Good morning, and welcome to CenterPoint Energy's Fourth Quarter and Full Year 2020 Earnings Conference Call with Senior Management. [Operator Instructions] I will now turn the call over to Phil Holder, Senior Vice President of Strategic Planning and Investor Relations. Mr. Holder?

Good morning, everyone. Welcome to CenterPoint’s earnings conference call. Dave Lesar, our CEO; Jason Wells, our CFO, and Tom Webb, our Senior Adviser will discuss the company’s fourth quarter and full year 2020 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-K, other SEC filings and our earnings materials. We undertake no obligation to revise or update publicly any forward-looking statement. We will also discuss guidance basis, Utility EPS for 2021. In providing guidance, CenterPoint Energy uses a non-GAAP measure of adjusted diluted earnings per share. For information on our guidance methodology and a 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. Before Dave begins, I would like to mention that other then the financial results, we will also plan to address the impact of the recent storm event and Enable’s announced merger. As a result, we may have less time for Q&A. If you any questions that do not get answered, please feel free to reach out to the IR team. This call is being recorded. Information on how to access the replay can be found on our website. Now I’d like to turn the discussion over to Dave?

Thank you, Phil. And I want to welcome you to our CenterPoint team. And good morning to everyone. During our Investor Day, this past December, we unveiled our strategy to take advantage of our organic growth and increase capital spending opportunities to deliver consistent earnings growth, offer industry-leading rate base growth, reduce cost to invest in the future, take a leading stance on ESG, minimize our exposure to the midstream. We focus on core utility operations, and most importantly, continue to provide a resilient grid for our customers. We are excited to share our significant progress against those objectives with you today. Before we start, I want to update you on the impacts of last week's devastating winter storm event that struck Texas and our broader service territories. It was undoubtedly an extremely difficult week across our service territories, especially for Texans. We know many of our customers faced very difficult conditions, and our hearts go out to those in our communities who have faced substantial hardship and loss. I am really proud of how our employees worked in very harsh conditions to help customers even as their own homes and families were without power, or experiencing damage from busted pipes. As you know, I like to lead things off with headlines. So let me give you the storm headlines. First and foremost, our CenterPoint electric and gas systems worked as designed and proved to be very resilient, despite the impact of ice, snow, freezing temperatures, and the fluctuating power loads provided to us by ERCOT during the week. All of these factors are tough on equipment. But our system did its job and was able to be quickly re-energized. Our decision to increase utilities earnings guidance is an expression of our confidence that the storm will not impact our…

Thank you, Dave. And thank you to all of you for joining us this morning for our fourth quarter earnings call. As Dave pointed out, we shared many goals with you on our Investor Day. And our team here is laser-focused on delivering on them, despite what has thrown our way. The winter storm this past week, challenged the communities we have the privilege to serve in extraordinary ways. Our thoughts remain with our customers as they recover from the impact of the storm. But I want to add, I too am proud of how our teams responded to the call for action, the resiliency of our gas and electric systems during the storm, and our ability to continue to deliver on our commitments to you, our shareholders during these extraordinary events. Let me get started with our key takeaways from today's call starting on slide three. First, we are pleased to report that for both the fourth quarter and the full year results for 2020, we beat both consensus and our most recent guidance. Given our ability to also pull forward some additional work into 2020, we have the confidence in increasing our guidance basis utility EPS range for 2021 to $1.24 to $1.26. This will be the basis for our consistent 6% to 8% guidance basis utility EPS growth year-after-year, like we've committed to you. Second. We have recently shared that Enable has entered into a merger agreement with Energy Transfer that would result in Energy Transfer acquiring Enable upon the closing of the transaction, including all of CenterPoint’s interest in Enable. That's a big step towards CenterPoint’s promised to minimize our midstream exposure. And I'll talk more about this in a little bit. Third, we have shared our $16 billion plus CapEx plan and our industry leading…

Thank you, Jason. And thank you to all our co-workers who rose to the occasion to help our customers last week. Please let me share an example of what operational excellence can do. As shown on the right of slide 10, 2020 provided an early example of our commitment to our customers. Our guidance basis utility EPS outlook was challenged by COVID, weather conditions, unanticipated share dilution, and more, it's all shown in red. With a no excuses commitment in the second half, management embarked on actions to right the ship, meet our guidance. However, coupled with better-than-anticipated economic recovery and good cost reduction performance, we were going to surpass our EPS guidance. This permitted us to put more resources to work back for our customers, our reason for being. Not many companies do this. We sweat the details to maximize resources for our customers and for you, our investors. This management team, together with empowered talented employees are executing on a tremendous opportunity to make substantial capital investment for customers. In my opinion, it will result in one of the highest rate base growth clips in the industry. With top tier organic growth and sector leading cost reductions a good portion of this investment will be funded for our customers. But do you believe our cost reductions, our net reductions are real? I do. Take a look at slide 11. In December, we showed you this slide, highlighting our five year plan including O&M reductions of 1% to 2% a year, $110 million over the next five years. We've added a column to show 2021 compared with 2020. It's highlighted in green, we plan a fast start with O&M cost down $44 million, or about 3%. Some of this is already on cruise control. For example, what we call…

Thanks, Tom. I want to conclude the prepared remarks by discussing what I refer to as our 2020 Report Card. These are critical elements that we are focused on to transform CenterPoint into an industry leader, delivering to you sustainable and predictable earnings growth, converting our industry-leading customer growth and O&M discipline into outsized rate base and CapEx growth, while maintaining our commitment to safety, enhancing our ESG strategy and becoming a key enabler for a net zero economy in places we operate, strengthening our balance sheet and credit profile, focusing on utility operations, and improving the customer experience, executing our capital recycling strategy. And finally, delivering an economically viable path to minimize the impact of our midstream exposure and then eventually eliminate it. This is the new CenterPoint, consistent and predictable earnings growth, world-class operations and service territories and a commitment to delivering on our promises to our shareholders.

Thank you, Dave. We will now take questions until 9 AM Eastern. If your question is not answered, please reach out to the IR team and we would be happy to schedule a time with you to discuss any follow ups you may have.

Thank you. At this time, we will begin taking questions. [Operator Instructions] Thank you. Our first question is from Shahriar Pourreza from Guggenheim Partners. Your line is open.

Hey. Good morning, guys.

Good morning.

Good morning.

Just two quick topics here. First, it sounds like you guys have a really good handle on the storms. As it kind of relates to policy decisions in Austin, are there sort of any potential opportunities for CenterPoint as we think about the plan, as presented this morning. And just remind us, is there sort of any impact to CenterPoint at ERCOT [ph] large retailers or generators run into sort of financial difficulties?

Yeah. Well, appreciate it. Let me take the - maybe the first part of your question, Jason can take the second part. As you can imagine, there's a lot of dialogue going on in Austin, even as we speak here. The legislature is in session. So everyone in the political sphere is in Austin, at this point in time. But I guess, as I look back at it from a CenterPoint standpoint, obviously, you know, our number one goal is to serve our customers to the best way we can. If you think about last week, clearly for us more control over some of our assets in our grid would have been a positive. So we're thinking about looking at opportunities, which we course [ph] would have to get through the legislature, of things like getting batteries and fuel cells in the like, actually into our rate base. So we could provide sort of more in-territory, stability to the grid, if anything like this ever happened again. So as I said, the gamut of things being discussed in Austin right now is pretty wide. But I think everybody is looking for the right solution for the state of Texas. So this doesn't happen again, it will be part of that dialogue. You know, Jason, do you want to handle the second part of the question?

Sure. Thanks, David. Good morning, Shahriar. I really think that there's a low risk of that of any financial impact associated with any financial challenges with the generators or retail energy providers. The state law here in Texas is very clear that we have the right to recover any delinquent accounts for retail energy providers as a regulatory asset. We also have, and do collect from the retail energy providers on a daily basis. And so have a good handle on those that are continued to perform with respect to their obligations. And maybe the final point that I would highlight is that, to the extent that you know, any of the large generators or retailer and to providers experienced financial challenge, it will likely be a reorganization of that. And one of the first areas of focus in the first aid [ph] motions of any reorganization would be the continuity of business that will allow the retail energy providers to continue to pay the associated T&D charges. And so in short, we see this as a really low-risk issue for the company.

Got it. And then just lastly, on the midstream exit. Can you just remind us, you know, day one, sort of the various exit options you're thinking about is i.e., exercising your demand rights to most viable path versus a slow dribble or piggybacking? And I know the exit is going to be obviously satisfactory to utility investors, which clearly highlights a more rapid exit. But you’re still kind of sticking with that minimizing language versus an outright midstream exit. Are you simply alluding to holding on to that preferred in the near term? Or is it something else? Thank you.

No, I think a good question. And I'll let Jason clarify. But before you can exit, you have to minimize. And so I think you know, what we've done with this transaction, it's allowed us to sort of minimize their exposure. And now and when the transaction closes, we'll pivot very quickly to exit. And believe me, it's top of mind in terms of the discussions we're having every day, but I'll let Jason elaborate a bit.

Thanks, Shahriar. I'm not going to be specific in terms of timelines, as you know, we communicated in our prepared remarks. But let me sort of talk about quickly the tools that we have available. With respect to the Series C Preferred, there are no registration rights needed for that security. And so upon transaction close, we have full flexibility to sell that security. There's an active secondary market, and we have a tax basis that approximates base value of that security. So we have full flexibility to exit that security on transaction close. There will be a short delay upon the close of the transaction for that common unit to be registered. But, you know, I think you've highlighted the two tools that we will look at, you know, there is ample liquidity in the volumes of Energy Transfer unit. And so we will likely utilize some form of a durable, and opportunistically, where it makes sense, we will exercise our demand rights for potentially a larger block. But just to close and re emphasize what Dave articulated, it is our commitment to exit our exposure to midstream. And we're going to do so in a manner that we think the current shareholders are happy.

Terrific, guys. Congrats on execution. Appreciate it. Thank you.

Our next question comes from the line of Insoo Kim from Goldman Sachs. Your line is now open.

Thank you. My first question is back to the Texas weather event. First, I just wanted to confirm your comments that the guidance for 2021 does include, you know, whatever drag is associated with the financing to cover the costs immediately. And then just related to that, when we think about your thoughts on the recovery and the recovery period over the various - in that various jurisdictions, does your analysis show a, I guess, path that achieve the right balance between potential impact to customer bills and your ability to continue to make the investments that - to hit the growth rate?

Yeah. Let me answer the first one. I'll let Jason answer the second one, it seems like we have a routine working here. But absolutely the guidance we have out there does include the drag of the storm, as I said in my prepared remarks. Now, there'll be some extra interest pressure on there. But I view that as a headwind to manage. We have a very talented financial team here at CenterPoint. And we've got some buttons to push and levers to pull. And we're going to do that and we are already are doing that. And so we'll have zero impact on the guidance that we've given.

Let me also amplify Dave's remarks on that point, several of the jurisdictions that we operate in allow us to recover the carrying costs. So that does help sort of minimize the any drag from the incremental debt. But I think you've touched upon an issue that obviously we are working with regulators, policymakers on and that's balancing the financial health of the utilities with the impact of collecting this on customer bills. I think we've seen some very strong signals come out of the various jurisdictions. We have the privilege to operate in. As I highlighted, the Texas Railroad Commission made it clear that these are recoverable costs. And so, I think what we are all doing, and I use that term sort of broadly because this is not a CenterPoint issue, but you know, a gas LDC issue, is we're working to find and strike that right balance of short term recovery of these costs, while not unnecessarily burning [ph] the impact of customer bills, more work, needs to be done, you know, hearings are underway this week. But I am confident we will strike that, that right balance here.

Understood. And my only other question is, you know, in for 2021 guidance and the assumptions that are embedded in, it seems like there's nothing major related to any COVID-related items. Is that correct?

That's correct. As we articulated towards the end of last year, it's our responsibility to manage the ups and downs, the headwinds and tailwind to this business. COVID remains a small headwind. But we have every confidence that we have the tools to manage through it. And one of the other things that I'll just continue to emphasize is, I think we are also fortunate to serve in communities of high growth. And so we continue to see residential growth that offsets, you know, some of the reduction in electricity consumption from the commercial segment of our business. And so in short, we have full confidence, our ability to manage whatever remaining COVID headwind exists.

Got it. Thank you so much.

Our next question is from Julien Dumoulin-Smith from Bank of America. Your line is now open.

Hey. Congratulations, team. So perhaps just to stick with the cost question and cost allocation question coming out of the Enable transition here. Can you speak a little bit to how you're thinking about that evolution here a little bit more specifically, just the cadence of addressing and minimizing that element? When you think about, presumably reallocating those costs back to the utility over time?

Sure. Good morning, Julien. I think, given the negative tax bases that we have, in our current Enable units that will transfer for the Energy Transfer unit. I think it's fair to characterize about 50% of the proceeds that we would receive upon sale of those common units would result in – will be paid in taxes. And so as you think about sort of both the tax bill, as well as the allocated debt that we have to the to the midstream segment, we are timing our exit for midstream. So that as Dave pointed out, we are not impacting our utility segment. That 50% sort of rule of thumb for the tax component of the Enable sales is what I would consider to be a status quo, rule of thumb. We are working on various tax strategies to help improve that position. In addition, whatever remaining debt that exists after disposition of those units paid out of the associated, tax bill paid out of the associated debt, we believe we have sufficient O&M levers to offset which is why we are fully confident that as we exit midstream, we will be able to do so in a manner that has no impact on our stated 6% to 8% utility growth rate.

Got it. Okay, so fully offset on a go forward basis.

Yeah.

Okay. All right. Thank you for affirming that. Can you elaborate, at least preliminarily on how you think about winterization options coming out of the deep freeze here? Clearly, some of your earlier comments on the call suggested the bulk of improvements seem to be more on operations. But curious, as you perform your task being a wires utility and gas LDC, how do you think about winterization opportunities that might emerge there in the form of CapEx and actual investments here? And obviously funding tied to that?

Yeah. Let me let me take that one on first. I think you know, there has been a lot of dialogue across the state about a lot of the reason the generation went down is because it was not properly winterized, that includes both the subtle wind solar and gas generators, but in fact, at one point, the big nuclear plant STP also went down at one point last week. As you know, the state's sort of electric grid is constructed for sort of peak summer air conditioning time and therefore this concept of winterizing your equipment, winterizing the generators, it's going to be difficult to do because obviously by enclosing them, and insulating them and winterizing them, it means you just put more stress on it during the summer when it's really hot. So I think there are ways to do it. And companies are going to have to find ways to do it because I suspect that's one of the things that's going to come out of Austin from a regulatory standpoint. But specifically to your question, we actually have winterized our equipment, and really protected it from both the hot and cold weather. But there are some incremental opportunities for us to do certain things, really more as a resiliency and hardening our system standpoint, I wouldn't think of it as winterizing, as more or less hardening and making the system more resilient. And of course, we'll be able to get that into rate base. And I would view it as sort of a slight potential increment to our capital spend.

Okay. Got it. Doesn't sound too material. Excellent. Thank you very much. Appreciate it.

Our next question is from Steve Fleishman from Wolfe Research. Your line is now open.

Thank you. Hey, Dave, Jason, Tom. Is it possible that you could break out the $2.5 billion by states?

Sure. I'll give you the three top states are kind of in Texas, we have about $1.25 billion of incremental costs. In Minnesota, about $0.5 billion, and in Arkansas, we've got about $350 million, and then the rest is spread fairly evenly across the other jurisdictions.

Okay. And then when you talk about the regulatory mechanisms for timely recovery, could that potentially include securitization of some of these costs?

You know, I think it's really kind of early to get ahead of the regulatory process. But you know, securitization has been discussed. And so whether it's securitization, following - the current recovery timelines are about 12 months, in some of the jurisdictions, particularly those three that I mentioned. A year to recover maybe too much for customer bills, they may extend the timelines 18 months or so. And so there are a number of tools being discussed, securitization is just one of those at this point.

Okay. And then, I guess, maybe a question for Dave. So just for the layman person, it might be hard to kind of separate CenterPoint as the utility versus the generators or COD [ph] or others. So I'm just, I mean, it's encouraging to see that the Mayor made you the head of this fundraising campaign. But just could you give a sense of just the political leadership and others kind of know, how you fit into the system here you know, how much political heat are you getting? Are they kind of - get this?

No, I would say generally, I think everybody gets and understands the roles that the generators, the T&D companies, and the retailers, basically play within Texas. We were very aggressive in our communication last week, putting out sometimes always one and sometimes two press releases every day, trying to inform people about what this state of play was. Clearly state-wide, there was a lot of frustration, as you can imagine, there is finger pointing going on. But I would say that, that we did a pretty good job getting out in front of the story. And really, essentially, what we told our customers is listen, when we get electricity, we will begin to restore it. Our system is resilient, which it proved to be. We got power back into the homes of our customers very, very quickly, after we got it. And the reality is, is that, this was a sort of a system-wide failure across the state as well been written. And so as I said earlier, there'll be something that comes out of Austin on this, but I think people have done a good job of understanding our role in it. That doesn't mean that ultimately some fingers don't get pointed here and there. We'll just have to address those as they come at us.

Okay. And then finally, just in - I know in the past, you and the other utilities have proposed adding batteries on the utility grid, and I'm not sure that would have helped here or not. But just is that something that could come up as a potential thing in the legislative session?

Yeah. I think, right now, almost everything is being considered up there. But I think our pitch would be, you know, in an in an event like this, absent having your own generation, which we don't want to do, we were at the mercy of our cot. But I do think that around the edges, and for sort of incremental ability to react to short term, things like this batteries, fuel cells, and those kinds of things would have been helpful. And I think that if you look at, you know, things that we would like, potentially to see in any legislative changes, that would be a dialogue we would wholeheartedly get into the middle of.

Okay. Thank you.

Our next question is from James Thalacker from BMO Capital Markets. Your line is now open. Please proceed.

He may be on mute.

James Thalacker, your lines open.

Okay. Thanks, Jim. Why don't we do one more and we'll wrap up.

Thank you. Our last question is from Sophie Karp from KeyBanc Capital Markets.

Hi, good morning. Thank you for taking my question. A lot of questions about Texas and other pressure on issues have been answered. I just wanted to ask you about kind of organizational morale. It seems like you guys are very focused on the O&M reductions. And perhaps you asked a lot of people within the organizations to do things differently. And I was just kind of wondering if you could comment on the overall morale within the organization and how much of a buy-in is there from employees on all levels? And how you're handling this? Thank you.

Yeah. I mean, obviously, this is a biased view and a personal view. But I think morale is really, really great in CenterPoint right now. And I think if you - you got to look back over what this organization has gone through in the last 12 months, and it's been a ranching [ph] change. I'm the third CEO within a year, Jason is the third CFO within a year. We had issues around dividend. We had the activist investor in us. We had COVID. We had a hurricane that skirted us last summer. And I would say that I think people are really bought into the new CenterPoint. And, you know, certainly in my engagement with and I think I can speak more broadly for our executive team. There, people are motivated, they like what's happening. They did not like what happened early last year. And so I think they see a, you know, a really happening company, a management team that is taking the organization in the right way. They're excited about it. They understand that everybody has a part to play. And I think the other thing is, a focus on O&M isn't always a focus on people reduction. As Tom has said, it's a focus on doing things better. It's getting your vendors to participate with you in doing things more efficiently, buying things cheaper, and that kind of thing. So I think at the end of the day, morale is really, really good here. And I expect it to even get better.

Thank you.

Okay, great. That will be our final question. Thank you, everyone for your interest in CenterPoint Energy.

This concludes today's conference for CenterPoint Energy’s fourth quarter and full year 2020 earnings conference call. Thank you for your participation.