We’re very pleased to report that our company performed well and delivered at the high end of our financial expectations for 2015, a year marked by considerable external challenges. Our utilities benefited from timely cost recovery, strong customer growth, and careful management of operating and maintenance expenses.
Led by the strong performance of our electric and natural gas utilities, our annual adjusted earnings, using the same basis that we use when providing guidance, was $475 million, or $1.10 per diluted share. This consists of $0.79 from utility operations and $0.31 from midstream investments. Our guidance basis excludes impairment charges related to our investment in Enable Midstream Partners and other factors.
Our midstream investments finished the year within our initial guidance range. However, given the reduction in Enable’s unit pricing throughout the year, as well as the market outlook for continued depressed commodity prices impacting the midstream oil and gas industry, we recorded non-cash impairment charges in both the third and fourth quarters. As a result, we reported a loss of $692 million, or a loss of $1.61 per diluted share.
Although we are pleased with our operational performance, we are disappointed with our stock valuation. The fall of commodity prices and the downturn of the energy sector negatively impacted Enable’s operations and valuation, and consequently, CenterPoint Energy’s share price as well. Total shareholder return for CenterPoint Energy in 2015 was -17.57 percent, below the S&P 500 Utilities Index return of -4.85 percent and the S&P 500 Index return of 1.38 percent.
Nevertheless, our dividends continue to grow. At the beginning of 2016, our board declared a regular quarterly cash dividend of 25.75 cents per share, which represents a 4 percent increase from last year’s quarterly dividend and, if annualized, would equate to $1.03 per share. This is the 11th consecutive annual dividend increase.
DELIVERING ON OUR VISION
We believe strongly in our vision of delivering energy, service, and value. We’ve been especially pleased with our utility operations, which represent approximately 70 percent of our 2015 earnings and are expected to grow to approximately 75 to 80 percent in 2016. We continue to invest in infrastructure to meet growing demand and modernize our systems. Our capital investments last year were a record $1.6 billion, up from $1.4 billion in 2014. We also remain focused on carefully managing our operating costs and held operating and maintenance expenses flat last year.
Our regulators understand the importance of investing in a safe and reliable energy delivery system and allowing us to recover those investments in a timely manner. In 2015, we secured $90 million in annualized recovery through 14 rate filings and are earning at or near our authorized rates of return in all our jurisdictions. We also obtained nearly $19 million in energy-efficiency bonuses for our conservation programs.
Core operating income for our electric transmission and distribution business was $502 million in 2015, excluding securitization bonds. We deliver power to approximately 2.3 million metered customers in the greater Houston area, one of the most robust service territories in the United States. Adding nearly 50,000 new meters, we realized a 2.1 percent growth rate in 2015. For more than 25 years, our average annual growth rate has been 2 percent.
We invested $934 million of capital in 2015 to meet the demands of our growing service territory, and we expect to invest an additional $3.7 billion over the next five years. We are prioritizing our capital investments with a focus on safety, reliability, and customer growth. About 90 percent of our electric transmission and distribution capital is eligible for recovery through annual mechanisms without a full rate case.
We also continue to make investments to enhance the security and reliability of our system. In 2015, we established a cybersecurity operations center and completed a state-of-the-art systems operation center to provide greater redundancy and resiliency for overseeing our electric delivery system.
Our natural gas distribution business, serving 3.4 million customers in six states, added nearly 30,000 customers and reported $273 million of operating income.
We invested approximately $600 million in capital for safety, reliability, and growth in 2015, and we expect to invest an additional $2.3 billion over the next five years. Our drive-by meter reading deployment is now complete across our footprint, increasing efficiency, accuracy, and customer satisfaction. Approximately 90 percent of our 2015 natural gas capital expenditures is eligible for recovery through annual mechanisms and forward test years, avoiding costly rate cases and minimizing regulatory lag.
In 2016, we anticipate resolving a $54 million rate case in Minnesota and a $36 million rate case in Arkansas. In both states, we have invested significantly in replacing pipe and modernizing our system to meet the needs of customers now and in the future.
Our conservation programs benefit residential, small business, and industrial customers by offering rebates on energy-efficient appliances and heating and cooling systems. In 2015, we saved a record 2.2 billion cubic feet of natural gas use through these programs.
Our unregulated energy services business complements our regulated natural gas distribution business by providing gas purchase options to customers across multiple states. This business reported operating income of $42 million. In early 2016, we announced an agreement to acquire Continuum Retail Energy Services, expanding our service territory from 19 to 26 states. We will now serve nearly 24,000 commercial and industrial customers and more than 65,000 small business and residential customers. We expect this transaction to be accretive to earnings.
EMPLOYEES’ DEDICATION TO SERVICE
At the heart of our company are our employees, who demonstrate our values of safety, integrity, accountability, initiative, and respect every day. We are very proud of our achievements.
Our safety performance reflects our commitment to employee, system, and customer safety. Employees achieved first-quartile safety results in 2015 when compared with industry peers that are members of the Edison Electric Institute and the American Gas Association.
National and local organizations have recognized our service to customers and communities. CenterPoint Energy was the top-scoring electric transmission and distribution utility in Texas overall, and in each core component, of CogentTM Energy Reports’ Residential Texas TDSP Utility Trusted Brand and Customer Engagement Study. We were also named a natural gas Customer Champion in the South and Midwest and an Environmental Champion in the Midwest by Cogent.
J.D. Power and Associates, which measures customer satisfaction, ranked our southern natural gas operations second and ranked our Minnesota operations fourth in their respective regions.
Our employees are also dedicated to serving our communities. In 2015, our employees volunteered more than 200,000 hours, valued at $4.7 million. We donated a total of $5.2 million in corporate charitable contributions. Blood drives we hosted collected nearly 4,800 units of blood, enough to save more than 14,000 lives.
We are also responsible stewards of our environment. We work closely with officials when building or replacing infrastructure to minimize risk of harm to protected wildlife and our impact on the environment. Additionally, the avian program in our electric business prevents birds from perching on our high voltage systems. Last year, we assisted wildlife officials with relocating bald eagles when they were in danger of losing their nest.
LEVERAGING THE VALUE OF TECHNOLOGY
Investments in technology provide benefits to our operations and improve our customers’ experience. In 2015, our electric service territory had severe storms that caused more frequent and longer power outages than average. As a result of our investments, we were able to have real-time visibility into the location of the outages. The 500,000+ customers enrolled in our free Power Alert Service were notified through a text, email, or automated phone call of an estimated restoration time. These alerts resulted in a 93 percent call deflection rate for registered customers who incurred outages as well as an 87 percent customer satisfaction rating. Additionally, electric and natural gas customers who called us were served by our new natural language self-service phone system that anticipates customer needs. This self-service application handled 49 percent of customer calls, and a live agent responded to the other 51 percent.
We have also invested in highly sensitive drive-by leak detection technology that allows us to identify locations with greater accuracy than before.
We will continue to embrace new technologies that allow us to run our systems more efficiently, more effectively, more safely, and more reliably.
COMMITMENT TO OUR STRATEGY
We remain committed to long-term shareholder value creation. Our strategy of Operate, Serve, and Grow is based on our core competencies and an accepted responsibility to serve the energy delivery infrastructure needs of our growing service territories. This strategy is reviewed by our board of directors annually in the context of changes occurring within and around our industry.
Our strategic framework to create steady, sustainable earnings growth for long-term shareholder value includes:
- Investing in infrastructure that addresses the safety, maintenance, reliability, and growth needs of the communities we serve
- Pursuing timely recovery of our investments and working to control expenses
- Employing business models that support access to capital across a broad spectrum of market conditions
- Utilizing financing plans in line with construction of long-lived assets
- Maintaining adequate financial liquidity to support regular operations as well as unanticipated events
- Optimizing our portfolio to align business performance with our desire to steadily grow earnings
- Seeking to constructively grow dividends, while balancing the need to raise capital for infrastructure investments and reduce our payout ratio
In closing, CenterPoint Energy’s long-term success is driven by the disciplined execution of our strategy, strong relationships with customers, and commitment to our vision: lead the nation in delivering energy, service, and value.
Our track record is one that we are proud of, and one that we continue to deliver upon. We hope you are pleased with our achievements and are excited about our future.
Scott M. Prochazka
President and CEO