Q2 2023 CenterPoint Energy Inc Earnings Call
Okay.
Good morning, and welcome to Centerpoint Energy's second quarter 2023 earnings conference call with senior management.
During the Companys prepared remarks, all participants will be in a listen only mode.
There will be a question and answer session after managements remarks, Josh.
So I have a question. Please press star one wondering you touched on keypad.
I will now turn the call over to Jacky record Vice President of corporate planning Investor Relations and Treasurer. This is Richard.
Yeah.
Welcome to Centerpoint earnings Conference call management will discuss certain topics that will contain projections and other forward looking information and statements that are based on management's beliefs assumptions and information currently available to management. These.
These forward looking statements are subject to risks or uncertainties.
Our results could differ materially based on various factors as noted in our Form 10-Q.
Our 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.
When providing guidance we use the non-GAAP EPS measure of diluted adjusted earnings per share on a consolidated basis referred to as non-GAAP EPS.
For information on our guidance methodology and reconciliation of the non-GAAP measures used in providing guidance. Please refer to our earnings news release and presentation on our website, 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 it over to Dave.
Good morning, and thank you to everyone joining us for our second quarter 2023 earnings call.
I'm excited to announce that this is our 13th consecutive quarter of meeting or exceeding expectations. Additionally.
Additionally, I am pleased to be joined on today's call by Chris Foster the newest member of our management team.
Chris has hit the ground Ronnie I know most of you already knew what a high quality executive he is and I've had the opportunity to catch up with him. We are happy to have him officially on board.
Since we have three speakers today instead of our usual too I will limit my time to providing the main headlines for the quarter and let Jason and Chris tell the story.
Headline one another great quarter is in the books at Centerpoint is our entire team of nearly 9000 employees continues to execute well on all fronts.
Headline to overcoming headwinds reaffirming 2023 guidance.
We announced second quarter non-GAAP EPS of 28 cents per share overcoming the eight cents per share headwinds from higher interest expense alone.
Other headwinds came from inflationary pressures and generally milder weather throughout our service territories this quarter.
Despite these headwinds we are reaffirming our 2023 non-GAAP EPS guidance target range of $1 48 to $1 50 per share.
This represents an 8% growth over last year's actual amount.
This follows non-GAAP EPS earnings growth of 9% in both 2021 and.
2022.
Headline three reaffirming industry, leading long term growth for 'twenty 'twenty four and beyond.
We continue to target, 8% non-GAAP EPS growth in 2024 in the mid to high end of 6% to 8% annually thereafter through 2030.
Headline for.
2023 capital deployment is on track.
We successfully deployed $1 $2 billion of capital during the quarter, bringing our year to date total to approximately $2.3 billion. This is ahead of our anticipated plans for the year.
Headline five increasing our 2023 capital spend by over 11%.
Let me walk you through the new capital plan.
Our prior 10 year capital plan was $43 billion with an incremental $3 billion of additional capital spend identified but not yet included in our formal plan to.
Today, we are increasing our 2023 capital plan from $3 6 billion to $4 billion, an increase of over 11%.
We are now confident we can efficiently fund execute and recovery. This 400 million dollar increase without any external equity issuance.
With this our formal capital plan through 2030 goal is from 43 billion to $43 4 billion.
As for the remaining $2 6 billion of capital identified but not yet included in our 43.4 billion. We are now confident in our ability to identify opportunities well beyond this amount.
As we have stated in the past we will continue to add these incremental amounts to our capital plan. When we are confident we can efficiently fund.
Execution and recover them.
As we always do we will continue to identify and execute on constructive opportunities for all of our stakeholders.
So to be clear this is additional capital spending for 2023, not pulling future capital spending forward.
These additional capital investments will support safety and resiliency for the benefit of customers in our Houston electric business, while balancing the impact on their bills.
Headline six.
O&M planned reductions remain on target.
We continue on a path to reducing O&M costs by 1% to 2% per year on average over the current 10 year plan.
Headline seven positive legislation outcomes from across our territories.
There were a number of recent legislative outcomes in Texas, and Indiana that should benefit our utility customers for years to come.
To name just a few from Texas, we now have the ability to file for two D. C. R. F per year, the ability to recover a prudent incentive compensation and the ability to file a comprehensive resiliency focused investment plan.
Headline eight Houston growth continues.
People and companies continue to flock to Houston, partly because of its affordable and reliable energy.
In 2022 the Houston area was the second fastest growing metro area in the U S and amazingly in 2022 over one third of Houston's region population growth was from residents moving to Houston from outside the United States.
Headline nine targeting Houston electric customer charges at or below the 2% historical rate of inflation.
While continuing to heavily invest in the fundamentals of safety resiliency and reliability, we will be aiming to keep Houston electric customer charge increases at or below the 2% historical level of inflation over the longer term.
This is a unique luxury among utilities.
Headline 10, we plan to be out of operating coal generation by the end of 'twenty 'twenty seven.
Using renewables and lower carbon power generation should provide a more affordable alternative for our customers.
I want to thank our incredibly dedicated employees in both Houston, and southwestern Indiana, who work tirelessly to repair our system. There was struck by a series of major storms earlier this month.
Also I want to take a moment to thank the Texas, and Indiana legislatures, and all stakeholders that supported our constructive legislative outcomes.
We are grateful that the resiliency and reliability of the grid continues to be a top priority for all of our stakeholders.
In summary, even in the midst of the economic and operational headwinds of higher interest rates.
Inflationary pressures and unusual weather, we continue to deliver for both our customers and investors.
The second quarter of 2023 is just another example of our continued commitment to executing on what we believe is the most tangible long term growth plan in the industry.
I'll now, let Jason and Chris take it from here.
Thank you, Dave and thank you to all of you for joining US this morning for our second quarter call.
Before I get into my updates for the quarter I want to Echo Dave's gratitude to all of our employees who was stood this extreme weather to quickly restore service in a greater Houston in southwest, Indiana communities I Couldnt be prouder of our team's response and commitment to the communities we have the privilege to serve.
Looking at the Legislative summary on slide five.
We are grateful for the customer focused outcomes, resulting from these recent legislative sessions.
We understand our state legislators have numerous issues to consider and we are appreciative of the time that was spent on providing the electric and gas utility industries with additional tools to better serve our customers.
In Texas, one of the top stated goals of the latest legislative session was to improve electric grid reliability and we certainly believe we made good progress on that front with the enactment of a number of bills. There are three that I want to highlight in particular.
First Texas transmission and distribution utilities now have the ability to file a resiliency plan for transmission and distribution related cost recovery.
This comprehensive electric resiliency plan will allow the TD used to work with the public utility Commission of Texas to outline a multiyear investment plan to broadly harden, our electric grid to better address the impacts of extreme weather.
Additionally, distribution investments under these new plants will be eligible for the deferral of certain carrying costs, such as depreciation and interest expense, helping minimize the regulatory lag in recovery.
This bill is a great illustration of how our legislators and other stakeholders desire for increased grid resiliency in light of the recent demands on the electric grid and providing the TD used to do so.
Second we now have the ability to file for recovery of distribution related capital investments twice per year under the distribution capital recovery trackers or DCF mechanism.
This change now provides parity with a recovery of transmission investments, where we already are able to make two filings a year.
The ability to file to D. C. Our after year will not only help to reduce regulatory lag on the recovery of our distribution investments, but will also help keep incremental below increases smaller and smoother for our customers.
Lastly, we will now be able to recover certain incentive compensation for the employees that serve our customers and the Houston Electric service territory.
It will help us continue to attract top talent to better serve our customers.
These bills as well as other related bills that were enacted or an overwhelmingly positive outcome for customers and for Centerpoint and I want to also express appreciation to all stakeholders involved in achieving this.
We will continue to work with stakeholders to achieve customer focused outcomes, while advancing the resiliency reliability and safety of the grid that helps power the economic success of the greater Houston area.
Outside of Texas, I want to thank the Indiana legislature for its time and attention and providing Indiana utilities for more opportunities to advocate for their customers. One such piece of legislation that I want to highlight in this regard is one that allows the utility the right of first refusal to building transmission lines that connect to a respective utility system.
We believe this allows the utility to operate in the best interest of its customers.
When for those that we serve and southwestern Indiana.
In addition to a busy legislative calendar, we had a number of regulatory updates as shown on slide six.
Starting with Minnesota gas, we filed for the approval of twenty-five proposed projects under the natural gas Innovation Act or N. G. I E with an estimated cost of a little over $100 million for the first five years of those projects.
These projects include things like renewable natural gas and green hydrogen as well as pioneering technologies such as a networked geothermal district energy system and end use carbon capture.
These proposed projects are designed with the goal of helping to advance a cleaner energy future in Minnesota.
We continue to be appreciative of the constructive environment in Minnesota, which allows us the opportunity to invest in projects that assist our customers to achieve their emission reduction targets.
Now moving to Indiana Electric we continue to make good progress related to our 2020 integrated resource plan or IOP.
During the quarter, we received several approvals from the Indiana utility regulatory commission, including approval for our 200 megawatt wind project and the re approval of three of our solar projects.
Additionally earlier this month the gas pipeline that will serve the new gas plant, which was approved last year was fully authorized to proceed by the FERC.
Related to our 2020 I ERP, we now have received approval and in many instances reapproval for nearly all of the filings.
These filings constitute over one gigawatt of renewable generation that we anticipate placing in service or began contracting within the next few years and a 460 megawatt gas G. T, which is expected to provide an additional generation source on days when the wind might not be blowing and the sun might've been shining.
We also issued securitization bonds of approximately $340 million related to the retirement of the a b brown coal facility.
This was a very constructive transaction for our customers and has already started providing customer benefits in the form of a credit on their bills.
With many of the individual projects related to our 2020 IOP underway. We can now turn our attention to the 2023 IOP we submitted in the second quarter.
This IRB addresses our proposed retirement of our third and final call facility and places us firmly on a path to fully exiting coal generation. We operate by the end of 2027, while offering our customers a cleaner more reliable balanced portfolio of solar wind and gas generation at a cost that is expected to be subs.
<unk> less than maintaining our existing coal generation fleet.
This new filing proposes converting our last coal plant to gas as well as adding 200 megawatts of wind and 200 megawatts of solar by 2030.
In its entirety. This ERP is anticipated to save customers nearly $80 million compared to continue use of coal over the next 20 years.
This filing is the culmination of months of hard work and collaboration throughout our organization to arrive at what we believe is a thoughtful and customer centric approach to the generation transition and southwest Indiana.
Moving onto the regulatory calendar shown on slide seven.
As many of you know we have a number of rate case filings on the horizon.
I want to provide a brief update regarding the timing of those filings.
Beginning with Texas gas, we have slightly changed the expected timing of our filing.
Previously we had communicated that we would file this summer. However, we will delay this filing for a few months likely filing in November of this year.
Christmas.
Later this year, we completed a review focused on finding continuous improvement opportunities and our lead management activities.
This review resulted in identifying several million dollars and opportunities that will benefit customers in the future by reducing bill increases, but also freeing up crews to get the service calls faster.
It is examples like this that continue to reinforce our confidence in delivering one to two per cent annual average O&M reductions despite inflationary headwinds.
There was my updates for the quarter I remain excited about our continued execution for the benefit of our customers and our investors.
We continue to focus on making customer focused investments and working with stakeholders to support legislative and regulatory outcomes that benefit customers throughout our various service territory.
Now with that I'll turn it over to Chris for the financial updates.
Thanks, Jason and thanks to all of you for joining our 2023 second quarter call and my first earnings call. It CFO This great company.
Although I only recently joined the Centerpoint team I can certainly say that I've enjoyed meeting more of my coworkers digging into the longterm plan and representing the company to the Investor community. While also getting my family settled here with me as a new set of Houston residents.
I'm really pleased to see the recent outcomes. The team has achieved knowing we still have a number of long term opportunities. There is still very much in front of us.
Today I'll cover three areas of focus first our earnings progress than a financing update including our energy systems group transaction and further reduction in floating rate that and finally as Dave introduced a positive revision to our capital plan.
Now, let's start with a financial results on slide eight.
As mentioned, we are reaffirming our full year 20, twenty-three guidance range of $1.48 to $1.50 of non-GAAP earnings per share.
Which reflects 8% growth over full year 2022, non <unk> B P. S. A $1.38 when using the mid point.
On a gap E. P. S basis, we reported 17 cents for the second quarter of 2023.
Or non Gotta P. B S results for the first quarter remove the results of our now divested nonregulated business energy systems group.
On a non-GAAP basis, we reported 28 cents for the second quarter of 2023 compared to 31 cents in the second quarter of 2022.
Combined with the first quarter, we have now achieved 52 per cent of our full your guidance at the midpoint.
Growth in right recovery contributed seven cents largely driven by continued recovery through our electric D. C. R. F capital tracker filed last year, and our electric transmission tracker or T costs, and or Houston Electric territory, which went into rates last November .
In addition, we continue to see strong organic growth in Houston area, extending the longterm trend of 1% to 2% average annual growth.
Oh and M was flat for the second quarter and two cents favorable year to date when compared to the first half of 22 as we continue to find ways to operate more efficiently to target O&M reduction by one to two per cent per year on average while remaining focused on meeting our customers needs.
These favorable drivers were offset by an eight cent increase in interest expense.
The continued rising interest rate expense on short term borrowings was the primary driver for this unfavorability when compared to the second quarter of last year.
However, we continue to make progress in reducing our short term floating rate that exposure, which I will discuss in more detail shortly.
We believe our plan has sufficient conservatism built in to help us overcome these ongoing pressures.
Whether in usage or two cents unfavourable when compared to the same quarter of 2022 <unk>.
Primarily driven by a combination of sustained record breaking temperatures during Q2 of 2022, when compared year over year to the milder April and May weather in both our Houston and Indiana Electric territory's this year. However.
However, this trend did change in Houston in mid June .
Next to cover some financing credit related topics on slide nine.
As of the end of the second quarter aligning with Moody's methodology R. F. A photo that was 13.9 per cent as reported.
We remain focus on the balance sheet as we target 14 to 15 per cent through 2030 <unk>.
Essentially we are targeting around 150 basis points, a cushion from our downgrade threshold of 13 per cent and.
And we will continue to explore opportunities to strengthen the balance sheet and this rising rate environment.
Another area in which we'd been executing well isn't the reduction of our exposure to floating right up.
In the first quarter, we reduced floating right dead by nearly $2 billion through the receipt of winter storm eerie proceeds and refinancing floating rate that to fixed term issuances at the operating companies.
We carry this momentum into the second quarter as we reduce floating rate that by an additional $200 million to approximately 14% of total debt outstanding.
That's nearly a 50% year to date reduction relative to where we ended 2022.
The primary drivers of this reduction where the receipt of the approximately 340 million and securitization proceeds related to the retirement of Avi Brown.
The proceeds of the previously mentioned energy systems group.
Along with a collection of elevated gas costs incurred in the latter part of 2022.
As a reminder, we are carrying approximately $400 million of debt at the parent which was issued to fund our higher equity later at Houston Electric and Texas gas as we head into rate cases and.
And as we get to the other side of the rate cases, we will either begin recovering at this higher equity content or delever.
From the moment I arrived here it Centerpoint one of my primary areas of focus as we work through our industry leading growth plan is maintaining the strength of the balance sheet.
Especially in the current interest rate environment.
I look forward to working with a team here not only to execute one of the most tangible longterm growth plans in the industry, but also maintaining a strong balance sheet.
Coming back to the divestiture of energy systems group.
We'd have acid one of our few remaining nonregulated businesses energy systems group or E. S G and close the transaction within Q too.
E S E as in energy services business that implements efficiency solutions through infrastructure and other solutions.
It was acquired in the veteran acquisition in 2019 and was part of its nonregulated portfolio.
However, as we've sharpened our focus on a regulated utility businesses. It made sense to find a more natural owner for this business.
As a result of this divestiture today nonregulated businesses account for less than five per cent of our earnings.
We are grateful to the employees for their tremendous work and believe they'll have for the success under their new owners.
We received after tax proceeds of $121 million from the sale of the S. G <unk>.
The combination of these proceeds as well as those received from the Indiana securitization will help to reduce near term floating rate that exposure.
As well as provide incremental financing flexibility to help fund our capital plan, including the additional 400 million dollar capital investments, we anticipate making this year.
Let me now focus a bit on our capex enhancements on slide 10.
For the benefit of our customers and communities, we invested $1.2 billion this quarter and $2.3 billion a year to date across our various service territories.
This represents 64% of our beginning of the year target of $3.6 billion for 2023.
We are updating our 2023 capital target from 3.6 billion to $4 billion.
This results in an increase to $43.4 billion for a 10 year capital plan target the go through 2030.
This capital increase as a result of having greater visibility operationally to resource additional work and improvements to financing and recoveries.
As it relates to the remainder of the balance of the $2.6 billion in incremental capital opportunities that we have not yet incorporated into the plan as Dave said, we're now confident in our ability to identify opportunities well beyond this amount.
We have communicated that we will include incremental amounts when we can operationally execute efficiently fund and efficiently recover.
We have also stated that the previous 43 billion dollar capital plan, we set four through 2030 does not require external equity funding.
The remainder of the incremental amounts beyond today's increase will require some additional financing that is not currently contemplated or reflected in our plan.
As we continue to evaluate when to fold and the remaining $2.6 billion and beyond we will also target the optimal way to finance such investments.
Our focus on delivering work affordably has not changed and we will seek to continue to prudently deployed this capital while being mindful of customer charges.
We continue to target our customer charges that Houston electric to be equal to or less than the historical inflation rate of two per cent.
We believe we are able to achieve this through houston's tremendous organic growth securitization charges rolling off the Bill later next year and our plan to reduce O&M one to two per cent per year on average.
I'd like to reiterate the earlier point that while these incremental investments undoubtedly added the earnings power of the company. This management team will continue to be conservative as it relates to updates to earnings guidance.
We are focused on delivering industry, leading sustainable earnings growth year over year through 2030.
As stated looking beyond 2023 and from the reaffirm 20 twenty-three non-GAAP EPS guidance of $1.48 to $1.50. We continue to expect to grow non-GAAP E. P. S. 8% in 2024, and the mid to high end of 6% to 8% annually thereafter through 2030.
Those are my updates for the quarter.
And before turning it back over to Dave I Wanna say again, how excited I am sitting at my new seat here et cetera point <unk>.
I felt so welcomed by the excellent management team here I.
I believe that even with some of the headwinds our sector is facing our tailwinds exceed the headwinds and we have a tremendous amount of opportunity in front of us.
I'll I'll turn the call back over today.
As you heard from US today, we now have 13 straight quarters of meeting or exceeding expectations. We are a pure play regulated premium utility and on a course to continue execution of our current plan with incremental growth opportunities to support.
<unk> our customers beyond that.
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At this time, we will begin taking questions if.
If you wish to ask a question. Please press star one wandering a touchtone keypad.
Company request that when asking a question colors pick up their telephone handsets. Thank you.
Our first question comes from Jeremy connect with J P. Morgan Securities. Your line is now.
Hi, good morning.
Jeremy How're Ya good morning.
Good. Thank you just diving in a little bit more on the Capex increased here with the 400 million Capex increase in Texas legislation benefits.
How do these hives position you on EPS basis relative to your current guidance and can you walk us through the timing and magnitude of these benefits and are there any hurdles to formalizing in the garage for without will care.
Yeah, Let me give you a maybe a 50000 foot view of.
How we see that instead of a recent legislative outcomes and Jason can go into.
More of the details, but clearly.
One would be very successful legislative session that is going to clearly benefit our customers and our other stakeholders and of course shareholders overtime I think it's important though to understand that these laws will basically get layered in over different timeframes and Jason.
And add a little color on that but I think the real point is the one that crashed sorta ended his comments with with with this is just really another tailwind or centerpoint going forward. So yeah. We really liked the outcome. We think it's gonna be great for everybody, but Jason maybe you can give a little more color.
In and around the timing and potential impact.
Thanks, David and Thanks for your question, Jeremy clearly incremental capital recorded in the plan.
Have a legislative session Ah just continue to further strengthen.
Alrighty industry less tangible on her current plan.
Maybe a more specific like answer some of your questions.
<unk> that are highlighted in my prepared remarks take us.
Take a significant staff in terms of reducing regulatory lag and helping us or upholstery or allowed return when using every year and rate base.
Two eight euro per year somewhat the functions of the capital's bank.
But that that is happening coupled with a recovery setup cop should be roughly five to seven cents per year.
And the earnings benefit for the resiliency Bill well, obviously these shakes during the relation proceedings and our eventual filing.
Nevertheless.
Should have at least one tiny benefit Ah for every $300 million or capex eligible for that Brazil E&P definition.
In terms of it was kind of when we look shouldn't feel the impact tiny of those benefits.
As we mentioned in that era.
<unk>, we will likely file a second this year.
So that will be on a full year basis again.
Hacking earnings in 2024.
The remainder of.
Earnings benefits from these recent legislation will likely follow up right.
News sort of flowing into our plan for 2025 and beyond and so the end of the day. This continues to me yet kind of another tailwind.
Further strangeness and already great plan.
Got it that's that's great to hear their.
And maybe just looking at the regulatory calendar more broadly here are some of the rate case timing has shifted just wondering if you could speak more to the regulatory calendar over the next 18 months and really how you see these cases setting up the business for the period thereafter.
Yeah, no. Thanks, Jeremy it's gotta be a busy period of Ah Ah right cash regulatory activity. Let me just quickly run through those as we talked about and repair comments was shipped and the timing of our Texas gasoline case.
Likely November this year right about that same time will be filing our Minnesota right case in Indiana electric rate cases, as well and then we will likely to follow that with Houston electric.
Right case prov.
Probably sometime late first quarter next year and so obviously, there's a number of bright cases that will have in front of us I want to continue to reemphasize, though.
Given the great work the company has done managing O&M I anticipate, particularly in the Texas gas and the eastern electric rate base filing a relatively flat revenue requirement increase which I think will be.
Constructive signal for resolution of those cases, Madison gas and electric age we filed every two years.
Just sort of reflects the capital that we intend to spend to modernize our gas system and.
I think Minnesota in Indiana electric much of the capital of that.
Will be subject to that case is already there.
Then reviewed as part of some of our regular ongoing violence with respect to our great modernization program as well as our generation transition plan. So while it's a very busy upcoming regulatory calendar.
Like we're putting our best foot forward for our customers and our shareholders.
Got it that's a very helpful. Thanks, and the last one if I could hear with the recent Indiana IOP filing just wondering how as a stakeholder engagement trended into the formal what on sure is there any notable early highlights on this front.
I am really proud about the team's efforts with respect to engaging.
Our stakeholders southwestern Indiana.
That there was a lot of good feedback on the depth of the conversations on the alternatives that were consider.
And so I feel like we're putting a plan that has probably the opportunity for the broadest possible support going forward.
Third and final call facility.
I just want to reemphasize the plan, we're putting forward.
The least cost option to continue to serve our customers up in southwestern Indiana with a reliable and cleaner energy supply mix I think that will come.
Come through as we work our way not only to the iron. Even then ultimately the the filings for each of those projects.
Very helpful I'll leave it there thank you.
[noise]. Thank you.
Our next question is from Anthony <unk>.
Hey, Hey, good morning, if I could hit up David maybe it's Hollywood, Chris Dave I, just wanted to tough last last night against the crosstown rival there quarter was better than a game, but just I guess on Jeremy's question about moving more towards 2023.
Just a headwind and tailwinds at your scene for just 2023, I mean, you're coming in the first half of the year. It I guess like 58 cents [laughter] <unk> leaning above the mid point of where guidance would be just the first half of the year what are the.
<unk> kitchen, maybe slightly above or just maybe address what are the tailwinds are headwinds for the remainder of 2003.
Yeah, how about let me let criticism answer his first question as a centerpoint CFO on that one because he's the one who everyday has to attract the headwinds tailwinds, but I would just say as I think a number of us have reiterated we believe that the tailwinds are greater than the headwinds on this right now.
But I'll I'll, let Chris tell you why yeah. Thanks, David.
Thanks for the question did you heard me in the prepared remarks, we are beyond the halfway point here, we are beyond halfway through our EPS guidance and there's a couple of different things I want to point out for you.
First is just emphasizing that as you look at the back half of the year, we've got another roughly $220 million in additional revenues from the 2022 distribution investments.
Function around the mobile generation filing and so those are either just updated or we anticipate those will be recovered later this year. So those are good tailwind because it really they're just waited toward the back half of the year.
Whether it's been more of a mixed bag for it definitely been trending nicely of late and the impact of the milder winter, we had across or jurisdictions. In Q1 has been a bit offset from the hotter summer thus far which is specifically been the case here in Houston and is Houston remains the.
The weather in fact, we're seeing are kind of normalizing some of what we are seeing for the balance of the year and they were generally conservative when we're incorporating weather impacts into our plan in the first place.
It is no surprise on the headwind side that they're really interest rate driven as you can imagine that had been actively working though since last year and so we continued to assume a high rate as we go through the remainder of the year.
Taking active steps, you've probably seen to move and improve our position one of those is the move to fund vico on a standalone basis.
And there we were reducing its reliance on roughly $450 million a intercompany that for the parents right. So that allows us to take advantage of the relative lower cost of debt. Thanks to its higher rating. So you collectively put these together, we like where we are at this stage of the year.
And then just a follow up of slide nine you kind of a dress at all and then prepared remarks on the I guess credit ratings.
We see a decline from you know four Q22, 15, four to 39, I think maybe that trend back to 14% to 15%, but just what's the thought between.
The potential for maybe upgrade to beat up one verses.
Sarah cushion at a beat up late two rating.
Sure. So let me just start with a 39 that we're talking about this morning is is in line with our plan and so we had consistently anticipated this quarter really was going to be the trough for a couple of reasons.
First is on the debt side, we've got an incremental of roughly billion dollars of debt in line that directly in line with feeding are capital Bland and we were Frontloading excuse me, we're frontloading funding at the start of the year.
Then if you look at the cash flow side as we previously mentioned the.
The annual revenue requirement increases of roughly 400, Milli $430 million this year anticipated so.
Over $200 million of that is going to become effective from September onwards towards the back end of the year. So if you combine these with higher whether receipts, we see as being added to the balance of the years operating cash flows.
The have you also have to stay on the qualitative side.
We're making progress on some of these legislative and regulatory implementation outcomes, we do see some benefit there overtime as we're spending time with the rating agencies.
Great. Thank you so much.
Thank you our next question.
Some sharp hurried, Sir what's Guggenheim partners.
Hey, guys good morning.
I'm in shock good morning.
Good morning, I guess.
First off can you just touch a little bit on what you meant and you're prepared March and I'm going to paraphrase a little bit here that you know she opportunities well above the 2.6 billion capex that remains outside I guess can you define kind of what you mean by wall above and the source of the opportunities. So what what states are you.
Seeing those and do you anticipate some of that 400 million dollar increase in twenty-three to be recurring capex in the later years that you were taking about kind of a run rate.
Yeah. That's a good question, let me have Jason answer that one.
Yeah. Thanks sharper the question we've indicated since.
Very first analysts say that we think that there are a significant number of capital investments, we can make their and our customers interest.
Dave's expression of capital investments beyond the $10.6 million.
Kind of identified but not yet incorporated in the plan continue to reflect that confidence.
Kind of runs the gamut across our gas and electric business start first with her original ese.
Incorporated as significant uplift around in particular are you, particularly enhancing heard resiliency here in Houston electric last year, but I think that there's a potential for more to be down there I think when we look at the electric transmission side here.
Here in the state of Texas.
I think all stakeholders are all support the fact that there is more transmission needed to help alleviate can drive and congestion and help support the continued economic growth in the greater Houston areas and there's a potential for electric transmission outside.
I think there are also opportunities on the gas side, particularly given the continued growth of our.
Gas systems.
Potentially incremental gas transmission related projects as we kind of enhanced capacity to serve out of our growing market.
So those are just a handful of the opportunities I think for us.
There is an abundance abundance of opportunities that capex at our focus will continue to be as we've emphasized.
Evaluating whether or not we can at this efficiently executed for our customers.
We can efficiently finance it for our shareholders and that we can efficiently recover it it range and I think we as a management team to earn a track record of voting capital into the plant as soon as we she.
<unk> line of sight on all three of those dimensions case in point today, we're increasing.
Our annual guidance here for for 2023 by 11% as it relates to what $400 million increase.
Alright, I do think it puts us in a position to more consistently executed at this higher level of capital moving forward.
Just continuing to evaluate our ability to finance it efficiently and recover it timely, particularly given the fact that we're entering a pretty heavy right case period, where during that timeframe. We don't have access to some of these capital trackers that that that we've been discussing.
So Ah disputation last week.
You bring up a good point of beginning a lot of questions. This morning on the efficient financing angle of it right and obviously you guys still mentioned no equity in plan you guys are kind of at the lower end of that target range as we're thinking about credit back tricks I guess what.
What do you mean by efficient financing is there any kind of balance sheet repair embedded in.
In the current plan internal or external and where does sort of incremental regulated asset sales kind of fit in the next there. Thank you very much.
Yeah.
Just be very directors know balance sheet repair and the plan I do think that this focus kind of on our setup credit metrics is.
I don't know all our favorite.
I respectfully, a fitness place I would rather continue to maintain a healthy cushion in between our actual metrics and our downgrade threshold.
Remains our commitment.
Targeting aspirin previews minutes around 150 basis points.
Some of.
Pier companies that are often cited for having better credit metrics, while they may have a higher targeted.
Setup credit back to our sales or have a higher downgrade thresholds. So they have latched cushion.
What we're focused on retaining this health healthy cushion between where we're running the company.
At our downgrade threshold so.
Our focus is bad on Delevering this year, Chris highlighted a number of different.
Opportunities, where we've also turned out variable rate debt as we are in a period of transition. This year with a number of strategic transactions will continue to look at opportunities to do that and again I just wanted to emphasize what Chris said about our credit metrics at the end of the second quarter. The end of the second quarter is the period of time just.
The way our capital recovery mechanisms work we have.
Sort of the tightest Ah setup credit metrics are are the revenues, we get from our capital trackers are definitely back end loaded and so you will undoubtedly see an improvement in those metrics as we start to collect on the capital that we deployed in 2022 here on the back half of 2023.
Got it.
Okay perfect. Thank you guys appreciate it Mr. Foster congrats on your first Centerpoint earnings call. Thanks, guys.
I appreciate it thanks.
Thank you.
Our next question.
It's from Julian Timlin Smith of Bank of America.
[noise] Hey, good morning team. Thank you very much of the time I Hope you guys do well. So I just wanted to follow up here on the last set of questions, including sharp just talking about the the if if you want to call. It that new dorm here wanted to clarify a little bit as you think about this elevated level of spending more likely posted an X Ray kids were given the <unk>.
Coverage dynamics in 24, I, just want to clarify in setting expectation swung the the last comments and then to that and how do you think about the the associated financing considerations or opportunities.
Twenty-five wouldn't you know pose this rate case, if if you could address that a little bit how how do you think about balancing both sides of that equation here in the 25.
Yeah.
I got a <unk>.
Yeah, that's a great question for Chris dancer sure. Julia you are right in terms of the thinking about the rate case timeframe. If you just step back and look at it the kind of laughed case, among the ones that Jason reference earlier would be the Houston electric case, so we'd be filing that anticipating Q1.
Of 2024 anticipate somewhere around a year to get it resolved so that timing would put us somewhere in Q1 of 2025.
We'd be on the other side of really the critical mass of all these cases that are in front of us and so that's what is probably at that stage to be in a position to give everybody a more robust update with respect to that really the plan through 2030 and with the potential for extending earnings guidance target is really beyond that is will have greater visibility at that stage.
In terms of financing I have to say in the Jason.
You mentioned, our emphasis is really on maintaining the cushion as it relates to episodes of that.
Should also just keep in mind that were consistently looking at really the depths act that we have presence date inefficiently financing that but also we are also evaluating opportunities like they Doa loan program as well right.
At this stage looking to pulling up or other opportunities to create financing that is actually cheaper for our customers. So a lot of opportunity there in front of us.
Excellent. Thanks for clarifying that and then coming back to this Brazilians before like I mean, you know it would seem like a lot of your capital that is non growth would potentially be eligible for this resilience can you talk a little bit about the extent of that eligibility years do you think about it and also how that resiliency violence could filter into.
A your any potential further capex revisions and be into the rate case itself I know they might be somewhat in parallel here if you will.
Yeah. Thanks for the question Julien.
Ultimately.
This is going to be defined by making proceeding in front of the commission now in Israel should be established by the end of 2003, and then ultimately are filing, but let me just kind of try to put some high level thoughts around this.
I think clearly some of the investments related to create hardening are great right I got your letter, writing and distribution lines and shorter spans composite pulse et cetera.
That all fixed sort of squarely in the gap Phoenician of.
Silly.
There is also clear.
Clearly work that can be incorporated through veg management, I think what we need to work with a commission on maybe some other aspects, including kind of IP related <unk> help from an analytical standpoint and or reduce.
Concern around kind of I T kind of resource availability for weather related events, and so I think conservatively.
<unk> say, there's at least 500 to a $1 billion a year of.
Capital S C E.
Could qualify for that Brazil.
Resiliency definition, ultimately again, it's going to be shaped by that relate to proceeding in our filing, but ER, but probably somewhere and that ZIP code I think what's important I think you highlighted in Julian the way the mechanisms work here in Texas.
The company is eligible for recovering.
Effectively keeping.
The growth.
Revenues associated with customer count increases and so about half of our capital X C E relates to connecting new customers.
So if you think about that supports a higher level of revenues, there's really very limited regulatory lag on that growth related capital, where we historically seen our regulatory lag is on our resilience your related investments, having a kind of waiting for the capital trackers to come in.
By being able to get for the carrying costs of those investments depreciation interest et cetera between the time, we put that capital in the service.
And before we start to recover it and rates for all but effectively beginning to eliminate regulatory lag and see and so I just want to underscore just how important.
This bill was continuing to improve our ability to earn.
Are allowed to return at Houston electric and so hopefully that kind of starts to begin to shake a little bit of that resilience filing but more to comments.
T work through the rulemaking, we ultimately file first quarter next year.
Got it alright, guys. Thank you very much good luck.
Okay.
Thank you.
Our next question is from David Ah Carl with Morgan Stanley Your lifestyle.
[laughter], Oh, hey, good morning, Thanks, so much for taking my questions.
Good morning, we let's see we've seen some indications of gas utilities on the market in terms of M&A potential I was just wondering your latest thoughts on the mix of businesses balance sheet and how they could we we've into funding needs over time.
Yeah, Thanks, David for the question.
We love.
Business mix, we we strategically as part of kind of the reset several years ago that we'd have a slight bias towards sort of the growth and the electric Christmas here in Houston.
But our split up roughly call at 60% electric 40 per cent gas cause I think a very good split that being said.
Yeah cause it kind of gets back to sort of your prouder pression as we've indicated on previous responses to two.
Two questions here, we don't have any for equity to fund our plan. We don't have a need for asset sales. We continue to receive a significant amount of inbound interest on all of our assets. Obviously, there's a number of processes sort of underwear across the country. I think continues to reflect that there is a high demand for you know at least high quality, Utah.
[noise] related assets and so we don't have any need to to.
Sell any of assets were happy with our profile that will always continue to have an eye towards optimizing.
Our plan for the benefit of our customers and our shareholders. I guess this is day of I guess the way I think about it I think you should think about it as we are in such a great position right now with the assets. We have we can just sit back and play offense. We don't have to play defense at this point in time, which really gives us an opportunity.
To be very opportunistic with our business as we go forward. So I think that to me is the bottom line is we really have preserved almost all our optionality on any direction. We want to go with this Jason said.
The inbound inquiries, we get an essentially every piece of our business continue to be there every day. So we really like where we are but we really don't have to do anything other than execute I think which is which is the greatest plan that's out there in the utility space.
Okay. Thank you that's helpful. And then I was wondering if you could just give thoughts on the Indiana electric rate case coming up later this year.
In terms of that filing.
Wondering if you would expect it to be big items or revenue requirement.
Specifics or or would this be a fairly standard kind of growth driven right case that you'd expect to file.
Yes, I would say that I. Appreciate the question I mean, I think largely it will be a rate case, where we have signal.
And actually previewed with the commission stakeholders many of the elements.
There are a number of constructive mechanisms up in Indiana for instance are great related investments on our transmission and distribution system, we making separate filing in advance.
We then.
Execute upon it and report and so this will be sorted by true off of the execution of a plan that we've already filed and reviewed several times with with the commission.
Similarly on the generation transition plan not only a violent irve, but then we filed for.
<unk> individual project approval so much of the kind of element of that case will already be previewed between the.
With all the key stakeholders that being said rates continue to be a focus in southwestern Indiana and I would anticipate that will be part of the conversation there as we as we filed the case.
Okay, Great makes sense. Thanks, so much.
Operator.
Given the proximity to the end of the hour I think we have time for one more.
Our last question comes from the gas Chopra with Evercore ISI.
Hey, guys. Thanks for squeezing me in here just.
One question for me you know you.
Obviously, a lot of good. It's here you mentioned no equity you know.
For this line $43 billion.
And you mentioned that you may need some equity as it is we go beyond that just any sort of color you can provide on timing historically like three last year your provider and big Capex update any galore and timing when we could see the big Capex updated and potentially a new financing plan is it after you go to the right cases.
Any cause I really appreciate it thank you.
Hi, there guys. Thanks for the question insured, yes, we've got a really important instead of cases that are right here in front of us Jason.
Jason mentioned, how well we're position going into them given the affordability profile for our customers, but that really is going to be where the short term emphasis is so I really would kind of directed towards the back end that I referenced where we're going to be a really good position at that stage with the clarity provided through all those cases.
To be able to revisit some of those those targets and give you a better feel for how were financed them, but I have to say as you heard. This morning, It's really we're gonna consistently look at this as we go right as we.
We find opportunities to officially execute to fund them and recover the the revenues were gonna consistently see if there's opportunities to pull in some of the capital that was referenced earlier. So hopefully that helps give you some color.
It does thanks, Chris and congrats on your first Centerpoint earnings call. Thanks.
Yeah.
Thank you.
Great operator with that I think that's going to come to the our call here for the second quarter of 2023, thanks, everyone for dialing in.
This concludes central point energies second quarter.
Conference call. Thank you for participating.
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