Good morning and welcome to CenterPoint Energy's Fourth Quarter and Full Year 2019 Earnings Conference Call with the senior management. During the company’s prepaid remarks, all participants will be in listen-only mode. There will be a question-and-answer session, after management's remarks. [Operator Instructions] I will now turn the call over to David Mordy, Director of Investor Relations. Mr. Mordy?

Thank you, Mike. Good morning, everyone. Welcome to our fourth quarter 2019 earnings conference call. John Somerhalder, Interim President and CEO; and Xia Liu, Executive Vice President and CFO will discuss our fourth quarter and full year 2019 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. Please note that we may announce material information using SEC filings, news releases, public conference calls, webcasts and posts to the Investors section 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, regulatory actions, the economy, commodity prices and other risk factors noted in our SEC filings. We will also discuss guidance for 2020. To provide greater transparency on utility earnings, 2020 guidance will be presented in two components; a guidance basis utility EPS range, and a midstream investments EPS range. Please refer to slide 30 in the appendix for further detail. Utility EPS guidance range includes net income from Houston Electric, Indiana Electric and natural gas distribution business segments, as well as after-tax operating income from the corporate and other business segment. The 2020 utility EPS guidance range considers operations performance to date and assumptions for certain significant variables that may impact earnings such as customer growth approximately 2% for electric operations and 1% for natural gas distribution and usage including normal weather, throughput, recovery of capital invested through rate cases…

Thank you, David, and good morning ladies and gentlemen. Thank you for joining us today. I'm honored to serve as the Interim President and CEO of CenterPoint Energy and I look forward to visiting many of you in person in the near future. As you can see on slide 5, CenterPoint proudly serves more than seven million customers across eight states. Our core utility business represents over $15 billion of rate base, of which 96% are electric, T&D and gas LDC assets located in some of the most dynamic and high-growth service territories in the United States. CenterPoint's compound annual rate base growth is projected to be 7.5% over the next five years. As we streamline our business mix, CenterPoint is poised to deliver even stronger services for our customers and total returns for our shareholders. Alongside our leadership team, I am excited to move this company to deliver strong results and drive shareholder value. I would like to give you an overview of both our ESG achievements to date as well as our ESG initiatives and commitments going forward. Central to our ESG values is the commitment to serve our customers and our communities. We are honored to have received numerous recognitions over the past year, some of which are detailed on slide 6. I would like to thank all of our employees for their effort, often going above and beyond their CenterPoint roles to be a positive influence in our communities. Our ESG effort also reflects our environmental stewardship and leadership. Slide 7 provides detail on our profile, as well as efforts to reduce greenhouse gas emissions from our generation assets and our gas distribution system. First and foremost, our assets have a low-carbon footprint as generation makes up approximately 4% of our overall rate base, and electric…

Thank you John and good morning everyone. I will now turn to the consolidated full year guidance basis EPS drivers on Slide 16. Excluding merger impacts and impairments, we delivered $1.79 per diluted share compared to $1.60 in 2018 which is $0.19 or a 12% growth year-over-year. The primary factors driving this outperformance were our core utility businesses. The newly acquired Vectren utilities provided $0.45 of positive variance. O&M savings, rate relief and customer growth from our legacy utilities provided $0.27 of positive variance. Additionally, above normal weather as well as favorable tax outcomes were contributing factors to this outperformance. Partially offsetting these positive variances were underperformance at Energy Services and Midstream and merger financing. Overall we were very pleased with our strong 2019 performance. Turning to Slide 17. Like we mentioned earlier to provide more transparency to our core utility operations we're now providing utility-only EPS on a guidance basis for 2020. Let me start from the 2019 adjusted EPS on a guidance basis excluding combined earnings from Midstream Investments, Energy Services and Infrastructure Services of $0.50 per share. Our utilities delivered $1.29 per share in 2019. Favorable weather contributed $0.05 per share and onetime tax and other items counted to $0.05 during the year. Excluding weather and these onetime items the normalized 2019 utility EPS on a guidance basis was $1.19 per share. Looking forward to 2020 the Houston Electric rate case outcome and lower equity return is anticipated to have an annualized year-over-year negative impact of $0.15. This includes operating income reduction from the Houston Electric rate case settlement and its dilution effect from new equity to address the negative impact on CenterPoint's FFO and credit metrics. Customer growth, rate relief and O&M management all are projected drivers of the positive $0.06 to $0.16 of earnings. In…

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

[Operator Instructions] Our first question is from Shar Pourreza from Guggenheim Partners.

Hey, good morning, guys.

Good morning.

So two – just two questions here separately related. Can we first touch a little bit on sort of the pushes and takes with your utility growth guide of 5% to 7%, when you're kind of factoring ongoing dilution and rate base growth that's around 7.5%. I guess sort of what are the drivers there that's offsetting that dilution? I have to imagine O&M is definitely a lever you guys have to pull but I'm kind of trying to get a sense on how much you're under earning to be able to pull that lever? And then I have a follow-up.

Yes Shar most of the dilution from 7.5% to 5% to 7% is driven by the equity issuance that we outlined. We do have O&M as a lever. We are very focused on finding ways to allow the utility to earn allowed ROEs. But we also have – as you are aware in some jurisdictions we have the embedded regulatory lag that we will have to work through but mostly it's driven by equity.

Shar, as Xia indicated, we plan to very closely control O&M costs to maintain the flat or near flat. We do have very good regulatory mechanisms in states to avoid regulatory lag but we do have some regulatory lag. But the primary difference is exactly what Xia pointed out, which is we're strengthening the balance sheet as we're moving through this time period.

That's perfect. And then just on the new equity guide. Does this update sort of account for like any kind of a draconian scenario for instance if Enable cuts the distribution? So I guess another way to ask this is how much sort of balance sheet cushion does the new equity guide provide, especially as you're de-risking the business? So what's the capacity there that you over-equitize in order to prevent a situation that maybe you haven't accounted for?

We project to maintain a low to mid-14% FFO to debt and we think that provides a healthy cushion in case of unanticipated events. So we feel good about that FFO to debt coverage – coverage ratio.

Terrific. Thanks guys.

Thanks, Shar.

Our next question is from Michael Weinstein from Credit Suisse.

Hi, guys.

Hi, Michael.

Just to follow-up on Shar's question. Is there a – are there pricing – is there any pricing for oil and gas that you're watching in terms of Enable's earnings where the guidance depends on the pricing for oil and gas being above a certain point? I mean is there – are there limits there that you could discuss?

We don't typically comment on behalf of Enable. I can tell you that we are very focused on cash – on their cash coverage, on their balance sheet, on their internal O&M management their maintenance capital and how they recycle their cash flow. So they do have a 1.3% cash distribution ratio and there's they are one of the few midstream players with an investment-grade credit quality. The management is doing a good job trying to manage internally. So we will continue to work with them to focus on the cash coverage.

Yeah. As Xia pointed out the 1.3 times coverage on the distributable cash flow converted their distributions has saw their credit metrics and the history of even when we saw lower commodity prices down closer in the $30 range they have a history of being able to maintain that because of the strength of that business.

Right. And would you say going forward as part of that 5% to 7% is – are the – is that – most of that growth coming from the gas utilities now after Houston Electric settlement at this point?

I think they both – all the utilities are growing at a healthy rate. We outlined that in – on the slide that you can see the gas LDC businesses are growing faster. So right now they're about the gas LDCs and Houston Electric both have $6.7 billion of rate base. And as we continue to grow capital a little bit faster in the gas utilities eventually they – the gas utilities will have a bigger piece of the pie, but they're all growing at a pretty healthy level.

Yeah. If you just look at how we're allocating capital it's about 50% to the gas utility for rate base and then 40% Houston jurisdiction 10% in Indiana. So on capital allocation it's pretty evenly split between the two.

Okay. Great. Thank you.

Our next question is from Insoo Kim from Goldman Sachs.

Good morning, Insoo.

Thank you. Good morning. Just first question is in your guidance or – whether it's this year or over the five-year plan how do you think about what's embedded in terms of Enable preferreds? And any timing on your assumption about when they're called?

Yeah. We – the base answer is we expect Enable to make the best decision possible for their unitholders, so we're working very closely with them. And in terms of developing our equity needs and guidance range we took into consideration the timing of possible redemption of the preferreds. But just from a FFO to debt standpoint we wanted to make sure we have enough cushion to accommodate either way. And from an earnings standpoint our range will cover whether or not they call this year.

Understood. And when you gave your updated utility CapEx for the five years what are some upside or downside items we could potentially consider or – and then capital that's potentially nine-year plan that may show up later this year?

I mean our capital – the capital decision we make that on a daily basis. We have a budget for all the utilities but they're on the ground trying to make the best decision possible every day. We do have a pretty rigorous capital allocation process in place such that we take into consideration the rate case filing, timing the recoverability the – we could – we have a portion of the capital, we could pull or put just based on each jurisdiction situation. So we feel really good about how we manage through that. And then on top of that you have rate relief last year like John said. We received approval of over $100 million of rate relief and so we think that will add the growth engine for us. And also the growth from the jurisdictions from a customer addition standpoint is another factor to take into consideration.

And then we have weather variability, which Xia mentioned earlier. But with normalization and with some weather hedging we can minimize the impact but we still have impact to weather. And then we have the upside of being able to do what we did last year as part of the integration and that's very, very focused management of O&M costs.

Understood. Thank you.

Our next question is from Antoine Aurimond from Bank of America.

Hey, good morning. Thank you for taking my question. So a question on the balance sheet front. So does the $500 million to $700 million equity issuance bring you to that low to mid-14% FFO to debt you highlighted? And more importantly, given that these levels are still sort of below Moody's 15% downgrade threshold, are you confident this allows you to stay in the mid-BBB level? And do you remain committed to that rating?

We remain at close conversation with our rating agencies as we make decisions on -- business portfolio decisions and we remain very confident that the recent divestiture of Infrastructure Services and Energy Services, as well as our execution on the utility front, our ability to earn allowed ROEs. All those things will play in the decision by the rating agencies. We remain very confident that they will see the recent decisions execution favorably.

Got it. And then, just in terms of timing to get to that low to mid 15% to 14%, is it this year after the issuance, or is it more later in the planning period?

See, you do -- I do remind you that we're expecting $1 billion of net proceeds from the divestiture of those two businesses in the second quarter. So we have tremendous flexibility in terms of getting to the desired FFO to debt ratio throughout the year.

Okay. Got it. Thank you very much.

Our next question is from Steve Fleishman from Wolfe Research.

Yes. Hi. Good morning. Hey, Xia. I guess, this question is for John. Maybe you could just give a sense of how the board and you are looking at timing of kind of a permanent CEO and what you're looking for there? And, I guess, also, was there any consideration of, just -- is CenterPoint structure, as it is today, kind of, set up okay? Or does it need to be, kind of, part of a larger organization?

Yes. You've asked a number of questions all in one question, Steve. But, yes, our board is very focused on exactly what we're focused on. They see the value of our utilities. They see the value of investment in rate base, growing those earnings. They very much supported over this last time period, simplifying the business, the sale of Infrastructure Services and Energy Services. And so, that strategy is what they support and what they believe is appropriate moving forward. And we believe we have a very good platform as CenterPoint, as it's structured today to do that. So that strategy is very much in place, very much what we've planned to move forward with. On my own personal issue, I am Interim President and CEO, I have no time line or no time limit. I am here. Very proud to be here, very focused on executing on the strategy for as long as it is required until the right transition to a permanent CEO at the right time is made. And I'll focus on the real obvious things, which is, operational excellence, everything from ESG performance, which includes safety compliance, reliability, managing O&M cost to achieve these outcomes, continuing to strengthen our regulatory relationships. We have a history of good regulatory outcomes. We'll make sure we continue to strengthen those to have the best outcomes moving forward. We're going to focus on the balance sheet to make sure that we strengthened the balance sheet and meet that objective that Xia talked about this year, through the combinations of things she talked about. And we're going to focus and, what I'd expect, when a new permanent CEO comes in, I'm going to focus and we'll continue to focus on meeting with our investors and understanding your concerns, needs, make sure that our plan is transparent to you, that we communicate what our expectations are to you and that we consistently meet them. So those are kind of our priorities. And I hope, I answered all your questions Steve?

Yes. No, that was very super helpful. And I apologize, I have one other question for Xia. Just, any color you could provide on timing of the equity issuance in 2020?

Sure. And you are fully aware that the current market conditions are volatile. We believe it is very important to be patient and yet poised to act when market conditions present themselves. As I said just now, that we're anticipating $1 billion of cash inflow from the divestiture of the assets in the second quarter, so that we could reduce debt in 2020, support our coverage ratio. So we have flexibility to execute our plan. And so, we just remain opportunistic. But regardless, we might likely set up the ATM and turn on the DRIP to start contributing the equity needs, but we'll remain opportunistic at this point.

Okay. Thank you very much.

[Operator Instructions] Our next question is from Paul Patterson from Glenrock Associates.

Hey, how are you doing? I wanted to, sort of, just follow-up a little bit on Steve's question. I mean, it does sound like you guys have a great opportunity that you're outlining all these things all the opportunities and the value of your properties quite well. But I'm just sort of wondering in terms of the potential for a strategic -- additional strategic options, are those off the table? I mean, I just wanted to get a sense as to whether or not -- what the potential might be in terms of -- given the management changes and everything whether or not we might see some different additional exploration in that area?

No, that is not our plan. Our plan is to execute and really focus on execution as I just talked about when I answered Steve's question. So that is what management will do that, is what the board supports and that's what we're going to move forward with.

Okay. Thanks so much.

Thank you, Paul.

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

Good morning.

Hey, good morning team. Thanks for the time.

Hey.

Just following up on a few different things real quickly here. First, Enable's strategy and I think I hear what you guys are saying, but I just want to be extra explicit about it given your focus on execution. You sold several businesses already. There is no deviation from the commitment on Enable. And at the same time on the rating side, you've gotten assurances that despite having still some unregulated piece here that that new low 14s works from the agency?

Julien, we don't speak on behalf of the rating agencies. So when they're ready, they will let you know. We do know that we've been remain very transparent conversations with each of the agencies, and they knew exactly what we plan to do. And the fact that we executed what we shared with the rating agencies would give us a lot of credibility from our perspective. And at the same time, as you're fully aware, the largest unregulated businesses are the Infrastructure Services and Energy Services businesses. Post divestiture we will be 82% -- are projected to be 82% utility, and 18% Enable. So essentially, we don't have anything else. We have a little bit businesses, but they're not material at all.

Got it. And if I can go back to the core business in brief. Just to clarify your earlier comments Xia around earned ROEs and through the forecast period. Just to clarify very specifically what kind of improvement in lag are you baking into that? I think that goes back to Shar's question about the reconciliation between earnings trajectory and rate base growth again specifically on the lag? And then also related to that and reconciling that, how much equity are you thinking on an ongoing basis through the full CapEx period that you've disclosed rather than just three years of financing here just to be clear about that?

Yeah. I mean, we have a slide we laid out in the appendix to show you the thinking around that. So I'll answer the second question first. The -- first of all, we are fully focused -- very focused on the FFO than the generated FFO including Enable contribution. We're mindful about our dividend policy and the board will consider going forward. We're very focused on the capital program and wanting to provide a robust regulated growth. All that take into -- we take all that into consideration then we decide how much external funding we would need to maintain our balance sheet, so that's basically the thinking process. The reason we didn't provide any guidance beyond the three years is because when you get outside of the three-year window, you would have to take into consideration rate cases, other regulatory decisions and some other things that we might not foresee right now. So I don't want to get ahead ourselves in that regard.

Okay. All right. Fair enough. On that -- a little bit on the lag piece to be extra clear. Are you assuming any willingness to share a little bit more of the exclusive thought process? I know that rate cases matter.

Yeah. Sure. I'll be happy to. Yeah, I did forget your first question. So CEHE, so Houston Electric is about 40% of the business. You know their allowed ROE is 9.4%. So the team is highly focused on finding ways to get close to 9.4%. That includes revenue opportunities as well as O&M, very disciplined O&M management. So then the rest of the business the gas utilities, they have a range of allowed ROEs of 9% to 10% on average I'm generalizing each jurisdiction is different. So our goal is to try to get closer to the top end of the range in the planning horizon.

Got it. Okay. Fair enough. One last quick detail. In the CapEx budget, what are you assuming in the Indiana Electric with regards to the RFP process and just generation procurement? I know that might be sensitive.

Yes, I don't think we're ready. It's a they'll file in the next couple of months. So, once that's filed we'll be happy to share any details you might want.

Okay, fair enough. Thanks for the time. All the best.

Thank you.

Our next question is from Charles Fishman from Morningstar.

Just on a housekeeping slide 30. That $1.2 billion internal note. I mean that's always been out there. You just -- it's just you're listing it as a line item now where you haven't in the past. Is that correct or is my memory off?

You always knew that there was $1.2 billion of intercompany loan from the parent to the Midstream.

Okay. So, it's just a question you're just listing it now as in your guidance?

Correct.

I mean it's always been there though. Okay. And then the preferred is in the $0.29 to $0.34 correct? Your preferred position in Enable?

We -- it's $360 million and at 10% rate. So, that's the parameters of--

And that's -- but that's included in the $0.29 to $0.34 not in -- it's not an offset to the corporate and other or anything?

I'm sorry I misunderstood your question. You were asking the 30 -- I'm sorry, can you ask the question again? I'm sorry.

I'm asking -- well, you have you still have this preferred I think it's Series A investment in Enable, okay? And you have that for a couple of years now. But that's included -- if I look on slide 30, that's included in the $0.29 to $0.34, correct? You're not treating that as this corporate and other line as an offset or anything?

No, we didn't. That's outside of page 30.

Okay. I'll -- okay, I got it I think. That's it. Thank you.

Our next question is from Sophie Karp from KeyBanc.

Hi, good morning. Thank you for taking my question. Maybe a little housekeeping question here. Are there any nonutility businesses still left in the corporate and other segment. I believe there used to be something there?

They're very little. You do know we have the Energy Services Group that as part of the Vectren acquisition they represent about 1% of the business. We have a small home warranty business, but not anything major.

Should we expect those to be sold in kind of over the course of the year also?

No, we're not considering those right now.

Got it. And then so on the -- when you when I look at the corporate and other guidance and what's embedded in it. So, it's mostly I guess corporate level debt right on preferred. What do you assume as far as how long that remains outstanding? Did that slide throughout the year when you come up with this guidance?

I'm not sure I followed your question. What's lasting throughout the year?

Your corporate debt. Corporate level debt.

The corporate debt -- the parent company debt. So, we have -- that's on our balance sheet.

Right. So how long do you believe it can continue to be outstanding throughout the year when you come up with the guidance? What's baked into the guidance for that?

The current parent company debt level that we have on our balance sheet is embedded in there.

All right. Thank you. And maybe could you talk a little bit about the O&M efforts, right? And we know historically that O&M did not maybe even grew a little faster than inflation for CenterPoint and you've been working on identifying ways to fight that. How close are you to understanding what the drivers there are? And what particular programs you're looking at to kind of bring the O&M down growth the growth rate?

I'll start. I'm sure John has thoughts. The part of the big piece of the O&M effort is through our merger integration. So, we achieved -- we overachieved our synergy target last year through not only headcount reduction on year one, but throughout the year I'm sorry on day one, but throughout the year. So, day one we removed a certain amount of headcount and that momentum continued throughout the year. And we also had about -- close to $300 million different initiatives to try to improve programs consolidate functions and with continued improvement processing in mind. So -- and then on top of that, we are looking at organizational designs, looking at strategic alignment, and using more data analytics, and so forth. So, it's a combination of a lot of initiatives together.

And I'd just add to that. The good news you talked about a head start on us what we're doing the process of the integration gave us a real good understanding of many of the cost levers that we can focus on. And we had success in implementing a number of those, but there are others that we have identified in areas like supply chain, areas like how we use contractors. And manage those issues. We'll focus on, all items, related to that. At the same time, we're fully committed to make sure we will spend what we need to, to maintain reliability, safety, compliance with those items. And I've been a part of companies that have managed tightly, those issues for a number of years. So I look forward to getting involved. And really focus on the right way to manage our costs.

Got it, and would you be able at some point to commit to a more concrete in your O&M reduction targets?

I think we essentially did, because as I said, both John and I said that, last year we've achieved the annualized reduction of $100 million, if we essentially maintain that level. So that's a pretty good target, we should think about.

And then, hold it as we move forward, flat or near flat. And the reason, we phrase it that way is we absolutely will make sure we spend the dollars we need to in areas like safety. But my history has always been that when you find areas that you simply need to spend money on for those reasons. You also work hard to find other areas, where you can reduce costs. So, that is our target. And I think, that's a pretty straightforward expectation that we have for ourselves.

Got it. Thank you. That's all for me.

Our last question is from Shar Pourreza from Guggenheim Partners.

Hey guys thanks for taking a quick follow-up for me. Just on – Xia, can you just follow-up question from what Julian was asking was, can you without going into details, at least confirm that in Indiana, you're not assuming any outcome from the IRP, i.e. there's not a placeholder amount that's in that number?

There is a placeholder amount. I don't want you to think, we didn't put in placeholder. The placeholder amount embedded in the Indiana numbers.

Okay, great. Thanks guys for that.

I believe that's our last question. Thank you everyone for your interest in CenterPoint Energy. We will now conclude our fourth quarter and full year 2019, earnings call. Have a great day.

This concludes CenterPoint Energy's fourth quarter and full year 2019 earnings conference call. Thank you for your participation.