Q4 2023 CenterPoint Energy Inc Earnings Call
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Operator: www.centerpoint-energy.com Good morning, and welcome to CenterPoint Energy's fourth quarter and full year 2023 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 management's remarks. To ask a question, please press star 1 1 on your touchtone keypad.
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Speaker Change: Good morning, and welcome to Centerpoint Energy's fourth quarter and full year 2023 earnings conference call with senior management.
During the company's prepared remarks, all participants will be in a listen only mode.
Speaker Change: He will be a question and answer session. After managements remarks to ask a question. Please press star one one on your Touchtone keypad.
Operator: I will now turn the call over to Jackie Rickert, Vice President of Corporate Planning, Investor Relations, and Treasurer. For more information on this record, please go ahead. Good morning, and welcome to CenterPoint's fourth quarter and full year 2023 earnings conference call. Jason Wells, our CEO, and Chris Foster, our CFO, will discuss the company's fourth quarter and full year 2023 results. Management will discuss certain topics that will contain projections and other forward-looking information and statements that are based on management's beliefs, assumptions, and information currently available to management. These forward-looking statements are subject to risks and uncertainties. Actual results could differ materially based upon various factors as noted in our Form 10-K, 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. For example, 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.
Speaker Change: I will now turn the call over to Jacky record Vice President of corporate planning and that's relations and Treasurer. Mr. Records. Please go ahead.
Jacky Record: Good morning, and welcome to Centerpoint <unk> fourth quarter 2023 earnings Conference call, Jason Wells, our CEO and Chris Foster our CFO will discuss the company's fourth quarter and full year 2023 results.
Jacky Record: And as Matt 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.
Jacky Record: These forward looking statements are subject to risks and uncertainties.
Jacky Record: Actual results could differ materially based upon various factors as noted in our Form 10-K, other SEC filings and our earnings materials.
Jacky Record: We undertake no obligation to revise or update publicly any forward looking statements.
Jacky Record: We will be discussing certain non-GAAP measures on today's call when.
Jacky Record: 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.
Jacky Record: For information on our guidance methodology and reconciliation of the non-GAAP measures used in providing guidance. Please refer to our news releases and presentations on the website.
Jackie Rickert: For information on our guidance methodology and reconciliation of the non-GAAP measures used in providing guidance, please refer to our news releases and presentations on the 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.
Jacky Record: Is there a website to announce material information. This call is being recorded information on how to access the replay can be found on our website.
Jason P. Wells: Now, I'd like to turn it over to Jason. Thank you, Jackie, and good morning, everyone. Before I get into the quarter and the annual results for the first time as CEO, I want to take a moment to thank the board once again for entrusting me to lead this great company into its next chapter. I'm privileged to work with an amazing team, and I couldn't be prouder of how we closed out 2023 and how we're off to an already strong start in 2024. On this morning's call, I'm excited to cover four key topics before turning it over to Chris to cover our financial results in more detail. First, I want to discuss my continued commitment to our strategic objectives as I have now stepped into this new role.
Jacky Record: Now I'd like to turn it over to Jason.
Jason P. Wells: Thank you Jackie and good morning, everyone.
Jason P. Wells: Before I get into the quarter and annual results for the first time as CEO I wanted to take a moment to thank the board once again for Entrusting me to lead this great company into its next chapter.
Jason P. Wells: I'm privileged to work with an amazing team and I couldnt be prouder of how we closed out 2023, and how we're off to an already strong start in 2024.
Jason P. Wells: On this morning's call I'm excited to cover four key topics before turning it over to Chris to cover our financial results in more detail.
Jason P. Wells: First I wanted to discuss my continued commitment to our strategic objectives as I have now stepped into this new role.
Jason P. Wells: Second, I'll briefly summarize the financial results for the fourth quarter and full year 2023. Third, I'll discuss the rationale for the sale of our Louisiana and Mississippi gas LDCs that we announced this morning and provide an update on our long-term capital investment. Finally, I'll conclude with an update on where we stand with respect to our regulatory calendar. I'm fortunate to step into this role at a time when CenterPoint is undoubtedly better positioned than it was when we held our Analyst Day in 2021.
Chris Foster: Second I'll briefly summarize the financial results for the fourth quarter and full year 2023.
Chris Foster: Third I'll discuss the rationale for the sale of our Louisiana, and Mississippi gas Ldcs that we announced this morning and provide an update on our long term capital investment plan.
Chris Foster: Finally, I'll conclude with an update on where we stand with respect to our regulatory calendar.
Chris Foster: I'm fortunate to step into this role at a time when Centerpoint is undoubtedly better position than it was when we held our analyst day in 2021.
Chris Foster: In my time here I've clearly articulated that I believe we have one of the most tangible long term growth plans in the industry. My focus will be continuing our established track record of consistently executing this plan and thoughtfully enhancing it for the benefit of all of our stakeholders.
Jason P. Wells: In my time here, I've clearly articulated that I believe we have one of the most tangible long-term growth plans in the industry. My focus will be on continuing our established track record of consistently executing this plan and thoughtfully enhancing it for the benefit of all of our stakeholders. At our 2021 Analyst Day, we put forth a premium value proposition underpinned by our strategic objectives, which included delivering consistent and sustainable non-GAAP EPS and dividend per share growth to our investors; investing in customer-driven capital in our core regulated utility businesses, driving industry-leading rate-based growth, providing affordable service to our customers through O&M Discipline, and maintaining a strong balance sheet while efficiently funding our capital investment. I want to reiterate my commitment to these strategic objectives and discuss each in more detail.
Chris Foster: At our 2021 analyst day, we put forth a premium value proposition underpinned by our strategic objectives, which included <unk>.
Chris Foster: Delivering consistent and sustainable non-GAAP, EPS and dividend per share growth to our investors.
Chris Foster: Investing in customer driven capital in our core regulated utility businesses driving industry, leading rate base growth.
Chris Foster: Providing affordable service to our customers through O&M discipline.
Chris Foster: And maintaining a strong balance sheet, while efficiently funding our capital investments.
Speaker Change: I want to reiterate my commitment to the strategic objectives and discuss each in more detail.
Speaker Change: First looking at delivering consistent and sustainable growth for our stakeholders.
Jason P. Wells: First, looking at delivering consistent and sustainable growth for our stakeholders. Looking over the last three years, we have demonstrated that not only do we have a great plan in which we have targeted 8% non-GAAP EPS growth each year, but we also have the ability to execute above expectations. This execution resulted in us achieving a 9% non-GAAP EPS CAGR over that period, which is top decile in the sector.
Speaker Change: Looking over the last three years, we have demonstrated that not only do we have a great plan in which we have targeted 8% non-GAAP EPS growth each year, but we also have the ability to execute above expectations.
Speaker Change: This execution resulted in us achieving a 9% non-GAAP EPS CAGR over that period, which is top decile in the sector.
Speaker Change: In addition to growing non-GAAP EPS. We also grew our dividend in line with earnings leading to one of the highest dividend growth rates in the sector over that same period of time to.
Jason P. Wells: In addition to growing non-GAAP EPS, we also grew our dividend in line with earnings, leading to one of the highest dividend growth rates in the sector over that same period of time. To expand on a point I made last quarter, I'm excited about the company's great future as we continue to be laser focused on providing outstanding service to our customers and communities and executing consistently to deliver enhanced stakeholder value. We are collectively focused on continuously improving service levels while maintaining customer affordability by utilizing a lean mindset throughout the organization. Now, we are turning to investing in customer-driven capital in our regulated business. Supporting our strong financial results is a capital investment plan and resulting rate-based growth that is among the highest in the sector.
Speaker Change: To expand on the point I made last quarter I am excited about the company's great future as we continue to be laser focused on providing outstanding service to our customers and communities and executing consistently to deliver enhanced stakeholder value. We are collectively focused on continuously improving service levels, while maintaining customer affordability by utilizing.
Speaker Change: <unk>, a lean mindset throughout the organization.
Speaker Change: Now turning to investing in customer driven capital in our regulated businesses.
Speaker Change: Supporting our strong financial results as a capital investment plan and resulting rate base growth that is among the highest in the sector.
Speaker Change: At our 2021 analyst day, we outlined a $40 billion plus capital investment plan that translated to an approximately 9% rate base growth through 2030.
Speaker Change: Today, we are once again announcing any capital increase supported by customer driven capital investments to $44 5 billion, a nearly 11% increase since the 2021 analyst day.
Speaker Change: This revised capital investment plan now supports a 10% rate base growth CAGR through 2030, which is again one of the highest in the industry.
Jason P. Wells: At our 2021 Analyst Day, we outlined a $40 billion plus capital investment plan that translated to approximately 9% rate-based growth through 2030. Today, we're once again announcing a capital increase supported by customer-driven capital investments to $44.5 billion, a nearly 11% increase since the 2021 Analyst Day. This revised capital investment plan now supports a 10% rate-based growth through 2030, which is, again, one of the highest in the industry.
Speaker Change: This strong growth will continue to serve as a solid foundation for our long term non-GAAP EPS growth targets.
Speaker Change: In addition to effectively executing on our capital plan. We also strive to provide affordable service to our customers.
Speaker Change: We continue to be mindful of the impact of our investments on our customer bills for this reason, we remain focused on our target of reducing O&M, 1% to 2% per year on average through 2030.
Speaker Change: Our relentless attention to this area has resulted in an average annual reduction of 2% over the last three years. The high end of our target range. Despite reinvesting additional savings back into the business for the benefit of our customers.
Speaker Change: One of the other targets, we put forth in our 2021 analyst day dovetails with our O&M reduction targets.
Speaker Change: As we target our net zero goal for scope, one and scope two emissions by 2035, we are retiring generation from less efficient fuel sources, which translates into a customer savings over the long term.
Jason P. Wells: This strong growth will continue to serve as a solid foundation for our long-term non-gap EPS growth target. In addition to effectively executing on our capital plan, we also strive to provide affordable service to our customers. We continue to be mindful of the impact of our investments on our customer bills. For this reason, we remain focused on our target of reducing O&M expenses one to two percent per year on average through 2030.
Speaker Change: Finally, turning our focus on maintaining a strong balance sheet and efficiently financing are customer driven investments.
Speaker Change: At our 2021 analyst day, we targeted funding our 10 year capital investment plan through 2030 without reliance on external equity issuances.
Speaker Change: We evolve that message last quarter with the introduction of a modest ATM program to support growth capital investment opportunities in 2024.
Speaker Change: And today, we're continuing that efficient financing evolution with our strategic transaction, we announced this morning.
Speaker Change: The transaction, which I'll discuss in more detail will be the fourth we have pursued to recycle capital and reinvest transaction proceeds back into our regulated operations for the benefit of all stakeholders.
Jason P. Wells: Our relentless attention to this area has resulted in an average annual reduction of 2% over the last three years, the high end of our target range, despite reinvesting additional savings back into the business for the benefit of our customers. One of the other targets we put forth at our 2021 Analyst Day dovetails with our O&M reduction target. As we target our net zero goal for Scope 1 and Scope 2 emissions by 2035, we are retiring generation from less efficient fuel sources, which translates into customer savings over the long term.
Speaker Change: In addition, as we have incremental financing needs outside of our growth capital investment plans. We are also expanding the need for $250 million per year of equity or equity like funding through 2030.
Speaker Change: Chris will provide further color regarding our ongoing financing of our business.
Speaker Change: Moving to my second key topics I'll briefly cover the fourth quarter and full year 2023 results.
Speaker Change: This morning, we announced non-GAAP EPS of <unk> 32 for the quarter and full year 2023, non-GAAP EPS of $1 50.
Speaker Change: Again, these full year results translate to 9% non-GAAP EPS growth from prior year actual results for what is now the third consecutive year.
Jason P. Wells: Finally, we are turning our focus on maintaining a strong balance sheet and efficiently financing our customer-driven investment. At our 2021 Analyst Day, we targeted funding our 10-year capital investment plan through 2030 without reliance on external equity issues. We evolved that message last quarter with the introduction of a modest ATM program to support growth capital investment opportunities in 2024. And today, we're continuing that efficient financing evolution with our strategic transaction we announced this morning. The transaction, which I'll discuss in more detail, will be the fourth we have pursued to recycle capital and reinvest transaction proceeds back into our regulated operations for the benefit of all stakeholders. In addition, as we have incremental financing needs outside of our growth capital investment plans, we are also expanding the need for $250 million per year of equity or equity-like funding through 2030.
Speaker Change: Most importantly, we have rebased, our long term growth targets off these higher earning levels each year.
Speaker Change: Consistent with this practice, we are reaffirming our 2024 non-GAAP EPS guidance range of $1 61 to $1 63, which would equate to an 8% growth rate at the midpoint from our higher base of $1 50.
Speaker Change: Beyond 2024, we continue to expect to grow non-GAAP EPS at the mid to high end of the 6% to 8% range annually through 2030, and continuing to grow dividends per share in line with earnings growth.
Speaker Change: Chris will provide additional details regarding our financial results and earnings guidance later.
Speaker Change: Now I want to discuss the sale of our Louisiana, and Mississippi gas Ldcs, we announced this morning.
Speaker Change: We anticipate closing the sale in late first quarter of next year and it is anticipated to result in after tax cash proceeds of approximately $1 billion.
Speaker Change: Which equates to an earnings multiple of approximately 32 times 2023 earnings.
Speaker Change: This is a terrific outcome for all stakeholders again following the execution of this transaction, we will mark our fourth time over the last few years in which we have recycled transaction sales proceeds to efficiently fund our industry leading growth plan.
Speaker Change: Although the transaction is a great outcome. It is always hard to part with a great team as well as great assets, Louisiana, Mississippi are incredible jurisdictions, and we have been privileged to serve those communities over the years.
Jason P. Wells: Chris will provide further color regarding our ongoing financing of our business. Moving to my second key topic, I'll briefly cover the fourth quarter and full year 2023 results. This morning, we announced non-GAAP EPS of $0.32 for the quarter and full year 2023 non-GAAP EPS of $1.50. Again, these full-year results translate to 9% non-GAAP EPS growth from prior year actual results for what is now the third consecutive year.
Speaker Change: I want to share color around the decision to sell these gas ldcs, which was driven principally by three reasons.
Speaker Change: First the sale of our Louisiana, and Mississippi natural gas Ldcs will allow us to efficiently recycle the roughly $1 billion and anticipated after tax cash proceeds to support our continued capital investment programs to <unk>.
Speaker Change: <unk> of about 32 times 2023 earnings is approximately 75% more cost effective than issuing our own common stock to support our industry, leading rate base growth and to maintain the strength of our balance sheet.
Jason P. Wells: Most importantly, we have rebased our long-term growth targets off these higher earnings levels each year. Consistent with this practice, we are reaffirming our 2024 non-GAAP EPS guidance range of $1.61 to $1.63, which would equate to an 8% growth rate at the midpoint from our higher base of $1.50. Beyond 2024, we continue to expect to grow non-GAAP EPS at the mid to high end of the 6% to 8% range annually through 2030 and continue to grow dividends per share in line with earnings. Chris will provide additional details regarding our financial results and earnings guidance later. Now, I want to discuss the sale of our Louisiana and Mississippi gas LDCs we announced this morning. We anticipate closing the sale in the late first quarter of next year, and it is anticipated to result in after-tax cash proceeds of approximately $1 billion, which equates to an earnings multiple of approximately 32 times 2023 earnings.
Speaker Change: Devaluation also illustrates that even in a much different cost of capital environment that our last LDC sale. There continues to be a strong market demand for gas otc's, particularly for those in high growth in constructive jurisdictions.
Speaker Change: Second we anticipate that the sale of these gas recs will allow us to re prioritize approximately $1 billion of capital expenditures to support other jurisdictions.
Speaker Change: The added benefit of this reallocation of $1 billion of capital investment is that we expect that we will be able to deploy much of it in jurisdictions with less regulatory lag therefore, enhancing the ongoing earnings power of the company.
Speaker Change: Third as we worked to optimize our portfolio. It made sense for us to focus our time and resources in jurisdictions, where we have both gas and electric service or where we have a larger presence.
Speaker Change: This transaction will help support our non-GAAP annual EPS growth target of 8% in 2024 and at the mid to high end of our 6% to 8% non-GAAP EPS growth range through 2030, while also helping maintain the strength of our balance sheet.
Speaker Change: Now shifting to how this transaction fits within a broader context of our now $44 5 billion capital investment plan.
Speaker Change: Today, we're announcing that once again, we are positively revised our capital investment plan by an increase of $600 million to $44 5 billion through 2030.
Speaker Change: $100 million of this increase was already deployed in the fourth quarter of this year, which brought the total capital investments in 2023 to $4 3 billion for the benefit of our customers.
Jason P. Wells: This is a terrific outcome for all stakeholders. Again, following the execution of this transaction, this will mark the fourth time in the last few years in which we have recycled transaction sales proceeds to efficiently fund our industry-leading growth. Although the transaction is a great outcome, it is always hard to part with a great team as well as great assets. Louisiana and Mississippi are incredible jurisdictions, and we have been privileged to serve those communities over the years.
Speaker Change: This represents a nearly 20% increase over the $3 6 billion. We originally guided to at the beginning of 2023.
Speaker Change: We made the decision to increase the amount of planned work on our systems principally related to critical investments to improve resiliency and reliability in our Houston Electric service territory.
Speaker Change: We did this knowing we would be able to efficiently fund these investments once the announced sale of our Louisiana and Mississippi gas Ltc's closed.
Speaker Change: The added benefit of this increased capital spend is that it will also help offset the loss of approximately $800 million of rate base that we have invested in those states today.
Speaker Change: Today's capital increase will be focused on investments in system resiliency at Houston Electric in response to the resiliency Bill that was enacted in 2023 by the Texas legislature as well as targeted investments in our gas businesses.
Jason P. Wells: I want to share some color around the decision to sell these gas LDCs, which was driven principally by three reasons. First, the sale of our Louisiana and Mississippi natural gas LDCs will allow us to efficiently recycle the roughly $1 billion in anticipated after-tax cash proceeds to support our continued capital investment program. The valuation of about 32 times 2023 earnings is approximately 75% more cost-effective than issuing our own common stock to support our industry-leading rate-based growth and to maintain the strength of our balance sheet. The valuation also illustrates that even in a much different cost of capital environment than our last LDC sale, there continues to be a strong market demand for gas LDCs, particularly for those in high growth and constructive jurisdictions.
Speaker Change: These resiliency investments at Houston Electric will support the prioritizing of operational programs that modernize harden and enhance the resiliency and reliability of our transmission and distribution system, such as asset hardening distribution automation devices and substation flood mitigation.
We look forward to filing our multiyear resiliency plan likely early in the second quarter of this year and sharing further details on our next earnings call.
Speaker Change: Before I move on from this capital investment conversation I want to make a few comments around our modest pivot and our long term financing plans moving forward, which Chris will cover in more detail momentarily.
Speaker Change: In addition to the efficient recycling of strategic transaction proceeds I described earlier, we are also planning to incorporate approximately $250 million of annual equity or equity like funding needs into our long term financing plans moving forward.
Jason P. Wells: Second, we anticipate that the sale of these gas LDCs will allow us to reprioritize approximately $1 billion of capital expenditures to support other jurisdictions. The added benefit of this reallocation of a billion dollars of capital investment is that we expect that we will be able to deploy much of it in jurisdictions with less regulatory lag, therefore enhancing the ongoing earnings power of the company. Third, as we work to optimize our portfolio, it makes sense for us to focus our time and resources in jurisdictions where we have both gas and electric service or where we have a larger presence.
Speaker Change: This is to allow us to continue to fund our growing capital plans maintain the strength of our balance sheet and address incremental annual cash needs that Chris will describe shortly.
Speaker Change: Lastly, before turning it over to Chris I want to provide some color on our rate cases and put into context, what is a relatively busy regulatory calendar.
Chris Foster: I think it's important to remember that place, where we start from that although greater than 80% of total enterprise rate base is located in jurisdictions, where we are anticipated to have rate cases in the next 12 months. We are uniquely positioned in that most of these investments have already been through some regulatory review.
Chris Foster: As we stated previously over 80% of our capital expenditures are recovered through interim trackers and as such are already in rates. This is a key differentiator from rate cases and other jurisdictions.
Chris Foster: Now turning to our largest jurisdiction Houston electric.
Jason P. Wells: This transaction will help support our non-GAAP annual EPS growth target of 8% in 2024 and at the mid to high end of our 6% to 8% non-GAAP EPS growth range through 2030, while also helping maintain the strength of our balance sheet. Now, we shift to how this transaction fits within the broader context of our now $44.5 billion capital investment plan. Today we're announcing that once again we have positively revised our capital investment plan by an increase of $600 million to $44.5 billion through 2030. $100 million of this increase was already deployed in the fourth quarter of this year, which brought the total capital investments in 2023 to $4.3 billion for the benefit of our customers. This represents a nearly 20% increase over the $3.6 billion we originally guided to at the beginning of 2023. We made the decision to increase the amount of planned work on our systems, principally related to critical investments to improve resiliency and reliability in our Houston Electric Service Territory.
Chris Foster: On our previous call. We indicated that we had requested an extension to file our Houston electric rate case for March night to the second quarter of this year.
Chris Foster: However in the January PCT open meeting the commission decided to stay with the original March nine 2024 deadline as ordered in the last rate case.
Chris Foster: While we preferred the extended filing date that was supported by all parties in the case, we will be prepared to file the case in early March and anticipate a relatively flat revenue requirement increase.
Chris Foster: At the same January open meeting the PCT finalize this rulemaking for house, Bill 25, 55, better known as the resiliency Bill.
Chris Foster: As you may recall from our previous earnings call. The resiliency Bill allows Texas TD use to file a multi year resiliency plan that would allow for the recovery of certain costs through riders our regulatory assets.
Chris Foster: For Houston Electric these investments are expected to include investments in upgrading distribution lines building, new and upgrading older Substations and upgrading our transmission system.
Chris Foster: These upgrades should help support fewer and shorter unplanned outages faster restoration response time and greater accuracy with respect to our restoration times.
Chris Foster: Additionally, the rulemaking in its final form allows for a deferral of certain costs, such as depreciation and a return on our cost of capital associated with distribution investments and resiliency between the time the assets are placed in service and when rates are updated for those investments. This final rule is beneficial and reduce.
Jason P. Wells: We did this knowing we would be able to efficiently fund these investments once the announced sale of our Louisiana and Mississippi gas LDCs closed. The added benefit of this increased capital spend is that it will also help offset the loss of approximately $800 million of rate base that we have invested in those states today. Today's capital increase will be focused on investments in system resiliency at Houston Electric in response to the resiliency bill that was enacted in 2023 by the Texas Legislature, as well as targeted investments in our gas business. These resiliency investments at Houston Electric will support the prioritization of operational programs that modernize, harden, and enhance the resiliency and reliability of our transmission and distribution system, such as asset hardening, distribution automation devices, and substation flood mitigation.
Chris Foster: <unk> regulatory lag on these critical investments.
Chris Foster: We initially indicated that we would make our filing towards the end of the first quarter. However, as the final rulemaking was slightly delayed our filing will likely be submitted early in the second quarter.
Chris Foster: Now I'll highlight our three recently filed rate cases.
Chris Foster: In our other electric jurisdiction in Indiana, We filed a rate case in the first week of December with our requested revenue requirement increase of approximately $119 million distributed over the next three years.
Chris Foster: Much of this requested revenue requirement increases associated with our investments in connection with the generation transition plan as we move away from coal to a more efficient and cost effective fuel types, such as renewables and natural gas.
As a reminder, we plan to fully exit operating coal generation by the end of 2027.
Chris Foster: These investments are a continuation of our prudent investing in Indiana as we strive to also keep customer bills affordable.
Chris Foster: In fact since rates went into effect from our last rate case in 2009.
Chris Foster: Customer charges have increased at a compounded annual growth rate.
Jason P. Wells: We look forward to filing our multi-year resiliency plan, likely early in the second quarter of this year, and sharing further details on our next earnings. Before I move on from this capital investment conversation, I want to make a few comments on our modest pivot and our long-term financing plans moving forward, which Chris will cover in more detail momentarily. In addition to the efficient recycling of strategic transaction proceeds I described earlier, we are also planning to incorporate approximately $250 million of annual equity or equity-like funding needs into our long-term financing plans moving forward. This is to allow us to continue to fund our growing capital plans, maintain the strength of our balance sheet, and address incremental annual cash needs that Chris will describe shortly.
Chris Foster: 5% well below our peers in the state, which range between one 7% and four 7% over that same period of time.
Chris Foster: After the settlement and we expect a final decision in this case in Q4 of this year.
Chris Foster: Moving on to Texas gas.
Chris Foster: We filed our Texas gas rate case towards the end of October with our requested revenue requirement increase of approximately $37 million.
Chris Foster: As a reminder, we combined all four of our Texas jurisdictions into a single rate case filing.
Chris Foster: This combined filing should not only result in a reduced number of filings on a go forward basis, but in the near term. It should also result in declining bills for many of our customers specifically those located in more rural areas.
Chris Foster: We have a third settlement conference later this month and we look forward to continuing to work towards a constructive resolution of this case absent a settlement we expect a final decision in the middle of the year.
Chris Foster: Finally, turning to our Minnesota gas business, we filed a rate case on November one with requested revenue increases of approximately $85 million and $52 million for 2024 and 2025 respectfully.
Jason P. Wells: Lastly, before turning it over to Chris, I want to provide some color on our rate cases and put into context what is a relatively busy regulatory calendar. I think it's important to remember the place where we start from, that although greater than 80% of total enterprise rate base is located in jurisdictions where we are anticipated to have rate cases in the next 12 months. We are uniquely positioned in that most of these investments have already been through some regulatory review. As we've stated previously, over 80% of our capital expenditures are recovered through interim trackers, and as such, are already in place. This is a key differentiator from rate cases in other jurisdictions.
Chris Foster: Interim rates for 2024 were approved in mid December and went into effect on January one.
Chris Foster: The commission will consider interim rates for 2025 towards the end of this year. If we have not settle the case before then.
This is the first time, we have filed a multiyear rate case in Minnesota with the goal of providing smoother revenue increases for the benefit of our customers in the future.
Chris Foster: The majority of our requested revenue requirement increase can be attributed to the fundamental safety programs, we operate as well as some of the projects, which we filed four under the natural gas Innovation Act.
Chris Foster: Lastly, I want to mention that we have one other rate case, we will be filing in 2024, and our Ohio gas business. We anticipate filing this rate case mid year and will provide more details as we get closer to the filing.
Jason P. Wells: Now turning to our largest jurisdiction, Houston Electric. On our previous call, we indicated that we had requested an extension to file our Houston Electric rate case from March 9th to the second quarter of this year. However, at the January PECT open meeting, the commission decided to stay with the original March 9, 2024 deadline as ordered in the last rate, while we preferred the extended filing date that was supported by all parties in the case. We will be prepared to file the case in early March and anticipate a relatively flat revenue requirement increase. At the same January open meeting, the PECT finalized its rulemaking for House Bill 2555, better known as the Resiliency Bill.
Chris Foster: We look forward to working with all of our stakeholders to reach constructive resolutions to all of our rate cases.
Chris Foster: We believe we are well positioned in all of our cases as we've made prudent investments for our customers and we have made concerted efforts to reduce controllable O&M for the benefit of our customers.
Chris Foster: I realize that Theres, a lot of information, but given the relevance of the rate cases to all stakeholder groups and our intense focus on successfully executing this activity I believe it's important to cover in some depth with you.
Chris Foster: Those are all my updates for now with a strong foundation of a simple focused plan to drive value for all stakeholders 2023 was another great year here at Centerpoint as we continue to build a long track record of consistent execution.
Chris Foster: I am confident in our path forward as we reaffirm our commitment to our proven strategy into our long term non-GAAP EPS growth guidance target of 8% in 2024 and at the mid to high end of our 6% to 8% non-GAAP EPS guidance range for 2025 through 2030.
Jason P. Wells: As you may recall from our previous earnings call, the resiliency bill allows Texas TDUs to file a multi-year resiliency plan that would allow for the recovery of certain costs through riders or regulatory assets. For Houston Electric, these investments are expected to include investments in upgrading distribution lines, building new and upgrading older substations, and upgrading our transmission system. These upgrades should help support fewer and shorter unplanned outages, and faster restoration response with greater accuracy with respect to our restoration times.
Chris Foster: I want to thank all of our employees, but especially those on the frontlines.
Chris Foster: As they've worked hard to provide service to our customers even as we faced a historically hot summer in our Houston Electric service territory, damaging severe storms in Indiana and extreme cold throughout our service territories. This winter.
Chris Foster: 2024 will no doubt brings its own unique challenges, but I am confident we have the right team in place here to manage through them.
Chris Foster: With that I'll hand, it over to Chris for his financial update.
Chris Foster: Thanks, Jason.
Chris Foster: To echo Jason's sentiments regarding the team's performance this year seeing them go above and beyond to deliver for our customers even in some of the most challenging situations.
Jason P. Wells: Additionally, the rulemaking in its final form allows for deferral of certain costs, such as depreciation and a return on our cost of capital associated with distribution investments and resiliency between the time the assets are placed in service and when rates are updated for those investments. This final rule is beneficial in reducing regulatory lag on these critical investments. We initially indicated that we would make our filing towards the end of the first quarter. However, as the final rulemaking was slightly delayed, our filing will likely be submitted early in the second quarter.
Chris Foster: Their dedication and focus have certainly contributed to our delivery of financial results and operational performance outcomes that improve the customer experience.
Chris Foster: Today I'll cover four areas of focus.
First.
Chris Foster: The details of our fourth quarter and annual results.
Chris Foster: Second I'll provide additional color around our thoughts regarding the sale of our Louisiana and Mississippi Ldc's.
Chris Foster: Third an update regarding our positively revised capital plan.
Chris Foster: And lastly, an update of where we stand with our balance sheet and credit metrics.
Chris Foster: Let's start with the financial results on slide eight.
Chris Foster: As Jason highlighted earlier Q4, and full year 2023 was another strong year of financial performance here at Centerpoint.
Jason P. Wells: Now I'll highlight our three recently filed rate cases. In our other electric jurisdiction in Indiana, we filed a rate case in the first week of December with a requested revenue requirement increase of approximately $119 million distributed over the next three years. Much of this requested revenue requirement increase is associated with our investments in connection with a generation transition plan as we move away from coal to more efficient and cost-effective fuel types such as renewables and natural gas. As a reminder, we plan to fully exit operating coal generation by the end of 2027.
Chris Foster: On a GAAP EPS basis, we reported <unk> 30 for the fourth quarter of 2023.
Chris Foster: As previously noted our non-GAAP EPS results for the fourth quarter remove the results of our now divested nonregulated business energy systems group.
Chris Foster: On a non-GAAP basis, we reported 32 for the fourth quarter of 2023 compared to 28 in the fourth quarter of 2022.
Chris Foster: With this latest quarter of strong financial performance, we are right at the midpoint of our upwardly revised non-GAAP EPS guidance target range of $1 50 for the year.
Chris Foster: Taking a closer look at the quarter growth and rate recovery contributed <unk>, which was driven by the ongoing recovery from various interim mechanisms for which customer rates were updated earlier in the year, such as the transmission tracker or T costs at Houston electric the.
Chris Foster: The DC RF for which rates were updated in September and the Texas gas grips.
Jason P. Wells: These investments are a continuation of our prudent investing in Indiana as we strive to also keep customer bills affordable. In fact, since rates went into effect from our last rate case in 2009, customer charges have increased at a compounded annual growth rate of 0.5%, well below our peers in the state, which ranged between 1.7% and 4.7% over that same period of time.
Chris Foster: In addition, we continue to see strong organic growth in the Houston area, extending the long term trend of 1% to 2% average annual customer growth, which continues to benefit both customers and investors.
Chris Foster: Weather and usage, where <unk> unfavorable when compared to the same quarter of 2022.
Chris Foster: Primarily driven by the milder winter weather experienced in both our Houston Electric and Indiana Electric service territories.
Chris Foster: O&M was one unfavorable for the fourth quarter and <unk> <unk> favorable for the full year 2023.
Jason P. Wells: We expect a final decision in this case in Q4 of this year. Moving on to Texas CAB, we filed our Texas gas rate case towards the end of October with a requested revenue requirement increase of approximately $37 million. As a reminder, we combined all four of our Texas jurisdictions into a single rate case filing.
The Q4 figure was primarily due to the increase in vegetation management, which began in Q3 and continued into Q4.
Chris Foster: We saw these expenditures is prudent given the heightened recent drought conditions and other targeted gas and electric projects that should help us improve safety and reliability for our customers.
Chris Foster: However, even in light of pulling forward O&M, we were still able to achieve our net annual savings.
Jason P. Wells: This combined filing should not only result in a reduced number of filings on a go-forward basis, but in the near term, it should also result in declining bills for many of our customers, specifically those located in more rural areas. We have a third settlement conference later this month, and we look forward to continuing to work towards a constructive resolution of this case. Absent a settlement, we expect a final decision in the middle of the year.
Chris Foster: Lastly, I want to touch on a favorable one time item related to an income tax benefit which was recorded in the fourth quarter, which constitutes the majority of our other favorable drivers.
Chris Foster: Due to the number of divestitures over the last few years, our state income tax footprint has changed.
Chris Foster: This change in footprint has resulted in a reduced blended state income tax rate and we now anticipate paying fewer state income to cash taxes on a go forward basis.
Chris Foster: Under GAAP this reduced blended tax rate necessitated the remeasurement of our deferred taxes, which resulted in the onetime income tax benefit.
Jason P. Wells: Finally, turning to our Minnesota gas business, we filed a rate case on November 1st with requested revenue increases of approximately $85 million and $52 million for 2024 and 2025, respectfully. Interim rates for 2024 were approved in mid-December and went into effect on January 1st. The Commission will consider interim rates for 2025 towards the end of this year if we have not settled a case before then. This is the first time we have filed a multi-year rate case in Minnesota with the goal of providing smoother revenue increases for the benefit of our customers in the future. The majority of the requested revenue requirement increase could be attributed to the fundamental safety programs we operate, as well as some of the projects which we filed for under the Natural Gas Innovation Act.
Chris Foster: Additionally, the one time earnings benefit represents future cash tax savings that will provide an additional source of future incremental cash flow to be invested back into our regulated businesses for the benefit of customers.
Chris Foster: Closing out the earnings drivers for the quarter favorability from rate recovery and the income tax benefit was partially offset by a 5% increase in interest expense.
Chris Foster: The primary driver of this was the approximately $6 billion in debt issuances since Q4 of last year with higher coupon rates.
Chris Foster: However, the impact of this increase was partially offset by the redemption of the $800 million series, a preferred that occurred in September which eliminated the approximately $12 million quarterly dividend.
Chris Foster: I will discuss our long term financing plan and balance sheet in greater detail shortly.
Chris Foster: Informing our plan was the transaction, we announced this morning related to the sale of our Louisiana, and Mississippi natural gas LDC.
Chris Foster: I'd like to take a bit of time to talk about our thinking here.
Chris Foster: We were focused on both efficient capital redeployment.
Chris Foster: And investing thoughtfully to eliminate direct earnings implications from the loss in rate base.
Jason P. Wells: Lastly, I want to mention that we have one other rate case we will be filing in 2024 in our Ohio gas business. We anticipate filing this rate case mid-year and will provide more details as we get closer to the filing. We look forward to working with all of our stakeholders to reach constructive resolutions in all of our rate cases. We believe we are well-positioned in all of our cases as we've made prudent investments for our customers, and we've made concerted efforts to reduce controllable O&M for the benefit of our customers. I realize that this is a lot of information, but given the relevance of the rate cases to all stakeholder groups and our intense focus on successfully executing this activity, I believe it's important to cover it in some depth with you. Those are all of my updates for now.
Chris Foster: As you heard Jason mentioned earlier, we have signed an agreement to sell these quality Ldc's, which is anticipated to result in after tax cash proceeds of approximately $1 billion.
Chris Foster: This represents an earnings multiple of nearly 32 times based on 2023 earnings.
Chris Foster: This is a tremendous outcome, even when compared to the multiple at which we trade today.
Chris Foster: And one that demonstrates the continued market demand for gas LDC.
Chris Foster: We assumed the closing of this transaction will occur towards the end of the first quarter in 2025.
Chris Foster: These cash proceeds are expected to provide greater financing flexibility and efficiencies for our capital investments for both our gas and electric businesses throughout the remainder of the capital plan.
Chris Foster: I want to be clear that we do not see a change in our earnings guidance, nor are we making a downward revision to our capital investment targets through 2030 as a result of this transaction in fact.
Chris Foster: I'll touch on more in a moment, we are increasing our 10 year capital plan target by $600 million in aggregate, despite serving two fewer jurisdictions going forward.
Jason P. Wells: With a strong foundation of a simple, focused plan to drive value for all stakeholders, 2023 was another great year here at CenterPoint as we continue to build a long track record of consistent execution. I am confident in our path forward as we reaffirm our commitment to our proven strategy and to our long-term non-gap EPS growth guidance target of 8% in 2024 and at the mid to high end of our 6 to 8% non-gap EPS guidance range for 2025 through 2030. I want to thank all of our employees, but especially those on the front lines, as they've worked hard to provide service to our customers, even as we faced a historically hot summer in our Houston Electric Service Territory, damaging severe storms in Indiana, and extreme cold throughout our service territories this winter. 2024 will no doubt bring its own unique challenges, but I am confident we have the right team in place here to manage them. With that, I'll hand it over to Chris for his financial update. Thanks, Jason.
Chris Foster: This brings our total capital target to $44 5 billion through 2030.
Chris Foster: Following on Jason's remarks in 2023 alone, we invested $700 million above what we guided to at the beginning of the year.
Chris Foster: Much of this spend helped to backfill the rate base that would be lost in this transaction.
Chris Foster: This allowed us to make much needed investments in ongoing projects and resiliency and reliability.
Chris Foster: And although we recognize this temporarily increased our reliance on the balance sheet in the interim our investment also helped to synchronize capital deployment to prepare for this transaction.
Chris Foster: This spend supports a consistent ongoing commitment to and confidence in our earnings profile with no interruption expected to our long term earnings targets.
Chris Foster: Moving on to capital investments.
Speaker Change: I'll now focus a bit on our capital execution in 2023.
Speaker Change: The increase in our 10 year capital plan target shown here on slide nine.
The fourth quarter of 2023 represented yet another quarter of sound capital investment execution by the team here as we invested $900 million for the benefit of our customers and communities, bringing our 2023 capital deployment total to $4 3 billion.
Speaker Change: Given the broader economic impacts our customers are experiencing we continue to be focus on affordability from both an O&M and an ongoing targeted capital perspective.
Speaker Change: Even with the incremental capital investment we continue to estimate our growth in customer delivery charges at Houston electric to be equal to or less than the historic inflation rate of 2% through 2030.
Chris Foster: I want to echo Jason's sentiments regarding the team's performance this year, seeing them go above and beyond to deliver for our customers, even in some of the most challenging situations. Their dedication and focus have certainly contributed to our delivery of financial results and operational performance outcomes that improve the customer experience. Today, I'll cover four areas of focus. First,
We have confidence in our ability to achieve this given the size of the Houston electric customer base and its tremendous organic growth.
Speaker Change: Securitization charges that are rolling off the Bill later this year.
Speaker Change: And our plan to reduce O&M as I referenced.
Speaker Change: Reducing O&M will continue to be a focus while we execute our core work plan to meet our customers' needs.
Speaker Change: As we look over the last three years, even with the opportunity to complete more maintenance work on the system. We have successfully reduced O&M at about 2% per year on average over that period, which is the high end of our target.
Chris Foster: The details of our fourth quarter and annual results. Second, I'll provide additional color on our thoughts regarding the sale of our Louisiana and Mississippi LDCs. Third, an update regarding our positively revised capital plan. And lastly, an update on where we stand with our balance sheet and credit metrics. Let's start with the financial results on slide 8. As Jason highlighted earlier, Q4 and full year 2023 was another strong year of financial performance here at CenterPoint. On a GAAP EPS basis, we reported 30 cents for the fourth quarter of 2023.
Speaker Change: And we are just getting started on using lean as a methodology throughout the organization, which we expect to help us continue to reduce O&M and enhance the effectiveness of the capital we deploy.
Speaker Change: But even in its early stages, we are already seeing results.
One recent example that comes to mind comes from our electric business.
Speaker Change: Through a review of recent reliability outcomes any associated processes, we identified an internal standard that generated multiple truck rolls to the same location for the same issue.
Speaker Change: Had nothing to do with the issue not being addressed and fixed it after the first visit.
Speaker Change: But it was an internal standard that was resulting in multiple truck rolls.
The team is now implementing a modified standard that gives our frontline crews the ability to assess and address the word.
Speaker Change: Mitigating additional truck rolls and providing a better customer experience.
Chris Foster: As previously noted, our non-GAAP EPS results for the fourth quarter remove the results of our now divested, non-regulated business, Energy Systems Group. On a non-GAAP basis, we reported $0.32 for the fourth quarter of 2023 compared to $0.28 in the fourth quarter of 2022. With this latest quarter of strong financial performance, we are right at the midpoint of our upperly revised non-GAAP EPS guidance target range of $1.50 for the year. Taking a closer look at the quarter, growth and rate recovery contributed 5 cents, which was driven by the ongoing recovery from various interim mechanisms for which customer rates were updated earlier in the year, such as the Transmission Tracker, or TCOS, at Houston Electric, the DCRF, for In addition, we continue to see strong organic growth in the Houston area, extending the long-term trend of 1-2% average annual customer growth, which continues to benefit both customers and investors. However, weather and usage were 1 cent unfavorable when compared to the same quarter of 2022.
This is just a small but meaningful example of improving customer outcomes, while also being more efficient in our O&M activities.
Speaker Change: We certainly appreciate the focus of our teams on the customer and doing the right work, while also eliminating the rework along the way.
Speaker Change: Here on Slide 13, you can see the cumulative effect. This illustrates a rare attribute in our sector. The charges associated with the work we deliver on our customers' bills have stayed essentially flat over the last 10 years.
Speaker Change: We are proud and fortunate to serve a thriving community, where we seek to thoughtfully invest in key infrastructure doing our part to enable the economic development of our region.
Speaker Change: As we look further out into the plan I want to provide some additional insight into and address our evolving tax profile to how we're thinking about the financing of our plan.
Speaker Change: First the sale of our Louisiana, and Mississippi Ldc's is expected to provide greater financing flexibility over the course of our plan as we look to deploy those proceeds as well as reallocate the capital previously associated with those businesses.
Speaker Change: We are also now assuming moderate pressure coming from evolving tax policy in.
Speaker Change: In particular this relates to the alternative minimum tax or A&P.
Speaker Change: Unlike many others in the sector Centerpoint has historically been a cash taxpayer.
Speaker Change: On a prospective basis given the current guidance, we now assume that our base case is that we are subject to A&P.
Speaker Change: However, as we look to the future we anticipate our cash tax liability that will be partially offset by the credit generated from paying A&P.
Speaker Change: Allowing us to monetize these payments.
Speaker Change: We expect this cash tax liability will largely be driven by our income tax liability generated from operations and the tax liability associated with the maturity of our zens instrument that matures in 2029.
Chris Foster: Primarily driven by the milder winter weather experienced in both our Houston Electric and Indiana Electric service territories, O&M was one cent unfavorable for the fourth quarter and one cent favorable for the full year 2023. The Q4 figure was primarily due to the increase in vegetation management, which began in Q3 and continued into Q4. We saw these expenditures as prudent, given the heightened recent drought conditions and other targeted gas and electric projects that should help us improve safety and reliability for our customers. However, even in light of pulling forward O&M, we were still able to achieve a net annual savings. Lastly, I want to touch on a favorable one-time item related to an income tax benefit which was recorded in the fourth quarter and which constitutes the majority of our other favorable drivers. Due to the number of divestitures over the last few years, our state income tax footprint has changed. This change in footprint has resulted in a reduced blended state income tax rate, and we now anticipate paying fewer state income cash taxes on a go-forward basis.
Speaker Change: I would think of this as simply prepaying cash tax liabilities associated with our zens instrument.
Speaker Change: With respect to funding incremental capital our funding strategy introduced last quarter remains unchanged.
Speaker Change: As we continue to identify and execute incremental capital equity or equity like funding would be required and I'll reiterate that you should assume this equity funding should be in line with our consolidated capital structure.
Speaker Change: So as we look to fund the incremental $600 million announced today of which $100 million was already deployed in 2023.
Speaker Change: That would imply that we expect to issue approximately $250 million of equity under our ATM program in 2025 and.
Speaker Change: In addition to the 250 million we plan to issue in 2024.
To add color to what Jason touched on in his remarks on a go forward basis, we anticipate that these modest issuances of roughly $250 million will be programmatic through 2030, as we continue to fund what we anticipate will be expanding capital needs and satisfy our near term minimum tax obligations.
Speaker Change: We will be in a better position to provide additional color around our future capital plan.
Speaker Change: And the corresponding financing plan as we get to the other side of our rate case filings.
Speaker Change: Finally to highlight the balance sheet and credit strength.
Speaker Change: As of the end of the year are calculated <unk> was 14%.
Speaker Change: Delivering the cushion we continue to emphasize.
Speaker Change: For two reasons I will touch on we may be in a transitory period for a few quarters, but continue to target <unk> to debt through 2030 at our target range of 100 to 150 basis points of cushion to our downgrade threshold of 13%.
Chris Foster: Under GAAP, this reduced blended tax rate necessitated the remeasurement of our deferred taxes, which resulted in the one-time income tax benefit. Additionally, the one-time income tax benefit represents future cash tax savings that will provide an additional source of future incremental cash flow to be invested back into our regulated businesses for the benefit of customers. Closing out the earnings drivers for the quarter, favorability from rate recovery and the income tax benefit was partially offset by a five-cent increase in interest expense. The primary driver of this was the approximately $6 billion in debt issuances since Q4 of last year with higher coupon rates. However, the impact of this increase was partially offset by the redemption of the $800 million Series A preferred that occurred in September, which eliminated the approximately $12 million quarterly dividend.
Speaker Change: We are continuing to carry over $400 million of debt at the parent which was issued to fund our higher equity layer at both Houston Electric in Texas gas.
Speaker Change: We believe these are the proper capitalization of these businesses and we've reflected this in our Texas gas rate case filing and will do so as well and the CD rate case that we filed here in the next few weeks. Additionally.
Speaker Change: Additionally, as both Jason and I touched upon we performed much more work in 2023 than we had originally anticipated as we made much needed investments in resiliency and reliability, especially at Houston electric.
Speaker Change: The combination of cap structure positioning and the incremental investments is temporary elevating our debt on the balance sheet.
Speaker Change: Which we felt comfortable with as we anticipate cash coming in the door from the sale of our Louisiana, and Mississippi, Elysees and the recovery of those investments.
Speaker Change: An area in which we've seen improvement is the continued reduction of our exposure to floating rate debt.
Speaker Change: We reduced floating rate debt to approximately $1 9 billion in 2023, which represents close to a nearly 60% reduction when compared to 2022.
Speaker Change: This includes a floating rate note a $350 million at five 9%, which matures soon.
Chris Foster: I'll discuss our long-term financing plan and balance sheet in greater detail shortly. Informing our plan was the transaction we announced this morning related to the sale of our Louisiana and Mississippi natural gas LDCs. I'd like to take a bit of time to talk about our thinking here. We were focused on both efficient capital redeployment and investing thoughtfully to eliminate direct earnings implications from the loss and rate base.
Speaker Change: We remain focused on maintaining a strong balance sheet throughout this interest rate environment.
Speaker Change: We believe we have built in conservatism into our long term plan and today shows another step in progressing that plan for customers and investors.
Speaker Change: Today's announcement and capital allocation focuses on planning for the long term into jurisdictions with solidly improving regulatory recovery and shared large growing customer basis.
Speaker Change: That's the only serves to strengthen an already great plan.
Speaker Change: And execute even in the face of continued headwinds for the benefit of customers and investors.
Speaker Change: With three consecutive years of 9% growth behind us we continue to reaffirm our non-GAAP EPS target of 8% this year.
Chris Foster: As you heard Jason mention earlier, we have signed an agreement to sell these quality LDCs, which is anticipated to result in after-tax cash proceeds of approximately $1 billion. This represents an earnings multiple of nearly 32 times based on 2023 earnings. This is a tremendous outcome, even when compared to the multiple at which we trade today and one that demonstrates the continued market demand for gas LDCs. We assume the closing of this transaction will occur towards the end of the first quarter in 2025. These cash proceeds are expected to provide greater financing flexibility and efficiencies for our capital investments for both our gas and electric businesses throughout the remainder of the capital plan. I want to be clear that we do not see a change in our earnings guidance, nor are we making a downward revision to our capital investment targets through 2030 as a result of this transaction.
Speaker Change: In the mid to high end of 6% to 8% thereafter through 2030.
Speaker Change: And with that I'll now turn the call back over to Jason.
Jason P. Wells: Thank you Chris I look forward to leading this company for many years to come and executing what I believe to be one of the best most tangible long term growth plans in the industry I am confident in our team and the organizations continued improvement to enhance an already strong track record of delivering for all of our stakeholders.
Speaker Change: Great. Thank you Jason operator, we're now prepared to take Q&A.
Speaker Change: At this time, we will begin taking questions. If you wish to ask a question. Please press star one on your Touchtone keypad.
Speaker Change: A request that when asking a question callers pick up the telephone handsets.
Thank you and one moment please for our first question.
Speaker Change: The first question comes from Anthony <unk> with Mizuho. Your line is now open.
Anthony: Hey, good morning team a lot to unpack here, if I could just start Jason in your prepared remarks, you gave three points to about this sale and one of them was about looking at states, where you have combined electric and gas assets or a larger presence try then connect that with.
Chris Foster: In fact, as I'll touch on more in a moment, we are increasing our 10-year capital plan target by $600 million in aggregate, despite serving two fewer jurisdictions going forward. This brings our total capital target to $44.5 billion through 2030. Based on Jason's remarks, in 2023 alone, we invested $700 million above what we guided to at the beginning of the year.
Jason P. Wells: On slide 16.
Jason P. Wells: I'd like to talk more about some of the other gas assets, where theyre not overlapping to electric to the electric system is that also a potential use of proceeds going forward.
Chris Foster: Much of this spend helped to backfill the rate base that would be lost in this transaction. This allowed us to make much needed investments in ongoing projects for resiliency and reliability. And, although we recognize this temporarily increased our reliance on the balance sheet in the interim, our investment also helped to synchronize capital deployment to prepare for this transaction. This spend supports a consistent, ongoing commitment to, and confidence in, our earnings profile, with no interruption expected to our long-term earnings targets. Moving on to capital investment, I'll now focus a bit on our capital execution in 2023 and the increase in our 10-year capital plan target, shown here on slide 9. The fourth quarter of 2023 represented yet another quarter of sound capital investment execution by the team here, as we invested $900 million for the benefit of our customers and communities, bringing our 2023 capital deployment total to $4.3 billion. Given the broader economic impacts our customers are experiencing, we continue to be focused on affordability from both an O&M and an ongoing targeted capital perspective. Even with the incremental capital investment, we continue to estimate our growth in customer delivery charges at Houston Electric to be equal to or less than the historic inflation rate of 2% through 2030.
Jason P. Wells: Hey, good morning, Anthony.
Speaker Change: I appreciate the question.
Jason P. Wells: Look I think we've got a proven track record here.
Sure.
Look to fund our industry, leading leading growth plan as efficiently as possible and this will be the fourth transaction over the last three years doing that.
Jason P. Wells: Rates to the remaining composition after we close the sale of.
Jason P. Wells: Mississippi, We're really pleased with the states we have the privilege to serve I think we pointed out we have a bias.
Jason P. Wells: Dual fuel basis, but we also have a bias where we have presence and so we're really happy with the remainder of the portfolio.
Jason P. Wells: Just say that we will continue to look to fund this growth as efficiently as possible as we've proven over the last few years.
Jason P. Wells: Yeah.
Jason P. Wells: And then.
Speaker Change: My my tax accounting skills are very weak so I apologize.
Speaker Change: I think of the incremental $2 50, a year plus the proceeds you have from this transaction.
Speaker Change: Coupled with I think the maturity of <unk> in 2029 that your annual cash tax Bill will increase from now through the plan. What is your cash tax Bill decrease and this additional capex additional equity or equity like proceeds are more for capex.
Speaker Change: Sure.
Speaker Change: Hey, good morning, it's Chris I think the simple way to think about it is we've consistently been a cash taxpayer for a number of years. The way I would think about these kind of coming together is you have.
Chris Foster: Zen is out in 2029, but the interesting attribute of the corporate Alt Min tax is it actually allows us to reduce that exposure over time and so as you look at the different pieces youll have the equity component today.
Chris Foster: The proceeds from the sale and offsetting those would be the combination of the Alt min tax.
Chris Foster: At least at this point forecasted impacts again, because thats not finalized as well as the increased capex that we highlighted today.
Chris Foster: We have confidence in our ability to achieve this, given the size of the Houston Electric customer base and its tremendous organic growth, as well as the securitization charges that are rolling off the bill later this year and our plan to reduce O&M costs, as I referenced. Reducing O&M will continue to be a focus while we execute our core work plan to meet our customers' needs. As we look back over the last three years, even with the opportunity to complete more maintenance work on the system, we have successfully reduced O&M at about 2% per year, on average, over that period, which is the high end of our target. And we are just getting started on using Lean as a methodology throughout the organization, which we expect to help us continue to reduce O&M and enhance the effectiveness of the capital we deploy.
Speaker Change: Great. Thanks for taking my questions Congrats on a great quarter.
Speaker Change: Thanks Anthony.
Please standby for the next question.
Speaker Change: The next question comes from Steve Fleishman with Wolfe Research Your line is open.
Steve Fleishman: Yes. Thank you.
Steve Fleishman: And.
Steve Fleishman: Congrats on the sale.
Steve Fleishman: <unk>.
Steve Fleishman: So just a follow up on the on the question on the taxes question, Jason do you have a sense of.
Steve Fleishman: Roughly how much cash tax youll be paying the year, let's say 'twenty four 'twenty five or just something that we can use for that.
Jason P. Wells: Sure Steve morning I'll.
Jason P. Wells: I will just be rough here, it's roughly a $150 million a year as we look at the period.
Jason P. Wells: From 24 really through 2030.
Speaker Change: If you just step back maybe I could help paint the sources and uses for you Steve If that helps you said to hit it on the nose you've got it.
Speaker Change: At the highest order, what we announced today right as you've got the fact that we've already invested in the capital, which we replaced the $700 million of rate base associated with the gasoline <unk>.
Chris Foster: But even in its early stages, we are already seeing results. One recent example that comes to mind comes from our electric business. Through a review of recent reliability outcomes and the associated processes, we identified an internal standard that generated multiple truck rolls to the same location for the same issue. This had nothing to do with the issue not being addressed and fixed after the first visit, but it was an internal standard that was resulting in multiple truck rolls.
Speaker Change: And we did that while maintaining the episode of debt cushion any earnings guidance unchanged. So as you look at the sources themselves. We've got from 25 to 2030 at a time period I think about you have got $250 million per year.
Speaker Change: From the equity piece.
Speaker Change: You've got the.
Speaker Change: <unk>.
Speaker Change: That gets you to $1 5 billion, then you've likely got.
Speaker Change: The ATM issuance of equity like proceeds right, which is what that comes from and so ultimately just to put that in perspective at that amount of that equity that's less than a percent in half of our market cap per year.
Chris Foster: The team is now implementing a modified standard that gives our front-line crews the ability to assess and address the work, mitigating additional truck rolls and providing a better customer experience. This is just a small but meaningful example of improving customer outcomes while also being more efficient in our O&M activities. We certainly appreciate the focus of our teams on the customer and doing the right work while also eliminating rework along the way. Here on slide 13, you can see the cumulative effect. This illustrates a rare attribute in our sector. The charges associated with the work we deliver on our customers' bills have stayed essentially flat over the last 10 years.
Speaker Change: On the user side, you've got roughly.
Speaker Change: A roughly similar amount there right so similar or just shy of about $1 billion through 2030 for the projected Corp. Alt Min tax impact and then the incremental $500 million of growth Capex that we talked about today. So that gives us a good amount of comfort that we can really deliver the plan for the long term fold and potentially some additional capital over.
Speaker Change: And proactively positioned the balance sheet and so I think in the end I think we all know that the assortment tax piece isn't finalized yet I think that's something that we're all watching but this is just the essence of us trying to plan conservatively going forward.
Speaker Change: Okay.
Speaker Change: And just on the.
Speaker Change: All the <unk>. So is that mainly kind of we should watch.
Speaker Change: The things that we've been watching for the industry likes a repair deduction and things like that.
Could affect whether that ends up being what you're projecting or not.
That's accurate, Steve I would think about depending on where the repairs piece land that could actually lessen the.
Speaker Change: Impact here that we're talking about this morning related to the assortment.
Speaker Change: Okay, Great and then.
Chris Foster: We are proud and fortunate to serve a thriving community where we seek to thoughtfully invest in key infrastructure, doing our part to enable the economic development of our region. As we look further out into the plan, I want to provide some additional insight into and address our evolving tax profile and how we're thinking about the financing of our plan. First, the sale of our Louisiana and Mississippi LDCs is expected to provide greater financing flexibility over the course of our plan as we look to deploy those proceeds as well as reallocate the capital previously associated with those businesses. We are also now assuming moderate pressure coming from evolving tax policy. In particular, this relates to the Alternative Minimum Tax, or AMT. Unlike many others in the sector, CenterPoint has historically been a cash taxpayer.
Speaker Change: On the.
Speaker Change: Jason you went through all the rate cases I appreciate that just be curious your thoughts on the new.
Speaker Change: Share of the Texas PUC.
Jason P. Wells: Yes, Thanks, Steve.
Jason P. Wells: And we've got a long history of working with Chairman Lisa.
Speaker Change: He stepped in the role of executive director kind of after winter storm Yuri.
Yes.
Speaker Change: Have tackled a number of issues here in Texas with him, particularly.
Speaker Change: I think back to the last legislative session here.
Speaker Change: This past year.
Speaker Change: The work that we did around.
Speaker Change: Cost of capital and cap structure from a legislative basis, but I think it's.
Speaker Change: A real opportunity for us.
Speaker Change: You need to leverage that relationship that we build I was in Germany.
Speaker Change: December prior to the announcement.
Speaker Change: As I step kind of currently this wrong. So we'll maintain a really good relationship there, but I think Steve stepping back I want to provide a little bit of context about how we're positioning all of these rate cases.
Chris Foster: On a prospective basis, given the current guidance, we now assume that our base case is that we are subject to AMT. However, as we look to the future, we anticipate a cash tax liability that will be partially offset by the credit generated from paying AMT, allowing us to monetize these payments. We expect this cash tax liability will largely be driven by our income tax liability generated from operations and the tax liability associated with the maturity of our Zens instrument that matures in 2029. I would think of this as simply pre-paying cash tax liabilities associated with our Zenz instruments. With respect to funding incremental capital, our funding strategy introduced last quarter remains unchanged.
Speaker Change: What maybe.
Speaker Change: Maybe not understood as well as.
Speaker Change: Possible is that last year.
Speaker Change: We increased revenues in our Houston electric business by about $300 million through settlements.
Speaker Change: As we continue to look forward.
Speaker Change: Anticipating a relatively flat revenue requirement.
Speaker Change: Requesting this upcoming Houston electric rate case, and we will continue to work with parties constructively to resolve it and so I think it's continuing to maintain strong relationships with the commissioners, but equally continuing to work constructively with all parties in the cases.
Speaker Change: Great. Thank you.
Speaker Change: One moment for the next question.
Speaker Change: Yes.
Speaker Change: The next question comes from Shar <unk> with Guggenheim Partners. Your line is open.
Speaker Change: Good morning, it's actually Constantine here for Shar, Congrats on a great quarter and update.
Chris Foster: As we continue to identify and execute incremental capital, equity or equity-like funding would be required, and I'll reiterate that you should assume this equity funding should be in line with our consolidated capital structure. So, as we look to fund the incremental $600 million announced today, of which $100 million was already deployed in 2023. That would imply that we expect to issue approximately $250 million of equity under our ATM program in 2025, in addition to the $250 million we plan to issue in 2024. To add color to what Jason touched on in his remarks, on a go-forward basis, we anticipate that these modest issuances of roughly $250 million will be programmatic through 2030 as we continue to fund what we anticipate will be expanding capital needs and satisfy our near-term minimum tax obligations. We will be in a better position to provide additional color around our future capital plan and the corresponding financing plan as we get to the other side of our rate case filing. Finally, to highlight the balance sheet and credit strength, as of the end of the year, our calculated FFO to debt was 14%.
Constantine: Good morning.
Constantine: Just following up on the sale announcement, how are you thinking about the timing of Reinvestments and use of proceeds as we just think about the potential accretion versus the plan and we anticipate this will create more investment capacity versus the 14% metrics you highlighted for 2003.
Speaker Change: Yes, Thanks, Constantine I think what's important here is we're working off our front foot.
Speaker Change: As we've talked about.
Speaker Change: Increased.
Speaker Change: For 2023, Capex spend about $700 million for critical investments for our customers that is basically enabling us to put those investments in rates at the same time that we anticipate closing on this.
Speaker Change: Oil in early 2025, so effectively.
Speaker Change: Pre funded the loss of rate base.
About these procedures.
Speaker Change: Effectively paying off what has been pre funded enhancing.
Speaker Change: Our balance sheet and putting us in a position to.
Speaker Change: Continued strength moving forward.
Speaker Change: Thanks that makes sense and do you have any thoughts on the cadence of future updates, especially as you look to optimize around Texas resiliency. When you look at any kind of periodic updates.
Speaker Change: What to expect.
Speaker Change: Yes, thanks for the question as you.
Speaker Change: I think hopefully appreciate at this point I think we're building a track record of.
Speaker Change: Consistent update.
Speaker Change: Throughout the year I don't think were going to be the management team that weights kind of annually for a cycle as we have news we will share it.
Speaker Change: And we're constantly looking at enhancing our plan and built that track record of continuous updates quarter after quarter I think stepping back more broadly, though I think as we get to the other side of these rate cases, and 25 I look forward to hosting another investor day, where.
Chris Foster: Delivering the cushion, we continue to empathize. For two reasons I'll touch on, we may be in a transitory period for a few quarters but continue to target FFO to debt through 2030 at our target range of 100 to 150 basis points of cushion to our downgrade threshold of 13%. We are continuing to carry over $400 million of debt at the parent company, which was issued to fund our higher equity layer at both Houston Electric and Texas Gas.
Speaker Change: At that point, we will likely put forward a new 10 year plan into the mid 2000, Thirty's, just reflecting our long term confidence in.
Speaker Change: The growth that we have here at Centerpoint and Joe.
Speaker Change: Expect periodic.
Speaker Change: Periodic updates in between now and then and then on the other side of these rate cases are much more comprehensive update underpinning the long term growth.
Speaker Change: That we have in front of us.
Speaker Change: Looking forward to it and maybe just one last clean up question following up on the regulatory side.
Speaker Change: Any lessons learned in the active cases, especially as you're considering the Houston filing now in March and any thoughts on settlement prospects a partial settlement of issues.
Chris Foster: We believe these are the proper capitalization of these businesses, and we've reflected this in our Texas gas rate case filing, and we'll do so as well in the CEHE rate case that we file here in the next few weeks. Additionally, as both Jason and I touched upon, we performed much more work in 2023 than we had originally anticipated as we made much needed investments in resiliency and reliability, especially at Houston Electric. The combination of cap structure positioning and the incremental investments is temporarily elevating our debt on the balance sheet, which we feel comfortable with as we anticipate cash coming in the door from the sale of our Louisiana and Mississippi LDCs and the recovery of those investments. An area in which we've seen improvement is the continued reduction of our exposure to floating rate debt. We reduced floating rate debt to approximately $1.9 billion in 2023, which represents close to a nearly 60% reduction when compared to 2022. This includes a floating rate note of $350 million at 5.99%, which matures soon. We remain focused on maintaining a strong balance sheet throughout this interest rate environment.
Speaker Change: A little fun fact on this Houston electric rate case.
Speaker Change: As we are putting the final touches on the filing and it'll be the smallest revenue requirement increase requested.
Speaker Change: In the history of Centerpoint or its predecessor companies back to 1970, 5%.
Speaker Change: It's really I think reflective of the hard work that we're doing to maintain.
Speaker Change: Portable from service for our customers, despite significant increases and improving system resiliency and reliability. So in that way I hope we're putting forward.
Speaker Change: I think we are very constructive revenue requirement increase as I look forward to that procedural schedule. There is the possibility of potentially suddenly in the Houston electric rate case sometime mid summer.
Speaker Change: Between intervenor testimony and hearings.
Speaker Change: But again I think our focus is on filing a compelling case for all stakeholders.
Speaker Change: Constructively through that process.
Speaker Change: Excellent that's very helpful. Thank you for taking my questions today.
Speaker Change: Thanks Scotty.
Speaker Change: For the next question.
Speaker Change: The next question comes from Doug gas Choper out with Evercore. Your line is open.
Doug Gaschoper: Hey, guys. Good morning, thanks for giving the time.
Doug Gaschoper: Can I just quickly clarify the rate base number on the two gas LDC is that we're sort of in the 700 or $800 million.
Doug Gaschoper: It was roughly $800 million of rate base.
Doug Gaschoper: We have invested in Louisiana and Mississippi.
Doug Gaschoper: $700 million is what we increased.
Doug Gaschoper: Our capital expenditure plan in 2023 effectively pre funding.
Chris Foster: We believe we have built in conservatism into our long-term plan, and today shows another step in progressing that plan for customers and investors. Today's announcement and capital allocation focuses on planning for the long term into jurisdictions with solidly improving regulatory recovery and a shared large growing customer base. This only serves to strengthen an already great plan and execute it even in the face of continued headwinds for the benefit of customers and investors. With three consecutive years of 9% growth behind us, we continue to reaffirm our non-gap EPS target of 8% this year and the mid to high end of 6% to 8% thereafter through 2030. And with that, I'll now turn the call back over to Jason. Thank you, Chris.
Doug Gaschoper: The anticipated rate base that will.
With that sale of Louisiana, Mississippi.
Speaker Change: Got it thanks, so much.
Speaker Change: And then maybe just.
Speaker Change: As we think about future capital raises Jason.
Speaker Change: Jason and requests whats the cadence of equity potential funding to equity.
Speaker Change: Future capital raises here.
Speaker Change: Look to opioids.
Speaker Change: Sure.
Jason P. Wells: To be consistent here with where we have been and that is as we look at the potential for incremental growth Capex opportunities you should think about them funding funding them in line with our regulated cap structure. So again, just directionally about 50 50, there and again as we look even just here in the Houston area. We continue to see really growth on all fronts, the residential side, including.
Jason P. Wells: Housing starts increasing year over year, and then substantial opportunities as it relates to the industrial side in particular, most recently you probably have seen that the department of energy identified a series of hydrogen hubs across the country no surprise that one of those is here in Houston and really what's compelling about it is not only the opportunities there.
Jason P. Wells: I look forward to leading this company for many years to come and executing what I believe to be one of the best, most tangible long-term growth plans in the industry. I am confident in our team and the organization's continued improvement to enhance an already strong track record of delivering for all of our stakeholders. Great. Thank you, Jason.
Jason P. Wells: It presents for economic growth for the communities and overall load growth, but the fact that it creates permanent jobs right to the tune of over 30% to 35000 jobs is what they've identified there. So that's really the type of growth that we're excited about their end.
Jason P. Wells: It could be hydrogen that can be residential it could be small and medium business were really just appreciative of the community that we have the privilege to serve.
Operator: Operator, we're now prepared to take Q&A. At this time, we will begin taking questions. If you wish to ask a question, please press star 11 on your touchtone keypad. The company requests that callers pick up their telephone handset when asking a question.
Speaker Change: I appreciate that color. Thank you very much and I apologize, but just one last one.
Speaker Change: $15 million a year in cash taxes, Chris that you alluded to was that incremental or higher cash taxes payments versus your previous plan or is that inclusive of this fall.
Operator: Thanks. And one moment, please, for our first question. The first question comes from Anthony Crowdell with Mizzou.
Speaker Change: The thing is that our total amount or is that just the incremental amount.
Speaker Change: I would think about that is the incremental amount.
Speaker Change: Yes, just a little bit of color around this as we've talked about sorry, what has historically been a federal cash taxpayer.
Speaker Change: The last couple of years, we've talked about adopting the repairs tax and really minimizing that bill right about the time that our cash taxes will be coming down is right around the time it will be subject to the many tax and so I'm thinking about this as kind of incremental as we can work down that federal cash tax.
Anthony Crowdell: Your line is now open. Hey, good morning team. A lot to unpack here.
Jason P. Wells: If I could just start, Jason, you gave prepared remarks. I think you gave three points about the sale, and one of them was about looking at states where you have combined electric and gas assets or a larger presence.
Speaker Change: Payment position.
Speaker Change: Got it thanks, so much I appreciate the time again.
Speaker Change: Thank you.
Anthony Crowdell: If I then connect that with slide 16, I'd like to talk more about some of the other gas assets where they're not overlapping with the electric system. Is that also a potential use of proceeds going forward? Good morning, Anthony.
Speaker Change: Our next question.
Speaker Change: The next question comes from Sophie Karp with Keybanc. Your line is open.
Sophie Karp: Hi, Good morning, guys. Thank you for taking my question and congrats on the strong.
Sophie Karp: Quarter and the year.
Sophie Karp: Thanks, Good morning Savi.
Jason P. Wells: I appreciate the question. Look, I think, you know, we've got a proven track record here where, you know, we look to fund our industry-leading, leading growth plan as efficiently as possible. This will be the fourth transaction over the last three years doing that. You know, as it relates to the remaining composition, after we close the sale of Louisiana and Mississippi, we're really pleased with the states we have the privilege of serving. I think we pointed out we have a bias on a dual fuel basis. But we also have a bias where we have presence.
Sophie Karp: So can I ask you a question about the I guess the.
Sophie Karp: The new filing under new resiliency filing in Texas under the new law.
So you have to have most of your Capex in Texas recovered through contemporaneous mechanisms.
Sophie Karp: Kind of an impact do you anticipate from.
Sophie Karp: Yes.
Sophie Karp: Separate in some part of your capital there into this.
Sophie Karp: Trackers potentially.
Speaker Change: Yes, thanks for the question Joe.
Speaker Change: Wouldn't necessarily think about this resiliency filing is changing the mechanism of recovery I think we will continue to pursue.
Anthony Crowdell: And so we're really happy with the remainder of the portfolio. I'll just say that we'll continue to look to fund this growth as efficiently as possible as we've proven over the last... My tax accounting skills are very weak, so I apologize. Should I think of the incremental $250 a year plus the proceeds you have from this transaction? Coupled with, I think, the maturity of the Zens in 2029, will your annual cash tax bill increase from now, you know, through the plan, or will your cash tax bill decrease?
Speaker Change: Constructive distribution and transmission capital trackers that we have currently I think the real benefit.
Speaker Change: Outside of really putting forward a three year plan I will look at the cost benefit analysis of these investments to make sure that we're prudently investing on behalf of our customers. The real benefit financially is that the distribution capital that is subject to that improved three year plan.
Speaker Change: Effectively we will.
Speaker Change: Minimize regulatory lag associated with that investment.
Speaker Change: That regulatory lag is effectively when we put that capital into service, we begin depreciating that we begin to.
Chris Foster: And this additional equity or equity-like proceeds are more for CapEx. Sure. Anthony, good morning. It's Chris.
Speaker Change: Reported interest and taxes on it.
Speaker Change: Those amounts today fall to the bottom line.
Speaker Change: Form of regulatory lag before the capital is put into rates.
Chris Foster: I think the simple way to think about it is that we've consistently been a cash tax payer for a number of years. The way I would think about this kind of coming together is you have Zens out in 2029, but the interesting attribute of the corporate alt-min tax is that it actually allows us to reduce that exposure over time. And so as you look at the different pieces, you'll have the equity component today, you'll have the proceeds from the sale, and offsetting those would be the combination of the alt-min tax, at least at this point, forecasted impacts, again, because that's not finalized, as well as the increased CapEx that we highlighted today. Great, thanks for taking my questions. Congratulations on a great quarter. Thank you. Please stand by for the next question. The next question comes from Steve Fleishman with Wolf Research. Your line is open.
As we look forward now.
Speaker Change: We have the opportunity to defer those posting service carrying costs.
Speaker Change: Until we start collecting.
Speaker Change: Capital investment in rates the way that I'm thinking about this from a rule of thumb standpoint is about every $300 million of eligible distribution capital.
Speaker Change: It's worth about a penny.
Speaker Change: Regular savings.
Speaker Change: Savings in terms of regulatory lag and so think about this less as a <unk>.
Speaker Change: New mechanism for recovery and more about helping minimize regulatory lag on our system investment.
Speaker Change: Got it that anticipate helpful. Thank you.
Speaker Change: And then my other question was on the capital plan increase right. The incremental 4 billion that you guys are showing should we think about this is more elastic to ratable increase over the 10 years.
Speaker Change: Over the remainder of the planned rather.
Speaker Change: Or is it some shape to it.
Speaker Change: Sure thing Sophie I think it's fairly ratable I think maybe a couple of exceptions relates specifically to a few things that we're looking at in Indiana in particular related to some generation projects. There those tend to be just inherently a little bit larger as we work those into the plan, but otherwise really across the plan I think the thing to emphasize here is we don't know.
Steve Fleishman: Yeah, thank you. And congrats on the sale announcement. So just a follow-up on the question about the taxes, Chris or Jason, do you have a sense of, kind of roughly how much cash tax you'd be paying a year, let's say $24, $25, or just something that we can use for that? Sure, Steve. I'll just be rough here.
Speaker Change: No big bets that we're looking at here is very straightforward.
Speaker Change: Base utility Capex that we're looking at.
Sophie Karp: Great. Thank you that's all for me.
Speaker Change: Operator, I think we have time for one more question. Please okay.
Speaker Change: The last question will come from Julien Dumoulin Smith with Bank of America. Your line is open.
Speaker Change: Hey, good morning. Thank you guys very much I appreciate it.
Speaker Change: Good morning Julien.
Chris Foster: It's roughly $150 million a year as we look at the period from 2004 really through 2030. If you just step back, maybe I could help paint the sources and uses for you, Steve, if that helps, just to hit it on the nose. You've got... At the highest order, what we announced today, right, is that we've already invested in the capital, which replaces the $700 million of rate base associated with the gas LDCs, and we did that while maintaining the FFOTA debt cushion and the earnings guidance unchanged. So as you look at the sources themselves, we've got from 25 to 2030, the time period I think about, you've got $250 million per year from the equity You've got the, that gets you to 1.5 billion. Then you've likely got the ATM issuance or equity-like proceeds, which is what that comes from. And so ultimately, just to put that in perspective, at that amount, at that equity, that's less than a percent and a half of our market cap per year.
Speaker Change: Excellent. So just wanted to close this out if you don't mind.
Speaker Change: The next quarter here as we think about the multiyear resiliency filing that youre going to be coming forward with I just wanted to clarify that so we've talked a lot about the ATM and the $2 50 here, we've talked about the asset sales how do you think about especially the asset sale side of it is effectively pre funding any portion of that resiliency planning to come here in the next quarter just want to really clear.
Speaker Change: <unk>.
Speaker Change: How much incremental equity could be coming as part of a yet higher capex number associated with a fully <unk>.
Speaker Change: This positive.
Speaker Change: Resiliency filings.
Speaker Change: Yes, Julian Thanks for the question I mean, I think what we're trying to do is lay out kind of the pieces here.
Speaker Change: We've been investing as you know it.
Speaker Change: It improved resiliency for the community here in Houston over the last couple of years, starting with kind of with resiliency now.
Part of the $700 million.
Speaker Change: We increased our Capex plan last year 2023 by or investments directly attributable to.
Speaker Change: Two improving system resiliency and then as well when you think about this transaction.
Speaker Change: As the approximate $1 billion after tax proceeds, which really helps fund that pre investment that I've been speaking about but the other opportunity that I want to stress is in our.
Chris Foster: And on the user side, you've got a roughly similar amount there, right? So, similar to or just shy of about a billion dollars through 2030 for the projected Corp. Altman tax impact, and then the incremental $500 million of growth capex that we talked about today. So that gives us a good amount of comfort that we can really deliver the plan for the long term, fold in potentially some additional capital over time, and proactively position the balance sheet. And so, in the end, I think we all know that the Cortman tax piece isn't finalized yet.
Speaker Change: Previous 10 year capital plan any 2030, we had about a $1 billion of incremental investment earmarked for Louisiana, Mississippi.
Speaker Change: Upon closure of those obviously continue to invest through the close of the sale, but after that sale closes we will be able to take that $1 billion that we had allocated to Louisiana, Mississippi and redeploy it back here.
Speaker Change: Largely into Houston electric for resiliency programs. So there is an opportunity there to get the improved.
Speaker Change: Recovery that I, just mentioned and my answers Sophie I think there's also the opportunity we were under earning in Louisiana, and Mississippi, So by redeploying that capital back into Houston Electric redeploying it in a jurisdiction, where we have a higher.
Chris Foster: I think that's something that we're all watching, but this is just the essence of us trying to plan conservatively going forward. Okay. And just the on the.
Speaker Change: Earned return.
Steve Fleishman: Goldman Sachs is that mainly kind of what we should watch, things we've been watching for the industry, like the repair deduction and things like that. Credit Card, whether that ends up being what you're projecting or not. That's accurate, Steve. I would think about, depending on where the repairs piece lands, that could actually lessen the impact here that we're talking about this morning related to the Capital Act. Okay, great. And then
Speaker Change: So there is that kind of enhancements so I wouldn't necessarily look at this as incremental equity coming out of this resiliency filing this is.
Speaker Change: Again ways.
Speaker Change: Fourth of pre funding.
Speaker Change: <unk> that we've seen as well as reallocating capital to support those programs and enhancing our long term.
Speaker Change: Long term EPS growth plan.
Speaker Change: Got it excellent and then you commented on the Houston electric ability to settle here, but the gas side of it assuming the same.
Speaker Change: In terms of abroad sentiments, maybe you can speak to that a little bit more on timing too.
Jason P. Wells: I know, Jason, you went through all the rate cases, and I appreciate that. I'd be curious about your thoughts on the new chair of the Texas PUC. Yeah, thanks, Steve. We've got a long history of working with Chairman Gleeson, you know. We stepped into the role of executive director kind of after Winter Storm Erie, and, you know, we have tackled a number of issues here in Texas with him, particularly
Speaker Change: Yes. Thank you for that question, we've got our first settlement conference in the Texas gas rate case here at the end of the month in February.
Speaker Change: Yes.
Speaker Change: While we believe is a relatively modest rate increase and as we've talked about in the past a number of customer classes are experiencing a significant rate decrease and so we're optimistic.
Speaker Change: Optimistic that given the constructive nature of the request that we can kind of find the settlement.
Speaker Change: To the extent that we can we would anticipate a decision in that case, probably mid summer. This year. So we will continue working on the settlement front.
Jason P. Wells: You know, I'll think back to the last legislative session here this past year and the work that we did around cost of capital and cap structure from a legislative basis. But I think it's a real opportunity for us to continue to leverage that relationship that we built. I was here with Chairman Gleeson.
Speaker Change: According to that settlement schedule and then as I said, we have the opportunity with the Houston electric rate case sometime this summer to potentially settle out as well.
Alright excellent alright, best of luck guys will speak next quarter.
Jason P. Wells: December prior to the announcement. Related Resources, what maybe, Maybe not understood as well as, um.., possible is that last year, we increased revenues in our Houston electric business by about $300 million through settlements.
Speaker Change: Thanks, Julien. Thank you great operator with that that will conclude our Q&A for today's call.
Speaker Change: This concludes Centerpoint energy fourth quarter and full year earnings conference call. Thank you for your participation you may now disconnect.
Jason P. Wells: And, you know, as we continue to look forward, we're anticipating a relatively flat revenue requirement. We request in this upcoming Houston electric rate case, and we'll continue to work with parties constructively to resolve it. And so I think it's continuing to maintain strong relationships with the commissioners, but equally continuing to work constructively with all parties.
Speaker Change: Hey, Karen.
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Steve Fleishman: Great, thank you. One moment for the next question. The next question comes from Shar Pourreza with Guggenheim Partners. Your line is open.
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Shar Pourreza: Good morning team, it's actually Constantine here for SHAR. Congratulations on a great quarter and update. Thank you. Thank you. Just following up on the sale announcement, how are you thinking about the timing of reinvestments and the use of proceeds as we think about the potential accretion versus the plan, and do you anticipate this will create more investment capacity versus the 14% metric you highlighted for 2023? Yeah, thanks, Constantine. I think what's important here is that we're working off our front foot.
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Jason P. Wells: You know, we, as we talked about, increased 2023 CapEx by about $700 million for critical investments for our customers. That is basically enabling us to put those investments in raise at the same time that we, Closing on this sale early, pre-funded the loss of rate base. So I think about these proceeds as effectively paying off what has been pre-funded and the balance sheet and putting us in a position to say, Excellent. That makes sense.
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Jason P. Wells: And do you have any thoughts on the cadence of future updates, especially as you look to optimize around technical resiliency, if you look at any kind of periodic updates?.. Yeah, no, thanks for the question. As you... They hopefully appreciate at this point, you know, I think we're building a track record of Consistent Updates throughout the year. I don't think so.
Okay.
Speaker Change: Okay.
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Jason P. Wells: Management Team, kind of annually for a cycle, you know, as we have the new www.centerpoint.com www.centerpoint.com hosting another Investor Day, where, at that point, we will likely put forward a new 10-year plan into the mid-2030s, just reflecting our long-term confidence and the growth that we have here at CenterPoint. And so expect periodic updates between now and then. And then on the other side of these rate cases, a much more comprehensive. I'm wonderful, looking forward to it. And maybe just one last cleanup question, following up on the regulatory side, just any lessons learned in the active cases, especially as you're considering the Houston filing now in March, and any thoughts on settlement prospects or partial settlement? You know, a little fun fact about this heat and electric rate case that, as we are putting the final touches on the filing, it'll be the smallest revenue requirement... in the history of CenterPoint or its predecessor companies back to 1975. And so, you know, I think it's really, I think, reflective of the hard work that we're doing to maintain it.
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Jason P. Wells: Affordable service for our customers, despite, you know, significant, and the Center for Improving System Resiliency and Reliability. So in that way, I hope we're putting forward, and I think we are, a very constructive revenue requirement increase. As I look forward on that procedural schedule, there's the possibility of potentially settling a Houston electric rate case sometime midsummer, kind of in between intervener testimony and hearing. But again, I think our focus is on filing a compelling case for all stakeholders and working constructively through that process. Excellent! That's very helpful.
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Shar Pourreza: Thank you for taking the questions today. Take care. Thanks, Scott. One moment for the next question. The next question comes from Durgesh Chopra with Evercore. Your line is open.
Okay.
Durgesh Chopra: Hey guys, good morning. Thanks for giving me time. Can I just quickly clarify the rate-based number on the two gas LDCs that we were selling? Is it 700 or 800 million?
Speaker Change: Hum.
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Jason P. Wells: It was roughly 800 million of rain-based that... We have invested in Louisiana. The $700 million is what we increased our capital expenditure plan for 2023, pre-funding the, that will go with that sale. Got it. Thanks so much.
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Durgesh Chopra: And then maybe just as we think about future capital raises, Jason and Chris, you know, what's the cadence of equity, potential funding to equity in future capital raises here as we look to grow out here? Sure, Durgesh, and we're going to be consistent here with where we have been, and that is, as we look at the potential for incremental growth CapEx opportunities, you should think about us funding them in line with our regulated cap structure. So, again, just directionally about 50-50 there. And again, as we look even just here in the Houston area, we continue to see growth on all fronts, the residential side, including housing starts increasing year over year, and then substantial opportunities as it relates to the industrial side. In particular, most recently, you probably saw that the Department of Energy identified a series of hydrogen hubs across the country. No surprise that one of those is here in Houston.
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Chris Foster: And really what's compelling about it is not only the opportunities that it presents for economic growth for the communities and overall load growth, but the fact that it creates permanent jobs, right, to the tune of over 30,000 to 35,000 jobs. So that's really the type of growth that we're excited about there, and it could be hydrogen, it could be residential, it could be small and medium business. We're really just appreciative of the community that we have the privilege of serving. I appreciate that color too.
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Durgesh Chopra: Thank you very much. And I apologize, but just one last one. The $150 million a year in cash taxes, Chris, that you alluded to, was that incremental or higher cash taxes payments versus your previous plan? Or is that inclusive of this whole new EMT? Is that a total amount, or is that just the incremental amount?
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Chris Foster: I would think about that, Durgesh, as the incremental amount. So, Durgesh, just a little bit of color around this, you know, as we've talked about, CenterPoint has historically been a federal cash taxpayer. The last couple of years, we talked about adopting the repairs tax and really minimizing that bill right about the time that our cash tax, www.centerpoint.com, works. Thanks so much. I appreciate the time again.
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Durgesh Chopra: Thank you. One moment for our next question. The next question comes from Sophie Karp with KeyBank. Your line is open.
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Sophie Karp: Hi, good morning guys. Thank you for taking my question and congratulations on a strong quarter of the year. Thanks. Good morning.
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Jason P. Wells: Can I ask you a question about the new resiliency filing requirement in Texas under the new law? You already have most of your CapEx in Texas recovered through contemporaneous mechanisms. What kind of an impact do you anticipate from, I guess, separating some part of your capital there into these resiliency trackers? Yeah, thanks for the question. So yeah, you know, I wouldn't necessarily think about this resiliency filing as changing the mechanism of recovery. I think, you know, we'll continue to use the Instructive distribution and transmission capital trackers that we have currently. I think the real benefit, You know, outside of really putting forward a three-year plan, we'll look at the cost-benefit analysis of these investments to make sure that we're prudently investing on behalf of our customers.
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Jason P. Wells: The real benefit financially is that the distribution capital that is subject to that approved three-year plan will effectively minimize regulatory lag associated with that. You know, that regulatory lag is effectively when we put that capital into service, we begin depreciating it, we begin to... record interest and taxes on it. Those amounts today fall to the bottom line in the form of regulatory lag before the cap.
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Sophie Karp: As we look forward now, we have the opportunity to defer those Service Carrying Costs. The way that I think about this from a rule-of-thumb standpoint is about every $300 million of eligible... www.centerpoint.com minimize regulatory lag on. I've got the super helpful.
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Chris Foster: And another question was on the capital plan increase, right, the incremental $4 billion that you guys are showing. Should we think about this as more or less like a radical increase over the 10 years, like over the remainder of the plan rather? Or is there some other shape?
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Sophie Karp: Sure thing. Hi Sophie. I think it's fairly rentable.
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Chris Foster: I think maybe a couple of the exceptions relate specifically to a few things that we're looking at, in Indiana in particular, related to some generation projects there. Those tend to be just inherently a little bit larger as we work those into the plan. But otherwise, really across the plan, I think the thing to emphasize here is that there are no real big bets that we're looking at here. This is very straightforward, just base utility CapEx that we're looking at. Great. Thank you. That's all from me.
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Operator: Operator, I think we have time for one more question. Okay. The last question will come from Julian Dillam Smith with Bank of America. Your line is open.
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Julian Dillam Smith: Hey, good morning team. Thank you guys very much. I appreciate it. Good morning, Julian.
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Jason P. Wells: Hey, excellent. So just wanted to close this out. If you don't mind, for the next quarter here, as we think about the multi-year resiliency filing that you're going to be coming forward with, I just want to clarify this. We've talked a lot about the ATM, the 250 here.
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Julian Dillam Smith: We've talked about the asset sales. How do you think about, especially the asset sales, how to effectively pre-fund any portion of that resiliency plan to come here in the next quarter? Just want to really clarify how much incremental equity could be coming as part of a yet higher CapEx number associated with a fully dispositive resiliency filing.
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Jason P. Wells: Yeah, Julian, thanks for the question. I mean, I think what we're trying to do is lay out kind of the pieces here. You know, we've been investing, as you know, in improved resiliency for the community here in Houston over the last couple of years, starting kind of with resiliency now, and part of the $700 million that we increased our CapEx plan last year, www.centerpoint-energy.com to improve system resilience. And then, as well, when you think about this transaction. There's the approximate billion dollars in after-tax proceeds, which really helps fund that pre-investment that I've been speaking about. But the other opportunity that I want to stress... In our previous 10-year capital plan, NE2030, we had about a billion dollars.
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Jason P. Wells: Incremental Investment, Earmark, www.centerpoint-energy.com, Rita pulling it back, largely into Houston electric for a resilient, So there's an opportunity there to get the improved recovery that I just mentioned. I think there's also the opportunity, we were under-earning Louisiana and Mississippi, so by redeploying that capital back into Houston electric, redeploying it in a jurisdiction where we have a higher earned return.
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Jason P. Wells: So I wouldn't necessarily look at this as incremental equity coming out of this resiliency filing. Again, ways to support the pre-funding, the increases that we've seen, as well as reallocating capital. Program. Fonterra. Got it. Excellent. And I know you commented on the heat and electric ability to settle here, but the gas side of it, assume the same in terms of broad sentiments.
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Julian Dillam Smith: Maybe you can speak to that a little bit more on timing too. Yeah, no, thank you for that question. You know, we've got our third settlement conference in the Texas gas rate case here at the end of the month in February. You know, that was a relatively modest rate increase talked about in the past in a number of customer classes.
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Jason P. Wells: So, we're optimistic that given the constructive nature of the request... To the extent that we can't, you know, we would anticipate a decision of action. www.centerpoint.com. All right, excellent. All right, best of luck, guys.
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Julian Dillam Smith: We'll speak next quarter. Cheers. Thanks, Julien.
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Operator: Thank you. Great. Operator, with that, that'll conclude our Q&A for today's call. This concludes CenterPoint Energy's fourth quarter and full year earnings conference call. Thank you for your participation. You may now disconnect. Take care. And have a nice day.
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Operator: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Copyright © 2020, New Thinking Allowed Foundation www. CenterPointEnergy.com www. CenterPointEnergy.com www. CenterPointEnergy.com www. CenterPointEnergy.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Copyright 2019 IFA Productions All rights reserved.
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Operator: No part of this recording may be reproduced without Moore's professional assistance. 2019 IFA Productions. All rights reserved. No part of this recording may be reproduced without Moore's professional assistance. 2019 IFA Productions. All rights reserved. No part of this recording may be reproduced without Moore's professional assistance. 2019 IFA Productions. All rights reserved. No part of this recording may be reproduced without Moore's professional assistance. 2019 IFA Productions. All rights reserved. No part of this recording may be reproduced without Moore's professional assistance. 2019 IFA Productions. All rights reserved. No part of this recording may be reproduced without Moore's professional assistance.
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