Gas Operations. Joe McGoldrick, EVP & President Gas Operations

Transcription

1 Gas Operations Joe McGoldrick, EVP & President Gas Operations

2 Cautionary Statement Regarding Forward- Looking Information This presentation contains statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words anticipate, believe, continue, could, estimate, expect, forecast, goal, intend, may, objective, plan, potential, predict, projection, should, will, or other similar words. We have based our forward-looking statements on our management's beliefs and assumptions based on information currently available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions, and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements. Some of the factors that could cause actual results to differ from those expressed or implied by our forwardlooking statements include the timing and impact of future regulatory, legislative and IRS decisions, financial market conditions, future market conditions, and other factors described in CenterPoint Energy, Inc. s Form 10-K for the period ended December 31, 2013, under Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations - Certain Factors Affecting Future Earnings, in CenterPoint Energy, Inc. s Form 10-Q for the quarter ended March 31, 2014 under Cautionary Statement Regarding Forward-Looking Information, Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations of CenterPoint Energy, Inc. and Subsidiaries and in other filings with the SEC by CenterPoint Energy. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this presentation, and we undertake no obligation to publicly update or revise any forwardlooking statements except as required by law. i

3 Review Objectives Gas Operations Discuss business and demonstrate track record of performance Provide details necessary for line of sight understanding of operating income growth Summarize the differentiators of CenterPoint Energy s Gas Operations Review several topics with members of Gas Operations leadership 2

4 Gas Operations 2013 Aggregate Avg Utility Rate Base (Total: $2.1 Billion) % % % % 2013 Operating Income of $ Op Income GAS UTILITIES $, Millions ENERGY SERVICES Six state footprint with vibrant metropolitan areas of Houston and Minneapolis Earning at allowed returns Over 3.3 million customers; 5 th largest LDC 30,000+ average annual customer growth Complementary to natural gas utilities Low risk business model Low VaR; $200K on average Storage and transportation capacity matched to retail customer needs Expect annual operating income of $15-25 million Minnesota Arkansas Louisiana, Mississippi, Oklahoma Texas Regulated Natural Gas Utilities Energy Services (CES) See Appendix for additional state specific information 3

5 Reorganized in 06 to Drive Performance Natural Gas Utilities Legacy Model: 3 Operating Units Independent organizations with redundant business leadership and support services Current Model: Centralized & Standardized Accountability with one management team and one operating unit Leverage best practices Operate a regional model with a strong local presence Arkla Entex CenterPoint Energy Gas Utilities Minnegasco 4

6 Operating Income Historical Growth Natural Gas Utilities $, Millions $ ~11% CAGR Base rates increased Innovative rate strategies implemented Significant operational efficiencies captured Bad debt expense: $42 million in 2006 $20 million in 2013 Write-off to revenues: 1.1% in % in 2013 Demonstrates track record of performance Strong business model and regulatory relationships 5

7 2013 Regional Portfolio Natural Gas Utilities $, Millions 2013 Operating Income: $ % 24 9% 99 38% 47 18% Minnesota Arkansas Texas Louisiana, Mississippi, Oklahoma Operational O&M and D&A CAGRs CAGR CAGR Operational O&M* $595 $582 $ % 3% D&A $166 $173 $185 6% 7% * See Appendix for reconciliation and additional state specific information 6

8 Capital Investment Continues to Grow Natural Gas Utilities $, Millions $ $2.2 Billion Current Capital Estimate, ~$300 to 400 MM Capital Upside Actual Capital Invested Capital Forecast, Per K Capital Upside System-wide AMR; 3.3 million by 2015 Customer growth investment Replacing aging infrastructure Minnesota Belt Line Project; $400 million over 15 years Upside Potential Acceleration of infrastructure replacement, e.g. cast iron/ bare steel and plastic mains Technology investments 7

9 $3+ Billion Projected 2018 Rate Base Natural Gas Utilities $, Millions $ Projected Average Rate Base Estimated average annual rate base at year end; subject to change due to actual capital investment, effects of bonus depreciation, deferred taxes and actual rate base authorized in rate cases. Actual Average Rate Base Estimated Average Rate Base 8

10 Recovery Mechanisms and Estimated Timing Estimated rate filing timelines for three largest jurisdictions: Jurisdiction Texas GRIP GRIP GRIP GRIP GRIP Rate Case Houston & Coast Minnesota Interim Rates Oct 2015 Rate Case Interim Rates Oct 2017 Rate Case BDA Act 310 BDA Act 310 BDA Act 310 BDA Act 310 BDA Act 310 Arkansas Main ReplacementProgram, monthly Rate Case LA, MS and OK have performance based rate-making (PBR) annual mechanisms Recovery mechanism General Rate Case 9

11 Operating Income Growth Natural Gas Utilities Estimated Operating Income growth: 4-5% CAGR 2013 to 2018 Upside Operating Income growth: 5-6% CAGR 2013 to to 2015 will have lower growth rate as capital investment ramps up, coupled with current earnings in TX at our allowed return and rate cases required in MN 2016 to 2018 growth rates trend to higher end of range reflecting higher capital investment and rate relief realized primarily in MN 10

12 Gas Operations Value Proposition Increased capital investment Leads to rate base growth of 8-10% Innovative and timely recovery mechanisms Provides healthy and attainable 4-6% op income growth Robust and growing service territories and infrastructure needs Constructive regulatory relationships and innovative rates Commitment to technology and customer experience Strong customer satisfaction Proven operational track record of delivering performance Industry leading business model 11

13 Summary Gas Operations CNP s Gas Operations is a low risk, customer-focused business Vibrant, diverse and large service territories A receptive environment for infrastructure investment Committed to technology and an industry leading business model Stable operating income growth of 4 6% contributes to CNP s investment thesis 12

14 Leadership Panel Moderated by Joe McGoldrick, EVP and President Rick Zapalac, SVP Gas Operations Scott Doyle, SVP Regulatory & Government Affairs Gregg Knight, VP Customer Service J. McGoldrick R. Zapalac S. Doyle G. Knight 13

15 Appendix

16 Reference Materials Gas Operations Rate Structure Assumptions Total Rate Base: $2.1 Billion Total Authorized ROE: 10.00% Total Capital Structure: 50/50 Debt / Equity 2013 Key Metrics: Miles of Main: 71,934 Miles of Service: 45,063 Customer Count, 2013 avg.: 3,308,238 Op Income: $263 million CAPEX: $430 million D&A: $185 million Rate Relief: $33 million Improving Economic Environment Low unemployment rates - April 14 MN: 4.7% TX: 5.2% Minneapolis: 4.1% Houston: 4.6% AR: 6.6% LA: 4.5% OK: 4.6% MS: 7.5% National Average: 6.3% Source: U.S. Bureau of Labor Statistics Year-over-Year Job growth in all states MN: 45,500 (1.6%) TX: 383,100 (3.4%) AR: 14,300 (1.2%) LA: 19,700 (1%) OK: 27,1900 (1.7%) MS: 15,300 (1.4%) Source: U.S. Bureau of Labor Statistics Houston and Minneapolis / St. Paul metropolitan areas have tight home inventories and increasing new home building permit demand Source: Texas Association of Realtors and Minnesota Association of Realtors 14

17 K Capital Projection Natural Gas Utilities $ Capital Recovery Method 2013A 2014E 2015E 2016E 2017E 2018E Annual Mechanisms 48% 45% 50% 32% 51% 53% Rate Cases 52% 55% 50% 68% 49% 47% 15

18 Arkansas Central Office: Little Rock Avg. Customer Count, 2013: 427,988 Authorized Rate Structure* Capital Structure: Equity (MBSA*) 34% Equity (Traditional Method) 50% Authorized ROE: 9.65%* Rate Case Base year: 2006 Miles of Main: 13,592 Miles of Service: 6, Key Metrics: Rate Base: $385 million Op Income: $47 million CAPEX: $64 million D&A: $32 million Effective Tax Rate: 37.2% Rate Relief: $6 million, including BDA. MRP projected total investment $400 million over 40 years. $238 million invested 1988 through Recovery Mechanisms Billing Determinant Adjustment (BDA) rate rider is a revenue decoupling mechanism reviewed annually with rates effective June 1. The mechanism is designed to true-up actual revenue for revenue requirement shortfall associated with customer or usage loss. The income effect is accrued in the corresponding year. Main Replacement Program (MRP): Monthly capital recovery for cast iron, bare steel and unprotected steel main replacement. Started in 1988 with completion projected in Act 310 provides rate relief between rate cases for capital and expenses associated with changes in laws and regulations relating to public health, safety and environment. Eligible to be filed once every 6 months. Weather Normalization Adjustment (WNA): weather true-up of delivery rates for each billing cycle, November through April. Energy Efficiency program provides for recovery of all costs and a bonus incentive for full program utilization. Seasonal changes in Gas Supply Rate filed in April with rates adjusted in November to true up cost of gas variances. * The Arkansas Public Service Commission employs a Modified Balance Sheet Approach (MBSA) to determine a utility s capitalization structure. Certain liabilities that are deducted from rate base under the traditional approach of calculating the rate of return are included in the capital structure under the MBSA. These liabilities include accumulated deferred income taxes, customer deposits, and current, accrued and other liabilities. 16

19 Louisiana Central Office: Shreveport Avg. Customer Count, 2013: 247,301 Authorized Rate Structure* Capital Structure weighted avg.: 53% Debt / 47% Equity Authorized weighted average ROE: 10.33% Authorized weighted average ROR: 7.39% Rate Case Base year: 2004 Miles of Main: 7,247 Miles of Service: 2, Key Metrics: Rate Base: $105 million Op Income: $14 million CAPEX: $29 million D&A: $14 million Effective Tax Rate: 35.7% Recovery Mechanisms Rate Stabilization Plan (RSP): Annual formula rate mechanism that adjusts rates based on a comparison of authorized return to actual return. Filed annually in October for period ended June 30. Rates in effect December 1. Weather Normalization Adjustment (WNA): weather true-up of delivery rates for each billing cycle, November through April. Seasonal changes in Gas Supply Rate filed monthly and adjusted in August for Southern service area and in November for Northern service area to true up cost of gas variances. Rate Relief: $ 200 thousand * Blended weighted average of North and South rate jurisdictions 17

20 Minnesota Central Office: Minneapolis Avg. Customer Count, 2013: 816,789 Recovery Mechanisms Traditional case construct, eligible to implement interim rates 60 days after filing Authorized Rate Structure Capital Structure: 47% Debt / 53% Equity Authorized ROE: 9.59% Authorized ROR: 7.4% Rate Case Base year: 2012 Forward Test Year: Oct Sep 2014 Miles of Main: 13,425 Miles of Service: 11, Key Metrics: Rate Base: $664 million Op Income: $93 million CAPEX : $139 million D&A: $61 million Effective Tax Rate: 40.2% Rate Relief: $6 million actual; $17 million annualized. Excludes the Energy Efficiency rider which was transferred into base rates. Belt Line Project: $400 million over 15 years. Pilot Decoupling Mechanism, approved in recent rate case, expected to begin July 2015 and run through Decoupling adjustment includes all variances in customer usage, including weather-related. Conservation Improvement Program (CIP) filed May 1 annually to recover conservation program expenses not covered in base rates. Recover cost of program and earn a bonus. Seasonal changes in Gas Supply Rate filed monthly with rates adjusted in September to true up cost of gas variances. Demand Smoothing Mechanism flows through PGA and adjusts revenues monthly, October through May. 18

21 Mississippi Central Office: Ridgeland Avg. Customer Count, 2013: 122,286 Authorized Rate Structure Capital Structure: 50% Debt / 50% Equity Authorized ROE: 9.44% Authorized ROR: 7.8% Rate Base test year: 2012 Miles of Main: 3,963 Miles of Service: 2, Key Metrics: Rate Base: $61 million Op Income: $4 million CAPEX: $17 million D&A: $6 million Effective Tax Rate: 35.7% Recovery Mechanisms Rate Regulation Adjustment (RRA): Annual formula rate mechanism that adjusts rates based on a comparison of authorized return to actual return. Filed annually in May. Rates in effect July 1. Weather Normalization Adjustment (WNA): weather true-up of delivery rates for each billing cycle, November through April. Economic Development and Energy Efficiency programs began in Seasonal changes in Gas Supply Rate filed in March and September with rates adjusted in September and March to true up cost of gas variances. Rate Relief: $2 million 19

22 Oklahoma Central Office: Lawton Avg. Customer Count, 2013: 101,199 Authorized Rate Structure Capital Structure: 50% Debt / 50% Equity Authorized ROE: 10.5% Authorized ROR: 8.6% Rate Case Base year: 2004 Miles of Main: 2,721 Miles of Service: Key Metrics: Rate Base: $52 million Op Income: $6 million CAPEX: $17 million D&A: $7 million Effective Tax Rate: 35.1 % Recovery Mechanisms Performance Based Rate Change Plan (PBRC): Annual formula rate mechanism that adjusts rates based on a comparison of authorized return to actual return. Filed in March. Rates in effect July 1. Weather Normalization Adjustment (WNA): weather true-up of delivery rates for each billing cycle, November through May. Energy Efficiency program provides for recovery of all costs and a bonus incentive for full program utilization. Seasonal changes in Gas Supply Rate filed in April and in November with rates adjusted in November to true up cost of gas variances. Customers also have a Voluntary Fixed Price Option which can be selected in November. Rate Relief: $(300) thousand 20

23 Texas Central Office: Houston Avg. Customer Count, 2013: 1,592,675 Authorized Rate Structure* Capital Structure weighted average, 45% Debt / 55% Equity Authorized weighted average ROE: 10.31% Authorized weighted average ROR: 8.66% Rate Case Base year: Varied Beaumont/ East TX: 2011 Houston: 2009 South TX: 2010 TX Coast: 2007 Miles of Main: 30,986 Miles of Service: 20, Key Metrics: Rate Base: $803 million Op Income: $99 million CAPEX: $164 million D&A: $65 million Effective Tax Rate: 38.4% Rate Relief: $21 million Recovery Mechanisms Gas Reliability Infrastructure Program (GRIP) recovers incremental capital investment over prior year s investment. Filed annually with rates effective days after filing. Annual Earnings Monitoring Report filed in conjunction with the GRIP filing. Requires a rate case 5 years after initial implementation date. Texas Coast will be eligible for GRIP recovery after its next rate case. Pension Expense Deferral: Variances in pension expense recorded as a regulatory asset (liability) and reconciled in a future rate case. Seasonal changes in Gas Supply Rate filed in February and August with rates adjusted in August and February to true up cost of gas variances. * Blended weighted average of Houston, Texas Coast, South Texas, Beaumont/East Texas 21

24 Current Regulatory Dockets Margin Stabilization Cost of Service Adjustment Infrastructure Capital Cost Recovery Other Annual Earnings Monitoring Report Billing Determinant Adjustment (BDA) Decoupling Mechanism Weather Normalization Adjustment (WNA) Various mechanisms Gas Reliability Infrastructure Program 2 (GRIP) Main Replacement Program 3 (MRP) ACT Pension Expense Deferral Asset Management Agreement Energy Efficiency / Conservation Incentive Plan Arkansas 1 Louisiana Minnesota Mississippi Oklahoma U U U U RSP U U U U G008/GR U U TF E,G999/CI G008/CIP E,G999/PR UN-139 PUD RRA 12-UN-139 PBRC PUD UN-139 PUD UA-07 PUD Texas Houston Bmt/East Coast South GUD10344 GUD10345 GUD10346 Filed under the the docket numbers listed above 1. Includes Texarkana, Texas 2. Recovers increases in plant investment 3. Recovers depreciation and return on cast iron or bare steel mains 4. Recovers capital and O&M expenditures on mandated public health, safety and environmental investment 22

25 Reconciliation Tables Gas Operations Reconciliation of Operating Income on an as reported basis (in millions) Year Ended December 31, 2013 Operating Income, as reported Natural Gas Distribution $ 263 Energy Services 13 Total Gas Operations Operating Income $ 276 Reconciliation of Natural Gas Distribution Operation and Maintenance Expense on an as reported basis (in millions) Year Ended December 31, 2011 December 31, 2012 December 31, 2013 Expense: Operating and maintenance, as reported Natural Gas Distribution $ 655 $ 637 $ 667 HomeService Plus Equipment Sales (26) (26) (26) CIP / GAP Energy Efficiency Expenses (33) (29) (47) Operational O&M $ 595 $ 582 $