Good morning and welcome to CenterPoint Energy's Third Quarter 2021 Earnings Conference Call with Senior Management. During the Company's prepared remarks, all participants will be in a listen-only mode. There will be a question-and-answer session after management's remarks. [Operators Instruction] Please limit your questions to one question and one follow-up question. I will now turn the call over to Phil holder, Senior Vice President of Strategic Planning and Investor Relations.

Good morning, everyone. Welcome to CenterPoint 's earnings conference call. David Lesar, our CEO, Jason Wells, our CFO, will discuss the Company's Third Quarter 2021 results. Management will discuss certain topics that will contain projections and other forward-looking information and statements that are based on management's beliefs, assumptions, and information currently available to management. These forward-looking statements are subject to risks or uncertainties. Actual results could differ materially based upon various factors as noted in our Form 10-Q, on our SEC filings, and our earnings materials. We undertake no obligation to revise or update publicly any forward-looking statements. We will also discuss non-GAAP EPS, referred to as utility EPS, earnings guidance, and our utility earnings growth target. In providing these financial performance metrics and guidance, we use a non-GAAP measure of adjusted diluted earnings per share. For information on our guidance methodology in the reconciliation of non-GAAP measures used in providing guidance, please refer to our earnings news release and presentation. Both of which can be found under the Investors section on our website. As a reminder, we may use our website to announce material information. This call is being recorded. Information on how to access the replay can be found on our website. Now, I would like to turn the discussion over to Dave.

Thank you, Phil. Good morning, and thank you to everyone joining us for our third quarter 2021 earnings call. Because we recently hosted our Analyst Day, we will keep our prepared remarks brief today. As you know, we laid out our first ever 10-year plan back at our Analyst Day. We expressed then and are reiterating today that we are a management team who can execute. We believe we will continue to demonstrate that for you. This marks my sixth quarter with CenterPoint and Jason's fifth. I'd like to first start by laying out how we are building a consistent track record of delivery. First, if you recall, the CenterPoint value proposition we laid out at our recent Analyst Day, focused on our efforts to achieve sustainable earnings growth for our shareholders. Sustainable, resilient, and affordable rates for our customers, and a sustainable positive impact on the environment for our communities. I believe we are continuing down the path of achieving this value proposition. Each quarter under the new CenterPoint leadership, we have met or exceeded quarterly utility EPS and dividend expectations. We have increased our annual utility EPS guidance for both 2020 and 2021. And as I will discuss shortly, today, we are increasing our 2021 utility EPS guidance once again. Our 2021 through 2024 annual utility EPS growth rates of 8%. are top decile among our peers. And we also expect to achieve at the mid to high end of our 6% to 8% utility EPS guidance range each year from 2025 to 2030. I am confident in our team's ability to achieve that growth. Last year, we had a $130-billion five-year capital plan. We increased that to $16 billion in our 2020 Analyst Day. In this year, we increased it yet again to $18 billion plus. We…

Thank you, Dave. And thank you to all of you for joining us this morning for our third quarter earnings call. This marks my 1 year of earnings calls with CenterPoint, and the story keeps getting better. To re-emphasize Dave's message, we're focused on establishing a track record of consistent execution. And I fully believe the best is yet to come here at CenterPoint. I'll start this morning with the earnings for the third quarter of 2021. On a GAAP EPS basis, we reported $0.32 for the third quarter of 2021 compared to $0.13 for the third quarter of 2020. Looking at Slide 5, we reported $0.33 of non-GAAP EPS for the third quarter of 2021 compared to $0.34 for the third quarter of 2020, our utility EPS was $0.25 for the third quarter of 2021, while Midstream Investments contributed another $0.08. Favorable growth and rate recovery, lower interest expense, and reversal of the net impacts from COVID last year, each contributed $0.01 of favorability. These amounts were offset by $0.04 related to our onetime board implemented governance changes recorded this quarter and another $0.03 of unfavorable variance attributable to weather and usage. For context, we experienced 73 fewer cooling degree days in Houston for the third quarter of 2021 compared to the third quarter of 2020. We estimate that each cooling degree day above normal has approximately a $70,000 a day impact in our Houston Electric business. Turning to Slide 6, for the first 9 months, we've achieved nearly 80% of our full-year 2021 utility EPS guidance, which we are now raising to $1.26 to $1.28. And as Dave said, we are also raising our utility EPS guidance for 2022 to $1.36 to $1.38, which is an 8% increase from our new 2021 estimates. Looking beyond that, we are…

Thank you, Jason. As you heard from us today and others from our full management team during the Analyst Day the outlook for CenterPoint just keeps getting better. As I said, we now have six quarters of meeting or exceeding expectations, but we believe there is much more to come. We are demonstrating the pathway to premium and we hope that you will be on board with us as a shareholder when that happens.

Thank you, Dave. We will now take a few questions, being mindful of today's earnings schedule and the upcoming EEI conference.

At this time, we will begin taking questions. [Operator Instructions] The Company requests that when asking a question, callers pick up their telephone handsets. Please limit yourselves to 1 question and 1 follow-up question. Thank you. Our first question is from [Indiscernible]. Please proceed with your question.

Hey, good morning, Dave. Good morning, Jason.

Good morning.

Hopefully I contribute to the short earnings call, but just -- I think of the Company maybe over the last year, it was maybe more of a transition story. And we got, I guess, 3 increases in guidance throughout the year, including today. How do we think about going forward if we're more now on steady-state and the guidance you gave is probably more set and we look to be in the middle of it or do we continue to get maybe increases in guidance? And I have one follow-up.

Well, look, I hope you got a sense today of how confident we are in the business or the direction that the business is going at this point in time. And I think that we're starting to hit on cylinders. So, I agree, we we're in a transition. But I think going to transition to, what we believe ought to be, a premium utility. So, I think if you listened to what we said today and let me boil it down into pretty simple terms, whatever we do this year, we will do 8% more than next year. Whatever we do next year, we'll do 8% more of the year after that, and etc., as we outlined during our Analyst Day. But we've got a lot of tailwinds behind us right now, and we really, really like where we are.

Great. And just one follow-up. David, the Analyst Day you gave us some great insight into, I guess just commodity prices maybe from a previous job you held. Just thoughts on -- are you seeing any type of change in your view that you think maybe the commodity and prices will end up coming down?

No, I think -- I assume you're referring to natural gas prices.

Yes.

And I think that, if you look at the strip, it is starting to drift down. But I think more importantly, it's really -- the focus, if you look at gas prices on our business specifically, we've got organic growth to absorb issues. We've got our ability on O&M. So, if your question really is, do we see an impact on customer rates, certainly it's going to be out there. But I think we've got some offsets that maybe other utilities don't have. Jason, if there's anything you want to add to that?

Sure Dave. Thanks for the question, Anthony. As we outlined at Analyst Day, we continue to work within our defined gas procurement plans for each jurisdiction. And as of today, looking across all of our Jurisdiction, we're roughly 60% hedged. Now that we're going into the upcoming winter season and for almost all of those jurisdictions, we've locked in kind of a weighted average cost of gas of somewhere between sort of the mid-3s and high 3s, $3 per MBTU in the majority of our jurisdictions. And so, feel well-positioned for this upcoming winter season. Obviously, we continue to look at what we can do across the business to ease the burden on our customers. And I think one example of what is the creative alternative rate stabilization plan that we just recently filed in Minnesota. So, we'll continue to look for ways to minimize. the bill impacts. But I feel like we're well prepared coming into this upcoming winter season.

Great. Thanks for taking my question. I will see you guys at EEI and, Dave, sorry about the Stros.

Yeah. Well, better luck next year, right?

Our next question is from Shar Pourreza with Guggenheim Partners. Please proceed with your question.

Hey, good morning, guys?

Good morning.

Good morning.

Just with the current CapEx plan, you're obviously more levered to electric side of the business and the IRP in Indiana presents some additional upside beyond the 5 years for electric investment. Dave, do you have a target mix for electric versus gas contribution? What's the timeline to achieve it especially as we're thinking about potentially further gas optimization funding, which seems to be a very sizable electric de - carbonization plan.

Yeah, I think that if you set a step back and take a look at 50,000 -- the sort of 50,000-foot level, the stand and direction and strategy the Company is to bias us toward the electric side of our business. Part of it is that coal transition certainly helps that because of the capital that it is going to absorb. And as we've said at our Analyst Day, and we've said in some of our prior calls, we don't need equity to execute this 10-year plan, but if other opportunities did come up, we know the inherent value of the remaining gas LDC s, And I could look to them as a source of liquidity. But I think bottom line is we're biased toward electric, and that is the way we will continue to drift. I'm not going to put a prediction out there as to what that ratio will be over time. But directionally, that's where we're headed.

Got it. And then just lastly, obviously, a little bit behind on the CapEx as you highlighted in the prepared remarks, but still targeting that $18 billion plus. What are some of the governing factors to increasing the upside or bringing that a $1 billion into the base plan that we discussed during the Analyst Day?

I think it's a couple of things. One is just getting sort of final resolution and clarity around the new tools in the tool box with respect to the Texas legislative process. We highlighted today the temporary generation, for instance, that we've moved very, very quickly on those kinds of things, would absorb some of that additional billion-dollar in sort of contingent capital that we laid out on our Analyst Day. And the other just -- the other issue is going to be just findings sufficient crews and labor and parts and inventory and those kinds of things out there to accelerate it. So, I think the message we tried to leave at Analyst Day is we have $18 billion plus to spend in the next 5 years, $40 billion plus to spend in the next 10 years. And we will spend that capital as fast as we can reasonably do so as long as it's consistent with rate pressures that we will have, and to spend it efficiently. So again, we've got the wind at our back on many, many things and our capital spend opportunities is certainly one of those.

Great. Thanks, and thank you for that. We'll see you guys soon. Appreciate it.

Thanks.

Thanks.

Our next question is from Insoo Kim from Goldman Sachs. Please proceed with your question.

Good Morning, Insoo.

Good morning Dave. Just first question going back to Shar's question on the CapEx and a potential -- or I guess a delayed currently. I understand the reasoning for the year-to-date delay and how you're going to make that up, just when you look out currently at the current environment does structurally, are you seeing any concerns or challenges to get the current CapEx plan executed over the next couple of years, whether it is the labor shortages or just from a maybe from a cost standpoint, labor costs or other items that could potentially be a headwind?

Look, just like pretty much every other Company and management team in the U.S., we're dealing with supply chain issues, upward pressure on labor costs. But I don't think that we have seen that to such an extent that we are going to say that we can't meet the capital plan. We have every intention and we have every confidence we're going to meet the capital plan. We tried to give a little color to it with respect to that on the call today. We have moved aggressively to tie up more construction crews. We have expanded our vendor base in and around that area. One of the tools that we got in the new legislative processes, the ability to put long lead time items into inventory and into rate base. So, we're looking at all of those. I think the sort of small slip and capital spend this year really was unrelated to any of that. It really was related to the storms that really pounded into Louisiana. And as all utilities do, we help each other when those situations arise. And we released a number of our crews that we're focused on capital build for us to help the people in Louisiana get back on their feet. Those crews are now coming back. And as Jason said, we've got a short-term plan in place to catch up on that capital spend. But our longer-term view of tying up crews and making sure we have the long lead time items ordered give us a great deal of confidence that the capital plan we have is and it's going to be achievable.

Understood. And just quickly, this -- the other question I had was, as we think about the closing of the midstream transaction, remind me, is there -- I know you've already priced up contingent sale of a portion of it, but is there a limit on how much you can sell in terms of the units at any given time?

I'll let my very good CFO, Jason, answer that question.

Insoo, thanks for the question. No, there is no direct limit. And we had talked about previously the need to register those units. Energy Transfer has already undertaken that effort, so we are free to execute contingent for -- up until the close as we have done, once the deal is closed, to the extent that we want to execute a marketed offering, we have to obviously coordinate with Energy Transfer. We have full flexibility to do that after the close of the transaction. And then similarly, we will have the ability to dribble the share. So, I think we're moving to a place, a full control, no limitation on the number of units.

Got it. Thank you and see you soon.

Our next question is from Julien Dumoulin -Smith with Bank of America. Please proceed with your question.

ey, good morning team. Sorry about the Stros there. I wanted to send my condolences as well here.

I'd tell you I didn't think this turn into burial of the Astros. But I appreciate the sentiments. There's always next year remember that.

We know they're close to your heart. There we go. Indeed. Listen, just wondering what's driving the confidence still on the timeline for the ET deal here. I know you mentioned it here again, you mentioned at the Analyst Day, but maybe remind us where that process stands specifically with respect to FTC today, they continue to put out their own headlines?

And good morning, [Indiscernible]. It's Jason here. Look, as we've said at Analyst Day Energy Transfer Enable obviously taking the lead with this in the conversations with the FTC. We're clearly a very interested party and everything that we've observed just gives us confidence that this deal will get close here in the fourth quarter. So, I don't think -- it's probably more of a direct question for Energy Transfer, for how those conversations are going by the day. But as I said, as we observe the progress, we continue to remain confident of a close here in Q4.

Got it. All right, fair enough. And then on this alternate stabilization plan. Can you talk a little bit more about the mechanics? Obviously, it's early here, but is there been any feedback so far, the proposal? Obviously, these are somewhat sensitive subject, so I'll let you respond accordingly.

Thanks, Julien. It's a really unique situation, obviously in Minnesota with the incremental gas costs from [Indiscernible] the fact that we've got a regular rate case scheduled there. And so, while we filed a typical rate case, we thought it was prudent to bring for what we've deemed the great stabilization plan. And I think we -- what it tries to do is build off of what was just a recent settlement of the last rate case filed in Minnesota. So, keeping similar terms on depreciation rates, cost of capital allows us to recover the capital that we will be spending over the next couple of years to improve the safety of our gas systems. It differs a little bit of the amortization of some regulatory assets for things like COVID-related costs and some of the incremental O&M that we had anticipated. But we think it puts us in a really good position to continue to improve system safety with our capital investment plans, while recognizing the rate impact and trying to moderate that for our customers there in Minnesota. And so early days in terms of conversations with stakeholders, but we hope that it is seeing as constructive solution in the backdrop of what is a unique situation there.

Got it. And last one, just super quick there. I heard you guys comment on the backup gen in Texas. But any updates on differences, Texas [Indiscernible], obviously the [Indiscernible] will be moving fairly swiftly still here. Curious if there's anything to be said on that front as a function of reforms.

I think maybe just to tease you a little bit. Yes, we're having some dialogue with them on additional transmission lines, but it's really too early to talk about any specifics on it.

Okay. fair enough. I suspect it as much. Bye. Best of luck. Speak soon.

Thanks.

Thanks.

Our next question is from Durgesh Chopra with Evercore ISI. Please proceed with your question.

Morning.

Hey. Hey, good morning. Just one for me. Just on the Indiana solar program, David, near commentary, you mentioned 75/25 mix, 75 rate base, 25 PPA 'd. Is that sort of what you're targeting going forward in your plans? And just curious as to how you got there in terms of the 75/25 mix.

Good morning. I'll let Jason answer that.

Good morning, Durgesh. It's -- overall, as we look at this first sort of part of our coal transition plan, we're targeting a 50/50 allocation, that is 50% owned renewables, 50% contracted through PPAs for the renewable portion for the first tranche of the coal transition, We had filed originally, as you pointed out and as Dave mentioned in his prepared remarks, an initial tranche of solar that was 75% owned, 25% PPA. We then subsequently filed in the third quarter this year for a 100% PPA solar projects. And so again, as you look through each of these individual filings, we're targeting a 50-50 owned contract target mix for renewables.

Got it. Thank you very much.

Our last question is from Stephen Byrd from Morgan Stanley. Please proceed with your question.

Hey, good morning.

Morning.

Morning.

Just had one kind of a broad question just on draft federal legislation. And as you look at that, I know that's subject to change and who knows what the final version will look like. But I was thinking in particular about, I guess two elements: 1. I’ll be a tax policy and impacts in terms of cash flow, customer bills, etc. And then the other was just broad support for clean energy, whether that might change or enhance some of your resource plans and movement towards clean energy or accelerate some of your plans. So just curious what you're thinking there?

I'll -- let me take the first crack at it. And I'll have Jason can talk about the potential tax impact. But you're absolutely right. It's definitely a moving target right now and haven't been through many of these efforts that Weiner way through Washington, I learned a long time ago. You really -- you got to just watch the process happen, but you don't want to do anything concrete until it is set in law and then you can react to it. I think directionally from -- if you look at the renewables and the ESG aspects of it, it's certainly supportive of the direction that we're going. But based on what we see right now, I don't see it accelerating or decelerating anything that we've got on plans. We have as you know, set up an industry leading end goal out there Net direct emissions to 0 by 2035. And I think that's a good plan. We're going to stick with it. That's the direction we're headed. We get some incremental help with what comes out of DC, we'll take advantage of it. But it isn't going to bump us off course from the direction we're headed right now. Jason, do you want to talk about the tax aspect?

Yes, sure. Thanks for the question, Steven. From a tax standpoint, we are a federal cash tax payer. Right now, as you cut through our financials, there's a lot of one-time items as we've executed on this transition to a pure play regulated utility and we will continue to see that. As you cut through that for us, we are our effective tax rate from a cash tax standpoint. It's somewhere between 8% to 10%. So clearly a minimum tax of 15% would put a little bit of impact or headwind on the financing plan. We don't think it's certainly something that we can overcome. We don't think it's an impediment to the CapEx plan that we outlined and still feel like we can continue to maintain a strong Balance Sheet as we outline and deliver on our $40-billion capital investment plan. So early days, we'll follow it, probably not as big an impact to us, as maybe some of our peers, just given the fact that we have been a federal cash taxpayer. But obviously, something we will continue to monitor.

That's great. Thank you very much.

Again, thank you everyone for joining us today and for your interest in CenterPoint. We look forward to seeing you all at EEI.

This concludes today's CenterPoint Energy's third quarter earnings conference call. Thank you for your participation. You may now disconnect.