CenterPoint Energy, Inc. (CNP) Q4 2014 Earnings Report, Transcript and Summary

Good morning, and welcome to CenterPoint Energy's Fourth Quarter and Full Year 2014 Earnings Conference Call with senior management. [Operator Instructions] I will now turn the conference call over to Carla Kneipp, Vice President and Treasurer. Ms. Kneipp, you may begin.

Thank you, Carmen. Good morning, everyone. Welcome to our fourth quarter 2014 earnings conference call. Thank you for joining us today. Scott Prochazka, President and CEO; Tracy Bridge, Executive Vice President and President of our Electric Division; Joe McGoldrick, Executive Vice President and President of our Gas Division; and Gary Whitlock, Executive Vice President and CFO, will discuss our fourth quarter 2014 results and provide highlights on other key areas. We also have with us our new incoming CFO, Bill Rogers, and other members of management present who may assist in answering questions following the prepared remarks. Please note that we may announce material information using SEC filings, press releases, public conference calls, webcasts and posts to the Investors section of our website. In the future, we will continue to use these channels to communicate important information about the company, key personnel, corporate initiatives, regulatory updates and other matters. Information that we post on our website could be deemed material. Therefore, we encourage investors, the media, our customers, business partners, and others interested in our company to review the information we post on our website. Today, management is going to discuss certain topics that will contain projections and forward-looking information that are based on management's beliefs as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. Actual results could differ materially based upon factors, including weather variations, legislative and regulatory actions, timing and extent of changes in commodity prices, growth or decline in our service territories and other risk factors noted in our SEC filings. With the formation of Enable Midstream Partners, the way we present our financial results have changed. As a result, we will refer to our equity investment in Enable as Midstream Investments and to the remainder of our businesses as Utility Operations. We will also discuss our guidance for 2015. The Utility Operations guidance range considers performance to date and certain significant variables that may impact earnings such as weather, regulatory, and judicial proceedings, volumes, commodity prices, ancillary services, tax rate, interest rate and financing activity. In providing this guidance, the company does not include other potential impacts, such as the impact of any changes in accounting standards, any impact to earnings from the change in the value of ZENS securities and the related stock or the timing effects of mark-to-market and inventory accounting in the company's energy services business. In providing Midstream Investments' guidance, the company takes into account such factors as Enable's most recent public forecast, effective tax rate, the amortization of our basis differential in Enable and other factors. The company does not include other potential impact such as the impacts of any changes in accounting standards for Enable's unusual items. For the reconciliation of the earnings guidance provided in today's call, please refer to our earnings press release, which along with our Form 10-K, updated debt maturity and equity return amortization schedule and year-end supplemental materials have been posted on our website, centerpointenergy.com underneath the Investor section. Before Scott begins, I'd like to mention that a replay of this call will be available through Thursday, March 5. To access the replay, please call (855) 859-2056 or (404) 537-3406 and enter the conference ID number 61569448. You can also listen to an online replay on our website and we will archive the call for at least 1 year. And with that, I'll now turn the call over to Scott.

Thank you, Carla, and good morning, ladies and gentlemen. Thank you for joining us today, and thank you for your interest in CenterPoint Energy. This morning, we reported full-year earnings of $611 million or $1.42 per diluted share as compared to $311 million or $0.72 per diluted share in 2013. Using the same basis that we use when providing guidance, full-year adjusted earnings would have been $1.27 per diluted share in 2014 compared to $1.20 for 2013. Included in 2014 earnings is a $29 million tax benefit, which equates to $0.07 per share, which Gary will discuss later. Utility Operations contributed $0.83 per diluted share and Midstream Investments contributed $0.44 for 2014. I'm pleased with our overall 2014 performance. With a new leadership team, refreshed corporate vision and strategy and successful IPO of Enable Midstream Partners, we took important steps in 2014 to set up a new foundation for the company while delivering strong business results. In June of last year, we laid out our investment and growth plans for our utilities, and I'm happy to confirm, we remain on target to achieve those goals. Further, our management transition plan has gone very smoothly. With the addition of Bill Rogers, as the incoming CFO, the new senior management team is now in place. The new team has the right mix of industry experience, functional knowledge and personal dedication necessary to continue moving our company forward. Our financial performance is driven by customer growth, capital additions, timely recovery of investments and ongoing cost management. 2014 was a record year for capital investments at our utilities, and our new 5-year plan includes approximately $7.4 billion of capital spend for Utility Operations, which is in line with our upside case presented in June of 2014. In 2014, we continued to benefit from a number of positive trends. Economic and customer growth was strong within our footprint, especially in Texas and Minnesota. Growth in the Houston area will continue to benefit from 3 key themes: First, construction remain strong across our residential, commercial and industrial sectors and the inventories are maintaining at reasonable levels. According to Mark Dotzour, the Chief Economist and Director of Research at Texas A&M Real Estate Center, 8 million square feet of new industrial space will be completed in 2015, much of which will be used to support continued growth in the petrochemical sector. Additionally, vacancy rates in some parts of the city are at all-time lows. Second, Houston has demonstrated the ability to grow in both high and low-energy commodity cycles. The Houston area population has grown steadily since 1990, despite oil prices cycling between $20 and $150 per barrel. And third, the local economy is much more diverse than in years past. According to the City of Houston, in 1981, the economic base was dominated by energy-related businesses with nearly 85% of all jobs in those sectors. Today, nearly 1/2 of all jobs are in non-energy sectors, such as business services, technology, aerospace, medicine and manufacturing. While Houston's projected job growth is below last year's near-record pace, the forecasted increase of 60,000 jobs or 2% remains in line with long-term trends. Much attention lately has been on energy commodity prices and their impact on Enable. Last week, Enable provided a reduced 2015 guidance range, which reflects the near-term effects of those lower prices and a recent decline in rig count in the areas in which Enable operates. From a longer-term perspective, we remained positive on the fundamentals that underlie Enable's growth story. Enable sets itself apart from other MLPs with their investment-grade balance sheet, strong organic growth opportunities and a constructive balance of acreage dedications, fixed-fee contracts and minimum-volume-commitment contracts that support much of their income. Enable's customer base and relationships as well as their geographic base and diversity will continue to provide opportunities, even with energy price volatility. Enable provides a significant contribution to our dividend, while allowing us to focus our capital investment on our utility businesses. As you all know, today will be Gary Whitlock's last earnings call as CFO of CenterPoint Energy. Gary has been with the company since its inception in 2002 and was a key part of the management team that dealt with several challenges and opportunities. I worked closely with Gary over his entire time and his experience, knowledge, and counsel will be missed. His replacement, Bill Rogers, comes to us with many years of utility and banking experience and while it will be tough to fill Gary's shoes, Bill will certainly bring his own brand of experience and leadership capabilities to our senior management team and the [Audio Gap] Looking forward, we will drive our strategy to operate, serve and grow. From an operations perspective, we will continue to emphasize safety, reliability and efficiency. We will enhance service to our customers and our communities. Our capital investments will support growth and our service territories ensure essential system upgrades and improve customer service, which will position the company for success and as a leader in our industry. Let me wrap up by commending our employees, who met challenges of 2014 head on. They implemented innovative solutions for our customers, executed on a large capital program to meet the current and future infrastructure needs and gave back to their communities in their spare time. This year, we were named as a Civic 50 award recipient for our contributions to our communities. This award recognizes the nation's most civic minded companies and I'm honored that we were selected as the 2014 Utilities Sector recipient. Our employees are the heart of our success and their collective performance is much appreciated. I will now ask Tracy to discuss electric operations

Thank you, Scott. Houston Electric's 2014 financial performance was solid and in line with our expectations. Core operating income was $477 million compared to $474 million in 2013. Growth of nearly 55,000 in metered customers in 2014 contributed $33 million of incremental revenue. We benefited $15 million from a higher energy efficiency performance bonus in 2014, $8 million of which is related to the resolution of our bonus appeal. We also benefited $23 million from higher equity returns, primarily related to true-up proceeds. These increases were partially offset by milder weather, lower rights-of-way revenue, higher operating and maintenance expense and depreciation. As you have heard, Houston continues to be a vibrant place to work and live, which is reflected in our throughput and customer growth for 2014. Home throughput increased over 2% and customer growth increased over 2.4% in 2014. Of the top 10 most populous metro areas in the nation, the greater Houston area's population growth rate consistently ranked in the top 2. In response ongoing customer and load growth, Houston Electric has been investing significant capital to ensure that our customers' electricity needs are reliably and safely met. In 2014, Houston Electric invested $818 million of capital, which represents an approximate 8% increase over 2013's capital expenditure level. This year, we expect Houston Electric to continue delivering solid results. Given the current commodity price environment, we anticipate customer growth will decline but remain healthy at 2% in 2015. We plan to invest over $900 million of capital this year and approximately $4.4 billion over the next 5 years. This investment will be used to improve service reliability and system resiliency, enhance our customer service systems and support load growth and ongoing system maintenance. This level of capital investment results in rate base growth consistent with the growth rate we have previously provided, despite the rate base reduction associated with bonus depreciation in 2014. I'd like to discuss 2 projects in our capital investment plan that help demonstrate the growth in our service territory. Many of you are familiar with the Houston Import Project. We are responsible for the southern half of this project known as the Brazos Valley Connection. This project is critical for electric reliability in the Houston region as a result of forecasted load growth and insufficient local generation. Houston Electric will file for approval in its portion of the project with the Public Utility Commission of Texas in April. We anticipate the capital cost of the Brazos Valley Connection will be approximately $300 million. Another project that demonstrates the load growth in our service territory is our Jones Creek Project. This $86 million transmission investment will enable the delivery of 656 megawatts of power to serve Freeport LNG's new $10 billion-plus natural gas liquefaction export facility. The LNG plant will help drive economic growth in our service area. Our Jones Creek Project is expected to be in service beginning in December of 2017, and Freeport LNG will be one of our largest industrial customers once the project is fully operational in 2018. In addition to growth products, we continue to see strong interest in the use of our rights-of-way, indicating continued pipeline expansion activity associated with growth in our service area. In 2015, we are forecasting rights-of-way revenue in the range of $10 million to $20 million. Regarding regulatory matters, we do not anticipate the need for a general rate case filing at Houston Electric in the near-term. We do, however, plan to make a Distribution Cost Recovery Factor filing in April, which will allow us to earn a return on distribution capital invested since our last rate case. Rate increases from the filing would go into effect later this year, however, most of the benefit would be realized in 2016. This recovery mechanism, along with our transmission cost-of-service mechanism will be very effective in reducing recovery lag and mitigating the need for time-consuming, costly general rate cases. I am pleased with the results of this year and with our prospects for the future. Houston Electric continues to execute on its plan to provide safe, reliable, and efficient electric service for its growing service territory. I'll now turn the call over to Joe McGoldrick, who will update you on gas operations.

Thank you, Tracy. 2014 was another great year for gas operations. We continued to invest in system upgrades and growth while pursuing new technology to improve system safety, reliability and enhance customer service. The natural gas utility business has been successful, in part, by proactively working with the regulatory commissions to implement innovative rate mechanisms that reduce lag in recovering these investments. In addition, our energy services business was able to take advantage of basis volatility, which created asset optimization opportunities and increased throughput and margin due to extreme cold weather. Gas Operations reported $339 million in operating income for 2014 comprised of a record-setting $287 million in our natural gas utilities and $52 million from our energy services business. By comparison, Gas Operations reported $276 million in 2013, comprised of $263 million in our natural gas utilities and $13 million in our energy services business. Natural gas utilities had an outstanding year. We added nearly 36,000 new customers, a 1% increase, with the strongest growth in Minnesota and Texas, and throughput on our system increased by 4%. This business also benefited from the extreme cold weather in the first quarter of 2014, as we reached the cap on our weather-hedge by February and consequently, enjoyed the benefit of added margins the rest of the winter and early spring. Rate increases accounted for $37 million of improved revenue, helping offset increases in O&M and D&A during the year. Natural gas utilities invested $525 million in 2014, which represents an approximate 22% increase over 2013. We anticipate that this elevated capital investment will continue to drive rate base and earnings growth. Our new 5-year plan includes $2.7 billion of capital, which is slightly above the high end of the capital investment plan we shared with you last June. Our $170 million conversion of automated metering technology is substantially complete in 4 of the 6 states we serve. We plan to upgrade the remaining 420,000 meters this year to complete the project. Upon completion, we will have upgraded 3.4 million meters. We also continued to invest capital in pipe replacement. 2 good examples of this are: the multiyear, $400 million Minnesota Beltline Project; and our accelerated cast-iron- and bare-steel-main-replacement program. These investments have improved our system reliability, safety and our customer experience and we are proud of what we have accomplished. Our increased capital spending is impacting D&A, which was up $16 million or approximately 9% versus 2013. While 2014 O&M expenses were up 4% over the prior year, the annual growth rate between 2011 and 2014 was 1%, after adjusting for pass-through expenses. Going forward, we'll manage O&M expenses to approximately a 3% compound annual growth rate. On the regulatory front, we anticipate filing general rate cases in 2015 in our Texas Coast, Minnesota and Arkansas rate jurisdictions. We will also file annual rate mechanisms in other service territories, including our GRIP asset recovery mechanism in our Houston, South Texas and East Texas divisions. Implementation of new rates will be staggered over 2015 and 2016. In Minnesota, interim rates will go in effect approximately, 60 days after filing the rate case later this summer, and will be trued-up once final rates are determined in 2016. The majority of increases related to all of these filings will be reflected in 2016 results. The energy services business, after adjusting for mark-to-market accounting, would have reported operating income of $23 million in 2014 compared to $15 million in 2013. This business benefited from 2 key factors in 2014: first, basis volatility created asset optimization revenues, not experienced in many years; and second, the extreme cold weather increased throughput and margin from our weather-sensitive customers. When combined with solid expense management, including some workforce reductions, energy services had a very good year. Going forward, we will focus on opportunities within our core footprint. I am proud of the reliable service we continue to deliver to our customers, often in volatile and constrained market conditions such as those created by last year's extreme weather. We remained focused on delivering gas safely and reliably, creating first-rate customer-service experiences and providing customers with product and service options that meet their growing needs. I'll now turn the call over to Gary for an update on financial activities.

Thank you, Joe, and good morning to everyone. I had a few topics to review this morning and would like to start by discussing the financial results for our businesses. Our Utility Operations reported very solid earnings of $0.83 per diluted share on a guidance basis. These results included a tax benefit of $29 million or $0.07 per diluted share from the periodic reconciliation of deferred taxes related to book and tax balance sheet. After adjusting for this tax benefit, Utility Operations would have reported $0.76 per diluted share, which is at the upper end of our 2014 guidance range of $0.72 to $0.76. Additionally, Enable reported strong fourth quarter and full-year earnings. They delivered solid increases in net income, adjusted EBITDA and distributable cash flow and increased their fourth quarter 2014 unit distribution by 7% over the partnership's minimum quarterly distribution. This strong performance of Enable in 2014 resulted in our Midstream Investment's reporting earnings of $0.44 per diluted share for the full year, which is also at the upper end of our 2014 guidance range of $0.42 to $0.45 per diluted share. In addition, we received $305 million in cash distributions from Midstream Investment. Consistent with our dividend policy, these cash distributions net of tax are used to support our dividend. I would now like to discuss our earnings guidance for 2015. As Carla noted in providing this guidance, we take into account certain, but not all variables that may impact actual performance. Let me start with our Midstream Investments. Enable is well-positioned to be successful in today's lower and changing energy commodity market. Enable has investment-grade credit rating, low leverage and substantial liquidity. When combined with a significant fee-based margin business, minimum-volume-commitment contracts, a thoughtful hedging strategy, integrated assets and a seasoned management team, we expect they will continue to execute their business plan by taking the necessary actions to be successful in this more challenging business environment. Based on the latest outlook and guidance provided by Enable, we estimate the equity earnings from our Midstream Investments to be in the range of $0.29 to $0.35 per diluted share. This guidance range assumes our current LP ownership interest of 55.4% and includes the amortization of our basis difference in Enable. Now, let me turn to our earnings guidance for Utility Operations, which includes the earnings at the parent company and our energy services business. I would like to describe 3 items that have favorably impacted our 2014 Utility Operations' results by $0.06 per diluted share. Taking these 3 items into consideration, provides our 2014 Utility Operations' baseline earnings: first, our 2014 equity return related to true-up proceeds is $0.03 per share higher than anticipated in 2015, as a result of the need to true-up the amounts reported from inception to date; second, we benefited $0.02 per share from favorable weather; and third, we received a $0.01 per share benefit from a favorable ruling related to our 2008 energy efficiency bonus appeal. We have included a reconciliation to the $0.70 baseline earning in our year-end supplemental materials. Our earnings guidance range for Utility Operations for 2015 is $0.71 to $0.75 per diluted share. Using the midpoint of this earnings guidance range of $0.73, compared to the 2014 baseline of $0.70, we expect Utility Operations to grow 4.2% this year with a 4% to 6% compound annual growth rate expected through 2019. We have assumed a consolidated effective tax rate of approximately 37%, which includes a 38% booked tax rate for Enable's earning and an average share count of 431 million shares. The resulting consolidated earnings guidance range for 2015 is $1 to $1.10 per diluted share. And we will keep you updated on our earnings expectations on a quarterly basis. As you have previously heard, our 5-year plan outlines approximately $7.4 billion of capital investment. We expect to finance this capital spending with a thoughtful approach of raising equity and debt on a timeframe, as needed, to ensure that our regulatory capital structure's appropriate and that our debt credit ratings remain strong investment-grade. Due to the cash flow benefit of bonus depreciation being extended in 2014, we do not see any need for equity in 2015. In future years, we expect to raise equity to fund our capital plan through the sale of original issue shares through our savings and Investor's Choice Plan. Next, I would like to remind you of our dividend policy and the $0.2475 per share quarterly dividend declared by Board of Directors on January 22. This dividend rate represents a 4.2% increase from our 2014 dividend when annualized, and represents a 19% increase in the dividend rate since the formation of Enable in 2013. Although this dividend increase is lower than what we had anticipated, when we provided a dividend growth rate forecast last year, it nonetheless represents a significant increase and reflects the latest outlook and guidance from Enable. It also includes the projected cash tax rate for Enable distributions, averaging approximately 25%, increasing from 15% to 32% through 2018. Due to the limited forward-looking timeframe of Enable's guidance, we do not feel it's appropriate to provide a dividend growth rate forecast at this time. However, our objective remains unchanged, which is to provide our shareholders a growing dividend that reflects the long-term stability, and growth in our regulated utilities combined with after-tax cash distributions we received from Enable. We believe this policy represents a strong commitment to our shareholders. As mentioned earlier, I will be retiring from the company and Bill Rogers has been named my successor. Bill is an outstanding finance professional and is a servant leader with great integrity. Bill, Scott and the entire executive management team are talented professionals, who are committed to serve our shareholders, employees, customers, creditors and the communities where we live and work and CenterPoint Energy could not be in better hands. And finally, I want to acknowledge David McClanahan, Scott Rozzell and Tom Standish. We all worked together from the formation of the company, and I want to thank them for affording me the privilege of working beside them these past years to help CenterPoint Energy become a stronger company. Most importantly, I want to thank all of our employees who work safely each day to serve our customers and our community. Thank you for your continued interest in CenterPoint Energy and I will now turn the call back over to Carla.

Thank you, Gary. In asking your questions, I'd like to remind you that Enable-related financial and operational performance questions should be directed towards Enable management. We will now open the call to questions. [Operator Instructions] Carmen?

[Operator Instructions] Our first question comes from the line of Andrew Weisel with Macquarie Capital.

First question, can you dig a little bit more into the CapEx numbers? Specifically, when I look at '15 through '18 from the 10-K, you talked at the Analyst Day about upside potential of $1.2 billion it looks like you've increased it by literally double that $2.5 billion. How is there's so much upside and how is that not boosting the rate base growth? I understand the bonus depreciation is negative but seems like it should be growing a whole lot faster given the CapEx.

Andrew, this is Scott. I think what's going on -- you mentioned the '15 through '18 forecast. The new numbers we gave are '15 through '19. So the extra amount of CapEx you're looking at probably comes from the addition of '19.

No. I don't think it does.

Well, because you had mentioned earlier that it was '15 through '18, because we were comparing at that time a revision of how the increase would be from '15 through '18, and we showed upside opportunity for those years and then we've now layered in '19 if I've looked -- I've corrected.

Maybe. I'll double check my numbers, but I thought the increase apples-to-apples was more than the $1.2 billion of upside you talked about at the Analyst Day. Is that not the case?

The increase from the -- the way to think of this is the increase from the Analyst Day is in the neighborhood of $1.2 billion.

Okay. Apologies.

But we'll, we can work -- we'll have -- we'll double check this and we can deal with this after the call to make sure you're clear on it.

Yes, that sounds good. Then the second question I had was you mentioned that you'll be filing for the Distribution Cost Recovery Factor in April. If I remember correctly, that only applies if your ROE is back to the level of allowed? Is that's right? And if so, what is that assumed for your 2015 earned ROE?

Andrew, that is -- you understand the rule correctly. We cannot file the DCRF unless our ROE, earned ROE, is below our authorized. So we have not yet filed what that is, it's based on '14's numbers. We'll be filing that shortly but it's safe to assume that it is below our authorized rate of 10%, and it's based on what we earned in 2014.

Your next question is from the line of Steven Fleishman with Wolfe Research.

And just a question on the -- Gary, could you maybe just repeat your comments on the cash tax rate that you're expecting for Enable distributions?

Sure. Yes, on Enable distributions, as you know Steve, the tax rates start lower and I'm really talking about from '15 forward. So they moved from '15 -- and average is 25% over a period of next number of years and through -- up to 2018. So they average 25% but they move from 15% to 32% over that time, and as you know, it's an important point. As you think about our dividend which, as you know, we increased this year by 4.2%, if you annualized that dividend, 19% since we formed Enable. Certainly, when we were at the Analyst Day we laid out an 8% to 10% growth rate in the dividend. Now we're subsequent to that, as you know, there's been somewhat precipitous fall in commodity prices and challenges there. And Enable then -- that was based, by the way, on Enable's growth rate of 10% to 12%, they've lowered that, they provided 1-year guidance, as you know, and moved that down to more of a per-unit distribution growth rate of 3% to 7%, still solid. But as we -- we will continue to get increasing cash distributions from Enable but the tax rate goes up as well. So again, their rate of growth is not as much and then the tax -- our tax rate that we had originally anticipated to be more lower teens during this timeframe, but it looks like it's going to average 25%.

Yes, that's right.

So we're not -- yes, that's it Steven. It was -- we've moved it up there and that's what I was trying to disclose to you.

Okay. That's what I thought, because I -- we had look, we had it in the high, like, mid-teens, high teens.

Yes. High teens.

So 2015..

And as you know, what we're doing in our dividend, the way we think about it, as you know, the elements or the Enable growth rate and distributions, tax -- tax those, I mean, you'll have to tax those, understand the tax cash implication and then our utility earnings by growth. So we have to take those into consideration and, of course, to be in a position that we want to continuously grow our dividend, we'll have to be very thoughtful about the dividend increase. But still very proud of 4.2%. Enable's going to continue to grow, they'll execute their business plans, we'll have cash distribution from them and it will grow our utility and provide dividends from our utility as well. But you're absolutely right. 20 -- so think more of average of 25% in terms of the tax rate. Post 2018 we're not ready to provide the guidance on that yet, because we're still doing work on that. But it would continue to go up not down.

So it's 25% over 2015 to 2018?

Yes, sir.

On average. And what is the actual 2015 expected cash tax rate?

It's closer to the 15%.

15%?

Yes.

And then it ramps up a lot here in '16...

It ramps up. Yes. And those things -- just to caution you, those things are subject to some change. Those are complex calculations based on basis and tax basis and those things. But I think the new news is giving you a little higher tax rate, hope it gives you more color as we thought about the dividend.

Okay. And last thing on the dividend, just, when you did set the 4% you knew this tax rate changed, you knew Enable's updated forecast already then? Like so, everything that we have now you knew, when you set the 4% dividend growth?

Yes. I think that's a fair comment. Yes. It was a thought -- that is a thoughtful way to consider it. Look, we -- in terms of a 8% to 10% -- I mean, by the way, when they -- we were at 8% to 10%, we knew the growth rate was -- I mean, the interest rate -- I mean, the tax rate was going to be going up. It moved some, it's not -- it's certainly manageable. The real driver on the dividend not being 8% to 10% growth rate really relates to Enable. And look, it's a very -- as Scott laid out and we laid out, it's a great company, solid investment, great balance sheet, excellent prospects to continue to grow and will grow. But we have -- our dividend, we want to be in a position to continue to grow the dividend thoughtfully. And the board, and Scott, and management team felt that 4.2% was a right place to land and then as Enable -- if we have more visibility, Enable continues to grow, we have more line of sight, then the board will take a thoughtful decision on the increase in the dividend.

Your next question is from the line of Carl Kirst with BMO Capital.

Actually, Steve hit on exactly what I wanted to go through, so I appreciate the color. Maybe just to clarify of that 4 years averaging 25%, Gary, you said, we should be ending in a 32% cash tax rate at 2018. And I apologize, can you help me once again why the change in the tax rate? Is that simply because with only 1-year of visibility from Enable there's not enough CapEx to provide a shield?

It's combination of those factors, obviously, for this call it's -- there's a lot of detail behind it, but it's a number of those factors in terms of clearly, we know our basis going in, and the MLP structure in those distributions that's exactly it, Carl, there's complications around that, and as they're becoming more clear to us it is going to be higher rate. Look, we're still delighted, it's a low-cash tax rate early but it does ramp up, and overtime, we're no different than any other taxpayer, we won't have these remedials and those things that allow you to have a lower tax rate earlier. But we're going to always constantly look for ways to lower our taxes. And hopefully, if there's corporate tax reform by the way, that will be terrific. Like you say, it's different for the regulated utility but for distributions we receive from Enable that would be important to us. So…

That would be. Well, Gary, the reason why I was asking in the way I was, was because in the sense that does it get to be sort of a double impact from the slowing of commodity prices, in the sense that to the extent that whatever timeframe happens to be, if we do all of a sudden get a recovery and we see more drilling in the scoop, et cetera, to the extent that more visibility comes from infrastructure at Enable, presumably, by owning as many LP units as you are, you are going to all of a sudden start getting the benefit of that LP tax shield. And I would think the tax rate would then start to roll back to a better rate, am I thinking about that correctly?

Yes. Look, I think that is correct and I think those are more -- those dynamics have to be taken into consideration. So what we're providing as disclosure as to where it is today, I think, a year or 2 or some period in the future, if that tax rate changes, those -- all those factors will be taken into consideration. I think the most important thing to take away is that the company is committed to its dividend policy and that is the pass-through that's after-tax distributions of Enable. So as they -- we want Enable to be bigger, better, stronger, grow their distributions and our shareholders benefit from that, which should ultimately lower our cost to capital and allow us to finance our utility and grow our utility which as Scott and Tracy and Joe described, we have terrific capital opportunities, accretive capital to invest, so it will all be helpful to us.

Your next question is from the line of Matt Tucker with KeyBanc Capital.

I wanted to try to ask again about the CapEx plan change. I believe you said your base CapEx plan is now what had been your upside case, back at the Analyst Day in June. And when you gave us that, you also articulated upside case of rate base growth, and for earnings growth, I believe, you're not changing your expectations to those upside cases, if I heard correctly. So I guess just how should we think about those rates not going up with the CapEx? Is that bonus depreciation, is that the addition of '19 and that grows slower? Just help us understand that.

Yes, Matt, I'll take a stab at this first and others may weigh in here, if need be. When we showed you consolidated utility CapEx in June, we showed a 2014 to '18 number of $6.2 billion on the low end and then $7.4 billion was the upside number we had shown. We've now redone our full 5-year capital plan to include '15 through '19 and that '15 through '19 number, which drops '14 adds '19 is now $7.4 billion. So that number, that new 5-year number is now at the top end of the range. So hopefully, that clarifies the capital piece, if Andrew's still listening, that may provide a little more clarity for him as well. You then asked about the growth in rate base. We had said that the rate base growth for the utilities would be, depending on which one you were looking at, somewhere around 7% to 10% or 8% to 10%. And then on the electric one, the new forecast, is it's at the higher end of that range, we describe it now at 8% to 10%. The gas utility rate base is still in that same range, it still falls in that same range. And what we had indicated around our earnings growth is that at the high end of this investment, we would be moving towards the top end or the higher end of our earnings growth range. We did not have a different earnings growth range number. We just said we would be striving towards the higher end. The dynamic that affects this growth rate on our earnings is -- there's a few of them. One is, that I think you told, we mentioned to you all, we have some high starting points for some of our utilities, either fully earning or in some cases, they were slightly above allowed returns and that affects the starting point of these -- of this growth rate. There certainly is a fair amount of regulatory lag, even though we have these mechanisms, since the time period is so short if you're investing all this capital, by the time you get to year 5, you've essentially financed all this capital but you don't have a good amount of that capital yet in rate base earning. Said another way, if you were to taper off capital or if capital were to taper off towards the end the earnings would improve, but you would be paying for that through reductions and earnings down the road because your capital investment had slowed down, so that is a factor. And then, the other factor is that over this period of time, there are some assumptions for some amount of equity issuance so that we maintain the right balance between debt and equity. So all 3 of those factors lead into the fact that the rate base growth is more than what we experienced on our earnings growth.

Matt, this is Carla. You may have seen it but all those numbers Scott just went is on Page 4 of the supplemental material.

That was actually really helpful. And then with respect to the long-term dividend growth, I understand the uncertainty with Enable kind of not reaffirming or updating their long-term growth beyond 2015. It sounded like they hoped to be able to give us a longer-term view, maybe later this year, after they've had some more discussions with their customers. Should we expect that you guys will update your dividend growth target once we hear from Enable or do you expect to be able to provide some more guidance at some point this year?

This is Gary. Look, I think that's exactly right. Enable -- when we provided a 3-year dividend growth rate it was on the back of or following -- we can't obviously, can't believe [ph] with Enable, it was following Enable's -- where they described their 10% to 12% growth rate. Since they have obviously reduced that and then only given 1 year, that's exactly right. We really need to follow them. I won't commit to the company that, obviously, at this point but it's something that Scott and the board will consider is providing as much clarity. If they provide -- the more clarity Enable has, they'll have more this year I think that's exactly right. If they can provide multiyear with confidence around their growth and then, that gives us confidence around providing compound growth rate. But I think an important takeaway, we're going to continue to grow our dividend. Our utilities will grow. We have a payout ratio of 60% to 70%. We've got room to work around that as the utility grows. And the takeaway from our investors -- for our investors should be, we are going to continue to grow the dividend but we'll do it in a thoughtful way, and we do have to be very thoughtful and mindful of Enable and really follow their information and try not to lead it.

Great. If I could just have one more. With respect to the $0.07 tax benefit that you mentioned in the fourth quarter, you kept that in your calculation of guidance basis EPS. So I guess, a, was that expected when you provided guidance; and b, is there anything similar expected in your 2015 guidance?

We -- yes, this is Gary again. Look, I think there was -- what we've done, there were some expectations at work was going on. This is, what I call a, it's periodic reconciliation of these very complicated multiyear issues around book and tax balance sheet, so we had some knowledge of that. What we've done, you'll see it in our supplemental materials and I hope I've described it, we left it really from precedent perspective in the $0.83, but clearly, wanted to take it out. So you have -- start with the $0.76 and I'll call it the starting point for last year. So -- look, for the tax rate going forward, 38% of what -- in terms of booked tax rate from Enable, we look approximately 36% or so, so we've got a, frankly, a little more headwind. We introduced the year at 33% total tax -- 31% total tax rate, if you add that back it's about 34%. So what we're doing when you look at guidance of $0.71 to $0.75, we have to -- we're going to work hard to beat that if we can. But it includes some headwinds, whether it be tax rate or others things that we have to work hard to fill the gap in.

And Matt, this is Scott. It's probably also worth noting, as Gary talked about the baselining of our 2014 earnings to $0.70 and then, the midpoint of our new range suggesting a 4% -- a little over 4% increase in earnings expected from '15 -- from '14 to '15. It's probably worth noting too, a year ago when we gave guidance at our first -- our fourth quarter call, which had been our first call last year, in '14, we gave guidance for the utility at $0.68 to $0.72. And at that point, it was based on expecting normal things to occur throughout the year, given what we had. So that re-baselining goes back to essentially the guidance that we provided at the start of last year, and then, of course, as we went through the year, as we do each year, we will adjust guidance based on what we've actually experienced as well as leaving the range in tact to account for additional variabilities throughout the year.

Your next question is from the line of Ali Agha with SunTrust Robinson Humphrey.

Scott, just to be clear on a point you'd made earlier. So now that you are spending the extra CapEx on the utility side and the commensurate rate base that goes with that, so fair to say if we baseline the starting point in '14, that you're probably now at the higher end of that 4% to 6% range, that you had originally thought you would be with the extra CapEx? Is that still a fair assumption?

So I'll make sure I understand, Ali, correctly, you're saying if we -- if you start with the $0.70 are we saying -- you're asking, if -- where we are in the range of our utility growth, the earnings growth?

No, I'm just -- basically saying, I think, repeating what you said, if I heard it right. You said, when you had put the 4% to 6% out there for EPS growth on utility, you had made the case, "Hey if we spend the extra money from a EPS side, we'll probably end up at the higher end of that range. We won't end up with a new range but we'll end up at the higher end of the range." So is that still...

Yes, that's correct. We are -- yes, Ali, that's correct. We are targeting the high end of that range and as we've told you in the past because of these factors that we had -- I had shared earlier that the growth rate towards the front end of this cycle was going to be less than what we would see in the middle or towards the end of the cycle.

Got it. Okay. Then, secondly, given the dislocations on the Enable side, the fact that you are not able to talk longer-term because they haven't been able to talk longer-term, given the volatility, I mean, on the down side that's been going on. For CenterPoint shareholders, Scott, have you stepped back and said, "Hey, is there a different way we can run this?" So that CenterPoint shareholders are not held hostage to what happens on the Enable side, whether it's cranking up the payout ratio on the utility, maybe having more flexibility to talk longer-term. I mean, how are you thinking about this on the CenterPoint side, given all that's transpired on the Enable side?

Yes, Ali, I think that's a fair question. I mean we are thinking about how can we -- what can we do to manage the growth that we experienced. And there is some volatility, it's not -- it's a little more volatile than maybe other utility stocks but it's nowhere near the volatility of what Enable is experiencing. We still believe there's tremendous value in offering the baseload of our utility performance, which has steady, I'll call it, more predictable growth with the upside potential growth that we get from Enable. We think that's a unique and valuable value proposition. And we're going to continue to manage the information they give along -- about their projections of where they're headed financially, with our policy of making sure that we're thoughtful about how we increase dividends. I mean we want to increase these dividends in a steady -- I'll describe them as a steady methodical way, but have it ultimately reflect the value contribution that we get from Enable.

Okay. And just one related to that. I mean would this also spur, perhaps, or to think about maybe adding more to the utility business? I know, we've talked about potential M&A in the past but just to increase the proportion of the predictable utility earnings to reduce the MLP exposure, would this be another incentive for you to look at whether it's gas or electric ruled [ph] M&A going forward?

Yes, I think that's a reasonable way to look at it. We've just increased our capital spend, as you've seen here in this plan, to get at that. I think we've mentioned in the past, M&A is not a core part of our strategy, it's something that we consider on an opportunistic basis, and we will do something if it meets the criteria that we've set out before. But our primary objective here is to grow these utilities with all the organic opportunity we have in front of us. And to the extent that other opportunities come along in the utility space that meet those criteria, I think, it would provide a little bit of the benefit that you just described.

[Operator Instructions] And your last question comes from the line of Charles Fishman with Morningstar.

If I look at the Slide 4 of the supplemental, the electric rate base goes from 7% to 10% and then, when you roll it to the next 5 years, 8% to 10%, so you're bringing up the lower end 1%. Is it a fair assessment that, that really was driven by the transmission projects between -- that you've been able to finalize since June? Is that what's going on?

There's a little more involved than that in that. I'm going to ask Tracy to address that.

When we talked about the upside, last June, at Analyst Day, we didn't have discrete projects that had been identified as to what that upside was, but neither did we have any dollars in our baseline capital plan for the Houston Import Project. So now we have better line of sight that we think we're going to have an investment opportunity there of approximately $300 million. That now has materialized into part of our upside but that's not the whole story, there are other things that we've done. So it's a combination of our portion of what we expect to be approved, hopefully, later this year by the Public Utilities Commission as well as other opportunities that we've identified.

So it's really just increased confidence now versus last -- almost 8 months ago?

Yes, that's correct.

Carmen, with that we're going to go ahead and end the call. Thank you, everyone, for your interest in CenterPoint Energy. We will now conclude our fourth quarter and year-end 2014 earnings call. And have a nice day.