David John Lesar
Chief Operating Office & Director at CenterPoint Energy
Thank you, Dave, and thank you to all of you for joining us this morning for our first quarter call. Before I get into our financial results for the quarter for the final time wearing what Dave refers to as my CFO hat, I want to join him in welcoming Chris Foster as he assumes his new role. As I'm sure many of you know, I've known Chris for a number of years, and I have no doubt that he will be an excellent addition to an already strong management team here at CenterPoint. I look forward to his official start date and partnering with Chris to continue to execute on what we believe is one of the most tangible long-term growth plans in the industry. Now turning to the first quarter financial results shown on Slide 5. On a GAAP EPS basis, we reported $0.49 for the first quarter of 2023. Our non-GAAP EPS excludes small trailing earnings impacts of previous divestitures. On a non-GAAP basis, we reported $0.50 for the first quarter of 2023 compared to $0.47 in the first quarter of 2022. As Dave mentioned, this accounts for over 1/3 of our full year guidance at the midpoint. Growth in rate recovery contributed $0.09, largely driven by our electric distribution capital tracker filed last year, the DCRF mechanism. In our electric transmission tracker, the TCOS mechanism at Houston Electric. In addition, we continue to see strong organic growth in the Houston area, continuing the long-term trend we've observed over the last three decades of 2% average annual growth. Additionally, O&M was $0.02 favorable when compared to the first quarter in 2022 as we continue to find ways to operate more efficiently to meet our goal of reducing O&M 1% to 2% per year on average while remaining focused on meeting our customers' needs. Lastly, other items such as miscellaneous revenue from nonregulated businesses, tax benefits and other items or another $0.02 favorable when compared in the first quarter of 2023 in the first quarter of 2022. These favorable drivers were partially offset by a $0.06 increase in interest expense due to rising interest rates and higher average floating rate debt balances. However, as I will discuss in a minute, we have reduced our floating rate debt exposure considerably since the end of 2022. In addition, as has been a common trend for our industry during the quarter, weather and usage was $0.04 unfavorable when compared to the same quarter of 2022 and driven by a colder first quarter in 2022 as compared to the more milder winter weather in 2023, primarily in our Texas Gas, Houston Electric and Indiana Electric Service Territories.
Looking at heating degree days during the quarter, there were approximately 350 fewer heating degree days below normal in our Texas Gas and Houston Electric service territories. And approximately 550 fewer heating degree days below normal in our Indiana Electric Service Territory when compared to the first quarter of 2022. Fortunately, in our other jurisdictions, they are either fully decoupled or have a comparable weather normalization mechanism that helps mitigate the impact of the milder weather. As Dave mentioned, we are reaffirming our full year 2023 guidance range of $1.48 to $1.50 of non-GAAP EPS, which reflects 8% growth over full year 2022 non-GAAP EPS and of $1.38 when using the midpoint. This, of course, comes on the heels of two straight years of 9% growth. Beyond 2023, we continue to expect to grow non-GAAP EPS 8% in 2024 and target the mid- to high end of 6% to 8% annually thereafter through 2030. Our focus continues to be delivering strong industry-leading growth each and every year. Turning to capital investments on Slide 6. To the benefit of our customers during this quarter, we invested $1 billion across our various service territories. This represents over 1/4 of our 2023 annual target of $3.6 billion. We continue to make progress towards our long-term goal of investing $43 billion of capital through 2030 to provide safe, reliable and resilient energy to all customers throughout our service territories. We have previously mentioned that we plan to formally incorporate up to $3 billion of additional identified capital opportunities when we believe we can operationally execute it, efficiently finance it and efficiently recover it. The decision as to when to deploy this capital is still in front of us, and we will include it when we feel it's right. As we've said before, this management team will not commit to something unless we believe we can deliver. Moving to a broader regulatory update on Slide 7.
Since the start of the year, we've had a number of regulatory filings, primarily in our Texas Gas and Houston Electric jurisdictions. Starting with Texas Gas, we filed our annual grips in which we requested an increased revenue requirement of $60 million. This filing seeks to recover on the capital investments we made in 2022 and which were primarily related to system safety and support our ever-growing service territories in and around Houston. It is anticipated that customer rates will be updated to reflect this investment sometime in June. Additionally, Houston Electric filed capital trackers for both its investments in transmission and distribution made in 2022. The transmission filing often referred to as TCOS, was filed in early March and requested a revenue requirement of approximately $40 million. If approved, it is anticipated this filing will be incorporated into our customer rates in May. With respect to our distribution filing, we filed our annual capital tracker, known as DCRF in the first week of April, requesting a revenue requirement increase of approximately $85 million. And in addition to the DCRF and TCOS, we filed for the remaining recovery of our leased temporary mobile generation units under a temporary emergency electric energy facilities mechanism referred to as TEEEF with a revenue requirement of $188 million. As a reminder, the DCRF and TEEEF are filings that represent nearly $1.4 billion of capital deployed in 2022 in our Houston Electric service territory. They will not go into rates until September 1, which skews incremental earnings towards the latter part of the year. We continue to invest for the benefit of our customers while remaining cognizant of bill impacts. We've been able to invest over the last 10 years, while keeping customer charge increases below the average rate of inflation during that time. In fact, since 2014, a Houston Electric charges have increased less than 1% annually on average, and we anticipate being able to execute our long-term capital plan with customer charges increasing at or below the historic level of inflation. Again, we'll be able to achieve this through leveraging the continued organic growth of Houston, O&M discipline and securitization charges rolling off our customers' bills. During the quarter, the PUCT approved our first application for a recovery related to our temporary emergency mobile generation units, as Dave mentioned earlier. I want to echo his sentiment regarding what we think is an overwhelmingly positive outcome for our customers. Using the last couple of years, as an example, the Houston area is subject to extreme weather events that can adversely impact service to our customers. The commissioner's decision not only reflects their deep understanding of the need for increased power resiliency during these extreme weather events, but also their pragmatic approach to allowing utilities to use available tools designed to help mitigate its impacts on energy service for those living in the Houston area.
Lastly, I'd like to cover some credit-related topics. As of the end of the first quarter, aligning with Moody's methodology, our FFO to debt as reported, was over 14%, we continue to trend well in this area and fully expect to be in our annual target range of 14% to 15% throughout 2023. We ended the first quarter at 16% floating rate debt outstanding down $1.9 billion from the end of 2022. A few actions have led to this significant reduction. First, as Dave mentioned, during the quarter, we received securitization proceeds related to Winter Storm Uri, which we used to pay down some of the floating rate notes. We have now collected approximately 90% of the $2.1 billion of extraordinary gas costs incurred during Winter Storm Uri with approximately $230 million left to be collected in our Minnesota gas business. Second, we issued nearly $2.3 billion of fixed rate debt at our operating company level in the first quarter, including our first ever green bond issuance at Houston Electric. Some of these issuances were used to refinance a certain amount of outstanding floating rate debt from year that was undertaken for incremental investments that were made in the fourth quarter of 2022. We were able to successfully issue this debt despite the disruption in the banking sector. We believe this reflects our investors' confidence in the strength of our balance sheet, long-term growth and this management team's ability to execute. As I touched on last quarter, we exited 2022 with an elevated amount of floating rate debt, some of which was driven by the cold December weather during which we purchased more gas at higher prices than we had forecasted. With that being said, this balance has been reduced as we collect from customers, albeit somewhat slower due to the milder winter. We anticipate collecting the majority of these gas costs by the end of the second quarter, and we will continue to pay down floating rate debt as we recover these costs. These are my updates for the quarter. As we continue to express, we take our commitment to be good stewards of your investment very seriously and realize our obligation to optimize stakeholder value. I'll now turn the call back over to Dave. Thank you, Jason. As you've heard from us today, we now have 12 straight quarters of meeting or exceeding expectations. We are a pure-play regulated premium utility and on a course to continue to deliver on incremental long-term growth opportunities to support our customers.
