Texas economic growth helps CenterPoint grow earnings, despite bearish weather

Despite milder weather in the first quarter in its natural gas and electric service areas, Houston-based CenterPoint Energy on April 27 reported stronger adjusted earnings compared with Q1 2022, and executives touted Houston's economic growth as a contributing factor.

CenterPoint is the only investor-owned electric and gas utility based in Texas, and much of its revenue comes from the Houston area electric and gas customers, but it also has power and gas utilities serving customers in Indiana, Louisiana, Mississippi and Ohio.

CenterPoint CEO David Lesar noted that the Houston area's population and economy has grown about 2% a year since the early 1990s, even during the coronavirus pandemic.

"As economic data from 2022 continues to come in, one thing is clear, Houston's economic engine continues to run at a blistering pace," Lesar said. "After recovering some of the economic impact of COVID, the greater Houston area GDP in 2022 was approximately $482 billion or over $1.3 billion per day, up nearly 4% from 2021. The greater Houston area was also the second fastest-growing metropolitan area in the US last year."

CenterPoint's first quarter results "represent a tremendous start to the year," Lesar said.

'Headwinds' in weather

"First, we were successfully able to navigate the headwinds of higher interest expense and milder winter weather," Lesar said. "We also have great momentum from the continued execution of our long-term growth strategy through which we have deployed more than $8 billion of capital over the past two years for the benefit of our customers."

Across the various power service areas, combined heating and cooling degree days swung to 37 degree days fewer than normal in the first quarter from 115 degrees more than normal in Q1 2022, according to CenterPoint. In the gas service areas, the change was even more drastic, with 220 degree days fewer than normal in the first quarter, compared with 196 degree days more than normal in Q1 2022.

Degree days derive from the assumption that no heating or cooling is needed to be comfortable when the exterior temperature is 65 degrees F. If the temperature is more than 65 degrees, the difference is considered cooling degree days. If the temperature is less than 65 degrees, the difference is considered heating degree days.

In light of that big weather change, the year-on-year decreases in throughput were mild: down 6% in electric service areas and down 11.9% in gas service areas.

Financial results

CenterPoint reported non-GAAP earnings of $314 million, 50 cents/share, in the first quarter, up from $295 million, 47 cents/share, in Q1 2022. CenterPoint reported GAAP earnings of $313 million, 49 cents/share, in the first quarter, down from $518 million, 82 cents/share, in Q1 2022, which included $189 million, 30 cents/share, in net revenue from the sale of Energy Transfer equity, as well as $32 million, 5 cents/share, in net earnings from divested midstream assets.

Factors favoring improved results included economic growth and rate recovery enhancements and operations and maintenance savings in gas and electric service areas. In addition to bearish weather, higher interest expenses impaired CenterPoint adjusted earnings.

In the first quarter, CenterPoint spent $1.1 billion on capital projects – about $800 million on gas assets and about $300 million on electric assets. The company plans to spend $3.6 billion in 2023, and $43 billion 2021-30, "to provide safe, reliable and resilient energy to all customers throughout our service territories," said Jason Wells, CenterPoint president, chief financial officer and chief operating officer.

In answer to a question about how current Texas legislation might affect CenterPoint's outlook, Wells said, "A handful of these bills are credit-accretive to our current plan," but the legislative session still has a month to go.