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CenterPoint utility customer surge offsets lower energy volatility in Q2

CenterPoint Energy Inc. grew its natural gas and power customer base by 1.3 million in the second quarter, compared with the prior-year period, which helped overcome other factors to boost second-quarter earnings about 17% year on year, executives said Aug. 7.

In February, CenterPoint completed its acquisition of Vectren Corp., which added 145,000 power customers and 1.1 million natural gas customers. In addition, CenterPoint's legacy businesses added about 43,000 Houston electric customers and more than 48,000 gas distribution customers, according to the company's second-quarter earnings presentation.

With about 4.5 million natural gas customers, CenterPoint is the second-largest gas distribution company in the U.S. by customer count, according to Xia Liu, CenterPoint executive vice president and CFO. The company has about 2.5 million metered power customers in the Houston area and in southern Indiana.

The company reported second-quarter earnings of $165 million or 33 cents per share up from a loss of $75 million or negative 17 cents per share for the second quarter of 2018.

"On a guidance basis, and excluding merger impacts, second-quarter 2019 adjusted earnings were 35 cents per diluted share compared with 30 cents per diluted share in the second quarter of 2018," said Scott Prochazka, CenterPoint president and CEO. "It's been approximately 180 days since we successfully closed on our merger of Vectren. With the addition of Indiana and Ohio to our regulated operations, we have increased our collective rate base by 45%."

Performance contributors

Liu said contributors to CenterPoint's strong performance in the quarter included 8 cents per share from Vectren's operating income contribution and 2 cents per share from operations and maintenance cost savings.

"Rate relief provided a positive impact of [4 cents], mainly attributable to the transmission cost of service filing for [CenterPoint Energy Houston Electric LLC] and the Texas Gas Reliability Infrastructure Program filings for natural gas distribution," Liu said.

CenterPoint had been considering the sale of its common units in Enable Midstream Partners the master limited partnership it co-owns with OGE Energy Corp. but said that it has decided not to do so, as it plans to use cash revenue from its Enable investments to increase investments in CenterPoint's utility businesses.

"Since its formation, through our ownership of common units, Enable has provided approximately $1.7 billion in cash distributions to CenterPoint, and we expect the total amount to grow to over $3 billion by 2023," Prochazka said.

Among those investments is an effort to replace cast-iron natural gas pipelines, "the largest component of our $5.3 billion, five-year natural gas distribution capital plan," Prochazka said.

Liu said a "comprehensive update" of CenterPoint's capital investment plan would be provided on the fourth-quarter earnings call.

Guidance issues

For the CenterPoint Energy Services Inc. line of business, the lowest energy price volatility in three years has reduced mark-to-market variances by $8 million, quarter on quarter, Liu said.

"We have revised our forecast for the remainder of 2019 to reflect estimated gas sales margins consistent with those through the first six months and to reflect reduced expectations of weather-driven storage activity relative to 2018," Liu said. "We're now estimating total operating income for the year of $35 million to $45 million, excluding mark-to-market impacts."

At the end of the first quarter, CenterPoint said it expected 2019 revenue at Energy Services to be in line with 2018's full-year total of $63 million.

Liu affirmed the company's overall guidance of earnings totaling $1.60 per share to $1.70 per share in 2019, after having earned 81 cents per share in the first half, with about 75% of earnings coming from CenterPoint's utilities.

"In terms of 2020, let me remind you that our business fundamentals are strong, and our key drivers for earnings growth continue to be strong ratebase growth from increased capital investment in our utility; better utility customer growth; execution of our regulatory strategy and rate relief; as well as a full-year contribution from the Vectren utility," Liu said.

Mark Watson is a reporter for S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.