Good morning and welcome to CenterPoint Energy’s Fourth Quarter and Full Year 2016 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. [Operator Instructions] I will now turn the call over to David Mordy, Director of Investor Relations. Mr. Mordy?

Thank you, Thea. Good morning, everyone. Welcome to our fourth quarter 2016 earnings conference call. Scott Prochazka, President and CEO; Tracy Bridge, Executive Vice President and President of our Electric Division; Joe McGoldrick, Executive Vice President and President of our Gas Division; and Bill Rogers, Executive Vice President and CFO will discuss our fourth quarter and full year 2016 results and provide highlights on other key areas. In conjunction with the call today, 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 press release and our slides, which along with our Form 10-K, have been posted on our website. Please note that we may announce material information using SEC filings, press 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 is going to 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 and growth, commodity prices, changes in our service territories and other risk factors noted in our SEC filings. We will also discuss our guidance for 2017. The guidance range considers utility operations performance to-date and certain significant variables that may impact earnings, such as weather, regulatory and judicial proceedings, throughput commodity prices, effective tax rates and financing activities. In providing this guidance, the company uses a non-GAAP measure of adjusted diluted earnings per share that does not include other potential impacts, such as changes in accounting standards or unusual items, earnings or losses from the change in the value of the Zero-Premium Exchangeable Subordinated Notes, or ZENS securities and the related stocks or the timing effects of mark-to-market accounting in the company’s Energy Services business. The guidance range also considers such factors as Enable’s most recent public forecast and effective tax rates. The company does not include other potential impacts such as changes in accounting standards or Enable Midstream’s unusual items. Before Scott begins, I would like to mention that this call is being recorded. Information on how to access the replay can be found on our website. And with that, I will now turn the call over to Scott.

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 4. 2016 was a strong year for CenterPoint. On a guidance basis, EPS grew more than 5% and we finished the year at $1.16 per share versus 2015 earnings of $1.10 per share. The $1.16 represents the midpoint of our initial guidance range of $1.12 to $1.20, but the lower end of the updated guidance we provided on our third quarter call. Our full year earnings were impacted by certain fourth quarter events, which Bill will discuss in more detail during his remarks. Our utility operations contributed over 11% earnings growth on a guidance basis, finishing at $0.88 for 2016 versus $0.79 in 2015. Midstream investments exceeded expectations by earning $0.28 per share, which was at the top end of our guidance range. Today, we are reaffirming our 2017 guidance range of $1.25 to $1.33. Our forecast is built around ongoing growth contributions from both utility operations and midstream investments. For 2018, we are forecasting that our earnings momentum will continue as we expect growth in both utility operations and midstream investments. With the current and anticipated rate filings, a fully integrated energy services business and continued strong performance from Enable, we are now targeting achieving or exceeding the upper end of our 4% to 6% EPS growth rate for 2018 compared to 2017. Turning to Slide 5, our 2016 performance drivers, which were concentrated in our electric and natural gas utilities, include customer growth and rate increases associated with growth in rate base. We added more than 90,000 combined utility customers, grew rate base at approximately 5.4% and increased rate relief by $95 million. We accomplished this while earning near…

Thank you, Scott. 2016 was another strong year for Houston Electric. Turning to Slide 9, Houston Electric’s core operating income was $537 million in 2016 compared to $502 million in 2015, an increase of 7% year-over-year. The business benefited in 2016 from rate relief, customer growth and higher equity return, primarily due to true-up proceeds. These benefits were partially offset by higher depreciation and other taxes, higher O&M expenses and lower right of way revenues. Houston Electric added over 54,000 metered customers last year, representing 2.3% growth since the fourth quarter of 2015. This year, we are forecasting 2% customer growth, which equates to approximately $25 million to $30 million of incremental base revenue. I am pleased to report we managed O&M expense growth to under 1% versus 2015, excluding expenses that have revenue offsets. This year we are focused on keeping annual O&M growth under 2%. In 2016, Houston Electric used both of our cost recovery mechanisms, transmission cost of service or TCOS, and distribution cost recovery factor, or DCRF, for timely rate relief. A complete overview of regulatory developments in 2016 can be found on Slide 29. In December, we filed TCOS for $7.8 million in an annualized rate relief for transmission capital invested in 2016. We expect to file DCRF in April and TCOS in the second quarter of 2017. Turning to Slide 10, Houston Electric invested $858 million of capital in 2016, including $72 million related to the Brazos Valley Connection project, a nearly 60-mile transmission project. In response to ongoing customer and load growth, Houston Electric will continue to invest significant capital to ensure our system as safe, resilient and reliable. Our new 5-year plan includes $4.1 billion of capital investment. We anticipate capital investment in 2017 and 2018 will be higher than later years in the 5-year plan due to our investment in the Brazos Valley Connection project. We began construction this month and the project is proceeding as scheduled. Total capital investment in the project is expected to be $310 million. We expect to complete construction and energize the Brazos Valley Connection by June 2018. As shown on Slide 11, our planned capital investments translate to projected rate-based growth of approximately 5% on a compound annual growth basis through 2021. I am very pleased with Houston Electric’s strong operational and financial results in 2016 and we expect continued growth in the coming years. I will now turn the call over to Joe for an update on natural gas operations.

Thank you, Tracy. As we have previously mentioned, we expected natural gas operations to be an earnings catalyst in 2016 and we delivered. Our natural gas operations, which includes both our natural gas distribution business and our non-regulated energy services business, had a strong year. Turning to Slide 13, natural gas distribution’s operating income was $303 million in 2016 compared to $273 million in 2015, an increase of 11% year-over-year, despite continued extremely mild temperatures across our service territories. The business benefited from rate relief, revenue from decoupling mechanisms, lower bad debt expense and customer growth. These benefits were partially offset by increased depreciation, higher labor and benefits expenses and increased contract services expense related to pipeline integrity and system safety. Natural gas distribution added over 35,000 metered customers last year, representing 1% growth since the fourth quarter of 2015. Natural gas distribution is forecasting 1% annual customer growth again in 2017. O&M expenses in 2016 were approximately 2% higher than 2015, excluding certain expenses that have revenue offsets. O&M expense discipline remains a priority of the business and I am very pleased with the improvements that we have made in our credit and collections processes as one example of that disciplined approach. Natural gas distribution’s multi-jurisdictional regulatory strategy resulted in strong rate relief in 2016. For a complete overview of regulatory developments in 2016, please see Slides 30 and 31. In November, we filed a Texas Gulf Rate Case that seeks to combine our operationally and geographically aligned Houston and Texas Coast jurisdictions. This case was required based on a prior settlement with the City of Houston and we had exhausted the statutorily allowed GRIP filings there, requiring us to establish new base rates. The filing seeks to recover $31 million in rate relief, including recovery of deferred expenses…

Thank you, Joe and congratulations on a distinguished career service for our CenterPoint customers. Good morning to everyone. I will start with the reconciliation of our GAAP and guidance earnings for the fourth quarter and for the full year as provided on Slide 18. This morning, we reported $0.23 of earnings per diluted share on a GAAP basis and $0.26 in earnings per share on a guidance basis for the fourth quarter. This compares to a GAAP loss of $1.18 and a guidance basis income of $0.27 for the fourth quarter of 2015. In fourth quarter 2016, we add back $0.01 of mark-to-market adjustments from our energy services business and $0.02 of ZENS-related adjustments in order to arrive at fourth quarter 2016 earnings on a guidance basis of $0.26. In fourth quarter 2015, we added back $1.44 associated with the impairment of our investment in Enable and $0.01 per share loss related to ZENS for $0.27. For the full year 2016, we reported $1 in earnings per diluted share on a GAAP basis and $1.16 per share on a guidance basis. This compares to a GAAP loss of $1.61 and a guidance basis earnings per share of $1.10 for the full year 2015. For 2016, we add back $0.03 of mark-to-market adjustments from our energy service business and $0.13 of ZENS-related adjustments to arrive at our 2016 earnings on a guidance basis. For 2015, we added back the full year impairment loss of $2.69 and a net loss of $0.03 associated with ZENS. We also subtracted $0.01 of mark-to-market gains to arrive at a guidance basis EPS of $1.10 for 2015. Whether the comparison is on a GAAP or guidance basis, we had solid earnings performance improvement in 2016 relative to 2015 and that includes certain one-time events in the…

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. Thea?

[Operator Instructions] Thank you. The first question will come from Jonathan Arnold with Deutsche Bank.

Yes, good morning guys.

Good morning, Jonathan.

Just a quick one, Scott, I think you said you expected to give an update on your decision on direction with Enable on the second quarter call. Did you mean the call that will take place in the second quarter or the actual reporting of second quarter earnings in Q3?

It would be the reporting of the second quarter earnings in Q3. We anticipate the exercise would be virtually completed or essentially completed by the second quarter, but our first opportunity to discuss it would be in the third quarter call – or the second quarter call, sorry.

Sorry about that. I just wanted to clarify. And then could you also just talk about how you have thought about Enable in making the statement on 2018 growing at the high-end off of whatever you earn in ‘17? Does that contemplate current status or you think you could be there in an exit scenario what’s the – what should we take from that?

Yes, Jonathan, we assumed that the performance of Enable continues to be strong, but we did do some testing of various performance levels of Enable and have concluded that under a number of gross scenarios for Enable, including very modest growth, we would still be able to achieve that.

Do you think you would be able to achieve that in the longer held to position for 2018? Is that – should we assume that too?

Well, I think under that scenario, you have got a very different picture to look at. But as I have told you, to the extent that we move forward with an opportunity around the transaction, our objectives were to maintain comparable earnings and dividend.

I saw that. So I guess we take this as a statement that should be – should apply in all scenarios?

Yes, that’s a fair way to look at it.

Okay, thank you.

Yes.

The next question will come from Steve Fleishman with Wolfe Research.

Yes. Hey, Scott, Bill. How are you?

Good morning.

So, first, just technical question, what was the year end tax basis for Enable?

Steve, I am looking at Bill. I think he is trying to find that number at the moment.

Okay. And maybe in the meantime, just – in terms of just thinking about what you are going to know by the second quarter versus what you know now. I mean, I don’t know if tax reform is something that you need to know for things like the spin or I guess I am just a little confused like why hasn’t something happened now and what are things that could happen in the next quarter or two that suddenly you will have an answer by then?

Yes. So Steve, it’s not connected to clarity around tax policy. This is just the ongoing dialogue we have been having with parties. And our estimate of when we believe that would come to an end. It has nothing to do with tax. In fact, as we have mentioned, this review is really around trying to address the volatility of earnings and we are going to conclude this even without having clarity on what the future tax policy may look like.

Okay. And then I guess Bill, do you have the Enable answer?

I have that, Steve. Steve, that’s within our footnote on income taxes. And best way to think about it is the deferred tax liability is $1.38 billion and the other piece of data you need on that is where we record the investment in Enable that’s in our assets on our balance sheet and that’s equivalent of $10.71 a share at year end.

Okay. And then just when you look at the plan for 2017 or 2018, can you give us a sense of just where your earned returns are and just kind of make sure comfort that those are going to be okay? I don’t think you need to – as part of your reviews like DCRF or TCOS or whatever, there is no real kind of review of returns, right?

Yes. Steve, the mechanism that has a return review would be the DCRF. So, we cannot make a DCRF filing if we are earning over our authorized return per our EMR that we filed. That’s the one that has the structured limitation to it. That said we do anticipate filing DCRF this year.

Okay.

And Steve, our expected return on equity within the equity calculation for rate base would be within 25 basis points to 100 basis points less than our allowed return depending upon the entity.

Great. Thank you. Appreciate it.

Yes. Thanks, Steve.

The next question will come from Shar Pourreza with Guggenheim Partners.

Good morning, guys.

Shar, good morning.

Just to confirm your growth guidance, your trajectory for ‘18 doesn’t assume any sort of tax policy changes including some of the accretion that you may anticipate? And then when you think about longer term growth, how we should think about that when you got sort of a front-end loaded CapEx picture as far as on the electric side how we should think about the trajectory a little bit further out?

Shar, I will answer the first part of that. I will ask Bill to comment on the second. The first part is no, we do not assume as we look to ‘17 or ‘18 forecasted or projected targeted growth performance that there is any form of change in tax policy. Bill, you want to comment on the second part of that?

Yes. With respect to the longer term growth, I think your anchor point should be the rate of rate based growth and we would expect earnings contribution to grow approximately 1% less than that.

Okay, that’s helpful. And then sorry if I missed this, but what was the O&M guidance for the gas business for ‘17? And then when you look at the utility in general, how we should think about cost inflation for your 5-year plan?

Yes. Shar, this is Joe. We remain committed to managing O&M on a very disciplined way. And so that will be approximately 2%, perhaps slightly above that in some years given the activity around pipeline integrity expenses. But we will do everything we can to continue with strong O&M discipline that we have been executing on in the past.

Thanks guys. Congratulations on the results.

Thank you.

The next question will come from Michael Lapedis with Goldman Sachs.

Hey guys, congrats on a good 2016. One question, I want to make sure I understand for energy services, what is included and if anything, what is not included in your 2017 guidance, are you including all of the impacts of both Continuum and AEM’s acquisition in the ‘17 guidance?

Michael, this is Scott. Good morning. Yes, we have factored in the net impact of all of that in our comments around 2017 performance, which includes essentially an integrated Continuum and then the effects of the integration process associated with AEM. And we think AEM will be – I will describe it as modestly accretive this year. But all of that is included in the numbers that we provided.

And do you think that business has a different growth rate than the gas distribution business does?

I think that has the potential to grow at or slightly stronger than our utility business. It’s really predicated on opportunities that come as a result of additional scale. But I would say it’s very close in growth rate. It’s not something that’s dramatically different.

Got it. And different topic and this one may be for Bill, when I look at your debt schedule, both at CERC, even a little bit at CE and not much left at the parent, but you still got a number of tranches kind of in almost 6% range up to the high-6s, almost to the 6.9% and it doesn’t look like the make-wholes are really that expensive, just kind of treasury yield, plus 20 basis points to 35 basis points or so, how are you thinking about refinancing what effectively is high cost debt in this environment and kind of the timeline for taking some of that out?

Great. So first, you are right. We do have, well, I think in today’s environment, what might be considered high-coupon debt, the debt that just matured in February of this year at a coupon of 5.95%. The debt that matures in November has a coupon of 6.8%. We think about that as an investment decision. And if it’s net present value positive on a cash-on-cash basis to redeem debt early, then we will do that. And that’s exactly how we thought about it in late 2016 when we executed the make-whole call and redeemed $300 million of debt. It was a $22 million charge to our earnings, but it was a net present value positive decision on our part.

And was that $22 million charge, was that all cash?

Yes.

Okay. And the only reason why I ask is that the debt – a lot of the refinancing opportunities that may exist right now are actually either at CERC or at CE meaning not necessarily as much at the parent because you have done a good job of dealing with parent debt, it strikes me that would refinancing a lot of that debt down at the OpCos would give you the opportunity over time, especially as you go in for rate relief to potentially impact customer bills, maybe alleviate any upward pressure on customer bills due to the investments you are making and maybe even give you more headroom to increase the amount of capital you deploy?

You are correct. And we take a look at those opportunities regularly and should they be NPV positive for the customer, in the case of CE and our CERC-related gas utilities, then we will redeem that debt and refinance it. And in that case, there will be no charge to earnings.

Got it. Thanks Bill. Much appreciated.

[Operator Instructions] The next question will come from Ali Agha with SunTrust.

Thank you. Good morning.

Good morning Ali.

Good morning. Scott, coming back to your thinking through on the Enable ownership, obviously you guys have been looking at it for a while now and one of the impediments and then you alluded to that again as being the tax leakage associated with that, particularly the sale for cash, is it fair to assume that that scenario is probably not high on the table given the tax leakage implications and perhaps sale for stock or spin-off, if you are going to do anything are the two most likely outcomes?

We haven’t handicapped each of these individually, but we have certainly been clear about the challenges we have with a cash sale from a tax leakage standpoint. So I would say your characterization is perhaps accurate. We do continue to have the challenges associated with the tax leakage if we were to pursue a sale as you pointed out.

Yes. And on the OG&E ROFO they have had their ROFO before you guys decided not to take in some of the other way and now they have come back with the ROFO second time around, I mean again, is that procedural or is that something as a real option given that we have already been through this exercise before with them?

Ali, It’s Bill. That is largely procedural. If we intend to have discussions with third-parties, then under our partnership agreements, our partner has a Right of First Offer. And so while we are having those discussions and don’t complete a transaction within a time limit, we will need to give them another Right of First Offer.

Alright. And so Bill, fair to say – I mean this is just the same ROFO that’s come back again?

That’s correct.

I see. And then Scott, also to be clear on your comments, as you mentioned if none of these options comes to conclusion, doing nothing and working with the system is an option, am I to read into that, that that’s probably become a bigger option today than maybe both when you started the process, I mean are you committed to doing something or doing nothing may end up being the best option after all?

Ali, I think we have been pretty consistent about expressing that any of these are viable options. But the real gating item here is whether something other than retaining our ownership would allow us to achieve the objectives we have laid out. If we can’t achieve the objectives we set forth, then our option of maintaining our ownership and continuing to work with Enable to be less volatile is certainly a very viable path. We have been doing that all along quite frankly. And they have had some great successes in the efforts that they have made in 2016 to just do that. And that effort would continue going forward.

Okay. And last question, again just to round this out, is it fair to say that the fact that it’s taken longer than expected has been to try to figure out the most tax efficient way of making an exit if possible, has that really been the issue that’s held you guys back?

We – for practical purposes, we didn’t really weren’t able to start this process until the latter part of the summer last year. Shortly after we made the announcement, the market fell off precipitously and we needed to have a viable forecast from Enable that we could use in these discussions. So we weren’t really able to start anything until the August timeframe of last year. So we are not as far into this as it appears we might be, but we are committed to working this through and exploring the various options that we have. And we will make our decisions accordingly based on our ability to achieve those objectives.

Understood. Thank you.

Thanks Ali.

The next question will come from Kevin Vo with Tudor, Pickering.

Hi, good morning.

Kevin, god morning.

Just following-up on Ali’s question on Enable, did you – I know you mentioned how the decision will likely come before any potential tax reform, could you kind of just walk us through how the tax reform sits lower the tax leakage at all from Enable from a sale of Enable, how should we think about the impact there?

Kevin, it’s Bill. So, on a cash sale of Enable, assuming we had a lower statutory rate and that statutory rate was also the capital gains rate for corporations, then that would lower our tax bill.

Okay, that’s all the – that’s the questions I had. Thank you.

Right. Thank you.

The next question will come from Charles Fishman with Morningstar.

Hi good morning. Since my questions on Enable have been answered, let me just give one to Joe before he gets out to dodge?

Okay.

Joe, a couple of years ago, you instituted that you were able to get – together with the Minnesota commission, get a decoupling mechanism for weather and if memory serves me, this might be your first winter where that’s really going to come in handy, is that working, do you anticipate it working to your expectations this winter?

Yes. Charles, your memory is good. This is in fact. We have had it in place for almost a year now and it benefited us last year as well. And obviously with these mild temperatures this year, it will also continue to be a benefit. So as I said in my remarks, we had a great 2016 despite these mild temps and that was in large part due to the Minnesota decoupling. And we recently got, it was a $25 million true-up that was approved last fall that we had begun to build under that mechanism. And it’s a 3-year pilot, so we are hopeful that we can translate that into a permanent tariff after that 3-year period expires.

Okay. And then just sort of as a follow-up with transmission loop around Minneapolis that you are working on, where does that stand?

The Belt Line project continues to go well. We are actually a little bit ahead of schedule. I can’t remember the exact date as to when that will conclude. But we are spending significant capital on that, replacing that 60 or plus so miles loop around the City in Minneapolis. And everything is on track, if not ahead of schedule.

And you are on the home stretch of that, aren’t you, just another 1 year or 2 years?

No, there is more than that. There is about 4 years or 5 more years, Charles.

Okay. Thank you. That’s all I had. And good luck Joe.

Thank you.

Our final question is from Nick Raza with Citigroup.

Thank you, guys. Just a couple of quick follow-ups, on Enable, assuming that a transaction does occur, is there a thought around what you would do with the prefers you currently own with the company?

Bill?

Nick, it’s Bill. Should there be a transaction we could go one of two directions, we could continue to own a preferred and make sure that we are protected in a right way by its current non-cumulative feature. And so we have built that into the original structure that we negotiated with Enable or we could include that preferred in, let’s say, other transaction with another party.

Okay. And that would effectively reduce the tax basis, correct?

The preferred, has its own tax basis.

Okay, fair enough. And then I guess, if I look at slides 15 and 14, the rate base is growing on average about 200 to, call it 250 and I guess you are spending about $534 million a year, pretty flat for the natural gas distribution, but if I take out the system maintenance and improvements, that’s only about $100 million, am I missing something?

You are looking at Slide 14.

Slide 14 and 15.

Yes. So you are correct. The majority of the spend is in that blue category, if that’s what you are trying to confirm.

Well, I guess what I am getting at is that if I take this as maintenance and improvements out, you only have about $100 million left, so I mean how does the rate base going from $2.8 billion to $3.7 billion, which is an average of about $200 million a year of growth, I am sure it’s probably something that I am missing?

Nick this is Joe. I think you are just trying to back into the rate base number, it would be for the most part, it’s CapEx minus D&A and deferred taxes and all of them.

Hi. It’s Bill. I mean just to jump in here and follow-on Joe McGoldrick’s comments. Rate base is the CapEx less depreciation, less deferred taxes.

Okay. And then I guess that’s actually a good segue, in terms of your current deferred tax liabilities on Slide 25, I understand it was $2.3 billion is in the utility business, where is most of that located, is it transmission distribution or natural gas distribution?

Well, it’s across all asset classes. But you can see the really, the majority of that is in PP&E. As disclosed both on this table on 25 as well as our tax footnote.

Okay. And you mentioned there would be a liability, should there be a tax relief presented out there could be a reduction in rate, do you know what that would be if all this deferred tax liability would go away in terms of percentage rate reduction?

That would depend on when new rates are set. So it would be either a matter of going through our mechanisms that we have in the gas utilities or through general rate cases. And I said regulatory liabilities because they would likely be different regulatory liabilities depending upon the nature of the original deferred tax liability. And the amortization of that life of the regulatory liability will be part of the rate case and/or the mechanism.

Okay, fair enough. Alright, thanks guys.

Thank you, Nick.

Thank you, everyone for your interest in CenterPoint Energy. We will now conclude our fourth quarter 2016 earnings call. Have a nice day.

This concludes CenterPoint Energy’s fourth quarter and full year 2016 earnings conference call. Thank you for your participation. You may now disconnect.