Centerpoint's carelessness costs customers $1.8 billion.
Posted by
Qale (aka Qale)
Jul 30 '24, 15:56
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CenterPoint Energy expects to incur as much as $1.8 billion in costs from its efforts to restore power after May’s severe storms and July’s Hurricane Beryl, company executives said during a second-quarter earnings call Tuesday in which it reported a steep jump in profits over the year earlier.
The company said it would seek approval from the Public Utility Commission of Texas to issue bonds to recover $1.5 billion to $1.7 billion of its storm-related costs, Chief Financial Officer Christopher Foster told investors and analysts. Foster estimated residential customers could see a 2% increase in their electricity bills for the next 15 years to pay down the debt, which carries interest.
Another $100 million of investments in its transmission system, the long-distance towers and lines, would be included in CenterPoint’s next scheduled rate increase request, Foster said. CenterPoint reported income of $228 million for the quarter ended June 30, up from $118 million in the year-earlier period.
Failure to recoup the costs could shake investor confidence in the company, one analyst said.
The storm-related cost estimates come as CenterPoint executives try to walk a fine line of satisfying Texas’ elected officials — who are calling for accountability from the company and even floating proposals to claw back profits — while easing investor concerns over whether the company will gain approval for past and future capital spending.
CenterPoint earns a 9.4% rate of equity, essentially profit, on its capital expenditures. It has dramatically increased capital investments in recent years, boosting the investor-owned utility’s stock price.
If CenterPoint were unable to recover its May and July storm-related costs, investors would lose confidence not only in CenterPoint’s current management team but also in the wisdom of investing in Texas utilities going forward, said Anthony Crowdell, an utility analyst with the investment bank Mizuho Americas.
“Does the risk change with investing in a Texas utility? That’s what everyone’s trying to figure out,” Crowdell said.
After Monday’s fiery first hearing of a special state Senate committee tasked with investigating utilities’ response to Beryl, senators on both sides of the aisle suggested they were opposed to CenterPoint recovering its hurricane-related costs.
Paul Bettencourt, R-Houston, highlighted four words used by CenterPoint CEO Jason Wells during the Senate hearing — inexcusable, insensitive, unacceptable and insufficient — then noted the utility still planned to ask for Beryl cost recovery. Carol Alvarado, D-Houston, also posted on X, formerly Twitter, about CenterPoint’s intention to pass the costs of Beryl to its customers.
“That dog won’t hunt,” Alvarado said.
Sandra Haverlah, president of the Texas Consumer Association, said customers shouldn’t be charged for CenterPoint’s “failure in providing reliable service and weak infrastructure.”
“It’s as if yesterday didn’t happen,” Haverlah said. “They’re moving forward and telling investors, don’t worry, we’re getting paid back. And that’s business as usual.”
Crowdell, however, said Wells and Foster proposed during the earnings call at least one action that is a departure from usual operations: CenterPoint wants to use $250 million of shareholder equity this year — instead of in 2025 — to fund immediate capital improvements that the company promised to make in the Houston area as hurricane season continues.
Those include using predictive modeling and artificial intelligence to target where improvements to its power lines and poles are most needed, nearly doubling the size of its vegetation management crews, and rolling out better communications with customers, including a new cloud-based outage tracker.
With this decision, CenterPoint is “clearly saying their primary constituents are their customers,” Crowdell said. Investors typically don’t want to hear that a company plans to increase reliance on equity because it means the company will bring in more shareholders, reducing individual shares, he said.
“Over a longer period of time, I think everyone will probably be happy. The people of Houston are probably going to get an even more resilient system,” Crowdell said. “But today, it’s not a happy day for investors.”
Investors also are tracking whether CenterPoint will secure PUC approval for its pending rate case covering $6 billion in investments since 2019 and up to $2.7 billion in “resiliency plan” investments to gird its infrastructure against extreme weather from 2025 to 2027.
“Investors are trying to figure that out: Will the regulator allow for this plan to go into action or not?” Crowdell said.
If approved, the rate case could add $1.25 to the average residential customer’s monthly electric bill, while the resiliency plan could add $3 per month, CenterPoint executives have said.
The PUC has paused resiliency plan proceedings as CenterPoint negotiates a settlement with industrial electricity consumers and cities. CenterPoint is also negotiating a settlement with those groups for its proposed rate case.
During Tuesday’s earnings call, Wells said the company would continue to make “customer-focused capital investments to achieve better outcomes” for its nearly 3 million electric customers, 2.7 million of whom are in the Houston area.
“Our singular and overarching goal is to improve in every area of our emergency preparedness and response, whether it is before, during or after any future storm. We will be better prepared to support, communicate with and serve our customers in these times of emergency,” Wells said.
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