With a new leadership team, refreshed corporate vision and strategy, and successful IPO of Enable Midstream Partners, we took important steps in 2014 to set a new foundation for your company while delivering another year of strong business results.
- 2014 Financial Results
- $611 million // net income
- $935 million // operating income
- $1.42 // earnings per share
- 5.2 percent // total shareholder return
Our diversified portfolio of businesses performed well last year, despite falling oil prices and volatile energy markets. Net income was $611 million dollars, or $1.42 per diluted share.
Excluding the effects of transition and system restoration bonds, core operating income from our electric and natural gas operations was $816 million, compared with $750 million in 2013. We continue to see strong growth in our service territory, adding more than 90,000 electric and natural gas customers last year. We also invested $1.4 billion to expand and improve the safety and reliability of our electric and natural gas delivery infrastructure.
Consistent with our intent to provide dividends representing 60–70 percent of our sustainable utility earnings and 90–100 percent of our net, after-tax distributions from Enable Midstream, we paid shareholders a dividend of $0.95 per share in 2014. In January 2015, we increased our quarterly dividend to $0.2475 per share – our tenth consecutive year of increases. This represents a 4.2 percent increase as well as a 19.3 percent raise since the creation of Enable Midstream. If annualized, this would equate to $0.99 per share.
Stock Performance Trailed Business Results
While we are proud of our strong financial performance, we recognize it wasn’t fully realized in our total shareholder returns. Including stock price appreciation and annual dividends, CenterPoint Energy stock returned 5.2 percent last year. Though positive, our stock underperformed the S&P 500 Utilities Index and the broader market S&P 500 Index. However, over the last five years, our average, annualized total return of 14.8 percent has outperformed that of the S&P 500 Utilities Index by 1.5 percent.
We believe much of the recent underperformance in our stock price can be traced back to market uncertainty over falling oil prices and their impact on Enable Midstream. Trading as high as $27.46 and as low as $17.06, Enable Midstream’s stock price had a swing of nearly 40 percent in 2014.
We believe strongly in the long-term value of our Enable Midstream investment. Enable Midstream has strategically located assets, significant fee-based business and experienced leadership. This investment is a strategic component of our business portfolio and has the potential to provide financial flexibility, growth opportunities and earnings diversification. We also believe investor confidence will grow as Enable builds its own track record of success over time.
Business Segment Review
We continue to see strong, organic growth in our electric and natural gas service territories. In our electric transmission and distribution business, which serves the greater Houston area, we added nearly 55,000 new metered customers, a growth rate of more than 2 percent, the highest in the last seven years. We also saw continued interest in right-of-way use from pipeline companies that need access to the Houston Ship Channel and Gulf Coast. We recorded $477 million in core operating income, a modest increase from $474 million a year ago.
We are implementing a robust, long-term capital plan, and are making significant investments to modernize our grid and meet future demand. In late 2014, the Electric Reliability Council of Texas endorsed the need for a new, 130-mile electric transmission line to ensure the Houston area continues to have a reliable power supply. We estimate we will invest $300 million to build our portion of this transmission line and expect to file for approval in April 2015 with the Public Utility Commission of Texas.
Additionally, we continue to build out our intelligent electric grid. In areas where our intelligent grid has been deployed, we’ve seen significant improvements in electric reliability. By using smart meters to automate routine service orders, we have reduced truck rolls, fuel expense and carbon emissions. We also continue to invest to support customer growth. Capital investment totaled $818 million in 2014, and we project that our capital plan will expand our rate base by 8 to 10 percent, compounded annually, over the next five years.
Our natural gas utilities had yet another record year. Utility operating income totaled $287 million, a 9 percent increase over our previous record set just last year. Favorable weather, $37 million in rate relief and nearly 36,000 new customers primarily in Texas and Minnesota were the key drivers of this performance. Our energy services business contributed an additional $52 million compared with $13 million in 2013. While $31 million of this increase was due to mark-to-market accounting, the remainder was driven by increased basis and storage spreads caused by last year’s extreme weather.
In 2014, we invested $525 million of capital in our natural gas utilities to support growth, improve the safety and reliability of our systems, and to improve service to customers. We are also investing in new, advanced leak surveying systems and automated meter reading technologies. All told, our base capital plan is expected to grow our rate base by a compound, annual rate of 8 to 10 percent over the next five years.
Partners With Our Communities
As proud as we are of our financial results, we’re equally proud of the positive impact we have on our customers and communities we serve. We recognize that millions of people depend on us to safely and reliably deliver the energy they need to light their homes and fuel their businesses. In turn, these strong, vibrant and growing communities fuel our growth.
In Minnesota, we’ve long supported energy efficiency through our conservation improvement programs. Over the last several years, we have introduced similar programs in Arkansas, Mississippi and Oklahoma. In mid-2015, we will begin a new pilot program in Minnesota to decouple our rates from the volume of natural gas consumed. Innovative rate designs further align our interests with those of our communities and support energy efficiency.
To promote a balance between environmental responsibility and reliable electric service, we collaborate with cities and local organizations to educate consumers about tree planting practices designed to minimize outages. In 2014, CenterPoint Energy donated more than 4,000 power line-friendly trees in the Houston region.
These actions, along with the 215,000 volunteer hours donated by our employees, have not gone unnoticed. It is because of this commitment that CenterPoint Energy was named to the Civic 50, an award that honors the nation’s most civic-minded companies.
Completing Our Leadership Transition
In March 2015, Gary Whitlock stepped down from his role as chief financial officer, and he will retire later this year. Gary’s contributions were significant. He was instrumental in leading the divestiture of non-core assets, the monetization of our former generation assets, restructuring the company’s balance sheet and creating Enable Midstream. With more than 40 years of corporate financial experience, he played a key role in developing and executing our finance and business strategies. We thank him and wish him the very best in retirement.
Succeeding Gary is William D. Rogers, a veteran with more than 20 years of experience, much of that in the utility industry. His industry knowledge and proven financial expertise make him a great fit for CenterPoint Energy. Bill’s addition completes the transition in our executive leadership that began in 2014, and we’re excited to have him as a member of our team.
Low commodity prices are pressuring producer activity, and Enable Midstream announced during its February 2015 earnings call that this will affect the growth rate of their future cash distributions. This, in turn, could affect CenterPoint Energy’s dividend growth rate. However, in the long term, we believe U.S. demand for energy will support continued infrastructure investment by both our utilities and Enable Midstream.
We serve regions with some of the nation’s strongest economic growth. So our strategy is simple: focus on operating safely, serving our growing customer base effectively and growing our businesses.
We are excited about the possibilities ahead of us. We thank you for your investment, and we will continue to work hard for you and the communities we serve.
President & CEO