CenterPoint Energy CEO Discusses Q3 2010 Results – Earnings Call Transcript

CenterPoint Energy CEO Discusses Q3 2010 Results â¿¿ Earnings Call Transcript
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CenterPoint Energy, Inc. (



Q3 2010 Earnings Call Transcript

October 29, 2010 11:30 am ET


Marianne Paulsen – Director, IR

David McClanahan – President and CEO

Greg Harper – SVP and Group President, Pipelines and Field Services


Lasan Johong – RBC Capital Markets

Carl Kirst – BMO Capital Markets

Leon Dubov – Catapult

Daniele Seitz – Dudack Research

Stephen Wong – Carlson Capital



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Good morning and welcome to CenterPoint Energy’s third quarter 2010 earnings conference call with the senior management. During the company’s prepared remarks, all participants will be in a listen-only mode. There will a question-and-answer session after management’s remarks. (Operator instructions)

I will now turn the call over to Marianne Paulsen, Director of Investor relations. Ms. Paulsen?

Marianne Paulsen

Thank you very much, Tina. Good morning, everyone. This is Marianne Paulsen, Director of Investor Relations for CenterPoint Energy. I’d like to welcome you to our third quarter 2010 earnings conference call. Thank you for joining us today.

David McClanahan, President and CEO, will provide highlights on key activities and will also discuss our third quarter 2010 results. Gary Whitlock, Executive Vice President and Chief Financial Officer is also present, but will not provide formal remarks due to a case of laryngitis. We also have other members of management with us who may assist in answering questions following Mr. McClanahan’s prepared remarks.

Our earnings press release and Form 10-Q filed earlier today are posted on our Web site, which is, under the Investors section. I would like to remind you that any projections or forward-looking statements made during this call are subject to the cautionary statements on forward-looking information in the company’s filings with the SEC.

Before Mr. McClanahan begins, I would like to mention that a replay of this call will be available until 6.00 PM Central Time through Thursday, November 4, 2010. To access the replay, please call 1-800-642-1687 or 706-645-9291 and enter the conference ID number 11725228. You can also listen to an online replay of the call through the Web site that I just mentioned. We will archive the call on CenterPoint Energy’s Web site for at least one year.

With that, I will now turn the call over to David McClanahan.

David McClanahan

Thank you, Marianne. Good morning, ladies and gentlemen. Thank you for joining us today and thank you for your interest in CenterPoint Energy.

Today, I’m first going to talk about new developments that occurred during the third quarter and provide some details around certain business operations that I believe are of interest to many of you. Next, I’ll briefly describe our overall financial results, and then we’ll provide some details around the performance of each of our business units.

Let me begin with our true-up case. There has not yet been a decision by the Texas Supreme Court on our true-up appeal. While the Supreme Court has already ruled on some appeals that were heard after ours, we know our case is complex and I’m not surprised that the court has yet to render a decision. We still believe that there is a good chance that the Supreme Court will reach a decision before the end of this year.

In a related matter, we were pleased that last Friday the Texas Supreme Court rendered a favorable ruling in our competition transition charge, our CTC case. This case was an appeal by several intervener groups challenging the interest rate used by the PUC in establishing the CTC as well as the PUC’s decision to allow us to recover the cost of a third-party evaluation panel. The Supreme Court upheld the PUC’s order. Because our books reflect the PUC’s original order, there is no financial impact as a result of this ruling.

As most of you probably know, we filed a Houston Electric rate case on June 30. Our rate request was for $92 million increase in our distribution rates and an $18 million increase in our transmission rates. Hearings were conducted in the week of October 11.

As you would expect, most of the attention during the hearings was focused on our proposed capital structure and return on equity and our requested adjustments for depreciation, pension expense and federal income taxes.

As a reminder, we requested a capital structure with a 50% equity component and an 11.25% return. Each 5% change in equity capitalization has about a $20 million revenue requirement impact. Each 0.25% change in the equity return has a $7 million impact on revenue requirements.

I would also note that there were no significant challenges to our overall investment in rate base or to our operating expenses. We expect the administrative law judges’ recommendation in late November and a final order by the commission in late December or early January.

In a positive regulatory development, last month the PUC amended its rules relating to the transmission cost recovery factor or TCRF. This amendment authorizes electric distribution utilities to defer for future recovery, increases in cost charged by other transmission providers until such costs are reflected in rates, thereby reducing regulatory lag. This amendment is particularly important as new large transmission lines are being placed into service by other transmission providers.

We are progressing well in our implementation of an advanced metering system in our Houston Electric service territory. We are currently installing over 80,000 smart meters per month and expect to have 1 million installed by January of next year. To-date, we have invested approximately $290 million and have received $58 million of the $200 million DOE grant.

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