 compared to <unk> 25 for the same period in 2021.

Growth and rate recovery contributed five largely driven by continued organic customer growth and capital recovery mechanisms for Houston Electric which included T costs and one month of DCF recovery.

This included accelerating additional vegetation management work into 2022, which began in the second quarter. We continue to expect to achieve our average annual 1% to 2% O&M reductions over the 10 year plan.

These favorable drivers were partially offset by higher interest expense of <unk> <unk> of which related to absorbing costs previously allocated to our midstream segment in 2021.

Other items contributing another one a favorable variance over the comparable quarter in 2021.

Included in these other drivers or miscellaneous revenues and the disallowance of the 2021 winter storm related extraordinary gas cost recovery by the Minnesota Public Utilities Commission.

We continue to target, 8% growth through 2024 and at the mid to high end of the 6% to 8% range annually thereafter through 2030.

Before I turn to the future capital updates I want to note that we are tracking nicely against our 2022 capital plan as seen on slide six.

Through the third quarter, we spent $3 2 billion, which represents nearly 70% of the updated current year $4 6 billion capital plan target.

Again. These figures include the incremental $300 million investment in grid hardening that Dave discussed.

Now shifting to the long term capital plan and its corresponding earnings growth.

As Dave already touched upon we are updating our capital investment plan to include an incremental $2 3 billion of customer driven capital, which now totals nearly $43 billion of capital to be deployed through 2030.

Because we continue to update on our previously announced 10 year capital plan, which we are already two years into this is really increasing the remaining eight years by $2 3 billion.

Furthermore, we have an additional $3 billion of potential opportunities that we will continue to evaluate to determine the appropriate time to incorporate these in our capital plan.

You may notice on slide 17 of the appendix that the timing of our capital deployment has shifted somewhat from our last analyst day.

As I will discuss later the Posey solar project is now expected to be placed into service in 2024, rather than the end of 2023.

It is also important to reiterate the recovery of this incremental capital is not based on any big bets.

It is a series of small projects that we expect will be recovered through our routine and recurring interim capital recovery mechanisms.

The result of the incremental $2 3 billion customer driven capital investment will drive a rate base CAGR of over 95% through 2030.

We are not updating our longer term non-GAAP EPS growth guidance of 8% in 2024.

At the mid to high end of the 6% to 8% range annually thereafter through 2030. Despite this increase in capital investment.

That is because it is very important to remember that we have a large number of rate cases in 2024 that will begin to set rates in 2025.

We will update our long term non-GAAP EPS growth estimates after those cases are resolved.

However, I want to reiterate this additional capital investment we are announcing today will undoubtedly provide incremental earnings power for the company.

Our goal continues to be delivering industry, leading growth each and every year, while over delivering for our customers and our shareholders.

On the matter of upcoming rate cases, we are taking measured steps to achieve constructive outcomes for all stakeholders.

For example, we have already funded Houston Electric's current capital structure with 45% equity. Despite the current improved capital structure being 42, 5%.

We've not assumed the increase in our equity ratio and our long term EPS growth guidance, but we will work with our stakeholders to find a constructive resolution in our next rate case.

Now turning to the financing of our capital plan.

As Dave discussed the updated capital plan does not require external equity financing nor does it require the sale of any of our rate regulated utility assets.

I also want to point out that we use some conservative cash estimates.

At our previous analyst day, specifically around cash taxes associated with the sales of energy transfer units and gas ldcs.

This provided an additional source of cash that we can use to help fund this incremental capital.

We believe we will be able to deliver on its increased capital plan, while still targeting long term <unk> to debt of 14% to 15%.

As of the end of the third quarter, our <unk> to debt was over 15% above our stated target aligning with Moody's methodology.

Shifting gears, there's been some concern amongst shareholders around the level of floating rate debt some utilities have.

I want to address this topic.

We intentionally entered 2022 with an elevated level of variable rate debt as we knew we were going to delever using the strategic proceeds from the sale of energy transfer units and.

In the Arkansas, and Oklahoma gas <unk>.

We have paid down over $1 6 billion in floating rate debt. This year, resulting in a 35% reduction in floating rate debt since the beginning of 2022.

For both our customers and our investors.

One other item to note is we have the ability to file rate cases earlier than previously communicated and we'll likely take this approach research, we anticipate <unk> filing a Texas rate case in mid 2023, which will allow us to update our revenue requirement for among other things increased interest costs.

Moving onto a broader regulatory update on slide nine.

In Minnesota, we start the full recovery of the $409 million of extraordinary gas costs incurred during winter storm here.

While at the same time, we sought to minimize the impact on our customers by extending the recovery of that amount to five years.

In may the two administrative law judges that heard the evidence concluded that we acted prudently to procure gas to serve our customers during the extreme event.

Unfortunately in a split decision the Minnesota public Utilities Commission disallowed recovery of approximately $36 million of the total $409 million incurred or about eight 7% of the total similar percentage disallowances were applied by the Minnesota PUC to other companies that had excess gas cost.

In the state.

As this case continues we will work towards an outcome that we believe is both fair for our customers and centerpoint alike.

We also have a couple of Securitizations that we continue to make progress towards completing.

In Texas, the securitization related to extraordinary gas cost incurred during winter storm area continues to work its way through the regulatory process and we expect to receive the approximately $1 1 billion of bond proceeds by the end of 2022.

In Indiana, we continue to work with stakeholders to finalize a first of its kind $360 million securitization of the AAV Brown coal facilities that will result in savings for Indiana electric customers.

We are expecting a decision by the end of this year and if the financing order is approved a bond issuance would occur sometime in the first quarter of 2023.

Aside from the extraordinary gas cost and Securitizations, we have a few other regulatory items I want to highlight.

We had a constructive outcome in our gas rate case in Minnesota, where we settled a rate case, which resulted in a revenue increase of approximately $48 5 million.

In addition, we filed for our second T cost recovery in Texas for approximately $38 million, which we anticipate to start recovering in November this year.

Moving to our integrated resource plan update.

Her Posey County solar asset was originally expected to be placed in service in the fourth quarter of 2023. The project is now anticipated to be placed in service in 2024 due to supply chain delays.

Given this delay the forecasted capital amount for 2023 on the electric side has been shifted to 2024, but as a reminder, we are able to begin recovery as soon as the plant is placed into service.

As we continue to express we take our commitment to be good stewards of your investment very seriously and realize our obligation to optimize stakeholder value.

I'll now turn the call back over to Dave.

Thank you, Jason and once again congratulations.

As you heard from US today, we have 10 straight quarters of meeting or exceeding expectations. We are a pure play regulated utility.

With industry, leading incremental growth opportunities driven by our customer demands.

Thank you Dave operator, we're now ready to turn the call over to Q&A.

At this time, we will begin taking questions. If you wish to ask a question. Please press star one one on your touch tone keypad.

The company's request that we when asking a question callers pick up their telephone handsets. Thank you.

Our first question comes from Anthony <unk> with Mizuho. Your line is now open.

Great. Thanks, so much for taking my questions Congratulations Jayson.

And our new positioning.

I guess your new team go shows.

Thanks Anthony.

David If I guess the first question just some insight or color into the CFO search are you looking internally to the utility sector externally just.

Whats the ideal candidate.

Capex question after that.

Okay. No I think this is going to be a really really attractive job for a CFO . So we're going to cast and that really really wide.

Essentially across.

The whole public sphere in the U S and C C.

See what we can find but as I said I think it's going to be a great opportunity a great job and I expect that we're going to see some really good candidates.

Great and then.

On slide seven I, just tried to focus on.

$3 billion of.

Incremental opportunities just if you could give us some like structure and timing of that is that something that can apply maybe linear throughout the forecast period is backend loaded.

Any color you can give on that $3 billion.

Where we should be playing at all forecast.

Turning it into our rate base at the right time.

And this is really no different maybe its a little bit bigger than the ones. We've had in the past, but I think from a context standpoint, if you think back to our first analyst day. This is the fifth time that we've raised capital. If you go to our second analyst day. This is the third time that we raised capital so either.

We've got a pretty good track record of identifying and bringing this.

This into not only our execution and then rate base, but that in earnings and as we said a couple of times and hopefully Jason set of walk you through the numbers our guidance targets do not include any of the earnings from that but I think the really important thing to focus on.

We still continue to believe that we will have industry, leading growth as we as we basically take on all the headwinds and the tailwind that are thrown at us in this business.

But I think the bottom line.

The Bottomline is think industry leading growth.

Hey, if I could just squeeze one in for Jason Jason You talked about you pulled forward some O&M from 'twenty three to 'twenty. Two I think you mentioned, maybe some vegetation management.

But to quantify how much O&M you pulled.

Forward to 'twenty two.

Anthony I would think about it as a couple of cents.

Forward work.

That we've incurred already and we continue to look to optimize our plan in the fourth quarter and I think this is just.

An incredible luxury that we have to continue to do more work on the system for the benefit of our customers as well as kind of giving us additional flexibility as we enter two.

<unk> 23 from from an earnings standpoint, So we're happy to continue to execute it on it we've incurred about two cents of that and still have some to go in the fourth quarter.

Great. Thanks for taking my questions and David Distros needed to win I don't know if we can handle a very successful fairly split.

Mindset.

Yes.

We're hoping for the vast.

Please standby for our next question.

Our next question comes from Steve Fleishman with Wolfe Research. Your line is now open.

Hey, good morning, good morning, Dave Congrats Jason.

So just.

The $2 3 billion of Capex, that's in the plan, but not kind of in the.

And the earnings power how should we.

I assume youre not going to spend that if youre not going to get it recovered. So it's just a matter of kind of.

Getting the <unk>.

Certainty on the visibility of recovery.

I get that into the kind of kind of earnings outlook instead of just earnings power.

<unk>.

Thanks, Steve for the question and Thats right, we wouldn't spend it if we didn't have full confidence that we'll earn on it we continue to stress.

The fact that we haven't.

<unk> increased our long term EPS growth targets is really a function of the point that I addressed in our prepared remarks, and then we are entering a period here in 2024, where we will have several major rate cases.

Houston Electric, Texas gas and electric among others.

And I think it's just prudent for us we've taken conservative assumptions as we.

Purchase rate cases, but I think it's prudent for us to kind of get to the other side.

I think the takeaway though is.

The capital, we're deploying will flow into rate base, we have confidence in that.

Undoubtedly enhances.

<unk> enhances the long term earnings power of the company.

I think the other thing just to point out beyond the capital from from the standpoint of our long term earnings power of the company.

I want to reemphasize, what I shared in my prepared remarks, we've already pre funded a higher equity ratio at <unk>.

Houston electric as well and while we have not assumed that increase in the long term earnings.

Growth rates that we provided should we be successful.

In achieving that higher equity ratio that presents yet another tailwind without a financing overhang and so I think we are just continuing to put ourselves in a position to.

Over deliver for our shareholders, our customers and continue to enhance what is an already industry leading growth rate.

Okay, Great that's helpful color.

When you talked about.

Kind of incremental Capex going back in the past.

There was also a discussion of potential asset sales.

That could potentially help fund it and.

I think there's been more concern in the market just on asset sale values given.

Given just the financial market conditions higher rates could you just comment if anything has changed.

And the strategy on asset sales and why maybe that's not discussed as part of this.

Updated plant.

Sure Yes, thanks for the question Steve.

No change in our strategy our strategy is to.

Finance, our incremental capital as efficiently as possible. We're fortunate today as part of this capex up update.

To have.

Identified sources of funding that are more efficient than.

Incremental sales of <unk>.

Utility assets, we've had a handful of conservative assumptions around tax positions, which are all resolved themselves favorably.

For the company.

As I said, we pre funded the equity ratio at Houston Electric we will either have higher <unk> coming out of that as a result of the higher equity ratio, we can pull back and use the cash to fund.

Capital directly and so I think we have.

<unk> not changed our.

Our approach to strategy, we just continue to find the most efficient sources.

Funding this incremental capital more broadly to your point, though.

We have not seen a softening in the private demand for utility assets as we've talked about extensively over the years.

With our previous communications, we still continue to receive pretty extensive outreach and interest we just.

I'm not as I said needed to take that approach because we continue to find other sources that are more efficient to fund the capex that we've announced today.

Great very helpful. Thanks.

Please standby for our next question.

Our next question comes from Julien Dumoulin Smith with Bank of America.

Hey, Jason Congratulations and good morning to the team. Thank you guys for the time.

If I may of course, absolutely.

Maybe just picking up on Steve's question, there a little bit further here can you talk a little bit about when you get to a position to talk about that mid to high end of six to eight here.

During the pendency, presumably have a CE case.

Presumably there might be additional lag given the lack of the tracker follow through how do you think about the step up in 'twenty five earnings power given the additional capex as well as the <unk>.

A related step up tied to earnings from the cases.

Given the trajectory of 8% and $24 six to 825.

Okay.

Thanks, Joe for the question Theres a lot there let me let.

Let me try to sort of unpack that a handful of these items I wouldn't ascribe an exact time line to the to the update.

On the long term long term growth rates of the company sort of post these rate cases, as you said we want to.

But our resolve those cases constructively and favorably for all stakeholders.

As we have certainty.

We will provide an update I think what I want to stress around this point, though is.

Would not spend this capital if we didn't assume and have a high degree of confidence that it would be included in rate base and so as you model as others model.

Would look at enhancing and increasing the long term earnings power of the company sort of post. These these rate cases.

I think as it relates to kind of navigating a handful of these timelines.

We have a fair degree of flexibility with respect to the capital trackers, just given the multiple jurisdictions that we operate in.

We'll not have access to the capital trackers here in our Texas businesses, while we are in those rate cases.

So that does present, a small amount of additional regulatory lag as we as we look to earn on those we have tried to get in front of that issue by accelerating additional capital here end of 'twenty three that we will file for recovery for sorry here in 'twenty two that will file for recovery in 'twenty, three and will be fully into the earnings.

The company in 2004, we also have a fair degree of flexibility in Indiana electric, particularly with the generation transition.

That will coincide with the timing of these rate cases as you may recall, there as we bring our renewable projects onto lie online. We can begin earning the month they become operational and so there is minimal if any regulatory lag with respect to the investments in Indiana electric and so we're seeing.

<unk> seen.

These investments either having accelerated as I said this year or balancing some of the chunkier projects over the next couple of years to sort of seamlessly work through.

The rate cases that are on the horizon.

But the short of it is.

Again, we wouldn't spend this capital if we didnt believe and have confidence we earn on it and so.

Takeaway should be this enhances the long term earnings power of the company.

Got it indeed it does.

And if I may just going back to the here and now if you will.

The EPS trajectory, which you obviously have but what other latitude and levers might there exists.

As we reduced our O&M, where risk rather than a smaller amount of O&M across a larger rate base or a larger customer.

Or base year after year after year and that's just a luxury most other utilities don't have.

Got you indeed excellent well good luck and we'll see you soon.

Congrats guys. Thanks.

Sure.

Please standby for our next question.

Our next question comes from Jeremy Tonet with J P. Morgan Your line is now open.

Hi, good morning.

Jeremy Good morning, Karen.

Thanks for taking my question here and just wanted to.

Build a little bit more I guess in Houston opportunity and what milestones are you looking for from Houston to incorporate more of this $3 billion potential incremental capital and just trying to get a feel for timing possible possibilities here.

Thanks again for the question Jeremy.

A couple of points that I will stress that Dave.

Made in his prepared comments.

We have had a history here now five times since our first analyst day three times since our second analyst day of.

Increasing our capex. So hopefully we built the track record that as we identify this capital that's in the best interest of our customers. We look to efficiently folded in I would again put a timeline on it what we're looking at it as kind of balance sheet, probably three factors.

And the execution, we've been significantly increasing our capex over the last couple of years, we want to make sure that we have access to the materials the crews and that we're putting away this capital effectively for our customers.

Yes.

And investors and so I wouldn't think about this as.

I'm not going to assign a specific timeline I wouldn't also look at this is.

A series of Big Chunky projects. This is sort of additional routine spend that we will look to fold and when we have confidence on those three factors and hopefully weaver.

Trust that we have a track record of.

Doing so.

I would just like to add I think Jason did a great job of.

What's best for our customer and what's best for our investors and I think you should think about this $3 billion and no other context than that when we kind of identify it will execute it well get it into rate base and it will help our customers.

Operator.

Have time for one more call.

Please standby for our next question.

Okay.

Our next question comes from <unk> Chopra with Evercore. Your line is now open.

Thank you. Thank you for taking my question Jason Congrats.

Thanks.

Just yes, absolutely just one quick question and then I'll follow up with Jack you're on the other one could you just give us what the pro forma.

Cable that amount would be post securitization proceeds what the dollar amount and then as a percentage of your total debt. Please thank you.

Yes.

So the one point.

Well the Texas.

Securitization, because we have two securitization spending the Texas gas.

<unk>, it's $1 $1 billion of <unk>.

Incremental debt that we will pay down.

And then we have the second securitization in Indiana, which is about another $360 million in proceeds that we expect kind of at the end of the third quarter.

<unk> helps reduce.

Any potential long term earnings drag from the.

The higher level of interest cost that we'll see there.

Sure.

Also $1 5 billion. Thanks, so much guys I appreciate the time.

Alright, operator, thank you so much for the time today, everyone for the call. This will conclude our call and we look forward to seeing everyone at EI.

This concludes Centerpoint Energy's third quarter earnings conference call. Thank you for your participation.

Thank you.

Q3 2022 CenterPoint Energy Inc Earnings Call

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