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00:02 Good morning and welcome to the CenterPoint Energy's First Quarter 2022 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.

[Operators Instruction] 00:25 I will now turn the call over to Jackie Richert, Vice President of Investor Relations and Treasurer. Ms.

Richert?.

00:40 Good morning, everyone. Welcome to CenterPoint 's earnings conference call. Dave Lesar, our CEO; and Jason Wells, our CFO will discuss the company's first quarter 2022 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 and uncertainties.

01:07 Actual results could differ materially based upon various factors as noted in our Form 10-Q, other SEC filings, and our earnings materials. We undertake no obligation to revise or update publicly any forward-looking statement. We will be discussing certain non-GAAP measures on today’s call.

When providing guidance we use the non-GAAP EPS measure of adjusted diluted earnings per share on a consolidated basis referred to as non-GAAP EPS.

01:35 For information on our guidance methodology and a reconciliation of our 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.

This call is being recorded. Information on how to access the replay can be found on our website. 01:58 Now, I’d like to turn the call over to Dave..

02:03 Thank you, Jackie. Good morning and thank you to everyone joining us for our first quarter 2022 earnings call. I run through our latest highlights and headlines as we continue to build on our consistent track record of earnings delivery. First, we have now delivered eight straight quarters of operational execution by this current management team.

We are now among the pure-play utilities having sold our remaining Energy Transfer position and fully exiting our midstream investment well before the year-end 2022 target that we committed to you.

02:47 The 2022 ET common and preferred net proceeds were approximately $490 million after taxes, bringing the combined total net proceeds from the ultimate divestiture of Enable to approximately $1.3 billion after taxes.

In addition, following our first quarter Arkansas and Oklahoma LDC divestiture, our rate base is now forecasted to be 62% electric based on 2022 year end projections, getting us into the range of some of our premium utility peers.

We utilized the total net after-tax proceeds of approximately $2.9 billion from these two transactions to pay down associated debt and plan to recycle the remaining cash to fund our industry-leading rate base growth, all without planned external equity issuances.

03:50 We are also on track to meet our $1.36 to $1.38 non-GAAP EPS guidance for 2022, including the $0.47 we reported for the first quarter of 2022. Keep in mind that the gas LDCs we sold removed $0.03 from earnings this quarter when compared to the first quarter of 2021.

And the full year impact of the loss of the divested gas LDCs will normalize to about $0.02 when compared to last year. 04:24 We also reiterate our non-GAAP EPS annual growth rate guidance of 8% to 2024 and from there the mid-to high-end of our 6% to 8% growth guidance through 2030 and Jason will get into these details shortly.

We also continue to see organic growth across our system including 11 consecutive years of 2% or greater customer growth in the Houston Electric area, a differentiating luxury many other utilities just do not have.

05:02 We continued working with our customers to identify their needs for increased safety, reliability and clean, sustainable investments, including Houston's master energy plan called Resilient Now, which is helping us to determine further capital planning decisions and we will have more to say on that in future quarters.

05:26 More importantly, we remain focused on keeping our bills affordable for our customers. We believe that the combination of expected organic growth across our jurisdictions, when combined with our plan to have average reductions of 1% to 2% in O&M per year over the course of our 10-year plan.

And the securitization charges rolling out of rates in Houston Electric will create bill headroom to help reduce the impact of new capital spending. Those are our latest headlines. We strive to continue our track record that we've established over the past two years of executing on this world-class investment thesis.

06:11 Moving to capital investments. We are in year two of our capital plan, which has now increased to $19.3 billion over the next five years. This is an increase from the $19.2 billion, we discussed at year-end and as our second increase to our five-year plan since our Analyst Day.

Our 10-year plan is still currently expected to be $40 billion plus of investments to support the safety, resiliency and growth across our system to benefit our customers. We expect that this decade of growth will be achieved through traditional utility investments with no big project or technology bets and minimal regulatory lag.

This leads to our industry-leading projected rate base growth of 9% CAGR over the 10-year plan. 07:08 In the first quarter of 2022, we invested approximately $1 billion, including the mobile generation leases and are now tracking slightly ahead of our capital plan for the full year.

Today we are announcing an increase in our estimated spend for 2022 to $4.3 billion, up from $4 billion, as we have accelerated approximately $300 million of work from the latter years of our plan, which Jason will get into shortly.

07:43 As we execute on the capital investment plan we outlined, we also continue to work closely with our customers to serve their needs, including safety, increased system resiliency in growth to drive further incremental capital investments that are not currently in the $19.3 billion.

For example, last quarter, we highlighted the initiative called Resilient Now, jointly launched with the City of Houston.

08:13 We continue to work with the City of Houston and surrounding cities to develop future capital opportunities in the Houston area to help support the community with its continued economic growth, help meet the challenges of more frequent weather events, support the build out of its EV infrastructure and advance its environmental goals.

This includes grid and infrastructure hardening and modernization, residential weatherization and investments around renewable energy infrastructure. This will be a multiyear investment need.

We have made good progress with our customers in identifying the framework for continued grid resiliency and will be excited to discuss more on this topic in the fall of this year.

09:05 In addition to the city driven initiatives, the broader Houston port area, which includes the world's largest petrochemical complex, refining industries and global LNG export facilities are experiencing unprecedented investment and increased energy needs.

We are anticipating increased loan demand across our system over the next three to five years to accommodate their continued investment and development needs.

This includes at least 1 gigawatt related to expected projects, which based on current system capacity in that area will likely accelerate our capital investment plans by a further $150 million to meet those needs once these projects are finalized.

And there is likely more opportunities as other projects in this area gain further support and move toward final investment decisions. 10:04 Furthermore, we are also continuing to work with other industrial or manufacturing customers across other areas of our service territory, which could drive further incremental investments.

It's fair to say, that when our investments are helping support the economic vitality of the communities that we have the privilege to serve, it is an exciting time to be here at CenterPoint. 10:32 Shifting to customer affordability. As I stated earlier, as we invest in future capital, we remain focused on how to keep customer bills affordable.

One way we can do this is with continued discipline on our operating and maintenance expenses. We have opportunities across our system, which we expect will result in an annual average 1% to 2% of O&M savings over the course of our 10-year plan.

It is our responsibility as a management team to strive to achieve this benefit for our customers, even in these inflationary times. As we look across our system, we still believe there are plenty of ways to do so.

11:18 One great example of such work is our Intellis, smart meter system deployment, which some of you saw in person back at our Analyst Day. We initially piloted this program in the first quarter of 2021 and began the official deployment here in our Texas gas business last month.

These advanced meters are expected to offer safety, environmental, operational and cost benefits for our customers. For example, they are designed to enable automatic shut-offs to help reduce the risk associated with safety events, allow for remote disconnects and centralized meter reads.

This program will help drive significant savings across our gas system when deployed fully. We will soon be working towards implementing this in our other service territories as well.

12:13 Similarly, our continued execution of our coal transition plan in Indiana is helping avoid what otherwise would be significant customer bill increases related to coal generation.

Continued operation of our coal facilities would cost customers an additional $50 per month as Federal EPA regulations around operating coal plants, which we are obligated to comply with become increasingly stringent.

All things being equal, we currently estimate that the cleaner portfolio of renewables in the gas CT will result in customer bill increases less than the $10 a month. We originally anticipated, while also significantly reducing our carbon footprint.

13:05 Back in our Houston Electric territory, there will be incremental headroom created through the continued roll off of charges from securitization bonds associated with the 1999 Electric Market Restructuring Law and Hurricane Ike from 2007. Back in 2019, two transition bonds ended.

The charges related to these bonds of almost 7% of the average residential bill was then eliminated.

13:34 The bill charges related to the upcoming storm bond rolling off in August makes up over 3% of the current average residential bill while the charges related to the remaining transition bond that rolls off in 2024 is approximately another 5% of current average residential bills.

All of these things will help reduce the impact to our customers of capital investments across our system and we will seek to keep executing on these kinds of opportunities to keep bills affordable for our customers.

14:14 So in summary, before I turn the call over to Jason, we are meeting our customers' growing needs across our system due to both organic growth and by upgrading the current system safety and resiliency needs, which we expect will likely lead to incremental capital above our $40 billion plus over the course of our 10-year plan.

And we plan to fund it without issuing external equity and without straining our balance sheet.

Despite this growth, we remain committed to providing affordable service by managing our costs, targeting an average 1% to 2% reduction annually in our O&M taking advantage of our organic growth and benefiting from things like the regulatory charges that are rolling out of rates at Houston Electric.

15:10 Our current capital investment plan leads into our 10-year rate base outlook. We project approximately 11% rate base growth CAGR through 2025, which normalizes into an approximately 9% CAGR over the full 10-year plan.

From that rate base, we expect industry-leading 8% annual non-GAAP EPS growth through 2024 in the mid to high-end of our 6% to 8% range from there through 2030. And we are excited to share with you later this year, the impacts of the expected incremental capital that I have discussed.

15:55 As I stated in my opening remarks, we are excited about the eight straight quarters of execution and all of the employees here at CenterPoint that are delivering results every single day. We heard loud and clear that many of you wanted CenterPoint to exit the midstream industry.

We did it in a way we believe was better and quicker than many of you ever expected within four months of the merger between Enable and Energy Transfer, we've sold 100% of our common units at a 20% premium to Energy Transfer’s unit price when the transaction was announced last February.

Not a bad outcome for those shareholders who thought we would never get out of this investment let alone receive approximately $1.3 billion of net after-tax proceeds from it. We listened to our investors and are now a pure-play regulated utility with continued growth driven by customer demands.

17:00 And lastly, we remain focused on achieving our value proposition, which is 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. 17:20 With that, I will turn the call over to Jason..

17:24 Thank you, Dave and thank you to all of you for joining us this morning for our first quarter call. I'll start by covering the financial results for the quarter. On a GAAP EPS basis, we reported $0.82 for the first quarter of 2022.

This includes Midstream related earnings of $0.05, including the net gain on the sale of the Energy Transfer common and preferred unit sales and the cost associated with the early extinguishment of the related debt, as well as the net after-tax gain on our Arkansas and Oklahoma LDC sale of $0.30.

Excluding those and other items as noted, we reported $0.47 of non-GAAP EPS for the first quarter of 2022, which was flat to the comparable quarter of 2021 as shown on Slide 5.

18:11 Our first quarter of 2022 earnings were reduced by $0.03 due to losing the earnings related to Arkansas and Oklahoma operations, which were divested on January 10 and as Dave mentioned, those earnings are seasonally weighted towards the winter months.

Our results included favorable growth and rate recovery contributing $0.05 this quarter, while weather usage and other contributed $0.02 when compared to the first quarter of 2021. These positive benefits were partially offset by $0.03 compared to the same quarter last year, due to higher ongoing cost management expenses.

$0.01 of which was related to interest expense that was previously allocated to our Midstream segment in the first quarter of 2021, which will be absorbed in the consolidated earnings going forward. The remaining variance is related to the timing of our O&M savings in 2021.

19:02 On the O&M side, and as we discussed throughout last year, we had a fast start to savings in the first quarter, but we reinvested that savings back into the business throughout the remainder of the year that acceleration into last year has driven a higher run rate for O&M in the first quarter of 2022, but we see this as purely a timing related variance.

The bottom line is, we fully expect to hit our average annual 1% to 2% O&M reduction over the 10-year plan. 19:29 We continue to have confidence in our ability to drive further O&M efficiencies. One example is the meter program that Dave discussed.

We piloted this program back in the first quarter of 2021 and as of April this year, we are now in full deployment mode for the meter program in Texas and anticipate productivity improvements for the remainder of this year.

We are also reaffirming our full-year 2022 guidance range of $1.36 to $1.38 of non-GAAP EPS, which reflects 8% growth over the comparable $1.27 non-GAAP EPS results for 2021. 20:04 We expect that our earnings ratio will be somewhat back-end loaded as some of our recovery mechanisms are skewed towards the latter half of the year.

Such as our DCRF filing, which I'll discuss shortly. The actions we have taken to simplify our story are illustrated on this page. We expect to have a simpler, more digestible investor story going forward. Beyond 2022, we continue to expect to grow non-GAAP EPS 8% each year through 2024 and at the mid to high point of 6% to 8% annually through 2030.

Our focus is to deliver strong growth each and every year. 20:39 Turning to Slide 6. Dave covered a lot of the customer driven capital investment opportunities we have ahead of us.

As he said, we are in year two of a very attainable and tangible capital investment plan of $40 billion plus through 2030, which you can see here on this page, these projects are focused on safety, resiliency, reliability, growth and clean enablement. One item to discuss on a clean energy side.

Recognizing, there is a lot of conversation regarding the availability of imported solar panels. While we're not immune to the current market factors our next facility is not slated to come into service until the fourth quarter of 2023 and a lot can and will happen between now and then.

21:24 We are working with our developers and suppliers and feel good about their early attention towards identifying possible alternatives if needed.

We will obviously be learning more over the coming weeks and months, but we remain firmly committed to our long-term renewable generation transition and our timeline for our net zero and carbon reduction emission goals will remain unchanged.

It is important to note that while we are only anticipating less than $0.02 of earnings benefit in 2024 from the generation transition, we have pulled forward some other capital work into 2022 for the latter part of the plan to reduce the risk and to continue to invest for the benefit of our customers.

22:00 As a result of this acceleration, we are now forecasting to spend $4.3 billion in capital expenditures during 2022 and have increased our five-year capital expenditure forecast to $19.3 billion from $19.2 billion. This is our second increase to the plan since Analyst Day.

We are also fortunate to have regulatory mechanisms that allow for timely recovery of our capital investment, about 80% of the 10-year capital plan is eligible for recovery and expected to be recovered through interim capital recovery mechanisms.

An example of which includes our recent distribution cost recovery factor or DCRF rate, which is expected to go into effect September 1 this year. 22:45 This is a filing for Houston Electric to recover $1.6 billion in distribution capital we have made since 2018.

These investments were dedicated to system improvements, load growth, intelligent grid projects and temporary emergency mobile generation. Our continued focus on cost controls and other items should help mitigate the bill impact for our customers.

As is often the case with including something new like mobile generation and an existing mechanism, there is more regulatory scrutiny than usual around this year's DCRF, which includes the first tranche of our mobile generation investment.

We look forward to working constructively with stakeholders to resolve the rate application on a timeline consistent with the DCRF statute.

23:31 In our Minnesota gas jurisdiction, we recently filed a constructive rate case settlement with all intervening parties specifying a rate of return on equity of 9.39% and resulting in an annual revenue requirement increase of $48.5 million.

The settlement is subject to Minnesota PUC's review and the anticipated approval is expected in the third quarter of 2022.

That rate case application used a forward test year providing timely recovery of our forecasted capital investments in reliability and safety across our system for the benefit of our customers as well as our first green hydrogen pilot project, which recently went into service.

24:10 We are excited to now have the green hydrogen production facility online, which we'll use about 1 megawatt of renewable generation to produce hydrogen, which is then mixed into our natural gas system.

While this is a small pilot project, it's a step in the right direction as we, our customers and our regulators progress towards a better understanding of how hydrogen can fit into our long-term broader carbon emission reduction goals.

Additional green hydrogen and other renewable gas projects will be considered in future or Natural Gas Innovation Act filings which we plan to submit later this year. 24:43 Turning towards a broader regulatory update. We have securitization efforts going on in a couple of jurisdictions, which I'll provide an update on.

This mechanism allows for a recovery of certain costs while once again lessening the impact to our customers by recovering over a longer period of time. The funds received from securitization can also be redeployed into capital investments for another form of efficient funding.

Lastly, from a credit perspective, the rating agencies typically remove the securitization bonds and cash flows from the credit metric calculations. 25:17 In the state of Texas, we still anticipate the statewide securitization bonds to be issued in the coming months, as the Texas public financing authority is currently in their RFP process.

We expect that this will provide a 100% recovery of the $1.1 billion of gas costs incurred during last year's winter storm, as well as the carrying costs. In Indiana, and in the coming weeks, we anticipate filing for costs related to the retirement of two coal facilities. This is a first of its kind of filing in Indiana.

The current procedural schedule anticipates a decision by the end of 2022 and if the financing order is approved, we would expect a bond issuance in the first quarter of 2023. Outside of these updates on securitization, I'll remind everyone on the regulatory side, we have limited regulatory risks near term with no major rate cases until late 2023.

26:08 Turning to strategic transactions. We sold our remaining 51 million energy transfer common units of preferred units this quarter for approximately of $700 million combined net proceeds or roughly $490 million net of taxes.

Along with the 2021 sales, we received approximately $1.3 billion net after tax, which is a 20% premium to the energy transfer unit price when the transaction was announced.

Additionally, in January, we received Arkansas and Oklahoma LDC transaction proceeds of $1.6 billion net of taxes, including approximately $400 million for the remaining outstanding incremental gas costs.

26:48 We have now utilized $1.8 billion of the combined LDC and Energy Transfer proceeds to reduce debt, including the $1.2 billion discussed on last quarter's call, as well as paying down CenterPoint parent level debt including $600 million of high coupon senior notes this quarter.

These actions are also in line with our goal to reduce parent level debt to approximately 20% of total debt by the end of this year. A goal, we are well on our way towards achieving. 27:19 We plan to use the remaining proceeds to fund the equity portion of our industry-leading rate base growth without external equity issuances.

Separately, and as we discussed at our Analyst Day and throughout last year, we've had an ongoing evaluation of our repairs expense deduction methodology, which will be another way for us to mitigate our cash tax position efficiently funding our growth and helping offset customer bills.

We currently expect that this process will result in a one-time cash tax benefit of approximately $300 million in 2022 and at least an incremental $25 million annually in future years, which over the five-year period would equate to at least $400 million of capital that we can redeploy into our business for the benefit of our customers and our shareholders.

This is approximately $50 million more than what we estimated at our Analyst Day update and is yet another example of efficiently funding our industry leading growth plan. 28:18 Our long-term FFO to debt objective remains between 14% to 15% aligning with Moody's methodology and is consistent with the expectations of the rating agencies.

Additionally, let me remind you, Moody's recently revised our downgrade threshold of 13%, noting our improved business risk profile. And to be clear, we're continuing to focus on retaining this incremental credit cushion as opposed to using it to fund our growth.

We believe that these improvements in our balance sheet coupled with our efficient recycling of capital, put us in a position of being able to offer industry leading growth without the need for external equity.

As we continue to express, we take our commitment to be good stewards of your investment very seriously and we realized our obligation to optimize stakeholder value for all. 29:07 I'll now turn the call back over to Dave..

29:11 Thank you, Jason. As you heard from us today, we now have eight straight quarters of meeting or exceeding expectations, and I have checked the box on executing on our strategic transactions. We are a pure regulated utility and firmly on the pathway to premium with incremental growth opportunities driven by our customer demands..

29:37 Thank you, Dave. We'll now turn to Q&A, and we'll be cognizant of the busy calendar call schedule following us.

Operator?.

29:46 At this time, we will begin taking questions. [Operator Instructions] Our first question is from Nick Campanella from Credit Suisse. Your line is open..

30:16 Good morning..

30:18 Hey. Good morning, team. Thanks for having me on. Appreciate it. I just wanted to talk quick, you talked about industrial load and just higher demand leading to incremental capital over the course of the 10-year plan.

You talked about not issuing external equity for the incremental capital, so I guess, just if you don't -- is it that you don't need the equity or that you would look to further portfolio rotation.

Just how should we think about that?.

30:43 No.

I think if you set of track all the way back to our Analyst Day and what we've talked about since then the proceeds of the Enable transaction, the original LDC sales when matched up against our $40 billion plus plan, don't really require us to go into the market for any equity, which is a sort of a north -- a North Star for us right now and nor does it require us divesting of any LDCs.

So we have sufficient cash flow to meet this plan. 31:18 What we have tried to signal is that as we identify additional capital opportunities either on top of the five-year 19.3 or, so billion plan we have or the $40 billion plus plan, at that point, we would look to selling additional gas LDCs.

But right now, we have sufficient cash flow to meet our needs without issuing any more equity..

31:45 Very helpful. Thank you for that. And then, I guess just higher level like thinking through the cadence of your updates through the course of ‘22 here and as I look back to 2020 and 2021 you've kind of maintained a pace that's been kind of fairly splashy.

Understand there's been a lot to do also, but that story is kind of behind us now and things to your point, in your prepared remarks, you’re just a lot simpler.

So I guess just to kind of set expectations on the pace of updates, are you just kind of planning for this to just be all around a quieter or execution year blocking and tackling on the core metrics or are there larger strategic items in your mind that we should be kind of thinking about?.

32:25 No, I think, blocking and tackling that's probably a good way to summarize it, although, if you think about even, Q1 it was still a pretty active quarter for us. We closed on the LDC sales. We got rid of the rest of the Enable transaction proceeds we had. We continue to execute against a very aggressive rate base growth plan.

We certainly met our earnings commitment. We reiterated our 8% growth for the next few years and sort of at the top end of the range. Going forward, we met the challenges of inflation and supply chain. So I guess, I would think about it as, yes, blocking and tackling, I think we did a really good job to Q1. I don't anticipate that changing.

But I think the pace of change that I'm trying to drive through CenterPoint is going to continue. That's not going to change, and we expect to hit all our marks that we have in our strategy..

33:28 Thanks a lot. We'll see at AGA..

33:34 Thank you. Our next question is from Ross Fowler from UBS. Your line is open..

33:42 Good morning..

33:43Good morning.

How are you?.

33:44 I’m good..

33:46 So just maybe following on Nick’s question and just looking from the Analyst Day, incremental capital changes, so at year-end you accelerated $200 million into 2022.

And then you added $300 million around this is 500 megawatts of mobile generation and now you are adding another $100 million into 2022 kind of on industrial demand, if my understanding is correct? So that's $300 million of that total $600 million increase since Analyst Day in 2022, but to point some of that from the back end of the five-year plan.

So maybe talk a little bit about that shift, and then your ability to sort of backfill capital in sort of year four and five?.

34:36 Sure. Let me let Jason handle that one. He keeps track of our capital going forward, literally on a day-to-day basis, as I think you’ve picked up today..

34:48 Good morning, Ross and thanks for the question. And as you pointed out, we increased the CapEx forecast for 2022 by $300 million and increased the five-year CapEx plan by $100 million, what we effectively did was brought forward $200 million from 2023 into 2022.

And then increase the overall plan by about $100 million really that increase relates to routine work in our gas and electric businesses that we have the luxury to pull-forward because as mentioned in our prepared remarks, we have an efficient way to fund that for our shareholders, in terms of higher incremental proceeds from the tax repairs deduction, as well as higher incremental proceeds from the securitization that's anticipated in Indiana.

And this work continues to help kind of benefit our customers by improving again the safety and resiliency of the system, which is why we put it forward, it further helps derisk any impact from solar delays, as I mentioned in my prepared remarks.

35:59 And so as we look at the sort of the longer-term execution to your plan or to your question, we continue to, I think make positive momentum working with the city of Houston around improving resiliency here in Houston. We will likely have an update around that work probably around the Q4, sorry Q3 earnings call.

And then, as Dave mentioned in his prepared remarks, we're seeing increased demand from our industrial customers, both here in Houston, as well as Indiana. And as we work to serve those customers’ needs, we hope to have a more holistic update around the longer-term impacts to our CapEx plan later this year.

So it's an exciting time here at CenterPoint the best is still yet to come..

36:51 Thanks, Jason. Thanks for that very detailed review. I'll hop back into the queue. See you guys at AGA..

37:00 Thank you. Our next question is from Anthony Crowdell from Mizuho. Please ask your question..

37:09 Hey. Good morning, Dave. Good morning, Jason..

37:11 Good morning..

37:13 Dave, is Jason doing both the blocking and tackling? Or is he just doing the tackling?.

37:17 No. He can do both. He can block and tackle as can everybody on our management team today..

37:25 That's great. Just hopefully, two quick questions, one is, you talked about the O&M targets in your 10-year plan. I believe you said it's about 1% to 2% reduction each year.

Just curious to current tight labor market supply chain issues, just maybe how challenging is it going to be to meet that? And I also think you kind of highlighted the AMI investment press release, I guess went out in April.

Just wondered, if you could give us some color on the rate base opportunity that AMI represents and plans on getting regulatory recovery of that? And I have one more follow-up..

37:57 Okay. I'll let Jason handle the AMI question. I think I'll take sort of the former part of your question. I guess, my view is that’s what you pay a management team to do is to sort of take the challenges of supply chain, the challenges of inflation head on. So my view is, every utility is experiencing it, most companies across the U.S.

are experiencing it. And it's coming at us every day, believe me. But I think that we have put a standard out there, reducing our O&M 1% to 2% on average every year. And as Jason said, we believe we're going to continue to do that. 38:38 As to AMI, I'll let Jason talk about that..

38:42 Yeah. Thanks, Anthony for the question. It's several hundred million dollars over the course of the 10-year plan. We will seek to recover that we've started here as Dave mentioned in his prepared remarks, in Texas.

The recovery will follow our typical capital investment through the grips and then obviously the longer-term implementation of the AMI program will be addressed in the gas LDC rate case that we will file late 2023.

So it follows sort of the normal course of events here and we'll follow kind of a similar process as we rollout to the rest of our service territory.

What I would say in just sort of reinforcing confidence around our ability to continue to meet our O&M objectives is, I think this is one of many programs that we've highlighted, whereas we implement improvements to our system, it will lower our O&M cost structure going forward, just like we've highlighted the coal transition in Indiana.

I think these O&M reductions from capital is a core sort of driver near term of our ability to meet our O&M targets. And then we continue to see broad adoption of our continuous improvement program throughout our service territory and are excited what that will yield over time as we mature in that area..

40:08 Great. And just lastly, I guess, Dave, following up on maybe Nick’s question earlier. We've seen LDC valuations have recovered and are more in line with like electric utility valuations. And the team that right now, investors are really focused on maybe energy security and the view of an LDC has kind of changed more favorably.

Just, I know you don't have any need for funds in the current five-year or the 10-year plan. But does the recovery in LDC valuations change your view that you view them more as a source of funds or as a prepaid debit card and I'll leave it there..

40:43 No, I think as we've said, I think nearly every quarter, when we've talked about this, I do view them as set of prepaid debit cards, I guess that's become the lexicon of the industry. I guess we've talked about it so much.

But my view is that it really gives us optionality, but I -- and I do like the fact that the valuations, I think are being more accurately reflected in share prices today, but because they are not opportunistic asset for us, I don't see any reason to accelerate the divestiture of any of those until we have an opportunity to redeploy that capital back into our electric business.

So we're just going to stay the course in that area for now, as I said, be opportunistic, but as we've said several times in the prepared remarks, we are looking for incremental capital opportunities. And I will trade off selling gas LDCs at a multiple of rate base and invest in it, at one time -- to one times rate base every day of the week.

We just got to wait for those opportunities to develop, and then we'll make the decision..

41:51 Great. Solid quarter. Thanks for taking my questions..

41:55 Thanks..

41:57 Thank you so much. Our next question from Shar Pourreza from Guggenheim Partners. Your line is open..

42:06 Hey. Good morning, guys..

42:07 Good morning, Shar..

42:08 Good morning..

42:10 You just done this, we're kind of looking broadly at sort of some of the supply chain issues and inflation and mainly obviously the tariff circumvention investigation going on with the commerce department, which could kind of lead to some pricing uncertainty at least through 2023 and maybe beyond.

I guess how do these sort of tail risks impact, how you're thinking about the electric IRP process, especially as we are shifting focus to the upcoming ’23?.

42:39 Yeah, Shar. Thanks for the question. Obviously, it's front of mind, I would say, as we mentioned we're not immune to what's going on in the market. However, we've got a great set of development partners that we're working with constructively to find a solution.

We are seeing the price increases that you alluded to, but I think what's important to reinforce is that despite the price increases that we are currently seeing the path on the coal transition is still substantially less than the cost of continuing to operate those coal facilities.

The current estimate given the age of those coal facilities would be -- would cost our customers in Indiana and about $50 a month to continue to maintain and I think will come in despite cost increases at a cost of the coal transition of less than $10 a month.

So while we still see sort of short-term pressure, this is still the best long-term solution for our customers in Indiana. 43:43 And as we think about gearing up for the IRP, we will be going out with a broader request for proposal here this summer.

We will be trying to get kind of best and latest thinking on pricing technology costs that will factor into the integrated resource plan that we will file next year that will address the third and remaining coal facility and so more to come on this, but we've got a great set of development partners who are working with constructively to find a solution here..

44:14 Got it. And then just lastly, I know obviously with the Texas energy legislation passed, you've got resiliency now, there's a lot of incremental opportunities.

I guess, at what point, could we start seeing some of these opportunities kind of materially come into plan versus the small bumps, we've been seeing recently?.

44:37 Sure. I'll take these small bumps every day second increase since the Analyst Day, almost six months or so ago. But that being said, I do think by Q3 this year on the earnings call, we should have a better view of the longer term impact to our capital plans around resiliency, not only in the city of Houston, but the surrounding communities.

And then the pace of the updates around the industrial demand that's going to be dependent on those customers, those industries. But I would likely want to be in a place where we can provide a holistic update to the five and 10 year CapEx plan again around the Q3 timing related to that incremental demand as well..

45:24 Yeah. I would just add maybe an editorial comment, I know that we have sort of teased the update here for a couple of quarters, but I also think it's important for everyone there to understand we are working with the city of Houston here. We're not going to front run the outcome. Those discussions are ongoing.

But I think it's just in everyone's best interest to wait until the plan is finalized. And we sort of can announce it jointly and we'll do so when us and the city are ready to do it..

45:57 Okay, perfect. Thank you, guys. Appreciate it everything else. Thanks..

46:04 Thank you so much. Our next question is from Julien Dumoulin from Bank of America. Your line is open..

46:14 Hey. Good morning, team. Thanks for the time. Appreciate it. So just a follow up and clarify some of the earlier questions around inflation and then spending.

I'm just, can you speak a little bit more about the sort of normal course inflationary impacts on CapEx budgets? Just trying to get a sense, especially across the industry, to what extent is some of this pull forward and just allocated in this year, driven in part by, it's just normal course inflation.

And to what extent does that have sort of an expectation for cascading into your program or is that differently, is there sort of an assumption that there is some deflation in the back-end of the year program? Or is it the entire program been inflated at this point?.

46:54 Yeah. Thanks, Julien for the question. At this point, the increase that we've been discussing related to the -- this quarter's update is really a reflection of a pull forward of projects less around inflation.

This is a discrete work that we had planned in 2023, pulling forward to 2022 and then plan, the incremental $100 million over the five years was really a component of that $1 billion of capital that we hold and reserve to make sure that we have the opportunity to fold in when we can efficiently execute and fund that works.

So, it really isn't a reflection of inflation. 47:30 Now that being said, clearly, we are starting to feel the impacts of inflation.

I think our supply chain team has been working effectively with our suppliers to find long-term commitments around work volumes that can be of interest, not only to their workforce but interest to kind of our plans as well. And so I think, today, we're managing the impact of inflation.

I wouldn't consider it a driver, I consider it a potential risk depending on how long we continue to face this inflationary pressure. We're not making any assumptions around deflation today on the back end of the plan. We're really just trying to understand how long will be in this inflationary cycle.

And so again, it's really driven by work as opposed to inflation at this point..

48:23 Right.

And just to clarify that even, to the extent of which that you look at your plan here, is there a potential further inflationary factors you just reassessed what it costs you for electrical equipment here and gas equipment?.

48:37 Realistically, there could be some inflationary impact. We're starting to monitor what that risk in terms of a cost increase could be, but to date, we have not seen that. The need to fold that into the plan yet, so it will be something we continue to monitor and happy to continue to provide updates in future quarters around it..

48:58 Excellent. And just going back to the other Texas conversation on ERCOT here.

I mean obviously, some developments inflate with the Q here on transmission, any thoughts or perspectives to add on that front specifically, moving past the Houston resiliency and just focusing on additional transmission integrity?.

49:19 We can continue to be very excited about the opportunity there. It was clear coming out of the legislature last year that the state of Texas, wanted to put a priority around incremental transmission lines bringing more pathways, if you will, to provide electricity.

We continue to work with the commission to see how we can accelerate the siting of new transmission projects, how we can execute on that work. So I would say it's early days, but that continues to be another area where we may see incremental upside to the plan and we continue to have excitement around..

50:03 Good luck, guys. Thanks for the time. Appreciate it..

50:06 Thank you so much. Our next question is from Steve Fleishman from Wolfe Research. Your line is open..

50:17 Good morning, Steve..

50:18 Thank you. Good morning, Dave. So just a question on the, I guess, Indiana and the solar projects and IRP. There are other utilities in Indiana, pretty much all of them are going through the same transition you are.

So I'm curious just overall political regulatory feedback on this kind of solar anti-circumvention and do they get us, do they have -- do they give you the sense that they understand the cost increases.

And just in the context of obviously, everything going on with energy inflation?.

51:04 Yeah. Thanks, Steve for the question. It's an ongoing dialogue with commission staff as you pointed out. We're certainly not alone, not only other utilities in Indiana, but obviously utilities all over the country are facing these inflationary cost pressures, as well as kind of impacts on timing of the projects.

And so, I think the broader set of issues around timing and costs are well known. And I think that the commission is looking at us to work effectively with the developers to find a constructive solution for our customers, for the developers and for the execution of this work. And so we'll continue to do so.

I think it's early days in those conversations. But again they’re -- I think they well attuned to kind of the pressures that we're all facing..

51:56 Great. And then one just other quick one, appreciate you highlighted the shift in the business mix more to Electric. I think 62% now.

Do you have any kind of target for that, long term, where you see that going?.

52:13 No, I think, Steve, if you would -- if you sort of look at $40 billion in capital spend, it's clearly biased toward electric.

So if we did nothing else, I think you would see that 62% creep up over the five and 10-year plan that we have clearly as we've indicated, if we find a big slug of incremental capital to invest in that generally is going to be focused on the electric side.

We would have the commensurate sale of an LDC to fund that so we wouldn't have to issue equity that would push it even more dramatically in the direction of higher bias toward electric. But I think inevitably over time, if we did nothing else, it's going to bias toward Electric.

53:05 And as I've said, if we -- if and when we find the larger slug of capital, it'll push it that direction even more aggressively. So, instead of a perfect mix. I don't think there is one out there. But at the end of the day, we'll sort of seek the level that makes sense for our investors and for our customers..

53:28 Great. Thank you..

53:32 Operator, we're at the top of the hour I think we have time for one more question..

53:37 Okay. Sure. Our last question is from Insoo Kim from Goldman Sachs. Your line is open..

53:43 Hey. Thank you for squeezing me in. Just first question, going back to the capital plan and the increases there.

We've talked a lot about the cost side on the inflationary front, but just in terms of labor availability, are you not seeing any pressures in finding the labor to accommodate any increase in the CapEx?.

54:06 No, I think well, if you remember back two or three calls ago, I can't remember which quarter it was in. We highlighted the fact that we recognize that labor was going to be an issue to basically address the challenges of our capital plans.

So we actually moved pretty aggressively at that point in time to tie up crews that were sufficiently large enough for us to handle the capital spend plan that we have. So at this point in time, we've got those crews sort of tied up and sequenced to come in and serve our needs as we do this capital build.

So, certainly there’s labor cost pressure, but the actual bodies. I think we're in really good shape on that..

54:54 Got it. That's good color. My other question is just on the Houston Electric demand growth.

I know, customer growth is strong and I think weather may have helped this quarter as well, but it's still pretty impressive numbers, especially on the residential front, just more color on what you've seen on the ground there that's contributing to that versus some other parts of the country that has seen more normalization?.

55:18 Well, I think almost any economic indicator you look at, I mean. Houston is doing just great. I saw a note the other day that there were more housing starts in the city of Houston in the last two years than anywhere in the United States.

You look at the turmoil going on in Europe and all of a sudden, the pivot toward needing sort of more energy exports out of the U.S.

to serve Europe and the whole sort of LNG and petrochem complex, refinery complex that sits in our territory, and in our backyard here in Houston, and the number of conversations that are taking place about either starting new facilities, upgrading facilities they have here.

The set of an continued industrial growth outside of the ship channel that's taking place in this area continued population growth, you just sort of go right down the line and you really just got to come here and experience and just get in your car and drive around Houston.

In this area, you just see sort of the economic vitality is oozing out of every pore of the city at this point in time..

56:30 That makes sense. No I definitely felt that at the Analyst Day there last fall. So thanks for the color. Thanks, Dave..

56:38 All right, thank you..

56:38 Thanks, Insoo. All right. Thank you everyone again for joining us for our 2022 first quarter earnings call. And with that, operator, I think we can all disconnect, that will conclude our call for today..

56:49 Thank you. The recording for this call will be available on our website by 11:00 AM Central Time today until May 11. This concludes CenterPoint Energy's first quarter 2022 earnings conference call. Thank you for your participation..