Good morning, and welcome to CenterPoint Energy's third quarter 2026 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 the management's remarks. To ask a question, press star one one on your touchtone keypad. I will now turn the call over to Ben Vallejo, Vice President, Investor Relations and Corporate Planning. Mr. Vallejo, please go ahead.
Good morning, and welcome to CenterPoint's Q3 2026 earnings conference call. Jason Wells, our Chair and CEO, and Chris Foster, our CFO, will discuss the company's third quarter 2026 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. Actual results could differ materially based on 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 other than as required under applicable securities laws. We reported $0.50 per diluted share for the third quarter of 2026 on a GAAP basis. Management will be discussing certain non-GAAP measures on today's call.
When providing guidance, we use the non-GAAP EPS measure of diluted adjusted earnings per share on a consolidated basis referred to as non-GAAP EPS. For information on our guidance methodology and reconciliation of the non-GAAP measures used in providing guidance, please refer to our earnings news release and presentation on our website. We use our website to announce material information. This call is being recorded. Information on how to access the replay can be found on our website. Now, I'd like to turn it over to Jason.
Thank you, Ben, and good morning, everyone. On today's call, I would like to address three key areas of focus for the quarter. First, I will briefly touch on our strong third quarter financial results and the increase to our 2026 non-GAAP EPS guidance range we announced this morning. Second, I will discuss how the accelerating and diverse customer-driven growth in our Houston Electric service territory is driving the $4 billion increase to our capital investment plan and the acceleration of another $1.5 billion into the first five years of our plan. With more growth expected, today's increase reflects only a portion of the opportunity in front of us as we continue to see at least $10 billion of additional investment opportunities through 2035.
And finally, I will discuss how the strength and visibility of our growth across our service territories gives us the confidence to extend our long-term earnings outlook. We now expect to deliver non-GAAP EPS growth at the mid to high end of our 7%-9% annual range for another two years through 2030. I will also cover our 2027 non-GAAP EPS guidance of $2.07-$2.09, representing 9% growth at the midpoint from our increased 2026 guidance. I will start with our strong third quarter financial results. This morning, we reported third quarter 2026 non-GAAP EPS of $0.53. Our continued strong execution brings us to nearly 80% of the midpoint of our original full year guidance range of $1.89-$1.91. Our outstanding year-to-date results gives us greater confidence and visibility to raise our 2026 non-GAAP EPS guidance range to $1.90-$1.92.
At the midpoint, this new and higher range would represent nearly 9% growth from our 2025 delivered results and would mark the fifth year of more than 8% growth since 2020. It also resets our earnings base higher from which we intend to compound future growth as we seek to create durable value for our investors year after year. I would now like to turn to the accelerating and diverse customer growth that is driving today's announced $4 billion increase to our capital investment plan and the acceleration of an additional $1.5 billion of investments. Greater Houston's growth continues to accelerate, demonstrated by approximately 14 GW of customer demand we submitted as eligible load for ERCOT's Batch Zero process.
As we continue to work with stakeholders on our Batch Zero submissions, we remain highly confident in the 10 GW of base load demand we outlined on our previous call, and we now expect approximately 2 GW to remain as studied load. Combined with our smaller transmission and distribution customers' growth, we expect to energize at least 14 GW by the end of 2030. This incredible demand is creating a powerful multiplier effect as large industrial expansions drive broader commercial growth across our service territory. Notably, industrial and commercial leasing activity in the Houston area is up more than 30% from last year. We are seeing that momentum firsthand with nearly 1 GW of distribution level load request received in the last year.
Houston Electric's more than 10 GW of existing system capacity help to attract this demand by enabling fast, efficient, and cost-effective interconnections, giving Greater Houston a compelling speed to market advantage over competing regions across the country. This growth strengthens the regional economy while also supporting customer affordability. Notably, the at least 14 GW of demand anticipated through the end of the decade are expected to generate $5 billion in customer savings across Texas over the next 10 years. Serving this growth absorbs the capacity that helped attract it. To replenish that capacity and sustain the region's competitive advantage for the next wave of demand, earlier this year, we began an internal transmission study focused on increasing load-serving capacity in three key areas. First, import transmission capacity. Second, system stability, and third, interregional transmission capacity.
To date, that work has identified more than a dozen projects across these three areas required to add incremental load-serving capacity. This capacity is needed in the near term, as we already have requests for significant additional demand that we anticipate submitting in Batch 1 next year. Together, these projects represent approximately $5.5 billion of investments in two categories. First, $4 billion for newly identified projects not previously included in our 10-year plan, and $1.5 billion of projects accelerated from the back half of the plan into the first five years through 2030. We will efficiently fund this growth with a modest $1.6 billion increase to our equity financing guide, below our 47% rule of thumb for financing incremental investments. Chris will cover the timing of our capital investment and equity financing needs, including opportunities to reduce the amount of equity financing in his section.
Combined with a sufficient financing, the increased and accelerated investments will strengthen the earnings power of the company and are expected to drive an enterprise rate base CAGR of more than 14% through the end of the decade. We will continue to advance our transmission study to identify the additional infrastructure needed to meet the region's accelerating growth, which will likely inform additional incremental investments. Beyond today's $4 billion increase, we continue to see at least $10 billion of additional investment opportunities through 2035, driven by three categories. First, additional transmission infrastructure to support Greater Houston's accelerating customer demand. As we continue to advance our transmission study process, that will likely inform incremental investments needed to enable the next phase of growth in Greater Houston. We expect to be in a position to share our next update in this process in the first half of next year.
Second, along these growth investments, we will advance additional resiliency initiatives that build on Houston Electric's nearly 40% improvement in reliability over the past several years. We expect greater visibility into these incremental investments in the second half of next year and are targeting filing our next System Resiliency Plan by the end of 2027. Third, we continue to see large load opportunities in Indiana, where we anticipate signing a deal with a large load customer by the end of the year. These incremental opportunities, combined with the investments announced today, reinforce our confidence in delivering sustained double-digit rate base growth over the course of our 10-year plan while supporting long-term reliability, resiliency, and economic competitiveness across our service territories. In closing, we continue to believe that we have one of the most customer-driven and durable long-term growth plans in the industry.
The scale and pace of the customer-driven growth in Greater Houston is already driving today's announced $4 billion increase in our capital investment plan and reinforcing the long-term earnings power of our company. These needed investments provide the visibility to extend our expectation for non-GAAP EPS growth at the mid to high end of our 7%-9% annual guidance range through 2030. The opportunity extends well beyond today's plan update. We continue to see at least $10 billion of additional capital investment opportunities through 2035, supporting economic growth, customer affordability, and safe and reliable service in the communities we serve. With that, I'll now turn it over to Chris to cover the financials in more detail.
Thanks, Jason. This morning, I will cover four areas of focus. First, I will walk through our strong third quarter results, which bring us to nearly 80% of our full-year guidance and support raising our 2026 non-GAAP EPS guidance range from $1.89-$1.91 to $1.90-$1.92, as well as our extended outlook to grow at the mid to high end of our 7%-9% range through 2030. Second, I will detail the customer-driven $4 billion increase to our 10-year capital plan from $66.7 billion to $70.7 billion through 2035, and the $1.5 billion of accelerated investment that together drive an enterprise rate base CAGR of more than 14% through 2030.
Third, I will discuss our updated financing plan, including a modest $1.6 billion increase in equity financing to fund 40% of the $4 billion capital plan increase to support strong credit metrics, a healthy balance sheet, and a pathway to higher long-term growth. Finally, I will provide a brief regulatory update, including progress on timely recovery of our investments through our interim capital trackers. Starting with our third quarter results on Slide four. On a GAAP EPS basis, we reported $0.50 for the third quarter of 2026. On a non-GAAP EPS basis, we reported $0.53 for the quarter. Our non-GAAP results exclude the impacts of our temporary generation units, which are no longer part of our regulated utility business. We are actively marketing these units for sublease or sale, and any resulting gain will also be excluded from our non-GAAP results.
Now, taking a closer look at the drivers of our strong third quarter results. Compared to the third quarter of 2025, growth and rate recovery contributed $0.09 of favorability, driven by a full quarter of updated rates from interim filings that became effective in June. Weather and usage were $0.03 favorable, driven by hotter weather and higher usage across our Texas and Indiana service territories. O&M was flat for the quarter, and we remain on track to reduce O&M by 1%-2% from the prior year. Year to date, we have already achieved a 1% reduction as we continue to take costs out of the business for the benefit of all stakeholders. Other items were $0.05 unfavorable, primarily due to a one-time deferred income tax remeasurement benefit recorded last year as part of our efforts to optimize our tax structure.
Higher financing costs were $0.04 unfavorable, $0.03 from approximately $3 billion of new debt issuances net of maturities, and $0.01 of dilution from modest equity financing. We have also now completed our financing needs for the year. These results bring us to nearly 80% of our original full-year guidance and give us confidence in delivering our increased 2026 non-GAAP EPS guidance range of $1.90-$1.92, nearly 9% growth at the midpoint over our 2025 results. Supported by the incremental investments I will detail in a moment, we now expect to grow non-GAAP EPS at the mid to high end of our 7%-9% annual range through 2030 and 7%-9% annually through 2035. Our 2027 non-GAAP EPS guidance of $2.07-$2.09 or 9% growth at the midpoint reflects that momentum.
Turning now to our capital plan, which reflects a $4 billion increase and $1.5 billion of accelerated investment to serve the customer growth already underway. As Jason Wells outlined, we are increasing our 10-year capital investment plan by $4 billion to $70.7 billion. Combined with our earlier 2026 updates, we have now increased the plan by $5.7 billion or nearly 9% since our 2025 Investor Day. We are also accelerating $1.5 billion of projects originally planned for after 2030 to prepare the system for diverse customer demand. Approximately 85% of the initial projects identified in our transmission study are brownfield projects within existing rights of way, providing a more straightforward path to expanding system capacity.
We will begin deploying this capital in 2027 and scale the investment in the years that follow, deploying $4.5 billion of the incremental and accelerated investments by the end of 2030 and driving an enterprise rate base CAGR of more than 14% through 2030. We expect to efficiently recover these investments through our existing transmission and distribution capital trackers. Importantly, this is just the initial phase. As our transmission studies continue, we expect future capital updates as we build the system needed to meet the unprecedented demand growth across the greater Houston area. Turning briefly to the 2026 capital execution, we invested $4.1 billion through the third quarter for the benefit of our customers and communities. We expect full-year capital investment to come in modestly below our $6.8 billion target, due solely to project timing, which we expect to recover in the first quarter of 2027.
Turning now to how we will fund the incremental investments announced today. We are increasing our remaining 10-year equity financing guide by $1.6 billion to $4.5 billion, well below our previously communicated 47% funding guide for incremental capital investment. We expect to issue approximately $4 billion from 2027 through 2030, including $500 million to $700 million of common equity in 2027. Across the $5.7 billion of capital plan increases announced this year, incremental equity represents only about 25% of the funding requirement, demonstrating the efficiency of our financing plan. As a reminder, cash flow benefits from Treasury's corporate alternative minimum tax clarification enabled us to increase our capital plan earlier this year without additional equity financing. Looking ahead, we see additional financing tailwinds that we believe could either, one, reduce our updated equity guide or, two, fund incremental capital investment at amounts less than our 47% equity rule of thumb.
I will highlight a few examples. First, a sublease of our temporary generation units could provide cash flow tailwinds through 2029, while a sale could generate upfront proceeds to reinvest immediately in our regulated businesses. Second, we will continue to evaluate our portfolio and financing needs to efficiently fund both our current plan and future opportunities. The recently completed sale of our Ohio Gas LDC business reflects our continued focus on optimizing our portfolio and allocating capital efficiently across our jurisdictions. Third, we continue to work with stakeholders to reduce regulatory lag and secure more timely recovery of our investments, supporting efficient financing for customer-driven growth. Building on our financing plan, I want to touch on our credit metrics and balance sheet. At the end of the third quarter, our adjusted FFO to debt ratio under Moody's methodology was 13.7%. Two developments since quarter end should further strengthen this metric.
First, we completed the sale of our Ohio Gas LDC business on October 1, receiving approximately $1.4 billion in proceeds. Had those proceeds been reflected in our trailing 12-month metrics, our adjusted FFO to debt ratio would have improved by approximately 50 basis points. Second, earlier this month, we filed for a refund of previously paid corporate alternative minimum tax following clarification this year that we are not subject to that tax. We expect the refund to improve our full year 2026 credit metrics by an additional 60 basis points. Neither benefit is reflected in our trailing 12-month metrics. Together, they reinforce our confidence in ending the year toward the higher end of our targeted 100 to 150 basis point cushion above the Moody's downgrade threshold. Following Moody's revision of our outlook to stable, we now have stable outlooks across all rating agencies, reflecting our strengthened financial position.
Lastly, turning to regulatory matters, our frameworks across our service territories continues to support timely, efficient recovery of our customer-driven investments, as reflected in this quarter's updates. At Houston Electric, we filed our second distribution capital tracker, or DCRF, requesting a $73 million revenue requirement increase. Interim rates were approved and implemented at the end of September, with a final order expected this month. In addition, we filed our second transmission capital tracker, or TCOS, in August and have since received a final order approving a $29 million revenue requirement increase, which is now reflected in customer rates. Outside of Texas, we expect to file a three-year forward-looking rate case for Minnesota Gas within the next week, reflecting investments to modernize our system through pipeline and gas meter replacement and provide safer, more reliable service for our customers.
In December, we plan to file a combined rate case for our North and South Indiana gas service territories. As previously communicated, we expect this approach to result in a bill decrease for a significant number of our residential customers. Across all our service territories, we remain laser-focused on keeping our service affordable for customers. In summary, our strong year-to-date execution supports our increased 2026 non-GAAP EPS guidance of $1.90- $1.92 and reinforces our confidence in the outlook ahead. The $4 billion increase to our capital plan and $1.5 billion of accelerated investments position us to serve the customer demand already here and drive enterprise rate base growth of more than 14% through 2030.
Our disciplined financing plan funds this growth efficiently while preserving our long-term balance sheet strength. Together, these support our 2027 non-GAAP EPS guidance of $2.07- $2.09 and our expectation to grow at the mid to high end of our 7%-9% annual range through 2030 and 7%-9% annually through 2035. Our strong execution, disciplined financing, and clear growth visibility position us to deliver sustained earnings growth and create durable value for all our stakeholders. With that, I'll turn the call back to Jason.
Thank you, Chris. In closing, our strong year-to-date execution gives us confidence in delivering our increased 2026 non-GAAP EPS guidance, putting us on track for a fifth year of more than 8% growth since 2020, and our 2027 guidance of $2.07-$2.09 builds on that momentum. That momentum is being matched by growth that is already here. Unprecedented customer demand in Greater Houston is already requiring a $4 billion increase to our capital investment plan and $1.5 billion of accelerated investment, efficiently funded and driving enterprise rate base growth of more than 14% through 2030. There is more to come.
With the line of sight to at least $10 billion of additional customer-driven investment through 2035, today's update captures just a portion of the opportunity in front of us. The strength of this growth gives us the confidence in our ability to deliver non-GAAP EPS growth at the mid to high end of our 7%-9% range through 2030 and 7%-9% annually through 2035 through investments that strengthen reliability, support affordability, and power economic development across our service territories for the benefit of our customers.
Thanks, Jason. Operator, I would like to turn it over for Q&A.
Thank you. At this time, we will begin the question and answer session. If you wish to ask a question, please press star one one on your touch tone keypad. The company requests that when asking a question, callers pick up their telephone handset. We will pause for a moment while we compile our Q&A roster. Our first question comes from Shar Pourreza with Wells Fargo Securities. Your line is open.
Hey, guys. Good morning.
Morning, Shar.
Pretty solid update. First off, just want to reconcile the updated rate base growth and the EPS CAGR. Rough math, the equity piece is like 200 basis points of dilution. I guess, what's driving the other 300 basis points of delta between rate base growth and EPS growth, and could any of that delta kind of reverse as we're going through the plan? Thanks.
Yeah. Thanks, Shar, for the question. Yeah. Obviously, as we've reported today, our focus is delivering consistent and durable financial results. I think the 14% rate base growth through the end of the decade Provides, as you are pointing out, incredibly strong support for the extension of our guide to the mid to high end of our range through 2030. Clearly, there is going to be a modest amount of equity dilution, as you mentioned, but we have historically been able to convert that rate base growth into earnings growth, with about a 200 basis point delta. This gives us incredibly strong foundation for continued strong delivery of EPS results through the end of the decade.
Got it. Perfect. Then just lastly on funding, obviously you are talking about the equity dilution a little bit, and you do have a good amount of equity. You have added some through 2030, but your CapEx needs keep going higher. I mean, that is the key message on the call today. It seems like you are potentially signaling new deals prospectively. As we think about sort of the remaining footprint, is there any OpCo, Jason, that present substantial dis-synergies in a sale? Or is the entire footprint outside of Texas potential opportunities for you? Thanks.
Yeah. Thanks, Shar Pourreza. I think what is important here is just the explosive growth, in particular the Greater Houston region, is experiencing. As we talked about today with the transmission update, this only helps us serve about half the capacity that we are currently anticipating in our Batch one request. So there is clearly more tailwinds from a CapEx standpoint. As we have got a track record here of doing, we are going to focus hard on raising whatever the equity needs are efficiently.
That may include portfolio optimization, among the other things that Chris mentioned in his prepared remarks. As it relates to dis-synergies, I think we have got a great track record of leaning in and addressing any dis-synergies that may result from a transaction. I would expect us to do the same, moving forward. Our focus is on enabling this incredible and explosive growth that we are experiencing and doing so efficiently for our shareholders.
Got it. Perfect. Thank you guys. See you in a couple weeks.
Thank you. One moment for our next question. Our next question comes from Nick Campanella with Barclays. Your line is open.
Hey, good morning. Thanks for taking my questions.
Morning, Nick.
Hey, morning. I just wanted to ask, you kind of said that you still expect an Indiana large load customer by the end of the year. Can you just remind us what the size of that could be, whether that's going to get absorbed with current system capacity or new build, and then just regulatory strategy as well? Thanks.
Yeah. Thanks, Nick, for the question. I continue to be very pleased with our progress. I think most importantly, we want to bring economic development to that region. It's been nearly 25 years since a large industrial customer has relocated to that region, and so our focus is really delivering that economic kind of opportunity for the community that we have the privilege to serve up there. As it relates to the size, as we've talked about in previous calls, the team's done great work to free up about 700 MW of existing capacity in our system. With some modest transmission upgrades, conversion of our simple cycle plant, we have the ability to scale to about 1.4 GW, with very modest levels of investment.
Our focus is again, on delivering that economic win, utilizing that capacity. In particular, what I would say is, and I've suggested this on previous calls, what we continue to see is that, many of the large hyperscalers are long chips and short power, so having 700 MW that is readily available is incredibly attractive. We're looking to secure that and then grow from there in the region. If the total demand is at 1.4 GW or less, there's no reason for us to sort of complicate this with a GenCo type approach. However, we continue to see strong interest in that region.
If it exceeds that 1.4 GW and we're building incremental generation, I think it's a great way to isolate those new incremental assets. In that case, we would pursue a GenCo. Our focus is on continuing to make progress. We feel optimistic around our ability to secure an economic win for the community by the end of this year, and then over time, grow this for the benefit of all stakeholders in that region.
Hey, thanks for that. Very clear. On the $4.5 billion raised to the five-year plan, just how much of that is falling under current tracker mechanisms or requires a more formal rate process? Just acknowledging, you talked through ROE lag, improvement of lag as something that could decrease equity needs on the other side. Are you going to be lagging the plan now because you're investing so much capital, and is there a window or anything that we could look forward to that could change that? Thanks.
Sure, Nick. Good morning. The simple way to think about this is the CapEx additions nearly all are inclusive of capital tracker mechanisms that are recoverable, nearly all of them twice a year. You're going to experience very limited lag there from the CapEx additions that we referenced in the plan today. It's part of, as you step back, the beauty of a lot of the current states that we operate in, where well over 80% of our recoveries do come through these capital tracker mechanisms. They're highly efficient and more affordable for our customers.
Thank you.
One moment for our next question. Our next question comes from Steve Fleishman with Wolfe Research. Your line is open.
Yeah. Hi, good morning. Thanks. Just on the transmission that has been added to the plan, is this all lower voltage transmission, i.e., not additional 765? Just maybe the latest. I know you guys were not in the first round of 765 kV, just latest thoughts on kind of your plans there, which I think kick off next year.
Yeah. Good morning, Steve. That is exactly right. The transmission that we announced today is lower voltage 345 kV, 138 kV. Importantly, what we highlighted in Chris' prepared remarks is about 85% of this work is brownfield. I think this is really kind of a hidden asset of the company that cannot be understated. We have significant right of way and opportunity to utilize existing assets, which minimizes any disruptions to the communities we serve. It allows us to build faster, and it really gives us our competitive advantage on the speed to power basis. Equally, and I think this has been a unique strategy for the company. Every time that we took a planned outage on our transmission system, we would use that to reconductor and expand capacity.
This is why, again, we have the ability to attract these large loads and interconnect them more favorably than anywhere else in the country. I do not look at this transmission announcement today as one that is disruptive with respect to the ongoing conversation around landowner rights. I think as we look forward, you mentioned that we do plan in the first half of next year to file for 765. We outlined earlier this year our 10 Commitments for Texans around responsible development. Our commitment is to work proactively with these landowners to find optimal routes that respect the history of their property, minimizing disruptions to the communities we serve, making sure that we are doing so, utilizing as much as possible local resources.
I think this commitment will help us as the state continues to look at ways to balance, obviously, an incredibly important part of landowner rights with the need to continue this Texas economic miracle. We look forward to working with all stakeholders proactively next year as we file for those 765 submissions.
Okay. On the change in your load plan, it looks like you had some come out of the Batch Zero studied and go development. Is that just some of the customers that kind of just did not necessarily feel like they were going to make the cut there?
Yeah. We were very disciplined in terms of what we put forward overall base in Batch Zero. We continue to say we are incredibly confident about the 10 GW of base load. There were approximately 2 GW of studied load that, as the state was conducting its audit process, as those customers were finalizing all of their details, they have decided to withdraw their investment. I think what is important here, though, is we continue to see and have a high degree of confidence in the 10 GW of base load. We are seeing, as we highlighted, more distribution growth than we have ever experienced before.
That more than offsets what fell out of studied load. I would tell you today, the early work that we are doing on Batch one submissions is already trending to be higher than what we submitted in Batch Zero. I would not look at this as anything other than the process working for the state. The state really only wants to advance projects that are going to be good partners in their communities, advance economic interests in an appropriate way, and I think that is what we have found as we work through the Batch Zero process. The process is working as designed.
Okay. One more question, just going back to Shar's first question, the differential between the 14% rate base growth and the earnings growth target. You mentioned 200 basis points equity, maybe it is a little more near term, I do not know. But is there any other kind of financial factors there or just general kind of conservatism across the plan to kind of reconcile that?
It is definitely more the latter. Really, again, we are building a plan that we can consistently deliver and enhance for the benefit of our stakeholders. I think what is important here, as you think about the reconciliation between the rate base growth and the EPS guide, we have consistently built a track record where we rebase future earnings off of the higher delivered earnings. So much so that has been a 15% increase in the earnings power to date as a result of that positive rebasing for outperformance. This gives us the ability to make sure that we deliver and as we deliver there is a compounding element to our stakeholders over time.
Great. Thank you.
One moment for our next question. Our next question comes from Julien Dumoulin-Smith with Jefferies. Your line is open.
Hey, good morning, team. Nicely done.
Morning, Julien.
Hey, thank you. Maybe just rewinding back to where we started on this financing front. Just ask, how do you think about addressing potentially with equity alternatives here, the $1.6 of equity you talk about here? I mean, you guys have a very effective track record of chipping away at that over time. While I will acknowledge at the outset, this is a fairly low ratio of incremental equity versus CapEx, even at the outset here.
How do you think about what is and what is not included in terms of leverage against that 1.6? I know you have a number of tools that you have alluded to, even in the prepared remarks. Are any of those that you have already highlighted not included against that 1.6? Then more to the point, how do you think about incremental asset sales and/or other tools that you have not alluded to, maybe like mobile gen, et cetera?
Morning, Julien. Sure, happy to hit that for you and happy to walk through a few things that are not reflected in the updated plan today. First out of the gate would be the opportunity associated with the temporary generation units. Recall that those would return to the company by the end of calendar Q1 next year. So there you have got the opportunity for an ongoing cash flow stream from an ongoing sublease or of an upfront opportunity to then reinvest if we were to just transact them fully. So we are in active conversations there on those now. Second would be the customer demand charges. Jason referenced that the interest that we are already seeing in Batch one has the opportunity to exceed what we had in Batch Zero.
Recall that with those opportunities come demand charges of roughly $6 million per gigawatt per year, so also not included in plan. The third I would point out, you mentioned it yourself, is portfolio optimization. We are going to continue to evaluate those opportunities. They are highly efficient for our customers and stakeholders as we have executed those in the past. We continue to be supportive of running excellent businesses, but you saw recently the benefits from the Ohio close as well. Then finally, we will also consistently evaluate opportunities to reduce cash lag as well, associated with the financing from regulatory improvements that we can make, either through our rate cases or potential legislative opportunities. Those are the four I would highlight for you.
Got it. Could you unveil a little bit more as to how you think about what the prospects are from Batch one here and the additional transmission study? If I am hearing you right, it could be a pretty substantive further expansion of your transmission system, and you could get some details here as soon as the first half of 2027? I just want to make sure I am putting the pieces together correctly here.
Yeah, Julien, you have got that right. I think there is really two things to focus on here. As I mentioned, the transmission study that we announced today only represents about half of the needed capacity that we anticipate for Batch one. We are early in the Batch one process. So in the first half of next year, we will update the transmission study again for incremental capacity. At the same time, we are continuing to work with customers, and so I would expect Batch one to grow from where we are today. That could also provide a further tailwind for even more incremental transmission beyond this time horizon of the first half of the year. What we are seeing, there is really a number of trends that I cannot understate enough that are driving this economic growth.
As global trade and traditional energy refining capacity are getting redefined globally, Houston is one of the best places in the world to take advantage of this. We have got the largest port by tonnage in the U.S. That port is expanding. We have a state that is focused on facilitating economic development, and so we are seeing tremendous growth on the advanced manufacturing, traditional energy data center front. On the data center front, in particular, as much of the focus there starts to trend towards inferencing and cloud. There is no better spot than Houston. It is the fourth largest city, soon to be third.
Youngest population of any major city, home to the second most Fortune 500 companies. It is the ideal spot when you think about inferencing and cloud computing being a longer-term trend beyond training. I will say that we have got to close the gap on what we already see in Batch one. We will provide that transmission update first half of next year. We will continue to likely see an increase in Batch 1 demand, which will necessitate even more transmission construction beyond that update the first half of the year.
Excellent. Got it. Just to clarify, you made a comment earlier about 1 GW of distribution load. Again, we do not often focus on this. Do you want to elaborate a little bit on what you are seeing on that front in terms of potentially seeing new large loads or data center loads specifically manifest through distribution requests and what that means for your margins? Because you guys provided that ratio earlier about what that could mean for your revenue requirement. I imagine it might be a little bit more outsized on that front and how that could change, right? We are hearing more about this. This is the first I have heard across companies on this.
Yeah. I think this is an incredibly exciting time. So much of the industry has been focused at the transmission level, and I think we are seeing a fundamentally different trend at the distribution level. We have always benefited from about 2% population growth. That continues to be a solid foundation for that distribution growth. What we are seeing, and one of the things that we tried to highlight is this sort of carryover effect from the large load development, particularly on the commercial warehouse side. We set a record here in Houston in the third quarter for leasing of new commercial warehouse. It is up 30% this past quarter alone, and we do not see that trend slowing down. In addition, we continue to see advanced manufacturing at that sub 75 MW level. We are seeing significant interest in distributed and more modular distribution-level data centers for inferencing.
The totality of this economic activity, beyond just the first-order customer, but their second and third order sort of suppliers, and associated sort of ecosystem is what is really fundamentally driving this acceleration at the distribution level. As you said, the distribution rates do provide a different economic opportunity from an earnings standpoint than transmission.
Excellent. All right. Thanks, guys. Cheers. Nicely done.
One moment for our next question. Our next question comes from Jeremy Tonet with JP Morgan Securities. Your line is open.
Hi, good morning.
Good morning.
Good morning.
Thanks for all the color today. Just wanted to kind of walk through the potential for higher interest rates here, how you see that impacting the business, particularly the holdco. Clearly with so much cushion between rate base CAGR and EPS CAGR, more than enough cushion there. Just wondering if you could talk to that broadly speaking as it relates to refinancing or anything else.
Sure. Happy to hit it. You can imagine, certainly the higher rates we're seeing are a bit of a headwind for the entire sector. I do think we're well-positioned here in the near term. If you think about it, first, we've only got about $300 million of maturities in 2027. I also talked earlier about the benefits we've seen in terms of the Moody's upgrade on the outlook recently. In fact, at CERC, we also had a specific upgrade there, which is going to reduce our borrowing costs. That's an entity that's looking to raise $500 million to $800 million every year as we go. Beyond that, I think you're going to see that we've got, we talked about this earlier, but ongoing rate recovery through capital tracker mechanisms will help as we go.
We're also going to continue to focus on taking costs out of the business. We did report today that we're on track to reduce that 1%-2% that we talked about previously, and certainly as macroeconomically, we see these impacts, we're going to have to focus on our own business to keep costs affordable for customers.
Got it. That is very helpful there. Just wanted to kind of maybe pick up the last point there with affordability. Again, not CenterPoint specific, more industry-wide, but as it relates to increasing CapEx, just wondering, I guess, how the conversation might go with stakeholders in the different states. You have the audit in Texas, Indiana, a lot of focus on affordability and just wondering any thoughts you could share there as far as bill outlook and conversations there.
Yeah. The path to affordable rates is through growth. That is what over decades in this industry has helped sort of moderate the impact of investment. It just gives us the opportunity to socialize what are largely fixed costs over an ever-widening base. I think each of the states we have the privilege to operate in understand that. Each of the states are extremely focused on helping facilitate economic growth. We work with local and state leaders to advance each of these interests. I think the best possible representation of this is what we see here at Houston Electric, just given what has historically been outsized growth relative to the rest of the country. We have been able to maintain effectively flat rates since 2014, in large part because of all of that incremental growth.
Each of the states want to make sure that they are putting in place protections for residential customers. We fully support that. As we talked about, I think the process is working well here in Texas, as we have seen two of the studied load customers fall out. But what we have got is really a commitment from those that remain in Batch Zero to work effectively with their communities on all fronts, including putting downward pressure on utility rates.
Got it. That makes sense. Clearly Houston has unique benefits there that help CenterPoint. Thank you.
One moment for our next question. Our next question comes from Richard Sunderland with Truist Securities. Your line is open.
Hey, good morning. Thank you for the time today. I wanted to pick up the transmission update a little bit more. Thinking about that $4 billion moving into the plan today, and then if I am following correctly, I guess that is only half of the Batch one need or the potential Batch one need. When you think about the 2027 CapEx update for that component specifically, does it scale ratably or are there different, I do not know, brownfield versus greenfield considerations when you think about addressing more of that Batch one capacity need?
Yeah, I appreciate the question. I would not say that it necessarily scales ratably. It is clearly much more efficient to construct brownfield. There is going to be a need for new greenfield import lines. But right now, we continue to work and think creatively around different assets that, maybe non-wires alternatives. We talked about some of the stability-related investments that we are making. I would expect to see increases there, particularly as we bring larger loads online. It is just really hard to create a rule of thumb. But what I would say is, over time, as we exhaust our current sort of brownfield opportunities and we lean more into greenfield, there will be an upward bias on future transmission CapEx revisions.
Got it. That's helpful. Regulatory lag, I guess both on a cash recovery side and on an earnings basis as well. I know that's been one of the talking points you hit in the script and in Q&A. Are there any either active efforts you have an eye to or anticipated actions in the upcoming rate case filings or I guess even legislative work in 2027 on this front? Anything you'd highlight specifically right now?
Yeah, a couple of different things that I'd point out. We talked about filing a three-year rate case up in Minnesota that will allow us to effectively apply for forward test year adjustments in each of the three years. Historically, when we were filing one or two-year cases, we always had a year where we had flat or no sort of revenue increase. That's an example on a regulatory front. On the legislative front, look, we're excited to work with all stakeholders around sort of consistent stakeholder engagement that again, balances sort of the rights of property owners with a need to build transmission to help facilitate and continue the Texas economic miracle. As part of working through maybe some of those changes on stakeholder engagement, I think it's important for the state to also revisit the potential for interim recovery of transmission-related investments.
We're moving to a point where a higher portion of our CapEx is going to be long-cycle work. If you couple that with some of the lower equity ratios that transmission and distribution utilities have here in Texas, that could put potential strain on the balance sheet. I think it is in everybody's interest to think about interim recovery of transmission-related CapEx to make sure that we're growing responsibly and helping support, again, the continuation of this Texas economic miracle. So those are a couple of examples both on the regulatory and legislative front. We'll continue to work with all stakeholders to minimize regulatory lag, whether it's earnings or cash.
Very clear. Thank you.
One moment for our next question. Our next question comes from Anthony Crowdell with Mizuho. Your line is open.
Hey. Good morning. Thanks for the update. Just, I guess one housekeeping item. You talk about 14% rate base CAGR. Have you removed the Ohio LDC sale, or could that rate base CAGR be even greater because you have that headwind of the sale?
Anthony, simple answer there is we have removed the Ohio sale.
Great. Then I guess as a follow-up, maybe the last two questions. You talk about the distribution opportunity like Julien was really harping on. Your transmission is going really strong. How do you guys determine what segment to allocate CapEx to, given the strength across maybe all the platforms, including some of the gas? How do you make that decision where you want to focus the CapEx or it's, I don't want to say unlimited CapEx, but just the opportunity is just so great you're able to spread it through all the different business segments?
Our job is really not to pick winners and losers. It is to facilitate this economic growth. I think more so than ever, customers have more opportunity to choose where they locate their business. If at the distribution level or transmission level, we want to incentivize those customers to locate and grow their businesses here in the Greater Houston region. We are advancing both the investments on the distribution system for capacity as well as the transmission system for capacity. I do not see it as an either/or. I see it as our competitive advantage is system capacity and moving quickly at the customer's pace to connect them. I really see stronger tailwinds for upward revisions to CapEx on the electric side.
I think we have found a really good rhythm on the gas side with respect to pipeline modernization. There are a couple of opportunities on that front that are in our customers' interest that we have talked about before, in particular creating kind of a transmission loop around the Greater Houston region. I really think that the CapEx upward bias is in electric, and it really comes from trying to facilitate economic development both at the distribution and transmission level.
Great. That is all I had. Thanks for taking my questions.
One moment for our next question. Our last question comes from Ross Fowler with Bank of America. Your line is open.
Morning, guys. Thanks for taking my question here. We will squeeze it in at the end. Most of my questions have been asked and answered. I just wanted to pick on a couple of things, add a couple things, I think. Temporary generation, are you leaning any particular way, lease versus sale there, and can you remind us of the timing of that decision?
Sure, Ross. At this point, again, we are in some active conversations, so we are going to keep our alternatives open. Again, just that we have an existing sublease opportunity through 2029, so you should think about that as an ongoing cash flow opportunity if we take that path. The other would just be an outright transaction. In that case, you can imagine we would just have the benefit of the upfront cash to be able to redeploy into the business. Timing-wise, again, these units are currently serving the San Antonio area and would be coming back to us by the end of March of 2027, is the way to think about that timing. So looking to either path we take, provide a cash tailwind to 2027, if not beyond.
Okay. Makes sense, Chris. Then just maybe following up a little bit on Julien and Steve's questions. Jason, you expressed a great degree of confidence in that 10 GW and it is in Batch Zero, and obviously that is going through the audit process at ERCOT now. We will find out more on December 10th, so we are sort of close-dated to that. Can you maybe kick off or checkbox why you have such confidence in that versus the audit parameters and the requirements that the audits have and what those projects have in sort of detail that gives you that degree of confidence?
Yeah, these are customers that we have been working with for the better part of a year and a half. The elements of the audit process were all elements that these customers were proactively pursuing, independent of that audit. So it was easy for them to pivot and provide evidence that they were going to be able to comply with the rules here. Effectively, these are customers who had seen sort of the evolution in development of either data centers or advanced manufacturing facilities and were proactively adopting improved ways to work with communities that they operated in. So, in part, they were, I would say, ahead of the process, and so that is the reason they fully embraced the audit when it came out. And we were able to quickly work with them to meet those requirements. It is what continues to give us the high degree of confidence.
Good, Jason. Makes sense. Thank you.
This concludes CenterPoint Energy's third quarter 2026 earnings conference call. Thank you for your participation. You may now disconnect.