Good morning and welcome to the CenterPoint Energy's Second Quarter 2019 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, Catherine. Good morning everyone. Welcome to our second quarter 2019 earnings conference call. Scott Prochazka, President and CEO; and Xia Liu, Executive Vice President and CFO will discuss our second quarter 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. For reconciliation of the non-GAAP measures used in providing earnings guidance in today's call, please refer to our earnings news release and our slides. They've been posted on our website as has our Form 10-Q. Please note that we may announce material information using SEC filings, news releases, public conference calls, webcasts, and post 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 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 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 guidance for 2019. The 2019 guidance basis EPS range excludes the following impacts associated with the Vectren merger: integration and transaction related fees and expenses including severance and other costs to achieve the anticipated cost savings as a result of the merger; and merger financing impacts in January prior to the completion of the merger due to the…

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'm pleased to report that we have delivered a solid second quarter driven by consistent strong performance in our utility operations backed by strong cash contributions from our non-utility businesses. I'd like to begin with Slide 5. This morning we reported second quarter 2019 income available to common shareholders of $165 million or $0.33 per diluted share compared with a loss of $75 million or $0.17 per diluted share in the second quarter of 2018. On a guidance basis and excluding merger impacts, second quarter 2019 adjusted earnings were $0.35 per diluted share compared with $0.30 per diluted share in the second quarter of 2018. Xia will cover our financials in greater detail shortly. It's been approximately 180 days since we successfully closed on our merger of Vectren. With the addition of Indiana and Ohio to our regulated operations, we have increased our collective rate base by 45%. Through the merger, we created a growing energy-delivery company that is expected to drive value for our shareholders. Turning to slide six, I would like to take the opportunity to outline CenterPoint's post-merger long-term value proposition. First, we intend to increase the earnings contribution from regulated utilities through capital investment to serve our utility customers. We continue to expect approximately 8% compound annual rate base growth through 2023, which will drive utility growth and overall earnings. Second, the cash from our non-utility businesses will continue to be an important source of funding for our growing utilities. Third, we are committed to solid investment grade credit quality and a strong balance sheet; and fourth, we expect to deliver strong shareholder returns through EPS growth of 5% to 7%, along…

Thank you, Scott and good morning everyone. I'd like to begin my comments with some good quick thoughts on my first 90 days. Since joining the company, I have spent valuable time immersing myself into CenterPoint's businesses and strategy. I must say today as a regulated utility serving growing jurisdictions CenterPoint offers a compelling long-term value proposition. I'm excited about the future of CenterPoint and I look forward to continuing to work alongside Scott, to help lead the company forward. Turning to slide 14, our utility businesses performed well in the second quarter. Houston Electric added nearly 43,000 customer's year-over-year, which has equated to approximately 1.7% growth. Our natural gas distribution business added more than 48,000 customer's year-over-year in legacy jurisdictions, which equates to approximately 1.4% growth. As a result of closing the merger in February this year, we added more than 145,000 electric customers in Indiana and nearly 1.1 million customers in our natural gas distribution business. Our natural gas distribution business is now the nation's second largest gas utility by customer count. As Scott discussed earlier, one of our near-term focus area is continued O&M expense management to achieve operational efficiency. Earlier this year, we highlighted the importance of this effort and took steps to control costs and realize merger savings, while safely operating our business. This discipline has resulted in a positive variance in the second quarter. We expect this O&M discipline will continue within each of our functions and businesses. We will remain steadfast and laser focused in delivering our merger-related savings. Another focus area is to strengthen utility infrastructure to provide long-term customer value. In terms of capital expenditures, we anticipate an increase of system modernization investment for Houston Electric and an increase in pipeline replacement work for our natural gas distribution businesses over the…

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

Yes, sir. At this time, we will begin taking questions. [Operator Instructions] Thank you. Our first question comes from the line of Insoo Kim with Goldman Sachs.

Good morning. Thank you. May be just starting right off the back with the 2020 guidance. I'm appreciating all the different levers and drivers that you'll need to go through to provide us with an update. But as of today just given the prior guidance that was in place with the midpoint of $1.82. At least on the regulated side, are you able to confirm that the regulated growth that you had embedded previously is still intact for 2020?

Insoo good morning. This is Scott. As we said earlier, we're going to go through the whole exercise of updating our guidance through the process of planning. But as Xia pointed out, we are continuing to invest in our utilities and the utilities get their growth through investment and then subsequent recovery. So the growth potential for our utilities is still very, very much intact but we're going to provide more clarity on exactly what that looks like as we complete this planning process.

Understood. I guess understanding that Enable or other non-regulated differences there maybe more volatility associated with it. But I just wanted to know if there were developments on the regulatory -- on the regulated side since a few months ago that has made any changes to your assumptions?

No there's not. We haven't -- as I said, we haven't gone through the process. But as we sit here today, we still have the same issues and levers and opportunities facing that businesses we did before.

Understood. And thank you for the slide on all the cash contributions coming from the various non-reg businesses. Just when you look out into the capital plan over the next few years is there an updated thought on the first time you may need more meaningful equity?

Insoo like Scott pointed out, the capital program for the utility we think for 2019 to 2023 will be consistent with what we disclosed before at our last 10-K. The timing of the capital like Scott pointed out could move around within this five-year window. So in terms of a five-year equity issuance, we are not expecting a change at this time. The timing of it may be slightly different.

Understood. Thank you very much.

Thank you, Insoo.

Your next question comes from the line of Christopher Turnure with JPMorgan.

Good morning guys. One follow-up on the last question about 2020 guidance and the decision to maybe not reiterate that. You did reiterate the 5% to 7% growth off the 2018 base and the bottom end of that is $1.76. So, that would be kind of in line with your prior bottom end. I just wanted to make sure that your message is clear on that 5% to 7% growth rate over the long term at least?

That is still very clear, yes. Still very much intact.

Okay. And then the decision to take the Enable sale off the table I think is pretty clear and you articulated the rationale behind that in the comments. But maybe you could give us more detail on the timing choice as to why the decision was made yesterday? And the idea that Enable's one of many businesses you have that are non-utility. How do you think about the rest of the businesses and their contribution to the portfolio cash or business risk and otherwise?

So, from a timing standpoint, it's simply the result of us having completed an evaluation of our thinking about that ownership. And it just culminated following some discussions with our Board and we chose Monday to disclose that following those discussions with our Board. So, that's the only -- the only thing that went into the timing and it was really driven by as I said earlier, the post-merger environment, given where we sit today with our capital requirements given what Enable has done to derisk their business observing the consistency of the cash flows and of course as we know the markets aren't really constructive for unit sales. So, it all fell together for us to make this change and communicate the value of the cash flow that Enable brings to our capital needs. I think your second -- remind me of your second question if you would.

May be just kind of the broader picture with the contribution of the other non-regulated businesses to the company, cash flow, and business risk, how you think about them?

So, we look at them as a source of cash. As Xia noted earlier, their EBITDA exceeds their capital requirements. So, we look at them as a source of cash for funding. There is more risk in those businesses certainly than the utilities. But we look to operate those in a way where we can mitigate those risks. We do see the value there being the cash.

Okay. So, I guess no change from prior in terms of those businesses being core to the company?

We -- as I said earlier, we appreciate and enjoy realizing the cash that comes off of them, but we constantly have to challenge ourselves to think about ways -- each of our businesses can create more shareholder value which is part of our process. And a great example is exactly what we did with our Enable evaluation and the decision we made around keeping those units.

Okay. And then just one clarification kind of within this line of questioning. Your prior -- I guess current guidance tell us that you don't need equity this year or next. Remind me, if selling Enable shares was part of that? Or selling Enable shares was part of your funding plan over the long-term kind of discreetly?

Yeah. Selling Enable units was definitely a part of the – in the mix. And that's why we were actively out there saying that that was one of the strategic options for us. So now we've made a decision to keep Enable and the Midstream Investments. So as I said before, I think the equity need will be driven by – primarily by the timing of capital for – as example so the five-year window between 2019 and 2023, if we see Houston Electric or the natural gas utility needing more capital more up – more front-ended that potentially could advance the equity issuance, but because the total capital we – right now, what we know today is not projected to be different for the 5-year window. I think from an overall standpoint the timing of the equity could be different, but the overall five-year impact should be the same or similar.

Okay. That's clear. And from that in the current plans that you have there's no equity needs in 2019 or 2020?

Unless we – as I said before unless we realize we're in the process of updating the details of the capital need. Unless Houston Electric finds additional capital need that we will need to fund it sooner than before than we might consider turning on DRIP or other options in the near-term. But we don't know that yet. We're going through the planning process right now.

Okay. That's clear. Thank you for the clarifications.

Your next question comes from the line of Ali Agha with SunTrust.

Thank you. Good morning.

Good morning, Ali.

Good morning. First question just looking at the current year Scott or Xia as you point out you've changed again your Energy Services expectations now and rather than it being flat it'll be down about $0.04 year-over-year. Can you highlight or remind us what is the offset to that $0.04 hit that keeps you in your range for this year?

Absolutely. You see on our EPS walk for the year 2019, we expect $0.62 from our utility $0.62 increase compared to the same period in 2018. So in other words, our utilities – we expect the utilities to offset the CES. We also have some favorable income tax expense items. So we are maintaining the midpoint of $1.65 despite of the $0.04 decrease expected from CES.

So just to clarify that Xia, so are you saying that the tax benefit perhaps was not factored into your previous budget? Or that utilities are going to do better than what you were anticipating? I'm just trying to reconcile how you...

Yeah. It's both. If you look at the second quarter so quarter 2019 versus second quarter 2018 we had $0.05 of positive variance. And that's comprised of better utility performance and a little bit higher income tax, favorable income tax. So that was not planned. But some of the tax items that you were aware of that, we recorded last year we did plan those. So there's some positive income tax variances that we didn't plan.

I see. And my second question again a clarification. Again, Xia you walked through some of the drivers that will influence the 2020 outlook Houston Electric rate case some costs et cetera. So in summery, just to benchmark it for all of us is that a – the pressure is to probably put a little downward headwind to the 2020 that you were looking at a few months ago? Or does it not change that? Does it move it slightly higher? Can you just calibrate this so we have a better sense of framework of how 2020 is shaping up today versus last quarter?

We're not ready to comment on the 2020. We're going through the normal planning process. We want to build a bottom up plan that incorporates all the newly acquired jurisdictions to really go through a disciplined process to give you a clear picture about 2020. So we need time to do that. As Scott iterated just now, we do expect strong utility capital investment program. We do have -- we're laser-focused on O&M management. So the business fundamentals are still the same. But we need to go through the process. We need to hear Enable's 2020 guidance and all that is to lead us to want to take a pause and really let big normal process do its work and give you a guidance on the fourth quarter call.

Right. And just to clarify that again, is there anything you heard or seen at Enable today that is looking different than what you were assuming when you laid the 2020 guidance out for us originally?

We're not commenting on Enable. The one thing you didn't know is we took the lower end of the guidance range to develop our 2019 EPS walk.

Right. Thank you.

Your next question comes from the line of Julien Dumoulin-Smith from Bank of America.

Hey, good morning, team.

Good morning, Julien.

Good morning.

Good morning. So a lot of little clean-up items here from the last two questions. Maybe just kicking things off. Can you just affirm -- you have obviously put the five-year CAGR out there once more. Can you kind of give us a sense is the individual each year through that five-year still intact? And maybe this is another way to reconcile the 2020 guidance?

Julien, I think you were breaking up a little bit there. But could you just restate your question?

Is the five-year CAGR, you think about each of the individual years implied from that compounding growth factor still intact, with respect to each of the individual discrete years?

Well, Julien, probably the best way to answer this is when we're looking at the five-year plan; the focus is on the effects of investment over a longer period of time, getting out to the end. What the actual impacts are for a given year and in particular, as we think about 2020 is going to really become clear as we complete this planning process. So while we got confidence in our CAGR, I would say, that what we -- what this planning process needs to do is really zero in on what our 2020 number looks like, as we build it up from the combined company perspective as opposed to the way we have been building it up, which was based on a prior plan and making adjustments to the prior plan. So it's a -- I don't want to get out in front of my answer on 2020, but I do know -- I can tell you that, as we think about the performance of our business on an annual basis, it's still very much driven very heavily by the investments we make in our utilities and the recovery of those investments.

Got it. Excellent. And then, following up here, the CapEx, you talked about remaining impact with respect to the 10-K from 2018. Does that assume no Vectren electric generation spend through 2023? You obviously caveat that the timing might be post 2023. And then separately, we understand collage is perhaps a relevant factor here in the state as well. I suppose with respect to the book generation and collage, if there is indeed the RFPs executed according to plan, could we see either of those items put back? And would that be incremental to the 10-K at that point?

We are assuming -- we're not -- we don't want to get ahead of the process, the RFP process, the team is working very hard on the ground, to work with the stakeholders for solutions. But we would expect some spending through 2023 related to the IRP. It probably would not be to the amounts that we originally shared with you. But we also know that the pipeline replacement program requires additional capital. We also know that the system modernization program at CEHE requires more capital. So I would say that, from an overall standpoint, you would look at the five-year as it would be very similar from what you have before.

And then, quickly, on the utility side, what are the prospects for settlement at this point? Given where we stand in the case, especially turning to September?

Julien, there's always an opportunity for settlement in these cases. I would say at the moment that conversations are being head, but they're not overly active. So we'll still have time between now and when the commission meets to pursue one. I don't know how to handicap it. I can't say that settlements have occurred in the state before, but there are also many cases where the rate case is actually going to the commission for decision. So tough to handicap this one, but I don't want to say that settlement is off the table.

Got it. Great. And sorry last quick clarification is integrating the technology systems that's a different set of assumptions than the synergy assumptions you initially articulated? And I think we iterated today of $75 million to $100 million?

Yeah. Those systems that we talked about -- system integration work is more in line of the cost to achieve dollars that would be spent. So it's -- those are -- when I say cost to achieve dollars and they're not going to impact the $75 million to $100 million of savings that we have planned for 2020.

Got ii. Okay. Fair enough. They're net against that rather at least for 2020?

What do you mean by net against?

There were reduction to synergy saving that you targeted.

To the extent that there's cost to achieve dollars spent in 2020 that would obviously come out of our financials, if that's what you're asking.

Yeah. Okay. Fair enough. I’ll leave with that. Thank you, guys.

Okay.

Your next question comes from Michael Weinstein with Credit Suisse.

Hi, guys.

Michael, good morning.

Hi. Good morning. A lot of questions have been answered. But on system integration costs, would you say that those are weighted in any kind of way between 2019 and 2020? Is it more -- or is it evenly spread over the two years?

We're in the process of finalizing the estimate on the integration costs. I think we have a appendix slide in the earnings deck that we described the details of the year-to-date spend. And the year-to-date roughly we have spent $160 million. And so we'll continue to expect a similar range we previously disclosed with you. The timing of it depending on the system integration cost estimation process could be slightly different from prior, but the total amount should be relatively the same very similar.

And I'm just trying to get sense of how that timing might be changing? And whether that's a significant source of uncertainty in the 2020 number that caused you to pull the guidance from -- for that year?

It wasn't the -- it wasn't. I think we wanted to go through again go through the rigorous process to build out the plan and to have visibility about the variability the factors we described. One thing we are thinking about is if the integration process goes beyond 2020, how should we treat the cost to achieve in -- within our outside of the guidance range.

Well, currently it's inside the guidance range, right? It's actually included?

Currently, yes.

Right. So I'm going to factor. My question would be whether it might be more appropriate to exclude them? But I mean if they do continue past 2020 then you might consider including them, I guess, but they are already being included.

I think you said it very well. If they do pass 2020, the likelihood is that we would exclude it from guidance going forward.

Oh, I see. So the longer they last the more likely you might need to exclude it. And that would include 2020 as well?

Correct.

I see. Okay. Thank you very much.

Your next question comes from the line of Greg Gordon with Evercore.

Thanks. Good morning everyone.

Good morning Greg.

Good morning.

I think the full water front of questions has been asked. I do have one sort of incremental one though with regard to as you're thinking about typing up your and reissuing your guidance range for 2020 amongst the other things that you're trying to batten down the hatches on. Is one of them that sort of there's been a little bit of a moving target with regard to cash flow and financing needs? Does it pertains to Enable and the underlying as you pointed out earlier Scott just higher level of volatility and the unregulated suite of businesses? Notwithstanding the fact there are small pieces of the overall company, but is the denominator not just a numerator part of sort of the restacking of the guidance. And that you have to make sure you've got your financing sources and uses tightened down.

Absolutely. That's definitely part of the equation.

Thank you. Have a great day.

Thank you.

Your next question comes from the line of Ashar Khan with Verition.

Hi, good morning. I just wanted to check some remarks that you've made. So in the second quarter in slide 15 in the other section you have $0.04 of reduced income tax expense. Are you saying that's likely not to repeat itself as we build next year in 2020? So that's something that is one-time in nature for this year and it's not repeatable for next year?

Correct.

Okay. So that is if I have the...

When I say correct, we -- the positive variance this year we experienced was driven by some state law change related to state income tax. So the state law change will stay. We expect the law to stay the same in 2020. So you wouldn't see another positive variance. It doesn't mean that the tax rate will go up next year. So I want to make sure I'm not misleading you when I say it's a one-time. Does that make sense?

Okay. Okay. It makes sense. But so it's like -- it's a permanent change. So it remains therefore going forward period. Correct?

Yes.

Okay. Okay. Okay. I just wanted to kind of clarify. And then Enable said that they're going to take the write-off I guess in the fourth quarter, right? So then the lower Enable guidance that you have for the second half, is that primarily in the fourth quarter as we look into the third and fourth quarter?

I don't have the quarterly breakdown. It's projected to be for the year $0.06. And you know year-to-date they're positive too. So for the second half of the year we have $0.08 downside compared to the same period last year. For the full-year, it's $0.06 down.

Okay. Thank you so much.

Your next question comes from the line of Paul Patterson with Glenrock Associates.

Hey, how are you guys doing?

Good morning, Paul.

Just wanted to follow-up on Enable little bit. You mentioned sort of the enhancements that you see in terms of a -- it's derisking and its increase in the distributions and everything. But what sort of is left out is sort of the valuation which as you know it's gone down a bit. And I'm just sort of wondering if you could elaborate a little bit more on sort of how you guys look at Enable through a longer term here? And how the actual -- the valuation of the company has in any way influenced it or the ability to actually getting out of it and what have you -- just how should we think about that?

So just a couple of thoughts. One clearly, the valuation issues that the sector is seeing is a factor in terms of the ability to sell those units without incredible tax leakage and therefore a very non-value creating transaction for shareholder. So the market clearly has made the idea of selling something more challenging. But the fundamental issue for us was just one around given where Enable sits today and its financial health and how they derisk their business their ability to continue to provide cash to us that we use for investment we feel better about today perhaps than we did years ago. So with their change in their coverage ratios and with their -- some of the shifts in their contracting and some things that they've done to derisk their business and knowing that they made it through the more severe downturn years ago without having to cut distributions, we see the real value of Enable being as a source of cash for our capital needs.

Okay. So we should think about perhaps that changing much even if there's a significant change in valuation, is that correct? Obviously there's -- at some point you guys will sell anything I assume. But just -- but outside of that a huge change, we really shouldn't think of you guys making much of a change in your outlook. Is that correct?

That is correct. We went through an analysis. We spent time as management team certainly with our Board around our position on this and have arrived at the conclusion that we believe it's more valuable now to keep and utilize the cash flows than it is to sell.

Okay. And then just on the Vectren legacy non-reg stuff. How should we think about what your experience has been so far in those businesses? Your ability to integrate them and what have you, and what's your outlook for them is? Is it the same as it was during when you guys announced the merger? And just you guys have had more time to kick the tires here and what have you, any thoughts about how the composition of that might change or just how the performance of that -- the outlook for that going forward is?

Yeah. Our view on the business hasn't really changed. We got a good quality management team that came over with the acquisition. The management team over there knows this business well and operated extremely well. They have as you've noted increased their business. So their business performance this year is anticipated to be better than last year. That's as a result of expanding both their distribution business and some of their transmission business. We continue to see a strong demand for that type of work out of the market. So as we sit here today, we see that as a business that has good fundamentals to keep driving its performance.

Okay, great. Thanks so much. My other questions were answered. Thank you.

Okay. Thank you.

[Operator Instructions] Thank you for your cooperation. Your next question comes from the line of Charles Fishman with Morningstar.

Good morning.

Morning, Charles.

Slide 14. So your -- the three bullet points at the bottom. You're taking CapEx from Indiana Electric, and I would assume most of that would've been subject to a traditional rate base. You're pushing it to natural gas distribution, pipe replacement and grid mod at Houston Electric. Lot of that is covered by rate trackers or at least more regularly scheduled type rate adjustments without going through a full blown rate case. I would think on that CapEx piece that piece you should have some pretty good clarity. Am I correct or am I missing something?

Clarity with respect to the additional dollar amount or clarity with respect to how we would recover the investments?

Recover the investments and earnings power.

You are correct. We do have clarity on that. That's right.

Okay. So then -- and another question on slide 14, you listed a customer growth for Houston Electric, customer growth for natural gas distribution. Do you have some stat on what kind of customer growth you're experiencing at Indiana Electric going back year ago when Vectren owned it?

They stay pretty flat, but it's a very small portion of our total customer count. It accounts for 145,000 customers for the entire Indiana Electric.

Okay. So it's just really not moving the needle whether it's growing or not. I got it.

No. It's not…

That's correct yes.

Got it, okay. That’s all I have. Thank you.

Thank you.

And there are no further questions at this time.

Thank everyone for your interest in CenterPoint Energy. We will now conclude our second quarter 2019 earnings call. Have a great day.

This concludes CenterPoint Energy's second quarter 2019 earnings conference call. Thank you for your participation.