Good morning and welcome to CenterPoint Energy's Second Quarter 2018 Earnings Conference Call with senior management. [Operator Instructions] I will now turn the call over to David Mordy, Director of Investor Relations. Mr. Mordy?

Good morning, everyone. Welcome to our second quarter 2018 earnings conference call. Scott Prochazka, President and CEO; and Bill Rogers, Executive Vice President and CFO, will discuss our second quarter 2018 results and provide highlights on other key areas including our pending merger with Vectren. Also with us this morning are several members of the management, who will be available during the Q&A portion of our call. In conjunction with our call, we will be using slides which can be found under the Investors section on our website, centerpointenergy.com. For a reconciliation of the non-GAAP measures used in providing earnings guidance in today’s call, please refer to our earnings news release and our slides. They've been posted on our website as has our Form 10-Q. Please note that we may announce material information using SEC filing, news releases, public conference calls, webcast, and post to the Investors section of our website. In the future, we will continue to use these channels to communicate important information and encourage you to review the information on our website. Today, management will discuss certain topics that will contain projections and forward-looking information that are based on management’s beliefs, assumptions, and information currently available to management. These forward-looking statements are subject to risks or uncertainties. Actual results could differ materially based upon factors including weather variations, regulatory actions, economic conditions and growth, commodity prices, changes in our service territories, and other risk factors noted in our SEC filings. We will also discuss our guidance for 2018. The guidance range considers utility operations performance to-date and certain significant variables that may impact earnings such as weather, regulatory and judicial proceedings, throughput, commodity prices, effective tax rates and non-merger financing activities. In providing this guidance, the company uses a non-GAAP measure of adjusted diluted earnings per share. It does not include other potential impacts such as changes in accounting standards or unusual items. Earnings or losses from the change in the value of the zero premium exchangeable subordinated notes were ZEN securities and the related stocks or the timing effects of mark-to-market accounting in a company's Energy Services business. The guidance range also considers such factors as Enable's most recent public forecast and effective tax rates. During today's call and in the accompanying slide, we’ll refer to public law number 115-97 initially introduced as the Tax Cuts and Jobs Act, as TCJA or simply tax reform. Before Scott begins, I would like to mention that this call is being recorded. Information on how to access the replay can be found on our website. And now, I'd like to turn the call over to Scott.

Thank you, David, and good morning, ladies and gentlemen. Thank you for joining us today and thank you for your interest in CenterPoint Energy. Since we have some potential new investors on this call, I would like to start with a brief overview of CenterPoint’s vision and strategy. Later in the call, Bill will provide an overview of how we present our financial performance. Beginning on Slide 5, CenterPoint has a long-standing vision to lead the nation in delivering energy, service and value. We are committed to leadership and have been recognized for our use of technology to improve operations and create a better service relationship with our customers. We have enjoyed these successes due to our simple strategy of operate, serve, and grow. These three elements keep us focused on safely and reliably maintaining and operating more than $20 billion in assets, making sure our customers receive the benefits of our investments and product offerings and creating growth opportunities for our employees and our investors. This is done by making the right investments in our energy delivery systems, in the new technologies we introduce to improve efficiency and service quality, in our employees and in the communities we serve. The pending merger with Vectren is well aligned with our vision and strongly supports the elements of our strategy. Next, I will cover the quarterly results, business unit highlights and full year outlook. Turning to Slide 6. This morning we reported a second quarter 2018 net loss of $75 million or $0.17 per diluted share compared with net income of $135 million or $0.31 per diluted share in the same quarter of last year. This quarter includes a noncash charge of $0.42 per share associated with our ZEN securities primarily as a result of AT&T’s acquisition of Time Warner. On…

Thank you, Scott. We recognize that there may be new analysts on this earnings call. Therefore, before I begin the quarter and year-to-date discussions, I want to provide an overview of how we present our financial performance as described on Slide 12. I will start with the GAAP EPS versus guidance EPS when reporting our results. We have adjusted our GAAP EPS for two items to determine guidance EPS. Those adjustments are mark-to-market impacts at our Energy Services business and the net of the mark-to-market assets and liabilities associated with our ZENS securities and related stocks. We do not adjust for timing-related items, onetime items, or enable related mark-to-market impacts. For a detailed reconciliation, please see Appendix Slides 28, 29, and 30. We have five business segments within our company. Those segments are Electric Transmission & Distribution, Natural Gas Distribution, Energy Services, Midstream Investments, and Other Operations. The term Utility Operations in our EPS breakout includes the four business segments other than the Midstream Investments segment. When we speak of core operating income, we exclude the transition and system restoration bonds for Electric Transmission & Distribution and the mark-to-market impacts from our Energy Services. Core operating income does not provide any adjustments to the Natural Gas Distribution segment, nor does it include Other Operations. With that overview, I will now review the financial performance for the second quarter. On a GAAP basis, we reported a second quarter 2018 loss of $0.17 per diluted share. Earnings included a noncash charge of $0.42 per diluted share associated with our ZENS securities. This $0.42 is primarily due to the acquisition of Time Warner by AT&T, whereby Time Warner stockholders receive cash and AT&T stock. As with our ZENS accounting for Charter's acquisition and merger with Time Warner Cable in the second quarter of…

Thank you, Bill. We will now open the call to questions. In the interest of time, I will ask you to limit yourself to one question and a follow-up. Ginger?

[Operator Instructions] Our first question comes from Ali Agha with SunTrust.

My first question, Bill, I mean - I wanted to just get a sense any further thoughts that - of the $2.5 billion equity in terms of the mix that you're looking at, are we still thinking that the bulk of it will be common, as opposed to mandatory or some other form? And just some sense of how you’re thinking about the timing.

It’s Bill. I think you said it correctly. The bulk of it is $2.5 billion and it's a combination of common equity, mandatory convertibles or other high-equity content securities. With respect to the timing, we have said we intend to complete the permanent financing for the acquisition of Vectren common shares before we close on the merger.

And I guess my second question, Scott, to you, looking at the numbers you've given us on Slide 20 which break out the rate base growth rates for each company separately, on a - if I look at just the CenterPoint component of it, you're growing at about 8.1%, the Vectren numbers are 6.6%, so the combined gets to 7.6% that you pointed out. I guess the question being that on a stand-alone basis, so rate base growth, which is a good proxy for earnings growth, in my mind, is actually higher. So, again, I'm not quite clear what Vectren would bring to the table given that it's actually diluting your rate base growth rate.

Ali, the way I would respond to that is they have - still have a very strong growth rate on their rate base given their capital plans. Their plans, as they have shared them, or their expectations involve growth in both their regulated businesses and their unregulated businesses. And when you look at the growth opportunities for that complete set, matched up with our set, we think they're nicely complementary to our growth rate. So this is just taking a look at the utility side. I will also say that each year, both companies or all companies update their capital plans based on requirements going forward. But there - as you pointed out, their growth rate is technically lower than ours on the utility side, but they anticipate other growth in some of their non-regulated business units.

Your next question is from Julien Dumoulin-Smith from Bank of America.

So I wanted to follow up on the sale - well, basically the financing composition here. Can you perhaps elaborate a little bit on your latest thoughts on Enable just in the context of ongoing equity needs, independent of the sale, and also with respect to the sale, the composition of equity and equity units, if you have any further thought process in and how exactly you want to structure it?

So, Julien, I don't think we have any more to share on the composition piece in terms of our equity other than what Bill just shared a minute ago. And with respect to Enable, look, right now, we are focused on the financing of this transaction. What we have said is following the transaction, we will have some modest equity requirements to fund the capital requirements of our businesses going forward. And at that time, Enable may be a source of funds for that. But at this point, we're focused on completing this transaction and the necessary financing for it.

And can you elaborate a little bit – I mean, you just discussed a little bit already around the creative nature to rate base of the Vectren acquisition. Can you comment a little bit more specifically around the electric versus gas versus non-reg contributions to that future rate base? Or let's keep it with electric versus gas, just to keep the focus on rate base specifically. But altogether, I mean, I know that this is perhaps separate in the $50 million to $100 million pre-tax that you've talked about, but just getting a little bit more of a sense as you had more time to look at the business.

Yes Julien, I don't think we're prepared at this point to comment on the rate base growth deltas by business unit at this point. We are, for context purposes, about three weeks into our integration planning exercise. So we are at the front end of understanding more information about the specifics that would - we will pursue once the deal is closed.

Or maybe let me specify a little bit more carefully. Electric, on the Vectren side historically, has seen a little bit more rate inflation and so, therefore, I suppose has had a little bit more of a difficult time accelerating their growth. Could you see merger-related benefits accruing such that Electric could see a disproportionate growth again? Or are we talking principally about the sizable growth at gas and just continue to accelerate on that front?

Well, again, it's probably premature to be talking about their capital plans. But they do have appreciable spend in both their electric and their gas businesses, if that's helpful.

Your next question is from Michael Weinstein from Credit Suisse.

Could you talk a little bit about the Freeport plan and the reasons for the substantially increased costs? I mean, just looking at the 10-Q and I see that some of it’s related to environmental, and I'm wondering if maybe Hurricane Harvey had something to do with that or – and then, also, as a part of this question, maybe address the – how you think regulators might react to this, to the extent that you've already talked to them about these increased costs.

So, Michael, to your first question, the driver for the increase from the original estimate of 250, that estimate was made early on when we were considering, at a high level, different routing options. During the time between that estimate and the one we just provided, we were able to do much more refined analysis about routing options and the structures needed to be able to withstand certain wind tolerances, as well as recognition of environmental wetland-type areas that are in this region of our service territory. When you couple the design requirements, including all of those factors, we end up with a cost for this line that has gone up from the 250 up to the number that I specified at around 630. So that's really the driver. It’s structure and environmental-related routing issues. It’ll be the short answer to that. Go ahead.

And a regulatory commentary on this so far, I mean I'm presuming you've already put some thoughts here?

So this is something that is just now entering the process with the Commission. We will be presenting that to them as we make our filing. But one point to note, this is an investment that was deemed necessary by ERCOT as a result of reliability needs in the region. So, we still see this as a solution to solve a reliability-related design issue and I still believe it’s the most cost-effective solution available.

Our next question is from Michael Lapides from Goldman Sachs.

Thanks for taking my question. Just thinking about taxes and on the electric side, can you talk to us a little bit about demand trends that you’re seeing specifically – weather normalized, obviously – but specifically across the customer classes, what’s coming in a little bit higher than maybe what you would bake in? What’s coming in a little bit lower than maybe what you anticipated and maybe what the drivers are?

What we're noticing around the Texas area is really strong ongoing demand in the commercial and the industrial sectors. That's what tends to be driving overall throughput along the system as well as some weather-related. But you asked for kind of weather-normalized. Those two segments tend to be weather-normalized automatically. We still continue to see strong demand with our residential sector. They are essentially on a use per customer basis holding flat, which is what we've seen for several years now. We will note that we have seen a slight downturn in the growth rate associated with residential addition. We believe that's associated with Hurricane Harvey and the impacts that had on residential meters. And I think we're going to see noise in that growth rate until we pass the period in which Harvey occurred which would be in the fall. So, that's creating some noise. We also had a surge in the most recent period of completing multiple multi-family units. And multi-family unit construction has slowed now while the inventory is being consumed. But our additions in, say, a more of a suburban setting continue to be strong. One of our indications for that is we have joint trench crews. These are crews that go out and put in the infrastructure ahead of development build. These crews are operating at a level that is higher than last year, for example. So we see good fundamentals that even though the residential count is lower that the residential demand is still very strong.

Can you talk to us a little bit about what is your kind of all-in demand growth that you embed in your multi-year guidance?

We think about 2% overall.

Your next question is from Greg Gordon from Evercore.

Two questions. One, it doesn't seem that – like that big of an issue, but there was a $3 million delta quarter-over-quarter in the Energy Services businesses. Now, you’re obviously still pointing to confidence in your guidance range for the year, so I'm sure it's quarter volatility. But can you just go into little more detail as to what would cause that?

There was a little bit of volatility in the quarter. But as you pointed out, it's a low quarter anyway, so any amount of volatility gets exacerbated. We did – we made some adjustments. There were some adjustments that we made on the balance sheet that had an effect and fairly minor in nature. But again, since the number is small on this quarter, it got amplified.

Okay.

The fundamentals – I’ll just say the fundamentals remain very strong in this business. Customer count is up. Our throughput is up. Margin is staying very healthy. So, we're still very bullish on this space.

That's the answer. There was no shift in underlying fundamental trends in the business.

No, there was not.

Second question is, unless I'm mistaken, I don't think you've announced the full suite of who's going to be your senior management for the pro forma company other than you definitively being CEO. Is that correct? And if that is, when will we get a fuller sense of who the management team is going to be?

That is correct. I have not announced it. And as for timing, waiting until later in the process. I'd like the decision-making to be informed by our integration planning process. So it will be a little later on the process before I get to that point.

Your next question is from Zach Prince from Merrill Lynch.

Hey, guys. It’s Antoine actually. How are you? Quickly on the – and apologies if I missed it, but the way you guys are in the restructuring of CERC.

I will let – I’ll let Bill answer this.

Antoine, good morning. As we said, we should be completing that at year-end this year where our investments in Enable Midstream that are held at the CERC level get moved to a separate entity. We call it CenterPoint Midstream. And then we put leverage against those investments, and the use of the proceeds from those borrowings will be to pay down debt at CERC and to pay down debt at the holding company.

And for CERC, there will be – supposedly to reach the debt-to-capital ratio?

Yes, the target debt-to-capital ratio for CERC is the weighted average debt-to-capital ratio that we have for the Utilities and CERC.

And would Energy Services be included in that?

For this time, Energy Services will remain part of CERC.

[Operator Instructions] Our next question is from Steve Fleishman from Wolfe Research.

Old investor, not new investor. So just on Enable, so if you go back to the last 12 months or so, obviously, it's been a tough environment and you've mentioned a few times in terms of thinking about monetizing. There had been some times of that changing. So maybe just from that standpoint, is that ignoring So maybe just from that standpoint, is that ignoring that you don't need it for the merger, or just is there A better environment now for you to think about monetization of some of the stake?

Well, clearly, Steve, with the strengthening in the market, that space, that is a positive sign. We'd like to see that. We continue to monitor that market for strength of investors. But I would answer the question by saying, look, our near-term focus is around financing the acquisition and keeping our attention on that. And then to the extent that there would be opportunities for Enable, it would be down the line when we're looking at equity requirements for our ongoing growth capital.

And then one other question on just the 2018 guidance, I wanted to clarify you're still using the midpoint of the Enable range. And also, did you – are you including any of the good July weather, which I guess we pay attention to on the power side?

Steve, it's Bill. Our guidance at the high end of our $1.50 to $1.60 incorporates Enable’s guidance when they say they're at their midpoint or higher. With respect to July weather, yes, it's been somewhat warmer-than-normal weather. But to date, we haven't updated for third quarter activities. This is just through second quarter.

Okay. There are no further questions in the queue. I would like to turn it over to the leaders for any closing remarks.

Thank you, everyone, for your interest in CenterPoint Energy. We will now conclude our second quarter 2018 earnings call. Have a great day.