CenterPoint Energy Management Discusses Q1 2014 Results - Earnings Call Transcript

May. 1.14 | About: CenterPoint Energy, (CNP)

CenterPoint Energy (NYSE:CNP)

Q1 2014 Earnings Call

May 01, 2014 11:30 am ET

Executives

Carla Kneipp

Scott M. Prochazka - Chief Executive Officer, President and Director

Tracy B. Bridge - Executive Vice President and President of Electric Division

Joseph B. McGoldrick - Executive Vice President and President of Gas Division

Gary L. Whitlock - Chief Financial Officer and Executive Vice President

Analysts

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Charles J. Fishman - Morningstar Inc., Research Division

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

Carl L. Kirst - BMO Capital Markets U.S.

Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Steven I. Fleishman - Wolfe Research, LLC

Operator

Good morning, and welcome to CenterPoint Energy's First Quarter 2014 Earnings Conference Call with Senior Management. [Operator Instructions] I will now turn the call over to Carla Kneipp, Vice President of Investor Relations. Ms. Kneipp?

Carla Kneipp

Thank you, Regina. Good morning, everyone. Welcome to our first quarter 2014 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 Gary Whitlock, Executive Vice President and CFO, will discuss our first quarter of 2014 results and provide highlights on other key activities. Also present are other members of management, who may assist in answering questions following the prepared remarks. Our earnings press release and the Form 10-Q are posted on our website, centerpointenergy.com, under the Investors section. These materials are for informational purposes, and we will not be referring to them during prepared remarks. I remind you that any projections or forward-looking statements made during this call are subject to the cautionary statements on forward-looking information in the company's filings with the SEC.

With the formation of Enable Midstream Partners, the way we present our financial results have changed. In discussing our financial results, we will refer to our equity investment in Enable and SESH as midstream investments and the remainder of our businesses as utility operations. Before Scott begins, I'd like to mention that a replay of this call will be available through Thursday, May 8. To access the replay, please call (855) 859-2056 or (404) 537-3406 and enter the conference ID number 20029308 [ph]. You can also listen to an online replay of our -- replay on our website, and we will archive the call for at least 1 year.

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

Scott M. Prochazka

Thank you, Carla, and good morning, ladies and gentlemen. Thank you for joining us today, and thank you for your interest in CenterPoint Energy. This morning, we reported first quarter 2014 earnings of $185 million or $0.43 per diluted share as compared to $147 million or $0.34 per diluted share in 2013. Using the same basis that we use when providing guidance, first quarter 2014 adjusted earnings would have been $0.40 per diluted share compared to $0.31 for 2013. Utility operations contributed $0.27 of the $0.40 per diluted share, and midstream investments contributed $0.13.

This was an excellent quarter for our diversified energy delivery portfolio. Core operating income for our utility operations was up quarter-over-quarter by $73 million or 38%, driven by cold weather, customer growth and rate increases, as well as weather-related basis volatility benefiting Energy Services.

Our delivery systems operated well under extended, extreme weather conditions. Our natural gas utilities received top quartile ratings in the most recent J.D. Power customer survey. We also have expanded Houston Electric's power alert service, which provides proactive communication to residential electric consumers when their service is affected.

We invested $286 million during the quarter for growth, reliability, system modernization, customer service and ongoing maintenance. We are on track to invest almost $1.4 billion of capital by year end.

The effective execution of our strategy over the next 5 years will support our goal of growing utility operations earnings 4% to 6% annually.

Our midstream investments segment reported equity income of $91 million in the first quarter: $88 million from our pre-IPO 58% interest in Enable Midstream Partners and $3 million from our 25% interest in SESH. This month marked a significant milestone for Enable, as it began trading as a public company on April 11. I would like to compliment the Enable management team for their hard work and dedication, which resulted in a successful IPO.

We are excited about the future prospects for Enable, which is an important long-term component of our diversified energy delivery portfolio. As board numbers, Gary Whitlock and I will work with our fellow board members to provide strategic direction and oversight as Enable executes its strategy and business plan.

Yesterday, Enable issued a first quarter press release and held an earnings call to review the drivers for its first quarter performance. I'll refer you to those materials for a more detailed explanation of Enable's results.

This summer, we will be holding an Analyst Day at the New York Stock Exchange. We look forward to introducing our extended management team and discussing CenterPoint's investment and valuation theses, including our expectations for our 5-year forecasted dividend growth rate. For those not attending in person, the event will be webcast and archived.

We're off to a good start in 2014 and continue to implement our strategy, which emphasizes operational excellence and utility growth. I will now turn the call over to Tracy.

Tracy B. Bridge

Thank you, Scott. Houston Electric's first quarter 2014 core operating income was $75 million compared to $49 million for the same period last year, an increase of $26 million. The business benefited from increased usage due to cold weather, right-of-way revenues and customer growth. Increases in operations and maintenance expense, as well as property taxes, partially offset the gains in revenue. Similar to other parts of the country, the weather in our service territory was colder than normal, and residential usage was up about 16% compared to last year. Net of the weather hedge we put in place for this past winter season, first quarter weather-related usage increased operating income by $14 million compared to last year. When compared to normal weather, operating income increased by $7 million.

Third-party interest in our transmission rights-of-way continues to be strong. We recorded $10 million of associated revenues through the first quarter. Although right-of-way revenue is difficult to estimate, we continue to expect revenues of $10 million to $20 million this year.

The business benefited from strong customer growth, adding more than 45,000 customers since the first quarter of 2013. We continue to expect a 2% customer growth rate in the foreseeable future due to the strength of the greater Houston economy.

Turning to our capital investments, Houston Electric invested $187 million in the first quarter. We are on target to invest in excess of $780 million by year end to support service area growth, grid hardening, system reliability and ongoing maintenance. Approximately 95% of Houston Electric's capital expenditure is recoverable through investment recovery mechanisms, although the use of our distribution capital recovery mechanism may be limited by actual ROE performance.

We recently made a Transmission Cost of Service, or TCOS, filing with the Public Utility Commission of Texas to recover the cost of transmission investments made from October 2011 through December 2013. The filing reflects the addition of over $180 million of transmission rate base and, once approved, will generate annualized operating income of approximately $14 million. We expect to begin recovering approved TCOS amounts by the end of May.

Now let me update you on the status of the Houston Import Project we first mentioned during our third quarter 2013 call. On April 8, the Electric Reliability Council of Texas, or ERCOT, voted to endorse the Houston Import Project and deemed it critical for reliability. ERCOT has estimated the cost for the entire transmission project to be approximately $600 million and anticipates the project will be completed no later than June 2018. On April 30, Houston Electric was notified of ERCOT staff's decision to split responsibility for the new 345 KV transmission line originating at the Limestone substation, intersecting the Gibbons Creek substation and terminating at the Zenith substation. As owner/operator of both the origination and termination substations, Houston Electric has requested the right to construct, own and maintain the entire project, except for necessary upgrades to the Gibbons Creek substation, which is owned by Texas Municipal Power Agency. We have appealed the ERCOT decision to the Public Utility Commission of Texas and are seeking the right to construct, own and maintain the entire project, except for necessary upgrades to the Gibbons Creek substation. CenterPoint Energy has requested an expedited decision schedule from the PUCT with a desire for a decision later this summer. Overall, I'm very pleased with Houston Electric's first quarter performance.

Joe McGoldrick will now update you on the results of our natural gas operations.

Joseph B. McGoldrick

Thank you, Tracy. Let me remind you that our natural gas operations business includes both our natural gas utilities and our Energy Services business.

Our natural gas operations performed very well this quarter. Natural gas utilities' first quarter 2014 operating income was $162 million compared to $139 million in the prior year. During the quarter, we benefited from increased usage due to cold weather, rate increases and continued customer growth. Winter financial hedges were established in Minnesota and Texas to stabilize revenues against weather volatility, as we do not have weather normalization tariffs in those 2 states. However, the hedges had a bilateral cap of $16 million, and the extremely cold temperatures, particularly in Minnesota, caused us to reach the cap on January 31. As a result, we realized a net weather-related margin increase of $16 million compared to the first quarter of last year. When compared to normal weather, the increase was $13 million.

The extreme and sustained cold weather also tested the capacity of our system. In fact, our Minnesota service territory experienced 35 days with sales above 1 Bcf in the first quarter compared to about 10 days in a typical year. We are pleased that the system infrastructure investments we have made helped ensure our customers were served safely and reliably throughout this high-demand period.

Margin also benefited from rate increases of an additional $14 million this quarter compared to last year. Interim rates in Minnesota, GRIP increases in Texas and our Arkansas Main Replacement Program Rider were the primary contributors. Consistent economic growth in our service territories continues, and we added approximately 33,000 customers year-over-year. Increases in margin were partially offset by increased bad debt expense due to higher gas costs reflected on customer bill, increased depreciation expense associated with higher capital expenditures and higher property tax.

Through the first quarter, we have invested approximately $83 million in our natural gas utility and are on track to invest in excess of $520 million by year end. These investments include system infrastructure enhancements, customer service technologies, our advanced metering program and a new central office for our Minnesota operation.

Generally, we recover about 50% of our annual capital investments through annual adjustment mechanisms. While the recovery time varies by jurisdiction, these mechanisms significantly reduce regulatory lag when compared to traditional rate cases. We anticipate filing rate cases to recover the capital investments we're making where annual mechanisms are not in place, primarily Minnesota.

In the pending Minnesota rate case, our overall request was for an increase of $29 million when you exclude the effects of moving certain energy efficiency revenues from a separate rider in today's rates. In April, the administrative law judge recommended a 9.6% ROE and a 52% equity capital structure, which would produce a $16 million net increase in our base revenues. Oral arguments in Minnesota PUC deliberations will occur the week of May 5. We expect the final order in June.

Our Energy Services business also had a strong quarter, with operating income of $26 million compared to $7 million last year. These results include a $4 million mark-to-market gain compared to a $5 million loss the previous year. After adjusting for the mark-to-market changes, business results improved by approximately $10 million over the first quarter of 2013. This much improved result was due to 2 factors: First, our TETCO pipeline capacity that accesses Pennsylvania Marcellus production proved to be a valuable asset this winter. Basis volatility created asset optimization revenues not experienced in many years. And second, the transport capacity assigned to us in our Chicago and St. Louis retail markets created similar revenue opportunities due to strong basis differentials. These 2 factors, along with weather-driven throughput increases, contributed nearly all of the $10 million increase in business results.

Natural gas operations' strong performance in the first quarter continues to highlight the successful business plan we have been implementing for several years. I'll now turn the call over to Gary, who will provide an update on financial activities and earnings guidance.

Gary L. Whitlock

Thank you, Joe, and good morning to everyone. Before discussing various CenterPoint financial items, I would like to comment on the process and results for the recently completed Enable Midstream IPO. In April, Enable successfully priced a 28.75 million unit, $575 million IPO at $20 per unit, which was at the midpoint of the filing range and has subsequently traded higher. We are pleased to have the market recognize the value of Enable as a large-scale midstream MLP providing integrated long-haul transmission, gathering, processing and storage services.

We believe its strong organic growth trajectory, combined with the financial flexibility of a strong investment-grade balance sheet, has positioned Enable to create long-term shareholder value.

With Enable's IPO complete, CenterPoint Energy's LP unit ownership is now 54.7%. However, during the second quarter, we anticipating electing to drop essentially all of our remaining ownership interest in SESH into Enable. This SESH transfer will increase our LP ownership in Enable by 6.3 million LP units, resulting in a 55.4% LP unit ownership position.

Now turning to CenterPoint Energy's financing activities. In March, Houston Electric issued $600 million of 30-year general mortgage bonds with a coupon of 4.5%. A portion of the proceeds are being used to purchase or redeem approximately $184 million of dilution and control bond, while the remaining proceeds will be used to fund Houston Electric's significant capital investment program.

Now I'd like to discuss our earnings guidance for 2014. This morning, in our first quarter earnings release, we revised upward our consolidated estimate for 2014 to be in the range of $1.10 to $1.19 per diluted share. We increased our estimate of earnings from our utility operations to be in the range of $0.72 to $0.76 per diluted share.

This increase recognizes the strong financial performance to date of both our electric and natural gas utilities and of our Energy Services business. The utility operations guidance range considers significant variables that may impact earnings, such as weather, regulatory and judicial proceedings, throughput, commodity prices, effective tax rates and financing activities. However, the company does not include the impact of any changes in accounting standards, any impact to earnings from the change in the value of the Time Warner stock and the related Zenith securities or the timing effect of mark-to-market accounting in the company's earnings expectations.

We have assumed a consolidated effective tax rate of 36% and an average share count of 431 million shares. As the year progresses, we will keep you updated on our utility operations' earnings expectations.

As you know, Enable is in a quiet period and has not updated its 2014 earnings forecast. Accordingly, we are making no change to our midstream investment guidance range other than to reflect the $0.02 per share dilution resulting from the Enable IPO. In providing our earnings guidance in the future, we will take into account the most recent public forecast provided by Enable.

In closing, I'd like to remind you of the $0.2375 per share quarterly dividend declared by our Board of Directors on April 24. Our policy is to target an annual payout ratio of 60% to 70% of sustainable earnings from our utility operations and 90% to 100% of the net aftertax cash distributions we receive from Enable. Now that Enable has completed its IPO and will be providing its forecast of earnings and cash distribution, our objective is to provide to investors a forecast of our expected dividend growth rate. We plan to do so at our upcoming June 30 Analyst Day to be held in New York.

Thank you for your continued interest in CenterPoint Energy, and I will now turn the call back over to Carla.

Carla Kneipp

Thank you, Gary. In asking your questions, I'd like to remind you that since Enable Midstream is now a public company, we request that you direct Enable-related financial and operational performance questions to Enable management. As such, we will not be answering questions related to Enable on this call. We will now open the call to questions. [Operator Instructions] Regina?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Ali Agha with SunTrust.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Start with the bankruptcy or Chapter 11 filing of Energy Future Holdings. I wanted to get a sense of if that has created the opportunity for you vis-à-vis Oncor, which I know you all have talked about in the past or perhaps not? And related to that, overall, your views on M&A opportunities for regulated utilities that you all have talked about in the past. That's my first question.

Scott M. Prochazka

Well, I'll start with that. I may ask Gary to comment on this as well. But in the context of the filing that we just made, I think what this does is just put in motion a process that we knew was coming. I think we're going to have to take a look at this, as everyone else is, and understand what it means. From a strategic standpoint, we've mentioned in the past that Oncor is an interesting asset. And since we know the regulations in the state, we know the operations of the state, it makes sense for us to contemplate it. But we're going to have to wait and see how this one plays out. And I think that this answer I just gave kind of leads into your second question, which is around what are our feelings about M&A in general. And that is we're going to evaluate opportunities that would be value creating for our shareholders in terms of accretive value, growth accretion. We have criteria around what we're interested in, in terms of geographic proximity to where our assets are today, as well as areas that offer good growth potential and have constructive regulatory environments. So I think we're going to have to wait and see. I think this one has a long time to play out before we get, really, any clarity on what opportunity, if any, this would present. Gary, I don't know if you want to add anything.

Gary L. Whitlock

No, I think that's exactly right. And, Ali, as you know, now with Enable being formed, they are going to execute their business plan. They have access to capital to do so, both net and equity capital. Our focus, as Scott described, will be on regulated opportunities that present themselves, both in the electric business and in the gas LDC business as well.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Got you. And, Scott, for my second question, from your perspective, obviously, you've got a particular ownership now in Enable. Going forward, at some point down the road, they're going to be raising capital, et cetera, to, as you mentioned, execute their plan. What is CenterPoint's ownership philosophy? Are you looking to continue to maintain your current ownership, which means you may have to put in more capital down the road? Would you look at yourself being diluted eventually? Or would you even consider exiting your ownership down the road? Philosophically, what is your plan with regards to that ownership?

Scott M. Prochazka

Well, Ali, as I think we mentioned in the past, I mean, we like the business. I mean, we owned assets that were a big part of what Enable is today, and we think they're good assets to own. So our general philosophy is that we want to maintain the ownership position that we have today. And as they continue to raise capital and -- for their growth project, we will be diluted as a result of that. But we'll own a larger portion of a bigger pie, so to speak. But we like the assets, and we intend to maintain the ownership we have today.

Gary L. Whitlock

And, Ali, this is Gary. I'd also like to remind you that there is a GP as well. And we own 40% of the IDRs in the GP. Our partner, OGE, owns 60%. And our expectation, as Scott described, is that Enable will execute their business plan. They will grow their company. We may have a smaller piece of a bigger pie, but at the same time, we'll have a value that will ultimately accrete to the GP ownership. So we think that's option value for our shareholders. And, as Scott said, we like the assets. Frankly, we have a lot of connection to those assets. We put a great management team in place. We have a terrific partner in OGE. And we look forward to Enable executing their business plan, and we create more value for our shareholders in doing so.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Okay. But you're not planning to put more cash in the LP, just be clear on that?

Gary L. Whitlock

We'll never say never to anything, but that's not our current intent. As you know, we set this up, the MLP, that they would have independent access to capital to execute their business plan.

Operator

Our next question is from Charles Fishman with MorningStar.

Charles J. Fishman - Morningstar Inc., Research Division

I believe this would qualify as a CenterPoint question, rather than Enable, but certainly, you can decline. The drop-down of SESH, does that have any earnings impact at the CenterPoint level?

Gary L. Whitlock

No, this should be a net neutral when it's complete. And for various reasons, Charles, at the time of the formation, we were unable to put that portion into the company. And there was a prearranged, then, formula for doing so. But neither company was obligated to -- Enable to accept it or us to drop it down. But we have now made the decision, a year later, to drop it down. But this should be a net neutral impact.

Charles J. Fishman - Morningstar Inc., Research Division

Okay. And then second question was on the ERCOT decision on the transmission. Did that surprise you that ERCOT ruled the way they did? Or is there any precedent for what they did?

Scott M. Prochazka

Tracy, I'll let you to take this one.

Tracy B. Bridge

We knew that the likely outcome was going to be between 50% and 100% ownership. The ERCOT staff chose the former, and we're seeking the latter. And as of this morning, we've appealed ERCOT's staff's decision to the Public Utilities Commission of Texas, which will ultimately decide the case. We think we have a very strong argument because the ERCOT protocol is to award a line such as this to a designated party who owns both ends of the line, and we believe we own both ends of the line. And so we're anxious for the PUC to weigh in on that.

Joseph B. McGoldrick

Charles, I'll just add, I think one of the, perhaps, complicating elements on this one is other projects have been very clean with just 2 points involved, and this one has -- there's 3 points. And we own the 2 endpoints. There happens to be 1 in the middle, and I think that's what's clouding some of the issue at the moment.

Operator

Our next question is from Matt Tucker with KeyBanc Capital.

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

First question, on the guidance change. I understand, on the Enable side, you've just adjusted for the IPO dilution. On the utility side, have you changed your assumptions for quarters 2 through 4? Or should we view the change as just being driven by the first quarter coming in above your expectations?

Joseph B. McGoldrick

I think the answer is more of the latter. In other words, we had a strong quarter here, driven very heavily by weather. But when we were first looking at guidance, we already knew some of the things that were going to be -- that were unfolding at the time we gave guidance initially. So what this really reflects is the change that we've seen to date in the first quarter as opposed to something fundamentally changing through the balance of the year.

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

And then just at the Energy Services business, obviously, a very strong quarter. Have you seen those stronger opportunities from the first quarter trickle into the second quarter at all? And can you just talk about your outlook there for the rest of the year?

Scott M. Prochazka

Joe, I'll let you take this one.

Joseph B. McGoldrick

Sure. Yes, we continue to see some opportunities, although not at the level, obviously, that we saw in the first quarter because the volumes and the volatility are much greater in the first quarter. But going forward, it probably won't have a material impact unless we have another blowout in basis next winter like we had this time. And so nothing really has changed strategically with that business. We were just opportunistic in taking advantage of these conditions over this past winter.

Operator

Our next question is from Carl Kirst with BMO Capital.

Carl L. Kirst - BMO Capital Markets U.S.

I think the only 2 cleanups I have maybe just might be on the Houston Import Project. And, I guess, my question is, inasmuch as you've asked for an expedited time frame, which, I guess, is 30, 60 days versus sort of the normal, maybe, 6 months to a year, is it that you basically go to 30, 60 days, and then you may get the decision? Or do they -- will they essentially give you a heads up that you've been put on the accelerated track? Or how will, I guess, we know that?

Scott M. Prochazka

Tracy, you want to take this?

Tracy B. Bridge

We're seeking a decision from the PUC by this summer. We're going to be filing an expedited schedule that we're going to ask the PUC to adopt. Of course, it's their sole decision whether they adopt it or not. But we have a number of months for this to play out, and this is a very important policy discussion and decision for us. So that's where we are at the moment.

Carl L. Kirst - BMO Capital Markets U.S.

Okay. And then, if I recall correctly, maybe in the 10-K or earlier in the year, the Houston Import Project wasn't officially in the 5-year budget. Now that we sort of know that there is a kind of a minimum 50% ownership, is that something that now has kind of been put into that budget? I can't imagine it changes much in the way of financing plan, but just, I guess, the question is just is it officially in the budget at this point?

Gary L. Whitlock

No, it's not officially in the budget, and for the reasons Tracy just described is that the current bid asset is different that we hope that it ends up. And in terms of the earnings impact, this is more of a 2018 project as well. So don't -- at this point, it's not considered in the budget that we have.

Operator

Our next question is from Neel Mitra with Tudor, Pickering.

Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

I know you guys raised the capital spending guidance at the gas LDCs substantially this year. But I was just wondering, is that something that you see further opportunities to spend in? And if there are going to be changes, what would you be targeting in what may be service territories?

Scott M. Prochazka

Joe, do you want to take this?

Joseph B. McGoldrick

Sure. Yes, we obviously increased the level of capital this year, although it's -- we were over $400 million last year as well. And this relates a lot to, as you can imagine, the pipeline integrity requirements that you're seeing around the country. And, of course, we were doing that ourselves to begin with, even before the PHMSA and other requirements were put in place. And we have a big transmission, what we call the beltline project in Minnesota, which is about a 72-mile loop around the city in Minneapolis. That'll be about a 15- to 20-year project of substantial amount of capital. We continue with our advanced metering program, which requires a significant amount of capital. And so we have -- and, of course, the growth in our service territories. So we've anticipated this increased spending for a while, and we expect it to last for several more years.

Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Great. And then, Gary, could you comment just maybe around the M&A environment for gas LDCs right now? I know that you've expressed interest in being an acquirer. But we've seen some high valuations, and just any commentary on how you see that playing out with the market?

Gary L. Whitlock

Well, yes, you're correct, absolutely correct about high valuations. I think that was second. First of all, what Scott said, I think, in terms of M&A, it's looking for those assets where there is good regulatory environments and we have opportunities that we can put our model in place and run those businesses more effectively and for the very long term. On terms of valuations, Neel, we really have to remain disciplined. Not to criticize what others would pay or not pay, our focus is on ensuring that we have, as Scott said, an accretive transaction for our shareholders and increased value for our shareholders and we can have these assets for the long term. Having said that, to the extent assets do come on the market, we will absolutely evaluate those if they meet our criteria and compete for those assets. So M&A, as Scott said, is certainly a part of what we want to do, but our focus is really implementing our business plan. And you heard from Tracy and from Joe a significant amount of capital that we're investing and the opportunity to invest more. So certainly, M&A can play a role.

Operator

[Operator Instructions] Our next question is from Steve Fleishman with Wolfe Research.

Steven I. Fleishman - Wolfe Research, LLC

So this might be for Gary. Just in terms of your balance sheet and credit metrics, where would you say you are right now? And would you say you've got a decent amount of room to maybe even either stay where you are or add leverage where you are if you see kind of another round of opportunities beyond what you're already doing?

Gary L. Whitlock

Steve, it's a good question. We do have some financial flexibility. As you know, we worked a number of years to ensure we had that financial flexibility. As I gave you in our earnings guidance, we -- even with our capital program this year, our share count will remain the same. To the extent we have significant capital above and beyond, we could certainly raise equity. We'd love to have the opportunity for even a larger transaction to do so. But having said that, the short answer is yes, we do have some leverage capacity, and we'll use it judiciously. But our credit ratings are important to us, and we're going to, obviously, always do the things to defend those. But we're going to do those in a very thoughtful way, and we do have capacity.

Steven I. Fleishman - Wolfe Research, LLC

Okay. And just -- sorry to harp on this transmission line question, who was the other party? You might have said this and I missed it.

Gary L. Whitlock

There were 2 other parties designated by the Texas Municipal Power Agency, and they were the city of Garland, Texas; and Cross Texas Transmission company.

Steven I. Fleishman - Wolfe Research, LLC

Okay. So they would be -- the both of them together would be the other party, essentially?

Gary L. Whitlock

Correct.

Steven I. Fleishman - Wolfe Research, LLC

Okay. And if you got all of this, you would get all the $600 million?

Gary L. Whitlock

$600 million, less the cost of upgrading the intermediate substation, which is called Gibbons Creek. That's approximately $10 million.

Steven I. Fleishman - Wolfe Research, LLC

Okay, okay. I guess, I remember a number of like $390 million at one point from you, but that might have been something different.

Scott M. Prochazka

Steve, at one point, we were looking at a series of potential projects that could be selected. And the range of projects at the time had costs that went from, on the low end, probably, the $390 million up to even above $600 million. So that created variability. And then there's just then this issue around what the split would be of the investment was another aspect of variability in there. So $390 million was probably a viable number for one of the options at one point in the process.

Carla Kneipp

At this time, we do not have any additional questions. We will end the call. Thank you very much for participating today. We appreciate your support, and have a nice day.

Operator

This concludes CenterPoint Energy's first quarter 2014 earnings conference call. Thank you for your participation.

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