CenterPoint Energy, Inc. (CNP)

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CenterPoint Energy Inc. (CNP)

Q1 2009 Earnings Call

April 29, 2009; 11:30 am ET

Executives

David McClanahan - President & Chief Executive Officer

Gary Whitlock - Executive Vice President & Chief Financial Officer

Marianne Paulsen - Director of Investor Relations

Analysts

Danielle Seitz - Seitz Research Group

Lasan Johong - RBC Capital Markets

Carl Kirst - BMO Capital

Scott Sanjac - Decade

Scott Engstrom - Blenheim Capital

Faisel Khan - Citi

Steve Gambuzza - Longbow Capital

Debra Bromberg - Jefferies

Mark Rogers - Gagnon Securities

Amit Sakiar - Deutsche Bank

Paul Patterson - Glenrock Associates

Presentation

Operator

Good morning and welcome to CenterPoint Energy’s first quarter 2009 earnings conference call with Senior Management. During the companies 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 would now like to turn the call over to Marianne Paulsen, Director of Investor Relations. Ms. Paulson.

Marianne Paulsen

Thank you very much, Tina. Good morning everyone, this Marianne Paulsen Director of Investor Relations for CenterPoint Energy. I’d like to welcome you to our first quarter 2009 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 first quarter 2009 results and will also provide highlights on other key activities.

In addition to David McClanahan and Gary 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-Q filed earlier today are posted on our website which is www.centerpointenergy.com under the investor section.

I would like to remind you 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. Mc Clannahan begins I’d like to mention that a replay of this call will be available until 6:00 p.m. Central Time through Wednesday, May 6, 2009. To access the replay please call 1-800-642-1687 or 706-645-9291 and enter the conference ID number 94424104.

You can also listen to the online replay 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 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. This morning we reported net income of $67 million for the first quarter or $0.19 per diluted share. This compares to net income of $122 million or $0.36 per diluted share for the same period of 2008.

Operating income for the first quarter of 2009 was $285 million, compared to $336 million for the same period of 2008. While on its face this may look like a disappointing quarter, I believe we had better operating performance than the reported numbers would indicate. Included in our earnings are mark-to-market charges and natural gas inventory write-downs of almost $25 million. These charges are primarily a matter of timing and are expected to turnaround as the year progresses.

We also incurred a charge of almost $12 million related to our ZENS securities as a result of the change in the value of the Time Warner stock being greater than the associated derivative liability. Without the impact from these items, our earnings would have been approximately $0.26 per diluted share, more inline with the first quarter expectations. Let me give you a little more detail regarding the performance of each of our business segments, beginning with Houston Electric.

Our regulated transmission and distribution utility, Houston Electric reported operating income of $37 million compared to $54 million in 2008. The decline in operating income was the result of two primary factors. The largest impact was from reduced throughput, which had a negative impact of $18 million. This was partially due to mild weather and partially due to conservation.

While I think it’s too early to draw any longer term conclusion, it appears that our customers were more energy conscience in this first quarter. The second factor was the increased pension expense of $5 million. Partially offsetting these two factors was an increase in customers of nearly 35,000, since the first quarter of last year and increased transmission revenues, primarily from a tariff change implemented last fall.

Beyond this quarter, we do not expect pension expense to impact earnings at Houston Electric as we will be able to defer any increase for consideration in Houston Electrics next general rate case.

Under Texas law, an electric utility may elect to defer changes in pension expense over a base year which in our case was 2007. We made this election in the first quarter of this year and will defer approximately $29 million in pension expense this year. As many of you may be aware, Houston Electric is in the process of installing an advanced metering system as the result of a settlement agreement approved by the Texas PUC in December.

We’ve installed 10,000 smart meters in the first two months of the program and are on target to deploy approximately 145,000 smart meters by the end of the year. Over the next five years, we will deploy approximately 2.4 million smart meters across our service territory at a capital cost of approximately $640 million.

We are recovering the cost through a surcharge that went into effect in February. Because of the structure of this tariff and the timing of deployment, we expect the project will have a small negative impact on cash flow and a small positive impact on earnings in 2009.

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