EUR 850.00 For Business Accounts Only

Morningstar | Enable Initiates Strong Guidance, But Not Enough To Move Our CenterPoint FVE

CenterPoint Energy's regulated utilities have significant investment opportunities, and higher oil prices have improved the outlook for earnings and cash distributions from Enable Midstream Partners. In addition, we expect the merger with Indiana-based Vectren Corp. to close in the 2019 first-quarter and be modestly accretive to earnings.We expect Houston Electric, CenterPoint's six natural gas distribution utilities, and Vectren's natural gas and electric utilities to increase their rate bases on average over 7% annually during the next five years, owing in large part to above-average electricity demand growth in Houston and systemwide infrastructure improvements, notably at the gas distribution utilities that include operations in Minneapolis and Houston. We estimate utility operating net income growth will slightly lag rate-base growth following the merger but still average over 6%.In 2013, CenterPoint formed Enable with two other firms, contributing all of its interstate pipelines and field services business. CenterPoint owns 54% of the master limited partnership units and a 50% general partnership interest. Although commodity prices remain below the levels at the time of the formation of Enable, the partnership has recently had commercial successes for new business, and drilling activity has strengthened in the regions that Enable serves.CenterPoint tried to sell its entire interest in Enable but has been unsuccessful in finding a buyer. The company now plans to sell limited partner units over time on the open market, using the proceeds to fund capital expenditures at its growing utilities and retain a strong balance sheet.Most regulated utilities will not significantly benefit from the December 2017 Tax Cuts and Jobs Act, since regulators cut utility rates to incorporate the lower corporate tax rates. However, because of the material earnings stream from Enable that is unregulated and taxed at the CenterPoint level, consolidated earnings and cash flow will benefit.