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    CenterPoint Energy Inc (CNP)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$27.89Open (Feb 20, 2024)
    Post-Earnings Price$27.89Open (Feb 20, 2024)
    Price Change
    $0.00(0.00%)

    What went well

    • Strong Growth in Houston Area: CenterPoint is experiencing growth across residential and industrial sectors in Houston, with housing starts increasing year-over-year. The DOE's designation of Houston as a hydrogen hub is expected to create over 30,000 to 35,000 permanent jobs, presenting substantial opportunities for economic and load growth.
    • Increased Capital Expenditure for Future Strength: The company increased its 2023 CapEx by about $700 million for critical investments, effectively prefunding the loss of rate base from the sale of its Louisiana and Mississippi gas LDCs. This positions CenterPoint for continued strength moving forward.
    • Long-Term Confidence in Sustained Growth: CenterPoint plans to present a new 10-year plan into the mid-2030s after the rate cases in 2025, reflecting long-term confidence in their growth prospects and commitment to enhancing shareholder value. They will continue providing periodic updates, demonstrating a track record of consistent enhancements.

    What went wrong

    • CNP is facing an incremental increase of approximately $115 million per year in cash taxes due to the new Alternative Minimum Tax, which could negatively impact cash flow and earnings.
    • The sale of the Louisiana and Mississippi gas LDCs may not fully offset the loss of approximately $800 million in rate base, and the increased $700 million in capital expenditures to pre-fund the loss could strain the company's balance sheet. ,
    • Despite significant capital investments, CNP is planning a relatively flat revenue requirement increase in the upcoming Houston Electric rate case, which may limit the company's ability to recover costs and could pressure future earnings. ,

    Q&A Summary

    1. Asset Sale and Use of Proceeds
      Q: What's the timing of reinvestments and use of sale proceeds?
      A: Jason Wells explained they anticipate closing the sale of their Louisiana and Mississippi gas LDCs in early 2025 and have pre-funded the $800 million rate base loss by increasing their 2023 capital expenditure plan by $700 million. This allows them to put investments into rates simultaneously with the sale, effectively offsetting the impact.

    2. Cash Taxes and Corporate AMT Impact
      Q: How will the corporate AMT affect your cash taxes?
      A: Christopher Foster stated they expect to pay roughly $150 million per year in cash taxes from 2024 through 2030 due to the corporate alternative minimum tax. This represents an incremental $115 million compared to their previous plan. They are planning conservatively to manage this impact while keeping their earnings guidance unchanged.

    3. Equity Needs and Capital Raises
      Q: What are your thoughts on future capital raises?
      A: Christopher Foster mentioned they plan to fund incremental growth CapEx opportunities consistent with their regulated capital structure, roughly 50-50 debt-to-equity. They anticipate $250 million per year from equity issuance, totaling $1.5 billion through 2030, and will utilize ATM issuance or equity-like proceeds.

    4. Resiliency Filing and CapEx Plans
      Q: Any impact from the new resiliency filing in Texas?
      A: Jason Wells indicated that the resiliency filing won't change recovery mechanisms but will help minimize regulatory lag on system investments. For every $300 million of eligible distribution capital, they can save about $0.01 per share by deferring post in-service carrying costs until capital is put into rates.

    5. Capital Plan Increase
      Q: Is the $4 billion CapEx increase spread evenly?
      A: Christopher Foster noted that the incremental $4 billion capital plan increase is fairly ratable over the plan period. Some exceptions include larger generation projects in Indiana, but overall, the increase is straightforward base utility CapEx.

    6. Rate Cases and Settlement Prospects
      Q: Any lessons from active cases and settlement prospects?
      A: Jason Wells highlighted that the upcoming Houston Electric rate case will request the smallest revenue requirement increase since 1975. They aim to file a compelling case and work constructively with parties, with potential settlement mid-summer.

    7. Future Updates and Investor Day
      Q: What's the cadence of future updates?
      A: Jason Wells stated they plan to provide consistent updates throughout the year and may host another Investor Day after rate cases in 2025, reflecting long-term growth.

    8. Thoughts on New Texas PUC Chair
      Q: Views on the new Texas PUC Chair?
      A: Jason Wells expressed a positive relationship with the new Chair, having worked together on key issues like cost of capital and cap structure. He sees opportunities to continue leveraging this relationship.

    9. Incremental Equity from Resiliency Filing
      Q: Will the resiliency filing require incremental equity?
      A: Jason Wells stated they wouldn't necessarily look at this as incremental equity coming out of the resiliency filing. They plan to redeploy about $1 billion previously allocated to Louisiana and Mississippi back into Houston Electric for resiliency programs, enhancing long-term EPS growth.

    10. Cash Tax Incremental Amount
      Q: Is the $115 million cash tax incremental?
      A: Christopher Foster confirmed the $115 million per year is incremental cash taxes due to the corporate AMT. Jason Wells added that as they worked down their federal cash tax position, the AMT becomes applicable.

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