CenterPoint Energy Inc (CNP) 2015 Q1 法說會逐字稿

Good morning and welcome to CenterPoint Energy's first-quarter 2015 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 management's remarks.

(Operator Instructions).

I will now turn the call over to Carla Kneipp, Vice President and Treasurer.

Ms. Kneipp?

Thank you, Ginger.

Good morning, everyone.

Welcome to our first-quarter 2015 earnings conference call.

Thank you for joining us today.

Scott Prochazka, President and CEO; Tracy Bridge, Executive Vice President and President of our Electric Division; Joe McGoldrick, Executive Vice President and President of our Gas Division; and Bill Rogers, Executive Vice President and CFO, will discuss our first-quarter 2015 results and provide highlights on other key areas.

We also have with us other members of management who may assist in answering questions following the prepared remarks.

In conjunction with the call today, we will be using slides which can be found under the investor section of our website, CenterPointenergy.com.

For a reconciliation of the earnings guidance provided in today's call, please refer to our earnings press release along with our Form 10-Q which have been posted on our website.

Please note that we may announce material information using SEC filings, press releases, public conference calls, webcasts and posts to the investor section of our website.

In the future we will continue to use these channels to communicate important information about the Company, key personnel, corporate initiatives, regulatory updates and other matters.

We encourage investors, the media, our customers, business partners and other interested parties in our Company to review the information we post on our website.

Today management is going to 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 variations, regulatory actions, economic conditions, commodity prices, changes in our service territories and other risk factors noted in our SEC filings.

We will also discuss our guidance for 2015.

The utility operations guidance range considers performance to date and certain significant variables that may impact earnings such as weather, regulatory and judicial proceedings, volumes, commodity prices, ancillary services, tax rates, interest rates and financing activities.

In providing this guidance, the Company does not include other potential impacts such as changes in accounting standards, the value of ZENS securities and the related stocks or the timing effects of excess mark to market and inventory.

In providing midstream investment guidance, the Company takes into account such factors as enables most recent public forecasts, effective tax rates, the amortization of our basis difference in Enable and other factors.

The Company does not include other potential impacts such as the impact of any changes in accounting standards or Enable's unusual items.

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.

And with that I will now turn the call over to Scott.

Thank you, Carla, and good morning, ladies and gentlemen.

Thank you for joining us today and thank you for your interest in CenterPoint Energy.

As Carla mentioned, this morning we will be referring to slides during our call.

They can be located on our website under the investor section.

I will start with slide four.

This morning we reported first-quarter 2015 earnings of $131 million or $0.30 per diluted share compared with $185 million or $0.43 per diluted share in 2014.

Using the same basis that we use when providing guidance, first-quarter 2015 adjusted earnings would have also been $0.30 per diluted share compared to $0.40 for 2014.

On a guidance basis, utility operations contributed $0.22 per diluted share and midstream investments contributed $0.08.

Compared to baseline earnings of $0.21 per diluted share for the first quarter of 2014 which Bill will discuss in more detail, utility operations earnings are up 4.8%.

This is consistent with the utility EPS guidance provided earlier this year.

Our utility operations continue to perform well supported by growing service territories, robust capital investment, constructive regulatory environments and limited business risk.

These dynamics allow utility operations to be the ballast of our diversified portfolio and will help to continue to provide earnings growth.

Weather-related impacts across all of our businesses caused most of the variability this quarter.

Tracy, Joe and Bill will share more details about this and other drivers for the quarter.

Despite the challenges that midstream companies have recently experienced due to lower energy commodity prices, we continue to see opportunity in this space and believe that Enable Midstream Partners is well-positioned to succeed.

Drilling technology has fundamentally changed the landscape of the energy market as well as the role the United States plays in the global energy and feedstock market.

We believe domestic and global demand coupled with continued progress towards greater energy independence will require significant capital investment in infrastructure.

Enable remains well positioned to participate in this infrastructure buildout as evidenced by their recent completion of the Bradley Processing Plant in the SCOOP as well as the Bear Den crude and produced water gathering system in the Bakken.

Last week Enable announced their acquisition of Monarch Natural Gas gathering assets in the Cleveland Sands play and has stated it is immediately accretive.

Early indications show that the Houston economy remains strong despite press coverage regarding recently announced layoffs in the energy sector.

Houston Electric's meter count increased by more than 11,000 in the first quarter which equates to an annualized growth rate of 2%.

This is consistent with employment and other economic data we are seeing.

According to the Greater Houston Partnership last year the Houston Metro area led the nation by adding a record-setting 157,000 residents between July of 2013 and July of 2014.

The Partnership forecasts the addition of 120,000 new residents in 2015.

Our projected capital spending remains on target for the year at $1.5 billion a 9% increase over 2014.

We continue to utilize timely recovery mechanisms as well as rate case proceedings to help ensure effective and timely return on our investment.

Tracy and Joe will provide additional color on a number of these.

Before I wrap up, let me note that CenterPoint continues to be recognized for its strong customer service.

We were recently ranked first in the Midwest region and second in the South region among the largest natural gas utilities in the US for operational satisfaction in a 2014 Cogent Report conducted by Market Strategies International.

This report evaluated residential brand trust and engagement and the results reinforce our ongoing strategy to utilize technology to improve the customer experience.

We continue to focus on safe, reliable and efficient operations coupled with improve services for our customers as our path to success and value creation for our shareholders.

I will now ask Tracy to discuss electric operations.

Thank you, Scott.

Houston Electric had a solid quarter consistent with our expectations.

First-quarter 2015 core operating income was $68 million compared with $75 million for the same period last year.

The business benefited from higher net transmission related revenue and strong customer growth.

These benefits were more than offset by the impacts of milder weather, reduced equity return primarily related to true up proceeds and lower right-of-way revenue.

Importantly, growth continues to be strong.

Houston Electric added more than 11,000 metered customers during the first quarter of 2015 -- and if annualized this represents 2% meter growth.

On page six, we show a chart contrasting oil prices, employment and residential metered customers in the Houston area since 1980.

This chart shows steady customer growth despite large swings in oil prices and smaller variations in employment.

We believe long-term annual customer growth of 2% will be supported by Houston's diversified economy and culture as well as mild winters and a low cost of living.

Houston Electric continues to focus on O&M expense management even as we address customer growth and robust capital spending.

During the first quarter of 2015, Houston Electric's O&M increased less than 2% versus the first quarter of 2014.

This growth rate excludes certain expenses which have revenue offsets.

Next, I will update you on our 345 KV transmission project which we call the Brazos Valley Connection detailed on slide seven.

On April 24, we filed an application for a certificate of convenience and necessity with the Public utility Commission of Texas.

We estimate the total project cost will be between $276 million and $383 million depending on the route approved by the PUC.

We expect the PUC will issue a final order in the fourth quarter addressing all issues including which route should be used.

Upon final approval, we will begin construction and anticipate completing the project no later than mid-2018.

The new import project will improve the capacity of the Texas electric grid, strengthen regional transmission capabilities and help support growing demand in the Greater Houston area.

Turning to capital cost recovery mechanisms, our transmission capital costs are recovered via a transmission cost of service or TCOS filings.

The rate adjustment from our fourth-quarter 2014 TCOS filing totaling over $23 million annually went into effect on February 25.

We anticipate making the two allowed TCOS filings this year.

For distribution capital cost recovery, you will see on slide eight that we filed on April 6 to increase rates by $16.7 million annually using for the first time the Distribution Cost Recovery Factor mechanism, DCRF.

We expect a decision in July and have requested that rates become effective on September 1.

I would also like to note that legislative authority for the DCRF mechanism currently sunsets on January 1, 2017 and as a result, we have been working to get the legislation extended.

The DCRF sunset extension bills which move sunset to September 1, 2019 have successfully passed through the Texas House and Senate and we anticipate enactment by the end of the second quarter.

I will conclude by highlighting our successful smart meter deployment and ongoing intelligent grid implementation referenced on slide nine.

In addition to reducing costs, these projects deliver additional reliability and efficiency benefits provide enhanced customer functionality and help the environment.

As a result of the smart meter project, our customers have saved over $23 million per year in service fees.

Additionally, a residential customer surcharge covering part of the cost of the smart meter project will end this month reducing overall customer rates which are already among the most competitive in the nation.

Further, since the beginning of this project, we have saved more than 1 million gallons of fuel, avoided 9300 metric tons of CO2 and restored power to nearly 1.2 million customers without a phone call.

CenterPoint is at the forefront of the industry in this area and we are proud of our environmental contributions and our ability to manage expenses through the use of this technology.

I am pleased with Houston Electric's first-quarter performance.

Growth remains strong and we will continue to focus on delivering safe, reliable and efficient service.

Joe will now update you on the results for gas operations.

Thank you, Tracy.

Our natural gas operations which includes both our gas utilities and our nonregulated energy services business also had a solid quarter in line with our expectations.

Natural gas utilities first-quarter 2015 operating income was $146 million compared with $162 million for the same period last year while energy services reported operating income of $13 million this quarter compared with $26 million last year.

During the quarter our natural gas utilities business continued to benefit from rate relief and customer growth.

Robust economies in our service territories led to the addition of approximately 37,000 new customers year-over-year and we are on track for continuing our 1% growth in 2015.

We were also successful in controlling O&M expenses.

These benefits were more than offset by a decrease in usage related to less extreme weather in 2015 compared to 2014, higher depreciation and amortization and higher property taxes.

Although heating degree days were higher than normal across our service territories, they were significantly lower than the first quarter of last year.

As a reminder, since 2007, we have hedged winter weather at our LDCs in those jurisdictions where we do not have weather normalization adjustments.

Normally the hedges mitigate significant year-over-year fluctuations.

However, weather in the first quarter of 2014 was so cold we exceeded the cap on that hedge by the end of January 2014.

As a result, we are unhedged in February and March of 2014 and booked significant income from weather-related usage in those two months.

This variance alone accounted for $9 million of the operating income decline in the first quarter of 2015.

Additionally, the capital investments we are making to meet growth and ensure system reliability and safety have increased depreciation and amortization expenses.

These higher D&A expenses will be recovered through rate recovery mechanisms and rate cases.

In addition, operating income was reduced $3 million in the first quarter of 2015 as compared to the same quarter in 2014 due to a change in a customer charge in our last Minnesota rate case.

This reduction is primarily timing related and will reverse in subsequent quarters as the higher customer charge has the effect of smoothing revenues throughout the year.

As indicated on slide 11, we have made and will make several important regulatory filings in 2015.

These filings represent a combination of rate cases and the annual recovery mechanisms and are intended to compensate us for the substantial investment made to better serve our growing customer base.

We filed a Texas Coast rate case in late March seeking a nearly $7 million increase.

We expect the Texas Railroad Commission will issue a final order in the fourth quarter of this year.

Once the Texas Coast case is finalized, we expect to utilize GRIP, the annual infrastructure recovery mechanism, to recover future incremental capital investment which will help reduce regulatory lag.

We also made GRIP filings in our Texas jurisdictions during the first quarter seeking a combined annual increase in rates of $10 million in two of those jurisdictions.

Additionally, we plan to file rate cases in Minnesota during the third quarter and in Arkansas during the fourth quarter.

The majority of the increases will be reflected in 2016 results and we will update you on the specifics later in the year.

As noted on slide 12, Act 725 was recently passed by the Arkansas legislature and we believe this new law will benefit our utility operations in future years.

We have worked closely with the Arkansas PUC and its staff over the years in utilizing multiple alternative rate mechanisms.

Act 725 allows the utility to move away from filing multiple annual mechanisms to requesting a comprehensive formula rate plan that includes a forward test year with annual true up of rates around a banded ROE.

We view this regulatory option as positive with the potential to reduce regulatory lag in Arkansas and recover capital investment in a more timely manner.

Turning to our nonregulated energy services business, the first quarter's results included a $4 million mark to market loss compared with a $4 million gain the previous year.

The remaining decrease was margin related resulting primarily from reduced weather related optimization opportunities compared with the first quarter of 2014.

Our energy services business continued to grow its retail customers at a solid pace adding over 800 commercial and industrial customers for a 5% increase over last year.

This was a solid quarter despite the impact of quarter-over-quarter weather variances and again, consistent with our expectations.

We continue to focus on delivering safe and reliable natural gas as well as creating first-rate customer experiences by providing customers with more choices and customized services.

I will now turn the call over to Bill Rogers, who will cover financial activities.

Thank you, Joe, and good morning to everyone.

I have a few topics to review this morning and we will start by discussing the quarter-over-quarter earnings drivers, some of which Tracy and Joe dressed.

As Scott mentioned earlier, and as slide 14 shows, our earnings per share on a guidance basis was $0.30 in the first quarter 2015 compared with $0.40 per share earned in the 2014 quarter.

As a reminder, our EPS on a guidance basis excludes impacts of items such as mark to market adjustments at our energy services business and our ZENS securities and related reference shares.

At Midstream Investments, lower equity income from Enable impacted EPS by $0.05 per diluted share.

At the utility operations level, we have provided two waterfall charts to help illustrate our normalized operational performance on a quarter-to-quarter basis.

The first of these charts is at the bottom of page 14 and shows utility operations first-quarter 2014 EPS on a guidance basis of $0.27 per share.

After normalizing $0.05 to exclude the benefit of colder weather and $0.01 associated with 2014's higher equity return primarily associated with Houston Electric's true-up proceeds, we arrive at a 2014 first-quarter utility operations baseline of $0.21 per diluted share.

These adjustments are consistent with the baseline adjustments we highlighted for you in our 2014 year-end call when we provided our 2014 full-year utility operations baseline of $0.70.

This is the baseline from which we feel operational performance should be measured.

Turning to slide 15 the second chart takes you from the first quarter 2014 utility operations baseline of $0.21 to the first quarter 2015 utility operations of $0.22.

As you can see, strong customer growth and rate relief benefited the quarter by $0.03 per diluted share.

These benefits were partially offset by $0.01 of higher interest expense and another $0.01 of a number of factors such as higher depreciation expense, lower right-of-way revenue and higher O&M.

These drivers resulted in 2015 first-quarter utility operations EPS on a guidance basis of $0.22 per diluted share.

This 4.8% growth rate from our 2014 first-quarter baseline of $0.21 is in line with our 2015 guidance and our longer-term EPS growth rate of 4% to 6%.

Turning to O&M, CenterPoint's total O&M excluding expenses of corresponding revenue offset such as TCOS was up just under 2% on a quarter-to-quarter basis.

This increase in O&M expense is primarily due to higher labor costs including benefits.

We are committed to looking for further opportunities to optimize our operating cost structure.

Now turning to cash flow, during the quarter we posted strong cash flows from operating activities including $165 million from a retroactive bonus appreciation and $72 million in distributions received from Enable.

Further with respect to cash distributions from Enable, the Enable Board of Directors declared on April 24 a quarterly cash distribution of which we expect to receive approximately $73 million.

This represents a 1.2% increase over the prior quarter distribution and if annualized is consistent with the midpoint of Enable's 2015 forecast of 3% to 7% distribution growth.

Our $1.5 billion capital plan for 2015 is on track.

Through the end of the first quarter, we have invested $309 million.

As described in our 2014 Form 10-K, we plan to invest $7.4 billion over the next five years.

As we consider how to finance this capital plan, we are continually looking for opportunities to optimize our capital structure through our debt and equity capital formation activities.

And we are diligent in considering if and when equity is appropriate.

We have strong financial liquidity at the Company and plan to use our existing debt capacity to source the majority of our financing needs.

As we do this, we will be attentive to debt refinancing opportunities to further reduce our interest expense as well as to maintain our regulatory capital structures and our solid investment grade credit ratings.

Additionally as we shared in our February earnings call, we are not planning a secondary offering of common equity over the next five years.

However, if appropriate, we may consider issuing original issue shares through our benefits and investor choice plans.

Based on CenterPoint's results and the most recent public forecast made by Enable, we reaffirm our 2015 consolidated earnings estimates of $1 to $1.10 per diluted share.

We reaffirm the component parts of that with utility operations of $0.71 to $0.75 sand the midstream investments of $0.29 to $0.35.

This guidance assumes a consolidated effective tax rate of approximately 37% and an average share count of 431 million shares.

Before I turn the call back over to Carla, I would like to remind you of the $0.2475 per share quarterly dividend declared by our Board of Directors on April 23.

We believe that the strength of our balance sheet coupled with strong earnings and cash flow support our dividend under a wide variety of circumstances.

With that, I would like to thank you for your continued interest in CenterPoint Energy and I will now turn the call back over to Carla.

Thank you, Bill.

We will open the call to questions.

In the interest of time, I would ask you to limit yourself to one question and a follow-up.

Ginger?

(Operator Instructions).

Carl Kirst, BMO Capital.

Good morning, everybody.

Maybe a couple of questions on just CenterPoint Electric and first on Brazos Valley, could you just remind me if there is from an opposition standpoint, is there anything in front of ERCOT that we need to be following or to the extent there is any opposition that will get taken into account in the PUC proceeding?

Carl, good morning.

This is Scott.

I'm going to as Tracy to answer that question for you.

Good morning, Carl.

We have two sizable generation interveners in that proceeding.

One is Cal Pine and the other is NRG.

That is not a surprise to us.

They filed a complaint at the PUC relative to the methodology that ERCOT used to determine the critical need for this asset.

But this is all in the course of business so we will see how it plays out.

I still like our chances very much.

Okay but it basically all kind of wrapped up within the PUC proceeding, we are not waiting to hear from ERCOT for instance on anything?

That is exactly right.

Second if I could, I will chalk it up to Monday morning, can you remind me the issue of the reduced return on equity at CEHE with respect to the true up proceeds?

Carl, this is Tracy.

I am not clear on your question.

Could you restate it please?

The $6 million reduction over first quarter of 2014 that was attributed to the true up proceeds.

And I just want to make sure I am understanding the mechanics that is going on.

Carl, I'm going to ask Bill to answer that question for you.

I think he can give you the answer.

Carl, good morning.

Thank you.

So it is not so much that it was reduced in 2015 as it was that we were earning more than forecast in 2014.

I got it.

Okay.

Thanks, guys.

Ali Agha, SunTrust.

Thank you, good morning.

Scott, first question, you guys have told this to us before that the dividend that you are going to get from Enable tax rate on that distribution is going to go up pretty materially over the next few years.

So on an after-tax basis, should we assume that that distribution to CenterPoint should be declining over that three-year period as that tax rate jumps up?

Is that a fair way to think about it?

Thanks, Scott, and good morning, Ali.

I will take this question and answer it in two parts if I can.

It is unclear as to the direction of the tax rate.

Enable has provided where they expect to invest in 2015 as well as their distributions in 2015.

The effective tax rate to CenterPoint in future years will depend upon the rate of Enable's investment as well as any changes or what is in effect at the time on the tax code.

We have provided a forecast to you as to what that could be and that is over the next five years approximately 25% but that will go up and down depending upon how much Enable invests.

Okay.

So we will keep an eye on that.

Secondly, when do you think you will be in a position, CenterPoint, to be able to articulate your dividend growth plans going forward?

I know a lot of that is hampered by the timing from the Enable side but from a CenterPoint perspective, when do you think you are in that position?

And related to that, if the macro environment doesn't change six or 12 months from now, is there a Plan B or what is the plan from your side?

Ali, the question you asked about -- the first one you had ask about our dividend growth rate, as you know, we had pulled back from providing multiple years based on Enable's reduction in terms of the period they were looking forward.

We will be in a better position to articulate a growth rate once Enable is able to provide a little bit more clarity on their future growth.

In other words, beyond 2015.

At this point they have said that they anticipate being able to provide more projection on their second quarter call so that is when we should have more information.

I will tell you though that just from a dividend standpoint we remain committed to providing a secure, competitive and growing dividend and we are going to keep focused on that.

Hopefully we will be able to provide a little bit greater clarity on what that growth rate looks like once we get some more information from Enable.

And your ownership plans for Enable, Scott?

You know, our ownership plans are staying as they are.

We have Enable as part of our portfolio, they are an important part of our portfolio.

We see great opportunity for them to take advantage of what is going on in the marketplace today.

They've got a solid balance sheet.

There is good opportunities ahead of them.

I personally believe the infrastructure space is going to be -- it is going to continue to be built out for a number of reasons.

So I think there is good growth opportunity there and I would hate to offer, hypothesize considerations on alternatives when our focus right now is to make sure that Enable is performing well and is capitalizing on the opportunities that they have in front of them.

Thank you.

Matt Tucker, KeyBanc Capital Markets.

Good morning.

Just wanted to ask first on the Brazos Valley project, could you talk a little bit more about the variables behind the low and the high-end of the cost range?

And should we look at that as 276 million or 383 million or could it land somewhere in between?

Matt, good morning.

This is Scott.

I'm going to as Tracy to answer that one for you.

It could land somewhere in between to answer your question directly.

The low-end is more related to a direct route which could be selected by the PUC.

The high-end is to take account of the fact that there are more than 30 routes proposed as alternatives for the PUC to consider and if you imagine some 90 degree angles and some different transmission structures, the cost goes up as the variance from a straight line and from traditional construction standards vary.

So back to the answer, the answer is it could be somewhere in between.

We have said fairly consistently that $300 million is our best estimate but this is a more precise range depending on the route and the actual construction materials that have to be used based on the route.

Got it.

Thanks, Tracy.

Just wanted to ask also about the weather impact on utility operations.

Understand that there was a significant headwind year-over-year, looks like it was still colder than normal though this year.

So was there a benefit versus normal in the first quarter of 2015 or was that all offset by the weather hedge?

The benefit we saw in the first-quarter was technically favorable but it was fairly negligible, it was fairly small.

It was colder than normal, you are correct, but it was fairly negligible on a normal -- comparing it to normal.

The bigger consideration is as you have noted and that is a substantial impact to the negative when compared to last year's rather severe winter.

Got it.

Thanks, Scott.

And then just final question, maybe a bit early but would you expect much opposition to the legislation to extend the DCRF or should that get approved fairly easily?

We are fairly confident that is going to pass.

It has been approved by both the House and Senate, it is on the Governor's desk at the moment.

So we are anticipating passage by the end of the second quarter.

Sounds good.

Thanks a lot.

John Edwards, Credit Suisse.

John Edwards

Good morning, everybody.

Thanks for the color.

Just following up Ali's question, I am just trying to figure out basically how you are thinking about your strategy going forward.

It sounds like your dividend growth outlook is dependent on Enable.

So kind of if that is slowing down, that is slowing down the dividend grow so obviously it raises the question of whether you should spin it off or not to Ali's question.

It doesn't look like you have that much growth out of the utility given what the payout is to support dividend growth.

Maybe I'm just missing something here so maybe you could kind of talk about those type of trade-offs as you sort of look forward with respect to dividend policy.

John, this is Bill.

I will start out with that and if Scott cares to add comments, he will follow.

As Scott said, we recognize the importance of a secure and competitive dividend as well as a growing dividend.

We also recognize the volatility of earnings growth rate in the midstream sector.

But we have to accept that this volatility does not necessarily translate into a volatile growth rate in dividends as we seek value in a stable consistent payout and growth rate.

Just echoing Bill's comments, we have clearly been impacted by the change in forecast that Enable has shared with us and what we are really waiting for is some additional clarity from them as to what the future holds as they get more information in from their producers.

That said, they have specific levers that they can use to help manage cash flows.

We have specific levers as well that we can use to help manage cash flows and as Bill said, our objective is to have a dividend that is competitive, it is secure and it is growing and that is what we are going to focus on.

Okay, that is helpful.

So just if for example Enable is on more of this call it a 4% to 5% growth trajectory for their distributions, how does that impact your -- because remember when they came out they obviously we were thinking much higher than that if it is a mid single-digit type profile.

How should we think about what the growth profile might be at the CenterPoint level?

We haven't provided direction on that but one way to think about it is if their growth rate is less than what they had originally forecasted over the long-term, they will have some levers internally that they can use to help manage the actual cash flows and distributions and then we have some levers internally as well to ensure that we are working toward providing a dividend that is competitive with our peers.

So we've got some levers here, they have some levers so even if the growth rate they project comes down, we both have some levers we can use to help manage the growth of the dividend appropriately.

Okay.

Can you articulate on some of the internal levers you are thinking about now?

John, clearly the declaration of the dividend and longer-term growth rate is something the Board studies hard and they make the declarations.

We don't want to get ahead of our Board on this but we recognize that the levers that we have are not only the strength of our balance sheet but taking a look at other factors that go into our financial statements.

John, I will just -- I want to point out too just remind you, that we do have good utility growth over this period.

So we've got good support from our utilities for growth dividend as well.

I recognize that, just the payout is obviously pretty high right now so that is what was given rise to this question.

I think the overall payout for the Company probably is high but when you look at the component parts, the utility is still in a fairly reasonable range of payout.

Okay.

That is helpful.

Thank you.

You are welcome.

Lauren Duke, Deutsche Bank.

Good morning.

Bill, you talked a little bit about looking for other ways to kind of control O&M.

Can you just talk about where you are seeing the most opportunity there and what sort of increased run rate do you think we think about for you guys in the future?

Lauren, it is Bill.

I will start with that and then ask if either Tracy or Joe would like to add to it.

We are committed to discipline with respect to the growth rate in our O&M.

We do recognize that there will be some growth because we have s growing customer base, growing volume sales in both the electric and the gas business.

But the way for us to address that is to look hard at not only our labor cost structure but maintenance contracts and quite frankly to get more efficient in all that we do which is more a matter of many, many small items throughout our business than it is any one large item.

Joe or Tracy?

I will start, Lauren, in our gas business for years now we haven't investing in capital that has of the effect of making us more efficient operationally and I think if you were in New York in June, we showed a pretty low growth rate in our O&M over the last several years and we don't expect that to be much more than 2% or so over the next several years as we continue to take advantage of that.

A good example is our customer service.

We have made a lot of investment in technology and in systems there and so we are bringing down the unit cost of fielding calls and taking care of our customers and we have taken advantage of all of that.

And not to mention as we spend more capital, more of our labor is capitalized as opposed to expensed.

So those are a few of the factors that will help us control O&M.

Lauren, this is Tracy.

I will build on Joe's point because it is a similar story.

I touched on the very significant capital projects we have -- we have completed our smart meter deployment of 2.3 million meters in 2012 and we are in the process of deploying our intelligent grid.

That automates what were previously very manually intensive processes so that definitely helps us convert manual expense driven things into capital driven things and also customer service on the electric side.

The best example we have there is power alert service.

We have 400,000 of our 2.3 million customers enrolled in this voluntary program and it allows us to proactively send them messages on what we know when we know it so that they don't have to call us and if they don't have to call as we don't have to have as much customer service expense and customer satisfaction increases.

So discipline, efficiency, substituting capital for expense, those are all themes that we continue to drive.

Okay, great.

Can you also, beyond the Brazos Valley connection, can you talk a little bit about whether you are seeing other larger scale transmission opportunities in the states that you guys are considering?

Yes, Lauren, this is Scott.

I will answer that one for you.

Most of our investment on transmission is right around our footprint so the nature of investment is either within the footprint where we are building investing in transmission and substations for industrial growth which is kind of the other big theme in terms of transmission investment.

Beyond that, kind of the next wave of potential investment might be for additional import capabilities but that would be many, many years out into the future and really going to have to be a function of evaluation done at that time about the balance between growing demand in the load pocket and the amount of generation that is available locally.

Okay, great.

Thank you, guys.

(Operator Instructions).

Charles Fishman, Morningstar.

Thank you.

I have got a question for Tracy.

But maybe before that, I will just say that I've been one of the people concerned about the impact of the fall in oil and gas prices with respect to Houston load growth or customer growth.

That slide you have on number six really addresses that very well.

I compliment you on that.

Tracy, my question is do you see any significant challenges to the DCRF extension?

I would think that would be a lot tamer than what has gone on with the import project.

Charles, the answer is no, we don't foresee any issues with that.

We think it will be enacted into law by the end of the second quarter.

Both bills are identical, they have passed the House and have passed the Senate in Texas and as Scott said, we are simply waiting for enactment so we don't see any issues with the continuation of that legislative authority.

Okay, thank you.

That was all I had.

Jeremy Tonet, JPMorgan.

Good morning.

Just wanted to start off with a quick housekeeping item, could you remind us on the utility side, what was the trailing 12 months payout ratio?

Do you have that handy?

Bill, do you happen to have that?

We will get that for you.

Okay, that would be helpful.

Great.

And then just wanted to see if you had any thought, I think there was some discussion as far as alternative structures.

I think a peer out there had been discussing in the marketplace as far as whether or not to utilize an REIT structure or there was some discussion general around that.

And I am wondering if you guys had paid any thought to that and if you had any thoughts to share there?

Jeremy, that is an interesting space.

We have actually been looking at REITs and examining the many issues around them as you well know, looking for opportunities where a REIT structure could be value enhancing for either our customers or the rate payers -- I'm sorry -- or the investors.

And what we are seeing so far is while this is interesting, there is still a number of complications and regulatory issues that we think make this space more challenging than opportunistic.

But that said, we are going to keep exploring it and keep looking at how that area develops to see if it could represent opportunity for us.

That is very helpful.

Thank you.

This does conclude CenterPoint Energy's first-quarter 2015 earnings conference call.

Thank you everyone for your interest in CenterPoint Energy.

We will conclude our first-quarter 2015 earnings.