Good morning, and welcome to CenterPoint Energy's Fourth Quarter and Full-Year 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?

Thank you, Dennis. Good morning, everyone. Welcome to our fourth quarter and full-year 2018 earnings conference call. Scott Prochazka, President and CEO; and Bill Rogers, Executive Vice President and CFO, will discuss our 2018 results and provide highlights on other key areas. Also with us this morning are several members of 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 have been posted on our website, as has our Form 10-K. Please note that we may announce material information using SEC filings, news 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 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 in growth, commodity prices, changes in our service territories and other risk factors noted in our SEC filings. We will also discuss guidance for 2019 and 2020. The 2019 guidance basis EPS range excludes the following impacts associated with the Vectren merger: Integration and transaction related fees and expenses, including severance and other costs to achieve anticipated cost savings as a result of the merger; merger financing impacts in January prior to the completion of the merger due…

Thank you, David, and good morning, ladies and gentlemen. Thank you for joining us today, and thank you for your interest in CenterPoint Energy. I will begin on Slide 5. 2018 was a strong year for CenterPoint. This morning, we reported 2018 diluted earnings per share of $0.74. On a guidance basis, excluding the impacts associated with the merger, we finished the year at $1.60 per share versus 2017 guidance basis earnings excluding impacts of tax reform of $1.37 per share, an increase of nearly 17%. $1.60 per share means we achieved the top end of our guidance range we set in February of last year. Our strong performance in 2018 can be primarily attributed to growth in our core businesses and midstream investments performance. Turning to Slide 6. As I mentioned, we are pleased to achieve the high end of our earnings range. We invested nearly $1.6 billion of capital in our regulated utilities. We successfully implemented our regulatory strategies in multiple states, resulting in incremental annual revenues of $110 million, exclusive of tax reform impacts. Our Board of Directors increased the dividend that was declared in December by approximately 4%, marking the fifth year in a row of providing such increases. We entered into a definitive merger agreement to acquire Vectren Corporation, engaged in integration planning, and raised capital for the transaction that we closed earlier this month. We also executed an internal spend of our midstream assets resulting in better credit ratings for CERC. On to Slide 7. The communities we serve continue to grow, as evidenced in part by the addition of more than 77,000 customers in 2018. We completed major infrastructure projects like the Brazos Valley Connection in Houston Electric and substantially completed cast-iron pipe replacements across our natural gas distribution systems. Energy Services continued…

Thank you, Scott. It has been a privilege to serve you, your management team, our customers, communities, and investors. And it has been a privilege to lead our finance and accounting efforts at CenterPoint. I will start with year-over-year operating income walks for our electric distribution and natural gas distribution segments, followed by utility operations and consolidated EPS loss. Then I will cover drivers behind our earnings forecast. Finally, I will conclude with an outline of how we will present our businesses going forward as a result of the merger. Beginning with Houston Electric, transmission and distribution's operating income walk on Slide 16. Revenue decreased $79 million as a result of tax reform. When reviewing net income, this revenue impact is offset by lower federal income tax expense. Rate changes translated into a $105 million of favorable revenue variance for the year, and customer growth provided another $31 million positive revenue variance. O&M had an unfavorable variance of $79 million due to normal increases and to some concentrated work on resilience and technology projects. We expect O&M growth in future years to moderate so it more closely matches the rate of inflation. Equity return related to the true-up of transition charges increased $32 million. Lastly, depreciation and taxes accounted for a $17 million unfavorable variance. Excluding equity return and the impacts of tax reform, Houston Electric's transmission distribution's operating income increased by $54 million year-over-year. This represents a 10% improvement over 2017. Turning to Slide 17. Natural gas distribution operating income for 2018 was $266 million versus $348 million last year. Revenue decreased $47 million as a result of tax reform. This was offset by lower income tax expense. Operating income included a $46 million positive variance from rate relief and a $10 million benefit from customer growth. On a…

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. Dennis?

[Operator Instructions]. And your first question is from the line of Ali Agha with SunTrust.

Bill, wishing you all the best for the future as well.

Thank you.

My first question, just to clarify the '19 guidance. Are you resuming any merger synergies in '19?

Yes, we do assume merger synergies in '19 as well as, obviously, we have cause to achieve those. But we -- to answer your question specifically, we do assume the synergies are in there.

So of the $75 million to $100 million, how much should we assume will be in '19?

We have taken action to get after a fair amount of that. We haven't disclosed the actual amount for 2019. But we have already gone forward with the reductions in workforce, which is a significant component of that.

Okay. And my second question. As you map out the 5% to 7% growth '18 through '23, are you assuming that Enable stays within the portfolio over that 5 years? And for the nonutility businesses, are you generally assuming a growth rate that's also in line with 5% to 7%? Or is it higher or lower? Can you just provide a little more clarity on those?

So Ali, we are assuming that we remain invested in Enable. I will say that we are not assuming that Enable performs at the terms of growth at the same level that our utilities will. We've taken a more conservative view of that. To your question about the growth of our utilities, the growth of our utilities will be a slight reduction off of the growth in rate base over that period due to regulatory lag.

I see. But just to be clear, the other Vectren nonutility operations, are they going in line with the overall growth, or they're also growing less or more?

I'm sorry, I misunderstood your question. As far as the competitive segments, we do assume that they're growing but not at the rate of our utilities.

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

So just wanted to follow up on the 5% to 7%. I know you guys discussed that in the initial slide deck after the Vectren transaction. Can you give us a little bit more of a sense of what's changed, and if there's any kind of apples and oranges sense versus what's out there implied in the 2020 number? Think cost to achieve for instance, but anything else, right? Obviously, some of the synergy numbers may have changed, but versus the April deck versus today on '20.

Well Julien, I think of the 2020 view that we provided, I think, is very much in line with what we had shared before. As you know, we've tightened up the range versus what we were looking at before as we understand more the pieces. As far as the growth rate, this is the first time we've provided kind of growth up for that five year period, and it's really driven by the visibility around the growth in our utilities.

Got it. But when it comes to cost to achieve, that's been -- that's comparable treatment last time versus this go around?

Yes, that is absolutely correct.

Got it. And then just quickly, if you can clarify this, what kind of balancing metrics are you seeing in the '20 timeframe associated with that 5% to 7% at that point in time?

Bill, you want to comment on it?

On the balance sheet, Julien, as we've shared before?

Like FFO to debt in '20.

Yes. FFO-to-debt is in -- we target 13% to 16%, and we are comfortably in that range, and therefore, as we've said in the past, we don't foresee any need to raise equity in either 2019 or 2020.

Your next question is from the line of Michael Weinstein with Credit Suisse.

So just to clarify on Julien's question, the cost to achieve in 2020, what is that? What are you expecting there?

So we've not provided what that number looks like. What we have said though is within the forecasted range of our EPS for that year, we have included a range of possibilities. The reason we haven't provided, we just don't have visibility. We have much more visibility at this point to what the synergies or the cost efficiencies will be. In terms of the primary contributors towards cost to achieve at that point. It will be systems related, and we are just going through the exercise now of refining what that looks like. So we have a range in our minds. We weren't prepared to provide it, but those numbers are going to be primarily system-related costs, and they're inclusive in the earnings range we gave.

I think he was specifically trying to get at, were you including cost to achieve in the prior range that was higher...

We were, yes. Yes, we were.

Okay. And apologize, but one more question. The 5% to 7%, that is the standalone guidance. So the current 5% to 7% is now a merger -- a merged proforma guidance, which is unchanged. So is there -- what synergies are you assuming in this new 5% to 7%? What are the offsets to that -- to those synergies that are keeping the 5% to 7% flat at the same level?

Yes. So we had assumed a 5% to 7% growth rate for a -- and discussed a shorter window for it. We've now made the window longer with the visibility around the merged business. We are still in the range, but to your point, following the merger, believe we have moved upward in the range or that we have strengthened our potential performance within that range, but we are still in that range.

Your next question is from the line of Insoo Kim with Goldman Sachs.

I don't know if I missed this a little bit before, but were you saying that you don't anticipate any sale of units of the Enable at least through the next few years in your guidance?

Insoo, what we've said is that we don't anticipate issuing equity in 2019 or 2020. We have also stated that we will look for opportunities over the forecast horizon to sell some Enable units in order to fund our capital investment.

Understood. And then not to beat a dead horse, but going back to the 2020 slide from last April to the guidance you gave this time, I appreciate you'd mentioned that the cost to achieve metric was included in both slide decks, and the resulting range is about $0.05 below what you presented in April. Can I assume -- if the utility is still growing at a healthy rate, are the moving pieces -- the other moving pieces in terms of the costs that you've done, maybe have been updated since what you originally thought, in addition to maybe the additional equity that you ended up, raising. Where those the moving pieces that had an impact on the midpoint?

Yes. So Insoo, I appreciate your question here. This maybe another calls we're really getting at. If you look at the new range versus the old range, the most significant driver for the decrease on the upper end would be changes around the midstream segment. The forecast provided earlier were at a time when commodity prices were different than they were today. So as we thought about the range of opportunities, that included a larger range of commodity -- or a larger commodity range as it would impact the Enable performance. So by reviewing today's commodity environment and taking a little bit more conservative look given the commodity prices, that's been the primary driver of the reduction of the upper range. We've also, since that time, updated our capital spending for the five year period and have been able to refine a little bit the timing around some of the recovery. But the majority of the impact is related with Enable.

Your next question is from the line of Aga Zmigrodzka with UBS.

Could you please discuss what could drive your earnings closer to the higher versus lower end of your 2020 EPS outlook range?

Aga, this is Bill. Scott, shared one line in the last question, just putting it another way, within the 5% to 7%, the largest unknown is the contribution of earnings from the midstream segment. So what could drive us to the higher end would be a strengthening in commodity prices environment, translating to greater volumes in our midstream segment and, therefore, earnings contribution.

So as a follow-up to that, do you expect Enable's net income in 2020 to be flat versus 2019 in your like middle of the range, or do you expect a decline? Any sense you could give around that?

We have only provided what Enable has provided in their earnings call, and that's their 2019 guidance. We do take a look at their forecast and take a view against that with respect to commodity prices, but we are not going to forecast Enable's net income or other finance metrics beyond 2019.

Your next question is from the line of Jonathan Arnold with Deutsche Bank.

Congratulations, and thank you, Bill.

Thank you.

A question on -- just as we look at the back to that original guidance slide. You have the 50 to 100 range on commercial opportunities and cost savings, and now, it's $75 million to $100 million on O&M savings. Have you effectively sort of taken out whatever you're receiving on commercial opportunities? Or is that still part of it that's just not called out? Just curious if you could bridge those numbers a bit for us.

Sure, Jonathan. Thank you for the question because it's a good point. Since we're talking about 2020, our disclosure reflects the fact that we believe the majority of the synergies in 2020 are going to be cost-related or O&M related. We still have expectations that there will be commercial synergies. We just believe they're going to develop more fully in the years following 2020.

So if I could just probe on that a little bit more, of the 50 to 100, you originally listed commercial opportunities first, suggesting that might have been the bigger piece of it. So is there -- have the cost savings actually increased although the range for the combined is the same, and if so, how much?

Yes. I would say that the way we intended to represent the 50 to 100 was that the primary of that would be efficiencies or cost savings, and that there would be some component that was revenue synergy or commercial synergies. Those numbers were an estimate early on. And as we've gotten further into this and we realize that timing, I think we've got more clarity around the cost side of things, which gives us confidence in how we talk about it in 2020, and we have expectations for the commercial side, but we now know the development of that will primarily occur after 2020.

Great, okay. And then just -- I may have missed this. I apologize if you have to repeat it. But could you give us an update on the process and the timing for replacing Bill?

That activity is underway as we speak. We do not have a replacement announced, but we're actively working that process. And I hate to give timelines when we're in environments like this, but let's just say it's being actively worked, and we hope to have his replacement on in the near future.

Are you looking inside, outside, or both?

We are looking outside for his replacement.

Your next question is from the line of Christopher Turnure with JPMorgan.

Congratulations again, Bill. A lot of questions have been asked already, but I wanted to just kind of maybe summarized what your message is here and how it's changed. Is it fair to say that outside of Enable, and perhaps a little bit of timing differential with incremental lag and maybe '19 and '20 at the utilities at Houton Electric, the overall plan is pretty much the same, it's not kind of enhanced and a little bit better than it was before?

I think that's a fair representation. We're excited by the plan. We have, as you've seen, we have a robust capital deployment plan for these service territories, and we're excited about it. So I think that's a safe summary.

Okay. You mentioned in response to an earlier question that the, I guess, net income growth of the utilities would be slightly lower than the 8% rate base CAGR. In that vein, is there any reason to believe that lag would remain wide after you hit your stride after the Houston Electric rate case across the whole utility footprint? Will you basically be able to earn your authorized ROE?

I think there will be some accelerated or maybe some enhanced lag in '19 for the reasons that we talked about or Bill talked about. But I think on an ongoing basis, given all the jurisdictions and the various rate mechanisms and the need for occasional rate proceedings, there will always be some element of lag such that our earnings growth will kind of consistently lag behind the 8% rate base growth. But it continues to be our objective, just to push towards and achieve, if not, get very close to our allowed returns in our jurisdictions.

Okay, great. And then just real quick on VISCO, can you give us any updated thoughts. I know the merger has only closed recently, but any reason to think that the Vectren standalone plan has changed?

No. In fact, we believe VISCO is doing well. As we go forward and we begin to talk about the segments starting in Q1, we will begin to provide some more information as to how well that segment's doing. But traditionally, there -- one of the metrics has been backlog, and their backlog is doing very well at the moment.

Your next question is from the line of Charles Fishman with Morningstar Research.

Bill, congratulations on a great career.

Thank you.

I only had have one question left. On Slide 9, your investment outlook for electric, is Freeport now in there? I assume it's in there. And have you tied that down, because I think last time, you were talking $500 million to $700 million is in -- in what year is that in if it is included?

Yes. So that project is now fully baked into the plan. We -- as you say, tied down, we don't have it completely tied down. We had an estimate of what it looks like. The actual amount will be the outcome of the proceeding with the commission because it involves -- it will involve decisions around routing and around some of the infrastructure decisions being made. So there is a range that's in there. What we tend to provide and look at when we provide this data will be kind of midpoint of range, and it spans across, primarily, '21 -- '20, '21 and '22, with '21 being obviously the most significant year.

And it's still in that $500 million to $700 million range...

Yes, that is correct. Yes, still in that range.

Your next question is from the line of Har Zhan [ph] with Verizon.

This is Ashar. They got my name wrong. Can I just ask you, is the merger accretive in '19 and '20, or not based on the new disclosure provided today?

With the exception of a cause to achieve, we're forecasting the merger to be modestly accretive.

Okay. And secondly, sorry, a lot of things going on this morning. Bill, can you just mention what the average shares outstanding are? I might have missed it, it might be on the slide, in 2019 guidance and 2020.

Yes. We have provided -- I believe we provided that but it's not -- you should consider the average shares outstanding to be 500 million in 2019, and that will be less than the share count of 505 million because we closed the merger on February 1, so we're taking out 1/12 of the new shares. And then moving to 505 million to 506 million into 2020.

Our last question is from the line of Andrew Levi with ExodusPoint.

Congratulations, Bill. You've been a very good friend, and a better CFO.

Thank you.

Just a couple of questions. Just back on Enable, so you're assuming flat earnings on Enable as the forecast. Is that correct?

Our forecast, Andy, is in 2019. And we recognize Enable's midpoint taken from what they have disclosed as below their 2018 contribution. Beyond that, we have not disclosed our forecast, but it does include a range of scenarios, and that's why the growth rate of 5% to 7%.

Okay. I thought that you were just -- you said you were just taking the '19 number and then just using that going forward, but provided some number in '20 and '21 that may or may not be different than the '19, is that kind of correct? Am I saying that correctly?

Is he saying it correctly? Andy, could you repeat that? I think it faded a little bit -- your voice faded.

Sure, sure, sure. I apologize. So in '19, you have your estimate based on what Enable has put out there. And then in '20 and '21, you're not using the '19 estimate. I thought you were just kind of using the same number. But do you have an estimate for '20 and '21, you're just not sharing that with us.

Yes, that is correct. That's right.

Got it. Okay. And then on the cost to achieve in '20, how much -- I'm sorry, if I missed that, but how much is that?

We've not specified what that specific amount is. I' commented earlier that, thematically, the majority of it will be system-related, and we're not far enough along with the analysis post-merger to know exactly what that looks like in that year. So we've made some estimates on a range, and we've made that inclusive in our thinking about earnings, but we've not specified what we think that cost to achieve is in that year.

Well, I'll ask the question, I don't know if you can answer it. Is it greater or less than $0.05 per share in '20? Okay. That's no answer, I got that. Got a laugh. Thought I'd ask. Okay. And then the last question I have. So you do have these 2 Vectren legacy, the VISCO and VESCO, and again you guys didn't break that out as far as what earnings contribution is for those in '19, did you?

We did not.

Okay. At the same time, I'm just kind of thinking longer term, I kind of have in my head what I think the business is worth if you were to sell them, and then what you could either do with the cash, whether it's buy back stock, or whether fund your business to maybe raise CapEx, whatever it may be. But it's a very low PE business relative to your regulated business, and so I don't really see much sense in keeping those businesses. They don't really grow much. I just want to get your thoughts longer-term. I know, obviously, you just bought them, but is it in the realm of possibilities that you would dispose of those assets and reinvest that in a higher PE business?

Again, the way I would answer that is to your point, we just acquired them. They just came in as part of the merger. As we were looking at those businesses coming in, while they're different than the utility business, they have some utility-like characteristics, which we were comfortable with. We do think there is growth opportunity in those businesses, so I would say our strategic direction is to own and operate and grow those businesses, and that's -- I mean, that's where we stand at the moment.

How much capital are you putting into VISCO this year?

Go ahead.

Andy, one way to think about that is really the 2017 and '18, and they invested approximately for $50 million in capital in the infrastructure businesses.

Okay. But because it is a fairly -- depending on the year, a fairly capital-intensive business because of the equipment needed on the pipeline side, so I don't know. I guess we'll discuss it more in Boston, but obviously, clearly, you know my opinion.

No further questions. I'd like to thank everyone for their interest in CenterPoint Energy. We will now conclude our fourth quarter 2018 earnings call. Have a great day.

This concludes the CenterPoint Energy's Fourth Quarter and Full Year 2018 Earnings Conference Call. Thank you for your participation. You may now disconnect.