EUR 850.00 For Business Accounts Only

Morningstar | Slow Start for CenterPoint Following Vectren Merger

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, the February merger with Indiana-based Vectren solidifies CenterPoint's narrow moat, as we estimate Enable will contribute less than 20% of consolidated operating earnings by 2023. Enable contributed over 30% of earnings in 2018, and about half of those earnings were from no-moat businesses.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 8% annually during the next five years. This is due 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 EPS growth will only slightly lag rate-base growth following the merger as the companies reduce regulatory lag and achieve synergies from combining back-office operations.In 2013, CenterPoint formed Enable with two other firms, contributing all of its interstate pipelines and field services business. CenterPoint owns 53.8% 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, the partnership has recently had commercial successes for new business, and drilling activity has strengthened in the regions Enable serves.Most regulated utilities didn't 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 Enable's earnings are unregulated and taxed at the CenterPoint level, CenterPoint realized an earnings and cash flow benefit. In addition, the rate reductions at the regulated utilities provide headroom to maintain a high level of capital expenditures. These investments should translate into strong earnings growth over the next decade.