CenterPoint Energy, Inc. (CNP)

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CenterPoint Energy, Inc. (CNP)

Q4 2008 Earnings Call

February 25, 2009, 11:30 am ET

Executives

Marianne Paulsen - Director, IR

David McClanahan - President and CEO

Gary Whitlock - EVP and CFO

Analysts

Carl Kirst - BMO Capital Markets

Lasan Johong - RBC Capital Markets

Faisel Khan - Citigroup

Steve Gambuzza - Longbow Capital

Danielle Seitz - Seitz Research

Yiktat Fung - Zimmer Lucas Partners

Debra Bromberg - Jefferies & Company

Carl Seligson - Utility Financial

Presentation

Operator

Good morning and welcome to CenterPoint Energy's Fourth Quarter and Full Year 2008 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. (Operator instructions)

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

Marianne Paulsen

Thank you very much, Christie. Good morning, everyone. This is Marianne Paulsen, Director of Investor Relations for CenterPoint Energy. I would like to welcome you to our fourth quarter and full year 2008 earnings conference call. Thank you for joining us today.

David McClanahan, President and CEO; and Gary Whitlock, Executive Vice President and Chief Financial Officer will discuss our fourth quarter and full year 2008 results and will also provide highlights on other key activities.

In addition to Mr. McClanahan and Mr. Whitlock, we have other members of management with us who may assist in answering questions following their prepared remarks.

Our earnings press release and Form 10-K filed earlier today are posted on our website, which is www.centerpointenergy.com 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 Wednesday, March 4, 2009. To access the replay, please call 1-800-642-1687 or 706-645-9291 and enter the conference ID number 81005183. You can also listen to an online reply of the call through the website that I just mentioned. We will archive the call on CenterPoint Energy's website for at least one year.

And with that, I will now turn the call 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. 2008 was a very good year for the company our electric and natural gas utilities had very solid performances. And our interstate pipelines and fuel services units turned in exceptional results.

Each year since our formation in 2002 we have improved upon a very solid foundation and 2008 was no different. Not only did we strength each of our business units we also improved the company's overall financial flexibility and strength.

As we face an economy in decline and uncertain energy markets, I believe that the company is well positioned to confront these challenges and emerge even stronger. This morning I will discuss our 2008 financial results as well as describe the plans and prospects for each business unit as we head into 2009.

Let me begin with an overview of our fourth quarter 2008 results. This morning we reported net income of $87 million for the fourth quarter or $0.25 per diluted share. This compares to net income of $108 million or $0.32 per share for the same period of 2007. The reduction in net income for the fourth quarter is in large part due to higher income taxes as the effective tax rate for the fourth quarter of 2007 was substantially lower than 2008.

Operating income of $303 million was unchanged from the fourth quarter of 2007. Our gas distribution business posted an increase in operating income of almost $7 million due to reduced expenses.

Our energy services business also reported a $7 million increase in operating income primarily a result of value captured from seasonal price differentials.

Despite continued solid customer growth at Houston Electric we recorded reduced operating income of $10 million stemming primarily from higher transmission costs billed to us by other transmission providers.

Our field services business contributed $2 million more as a result of increased throughput while our interstate pipeline's operating income was $5 million lower due to reduced ancillary services and higher operating expenses.

Let me now turn to our full-year 2008 performance. Overall 2008 was a very good year for us and we continue to make progress in achieving our business and financial objectives.

Net income for 2008 was $447 million, or $1.30 per diluted share, compared to $399 million, or $1.17 per diluted share, for 2007.

Operating income increased by almost $100 million to $1.273 billion in 2008. Let me give you a little bit more detail regarding the performance of each of our business segments beginning with Houston Electric.

Houston Electric reported operating income of $407 million compared to $400 million in 2007. Beginning in 2008, the Texas margin tax was classifieds as an income tax and thus did not impact operating income.

The 2007 operating income however was reduced by $19 million due to the previous state franchised tax with the margin tax replaced. On the other hand 2007 also included income of $17 million from the fuel reconciliation associated with our former integrated utility. So normalizing for these two items, 2008 was slightly better than 2007.

In 2008, we added nearly 31,000 customers to our Houston service territory. While this is still solid growth the rate of customer growth moderated in the second half of the year as a result of Hurricane Ike and the declining economic conditions. We did see increased customer usage in 2008 due in part to warmer weather.

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