Good morning, and welcome to CenterPoint Energy's Third Quarter 2019 Earnings Conference Call with Senior Management. I will now turn the call over to David Mordy, Director of Investor Relations. Mr. Mordy, please go ahead, sir.
Thank you, Jaimira. Good morning, everyone. Welcome to our Q3 2019 earnings conference call. Scott Prochaska, President and CEO and Sha Liu, Executive Vice President and CFO, will discuss our Q3 2019 results and provide highlights on other key areas. Also with us this morning are several members of management who will be available during the Q and A portion of our call.
In conjunction with our call, we will be using slides which can be found under the Investors section on our website, centerpointenergy.com, For a reconciliation of the non GAAP measures used in providing earnings guidance in today's call, please refer to our earnings news release and our slides on our website. Please note that we may announce material information using SEC filings, news releases, public conference calls, web to the Investors section of our website. In the future, we will continue to use these channels to communicate important information and encourage you to review our website. Today, management will discuss certain topics that will contain projections and forward looking information that are based on management's beliefs, assumptions and information currently available to management. These forward looking statements are subject to risks or uncertainties.
Actual results could differ materially based upon factors including weather, regulatory actions, the economy, commodity prices and other risk factors noted in our SEC filings. We will also discuss guidance for 2019. The 20 19 guidance basis EPS range excludes variables as provided in our press release, including certain merger impacts such as integration and transaction related fees and expenses, including severance and other costs to achieve and merger financing impacts in January prior to the completion of the merger and potential impacts of the pending Houston Electric rate case. The 2019 guidance range considers factors described in our press release and slides, including operations and performance to date and assumptions for certain significant variables that may impact earnings such as normal customer growth, usage and weather, throughput, commodity prices, recovery of capital invested through rate cases and other rate filings, but excluding any potential impact from current Houston Electric rate case as well as the volume of work contracted in our infrastructure services business. The range also considers anticipated cost savings as a result of the merger and assumes the lower end of Enable Midstream Partners 2019 guidance range as provided on Enable's 3rd quarter earnings call on November 6, 2019.
In providing this guidance, CenterPoint Energy uses a non GAAP measure of adjusted diluted earnings per share that does not consider other potential such as changes in accounting standards or unusual items, including those from Enable, earnings or losses from the change in the value of Zenzan related securities or the timing effects of mark to market accounting in the company's Energy Services business, which along with the certain excluded impacts associated with the merger and potential impacts of the pending Houston Electric rate case could have a material impact on GAAP reported results for the applicable guidance period. CenterPoint Energy is unable to present a quantitative reconciliation of forward looking adjusted diluted earnings per share because changes in the value of ZENS and related securities and mark to market gains or losses resulting from the company's Energy Services business are not estimable as they are highly variable and difficult to predict due to the various factors outside of management's control. Before Scott begins, I would like to mention that this call is being recorded. Information on how to access the replay can be found on our website. I'd now like to turn the call over to Scott.
Thank you, David, and good morning, ladies and gentlemen. Thank you for joining us today, and thank you for your interest in CenterPoint Energy. I'm very pleased to report we had an excellent quarter. Turning to Slide 5. Excluding merger impacts, this morning we reported 3rd quarter adjusted earnings on a guidance basis of $0.53 per diluted share compared with $0.39 in the Q3 of 2018.
Given the strong performance, we expect full year guidance basis EPS to be near the upper end of our EPS guidance range of $1.60 to $1.70 Shaw will cover our financials in greater detail shortly. Turning to Slide 6, let me begin my update on Houston Electric by sharing what sets Houston Electric apart. Since the beginning of this decade, Houston Electric has added over 400,000 customers, an increase of more than 20%. To keep pace with this growth and address needs for enhanced reliability and resiliency, Utility has invested close to $8,000,000,000 on transmission and distribution infrastructure, including approximately $1,500,000,000 of investment that is serving customers today but is not yet in rates. We work hard to provide safe, reliable, value added service for our customers every day, and we have helped the City of Houston weather numerous storms, including Hurricane Harvey.
In 2018, we were of the Edison Electric Institute's Emergency Recovery Award for our restoration efforts following Hurricane Harvey and other severe storm incidents. Our performance can be largely credited to the investments we have made to harden and advance our system. Meanwhile, we've been able to keep rates low while achieving the highest residential customer satisfaction ranking among investor owned utilities. Moving now to the status of the Houston Electric is an interim step in the process and the outcome will ultimately be decided by the commissioners of the Public Utility Commission of Texas or PUCT. On Slide 7, we show the reduction in operating income and funds from operations, or FFO, as compared to our request and the amount we would have to write off from our rate base if the PFD were adopted in full.
The proposed reduction in operating income of almost $30,000,000 compared to current rates and the reduction in FFO of over $100,000,000 was not anticipated in our prior 2020 EPS guidance nor our 5 year earnings growth projection. We expected a reasonable increase of operating income from today's rates and a full recovery of our capital investment. The proposed reduction in earnings is inconsistent with our rate filing, was heavily driven by recovery of over $1,000,000,000 in capital that has already been put in service for our customers through 2018, but is not yet being recovered in rates. Let me remind you that the PFD is not an order from the PUCT. We have faith in the full regulatory process and remain hopeful the commissioners will make a balanced decision that will allow Houston Electric to recover all of its capital investments and maintain its credit quality, financial integrity and current high quality operations and customer service.
We look forward to a constructive resolution
of this case.
Slide 8 outlines an estimated timeline for the case going forward. At the December 13 open meeting. After the PUCT open meeting, at the December 13 open meeting. After the PUCT issues the final order, new rates will go into effect 45 days later. Our natural gas distribution businesses are also performing well.
Looking at Slide 9, since the beginning of this decade, CenterPoint Energy legacy gas utilities have increased customers by nearly 10% and invested over $5,000,000,000 on infrastructure. In addition, we added over 1,000,000 gas utility customers from the merger earlier this year. Today, as a combined gas utility, our expected investments for 2019 is over $1,000,000,000 We work hard to provide safe, reliable and value added services to our customers every day. Additionally, we achieved the highest residential customer satisfaction ranking from J. D.
Power among large southern region utilities and have kept rates low. For natural gas distribution, as shown on Slide 10, since the last call, we have received approval for an aggregate of $41,000,000 of annualized revenue increases. Specifically, we settled the Ohio rate case, receiving a $23,000,000 increase in the annual revenue requirement. We also received approval for our distribution replacement rider filing in Ohio and formula rate plan filing in Arkansas, resulting in annualized rate relief of $11,000,000 $7,000,000 respectively. Additionally, a conservation incentive plan bonus of $11,000,000 was approved in Minnesota.
Furthermore, we recently filed mechanisms in Indiana and Louisiana as well as a general rate case in Minnesota requesting a $62,000,000 increase in the annual revenue requirement and $53,000,000 for interim rates proposed to go into effect at the beginning of next year. Lastly, we anticipate filing a general rate case for our Beaumont East Texas division later this year. Turning to Slide 11. We are on track in Indiana with developing our integrated resource plan or IRP and we continue to anticipate filing the plan during the Q2 of next year. We are eager to put forward a plan that reduces carbon emissions, maintains grid integrity and provides reasonable rates for customers.
Following the completion of the IRP, we will submit a new investment request plan to the Indiana Utility Regulatory Commission that reflects the IRP outcomes. On Slide 12, let me give you some highlights noted on Enable's earnings call yesterday. First, they are focused on executing growth projects, including Gulf Run and the Merge, Arcoma, SCOOP and STACK transportation project. 2nd, despite the decline in rig count, rig efficiencies continue to help support volumes. 3rd, Enable continues to generate strong cash flows and they forecast a strong distribution coverage for 2020.
Lastly, Enable announced their 2020 guidance of $385,000,000 to $445,000,000 of net income attributable to common units. On Slide 13, we show that since its formation through our ownership of common units, Enable has provided approximately $1,800,000,000 in cash distributions to CenterPoint, and we expect the total amount to grow to more than $3,000,000,000 by the end of 2023. The distribution from Enable provide an efficient source of cash to support our utility infrastructure investments. Let me close by saying that I'm very pleased with our performance in the Q3 and anticipate a strong finish to 2019. As noted on Slide 14, as part of our overall strategy to improve earnings quality through increased relative contribution from our utilities, we continue to focus on the areas I outlined on the last earnings call: executing on merger integration and regulatory proceedings, managing O and M and continuing to invest in our utilities.
Our non utility businesses continue to provide cash, which helps fund the investments needed to serve our regulated service territories. I look forward to continuing to provide updates on our merger progress and delivering on the financial goals we set forth. Now let me turn to Shaw for the financial update. Shaw?
Thank you, Scott, and good morning, everyone. I will now turn to the for the quarter, we delivered $0.53 per diluted share compared to $0.39 for the same quarter last year. Our utilities provided a $0.23 positive variance. I would like to highlight 4 areas which contributed to our utilities' strong performance. First, operating income of the acquired Vectren utilities added $0.10 for the quarter.
2nd, O and M savings provided a positive variance of $0.08 3rd, rate relief and customer growth provided a positive impact of 0 point 0 $5 Lastly, warmer than normal weather in our Houston electric service territory provided approximately $0.03 of positive impact for the quarter. Our utilities continue to deliver strong results and we are very pleased with their performance this quarter. Our non utility businesses provided a combined positive variance of $0.10 quarter to quarter. Energy Services and Infrastructure Services performed as expected, providing a positive variance of 0 point 11 dollars Midstream investments provided a $0.01 negative variance. Merger financing and interest expenses are the primary drivers for the remaining negative variance of $0.19 partially offset by a positive variance of $0.03 driven by lower effective income tax rate.
Turning to Slide 17. Let me provide you some additional color on our utility businesses' strong performance in the Q3. Houston Electric added more than 48,000 customers year over year, which equates to approximately 2% growth. Our natural gas distribution business added more than 47,000 customers year over year in our legacy jurisdictions, which equates to approximately 1.4% growth. Including the over 1,000,000 customers acquired from the merger, our natural gas distribution business is now the nation's 2nd largest gas utility by customer count, serving more than 4,500,000 customers.
As Scott mentioned, we continue to see momentum from our focus on O and M Management. Looking at Slide 18, we are forecasting a positive year over year O and M variance of close to $100,000,000 for 2019 across all 15 regulated jurisdictions. This represents 6% year over year This represents 6% year over year reduction. This is a combination of merger savings and our general O and M discipline efforts. This holistic expense management approach will continue to be our focus going forward.
In terms of utility capital investment, we expect full year 2019 to be approximately $100,000,000 higher than originally planned. The additional investment is related to system modernization at Houston Electric and increased pipeline replacement work 20 for the 2020 to 2024 period will be maintained at the levels from the previous 5 year plan. Our capital planning process is in full swing, and we plan to provide a comprehensive update on our capital investment program on the 4th quarter earnings call. We must become more efficient while maintaining our strong focus on safely operating our businesses and investing in infrastructure to provide clean, safe, reliable and affordable services to our customers. We will remain focused on managing expenses, efficiently allocating capital and earning close to our allowed ROEs.
Turning to Slide 19, you will see a breakdown of consolidated diluted guidance based EPS and performance expectations for the remainder of 2019. On a guidance basis and excluding merger impact, year to date through September, we have delivered $1.34 per diluted share, $0.10 higher compared to the same period last year. Looking forward to the end of the year, operating income from our utility businesses for the year is expected to be $0.65 higher than 2018, driven by rate relief, customer growth, O and M management, weather as well as newly acquired jurisdictions. Operating income from Energy Services and Infrastructure Services is expected to be $0.13 higher than last year, primarily driven by an $0.18 increase from the newly acquired infrastructure services, offset by a $0.05 decrease from energy services. We expect earnings from midstream investments to be $0.06 short of the performance from last year, reflecting the lower end of Enable's earnings guidance for the year.
The remaining $0.63 negative variance is driven by $0.65 attributable to merger financing impact, partially offset by a positive variance of $0.02 as a result of interest expense and tax. In summary, excluding potential other variability as noted on the slide, we expect to deliver full year 2019 guidance basis EPS near the top end of our $1.60 to $1.70 guidance range. I understand investors are eager to hear clarity around some of the developments surrounding our 2020 guidance and EPS growth forecast. Slide 20 provides a high level timeline outlining several key activities over the next few months. Yesterday, Enable provided their 2020 earnings guidance.
In the coming months, we expect clarity on the pending Houston Electric rate case, further refinement of the 5 year capital plan, including technology integration costs and the resulting financing plan. Let me share some thoughts on how we plan to provide guidance on the 4th quarter call. First of all, with respect to merger related synergies, we're on track to exceed the $50,000,000 targeted for 2019. And given our year over year O and M reduction is approaching $100,000,000 this year, we're already on target for our anticipated synergies for 2020. Following this year, we will focus on consolidated O and M Management rather than discussing synergies separately from general O and M Management.
2nd, we're on track with respect to merger integration and expect total cost to achieve to be between $210,000,000 to $230,000,000 for 2019. We're in the process of finalizing our technology integration plans and expect to provide an updated estimate for cost to achieve beyond 2019 on the Q4 earnings call. Given that these costs are not reflective of ongoing earnings potential, we intend to continue to exclude costs to achieve from guidance going forward. 3rd, we intend to provide 2020 earnings guidance for CenterPoint Businesses, excluding Enable earnings. Separately, we will provide an earnings range from Enable based on the public guidance they have provided.
In addition, we plan to provide multi year utility EPS growth targets. We believe this approach will better highlight many important aspects of our utility businesses, including capital expenditures, rate based growth rates as well as financing requirements associated with the capital programs. While some issues are still open with respect to our 2020 outlook, let me remind you that our core business fundamentals are sound. Customer growth remains steady in our service territories. We continue to make capital in our service territories.
We continue to make capital investments in our utilities to address growth, safety, reliability, resiliency and customer service needs across our service territories. We continue to be committed to maintaining solid investment grade credit quality as we firmly believe that a strong balance sheet is fundamental in providing long term value to our customers and shareholders. In conclusion, we delivered another strong quarter and remain confident in achieving near the top end of our 2019 guidance basis EPS range. We are executing our merger plan and achieving synergy. We are focused on driving efficiencies throughout our business.
We are deploying significant utility capital needs. Finally, we anticipate utility earnings will make up approximately 75% of our overall earnings this year. This performance reinforces our commitment and ability to effectively manage the business and deliver on shareholder expectations. I'll now turn it back to David.
Thank you, Shah. We will now open the call to questions. In the interest of time, I will ask you to limit yourself to one question and a follow-up. Myra?
Our first question is from Ali Agha at SunTrust.
Scott, I believe it was as recent as the last earnings call at which you had reiterated a consolidated long term growth rate of 5% to 7% for CenterPoint of the 2018 actual base. Is that no longer operative now?
Ali, we have postponed talking about the growth rate until we get clarity on the earnings or on the CEH rate case. And I think Shaw also indicated that going forward, we intend to talk about growth excluding Enable. So those are the 2 pieces that have entered into the equation now. But of those 2, the biggest is really getting clarity on the Houston Electric rate proceeding.
Okay. And on the rate proceeding, can you at least give us I know you laid out some markers in the slide deck, but to put it in some context, can you give us some sense of if this proposed decision does become final relative to expectations, how big of a negative it should be?
Yes. It's clearly the PSD is not a good outcome. We've tried to communicate that. Maybe one way to think about it is relative to current rates, we've assumed that we would at least be recovering the additional investment, the over the $1,000,000,000 plus of investment that we have already put in service that is not yet in rates. If we just recovered that piece, that would be an increase, if you will, in rates from where we were, whereas the PFD has suggested a decrease.
So that is a sizable or a notable difference. Additionally, the reductions in FFO were not anticipated as well. We will be in a better position to describe the actual impacts of that as we get clarity. And I just want to reiterate, while the PFD is challenging, the commission has yet to weigh in on this and we remain confident in the process and hopeful that the commission will reach a more balanced decision as they look at the facts.
Right. And just one quick follow-up. Are you still committed to all the non Uniti businesses? Are they still considered core as far as you're concerned?
The non utility businesses are source of cash generation for us for our utilities. That's how we look at them. We mentioned on the last call and I'll just reiterate that our regular cadence of activity is to continually evaluate each of our businesses to figure out if they are providing the maximum value possible to shareholders and we continue to do that on an ongoing basis.
Thank you.
Thank you, Ali.
Our next question is from Michael Weinstein and Credit Suisse.
Hi, good morning.
Good morning.
Could you comment a little bit about your strategic plans for the non regulated businesses, particularly the infrastructure services business going forward? Do you intend to hold on to them long term? Or are we looking at a full divestiture at some point?
I think the best way to answer that is maybe a reiteration of what I had just mentioned to Ali and that is we see those businesses today as a source of cash for investment in our utility businesses. And as part of a regular course of management, we evaluate whether businesses are providing the maximum value to shareholders as they
possibly can. And we look at that on a regular
basis as does our continue to think about our businesses in that context with an eye towards value maximization.
Hi. And for Shia, I'm just wondering if looks like you found about $100,000,000 worth of O and M reductions so far. And I'm wondering if just generally speaking ahead of the Q4 review, are you pleasantly surprised with what you're finding? Or are you optimistic
The The part of the $100,000,000 is what we expected, which is the synergies that we set forth a target of $50 plus 1,000,000 this year. So we are ahead of that. I think the team has done a really good job from day 1, getting costs out and continue to focus on basically turning every rock to see where we can find additional synergies. So the team has done a really good job this year improving processes and achieving synergies. At the same time, we reiterated our focus on overall O and M efficiency focused.
So over the past several quarters, we have seen the results from the continuing to focus on that. I think all businesses have made their commitment in looking at the overall spending plan and make sure we are basically doing everything we can to become more efficient. So I'm very optimistic the future, about our continued focus on that aspect. At the same time, I think it would allow us to continue to focus on capital deployment and grow our utility infrastructure.
Thank you very much.
Our next question is from Shahriar Pourreya and Guggenheim.
Hi, good morning. It's A couple of questions here. Understanding that it's an early outlook on the capital plan, but can you kind of give a little bit of color on any moving pieces that you've kind of seen that you can address at this time versus prior expectations? And how does that early outlook kind of correspond to keeping the utility growth intact or is there anything incremental?
Yes, sure. As I shared just now, we expect about over $100,000,000 increase for 2019 compared to what we previously communicated with you for the year. And for the 2020 to 2024 period, we expect the overall aggregate amount to be similar to what we shared with you from the prior 5 year plan. The timing of it could be different and that one key factor is the IRP. We're finalizing the IRP in Indiana.
So the timing of that will be incorporated, as well as the continued need from our legacy utilities and from the new acquired gas. So I would say that overall, from an aggregate standpoint, we see we will maintain at a similar level for the next 5 years.
Perfect. And so kind of as this kind of plan gets formulated, can you give a little bit of color how it fits with the kind of strategic objectives that you outlined of kind of growing the utility earnings? Is that a kind of a purely organic objective at this point?
Yes. Grow utilities, continue to focus on O and M management and try to be smart about allocating capital and try to achieve closer to our allowed ROEs.
And just one quick follow-up on that. So with kind of the O and M management kind of that you highlighted on this call, those look like some pretty good numbers from kind of where we're sitting. Is there kind of specific programs going forward that you see going on and kind of how deep do you see that pool? And just if you can, any kind of statements on the kind of recurring nature of the savings program kind of moving past 20?
I think the best way to answer that is, we're very pleased with where we are so far and we're pleased about the projected year end numbers. And we think that will be a good starting point going forward. And as we apply a similar discipline, we expect the momentum to continue into future years.
Perfect. Thanks.
Our next question is from Julien Dumoulin Smith and Bank of America Merrill Lynch.
Hey, good morning, team.
Good morning, Julien. Hey, so a couple of follow ups here. On the strategic decisions here, how do you think about the balance sheet into 2020 and potential needs to raise capital against, also I think if I can square it, your slides also specifically say a 5 year utility outlook, obviously ex enable. But I want to make sure I understand, I mean, are we to think about the other X Enable businesses as being potentially on the table here to address balance sheet needs? Or how are you thinking about them at this point?
And then I have a follow-up.
So, Julian, the way I would think about it is, as I've said earlier, right, today, we the non utility businesses and the non enabled non utility businesses are a source cash for us today. So when we talk about providing a look going forward, it would be for the portfolio excluding Enable. That's one way to think about it. You had another part to your question.
The balance sheet.
The balance sheet. I'll let Shah talk to the balance sheet.
Yes. Julian, the CTE rate case will be a very important component of that decision. That's part of the reason why we are not ready to share the equity financing number yet because like Scott mentioned, the FFO reduction, that in itself would impact the financing need to maintain similar credit metrics. So we're not quite ready to address that yet, but we're fully aware that maintaining our credit quality is very important. Continue to find ways to strengthen the balance sheet is another priority.
Got it. All right, fair enough. And then again, kudos on the cost cuts this year indeed. Can you talk briefly about how you think about that going forward? I mean, obviously, we've got a big pending rate case.
I understand that. At the same time, how do you think about narrowing that gap going forward? How do you think about earned returns across the utility business this year and into next and potentially continuing to narrow that gap?
Yes, Julien, I'll start and maybe Sean want to add. We have every intention of continuing our discipline around expense management. I would say the driving force that allowed us to make a sizable move this year was the merger. But we think of the savings that we have to date as a new on managing expense. The actual numbers associated, we're still working those out, but we see the gains that we've made to date as establishing a
about today versus prospectively that
we can achieve, if you will? From an O and M perspective?
Yes, as in or from an earned return perspective, how much of a gap is there to narrow in your mind given some of the cost reductions that we're talking about?
Yes. Julien, trying to I think this year, we are we closed some of the headroom related to from the expected returns versus the allowed returns. So particularly our natural gas businesses are doing a really good job and just focusing on every dollar isn't the same. So where do we deploy, make sure that we provide safety, reliable service, at the same time being really smart about where to deploy the next incremental dollars. At CT, the timing of filing TCOS and DCRF, that in itself will continue to have a lag.
For instance, the time you file TCOS versus the time we receive the revenues, there is a 3 month delay. And DCRF is filing in April and getting rates in September. So the inherent regulatory lag will continue to be there. At the same time, I think the continued focus on O and M will give us some ability. I don't think we could close completely the gap to the allowed ROE, but that definitely is a focus for us going forward.
Got it. All right. Fair enough, guys. I'll let you be. Thank you.
Thanks, Jaya.
Our next question is from Insoo Kim and Goldman Sachs.
Thank you. Maybe starting with the fee rate case, I understand there's a lot of moving parts that will go into the 2020 guidance that will be provided in February. But, Scott, when you mentioned that, just when we're trying to put some pieces together, your original guidance, which had the 182 midpoint had about, I guess, dollars 1,000,000,000 of spend that you weren't getting the recovery and return on. And the PFD would result in $27,000,000 of operating income decrease from the current rates. If I just take the rate base math of the $1,000,000,000 and then also the small difference in the operating income in the PFD, that would I would calculate something like a $0.12 $0.13 difference.
All else being equal, is that the way I should think about just how CEAP was included in the original guidance and what the PFD would imply?
Anshu, I think the math and the way you're thinking is the right line of thinking. Couple of things though, that doesn't include the impacts associated with the reduction in FFO. That's just the kind of the earnings side. Shaw talked earlier about a significant reduction in FFO could accelerate the needs for equity, for example, to maintain the current metrics. So it doesn't include that nor does it include what I would consider management response.
Because depending on the outcome, we would consider what actions we can take to help mitigate the negative effects of an outcome. But that's why I said there's a lot of moving parts here. And while we're trying to provide clarity about what the PFD says, I just want to reiterate the process isn't over and the commissioners have not yet opined on this. And we are very hopeful that the commissioners will have a different view of what's appropriate.
Insoo, I'll just add quickly. In the original guidance, we also had expectations on Enable and the other non utility businesses and you're aware about the development particularly related to the Enable. They got it to the lower end of this year and they just issued their 2020 guidance. That was another component in the original guidance range.
Yes. I totally understand all the other moving parts. I just didn't want to open up a whole can of worms and all the moving pieces. I appreciate that. Maybe secondly, related to sticking with CEH, if the results of the PSD do hold with the associated disallowances, how does that impact your thoughts going forward on future capital spend at the utility?
And what type of investments you may make or may not make given the current rate case decision?
Well, I'd say, look, we still have an obligation to serve the customers in our service territory, and the needs of our customers ultimately are the ones that drive our thinking about capital. There is a little bit of discretionary capital from a timing perspective, but by and large, the capital we spend is needed to serve the needs of the community. So we would have to for example, if there were disallowances upheld, we would have to get clarity on views around what is acceptable spend before we go down the path of making the spend. That's one example of some management action that we would need to take here. But the capital itself would be driven by primarily by it's going to be driven by the needs of the community as opposed to the necessarily the outcome of the proceeding.
Understood. Thank you very much.
Yes. Thank you.
Thank you. Our next question is from Chris Turnure and JPMorgan.
Good morning. The only question that I had left for you guys was on kind of where you're at right now with Houston Electric credit metrics. Just kind of where they're at, including outlooks, when you last got an update from the agencies and if these have been part of the discussion at all with the intervener so far in Texas?
Our rating agencies are the CT rate pay standpoint. We keep the communication very transparent and open with them. I think they are just like us eager to find out what the final but the other thing, like Scott said a couple of times, we remain hopeful that the final outcome is more balanced and constructive outcome. So depending on
the
are. Chris, I would also add, I think the interveners are certainly very aware of the views of the rating agencies about the condition that CE is in relative to the rate proceeding as well as the commission and others as the information and views around this have and concerns quite frankly have been shared as part of the process.
Okay. Because certainly some of your peers have had that as part of their discussions in recent rate case processes there around the authorized equity layer and other things.
Yes. Absolutely part of our discussion.
Okay. So it sounds like certainly part of the discussion, but also nothing has changed there in terms of the focus or lack of focus on that versus prior discussions for other rate cases in Houston?
Well, again, the only information we have so far is the judge's view of PFD. That's the only piece of information that's come out about how to think about this. The commission has yet to weigh in on this particular issue, but we made it very clear going into the rate case and throughout the periods in which we can respond to comment and provide our own comments of the issues associated with the subject around credit metrics is caused by different factors. So everyone is very all the key parties are very aware of this issue.
Chris, to your point, the recommendations from the ALJs didn't take that into consideration.
Okay. Helpful color. Thank you, guys.
Yes.
Our next question is from Charles Fishman and Morningstar Research.
Thank you. Scott, on Slide 8, you seem to imply a decision might not be reached next week, but it seems like everything is queued up for the commission to make that decision. Is there something they're still waiting on? Or what is your why might they not make a decision next week?
Well,
it could be
a number of things. It could be that they there's a number of issues that we're asking them to opine on. There's a full agenda, for example, at the meeting on 14th. There are just a number of things going on. And while we would perhaps like them to work through every one of our issues and debate and make a decision, it may be from a timing standpoint that they don't get through everything and it just gets pushed to the following meeting.
They are not obligated to kind of make a decision, at this upcoming meeting. So that's why we think it's possible they could begin dialogue and push it to another meeting. And it's also possible they could get to an endpoint, but nothing other than just the number of issues to be debated and the size of the agenda that will make us think it would be pushed.
Sounds like administrative then more than any technical thing. Yes. Okay. Yes.
That's what we would
think of it.
The second question on Slide 24, 1st 9 months on the operating earnings or guidance basis earnings, dollars 0.29 from the utilities, positive from the utilities acquired in the merger, dollars 0.14 from the Energy Services business. If my math is right, that's $0.43 and yet $0.48 negative from the merger financing. Is that being unfair to say this transaction looks pretty dilutive for the 1st 9 months? Or should some of that $0.07 O and M management be credited towards the merger?
Yes, some of the O and M management should be credited towards the merger. I think the merger financing itself is around $48,000,000 If you add the pickup from the acquired jurisdictions, Indiana Electric year to date added $0.16 legacy Vectren Gas added $0.13 the infrastructure services added $0.14 And then some of the O and M management should be credited to the variance. You should compare those moving parts to the merger financing.
Is roughly a breakeven.
Yes, that's a good way to think about it.
Okay. That's all I had. Thank you.
Our next question is from Ashar Khan and Viroshan.
Good morning. Good learnings. Can I just ask that you said you will be providing the CAGR for the utility business based on the forecast for this year 2019 and if you can assume we are at the upper end, how much would utility earnings come out to be in that scenario? I wanted to start off with the base and just wanted to get a good idea. So under your current guidance for 2019, what would the utility guidance be?
Roughly 75% of the of our earnings is expected to be from the utilities. Keep in mind, there are several moving parts in there. We had some favorable weather in there, and we also had favorable income tax items that might not necessarily repeat itself. But roughly the way to think about it is the utility is 75% of the earnings expectations. And that's based on today's CEH regulatory construct.
So the outcome of the CEH regulatory
So if I take 75% of $1.70 it's 1.27 dollars And how much would you say is weather and the tax items? Could you just quantify those year to date? How much would those be?
Yes, happy to. So year to date, whether roughly $0.03 positive, a little over $0.03 and the favorable tax item for this year alone is roughly $0.05
Okay. So we are running approximately $1.20 base this year normalized for taxes and weather as for the utility. Would that be a fair number?
Yes, close to.
Okay. Thank you so much.
Our last question is from Anthony Craddell and Mizuho.
Hey, good morning. Hopefully an easy question. What's the process on the motion for rehearing in Husek like the timeframe and how long does like I guess the clarity on the motion for rehearing?
Jason, do you want to come
down here and answer this for me? Sure.
I'm going
to bring our regulatory expert down here to make sure he doesn't have to correct me on the timing.
Good morning. It's Jason Ryan. So the process for rehearing is that a couple of weeks after the order issued by the commission, motions for rehearing are due. And then the commission has up to 100 days from the date of their order to rule on motions for rehearing or they're just overruled by the passage of time.
Do you have any
like historical preference in Texas of maybe when orders have been changed through rehearing? Is that something you guys have or can disclose?
So, motions for rehearing are granted and denied depending on the issues that they raise. Sometimes the motions for rehearing are granted to correct a purely administrative item versus changing a substantive ruling. Sometimes there are changes to the substantive ruling.
On Slide 8 you state that the new rates go into effect 45 days after the PUCT order becomes final. If you file for a motion for rehearing, when is that final date when the motion for rehearing is either granted or denied, is that the final date?
Yes.
Got it. That's all my questions. Thank you.
And at this time, there are no further questions. I will now turn it back over to David Mordy for any closing remarks at this time.
Thank you, everyone, for your interest in CenterPoint Energy. We look forward to seeing many of you at the Edison Electric Institute Conference shortly. We will now conclude our Q3 2019 earnings call. Have a great day.
This concludes CenterPoint Energy's 3rd quarter 2019 earnings conference