CenterPoint Energy, Inc. (CNP)

CNP 
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CenterPoint Energy (CNP)

Q1 2013 Earnings Call

May 02, 2013 11:30 am ET

Executives

Carla Kneipp

David M. McClanahan - Chief Executive Officer, President and Director

Scott Prochazka - Chief Operating Officer and Executive Vice President

Gary L. Whitlock - Chief Financial Officer and Executive Vice President

C. Gregory Harper - Senior Vice President and Group President of Pipelines & Field Services

Analysts

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

Charles J. Fishman - Morningstar Inc., Research Division

Steven I. Fleishman - Wolfe Research, LLC

Jeremy Tonet - JP Morgan Chase & Co, Research Division

Steven Gambuzza

Sarah Akers - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Good morning, and welcome to CenterPoint Energy's First Quarter 2013 Earnings Conference Call with senior management. [Operator Instructions] I will now turn the call over to Carla Kneipp, Vice President of Investor Relations. Ms. Kneipp?

Carla Kneipp

Thank you very much, Sarah. Good morning, everyone. Welcome to our first quarter 2013 earnings conference call. Thank you for joining us today.

David McClanahan, President and CEO; Scott Prochazka, Executive Vice President and Chief Operating Officer; and Gary Whitlock, Executive Vice President and CFO, will discuss our first quarter 2013 results and provide highlights on other key activities. We also have other members of management who may assist in answering questions following the prepared remarks.

Our earnings press release and Form 10-Q are posted on our website, centerpointenergy.com, under the Investors section. I 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 David begins, I would like to mention that a replay of this call will be available on CenterPoint Energy's Investor website and will be archived for at least 1 year.

And with that, I will now turn the call over to David.

David M. McClanahan

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

This morning, we reported first quarter 2013 net income of $147 million or $0.34 per diluted share, the same as reported in the first quarter of last year.

Operating income for the first quarter of 2013 was $332 million compared to $338 million last year.

Overall, it was a good quarter for our balanced business portfolio.

Our Regulated Natural Gas Distribution unit benefited from a return to more normal winter weather, continued strong service territories and timely rate recovery mechanisms.

Our Field Services unit continues to benefit from its contracting strategy and earnings from recent acquisitions. Our Competitive Natural Gas Sales and Services unit also performed well.

The improved results of these units largely offset anticipated declines in our electric utility and Interstate Pipelines.

I am pleased to report that we closed yesterday on our midstream partnership, which, as you may recall, combines our Interstate Pipelines and Field Services units with Enogex, OGE's midstream business. We believe the combination of our 2 midstream businesses will provide accelerated value creation through greater scale, geographic reach, diversification and expanded service capabilities. We believe we can grow faster and capture more midstream opportunities as a combined entity than we could have alone.

We are eager to transform our 2 organizations into 1 business and to now begin to capture commercial and operating synergies and jointly pursue the significant opportunities we seek for this partnership. We are conducting a thorough evaluation of both internal and external candidates for our key leadership positions, and that process is well underway.

We have formed a program management office comprised of functional and business leaders from both CenterPoint Energy and Enogex to develop and implement comprehensive long-term integration plans. These efforts can accelerate now that the partnership has been formed.

While our leadership team is being assembled and our integration activities progress, day-to-day operations of the partnership will be conducted by existing management.

Our plans for an initial public offering in the form of a public master limited partnership are on track, and we hope to complete these efforts within the next 6 to 12 months. Under SEC regulations, we are limited in what we can say about the financial and strategic details of the partnership until an S-1 registration statement for the IPO is filed with the SEC.

However, there are some questions we can address at this time. A number of you have asked about our intentions with regard to ongoing ownership in the MLP. We fully intend to maintain ownership in the midstream partnership. A diverse and balanced business mix remains important to CenterPoint, and participating in the ongoing development of the U.S. natural gas and liquids infrastructure is consistent with our energy delivery strategy.

We have also been asked about CenterPoint's dividend policy going forward. We know our dividend is an important component of the total return expected by our shareholders. We believe the additional cash flow generated by the partnership will provide flexibility as we evaluate future dividend levels and capital allocation decisions.

We also continue to receive questions about the accounting for the partnership. First, CenterPoint does not expect to record a step up of book basis in connection with the partnership's formation. And second, we expect to record our portion of the midstream partnership's earning using the equity method of accounting.

Let me conclude by reiterating how excited we are about this partnership. We believe the partnership will create long-term value and significant cash flows for CenterPoint. Going forward, we expect that CenterPoint will not be valued on an earnings basis alone. Instead, we anticipate our regulated operations as well as our GP ownership will be valued on an earnings multiple basis, while our LP interest in the midstream partnership will be valued consistent with the public valuation of the partnership following its IPO. We believe this will provide a more transparent valuation for CenterPoint as a whole.

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