Executive Summary / Key Takeaways

• Texas Growth Catalyst: CenterPoint Energy is uniquely positioned to benefit from the explosive, diversified economic and population growth in the Greater Houston area, driving an anticipated nearly 50% increase in peak electric demand by 2031 and fueling a multi-billion dollar capital investment cycle.
• Strategic Portfolio Optimization: The company is actively recycling capital through asset divestitures, including the recent sale of its Louisiana and Mississippi natural gas LDCs and the planned sale of its Ohio natural gas LDC, to sharpen its focus on high-growth Texas jurisdictions and enhance consolidated cash returns.
• Advanced Grid Modernization: Significant investments in grid resiliency and automation, exemplified by the Greater Houston Resiliency Initiative (GHRI) and Systemwide Resiliency Plan (SRP), are materially improving operational performance and customer experience, with a 45% reduction in outage minutes in Houston during the first half of 2025.
• Robust Financial Outlook: CenterPoint Energy reaffirms its 2025 non-GAAP EPS guidance of $1.74 to $1.76, targeting 8% growth, and projects mid-to-high single-digit EPS growth through 2030, supported by a $53 billion capital plan through 2030, derisked equity needs, and substantial securitization proceeds.
• Competitive Strengths and Risks: The company leverages its scale and extensive infrastructure as a competitive moat, particularly in gas distribution, but faces ongoing challenges from severe weather events and the need to accelerate technological adoption to match more agile peers.

Setting the Scene: A Century of Service Meets a New Era of Growth

CenterPoint Energy, Inc. is a venerable public utility holding company with a history spanning over 150 years, serving approximately 7 million metered customers across Indiana, Minnesota, Ohio, and Texas. Its core business revolves around operating electric transmission, distribution, and generation facilities, alongside natural gas distribution systems. This established presence provides a foundational stability in the utilities sector, a characteristic often sought by discerning investors.

The company operates within a dynamic industry landscape, characterized by increasing demand for reliable energy, the imperative for grid modernization, and the growing influence of electrification trends. Notably, the U.S. is witnessing a surge in AI-driven data center demand, projected to account for 9.1% of national electricity consumption by 2030. This trend, coupled with the broader push for electrification, presents significant opportunities for utilities with robust infrastructure. CenterPoint's competitive standing is primarily defined by its scale and diversified service offerings, which include electric and natural gas delivery. While direct comparisons with all competitors are complex, CenterPoint holds an estimated 2-3% aggregate market share in U.S. electric and gas utilities. Its growth trajectory of 6-8% annually outpaces the industry average of 5%.

However, the competitive environment is multifaceted. Direct rivals such as Pinnacle West Capital Corporation (PNW), Public Service Enterprise Group (PEG), and Ameren Corporation (AEE) each present unique competitive dynamics. PNW, while geographically concentrated, demonstrates faster adoption of smart grid technologies, with deployment cycles potentially 15-20% quicker than CenterPoint's. PEG, with its Northeastern focus, excels in densely populated markets and boasts a larger renewable energy portfolio, holding 30-40% more renewable capacity. AEE, operating in the Midwest, emphasizes infrastructure reliability, achieving 10-15% fewer outages annually. Indirect competitors, including renewable energy providers and tech firms offering decentralized energy solutions like battery storage, also pose a long-term challenge by offering potentially cheaper, albeit less reliable, alternatives.

The Technological Edge: Building a Resilient Grid for Tomorrow

CenterPoint's strategic response to evolving industry demands and competitive pressures is anchored in its commitment to technological advancement and infrastructure modernization. The company's core technological differentiation lies not in a single proprietary product, but in its systematic application of advanced operational technologies to enhance grid resilience, efficiency, and customer experience. This includes a significant focus on grid automation, smart devices, and the future integration of AI-based modeling.

The Greater Houston Resiliency Initiative (GHRI) serves as a prime example of this technological focus. Through GHRI, CenterPoint has deployed intelligent grid switching devices and trip savers, which are critical for creating a "self-healing grid." These devices automatically isolate outages to fewer customers, reroute power around impacted areas, and restore service without manual intervention when structural damage is absent. By June 2025, CenterPoint had doubled the number of grid automation devices on its system and installed 5,150 automation devices in total, contributing to a remarkable 45% reduction in customer outage minutes across Houston in the first half of 2025 compared to the same period in 2024. This operational technology is expected to reduce outages by more than 125 million minutes annually.

Further investments in this area are outlined in the Systemwide Resiliency Plan (SRP), which includes approximately $3.2 billion in distribution system resiliency investments over three years. This plan focuses on accelerating pole replacement, undergrounding vulnerable areas, and expanding automation. While some peers like PNW and PEG may demonstrate faster innovation cycles in certain areas, CenterPoint's strategic undergrounding efforts, with 400 miles of power lines undergrounded, and its extensive natural gas pipeline network offer distinct operational advantages. The company's natural gas transport infrastructure, for instance, exhibits 15-20% greater efficiency compared to some rivals, contributing to 10-15% lower operating costs per unit in its distribution networks.

Looking ahead, CenterPoint plans to optimize the capabilities of its automated devices by employing AI-based modeling over the next five years. This R&D initiative aims to further enhance grid performance and efficiency. The company's commitment to these technological upgrades is foundational to its competitive moat, contributing to improved reliability, reduced operational costs, and a stronger market position, particularly in its high-growth Texas service territory.

Houston's Unprecedented Growth: Fueling a Capital Supercycle

CenterPoint Energy is uniquely positioned to capitalize on the explosive economic and population growth in the Greater Houston area, which is driving unprecedented electric load demand. The company forecasts a nearly 50% increase in peak demand by 2031, from approximately 21 gigawatts (GW) in 2024 to nearly 31 GW. This 10 GW increase over seven years surpasses the growth experienced by the Greater Houston region over the past 25 years. The load interconnection queue has surged, growing by an additional 6 GW since the first quarter of 2025, now totaling 47 GW.

This robust growth is not reliant on a single industry but is propelled by a diverse set of economic drivers. Data centers are a significant catalyst, accounting for approximately two-thirds of the recent 6 GW increase in the load queue, bringing the total data center queue to around 20 GW. Houston's role as a major logistics hub, boasting the largest port by waterborne tonnage in the U.S., is driving opportunities in port and fleet electrification, expected to contribute 20% of the 10 GW increase. The expansion of the world's largest medical complex in Houston, coupled with other commercial activities, is projected to drive 30% of the anticipated load growth. Furthermore, Houston's central role in energy refining and exports, including approximately 3.5 GW of hydrogen projects in advanced engineering phases, reinforces its long-term growth trajectory.

This exponential demand necessitates substantial capital investment in the electric transmission system. CenterPoint has identified approximately 200 transmission projects for execution over the next decade, leveraging brownfield opportunities to reduce construction costs and accelerate energization. The company has already increased its 10-year capital investment plan by $5.5 billion this year, now totaling $53 billion through 2030, with further upside anticipated. This capital supercycle is a direct response to customer-driven demand and the need to enhance grid capacity and resilience.

To efficiently fund these escalating capital needs, CenterPoint has strategically optimized its portfolio. The sale of its Louisiana and Mississippi natural gas LDC businesses, completed on March 31, 2025, generated approximately $1.2 billion in proceeds. Additionally, the company announced plans in May 2025 to sell its Ohio natural gas LDC business, intending to recycle the proceeds to reprioritize nearly $1 billion of capital expenditures towards its Texas jurisdictions. This strategic shift is designed to enhance the consolidated cash return and improve self-funding capabilities, with Texas expected to constitute over 70% of CenterPoint's portfolio after the Ohio sale.

Financial Performance and Strategic Capital Allocation

CenterPoint Energy's financial performance in the first half of 2025 demonstrates its ability to execute against its strategic objectives. For the second quarter of 2025, the company reported non-GAAP EPS of $0.29, placing it at approximately 46% of the midpoint of its full-year guidance, aligning with management's expectations for a back-weighted earnings profile in 2025. This profile is primarily due to the timing of capital recovery mechanisms, which were delayed in 2024 due to extensive rate case activity across five jurisdictions.

The Electric segment's revenues from external customers remained stable at $2,257 million for the six months ended June 30, 2025, while net income decreased to $279 million, a 16.96% decline from the comparable period in 2024. This was largely influenced by increased operational and maintenance (O&M) expenses, which were unfavorable in the first half of 2025 due to accelerated vegetation management and other activities ahead of the hurricane season. Management anticipates this unfavorability to reverse in the second half of the year. Despite these near-term O&M pressures, CenterPoint aims to continue achieving 1-2% annual O&M reductions from these higher levels, leveraging system automation and standardization to benefit customer charges and reduce future storm-related costs by an estimated $50 million annually starting in 2029.

The Natural Gas segment saw revenues from external customers increase by 14.88% to $2,602 million for the six months ended June 30, 2025, though net income decreased by 4.85% to $314 million. This segment's performance reflects the impact of the Louisiana and Mississippi LDC sale, which removed $217 million of goodwill and resulted in a book loss in Q1 2025, though the non-GAAP EPS excludes these impacts. The proposed sale of the Ohio natural gas LDC, with a rate base of $1.5 billion as of year-end 2024, is expected to close by year-end 2026 and will not result in a downward revision of earnings guidance.

CenterPoint's capital allocation strategy is robust. Expenditures for long-lived assets in the Electric segment surged by 80.44% to $1,716 million for the six months ended June 30, 2025, reflecting the accelerated investments in grid modernization and expansion. Overall, the company's capital investment plan has increased by $5.5 billion this year, now totaling $53 billion through 2030, and these increases are anticipated to be funded without incremental common equity. The company has proactively derisked its common equity needs through 2027 by executing forward sales, including $165 million through its ATM program and a $920 million block transaction.

Liquidity remains a focus, with the trailing 12-month adjusted FFO to debt ratio at 14.1% as of Q2 2025 (excluding transitory storm costs), slightly above Moody's 13% downgrade threshold. Management anticipates this metric to strengthen, supported by approximately $1.7 billion in securitization proceeds expected from the May 2024 storms ($400 million in Q3 2025) and Hurricane Beryl ($1.3 billion by year-end 2025 or early 2026). Furthermore, a 5% improvement in operating cash flow is anticipated starting in 2026, which may provide flexibility to reduce the 50% equity / 50% debt funding ratio for future incremental investments.

Navigating the Horizon: Outlook and Key Considerations

CenterPoint Energy's outlook is underpinned by its strong performance and strategic initiatives. The company reaffirms its 2025 non-GAAP EPS guidance range of $1.74 to $1.76, representing an 8% growth at the midpoint from its 2024 non-GAAP EPS of $1.62. This marks the fourth consecutive year of meeting or exceeding annual guidance. Over the long term, CenterPoint expects to grow non-GAAP EPS at the mid-to-high end of its 6% to 8% range annually through 2030, with dividend growth projected to align with earnings growth over the same period.

The regulatory environment remains generally constructive. Over 80% of CenterPoint's enterprise rate base is not expected to be subject to a general rate case proceeding for approximately four more years, providing a stable foundation for its financial plan. Recent legislative actions in Texas, effective in 2025, further support utilities by allowing recovery of post in-service carry costs in GRIP filings and enabling securitization of system restoration costs through a third-party government agency, which lowers the threshold for such recovery.

Despite the positive outlook, several risks warrant investor attention. Severe weather events, such as Hurricane Beryl and the February 2021 Winter Storm, have led to ongoing inquiries and litigation, with uncertainties regarding cost recovery and potential financial penalties. While CenterPoint is pursuing securitization for these costs, the ultimate outcome of related litigations remains unpredictable. Credit rating downgrades, though mitigated by proactive financing and anticipated cash inflows, could still impact borrowing costs and access to capital markets. Supply chain disruptions and tariffs, while currently deemed low risk due to CenterPoint's domestic sourcing strategy, could still lead to project cost increases. Furthermore, shifts in federal climate policy, including proposals to repeal GHG emissions standards, introduce uncertainty regarding future renewable generation development.

The company's strategy to transfer its large temporary emergency electric facilities (TEEEF) to the San Antonio area for up to two years, providing approximately $180 million in value to Texas, will remove these units from regulated operations. While this will result in a temporary drag on non-GAAP earnings as the company incurs lease expenses without regulated revenue, management anticipates marketing these units to third parties at significantly higher prevailing market rates (roughly double the original lease rate) after this period, ultimately resulting in a cash flow tailwind.

Conclusion

CenterPoint Energy stands at a pivotal juncture, transforming its portfolio to capitalize on the unparalleled growth in its Texas service territories. The company's strategic divestitures, coupled with its aggressive capital investment program focused on grid modernization and resilience, are designed to enhance its long-term earnings power and solidify its competitive position. With a clear roadmap for managing its financial health, including derisked equity needs and substantial securitization proceeds, CenterPoint is well-equipped to fund its ambitious $53 billion capital plan through 2030.

The company's commitment to technological advancements in grid automation and its proactive approach to system hardening are not merely operational improvements but fundamental drivers of its competitive advantage, enabling it to deliver superior reliability and efficiency. While challenges such as severe weather impacts and the need for continuous technological agility persist, CenterPoint's disciplined execution, strong regulatory relationships, and unique exposure to the booming Houston economy position it for sustained growth. Investors seeking a utility with a tangible growth story, underpinned by strategic focus and operational excellence, may find CenterPoint Energy a compelling opportunity.