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CenterPoint Energy, Inc. (CNP)
Q2 2010 Earnings Call Transcript
August 04, 2010 11:00 am
Marianne Paulsen - Director, IR
David McClanahan - President and CEO
Gary Whitlock - EVP and CFO
Scott Rozzell - VP
Carl Kirst - BMO Capital
Lasan Johong - RBC Capital Markets
Daniele Seitz - Dudack Research
Paul Patterson - Glenrock Associates
Leon Duval - Catapult
Ali Agha - SunTrust
Tom O’Neal - Green Arrow
Faisel Khan - CitiGroup
Steven Gambuzza - Longbow Capital
Nathan Judge - Atlantic Equities
Yves Siegel - Credit Suisse
Scott Senchak - Decade Capital
Previous Statements by CNP
» CenterPoint Energy, Inc. Q4 2009 Earnings Call Transcript
» CenterPoint Energy Q3 2009 Earnings Call Transcript
» CenterPoint Energy, Inc. Q2 2009 Earnings Call Transcript
Thank you very much Tina. Good morning everyone, this is Marianne Paulsen, Director of Investor Relations for CenterPoint Energy. I would like to welcome you to the second quarter 2010 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 second quarter 2010 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 the 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 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 p.m. Central Time through Wednesday, August 11, 2010.
To access the replay please call 1800-642-1687 or 706-645-9291 and enter the conference ID number 86603138. You can also listen to an 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 you, 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 am going to give my prepared remarks in a somewhat different fashion. I am first going to talk about new developments that occurred during the second quarter and provide some details around certain business operations that I believe are of interest to many of you. I will briefly describe our overall financial results and Gary will provide details regarding the performance of each of our business units.
Recently, there have been three questions that I am asked most often when talking to analysts or shareholders about CenterPoint Energy. First, what can you tell me about the Houston Electric rate case? Second, how are your new investments in field services doing and what are key sensitivities around profitability in that business? And finally, is there anything new with the True-Up case.
Let me take the last one first. There still has been no 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 are not surprised the court has yet to render a decision. We still believe that there’s a good chance and that the Supreme Court will reach a decision before the end of this year.
As most of you probably know we filed a Houston Electric rate case on June 30. This filing was required as part of the settlement we reached in our last rate case over four years ago. Our rate request has 2 pieces, a $76 million increase in our distribution rates and an $18 million in our wholesale transmission rates.
Since our filing we have determined that our present distribution rates will not produce quite as much revenue on a normalized basis as we first calculated. And accordingly, the revenue deficiency in our filings, may actually be another $15 million or still higher. The increases we have requested in our base rates are influenced raised significantly by three factors.
First, we are shifting the base rates, the investment we have made to date in our advanced metering system. This increased our revenue requirement by about $38 million. Secondly, we requested an increase in the equity component of our capital structure from the 40% level currently in rate to 50%. As a rule of thumb, each 5% movement in equity capitalization would have about a $20 million revenue requirement impact.
We have also requested an 11.25% return on equity. This is the return set by the commission in our last fully litigated rate case in 2001. For each 25 basis point change in ROE, the revenue requirement impact would be about $7 million. In addition, to these three factors, we have requested recovery of increased pension cost as well as the amortization of pension costs we deferred over the last few years.
The impact of the pension costs is substantially offset by lower depreciation expense due to revisions we have requested in our overall depreciation schedule. There have also been other typical increases in our cost of service since 2006 when our present rates were set. As a part of this filing we also requested a distribution cost recovery mechanism that would allow us to annually adjust the distribution rates to reflect changes in expense, capital investment and customer usage. The Commission currently has a rule making under consideration that encompasses some of these same principles.