Houston Electric is now focused on implementing our intelligent grid project, which will bring substantial automation and new functionality to our distribution system. This project, other system improvements and robust growth in our Houston service territory should drive capital expenditures of $500 million to $600 million per year, contributing to rate base growth of approximately 4% annually.
Our natural gas distribution business reporting -- reported $9 million of operating income in the second quarter of 2012, which was $4 million less than last year, primarily due to the impacts of milder weather. We continue to focus on productivity gains and operating efficiencies to offset the impact of extremely mild weather this year. Annual rate adjustments in a number of our jurisdictions continue to help us recovery new investments, as well as to offset reductions in usage, without the necessity of a major rate proceeding. This significantly reduces the amount of regulatory lag which we would typically experience.
We also continue to be focused on system reliability, due to the replacement of infrastructure, as well as upgrading our systems to enhance service to our customers. These investments, together with normal load growth and system maintenance, are expected to require capital expenditures of $300 million to $400 million annually and produce rate-based growth of approximately 6% a year.
Now let me turn to our midstream businesses. Our interstate pipelines unit recorded operating income of $52 million compared to $60 million for the same quarter of 2011. The decline was primarily the result of an expired backhaul contract and the associated loss of compressor efficiency. We continue to pursue opportunities to serve customers on or near our pipelines, with special focus on power generation customers and producers in Western Oklahoma looking for access to interstate markets.Read the rest of this transcript for free on seekingalpha.com
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