CenterPoint Energy billed itself as an industry leader when it pledged in September to reach net-zero emissions for its operations by 2035, but the investor-owned utility is planning a $1.7 billion gas pipeline expansion and fighting efforts to curb fossil fuel reliance at the local level.
Shortly after unveiling a commitment to achieve net-zero emissions from CenterPoint’s direct operations during its 2021 Analyst Day, the utility’s executives at the same meeting told analysts they expect to add 800 miles of new gas pipeline annually. The buildout is part of a $40 billion overall spending plan that sets aside at least $16 billion for gas investments over 10 years.
In addition to expanding its pipeline network in Houston, Minneapolis, suburban Indianapolis and central Texas, executives said the utility plans to replace at least 900 miles of existing pipeline each year. While CenterPoint also expects to spend more than $23 billion to grow its electricity business, its overall vision remains underpinned by gas — its signature business line and a key driver of emissions and price volatility for customers.
“We believe natural gas has an enduring future,” Scott Doyle, CenterPoint’s executive vice president for natural gas, told analysts shortly after other executives outlined the net-zero framework.
CenterPoint previously said it expected to add 500,000 gas customers by 2030, bringing its total gas customers to 4.6 million. In their presentation to analysts, utility executives estimated a total number of gas customers closer to 4.7 million and projected that gas would account for roughly 40% of its rate base — or the part of its spending from which it can earn a profit — under its mammoth investment plan.
In its electric operations, executives highlighted plans for new gas generation on their call with analysts, noting two Indiana coal plants are slated to be replaced with two new gas combustion turbines and a pipeline that will go under the Ohio River. Despite the gas additions, CenterPoint executives stuck by their goal to achieve net zero for its Scope 1 emissions — those directly attributable to its facilities and operations, primarily the power plants it operates — by 2035.
But the lion’s share of the utility’s emissions don’t come from its electric generation, but from its customers’ direct use of gas, or its Scope 3 emissions. Centerpoint’s gas distribution account for 83.4 percent of the utility’s total emissions. Despite its pledge to cut Scope 3 emissions between 20 percent and 30 percent by 2035, CenterPoint is actively undercutting the potential to make deeper reductions.
CenterPoint takes credit for helping pass legislation to prevent gas bans
In their presentation to analysts, CenterPoint executives celebrated a spate of recently passed bills that greatly hamper communities’ ability to choose how they reduce gas emissions and limit the need for expensive new gas infrastructure. In every state with CenterPoint operations other than Minnesota, legislators have recently passed laws prohibiting municipalities from banning new gas hookups, preventing local officials from curtailing emissions from buildings, which are among the largest sources of emissions in most communities.
“The progress on the legislative front really demonstrates the depth of our relationships,” said Jason Ryan, the utility’s senior vice president for regulatory services and government affairs, referring to the company’s close ties to legislators and deep bench of lobbyists.
For years, CenterPoint has been a key player in efforts to scuttle local control. In October 2019, then-CenterPoint President and CEO Scott Prochazka became chair of the American Gas Association (AGA). Two months later, Prochazka told reporters AGA would ramp up its work and its message to push back against the number of cities banning gas. “It appears a little too self-serving if we are the only party involved,” Prochazka said.
Nearly one year later, AGA’s George Lowe, vice president of governmental affairs and public policy, told colleagues during an industry conference that, “we have run pro-gas choice legislation [in] Arizona, Tennessee, Louisiana … and Oklahoma. And so those states now, you have an option. You can’t deny someone natural gas service in their home.”
Doyle, who leads CenterPoint’s gas business, currently sits on AGA’s board.
Expanding gas infrastructure is boosting CenterPoints’ earnings
Meanwhile, CenterPoint continues to trumpet alternatives to fossil gas like “renewable natural gas,” or biomethane, which come at a significant cost premium while not currently being produced at the scale necessary to meaningfully displace fossil gas. It’s unclear if they ever could be. In a 2020 report, the Natural Resources Defense Council estimated that “renewable natural gas” produced from feedstocks like food scraps or animal waste could replace a maximum of just 5 percent of 2019 gas throughput by 2040. Even figures from the American Gas Foundation — on whose board Doyle sits with other gas utility executives — are modest, pegging RNG’s resource potential between 5 percent and 12 percent of 2019 gas consumption levels by 2040.
CenterPoint’s shareholders are in line for significant returns from the company’s investments in new pipelines and unproven technologies. The utility expects roughly 80 percent of planned capital expenditures to be eligible for cost recovery, which could mean customers — not shareholders — ultimately pay back the cost of the investments through utility rates, sticking them with the risk of adding new gas infrastructure amid price volatility and mounting calls for mass electrification.
“We will get the vast majority of the capital that we’re spending in the 10-year plan into rates within about a year of when those projects are serving our customers,” Ryan told analysts. “This supports the timely recovery for shareholders by reducing regulatory lag.”
Meanwhile, CenterPoint is warning customers across its service territory that their bills will be higher this winter due to volatile gas prices. In addition, looming rate increases for CenterPoint customers mean bills could go up more permanently, cutting deeper into ratepayers’ pocketbooks over a longer term.
CenterPoint is also tangling with regulators and consumer advocates over its effort to make customers pay for huge cost overruns stemming from February’s Winter Storm Uri, when prices spiked after gas infrastructure froze. Ramifications for CenterPoint customers span across the utility’s service territory, and regulators as far away as Minnesota are now considering how to recover hundreds of millions of dollars in unexpected costs caused by infrastructure failures in CenterPoint’s home state.
Even against this dire backdrop for its ratepayers, CenterPoint officials spent their September meeting with analysts highlighting the projected upside for their investors:
“We offer stable industry-leading earnings growth with a conservative financial risk profile,” Ryan said. He noted that the utility is “laser-focused” on boosting earnings per share by 8 percent year over year through 2024, with annual growth between 6 percent and 8 percent after that.
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