CenterPoint Energy Q3 2024 Earnings Report

CenterPoint Energy EPS Results

• Actual EPS: $0.31
• Consensus EPS: $0.31
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.40

CenterPoint Energy Revenue Results

• Actual Revenue: $1.86 billion
• Expected Revenue: $1.88 billion
• Beat/Miss: Missed by -$22.40 million
• YoY Revenue Growth: N/A

CenterPoint Energy Announcement Details

• Quarter: Q3 2024
• Date: 10/28/2024
• Time: Before Market Opens
• Conference Call Date: Monday, October 28, 2024
• Conference Call Time: 8:00AM ET

CenterPoint Energy (NYSE:CNP) operates as a public utility holding company in the United States. The company operates through two segments, Electric and Natural Gas. The Electric segment includes electric transmission and distribution services to electric customers and electric generation assets, as well as optimizes assets in the wholesale power market. The Natural Gas segment engages in the intrastate natural gas sales, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers in Indiana, Louisiana, Minnesota, Mississippi, Ohio, and Texas; permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies; and provides maintenance and repair services of home appliances to customers in Minnesota and home repair protection plans to natural gas customers in Indiana, Mississippi, Ohio, and Texas through a third party. It serves approximately 2,534,730 metered customers; owned 348 substations with transformer capacity of 79,719 megavolt amperes; and owned and operated 217 miles of intrastate pipeline in Louisiana and Texas. The company was founded in 1866 and is headquartered in Houston, Texas.

CenterPoint Energy Q3 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to CenterPoint Energy Third Quarter 2024 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. I will now turn the call over to Jackie Rickert, Senior Vice President of Corporate Planning, Investor Relations and Treasurer. Ms.

[Operator]

Rickert, please go ahead.

[Jacqueline Richert, Senior Vice President of Corporate Planning, Investor Relations, and Treasury at CenterPoint Energy]

Good morning, and welcome to CenterPoint Energy's Q3 2024 Earnings Conference Call. Jason Wells, our CEO and Chris Foster, our CFO, will discuss the company's 3rd quarter 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 Q, other SEC filings and our earnings materials.

[Jacqueline Richert, Senior Vice President of Corporate Planning, Investor Relations, and Treasury at CenterPoint Energy]

We undertake no obligation to revise or update publicly any forward looking statements. We will be discussing certain non GAAP measures on today's call. When providing guidance, we use the non GAAP EPS measure of diluted adjusted earnings per share on a consolidated basis referred to as non GAAP EPS. For information on our guidance methodology and reconciliation of the non GAAP measures discussed on this call, please refer to today's news release and presentation on our website. We use our website to announce material information.

[Jacqueline Richert, Senior Vice President of Corporate Planning, Investor Relations, and Treasury at CenterPoint Energy]

This call is being recorded. Information on how to access the replay can be found on our website. Now, I'd like to turn the call over to Jason.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

Thank you, Jackie, and good morning, everyone. I'd like to begin by extending our deepest sympathies to our families and communities impacted by the devastation caused by Hurricane Helene and Hurricane Milton. The destruction caused by this year's hurricane season is undoubtedly tragic. However, it is times like these that truly bring out the best in our industry. A few weeks ago, we saw the utility community come together to send more than 50,000 utility workers from at least 43 states, the District of Columbia and Canada to support hurricane restoration efforts across the Southeast.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

From CenterPoint, we contributed to the effort by sending personnel representing nearly a third of our electric frontline workforce to assist in the restoration efforts for Helene and Milton. As many of you know, the Greater Houston area benefited greatly from the same mutual assistance framework during Hurricane Barrel, where we called upon 13,000 workers from approximately 30 states to help restore power to more than 2,000,000 customers. I want to thank all of our frontline teams as well as others throughout the industry that answered the call to help get the lights back on for the millions of people impacted by the destructive hurricanes we've experienced this season. On today's call, I'd like to address 5 key areas of focus. First, I'll briefly touch on the Q3 financial results.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

2nd, I'll discuss the progress we've made and future goals with respect to our Greater Houston Resiliency Initiative or GHRI. 3rd, I'll provide an update on our various regulatory efforts. 4th, I'll highlight the organic growth we continue to experience, particularly in the Houston Electric Service Territory. Lastly, I'll conclude with the initiation of our earnings guidance for 2025. Today, we reported non GAAP EPS of $0.31 per share for the quarter.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

In addition, we are reaffirming our full year 2020 4 non GAAP EPS guidance range of $1.61 to $1.63 per share. This represents 8% growth at the midpoint from our 2023 results. Chris will provide additional details on our financial results in his section. Now, I'd like to provide an update on our ongoing execution of our electric operational plan, the Greater Houston Resiliency Initiative, which we launched in early August. As you may have seen, we have already made significant strides toward strengthening the resiliency and reliability of our grid in the first phase of JHRI, as well as enhancing our communications with our customers.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

These actions have been informed by learnings from internal and external reviews, engagement with stakeholders and benchmarking with high performing sector peers. During the Q3, we took immediate action and accelerated our plans to deliver an unprecedented level of work. This includes removing higher risk vegetation across 2,000 line miles, replacing over 1100 poles with new poles capable of withstanding extreme wind and installing over 300 automated reliability devices to help reduce the number and duration of customer outages. We accomplished all of this work before the end of August and ahead of schedule. With respect to improving our communications, we launched our new and updated outage tracker on August 1.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

This tool is designed to enhance the customer experience during times of service disruptions. Additionally, we've stated our commitment to hire senior emergency preparedness and response and communications leaders to bolster our leadership team. I'm pleased to share we have hired leaders for both of these positions that bring a wealth of industry experience and will accelerate our efforts to improve our preparedness and response in our customer experience during emergency events. We believe our more proactive communications approach is already positively impacting the customer experience through more timely information. These are great first steps and I'm proud of the progress thus far.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

But we have heard the call to action and we are committed to doing even more in the second and third phases of JHRI for the benefit of our customers and our communities. These next two phases will focus not only on reducing the number of outages, but also reducing the outage time customers experience through investments designed to create a self healing grid. I want to underscore, however, that GHRI does not represent the beginning of our enhanced resiliency investments. This is merely a continuation and acceleration of the work we started well ahead of this year's events. Over the last few years, we have focused our resiliency investments on our electric transmission system, which is the backbone of our grid.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

Our transmission resiliency work included upgrading our transmission structures to better withstand extreme winds, elevating our substations to mitigate flood risk and converting our older 69 kV transmission lines to a more robust 138 kV standard. This work has already produced tangible results. During the derecho in May and Hurricane Daryl in July, our hardened transmission system withstood the extreme winds and sustained relatively little structural damage. In fact, while other Texas utility customers sustained prolonged outages due to damage on their transmission system from Hurricane Barrel, we did not experience any customer outages due to our transmission system. As we now turn our attention to accelerating investments in the distribution system in the next two phases of JHRI, we believe we are well positioned to make rapid improvement.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

Currently, a little over 46% of our Houston electric distribution system is underground, which on a proportional basis is more than twice the industry average. Our opportunity is to harden above ground feeders to those communities through smaller, more targeted investments that should yield impactful results for approximately 60% of the customers that are served by underground service. This feeder blitz is expected to have the additional benefit of substantially reducing the total outage numbers and accelerating restoration for other customers as resources can focus on the remaining circuits earlier in the restoration process. Another area we believe we can make meaningful improvements on our distribution system is with respect to increased circuit segmentation and automation. Equipment such as intelligent grid switching devices and trip savers help create a self healing grid by isolating outages to fewer customers, rerouting power around impacted areas and automatically restoring power without manual intervention where there is no structural damage.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

Presently, approximately 30% of Houston Electric's overhead circuits have at least one automation device. As part of Phase 2 of JHRI, we anticipate installing 4,500 trip savers and 3.50 intelligent grid switching devices before the next hurricane season, which will allow us to nearly double the number of distribution circuits with automation devices in the Greater Houston area. Our investments and work during this phase are anticipated to save our Houston area customers over 125,000,000 outage minutes annually. Over the next 5 years, we plan to not only deploy even more devices, but also optimize their capabilities by employing AI based modeling. We plan to share additional details regarding our future resiliency investments on our Q4 call, which will take place after we have filed our system resiliency plan.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

As a reminder, our revised system resiliency plan will include approximately $5,000,000,000 in resiliency investments from 2026 through 2028, an increase of approximately $2,500,000,000 over our previously withdrawn system resiliency plan. Chris will go into more detail in his section, but I want to highlight that even with the inclusion of these incremental resiliency investments, we anticipate Houston Electric's customer delivery charge increases will track in line with the long term rate of inflation over the next 10 years. Turning to an update of our broader regulatory efforts, starting with Houston Electric. As many of you likely saw, on August 1, we filed our notice to withdraw our Houston Electric rate case filing. This withdraw allows us to continue to focus our attention on near term plan execution and long term system resiliency plan development as we are laser focused on year over year improvements.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

If the withdrawal is approved, we have stated that we will file a new Houston Electric rate case no later than June 30, 2025 based on a 2024 calendar test year. Outside of the rate case filing, we intend to continue to seek recovery of capital investments made for the benefit of our customers. In the Q4 this year, we anticipate filing to start recovery of both our recent transmission and distribution investments through our TCOS and DCRF capital trackers. The efficient recovery of these investments is crucial to our ability to efficiently fund future investments. This is why we remain focused on reducing regulatory lag across all of our jurisdictions.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

Our latest earnings monitoring report highlights the regulatory lag we continue to experience at Houston Electric. For 2023, our weather normalized earned return on equity was nearly 150 basis points lower than our allowed. In addition to filing for recovery of our investments, we will also make the initial filing for the recovery of approximately $450,000,000 in storm costs related to the major HOA. Now turning to the Indiana Electric rate case. A little over a month ago, we filed our proposed order with respect to our non unanimous settlement proposal.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

The Indiana Utility Regulatory Commission has a statutory deadline to issue its final order by February 3, 2025. We want to thank all stakeholders for their contributions to the case as we seek to reach a fair outcome for all parties. Moving next to the filed Minnesota gas rate case. As some of you may have seen, intervenor testimony was filed a few weeks ago. Since then, we have had constructive settlement talks with stakeholders and intend to continue in the settlement negotiations leading up to our rebuttal testimony deadline of November 12.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

As you may recall, we have settled our previous 3 rate cases in our Minnesota Gas jurisdiction. Absent a settlement, the Minnesota Commission may consider interim rates for 2025 toward the end of this year. Finally, I want to touch on our upcoming rate case application for Ohio Gas. In August, our Ohio Gas business filed its notice of intent with the Public Utility Commission of Ohio regarding our upcoming general rate case application, which we intend to file tomorrow. Over the last several years, we have had one of the lowest customer gas bills in the state.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

Our upcoming ask reflects an investment recovery rate that will put us more in line with our Ohio peers. In addition, this larger revenue requirement increase will allow us to more efficiently fund the continued pipeline modernization investments, which we believe contributes to the overall safety and efficiency of the system. Now I want to highlight the strong organic growth we continue to see, especially in our Texas service territories. While much of my earlier commentary focused on our investments in resiliency and reliability, I want to emphasize that we continue to experience significant growth across Texas, and in particular, the Greater Houston region. Over the last few decades, the Greater Houston region has grown at one of the fastest rates in the nation.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

We see that growth not only continuing, but accelerating through the remainder of this decade and beyond. In fact, we believe our peak load of approximately 22 gigawatts in 2024 could increase by more than 30% by 2,030. This potential growth is driven by continued population growth, acceleration of electrification and increases in data center activity. Houston continues to be an attractive city to live and work. Over the last 5 years, housing starts have increased over 9% per year on average, which is more than 3 times the national average.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

We see this growth continuing as businesses and people alike continue to migrate to the Houston area. Our industrial load growth drivers are both large and diverse. Our substantial potential future load growth is underpinned by industrial electrification and energy exports, including hydrogen. Houston remains an ideal location for hydrogen developers as it already boasts the largest hydrogen infrastructure in the world in addition to proximity to the largest port by waterborne tonnage in the United States. Although we still are in the early stages of hydrogen development, we are working with approximately 3.5 gigawatts of projects that are well into the advanced engineering phase.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

Outside our more traditional load drivers of energy and energy exports, we see growing potential incremental load from other sectors. Notably, over the summer, we have seen a fundamental shift in data center development. In fact, our interconnection queue for data centers now sits at over 8 gigawatts. While we recognize that not all of this will be developed, it is yet another tailwind in what we continue to believe is one of the most tangible long term growth stories in the industry. It is with this growth and our customer driven capital investments that we've made over the last couple of years that gives us conviction to initiate our 2025 non GAAP earnings guidance target range of $1.74 to $1.76 per share.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

The midpoint of this range represents 8% growth from the midpoint of our 2024 guidance range of $1.61 to $1.63 Beyond 2025, we are also reaffirming our longer term guidance where we expect to grow non GAAP EPS at the mid to high end of our 6% to 8% range annually through 2,030, as well as targeting dividend per share growth in line with earnings per share growth over that same period of time. For our customers, this strong Houston area growth gives us confidence that we will keep increases in electric delivery charges roughly in line with the forecasted rate of inflation over the next 10 years. We recognize the privilege and responsibility of being an energy delivery provider for our customers. We will be laser focused on both enabling growth and advancing system resiliency for the benefit of our customers through the work that we've outlined in GHRI as well as the investments we will propose in our new system resiliency filing. We look forward to continuing to work with our customers, regulators and others to make improvements for the benefit of all of our stakeholders.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

And with that, I'll turn it over to Chris.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Thanks, Jason.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Before I get to my updates, I want to echo Jason's gratitude for not only our CenterPoint coworkers, but all utility and contractor employees that aided in the restoration efforts during this very active hurricane season. It was truly remarkable to witness the dedication to a safe response and the speed of the restoration efforts that took place after 2 devastating hurricanes hit the southeast within 2 weeks of each other. I want to thank the roughly 1 third of our internal CenterPoint line crews that made the journey to other sector peers to help get the lights back on after those hurricanes. For the quarter, I'd like to cover 4 areas of focus. First, the details of our Q3 financial results, including our reaffirmation of 2024 guidance second, the initiation of 2025 non GAAP EPS third, I'll touch on our capital deployment status this quarter and forecasted storm costs and finally, I'll provide an update on our financing plans, including an update to our plans to increase our equity guidance to fund our incremental $2,500,000,000 which will be included in our system resiliency plan, totaling at least $5,000,000,000 in cumulative resiliency investments from 2026 through 2028.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Let's now move to the financial results shown on Slide 7. On a GAAP EPS basis, we reported $0.30 for the Q3 of 2024. On a non GAAP basis, we reported $0.31 for the Q3 of 2024 compared to $0.40 in the Q3 of 2023. Our non GAAP EPS results for the Q3 removed the costs associated with the sale of Louisiana and Mississippi Gas LDCs. The reduced earnings quarter over quarter was primarily driven by increased and accelerated O and M that was completed as part of Phase 1 of the GHRI.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

When compared to the comparable quarter of 2023, O and M was $0.11 unfavorable. This $0.11 not only represents the $70,000,000 of vegetation management for which we will not seek recovery, but also the work we pulled forward from the Q4 to increase readiness for future potential inclement weather that could impact the Houston electric system. In addition to the headwinds from O and M, weather and usage contributed an additional $0.06 of unfavorability quarter over quarter. $0.02 of this unfavorable variance was driven by reduced usage caused by outages from Hurricane Merrill, along with a considerably milder summer in the Houston Electric service territory as compared to 2023. We continue to recover on our customer driven investments, which contributed $0.09 of favorability this quarter when compared to the comparable quarter of 2023.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

This was primarily driven by the ongoing recovery from various interim mechanisms for which customer rates were updated last year as well as the interim rates in our Minnesota Gas business that went into effect on January 1st this year. In addition, the Houston area continues to see strong organic growth, extending the long term trend of 1% to 2% average annual customer growth. As Jason referenced, this dynamic aids in keeping future increases in our customer electric delivery charges roughly in line with the forecasted rate of inflation over the next 10 years. Interest expense and financing costs contributed $0.01 of favorability when compared to the comparable quarter in 2023 due to moderating interest rates and the favorable variance from the redemption of the Series A preferred stock in September of last year. Despite the headwinds we faced this quarter, we continue to reaffirm our full year 2024 non GAAP EPS guidance range of $1.61 to $1.63 Our confidence in reiterating our full year 2024 guidance today is driven by the O and M work on the system that we accelerated into the Q3.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Our updated work plans are reflected in the $0.11 of unfavorability I mentioned as the work otherwise would have been spread across the 3rd and 4th quarters. This is a departure from last year, where we highlighted some higher O and M costs in the 4th quarter, reflecting work including incremental vegetation management. In addition to reaffirming full year 2024 non GAAP EPS guidance, today we are also initiating our 2025 non GAAP EPS guidance target range of $1.74 to $1.76 per share. The midpoint of this range represents annual growth of 8% from the midpoint of our 20 24 non GAAP EPS guidance target range of $1.61 to $1.63 Our 2025 figures are a byproduct of the significant investments we've made across our various jurisdictions over the last couple of years. As you may recall, we accelerated investments in the Houston Electric Service Territory last year, and we continued a strong investment profile across our jurisdictions this year.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

These investments have resulted in a rate based CAGR of more than 11% over the last 2 years. The strong foundation of organic growth with the new capital investments, combined with rates we are anticipating through our interim rate mechanisms and rate case outcomes give us the conviction in our 2025 non GAAP earnings guidance initiated today. Next, I'll touch on our capital investments today. Next,

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

I'll touch on our capital investments

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

execution as of the quarter in 2024 as shown on Slide 8. In the Q3 of 2024, we invested $900,000,000 of base work for the benefit of our customers and communities. This excludes spending related to storm restoration. Year to date, we have invested approximately $2,600,000,000 which represents over 70% of our original 2024 capital expenditure target of $3,700,000,000 We remain on target to meet our base capital plan investment despite the interruptions of normal capital deployment from the storms we've experienced this year. I'd also like to provide a quick update on where we stand with storm costs related to the major H2 event and Hurricane Vale.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

With the majority of costs accounted for, we are now able to refine our estimate to the low end of the previously disclosed $1,600,000,000 to $1,800,000,000 range as we now estimate costs for both storms to total $1,600,000,000 We intend to make our filing for cost determination in connection with the securitization for the May storm costs in the coming weeks and storm restoration costs associated with Hurricane Beryl in the first half of next year. I'll now turn to our capital investment targets for 2025 and beyond. For 2025, we are targeting to invest $4,900,000,000 across various jurisdictions for the benefit of our customers and communities. Looking to the remaining 5 years of our original 10 year capital investment plan that runs through 2,030, we are now targeting to deploy approximately $26,000,000,000 of capital, of which $21,000,000,000 is anticipated to be in the state of Texas. This brings our tenured total capital investment plan up to $47,000,000,000 This $47,000,000,000 is a $2,500,000,000 increase from our previously stated $44,500,000,000 Our incremental investment is expected to all be deployed in our Houston Electric service territory and will be reflected in our upcoming system resiliency plan that we have committed to filing by January 31, 2025.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

We anticipate these investments will enhance the customer experience, but we remain cognizant of the impact of our investments on customer bills. However, based on the total current average Houston Electric residential bill, we estimate that our investments, combined with the estimated impacts of the to be securitized storms, should result in customer bill increases roughly in line with the forecasted long term rate of inflation over the next 10 years. As a reminder, our Houston Electric residential customer delivery charges were the same in 2014 as when we started 2024. This build trajectory is a result of our continued focus on efficiency and our O and M activities in addition to the consistent customer growth we've seen in the Houston area for the last 3 decades. Finally, I want to touch on our balance sheet and how we're thinking about funding our increased capital plan.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

As of the end of Q3, our calculated FFO to debt was 13.8% when adjusting for the storm costs on a pro form a basis based on our calculation aligning with Moody's methodology as shown here on Slide 9. We've demonstrated our continued focus on preserving our balance sheet strength while executing our capital plans despite incremental storm cost pressures this year. Our efforts included the acceleration of $250,000,000 of common equity into this year and the issuance of equity credit from hybrid debt securities. We plan to maintain that same philosophy as we work to efficiently fund investments and preserve credit health, both in the near term and beyond, as we continue to focus on our long term target of maintaining a cushion of 100 to 150 basis points above our downgrade threshold. We also have substantial cash inflows as part of our plan starting in 2025.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Looking over roughly the next 12 to 18 months, we anticipate approximately $3,000,000,000 of gross cash proceeds from the divestiture of Louisiana and Mississippi Gas LDCs and storm related securitization issuances. With regard to those anticipated securitization issuances, as a reminder, the state of Texas has seen 11 utility securitization transactions since 2,008. So there's a strong history under this existing construct underpinning our conviction. We expect these combined proceeds will be a part of our strengthening story as we execute on additional customer driven investments. As we look to the long term financing plans through 2,030, I also want to provide an update today on our equity guidance.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

With respect to the incremental $2,500,000,000 of resiliency investments, we expect to follow our previously provided guidance of funding incremental investments with 50% equity and 50% debt. As such, you should expect that we will raise an incremental $1,250,000,000 of equity in addition to the $1,250,000,000 issuance through 2,030 we previously guided to. This takes the total equity plan guidance to approximately $2,500,000,000 through the remainder of the decade. You should expect that the equity issuances associated with these incremental expenses will likely come towards the latter part of our remaining 5 year plan. In the near term, and as I mentioned previously, the approximately $3,000,000,000 of cash inflows should allow us flexibility and mitigate the need for common equity in 2025.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Although we do not foresee the need for common equity issuances through 2025, we plan to continue to be opportunistic in strengthening the balance sheet through credit enhancing instruments like those we issued earlier this year. We'll, of course, focus on the most efficient ways to raise that equity, be it through common equity issuances, incremental equity content such as hybrids or recycling proceeds. As we look across the states that we are fortunate to serve, we remain confident in the continuation of our long term plan with a consistent focus on improving customer outcomes, delivering affordable service and building toward the most resilient coastal grid in the United States. And with that, I'll now turn the call back over to Jason.

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

Thank you, Chris. Regardless of the challenges we face, this management team remains firmly committed to delivering for all of our stakeholders, our customers, our communities, our regulators and legislators and our

[​​​​​​Jason P. Wells, President & CEO at CenterPoint Energy]

investors.

[Jacqueline Richert, Senior Vice President of Corporate Planning, Investor Relations, and Treasury at CenterPoint Energy]

Thank you, Jason. Operator, we're now ready to turn to Q and A.

[Operator]

At this time, we will begin taking questions. Thank you. And one moment And the first question will come from Shahriar Pourreza with Guggenheim. Your line is now open.

[Shahriar Pourreza, Senior Managing Director - Head of Energy/Power/Utilities at Guggenheim Securities]

Hey guys, good morning.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Hey, good morning, Shahriar.

[Shahriar Pourreza, Senior Managing Director - Head of Energy/Power/Utilities at Guggenheim Securities]

Good morning, Jason. So just on 2024, it looks like it's in good shape. As we're sort of thinking about 2025 guidance, is it like kind of a lot of moving pieces there, including sort of the GRC withdrawal request, tracker filings, potentially maybe higher O and M. I guess, where is the level of confidence here and what happens if the GRC withdrawal request isn't approved, which I guess we'll know in a couple of weeks. There's just a lot of moving pieces and some key events would be great to maybe if you can bridge it a little bit further for us.

[Shahriar Pourreza, Senior Managing Director - Head of Energy/Power/Utilities at Guggenheim Securities]

Thanks.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Yes. Thanks, Sharron for the question. Obviously, we have a high degree of confidence in terms of initiating 25 here. There are a few points that I want to highlight that support that confidence. The first is we've invested significantly for our customers over the last 2 years and have a rate base CAGR over the last 2 years of about 11%, that creates a solid foundation for the 8% guide on earnings growth.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Second thing that I'd probably highlight is, as you know, we will have new base rates in 3 of our jurisdictions in 2025, Texas Gas, Indiana Electric and Minnesota Gas. And I think what's notable about Minnesota Gas is, as you recall over the past, we have filed rate cases every other year in Minnesota and that profile created a dynamic quarter. In every odd year, we had 0 increase in revenues in Minnesota. When we filed this multiyear rate case last year, we filed with a request to increase revenues here in 25%. And so that smooths the profile for both earnings but also for rate increases for our customers.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

And so I think that's a pretty notable change. And then 3rd, you touched on this. We believe we have access to all the recovery mechanisms for our capital spend with the exception of Ohio where we will be in the middle of that rate case. And so I think those are the drivers that give us confidence for the 2025 earnings guidance. You mentioned the withdrawal of the Texas rate case.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

And as you recall, we had filed a modest revenue increase in that case about $60,000,000 And what we have historically said is that we expected that to be a rate case that resolved itself with flat, potentially maybe a small decrease in revenues. And so I don't think the timing of the Houston Electric rate case is a real driver for 2025 given those other factors I mentioned.

[Shahriar Pourreza, Senior Managing Director - Head of Energy/Power/Utilities at Guggenheim Securities]

Okay. That's perfect. Thanks. And then just lastly on equity, obviously, it's increased by another 1,250,000,000 to 2,500,000,000 dollars through 2,030. I mean obviously you talked a little bit about the shape of that equity being more back end loaded, but can you pre fund the needs?

[Shahriar Pourreza, Senior Managing Director - Head of Energy/Power/Utilities at Guggenheim Securities]

Is there an opportunity there to remove the overhang and our asset sales still an opportunity with the LDCs or capital markets aren't there for that? Thanks.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Yes. Thanks again for the question, Shar. What I would say is, we've established, I think, a pretty strong track record of efficiently raising the equity that we need with a series of transactions in the past. You can count on us doing the same here. We will efficiently fund this equity.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

I don't necessarily think it comes in the form of prefunding, but we will look at the most optimal way to finance these needs. And as Chris mentioned, I think we're in a pretty strong position with having $3,000,000,000 of cash inflows overall over the next 12 to 18 months. And that really gives us quite a bit of flexibility here as we think about the best possible way to efficiently raise the equity.

[Shahriar Pourreza, Senior Managing Director - Head of Energy/Power/Utilities at Guggenheim Securities]

Okay. That is perfect. Thanks guys. Appreciate it. See you in a couple of weeks.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Yes. Thanks.

[Operator]

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

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC]

Yes. Hi, good morning.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Good morning, Steve.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC]

So, hey, so first just the detail on the Texas low growth and the 30% growth in peak through 2,030, is that kind of include all the updates that you owe to I think ERCOT for early next year for kind of low growth plans? Is that the kind of range that we should be expecting?

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

No. There's the potential for incremental load growth in that update with ERCOT. That process with ERCOT is really trying to capture kind of all speculative load in the 30% figure that I highlighted was a subset of that speculative load where we have a much higher degree of confidence. And so as we look at and work with a number of companies in this region, As an example, hydrogen related activity could be multiples of what's included in that number as one example. So we will be working to categorize kind of all of what I'll call speculative load activity and then providing various degrees of confidence for each of those categories.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

And I think the headline number should be higher, but we feel a high degree of confidence in at least 30% through 2,030.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC]

Okay. And then just maybe you could just give us an update on maybe a little more color on where things stand with the rating agencies and what they're keying off of from here? Is it just the metrics or is there other things that they are watching and care about? Thanks.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Sure, Steve. Good morning. I think it's really both pieces. To start with the numbers, you saw us come out this morning with we're consistently measuring against Moody's and a 13% downgrade threshold there. We came out with the adjusted number today of 13.8%.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

We're confident that as we continue to go forward, what we're really going to see change there over the next year is the combination of the Louisiana Mississippi Gas LDC proceeds as well as the securitization related proceeds. So it's certainly the case the rating agencies are watching closely those securitization filings as well with the ultimate goal of really just seeing the really strong Texas regulatory construct work, right? That's why you saw us today really highlight 2 things. First, again, the securitization process with a long history here in Texas of approvals of 11 different securitization. And the second is the opportunity without the rate case in front of us to pursue the traditional capital trackers, which we do intend to do.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC]

Okay, great. Thanks. Appreciate it.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Thanks, Steve.

[Operator]

And our next question comes from Durgesh Chopra with Evercore. Your line is open.

[Durgesh Chopra, Managing Director at Evercore]

Hey, good morning team. Thanks for giving me time. Hey, Chris, just to kind of follow-up on the credit metrics discussion. Maybe just can you help us maybe a little bit more detail on the timing of the securitization proceeds in 2025? And then just directionally speaking, where do you on a Moody's basis, where you're expecting 2024 metrics to be and then 2025?

[Durgesh Chopra, Managing Director at Evercore]

I'm thinking if they dip towards the end of the year and then pick back up in 2025 as you receive those proceeds, but just more color there. Thank you, Chris.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Sure, Sreedhar Gaj. Happy to do it. Let me just remind everybody again the highest order of the focus of the company for the long term is the focus on a cushion of 100 basis points to 150 basis points as we go. But let me unpack the securitization pieces for you in particular. First, you should assume that we file 2 different securitization requests.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

The first will be for the associated May storm or derecho related storm costs. We'll file that soon. But as a result, I think you should generally assume roughly Q3 resolution and associated proceeds of 2025. 2nd, we'll file the hurricane barrel related costs. We're generally targeting roughly Q2 next year once we get all those costs in to file for those barrel associated requests.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Cumulatively, what we did this morning is we updated towards the low end of the costs themselves. Previously, our guide was $1,600,000,000 to $1,800,000,000 We updated today given the greater certainty we have now at $1,600,000,000 So ultimately, Durgesh, I'd say the first piece roughly Q3, 20 25. 2nd component of hurricane barrel related costs either late Q4 or early Q1, 2026.

[Durgesh Chopra, Managing Director at Evercore]

Thanks, Chris. And then just so I guess by the end of next year, are you sort of in that 14% to 15%, I mean you're very close to it as of the end of 3Q. I'm just thinking about CapEx picking up next year and the securitization proceeds. Just where do you shake out in that 14% to 15%? Are you going to be solidly in that range next year or is that a more of a 26% event?

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Yes, I think it's ultimately once we get the securitization proceeds, Zendergesh will be stepping back into that substantial cushion, right. So you'd ultimately probably be looking at Q1, 2026 once we've got all that done. Keep in mind that we've also emphasized this morning, the consistent focus we've got on the balance sheet. You saw us pull forward even the 2025 equity kind of being front footed at that point. So you're just going to consistently see the focus here from the team.

[Durgesh Chopra, Managing Director at Evercore]

Understood. Really appreciate that detailed color. Thank you.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Thank you.

[Operator]

Our next question comes from Jeremy Tonet with JPMorgan Securities. Your line is open.

[Jeremy Tonet, Equity Research Analyst, Executive Director at JP Morgan]

Hi, good morning.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Good morning, Chairman.

[Jeremy Tonet, Equity Research Analyst, Executive Director at JP Morgan]

Just want to start off, I guess, looking at the state as a whole, how things stand in Texas. How have stakeholder conversations trended there since completing your GHRI Phase 1 work versus the initial aftermath of the storm?

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Yes. Thanks, Jeremy, for the question. I think things continue to improve. I mean, we've conducted obviously extensive outreach, elected officials, customers, our communities, community leaders. And what we've heard, it consistently is that everybody wants a more resilient system.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

They want improved communications. I think they saw improved communications as we prepare for Francine. And I think they have appreciated the progress that we made in August and that we're carrying forward with the resiliency investments in the second phase of GHRI. As I highlighted on the call, I think the area where we can make the single biggest sort of improvement in a short period of time is on this concept of segmentation and automation. And the plan that we've got here in the second phase when it's all implemented will save our customers about $125,000,000 outage minutes annually.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

I think that's the direction that our stakeholders want to see us go in. And so obviously there's more to be done. It is a focus of ours to continue to re earn trust. We know that we've got to continue to lean into those conversations both with elected officials as well as our communities. But I think we're heading in a direction that everybody wants that's again a more resilient reliable grid and much better communication.

[Jeremy Tonet, Equity Research Analyst, Executive Director at JP Morgan]

Got it. That's helpful there. Thanks. And just moving to 2024 guide real quick here, despite the $0.11 O and M drag this quarter, reaffirming 2024 whole, This suggests, I guess, a lot of offsets in 4Q. Just wondering if you could walk us through that a bit more, what is contemplated there as far as the offsets?

[Jeremy Tonet, Equity Research Analyst, Executive Director at JP Morgan]

And then I guess, how does this position for 2025?

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Sure. Good morning. Yes, I think there's a few pieces to keep in mind there, which informally the confidence in maintaining our guidance. I think the first piece again is just the consistency of the trackers that we've got. The last couple of quarters there have seen a benefit of roughly $0.09 to $0.10 quarter over quarter related to those trackers specifically.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

And so we're going to expect that trend to continue really across our jurisdictions relative to the Q4 of last year. The second piece and I hit this one in my prepared remarks specifically, but I'll again just reiterate, we did a lot of incremental work on the system in Q3, certainly highlighting the critical vegetation management work during the sprint we undertook during August of this year. And a lot of that work was incremental to the year, but keep in mind some of it was an acceleration from Q4. So I'd expect that to result in about a penny benefit to Q4 as well. And on top of that, recall last year that we pulled forward work into the Q4.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

And so that work was about $0.03 from 2024 to 2023. And so that again should benefit us here as we look at Q4 2024, we do the quarter over quarter look. All in all, confident here for the year.

[Jeremy Tonet, Equity Research Analyst, Executive Director at JP Morgan]

Okay, great. Helpful. Thank you.

[Christopher Foster, Executive VP & CFO at CenterPoint Energy]

Thanks, Jeremy.

[Operator]

And our next question comes from David Arcaro with Morgan Stanley. Your line is now open.

[David Arcaro, Executive Director, Equity Research at Morgan Stanley]

Hey, thank you. Good morning.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Good morning, David.

[David Arcaro, Executive Director, Equity Research at Morgan Stanley]

Wondering if you could give an update on kind of where you stand with the proposal that you put forth regarding the temporary gen recovery or what the next move is with that proposal?

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Yes. Just as a quick reminder, I think the real focus of the state's attention on the temporary generation portfolio is really on the large units. And when we look at the amount of investment in those large units, there's a little less than $100,000,000 of profit or equity earnings that has not yet been recognized on those units. And the proposal that we made in August was basically to forego the equivalent a little bit more than the equivalent of that remaining profit. We put forward a proposal where we would forego about $110,000,000 of profit.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Clearly, I think, Safe Motors saw that as a good step forward. But I think there's still discussion around the use of these units. And as we've indicated on many occasions, we are working with everybody in the state to find a solution that works, a solution that works for our customers in times of load shed. We still have an obligation to rotate power once every 12 hours in a load shed event. And given our industrial load profile, critical facilities like the Texas Medical Center, we believe that we need those large units to comply with that order.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

But if the state wants us to state wants to change that requirement or wants us to look at these units differently, we're happy to work with the state in that regard. And so there's no prescribed timing. We attempted to address the concerns on the profit, the remaining profit on the large units and we'll work with the state to find a final resolution.

[David Arcaro, Executive Director, Equity Research at Morgan Stanley]

Okay, got it. Appreciate the update there. And then maybe on the transmission outlook in the state, there are a couple of big programs out there. We've got the Permian plan, potential for 765 kV investments. Wondering if you could talk about how you could be involved there.

[David Arcaro, Executive Director, Equity Research at Morgan Stanley]

When might we see some of the potential projects or upside opportunities start to crystallize for your plan?

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

I think more directly the opportunities around the 765 kilobytes project, there are a couple of our substations that would tie into that project. And as you know, the standard here in Texas is right of first refusal for the lines that connect into our substations. And so we see the opportunity for significant investment in those 765 kV lines that are outside or not incorporated in the $47,000,000,000 CapEx plan that we've highlighted here. So that's potential upside. I think there's less potential upside with the Permian Basin directly.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

That's really focused kind of outside of our service territory. What I would say indirectly though and back to my response earlier, ERCOT will update the speculative load study in early 2025. At that point, they will incorporate an estimate of speculative load in the Greater Houston region. Given the explosive growth that we talked about, I have to believe that there are going to be more transmission lines that are needed to serve that increasing load. As a reminder, on any given day, we're importing about 60% of electricity needed to serve our customers.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

And as that electricity demand grows, there'll be more need for incremental transmission lines and substations. And so we see electric transmission as being sort of a long term tailwind for our CapEx plan. And I'd like really start to kind of see that come into a greater focus probably in 2025 along around this speculative load update.

[David Arcaro, Executive Director, Equity Research at Morgan Stanley]

Okay, great. That's helpful. Thanks so much.

[Jacqueline Richert, Senior Vice President of Corporate Planning, Investor Relations, and Treasury at CenterPoint Energy]

Operator, I think we have time for one more if there's another in the queue.

[Operator]

All right. And our last question will come from Julien Dumoulin Smith with Jefferies. Your line is now open. [SPEAKER JULIEN DUMOULIN

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

SMITH:] Hey, good morning, team. Thank you guys very much. It's a pleasure to chat with you guys again. If I can follow-up on a few different things, just a little nitpicks here from the

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

call thus far. With respect

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

to mobile generation, I mean, just to understand the contract terms and the permutations here, how do you think about any strategic avenues here to the extent to which that ultimately the state, whether the legislative session or otherwise, ultimately effectively pushes you into a decision effectively divest, if you will, in the broadest terms. How do you think about what is possible within the construct that you have here?

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Yes.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Thanks. Especially for a state that's shorter. I think that's the key to it. Your last comment, right? There's been very little net dispatchable generation build.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Clearly, there's been a lot of generation build when we think about intermittent renewables. But on a net basis, in terms of new build, less retirements, the state has really seen very little in the way of dispatchable build. And so I think the focus for the state is really trying to, in particular these days, find a path forward for the winter peak. We saw the benefit of the battery storage deployment here this past summer. I think those battery storage investments are really helping kind of the summer peak where we're talking about hours.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

They're not necessarily as helpful in the winter peak when we're potentially short for days. And so I think what we're looking for is a solution that could help address dispatchable needs here in the state. That could mean subleasing our equipment to others so that it doesn't leave the state, but is an available resource at the state level. Otherwise, obviously, we will work with our elected officials if they have a different point of view. And so I don't think there's a definitive path forward, but I think everybody is trying to find a solution that protects customers in the event of load shed, but also does so sort of optimally from a cost standpoint and we're happy to find that balance with everyone.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Excellent. And just a quick nitpick on the last response. Just the transmission update from ERCOT here. Obviously, ERCOT released their own load forecast here recently. You talked about this 8 gigawatt number on the call momentarily ago.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

How does that inbound, again, I get this is a fluid situation, reconcile against ERCOT's demand? And effectively, are you suggesting there's a further sort of net uptick in ERCOT's demand and or that updated load forecast they came up with, does it necessarily yet reflect their transmission expectations? I'm just trying to understand, I think you're suggesting that there's an uptick in both the demand as well as their transmission planning to reflect the 8 gigawatts that you just alluded to on data center specifically potentially?

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

Yes, Julien, I think that's the short of it, is it's an uptick both on demand and transmission. The updated numbers still don't reflect the potential development here in the Greater Houston region. That update, as I mentioned, really is coming kind of in early 2025. What we have seen this summer say a fundamental shift in data center activity. Up until early summer, we had about a gigawatt of demand in the queue and now it's over 8 gigawatts as of the time of this call.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

And I think that really reflects the fact that as we talk to developers and hyperscalers, latency becomes less of an issue as it moves more of development to AI driven data centers. Texas remains very attractive in terms of being able to build new transmission lines, new generation. Our interconnection timelines compare very favorably in a state that can move quickly with large infrastructure investments. And so I think that's why we've seen it dramatically change this summer. All of that your point, will get incorporated into ERCOT's load forecast early next year.

[Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs at CenterPoint Energy]

And just given the point that I've recently highlighted, we continue to highlight that 60% of our electricity is imported on any given day that's likely going to mean more transmission here for the Greater Houston region.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Right. So it's even accelerating in the last quarter despite ERCOT's update even the last couple of months here. It seems like there's an upward bias there. Excellent guys. Thank you for the time and clarifying

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

that.

[Jacqueline Richert, Senior Vice President of Corporate Planning, Investor Relations, and Treasury at CenterPoint Energy]

Thanks, Julian. Thanks, Julian. And with that, operator, I think that will conclude our Q and A for the day. Thanks everyone for participating in this quarterly call.

[Operator]

This concludes CenterPoint Energy Third Quarter 2024 Earnings Conference Call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Jacqueline Richert, Senior Vice President of Corporate Planning, Investor Relations, and Treasury
• ​​​​​​Jason P. Wells, President & CEO
• Christopher Foster, Executive VP & CFO
• Jason Ryan, Executive Vice President of Regulatory Services & Government Affairs

Analysts

• Shahriar Pourreza, Senior Managing Director - Head of Energy/Power/Utilities at Guggenheim Securities
• Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research LLC
• Durgesh Chopra, Managing Director at Evercore
• Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group
• Jeremy Tonet, Equity Research Analyst, Executive Director at JP Morgan
• David Arcaro, Executive Director, Equity Research at Morgan Stanley