CenterPoint Energy (NYSE:CNP) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
CenterPoint Energy reported strong Q3 2026 financial results with non-GAAP EPS of $0.53, surpassing their original full-year guidance by reaching nearly 80% of the midpoint.
The company increased its 2026 non-GAAP EPS guidance to $1.90-$1.92, and plans to extend its non-GAAP EPS growth at the mid to high end of a 7% to 9% range through 2030.
CenterPoint announced a $4 billion increase to its capital investment plan driven by customer growth in Houston, with an additional $1.5 billion accelerated into the next five years.
The company anticipates at least $10 billion of additional investment opportunities through 2035, with a focus on transmission infrastructure, resiliency initiatives, and large load opportunities in Indiana.
Equity financing needs increased by $1.6 billion, but remain below a 47% funding ratio, with potential for further reduction through asset sales, subleases, and regulatory improvements.
Operationally, the company highlighted significant growth in Houston’s electric service territory, expecting to energize at least 14 gigawatts by 2030.
Management expressed confidence in the visibility of growth and future investment opportunities, emphasizing the economic multiplier effect of industrial expansions in Houston.
Full Transcript
OPERATOR
Good morning and welcome to CenterPoint Energy’s third quarter 2026 earnings conference call with senior management. During the company’s prepared remarks, all participants will be in a listen-only mode. There will be a question-and-answer session after management’s remarks. To ask a question, press star 11 on your touch-tone keypad. I will now turn the call over to Ben Vallejo, Vice President, Investor Relations and Corporate Planning. Mr. Vallejo, please go ahead.
Ben Vallejo (Vice President, Investor Relations and Corporate Planning)
Good morning and welcome to CenterPoint Energy’s Q3 2026 earnings conference call. Jason Wells, our Chair and CEO, and Chris Foster, our CFO, will discuss the company’s third quarter 2026 results. Management will discuss certain topics that will contain projections and other forward-looking information and statements that are based on management’s beliefs, assumptions, and information currently available to management. These forward-looking statements are subject to risks and uncertainties.
Actual results could differ materially based on various factors. As noted in our Form 10-Q, other SEC filings, and our earnings materials, we undertake no obligation to revise or update publicly any forward-looking statement other than as required under applicable securities laws. We reported $0.50 per diluted share for the third quarter of 2026 on a GAAP basis. Management will be discussing certain non-GAAP measures. On today’s call, when providing guidance, we use the non-GAAP EPS measure of diluted adjusted earnings per share on a consolidated basis, referred to as non-GAAP EPS. For information on our guidance methodology and reconciliation of the non-GAAP measures used in providing guidance, please refer to our earnings news release and presentation on our website.
We use our website to announce material information. This call is being recorded. Information on how to access the replay can be found on our website. Now I’d like to turn it over to Jason.
Jason Wells (Chair and Chief Executive Officer)
Thank you, Ben, and good morning, everyone. On today’s call, I would like to address three key areas of focus for the quarter. First, I will briefly touch on our strong third quarter financial results and the increase to our 2026 non-GAAP EPS guidance range we announced this morning. Second, I will discuss how the accelerating and diverse customer-driven growth in our Houston Electric service territory is driving the $4 billion increase to our capital investment plan and the acceleration of another $1.5 billion into the first five years of our plan.
And with more growth expected, today’s increase reflects only a portion of the opportunity in front of us as we continue to see at least $10 billion of additional investment opportunities through 2035. And finally, I’ll discuss how the strength and visibility of our growth across our service territories gives us the confidence to extend our long-term earnings outlook. We now expect to deliver non-GAAP EPS growth at the mid to high end of our 7% to 9% annual range for another two years through 2030.
I will also cover our 2027 non-GAAP EPS guidance of $2.07 to $2.09, representing 9% growth at the midpoint from our increased 2026 guidance. I will start with our strong third quarter financial results. This morning we reported third quarter 2026 non-GAAP EPS of $0.53. Our continued strong execution brings us to nearly 80% of the midpoint of our original full-year guidance range of $1.89 to $1.91. Our outstanding year-to-date results give us greater confidence and visibility to raise our 2026 non-GAAP EPS guidance range to $1.90 to $1.92 at the midpoint. This new and higher range would represent nearly 9% growth from our 2025 delivered results and would mark the fifth year of more than 8% growth since 2020.
It also resets our earnings base higher from which we intend to compound future growth as we seek to create durable value for our investors year after year. I’d now like to turn to the accelerating and diverse customer growth that is driving today’s announced $4 billion increase to our capital investment plan and the acceleration of an additional $1.5 billion of investments. Greater Houston’s growth continues to accelerate, demonstrated by approximately 14 gigawatts of customer demand we submitted as eligible load for ERCOT’s Batch 0 process. As we continue to work with stakeholders on our Batch 0 submissions, we remain highly confident in the 10 gigawatts of baseload demand we outlined on our previous call, and we now expect approximately 2 gigawatts to remain a studied load.
Combined with our smaller transmission and distribution customers’ growth, we expect to energize at least 14 gigawatts by the end of 2030. This incredible demand is creating a powerful multiplier effect as large industrial expansions drive broader commercial growth across our service territory. Notably, industrial and commercial leasing activity in the Houston area is up more than 30% from last year. We are seeing that momentum firsthand with nearly 1 gigawatt of distribution-level load requests received in the last year.
Houston Electric’s more than 10 gigawatts of existing system capacity helped attract this demand by enabling fast, efficient, and cost-effective interconnections, giving Greater Houston a compelling speed-to-market advantage over competing regions across the country. This growth strengthens the regional economy while also supporting customer affordability. Notably, the at least 14 gigawatts of demand anticipated through the end of the decade are expected to generate $5 billion in customer savings across Texas over the next 10 years.
Serving this growth absorbs the capacity that helped attract it. To replenish that capacity and sustain the region’s competitive advantage for the next wave of demand, earlier this year we began an internal transmission study focused on increasing load-serving capacity in three key areas: first, import transmission capacity; second, system stability; and third, interregional transmission capacity. To date, that work has identified more than a dozen projects across these three areas required to add incremental load-serving capacity.
This capacity is needed in the near term as we already have requests for significant additional demand that we anticipate submitting in Batch 1 next year. Together, these projects represent approximately $5.5 billion of investments in two categories: first, $4 billion for newly identified projects not previously included in our 10-year plan; and $1.5 billion of projects accelerated from the back half of the plan into the first five years through 2030.
We will efficiently fund this growth with a modest $1.6 billion increase to our equity financing guide, below our 47% rule of thumb for financing incremental investments. Chris will cover the timing of our capital investment and equity financing needs, including opportunities to reduce the amount of equity financing, in his section. Combined with sufficient financing, the increased and accelerated investments will strengthen the earnings power of the company and are expected to drive an enterprise rate base CAGR of more than 14% through the end of the decade.
We will continue to advance our transmission study to identify the additional infrastructure needed to meet the region’s accelerating growth, which will likely inform additional incremental investments. Beyond today’s $4 billion increase, we continue to see at least $10 billion of additional investment opportunities through 2035 driven by three categories. First, additional transmission infrastructure to support Greater Houston’s accelerating customer demand. As we continue to advance our transmission study process, that will likely inform incremental investments needed to enable the next phase of growth in Greater Houston. We expect to be in a position to share our next update in this process in the first half of next year.
Second, along these growth investments, we will advance additional resiliency initiatives that build on Houston Electric’s nearly 40% improvement in reliability over the past several years. We expect greater visibility into these incremental investments in the second half of next year and are targeting filing our next system resiliency plan by the end of 2027. Third, we continue to see large load opportunities in Indiana, where we anticipate signing a deal with a large load customer by the end of the year.
These incremental opportunities, combined with the investments announced today, reinforce our confidence in delivering sustained double-digit rate base growth over the course of our 10-year plan while supporting long-term reliability, resiliency, and economic competitiveness across our service territories. In closing, we continue to believe that we have one of the most customer-driven and durable long-term growth plans in the industry. The scale and pace of the customer-driven growth in Greater Houston is already driving today’s announced $4 billion increase in our capital investment plan and reinforcing the long-term earnings power of our company. These needed investments provide the visibility to extend our expectation for non-GAAP EPS growth at the mid to high end of our 7% to 9% annual guidance range through 2030.
The opportunity extends well beyond today’s planned update. We continue to see at least $10 billion of additional capital investment opportunities through 2035, supporting economic growth, customer affordability, and safe and reliable service in the communities we serve. With that, I’ll now turn it over to Chris to cover the financials in more detail.
Chris Foster (EVP and Chief Financial Officer)
Thanks, Jason. This morning I will cover four areas of focus. First, I will walk through our strong third quarter results, which bring us to nearly 80% of our full-year guidance and support raising our 2026 non-GAAP EPS guidance range from $1.89 to $1.91 to $1.90 to $1.92, as well as our extended outlook to grow at the mid to high end of our 7% to 9% range through 2030. Second, I will detail the customer-driven $4 billion increase to our 10-year capital plan from $66.7 billion to $70.7 billion through 2035 and the $1.5 billion of accelerated investment that together drive an enterprise rate base CAGR of more than 14% through 2030.
Third, I will discuss our updated financing plan, including a modest $1.6 billion increase in equity financing to fund 40% of the $4 billion capital plan increase to support strong credit metrics, a healthy balance sheet, and a pathway to higher long-term growth. And finally, I’ll provide a brief regulatory update, including progress on timely recovery of our investments through our interim capital trackers, starting with our third quarter results on slide 4.
On a GAAP EPS basis, we reported $0.50 for the third quarter of 2026. On a non-GAAP EPS basis, we reported $0.53 for the quarter. Our non-GAAP results exclude the impacts of our temporary generation units, which are no longer part of our regulated utility business. We are actively marketing these units for sublease or sale, and any resulting gain will also be excluded from our non-GAAP results. Now, taking a closer look at the drivers of our strong third quarter results compared to the third quarter of 2025: growth and rate recovery contributed $0.09 of favorability, driven by a full quarter of updated rates from interim filings that became effective in June. Weather and usage were $0.03 favorable, driven by hotter weather and higher usage across our Texas and Indiana service territories. O&M was flat for the quarter, and we remain on track to reduce O&M by 1% to 2% from the prior year.
Year to date, we have already achieved a 1% reduction as we continue to take costs out of the business for the benefit of all stakeholders. Other items were $0.05 unfavorable, primarily due to a one-time deferred income tax remeasurement benefit recorded last year as part of our efforts to optimize our tax structure. Higher financing costs were $0.04 unfavorable — $0.03 from approximately $3 billion of new debt issuances, net of maturities, and $0.01 of dilution from modest equity financing.
We’ve also now completed our financing needs for the year. These results bring us to nearly 80% of our original full-year guidance and give us confidence in delivering our increased 2026 non-GAAP EPS guidance range of $1.90 to $1.92 — nearly 9% growth at the midpoint over our 2025 results — supported by the incremental investments I will detail in a moment. We now expect to grow non-GAAP EPS at the mid to high end of our 7% to 9% annual range through 2030 and 7% to 9% annually through 2035. Our 2027 non-GAAP EPS guidance of $2.07 to $2.09, or 9% growth at the midpoint, reflects that momentum.
Turning now to our capital plan, which reflects a $4 billion increase and $1.5 billion of accelerated investment to serve the customer growth already underway. As Jason outlined, we are increasing our 10-year capital investment plan by $4 billion to $70.7 billion. Combined with our earlier 2026 updates, we have now increased the plan by $5.7 billion, or nearly 9%, since our 2025 investor day. We are also accelerating $1.5 billion of projects originally planned for after 2030 to prepare the system for diverse customer demand.
Approximately 85% of the initial projects identified in our transmission study are brownfield projects within existing rights of way, providing a more straightforward path to expanding system capacity. We will begin deploying this capital in 2027 and scale the investment in the years that follow, deploying $4.5 billion of the incremental and accelerated investments by the end of 2030 and driving an enterprise rate base CAGR of more than 14% through 2030.
We expect to efficiently recover these investments through our existing transmission and distribution capital trackers. Importantly, this is just the initial phase. As our transmission studies continue, we expect future capital updates as we build the system needed to meet the unprecedented demand growth across the Greater Houston area. Turning briefly to the 2026 capital execution, we invested $4.1 billion through the third quarter for the benefit of our customers and communities. We expect full-year capital investment to come in modestly below our $6.8 billion target due solely to project timing, which we expect to recover in the first quarter of 2027.
Turning now to how we will fund the incremental investments announced today, we are increasing our remaining 10-year equity financing guide by $1.6 billion to $4.5 billion, well below our previously communicated 47% funding guide for incremental capital investment. We expect to issue approximately $4 billion from 2027 through 2030, including $500 million to $700 million of common equity in 2027. Across the $5.7 billion of capital plan increases announced this year, incremental equity represents only about 25% of the funding requirement, demonstrating the efficiency of our financing plan.
As a reminder, cash flow benefits from Treasury’s Corporate Alternative Minimum Tax clarification enabled us to increase our capital plan earlier this year without additional equity financing. Looking ahead, we see additional financing tailwinds that we believe could either 1) reduce our updated equity guide or 2) fund incremental capital investment at amounts less than our 47% equity rule of thumb. I’ll highlight a few examples. First, a sublease of our temporary generation units could provide cash flow tailwinds through 2029, while a sale could generate upfront proceeds to reinvest immediately in our regulated businesses. Second, we will continue to evaluate our portfolio and financing needs to efficiently fund both our current plan and future opportunities.
The recently completed sale of our Ohio Gas LDC business reflects our continued focus on optimizing our portfolio and allocating capital efficiently across our jurisdictions. And third, we continue to work with stakeholders to reduce regulatory lag and secure more timely recovery of our investments, supporting efficient financing for customer-driven growth. Building on our financing plan, I want to touch on our credit metrics and balance sheet. At the end of the third quarter, our adjusted FFO-to-debt ratio under Moody’s methodology was 13.7%. Two developments since quarter-end should further strengthen this metric. First, we completed the sale of our Ohio Gas LDC business on October 1, receiving approximately $1.4 billion in proceeds. Had those proceeds been reflected in our trailing twelve-month metrics, our adjusted FFO-to-debt ratio would have improved by approximately 50 basis points.
Second, earlier this month we filed for a refund of previously paid Corporate Alternative Minimum Tax. Following clarification this year that we are not subject to that tax, we expect the refund to improve our full-year 2026 credit metrics by an additional 60 basis points. Neither benefit is reflected in our trailing twelve-month metrics. Together they reinforce our confidence in ending the year toward the higher end of our targeted 100 to 150 basis point cushion above the Moody’s downgrade threshold, and following Moody’s revision of our outlook to Stable, we now have stable outlooks across all rating agencies, reflecting our strengthened financial position.
Lastly, turning to regulatory matters, our frameworks across our service territories continue to support timely, efficient recovery of our customer-driven investments, as reflected in this quarter’s updates. At Houston Electric, we filed our second distribution capital tracker, or DCRF, requesting a $73 million revenue requirement increase. Interim rates were approved and implemented at the end of September, with a final order expected this month.
In addition, we filed our second transmission capital tracker, or TCOS, in August and have since received a final order approving a $29 million revenue requirement increase, which is now reflected in customer rates. Outside of Texas, we expect to file a three-year forward-looking rate case for Minnesota Gas within the next week, reflecting investments to modernize our system through pipeline and gas meter replacement and provide safer, more reliable service for our customers.
In December, we plan to file a combined rate case for our North and South Indiana gas service territories, and as previously communicated, we expect this approach to result in a bill decrease for a significant number of our residential customers across all our service territories. We remain laser focused on keeping our service affordable for customers. In summary, our strong year-to-date execution supports our increased 2026 non-GAAP EPS guidance of $1.90 to $1.92 and reinforces our confidence in the outlook ahead. The $4 billion increase to our capital plan and $1.5 billion of accelerated investments position us to serve the customer demand already here and drive enterprise rate base growth of more than 14% through 2030. Our disciplined financing plan funds this growth efficiently while preserving our long-term balance sheet strength.
Together, these support our 2027 non-GAAP EPS guidance of $2.07 to $2.09 and our expectation to grow at the mid to high end of our 7% to 9% annual range through 2030 and 7% to 9% annually through 2035. Our strong execution, disciplined financing, and clear growth visibility position us to deliver sustained earnings growth and create durable value for all our stakeholders. With that, I’ll turn the call back to Jason.
Jason Wells (Chair and Chief Executive Officer)
Thank you, Chris. In closing, our strong year-to-date execution gives us confidence in delivering our increased 2026 non-GAAP EPS guidance, putting us on track for a fifth year of more than 8% growth since 2020. And our 2027 guidance of $2.07 to $2.09 builds on that momentum. That momentum is being masked by growth that is already here. Unprecedented customer demand in Greater Houston is already requiring a $4 billion increase to our capital investment plan and $1.5 billion of accelerated investment, efficiently funded and driving enterprise rate base growth of more than 14% through 2030.
And there’s more to come with the line of sight to at least $10 billion of additional customer-driven investment through 2035. Today’s update captures just a portion of the opportunity in front of us. The strength of this growth gives us the confidence in our ability to deliver non-GAAP EPS growth at the mid to high end of our 7% to 9% range through 2030 and 7% to 9% annually through 2035 through investments that strengthen reliability, support affordability, and power economic development across our service territories for the benefit of our customers.
Ben Vallejo (Vice President, Investor Relations and Corporate Planning)
Thanks, Jason. Operator, I’d like to turn it over for Q&A.
OPERATOR
Thank you. At this time we will begin the question-and-answer session. If you wish to ask a question, please press star 11 on your touchtone keypad. The company requests that when asking a question, callers pick up their telephone handset. We’ll pause for a moment while we compile our Q&A roster. Our first question comes from Richard Pereza with Wells Fargo Securities. Your line is open.
Shar Pourreza (Analyst at Guggenheim Securities)
Hey guys, good morning.
Jason Wells (Chair and Chief Executive Officer)
Morning, Char.
Shar Pourreza (Analyst at Guggenheim Securities)
Pretty solid update. First off, just want to reconcile the updated rate base growth and the EPS CAGR. Rough math. The equity piece is like 200 basis points of dilution, I guess. What’s driving the other 300 bps of delta between rate base growth and EPS growth? And could any of that delta kind of reverse as we’re going through the plan then?
Jason Wells (Chair and Chief Executive Officer)
Yeah, thanks Char for the question. Yeah, obviously as we’ve reported today our focus is delivering consistent and durable financial results. I think the 14% rate base growth at the end of the decade provides, as you’re pointing out, incredibly strong support for the extension of our guide to the mid to high end of our range through 2030. You know, clearly there’s going to be a modest amount of equity dilution as you mentioned, but we’ve historically been able to convert that rate base growth into earnings growth with about a 200 basis point delta.
So this gives us an incredibly strong foundation for continued strong delivery of EPS results through the end of the decade.
Shar Pourreza (Analyst at Guggenheim Securities)
Got it. Perfect. And then just lastly on funding, obviously you’re talking about the equity dilution a little bit and you do have a good amount of equity. You’ve added some through 2030, but your capex needs keep going. I mean that’s the key message on the call today. And it seems like you’re potentially signaling new deals prospectively as we think about sort of the remaining footprint. Is there kind of any opcos, Jason, that presents substantial dissynergies in a sale or is the entire footprint outside of Texas potential opportunities for you?
Jason Wells (Chair and Chief Executive Officer)
Yeah, thanks Charlie. You know, I think what’s important here is just the explosive growth in particular the greater Houston region is experiencing. As we talked about today with the transmission update, this only helps us serve about half the capacity that we are currently anticipating in our batch one request. So there’s clearly more tailwinds from a capex standpoint. You know, as we’ve got a track record here of doing, we’re going to focus hard on raising whatever the equity needs are efficiently.
That may include portfolio optimization among the other things that Chris mentioned in his prepared remarks. As it relates to dissynergies, I think we’ve got a great track record of leaning in and addressing any dissynergies that may result from a transaction. I’d expect us to do the same moving forward. So our focus is on enabling this incredible and explosive growth that we’re experiencing and doing so efficiently for our shareholders.
Shar Pourreza (Analyst at Guggenheim Securities)
Got it. Perfect. Thank you guys. See you in a couple weeks.
Jason Wells (Chair and Chief Executive Officer)
Thank you.
OPERATOR
One moment for our next question. Our next question comes from Nick Campanello with Barclays. Your line is open.
Nick Campanello (Analyst at Barclays)
Hey, good morning. Thanks for taking my questions. I wanted to ask. I just wanted to ask, you kind of said that you still expect in Indiana large load customer by the end of the year. Can you just remind us what the size of that could be, whether that’s going to get absorbed with current system capacity or new build and then just regulatory strategy as well? Thanks.
Jason Wells (Chair and Chief Executive Officer)
Yeah, thanks Nick, for the question. I continue to be very pleased with our progress. You know, I think most importantly, we want to bring economic development to that region. It’s been nearly 25 years since a large industrial customer has relocated to that region. And so our focus is really delivering that economic kind of opportunity for the community that we have the privilege to serve up there. As it relates to the size, you know, as we’ve talked about in previous calls, you know, the team’s done great work to free up about 700 megawatts of existing capacity in our system.
And with some modest transmission upgrades, conversion of our simple cycle plant, we have the ability to scale to about 1.4 gigawatts with very modest levels of investment. Our focus is again on delivering that economic win, utilizing that capacity in particular. What I would say is, and I’ve suggested this on previous calls, what we continue to see is that many of the large hyperscalers are long shifts and short power. So having 700 megawatts that is readily available is incredibly attractive.
We are looking to secure that and then grow from there in the region. If the total demand is at 1.4 gigawatts or less, there’s no reason for us to sort of complicate this with, you know, a generation company type approach. However, we continue to see strong interest in that region. If it exceeds that 1.4 gigawatts and we’re building incremental generation, I think it’s a great way to isolate those new incremental assets. And so in that case we would pursue a genco.
Our focus is on continuing to make progress. We feel optimistic around our ability to secure an economic win for the community by the end of this year and then over time grow this for the benefit of all stakeholders in that region.
Nick Campanello (Analyst at Barclays)
Hey, thanks for that. Very clear. And then on the 4.5 billion raised to the five year plan, just how much of that is falling under kind of current tracker mechanisms or requires like a more formal rate process? And just acknowledging you kind of talked through ROE lag, improvement of lag as something that could decrease equity needs on the other side? Are you going to be lagging the plan now because you’re investing so much capital and is there a window or anything that we could look forward to that could change that?
Chris Foster (EVP and Chief Financial Officer)
Sure. Nick, good morning. The simple way to think about this is the capex additions. Nearly all are inclusive of capital tracker mechanisms that are recoverable, nearly all of them twice a year. So you’re going to experience very limited lag there from the capex additions we referenced in the plan today. It’s part of, kind of as you step back, the beauty of a lot of the current states we operate in. Well over 80% of our recoveries do come through these capital tracker mechanisms.
They’re highly efficient and more affordable for our customers.
Nick Campanello (Analyst at Barclays)
Thank you.
OPERATOR
One moment for our next question. Our next question comes from Steve Fleshman with Wolfe Research. Your line is open.
Steve Fleshman (Analyst at Wolfe Research)
Yeah. Hi, good morning. Thanks. So just on the transmission that’s been added to the plan, is this all lower voltage transmission that is not additional 765, and just maybe the latest—I know you guys were not in the first round of 765 kV—just latest thoughts on kind of your plans there which I think kick off next year.
Jason Wells (Chair and Chief Executive Officer)
Yeah, good morning Steve. That’s exactly right. You know, the transmission that we announced today is lower voltage, 345, 138 kV. You know, importantly, what we highlighted in Chris’s prepared remarks is about 85% of this work is brownfield. I think this is really kind of a hidden asset of the company that can’t be understated. We’ve got significant right of way and opportunity to utilize existing assets which minimizes any disruptions to the communities we serve.
It allows us to build faster and it really gives us our competitive advantage on the speed-to-power basis. Equally, and I think this has been a unique strategy for the company, every time that we took a planned outage on our transmission system, we’d use that to reconductor and expand capacity. And this is why, again, we have the ability to attract these large loads, interconnect them more favorably than anywhere else in the country. So, you know, I don’t look at this transmission announcement today as one that is disruptive with respect to the ongoing conversation around landowner rights.
I think as we look forward, you mentioned that we do plan in the first half of next year to file for 765. We outlined earlier this year our 10 commitments to Texans around responsible development. You know, our commitment is to work proactively with these landowners to find optimal routes that respect, you know, the history of their property, minimizing disruptions to the communities we serve, making sure that we are doing so utilizing as much as possible local resources.
And so I think this commitment will help us as the state continues to look at ways to balance obviously an incredibly important part of landowner rights with the need to continue this Texas economic miracle. And we look forward to working with all stakeholders proactively next year as we file for those 765 submissions.
Steve Fleshman (Analyst at Wolfe Research)
And then just on the change in your load plan, it looks like you had some come out of the batch 0 studied and go with development. Is that just some of the customers that kind of just did not necessarily feel like they were going to make the cut there?
Jason Wells (Chair and Chief Executive Officer)
Yeah, yeah. You know, we were very disciplined in terms of what we put forward overall base in batch 0. You know, we continue to say we’re incredibly confident about the total 10 gigawatts of baseload. There were approximately 2 gigawatts of studied load that, you know, as the state was conducting its audit process, as those customers were finalizing all of their details, they’ve decided to withdraw their investment. I think what’s important here though is, you know, we continue to see and have a high degree of confidence in the 10 gigawatts of baseload.
We’re seeing, as we highlighted, more distribution growth than we have ever experienced before that more than offsets what fell out of studied load. And I would tell you today, the early work that we’re doing on batch one submissions is already trending to be higher than what we submitted in batch 0. So I wouldn’t look at this as anything other than the process working from the state. The state really only wants to advance projects that are going to be good partners in their communities, advance economic interests in an appropriate way.
And I think that’s what we have found as we work through the batch 0 process, that the process is working as designed.
Steve Fleshman (Analyst at Wolfe Research)
One more question, just going back to Char’s first question. The differential between the 14% rate base growth and the earnings growth target. So you mentioned 200 basis points equity. Maybe it’s a little more in the near term, I don’t know. But just is there any other kind of financial factors there or just general kind of conservatism across your plan to kind of reconcile that?
Jason Wells (Chair and Chief Executive Officer)
Definitely more the latter. You know, really again, we’re building a plan that we can consistently deliver and enhance for the benefit of our stakeholders. I think what’s important here, and as you think about the reconciliation between, you know, the rate base growth and the EPS guide, we have consistently built a track record where we rebase future earnings off of the higher delivered earnings. So much so that that has been a 15% increase in the earnings power to date as a result of that positive rebasing for outperformance.
This gives us the ability to make sure that we deliver and, you know, as we deliver, you know, there is a compounding element to our stakeholders over time.
Steve Fleshman (Analyst at Wolfe Research)
Thank you.
OPERATOR
One moment for our next question. Our next question comes from Julian Dim Smith with Jefferies. Your line is open.
Julian Dim Smith (Analyst at Jefferies)
Hey, good morning team. Nicely done.
Jason Wells (Chair and Chief Executive Officer)
Morning Julian.
Julian Dim Smith (Analyst at Jefferies)
Hey, thank you. Maybe just rewinding back to where we started on the financing front. Just ask how do you think about addressing, potentially with equity alternatives here, the 1.6 of equity you talk about here. You guys have a very effective track record of chipping away at that over time. And while I’ll acknowledge at the outset this is a fairly low ratio of incremental equity versus capex, even at the outset here, how do you think about what is and what is not included in terms of levers against that 1.6?
I know you have a number of tools that you’ve alluded to even in the prepared remarks. Are any of those that you’ve already highlighted not included against that 1.6 and then more to the point, how do you think about incremental asset sales and or other tools that you haven’t alluded to, maybe like mobile gen, et cetera.
Chris Foster (EVP and Chief Financial Officer)
Morning, Julian. Sure, happy to hit that for you. And happy to walk through a few things that are not reflected in the updated plan today. First out of the gate would be the opportunity associated with the temporary generation units. Recall that those would return to the company by the end of calendar Q1 next year. So there you’ve got the opportunity for an ongoing cash flow stream from an ongoing sublease or an upfront opportunity to then reinvest if we were to just transact them fully.
So we are in active conversations there on those now. Second would be the customer demand charges. Jason referenced that the interest that we’re already seeing in batch one as the opportunity to exceed what we had in batch zero. Right. And recall that with those opportunities come demand charges of roughly $6 million per gigawatt per year. So also not included in plan. The third, I would point out, you mentioned it yourself, is portfolio optimization. We’re going to continue to evaluate those opportunities. They are highly efficient for our customers and stakeholders as we’ve executed those in the past. We continue to be supportive of running excellent businesses. But you saw recently the benefits from the Ohio closing as well.
And then finally, we’ll also consistently evaluate opportunities to reduce cash lag as well associated with the financing from regulatory improvements that we can make either through our rate cases or potential legislative opportunities. So those are the four I would highlight for you.
Julian Dim Smith (Analyst at Jefferies)
Got it. And then just can you unveil a little bit more as to how you think about what the prospects are from batch one here on the additional transmission study? If I’m hearing you right, it could be a pretty substantive further expansion of your transmission system. And you could get some details here as soon as the first half of 27. I just want to make sure I’m putting the pieces together correctly here.
Jason Wells (Chair and Chief Executive Officer)
Yeah, Julian, you’ve got that right. I think there’s really two things to focus on here. So, you know, as I mentioned, the transmission study that we announced today only represents about half of the needed capacity that we anticipate for batch one. And we are early in the batch one process. So in the first half of next year we will update the transmission study again for incremental capacity. At the same time, we’re continuing to work with customers.
And so I would expect batch one to grow from where we are today. And that could also provide a further tailwind for even more incremental transmission beyond this time horizon of the first half of the year. What we’re seeing, there’s really a number of trends that I can’t understate enough that are driving this economic growth as global trade and traditional energy refining capacity are getting redefined globally. Houston is, you know, one of the best places in the world to take advantage of this. We’ve got the largest port by tonnage in the US. That port is expanding. We have a state that is focused on facilitating economic development. And so we are seeing tremendous growth on the advanced manufacturing, traditional energy, data center front.
You know, on the data center front in particular, as much of the focus there starts to trend towards inferencing and cloud, you know, there’s no better spot than Houston. It’s the fourth largest city, soon to be third, youngest population of any major city, home to the second most Fortune 500 companies. It is the ideal spot when you think about inferencing and cloud computing being a longer term trend beyond training. And so again, I’ll say that we’ve got to close the gap on what we already see in batch one.
We’ll provide that transmission update first half of next year. We’ll continue to likely see an increase in batch one demand which will necessitate even more transmission construction beyond that update the first half of the year.
Julian Dim Smith (Analyst at Jefferies)
Excellent. Got it. And just to clarify, you made a comment earlier about 1 GW of distribution load. Again, we don’t often focus on this. Do you want to elaborate a little bit on what you’re seeing on that front in terms of potentially seeing new large loads or data center loads specifically manifest through distribution requests and what that means for your margins because you guys provided that ratio earlier about what that could mean for your revenue requirement.
But I imagine it might be a little bit more outsized on that front and how that could change. We’re hearing more about this. The first I’ve heard across companies on this.
Jason Wells (Chair and Chief Executive Officer)
Yeah, you know, I think this is an incredibly exciting time. So much of the industry has been focused at the transmission level and I think we are seeing a fundamentally different trend at the distribution level. You know, we’ve always benefited from about 2% population growth. That continues to be a solid foundation for that distribution growth. What we are seeing, and one of the things that we tried to highlight is this sort of carryover effect from the large load development, particularly on the commercial warehouse side.
You know, we set a record here in Houston in the third quarter for leasing of new commercial warehouses, up 30% this past quarter alone. And we don’t see that trend slowing down. In addition, we continue to see advanced manufacturing at that sub 75 megawatt level. We’re seeing significant interest in distributed and more modular distribution-level data centers for inference. The totality of this economic activity, you know, beyond just the first order customer, but their second- and third-order sort of suppliers and associated sort of ecosystem is what’s really fundamentally driving this acceleration at the distribution level.
And as you said, you know, the distribution rates do provide a different economic opportunity from an earnings standpoint than transmission.
Julian Dim Smith (Analyst at Jefferies)
Excellent. All right, thanks, guys. Cheers. Nicely done.
OPERATOR
One moment for our next question. Our next question comes from Jeremy Tonette with JPMorgan Securities. Your line is open.
Jeremy Tonette (Analyst at JPMorgan Securities)
Hi, good morning.
Chris Foster (EVP and Chief Financial Officer)
Good morning. Good morning.
Jeremy Tonette (Analyst at JPMorgan Securities)
Thanks for all the color today. Just wanted to kind of walk through the potential for higher interest rates here. How you see that impacting the business, particularly the Holdco. Clearly with so much cushion between rate base CAGR and EPS CAGR. More than enough cushion there, but just wondering if you could talk to that broadly speaking as it relates to refinancing or anything else.
Chris Foster (EVP and Chief Financial Officer)
Sure, happy to hit it. And you can imagine, I mean, certainly the higher rates we’re seeing are a bit of a headwind for the entire sector, but I do think we’re well positioned here in the near term. If you think about it first, we’ve only got about $300 million of maturities in 2027. I also talked earlier about the benefits we’ve seen in terms of the Moody’s upgrade on the outlook recently and in fact at CERC we also had a specific upgrade there which is going to reduce our borrowing costs.
And that’s an entity that’s looking to raise $5,800 million every year as we go. Then beyond that, I think you’re going to see that we’ve got that. We talked about this earlier, but ongoing rate recovery through capital tracker mechanisms will help as we go. And then we’re also going to continue to focus on taking costs out of the business. We did report today that we’re on track to reduce that 1 to 2% that we talked about previously. And certainly as macroeconomically we see these impacts, we’re going to have to focus on our own business to keep costs affordable for customers.
Jeremy Tonette (Analyst at JPMorgan Securities)
Got it. That’s very helpful there. Yeah, and just wanted to kind of maybe pick up the last point there with affordability. Again, not CenterPoint specific, more industry wide, but you know, as it relates to increasing capex. Just wondering, I guess how the conversation might go with stakeholders in the different states. You have the audit in Texas, Indiana, a lot of focus on affordability and just wondering any thoughts you could share there as far as bill outlook and conversations there?
Jason Wells (Chair and Chief Executive Officer)
Yeah. The path to affordable rates is through growth. That is what over decades in this industry has helped moderate the impact of investment. It just gives us the opportunity to socialize what are largely fixed costs over an ever widening base. And I think each of the states we have the privilege to operate in understand that. Each of the states are extremely focused on helping facilitate economic growth. You know, and so we work with local and state leaders to advance each of these interests.
I mean, I think the best possible representation of this is what we see here at Houston Electric, just given what has historically been growth relative to the rest of the country. We have been able to maintain effectively flat rates since 2014 in large part because of all of that incremental growth. And so, you know, each of the states want to make sure that they’re putting in place protections for residential customers. We fully support that. As we talked about, I think the process is working well here in Texas as we’ve seen two of the studied load customers fall out. But what we’ve got is really a commitment from those that remain in batch zero to work effectively with their communities on all fronts, including putting downward pressure on utility rates.
Jeremy Tonette (Analyst at JPMorgan Securities)
Got it. That makes sense. Clearly Houston has unique benefits there that, you know, help CenterPoint. Thank you.
OPERATOR
One moment for our next question. Our next question comes from Richard Sunderland with Truist Securities. Your line is open.
Richard Sunderland (Analyst at Truist Securities)
Hey, good morning. Thank you for the time today. I wanted to pick up the transmission update a little bit more. You’re thinking about that 4 billion moving into the plan today and then if I’m following correctly, I guess that’s only half of the batch one need or the potential batch one need. When you think about the 2027 capex update for that component specifically, does it scale ratably or are there different, I don’t know, brownfield versus greenfield considerations when you think about addressing more of that batch one capacity need?
Jason Wells (Chair and Chief Executive Officer)
Yeah, I appreciate the question and I wouldn’t say that it necessarily scales ratably. It’s clearly much more efficient to construct brownfield, you know, and there is going to be a need for new greenfield import lines. But right now, you know, we continue to work and think creatively around different assets that, you know, may be non-wires alternatives. We talked about some of the stability-related investments that we’re making. I would expect to see, you know, increases there particularly as we bring larger loads online.
And so it’s just really hard to create a rule of thumb. But what I would say is over time, as we exhaust what, you know, are current sort of brownfield opportunities and we lean more into greenfield, there will be an upward bias on future transmission capex revisions.
Richard Sunderland (Analyst at Truist Securities)
Got it. That’s helpful. And then, you know, regulatory lag, I guess both on a cash recovery side and on an earnings basis as well. I know that’s been one of the talking points you hit in the script and in Q&A. Are there any either active efforts you have an eye to or kind of anticipated actions in the upcoming rate case filings or I guess even legislative work in 27 on this front. Anything you’d highlight specifically right now?
Jason Wells (Chair and Chief Executive Officer)
Yeah, a couple of different things that I’d point out. You know, we talked about filing a three-year rate case up in Minnesota that will allow us to effectively apply for forward test-year adjustments in each of the three years. Historically when we were filing one- or two-year cases, you know, we always had a year where we had flat or no sort of revenue increase. And so you know, that’s an example on a regulatory front. On the legislative front, look, we’re excited to work with all stakeholders around sort of consistent stakeholder engagement. You know, that again balances the rights of property owners with the need to build transmission to help facilitate and continue the Texas economic miracle as part of working through maybe some of those changes on stakeholder engagement. I think it’s important for the state to also revisit the potential for interim recovery of transmission-related investments.
Right. We’re moving to a point where a higher portion of our capex is going to be long-cycle work in. If you couple that with, you know, some of the lower equity ratios that transmission and distribution utilities have here in Texas, that could put potential strain on the balance sheet. And so I think it is in everybody’s interest to think about interim recovery of transmission-related capex to make sure that we’re growing responsibly and helping support, you know, again, the continuation of this economic miracle. So, you know, those are a couple of examples both on the regulatory and legislative front.
We’ll continue to work with, you know, all stakeholders to minimize regulatory lag, whether it’s earnings or cash.
OPERATOR
One moment for our next question. Our next question comes from Anthony Crodell with Mizuho. Your line is open.
Anthony Crodell (Analyst at Mizuho)
Hey, good morning. Thanks for the update. Just, I guess, one housekeeping item. You talked about 14% rate base CAGR. Have you removed the Ohio LDC sale, or could that rate base CAGR be even greater because you have that headwind of the sale?
Chris Foster (EVP and Chief Financial Officer)
Anthony, simple answer there is we have removed the Ohio sale.
Anthony Crodell (Analyst at Mizuho)
Great. And then I guess it’s a follow-up for maybe the last two questions. You talk about the distribution opportunity like Julian was really harping on. The transmission is going really strong. How do you guys determine what segment to allocate capex to? Given the strength across maybe all the platforms, including some of the gas, how do you make that decision where you want to focus the capex, or I don’t want to say unlimited capex, but just the opportunity is just so great you’re able to spread it through all the different business segments.
Jason Wells (Chair and Chief Executive Officer)
Our job is really not to pick winners and losers. It’s to facilitate this economic growth. I think more so than ever, customers have more opportunity to choose where they locate their business. And so if, you know, the distribution level or transmission level, we want to incentivize those customers to locate and grow their businesses here in the greater Houston region. So we are advancing both the investments on the distribution system for capacity as well as the transmission system for capacity.
I don’t see it as an either-or. I see it as our competitive advantage is system capacity and moving quickly at the customer’s pace to connect them. And so, you know, I really see, again, stronger tailwinds for upward revisions to capex on the electric side. I think we have found a really good rhythm on the gas side with respect to pipeline modernization. There are a couple of opportunities on that front that are in our customers’ interest that we’ve talked about before, in particular creating kind of a transmission loop around the greater Houston region. But again, I really think that the capex upward bias is in electric, and it really comes from trying to facilitate economic development both at the distribution and transmission level.
Anthony Crodell (Analyst at Mizuho)
Great. That’s all I had. Thanks for taking my questions.
OPERATOR
One moment for our next question. Our last question comes from Ross Fowler with Bank of America. Your line is open.
Ross Fowler (Analyst at Bank of America)
Morning, guys. Thanks for taking my question here. We’ll squeeze in at the end. Most of my questions have been asked and answered. I just wanted to pick on a couple of things, add a couple things. I think temporary generation. Are you leaning any particular way, lease versus sale there, and can you remind us of the timing of that decision?
Chris Foster (EVP and Chief Financial Officer)
Sure. Ross. At this point, again, we’re in some active conversations, so we’re going to keep our alternatives open. Again, just that we have an existing sublease opportunity through 2029, so you should think about that as an ongoing cash flow opportunity if we take that path. The other would just be an outright transaction. In that case you can imagine we would just have the benefit of the upfront cash to be able to redeploy into the business. Timing-wise, again, these units are currently serving the San Antonio area and would be coming back to us by the end of March of 2027 is the way to think about that timing.
So looking to either path we take, provide a cash tailwind to 2027, if not beyond.
Ross Fowler (Analyst at Bank of America)
Okay, makes sense, Chris. And then just maybe following up a little bit on Julian D’s questions. Jason, you expressed a great degree of confidence in that 10 gigawatts and it’s in batch zero. And obviously that’s going through the audit process in ERCOT now. We’ll find out more on December 10th, so we’re sort of close-dated to that. Can you kind of maybe kick off or checkbox why you have such confidence in that versus the audit parameters and the requirements that the audits have, and what those projects have in sort of detail that gives you that degree of confidence?
Jason Wells (Chair and Chief Executive Officer)
Yeah, I mean these are customers that we’ve been working with for the better part of a year, year and a half. The elements of the audit process were all elements that these customers were proactively pursuing independent of that audit. And so it was easy for them to pivot and provide evidence that, you know, they were going to be able to comply with the rules here, you know, effectively. These are customers who had seen the evolution in development of either data centers or advanced manufacturing facilities and were proactively adopting improved ways to work with communities that they operated in.
And so, you know, in part, they were, I would say, ahead of the process. And so that’s the reason they fully embraced the audit when it came out, and we were able to quickly work with them to meet those requirements. It’s what continues to give us the high degree of confidence.
Ross Fowler (Analyst at Bank of America)
Good. Makes sense. Thank you.
OPERATOR
This concludes CenterPoint Energy’s third quarter 2026 earnings conference call. Thank you for your participation. You may now disconnect.
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