CenterPoint Energy Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2021

There are 11 speakers on the call.

Operator

Good morning, and welcome to CenterPoint Energy's Third Quarter 2021 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. I will now turn the call over to Phil Holder, Senior Vice President of Strategic Planning and Investor Relations.

Speaker 1

Good morning, everyone. Welcome to CenterPoint's earnings conference call. Dave Lazar, our CEO Jason Wells, our CFO, will discuss the company's Q3 2021 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.

Speaker 1

Actual results could differ materially based upon various factors as noted in our Form 10 Q, under SEC filings and our earnings materials. We undertake no obligation to revise or update publicly any forward looking statement. We will also discuss non GAAP EPS, referred to as utility EPS, earnings guidance and our utility earnings growth target. In providing these financial performance metrics and guidance, We use 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.

Speaker 1

As a reminder, we may use our website to announce material information. 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.

Speaker 2

Thank you, Phil. Good morning, And thank you to everyone joining us for our Q3 2021 earnings call. Because we recently hosted our Analyst Day, We will keep our prepared remarks brief today. As you know, we laid out our first ever 10 year plan back at our Analyst Day. We expressed then and are reiterating today that we are a management team who can execute.

Speaker 2

We believe we will continue to demonstrate that for you. This marks my 6th quarter with CenterPoint and Jason Swift. I'd like to first start by laying out how we are building a consistent track record of delivery. First, If you recall, the CenterPoint value proposition we laid out at our recent Analyst Day focused on our efforts to achieve Sustainable earnings growth for our shareholders, sustainable, resilient and affordable rates for our customers and a sustainable positive impact on the environment for our communities. I believe we are continuing down the path of achieving this value proposition.

Speaker 2

Each quarter under the new CenterPoint leadership, we have met or exceeded quarterly utility EPS and dividend expectations. We have increased our annual utility EPS guidance for both 2020 2021. And as I will discuss shortly, today we are increasing for 2021 utility EPS guidance once again. Our 2021 through 2024 Annual utility EPS growth rates of 8% are top decile among our peers. And we also expect to achieve at the mid to high end of our 6% to 8% utility EPS guidance range each year from 2025 to 2,030.

Speaker 2

I am confident in our team's ability to achieve that growth. Last year, we had a $13,000,000,000 5 year capital plan. We increased that to $16,000,000,000 In our 2020 Analyst Day, in this year, we increased it yet again to $18,000,000,000 plus. We introduced our first ever 10 year capital plan. CenterPoint remains ripe with opportunities across our footprint to expand and harden our system to benefit customers and shareholders.

Speaker 2

Our current 10 year plan contains No external equity issuances. We will fund the equity portion of our capital needs through internally generated operating cash flows and our already announced strategic transactions. We are also executing on our plan to become a pure play regulated utility as we approach the closing of the Enable ET merger expected by the end of this year and then our subsequent sell down of our midstream stake. With the recent settlement agreement among the parties in Arkansas, We are also moving toward the completion of our LDC asset sale. The remaining steps include the Oklahoma approval, which is anticipated to be received in November and the all party settlement in Arkansas is expected to be approved by mid December.

Speaker 2

And with our newest announcement around our industry leading ESG targets, we are on the path to executing on our goals to be Net 0 on direct emissions by 2,035. We continue to believe that this is an achievable path Delivering for customers, regulators, investors and the environment. In the Q3 of 2020, I said that I will not be satisfied until we are recognized as a premium utility. And the theme of our Analyst Day was again establishing a path toward a premium. I believe we are making tremendous strides down that path.

Speaker 2

Before I get into the headlines for this quarter, I want to thank all of the crews for their hard work to restore power After Hurricane Nicholas down here in the Texas Gulf Coast, the storm had winds of up to 90 miles an hour, Leaving 470,000 of our Houston Electric customers without power. Within 3 days, we had 95% Now for this quarter's headlines. Our year to date financial progress has been strong. We are reporting a utility EPS beat and are raising our full year outlook this quarter. For the 3rd time this year, we are increasing our 2021 utility EPS guidance, This time to $1.26 to $1.28 for the full year.

Speaker 2

And for the 1st 9 months, We've already achieved nearly 80% of that full year goal. More importantly, we are still targeting an 8 So this raises our guidance for 2022 Utility EPS to $1.36 to $1.38 For the Q3 of 2021, We reported $0.25 of utility EPS, which compares to $0.29 in the Q3 of 2020. In the Q3 of this year, we had a one time impact to earnings of $0.04 per share related to our most recent Board implemented governance changes. Jason will get into more detail on the variances shortly. Capital Investments.

Speaker 2

As I mentioned earlier, we have increased our 5 year capital plans to $18,000,000,000 plus over the next 5 years and $40,000,000,000 plus over the next 10 years. This is nearly a 40% increase in our 5 year capital investment plan since the Q3 of 2020. This includes new opportunities that stem from the latest legislative session in Texas. One of those opportunities was the ability to lease and put into rate base mobile generation units. We moved quickly on this opportunity and procured 5 5 Megawatt and 3 30 Megawatt mobile generation units, some of which we were able to deploy during Hurricane Nicholas as backup, while crews worked to repair our system.

Speaker 2

And recently during an ERCOT forecasted Texas wide load shedding event, The Texas PUC asked us to make sure our units were ready to support customers. We were the 1st utility in the state to act on this legislative opportunity and had them in place to utilize them in the way the law intended. We look forward to mobilize quickly on the other tools provided to us by the Texas legislature to improve the resiliency of the electric grid and help reduce the risk of prolonged outages. We already have an outstanding RFP for additional mobile generation, which could bring our total up to 500 megawatts and hope to have this procured in the coming months. We believe that with the deployment of these additional tools, we will be able to mitigate some of the impacts of future extreme weather events on our customers.

Speaker 2

Due to recent weather events in both Louisiana and Texas, we are running slightly behind on our capital spending plans on a year to date basis. These weather events pulled away many of our contract crews, so they could provide mutual assistance to our fellow utilities, especially in Louisiana. Therefore, while deployed elsewhere, they could not work on our capital projects, but we have a catch up plan in place and anticipate making the shortfall up. In anticipation of continued labor shortages and as we ramp up Our capital plans in the coming years, we have now moved to procure additional contractor resources from multiple suppliers. We believe that this will help to support continuity and crews on a long term basis, reduce the impact of any labor disruptions in executing our $40,000,000,000 plus capital spend over the next 10 years.

Speaker 2

O and M. Turning to O and M, we remain committed to our continuous improvement cost management efforts and our target of 1% to 2% Average annual reductions. We've already realized the benefit of some of these improvements this year. We stated in the Q2 that we could accelerate approximately $20,000,000 of recurring O and M work towards this goal for the balance of the year. This allows us the luxury of reducing near term run rate O and M costs, which helps to mitigate rate pressures, while maintaining continued focus on reliability and safety of our service for customers, all while sustaining growth for our shareholders.

Speaker 2

Organic growth. In addition to O and M continuous improvement efforts, We are fortunate to operate in growing jurisdictions. This combination plays a key role in keeping our growth plans affordable For our customers, as we discussed during our Analyst Day, Houston is the 4th largest city in the U. S. And the only one of those 4 that's growing.

Speaker 2

Houston's organic growth has been multi decades long. That organic growth rate continued for yet another quarter. We are also seeing strong growth in many of our other jurisdictions as well. On a year over year basis, we saw about 2% customer growth for electric and 1% for natural gas through September. Again, this organic growth is a luxury most other utilities Just do not have.

Speaker 2

Now let me shift gears and give a brief regulatory update. A recent highlight in Indiana happened just this past week. As part of our long term electric generation transition plan, We received the CPCN approval from the Indiana Utility Regulatory Commission for the first tranche of solar generation, 75% of which we expect to own and 25% through a PPA. This approval shows the commission's alignment and support of our 2020 IRP, which bridges our coal generation into a mix of lower carbon and renewable sources. We anticipate the CPCN decisions for our gas CT plant in the 2nd or Q3 of 2022 and the incremental solar PPA in the Q3 of 2022.

Speaker 2

As outlined in our IRP, We are targeting to own approximately 50% of our total solar generation portfolio. Our continued build out of renewables is a key driver in achieving our net zero direct emissions goal by 2,035. Shifting to gas cost recovery from the February winter storm. We continue to make progress. And as we previously mentioned, We have mechanisms in place that have begun recovery in all jurisdictions.

Speaker 2

We are happy to report that just this past week, We reached a settlement on the prudent proceedings supporting securitization of 100% of gas costs in Texas, including all related carrying costs. We look forward to the commission approval of the agreement. We anticipate a financing order for the securitization bonds by the end of the year. With this timeline, We anticipate receiving the proceeds sometime mid next year. In Minnesota, we started recovery as Tempur and are working with stakeholders on ways to reduce the impact on our customers.

Speaker 2

We filed a rate case earlier this week and also proposed an alternative rate stabilization plan to address the unique set of circumstances customers are experiencing. The full rate case requests $67,100,000 per year, While the rate stabilization plan requests $39,700,000 per year and an extended Recovery period for winter storm costs. The proposed rate stabilization plan would resolve the rate case and limit the bill impact on customers in part by recovering the winter storm costs over a 63 month period. We're asking the PUC to review and approve the stabilization plan by the end of this year, which would allow rates to take effect on January 1. To summarize, we are working with stakeholders to align our focus on safety and related investments, while minimizing the burden to our customers.

Speaker 2

Largely as a result of mechanisms in our Houston Electric In Indiana South Gas jurisdictions, we have recently received approval for $40,000,000 of increased incremental annual revenue. As discussed in our Analyst Day, we anticipate approximately 80% of our 10 year capital plans to be recovered through interim mechanisms, which demonstrates the constructive jurisdictions in which we operate. In Texas, our PUC is now appointed a 4th commissioner. Jason and I have now had the opportunity to meet all 4 commissioners and are very encouraged by the dialogue and expertise that all of these commissioners bring to the PUC. We look forward to continued engagement with the commissions in all of our jurisdictions.

Speaker 2

So those are the headlines for the quarter. I remain excited about what's to come for CenterPoint. We have a growing track record of execution and believe it more than demonstrates What we can do in the near future and the unique value proposition that CenterPoint offers to you. With that, Let me turn the call over to Jason.

Speaker 3

Thank you, Dave, and thank you to all of you for joining us this morning for our Q3 earnings call. This marks my 1 year of earnings calls with CenterPoint and the story keeps getting better. To reemphasize Dave's message, we are focused on establishing a track record

Speaker 4

of consistent execution and I fully believe the best is yet

Speaker 3

to come here at CenterPoint. I'll And I fully believe the best is yet to come here at CenterPoint. I'll start this morning with the earnings for the Q3 of 2021. On a GAAP EPS basis, we reported $0.32 for the Q3 of 2021 compared to $0.13 for the Q3 of 2020. Looking at Slide 5, we reported $0.33 of non GAAP EPS for the Q3 of 2021 compared to $0.34 for the Q3 of 2020.

Speaker 3

Our utility EPS was $0.25 for the Q3 of 2021, while midstream investments contributed another $0.08 Favorable growth in rate recovery, lower interest expense and reversal of the net impacts from COVID last year each contributed $0.01 of favorability. These amounts were offset by $0.04 related to our one time Board implemented governance changes recorded this quarter and another in Houston for the Q3 of 2021 compared to the Q3 of 2020. We estimate that each cooling degree day above normal has approximately a $70,000 a day impact our Houston Electric business. Turning to Slide 6. For the 1st 9 months, we've achieved nearly 80% of our full year 2021 utility EPS guidance, which we are now raising to $1.26 to 1 $0.28 And as Dave said, we are also raising our utility EPS guidance for 2022 to $1.36 to 1 $0.38 which is an 8% increase from our new 2021 estimates.

Speaker 3

Looking beyond that, we are focused on delivering 8 annual utility EPS growth through 2024 and at the mid to high end of our 6% to 8% annual utility EPS range over the remainder of our 10 year plan. Strong growth each year and every year, no keggers for earnings. The last thing I'll mention for this quarter is the share count. Our preferred Series B shares converted into 36,000,000 common shares as of September 1, further reducing the number of share classes outstanding. We expect the conversion will have no impact on earnings as the increase in shares is actively offset by the termination of our Series B dividends.

Speaker 3

Going forward, I want to reiterate we have no external equity included in our current growth plans and only expect Now I want to offer some color on the capital plans supporting our rate base and utility EPS growth. We've spent approximately $2,300,000,000 year to date on capital investments. As Dave mentioned, we had some slight delays due to recent weather events and are focused on making that up over the coming months. We outlined on our Analyst Day the 3 buckets that we are investing in: safety, reliability and growth and enabling clean investments that are included in our $40,000,000,000 plus your capital investment plan. This investment profile should benefit our shareholders, our customers and the environment.

Speaker 3

We see those opportunities weighted nearly 60% towards investments in our electric business throughout the plan. While we are Slightly behind the capital plan on a year to date basis, we are in the midst of ramping up to a sustained increase in our capital investments and we are restructuring contract crews in a way that helps support our labor needs to execute this level of investment. We are confident we will make up the shortfall by early 20 Moving to the financing updates. Our current liquidity remains strong at $1,800,000,000 including available borrowings under our short term facilities and unrestricted cash. Our long term FFO to debt objective remains between 14% 15%, aligning with Moody's methodology is consistent with the expectations of the rating agencies.

Speaker 3

As mentioned during the Analyst Day, it's our intention to stay within this range throughout the course of our long term plan. Lastly, as we near the end of the calendar year, we are getting incrementally closer to the expected closing of the strategic transactions we've announced. We recently filed a settlement in Arkansas that represents an agreement amongst all parties. We anticipate that Arkansas Commission will issue its final approval by mid December. In Oklahoma, a hearing was held on November 3rd, and we expect a final order soon.

Speaker 3

Finally, as Energy Transfer expressed on their earnings call earlier this week, exposure to Midstream through a disciplined approach. As said on our Analyst Day, we anticipate being fully exited from the Midstream sector by the end of 2022. We will then be nearly a pure play regulated utility. As we continue to express, we take our commitment to be good your investment very seriously and realize our obligation to optimize stakeholder value. And with that, we look forward to more of these shorter earnings calls in the future.

Speaker 3

I'll turn the call back over to Dave.

Speaker 2

Thank you, Jason. As you heard from us today and others from our full management team during the Analyst Day, the outlook for CenterPoint just keeps getting better. As I said, We now have 6 quarters of meeting or exceeding expectations, but we believe there is much more to come. We are demonstrating the pathway to premium and we hope that you will be on board with us as a shareholder when that happens.

Speaker 4

Thank you, Dave. We will now take a few questions being mindful of today's earnings schedule and the upcoming EEI conference.

Operator

Please limit yourself to one question and one follow-up question. Thank you. Our first question is from Anthony Croudel with Mizuho. Please proceed with your question.

Speaker 5

Hey, good morning, Dave. Good morning, Jason. Good morning. Hopefully, I contribute to the short earnings call, but just if I think of the company maybe over the last year, it was maybe more of a Transition story and we got, I guess, 3 increases in guidance throughout the year, including today. I mean, how do we think about going forward?

Speaker 5

Are we more now on steady state And the guidance you gave is probably more set and we look to be in the middle of it or do we continue to get maybe increases in guidance? And I have one follow-up.

Speaker 6

Yes. Well, look, I hope you got a sense today of how confident we are in the business or the direction that the business is Going at this point in time and I think that we're starting to hit on all cylinders. So I agree We are in a transition, but I think in a transition to what we believe ought to be a premium utility. So I think if you listen to what we said today and let me boil it down into pretty simple terms, whatever we do this year, we'll do 8% More of the next year, whatever we do next year, we'll do 8% more of the year after that, and etcetera as we outlined during our Analyst Day. But

Speaker 5

Great. And just one follow-up. Dave, at the Analyst Day, you gave us some great insight into, I guess, just Commodity prices maybe from a previous job you held. Just thoughts on are you seeing any type of change in your view that you think maybe The commodity prices will end up coming down?

Speaker 6

No, I think I assume you're referring to natural gas prices.

Speaker 4

Yes.

Speaker 6

And I think that if you look at the strip, it is starting to drift down. But I think more importantly, It's really the focus if you look at gas prices on our business specifically, We've got organic growth to sort of absorb issues. We've got our ability on O and M. So If your question really is do we see an impact on sort of customer rates, certainly it's going out there, but I think we've got some offsets that maybe other utilities don't have. Jason, if there's anything you want to add to that?

Speaker 3

Sure, Dave. Thanks for the question, Anthony. As we outlined at Analyst Day, we continue to work within Our defined gas procurement plans for each jurisdiction and as of today, looking across all of our jurisdictions, we're roughly 60% hedged Now that we're going into the upcoming winter season and for almost all of those jurisdictions, We've locked in kind of a weighted average cost of gas of somewhere between sort of the mid-3s and high-3s, dollars 3 per MMBtu to you in the majority of our jurisdictions. And so feel well positioned for this upcoming winter season. Obviously, we continue to look at what we can do across the The business to ease the burden on our customers and I think one example of that was the creative alternative rate stabilization plan that we just We filed in Minnesota.

Speaker 3

So we'll continue to look for ways to minimize the bill impact, but feel like we're well prepared coming into this upcoming winter season.

Speaker 5

Great. Thanks for taking my question. I'll see you guys at EEI. And Dave, sorry about distros.

Speaker 6

Yes. Well, better luck next year, right?

Operator

Our next question is from Shahriar Pourreza with Guggenheim Partners. Please proceed with your question.

Speaker 7

Hey, good morning guys. Good morning. Good morning.

Speaker 8

Just on with the current CapEx plan, you're obviously more levered to electric side of the business and the IRP in Indiana presents some additional upside beyond the 5 years for electric investment. Dave, do you have sort of a target mix for electric versus gas contribution? What's the timeline to especially as we're thinking about potentially further gas optimization funding, which seems to be a very sizable Electric decarbonization plan?

Speaker 6

Yes. I think that if you set a step back and take a look at 50,000 The sort of 50,000 foot level, the spend and direction and strategy of the company is to bias us Toward the electric side of our business, part of it is the coal transition, certainly helps that because of the Capital that it is going to absorb. And as we've said at our Analyst Day and we've said it in some of our prior calls, Yes, we don't need equity to execute this 10 year plan, but if other opportunities did come up, We know the inherent value of the remaining gas LDCs and you could look to them as a source of liquidity, but I think bottom line is we're biased toward electric and that is the way we will continue to drift. I'm not going to put a Prediction out there as to what that ratio will be over time, but directionally that's where we're headed.

Speaker 8

Got it. And then just lastly, obviously a little bit behind on the CapEx as you highlighted in the prepared remarks, But still kind of targeting that $18,000,000,000 plus. Just I guess what are some of the governing factors To increasing the upside or bringing that $1,000,000,000 into the base plan that we discussed during the Analyst Day?

Speaker 6

Well, I think it's a couple of things. One is just getting sort of final resolution and clarity around The new tools in the toolbox with respect to the Texas legislative process, we highlighted today the temporary generation for instance We've moved very, very quickly on. Those kinds of things would absorb some of that additional $1,000,000,000 in sort of contingent capital that we laid out on our Analyst Day. And the other just the other issue is going to be just finding sufficient crews and labor and Parts and inventory and those kinds of things out there to accelerate it. So I think the message we tried to leave at Analyst Day Yes, we have $18,000,000,000 plus to spend in the next 5 years, dollars 40,000,000,000 plus to spend In the next 10 years and we will spend that capital as fast as we can reasonably do so as long as it's consistent with sort of rate pressures that we will have and to spend it efficiently.

Speaker 6

So again, we've got the wind at our back on Many, many things and our capital spend opportunities is certainly one of those.

Speaker 7

Great. Thanks. Thank you for that. We'll see

Speaker 8

you guys soon. Appreciate it.

Speaker 6

Okay. Thanks. Thanks.

Operator

Our next question is from Insoo Kim from Goldman Sachs. Please proceed with your question.

Speaker 6

Good morning, Insoo.

Speaker 7

Good morning, Dave. Just first question going back to Shahriar's question on the CapEx And the potential or I guess the delays currently, I understand the reasoning for the year to date delay and how you're going to make that up. Just When you look out currently at the current environment, destructurally, are you seeing any concerns or challenges to get the current CapEx plan executed over the next couple of years whether it is the labor shortages or just from a maybe from a cost standpoint, labor costs or other items that could potentially be a headwind?

Speaker 6

I mean look, I mean just like pretty much every other company and management team in the U. S, we're dealing with Supply chain issues, upward pressure on labor costs. But I don't think that we have seen To such an extent that we're going to say that we can't meet the capital plan. We have every intention and we have every confidence We're going to meet the capital plan. We tried to give a little color to with respect to that on the call today.

Speaker 6

We have moved aggressively to tie up more Construction crews, we have expanded our vendor base in and around that area. One of the tools that we got The new legislative processes, the ability to put long lead time items into inventory and into rate base. So we're looking at all of those. I think the sort of small slip in capital spend this year really was unrelated to any of that. It really was related To the storms that really pounded into Louisiana and as all utilities do, we help each other When those sort of situations arise and we released a number of our crews that were focused on capital built for us To help the people in Louisiana get back on their feet, those crews are now coming back.

Speaker 6

And as Jason said, We've got a short term plan in place to catch up on that capital spend, but our longer term view of tying up crews And making sure we have the long lead time items ordered give us a great deal of confidence that The capital plan we have is and is going to be achievable.

Speaker 7

Understood. And just quickly, The other question I had was, as we think about the closing of the midstream transaction, remind me, is there I know you've already priced up Contingent sale of a portion of it, but is there a limit on how much you can sell in terms of the units at any given time?

Speaker 6

I'll let my very good CFO, Jason, answer that question.

Speaker 3

Anshu, thanks for the question. No, there's no direct limit. We had talked about previously the need to register those units. Energy Transfer has already undertaken that effort. So We are free to execute a contingent forward up until the close as we have done once the deal is closed.

Speaker 3

To the extent that we want to execute a marketed offering, we have to obviously coordinate with Energy Transfer. We have full flexibility To do that after the close of the transaction and then similarly, we'll have the ability to dribble the share. So I think we're moving to a place of full control, no limitation On the number of units.

Speaker 7

Got it. Thank you and Susan.

Operator

Our next This question is from Julien Dumoulin Smith with Bank of America. Please proceed with your question.

Speaker 4

Hey, good morning team. Sorry about the strokes there. I want to

Speaker 6

say my condolences as well here. I tell you, I didn't think this would turn into a burial of the Astros, but I appreciate this sentiment. It's always nice to remember that. We know they're close to your heart. There we go.

Speaker 6

Indeed.

Speaker 4

Listen, just wondering what's driving the confidence still on the timeline for the Ity deal here. Just I know you mentioned it here again, you mentioned at the Analyst And maybe remind us where that process stands specifically with respect to FTC. Obviously, they continue

Speaker 6

to put out their own headlines.

Speaker 3

Good morning, Julien. It's Jason here. Look, as we said at Analyst Day, Energy Transfer enabled obviously taking a lead with this With the FTC, we're clearly a very interested party and everything that we've observed just gives us confidence that This deal will get closed here in the Q4. So I don't think it's probably more of a direct question for Energy Transfer for How those conversations are going by the day, but as I said, as we observe the progress, we continue to remain confident of a close here in Q4.

Speaker 4

Got it. All right, fair enough. And then on this alternate stabilization plan, can you talk a little bit more about the mechanics? Obviously, it's early here, but has there been any feedback so far in the proposal? Obviously, these are somewhat sensitive subjects.

Speaker 4

So I'll let you respond accordingly.

Speaker 3

Thanks, Julien. It's a really unique situation, obviously, in Minnesota with the incremental gas costs from Western Weary, The fact that we've got a regular rate case schedule there. And so while we filed a typical rate case, we thought it was prudent to bring forth what we've deemed a Great stabilization plan. And I think we what it tries to do is build off of what was just a recent settlement of the last Great case filed in Minnesota. So keeping similar terms on depreciation rates, cost of capital Allows us to recover the capital that we will be spending over the next couple of years to improve the safety of our gas systems.

Speaker 3

It defers a little bit of the Amortization of some regulatory assets for things like COVID related costs and some of the incremental O and M that we had anticipated. But We think it puts us in a really good position to continue to improve system safety with our capital investment plans, while recognizing The rate impact and trying to moderate that for our customers there in Minnesota. And so early days in terms of the conversations with stakeholders, but We hope that it is seen as a constructive solution in the backdrop of what is a unique situation there in Minnesota.

Speaker 4

Got it. And last one, just super quick there. I heard you guys comment on the backup gen in Texas. But any updates on the, for instance, Texas Transmission, obviously, the PUCT seems to be moving fairly swiftly still here. Curious if there's anything to be said on that front, as a function of reforms?

Speaker 6

Yes. I think maybe just to tease you a little bit, yes, we're having some dialogue with them on additional transmission But it's really too early to talk about any specifics on it. Okay. All right.

Speaker 4

Fair enough. I suspected as much.

Speaker 6

All right. Best of luck. Speak soon. Thanks. Thanks.

Operator

Our next question is from Durgesh Chopra with Evercore ISI. Please proceed with your question.

Speaker 6

Good morning.

Speaker 9

Hey, good morning, Jason. Just one for me. Just on the Indiana solar program, David, in your commentary, you mentioned 75, 25 mix, 75 rate base, 25 PPA'd. Is that sort of what you're targeting going forward in your plans? And just curious as to how you got there in terms of the 70 fivetwenty 5 mix?

Speaker 6

Good morning. I'll let Jason answer that. Good morning, Durgesh.

Speaker 3

Overall, as we look at this first Sort of part of our coal transition plan, we're targeting a fifty-fifty allocation that is 50% owned renewables, 50% Contracted through PPAs, the renewable portion for the 1st tranche of the coal transition. We had filed originally, as you pointed out and as Dave Mentioned in his prepared remarks, an initial tranche of solar that was 75% owned, 25% PPA. We then subsequently filed in the Q3 this year for 100% PPA Solar projects. And so again, as you look through kind of each of these individual filings, we're targeting a fifty-fifty own Contract target mix for Renewables.

Speaker 9

Got it. Thank you very much.

Operator

Our last question is from Stephen Byrd from Morgan Stanley. Please proceed with your question.

Speaker 7

Hey, good morning. Good morning. Good morning.

Speaker 10

Just had one kind of a broad question, just on draft federal And as you look at that, I know that's subject to change and who knows what the final version will look like. But I was thinking in particular about, I guess two elements. 1 will be a tax policy and impacts in terms of cash flow, customer bills, etcetera. And then the other was just broad support for clean energy, whether that might change or enhance Some of your resource plans and movement towards clean energy are accelerating some of your plans. So just curious what you're thinking there.

Speaker 6

I mean, I'll let Let me take the first crack at it and I'll have Jason can talk about the potential tax impact. But you're absolutely right. It's definitely a moving target right now. And having been through many of these sorts of efforts that wind their way through Washington, I learned a long time ago, you really You got to just sort of watch the process happen, but you don't want to do anything sort of concrete until it is set in law and then you can react to it. I think directionally from if you look at sort of the renewables and the ESG aspects of it, it's certainly supportive of the direction that we're going.

Speaker 6

But based on what we see right now, I don't see it accelerating or decelerating anything that we've got On plans, we have, as you know, sort of an industry leading goal out there of net direct emissions to 0 by 2,035. And I think that's a good plan. We're going to stick with it. That's the direction we're headed. If we get some incremental help with what out of DC, we'll take advantage of it, but it isn't going to bump us off course from the direction we're headed right now.

Speaker 6

Jason, you want to talk about the tax aspect?

Speaker 3

Yes, sure. Thanks for the question, Stephen. From a tax standpoint, we All right. Federal cash taxpayer, right now as you kind of cut through sort of our financials, there's a lot of One time items as we've executed on this transition to a pure play regulated utility and we'll continue to see that. As you kind of Through that, for us, we are our effective tax rate from a cash tax standpoint is somewhere between 8% to 10%.

Speaker 3

So clearly, a minimum tax of 15% would put a little bit of an impact or headwind on the financing plan. We don't think It's certainly something that we can overcome. We don't think it's an impediment to the CapEx plan that we outlined and still feel like we can continue to maintain A strong balance sheet as we outlined and deliver on our $40,000,000,000 capital investment plan. So early days, we'll follow it, Probably not as big an impact to us as maybe some of our peers just given the fact that we have been a federal cash taxpayer, but obviously something we'll continue to monitor.

Speaker 10

That's great. Thank you very much.

Speaker 4

Again, thank you, everyone, for joining us today and for your interest in CenterPoint. We look forward to seeing you all at EEI.

Operator

This concludes today's CenterPoint Energy's 3rd quarter earnings conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
CenterPoint Energy Q3 2021
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