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    CNP
    Earnings call· Dec 2024(Q4 FY24)

    CENTERPOINT ENERGY INC CNP

    Feb 20, 2025 Source

    Executive summary

    CenterPoint Energy Q4 FY24 — Strong Earnings Growth and Significant Load Forecast

    CenterPoint Energy delivered strong Q4 and full-year 2024 results, exceeding financial guidance for the fourth consecutive year, driven by rate recovery and O&M favorability. The company reaffirmed its 2025 EPS guidance and long-term growth targets, supported by a significant increase in its capital plan for grid resiliency and an unprecedented 10 GW load growth forecast for the Houston area by 2031. Management is actively navigating regulatory processes and a unique temporary generation transaction to benefit customers and shareholders.

    Highlights

    5

    • Achieved non-GAAP EPS of $1.62 for FY24, representing 8% growth over 2023, marking the fourth consecutive year of meeting or exceeding guidance.

    • Reaffirmed 2025 non-GAAP EPS guidance of $1.74 to $1.76, equating to 8% growth at the midpoint.

    • Filed a system resiliency plan proposing $5.75 billion spend (including $5.5 billion CapEx) from 2026-2028, increasing the total capital plan to $47.5 billion through 2030.

    • Reached constructive settlements in Houston Electric and Minnesota Gas rate cases, improving consolidated ROE and equity ratio for over 80% of enterprise rate base.

    • Submitted an ERCOT load forecast for the Greater Houston region projecting a nearly 50% increase in peak demand (10 GW) to 31 GW by 2031, driven by diverse economic activities.

    Concerns

    3

    • Adjusted FFO-to-debt ratio was 13.6% (Moody's methodology) at year-end, slightly below the target range of 14% to 15%.

    • Interest expense and financing costs were $0.03 unfavorable in Q4 FY24 due to $3 billion of net new debt issuances.

    • O&M levels will reset in the near term due to a more aggressive vegetation management cycle (3-year vs. 5-year).

    Guidance & targets

    5
    CategoryTargetConfidence
    Non-GAAP EPS
    $1.74 to $1.76
    high materiality
    High
    Long-term Non-GAAP EPS growth rate
    mid-to-high end of 6% to 8% range annually
    high materiality
    High
    Dividend per share growth
    in line with earnings growth
    medium materiality
    High
    Capital investment target
    $47.5 billion
    high materiality
    High
    O&M reductions
    1% to 2% O&M reductions
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Houston Electric
    Reached a settlement in the 2024 rate case, proposing a revenue decrease for customers while improving ROE and equity ratio. Refiled a significant system resiliency plan. Experiencing substantial load growth, particularly from data centers and logistics.
    System resiliency plan spend: $5.75B (2026-2028)Capital expenditures in plan: $5.5B (2026-2028)Annual revenue requirement decrease (settlement): $47MResidential bill reduction (settlement): ~$1 per monthVegetation management cycle: 3-year (vs. 5-year prior)Expected storm cost reduction: $50M annually (starting 2029)Transmission tracker (TCOS) revenue increase: $63MDistribution tracker (DCRF) requested revenue increase: $100M (withdrawn for update)Peak demand forecast: 31 GW by 2031Peak demand increase forecast: 10 GW (nearly 50% increase from 21 GW today)Load interconnection requests: ~40 GWData center demand: >11 GW
    		————
    Indiana Electric
    Received a final order for its rate case, in line with the settlement, reflecting investments and O&M reductions.
    Annual revenue requirement increase (final order): ~$80MReturn on equity (final order): 9.8%
    		————
    Minnesota Gas
    Reached an all-party settlement in its rate case, reflecting a significant portion of the proposed revenue increase, with interim rates already in effect.
    Total revenue requirement increase (settlement): ~$104M (2024-2025)Proposed revenue increase: ~$136MInterim rates for 2024 increase: effective January 2024Interim rates for 2025 increase: effective January 2025
    		————
    Ohio Gas
    Filed a rate case application seeking a substantial revenue increase to align with peers and fund pipeline modernization.
    Revenue requirement increase application: $99.5M
    		————

    Operational metrics

    20
    GAAP EPS
    $1.58
    FY24

    Reported on a GAAP basis. Explicitly included per user instruction, though typically skipped as a raw GAAP statement line.

    GAAP EPS
    $0.38
    Q4 FY24

    Reported on a GAAP basis. Explicitly included per user instruction, though typically skipped as a raw GAAP statement line.

    Non-GAAP EPS
    $0.40vs. $0.32 in Q4 FY23
    Q4 FY24

    Reported on a non-GAAP basis.

    Non-GAAP EPS
    $1.628% growth over 2023
    FY24

    Reported on a non-GAAP basis.

    EPS contribution from rate recovery
    $0.05vs. Q4 FY23
    Q4 FY24

    Driven by ongoing recovery from interim mechanisms and approved interim rates for Minnesota gas rate case.

    EPS contribution from O&M favorability
    $0.05vs. Q4 FY23
    Q4 FY24

    Primarily driven by approximately $0.03 of work pulled forward in Q4 FY23 that was not replicated this quarter.

    EPS contribution from weather and usage
    $0.02quarter-over-quarter
    Q4 FY24

    Favorability from weather and usage.

    EPS impact from interest expense and financing costs
    -$0.03vs. Q4 FY23
    Q4 FY24

    Primarily driven by $3 billion of net new debt issuances.

    O&M reduction
    nearly 2% annually
    last few years

    Achieved over the last 3 years.

    Capital investment
    $1.2B
    Q4 FY24

    Base work invested for customers and communities.

    Capital investment
    $3.8Bexceeding $3.7B target
    FY24

    Exceeded target despite multiple diversions from storm restoration.

    Customer savings from Houston Electric rate case settlement
    $250M
    over a roughly 5-year period

    Expected savings for customers if the settlement is approved.

    Storm cost recovery (May Derecho)
    $500M98% of costs
    May Derecho event

    Settlement in principle reached for securitization, ahead of plan.

    Storm cost recovery (Hurricane Beryl)
    $1.1B
    Hurricane Beryl

    Filing for securitization expected in Q2, with proceeds anticipated by year-end.

    Unrecovered storm costs
    $110M
    May storms and Hurricane Beryl

    Company will not seek recovery for these costs.

    Temporary generation units value contribution
    $180M
    up to 2-year period

    Unprecedented contribution of value for the benefit of Texans by making units available at no cost.

    Adjusted FFO-to-debt ratio
    13.6%below 14%-15% target
    year-end 2024

    Slightly below target, but expected to be transitory.

    Cash proceeds from LDC sale
    $1B
    next month

    Expected from the closing of Louisiana and Mississippi LDC sale.

    Additional securitization proceeds
    $500M
    by end of June

    Expected additional proceeds.

    Electric transmission CapEx tailwind
    at least another $3B
    long-term

    Potential incremental CapEx not in the current plan, dependent on PUCT voltage standard decision.

    Industry KPIs

    7
    MetricValueDetails
    Adjusted operating EPS$1.62USD
    Multi year capital plan$47.5BUSD
    Dividend per share growthin line with earnings growth
    Regulatory rate base growth10%%
    Allowed ROE equity layer rate cases9.8% ROE%
    Combined electric gas framework mandates—
    Major regulated project construction progress—

    Orderbook & backlog

    2
    Load interconnection requests~40 GWQ4 FY24

    Total requests received for connection to the grid in the Greater Houston region. Some are exploratory, some early stage, and not all are expected to materialize.

    Peak demand increase forecast10 GWQ4 FY24

    nearly 50% increase from 21 GW today

    Forecasted increase in peak demand for the Greater Houston region by 2031, reaching nearly 31 GW. This is considered a more realistic reflection of load growth than the total interconnection requests.

    Deals & partnerships

    2
    Texas payer utility (San Antonio area)Transfer of use of 15 large temporary emergency generation units to support ERCOT reliability needs.$180M (value contribution)up to 2 years

    Units will be provided at no cost to the San Antonio area. Unregulated investment going forward. Next discussion at ERCOT special meeting on February 25th.

    nullSale of Louisiana and Mississippi Gas Local Distribution Companies

    Proceeds from the sale will support balance sheet health.

    Capital programs

    2
    System Resiliency Planrefiled$5.75B total spend
    Funding: 50% equity and 50% debt
    Start: 2026

    Benefit: Improved system resiliency, hardened transmission system, elevated substations, tripled automated devices, >1 billion outage minutes saved, $50M annual storm cost reduction

    Proposes $5.5 billion in capital expenditures. Represents the largest single investment in grid resiliency in company history. Increases total capital plan by $500 million to $47.5 billion through 2030.

    Multi-year Capital Investment Planupdated$47.5B
    Funding: 50% equity and 50% debt

    Benefit: 10% rate base growth through end of decade

    Updated from $47 billion to $47.5 billion through 2030, reflecting the system resiliency plan. Funding consistent with prior guidance of 50% equity and 50% debt.

    Risks & headwinds

    4
    Adjusted FFO-to-debt ratio below targetyear-end 2024

    13.6% (Moody's methodology) vs. 14%-15% target

    Mitigation: Anticipated $1B cash proceeds from LDC sale next month, $500M additional securitization proceeds by end of June, $1.1B Hurricane Beryl securitization proceeds by year-end.

    Reset of O&M levels due to more aggressive vegetation management cyclenear term

    Transition from 5-year to 3-year cycle at Houston Electric

    Mitigation: Laser-focused on continuing to take costs out of the business elsewhere, targeting 1-2% O&M reductions from these higher levels, and anticipating $50M annual storm cost savings from resiliency investments starting 2029.

    Higher interest expense and financing costsQ4 FY24

    $0.03 unfavorable impact on Q4 FY24 EPS

    Mitigation: Driven by $3B net new debt issuances; company focused on balance sheet health.

    Uncertainty regarding PUCT decision on transmission voltage standardAnticipated by May 2025

    Impacts sizing of future electric transmission CapEx

    Mitigation: Company will update capital investment plans after decision.

    What to watch in Q1 FY25

    5

    PUCT decision on transmission voltage standard

    by May 2025
    CurrentPending
    TargetDecision on 765 kV or 345 kV standard

    Why it matters

    This decision will significantly impact the sizing of future electric transmission CapEx and the company's long-term capital plan, which is a key growth driver.

    Prior to formalizing our capital investment plans related to this immense growth, we need the feedback and final decisions from the Texas Public Utility Commission regarding the 765 kV or 345 kV standard for transmission build-outs. We anticipate further clarity on this topic by May of this year.

    Q&A highlights

    6

    How does the 10 GW load growth compare to ERCOT's prior forecasts, and how much of this is already in the capital plan versus upside?

    The 10 GW increase is new to ERCOT's forecast for Houston, as last year focused on West Texas. This growth is an "incredible tailwind" and will drive at least another $3 billion in electric transmission CapEx, not yet in the plan, likely more. The exact amount depends on the PUCT's voltage standard decision (765 kV vs. 345 kV) expected by May.

    “This will undoubtedly drive at least another $3 billion in electric transmission CapEx that's not in the plan. I would really be surprised if it's not higher than that.”

    asked by Steven Fleishman · answered by Jason Wells

    3 min read5 chapters

    Detailed Narrative

    01

    Regulatory Progress and Rate Cases

    CenterPoint Energy has been highly active in regulatory efforts, filing 5 rate cases in the last 18 months. Final orders have been received for Indiana Electric, which included a total annual revenue requirement increase of approximately $80 million and a 9.8% return on equity. Settlements are awaiting approval for Houston Electric, proposing an annual revenue requirement decrease of $47 million with improved ROE and equity ratio, and Minnesota Gas, reflecting a total revenue requirement increase of nearly $104 million for 2024 and 2025. The Ohio Gas rate case application was filed for a $99.5 million revenue requirement increase. These 4 rate cases represent over 80% of the enterprise rate base and are expected to improve consolidated ROE and equity ratio.

    02

    System Resiliency Plan (Houston Electric)

    The company refiled its system resiliency plan for Houston Electric, proposing a total spend of $5.75 billion from 2026 through 2028, with $5.5 billion allocated to capital expenditures. This plan outlines 39 specific resiliency measures designed to strengthen the transmission and distribution system, including hardening the transmission system, elevating nearly all substations above the 500-year floodplain, and tripling automated devices since Hurricane Beryl. These investments are projected to save customers over 1 billion outage minutes in extreme weather events and reduce storm-related costs by an estimated $50 million annually starting in 2029.

    03

    Temporary Generation Transaction

    CenterPoint proposed a unique 'Texas solution' to ERCOT for its 15 large temporary generation units. The proposal involves making these units available to serve the San Antonio area for up to 2 years, starting spring 2025, at no cost, representing an 'unprecedented🌐 contribution of value' of approximately $180 million. After this period, CenterPoint intends to market the units to third parties at prevailing market rates, which are currently double the original lease rate. Houston Electric customers will be made whole on related charges, and shareholders are expected to benefit from the future marketing of these units. The company will exclude the financial impacts of this unregulated investment from non-GAAP earnings.

    04

    Houston Load Growth and Capital Investment Tailwinds

    The Greater Houston region is experiencing significant electric demand growth, with CenterPoint forecasting a nearly 50% increase in peak demand (10 GW) to 31 GW by 2031, up from 21 GW today. This growth is driven by diverse economic activities: 20% from logistics (port/fleet electrification), 30% from commercial activities (medical complex expansion, data centers), and the remainder from energy refining and exports. The company has received approximately 40 GW in load interconnection requests. This growth is expected to drive at least another $3 billion in electric transmission CapEx, with further clarity anticipated after the PUCT's decision on 765 kV or 345 kV standard by May 2025.

    05

    O&M Management and Storm Recoveries

    CenterPoint has reduced O&M by nearly 2% annually over the last few years. While vegetation management spend will increase due to a transition to a 3-year cycle, the company targets 1-2% O&M reductions elsewhere, partly due to reduced truck rolls from grid automation. The company is ahead of plan on storm cost securitization, having reached a settlement in principle for 98% recovery of May Derecho costs ($500 million) and plans to file for Hurricane Beryl costs ($1.1 billion) in Q2 2025. Additionally, the company will not seek recovery for roughly $110 million of costs related to May storms and Hurricane Beryl.

    AI-generated summary of the company’s earnings call. Not investment advice.