CenterPoint Energy, Inc. (CNP)

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CenterPoint Energy (CNP)

Q4 2010 Earnings Call

March 01, 2011 11:30 am ET

Executives

Marianne Paulsen - Director of Investor Relations

Scott Rozzell - Executive Vice President, Corporate Secretary and General Counsel

Gary Whitlock - Chief Financial Officer and Executive Vice President

David McClanahan - Chief Executive Officer, President and Director

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

Analysts

Paul Patterson - Glenrock Associates

Carl Kirst - BMO Capital Markets U.S.

Reza Hatefi - Polygon Investment Partners

Ali Agha - SunTrust Robinson Humphrey, Inc.

Presentation

Operator

Good morning, and welcome to CenterPoint Energy's Fourth Quarter and Full Year 2010 Earnings Conference Call with senior management. [Operator Instructions] I will now turn the call over to Ms. 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 fourth quarter and full year 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 fourth quarter and full year 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 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. This quarter, we have created supplemental materials, which are also posted under the Investors Section of our website. These materials are for informational purposes, and we will not be referring to them during prepared remarks.

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 p.m. Central Time through Tuesday, March 8, 2011. To access the replay, please call 1-800-642-1687 or (706)645-9291 and enter the conference ID number 35640383. 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 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, I will talk about some significant developments that occurred during the fourth quarter and provide details around certain business operations that I believe are of interest to many of you. I will also briefly describe our overall financial results for the quarter, followed by a more comprehensive discussion of our annual results of each of our businesses and our expectations for 2011.

Let me begin with our recent Houston electric rate case. The Texas PUC [Public Utility Commission] announced its decision in early February, but has yet to render a written order, so our description is somewhat limited. Although the cash flow impact from this case should be minimal, we anticipate that the decision will have an estimated $25 million to $30 million annualized negative impact on Houston Electric's operating income. We are obviously disappointed in this result. Let me give you a few of the details of the decision, as we understand them today.

Rates will be based on a capital structure reflecting 45% equity, up from the current level of 40%. The return on equity was set at 10%. This is an 0.125% to 0.25% lower than the rates most recently authorized for other Texas utilities and reduced the positive effects of the higher equity ratio. We are very disappointed in this aspect of the PUC's decision. The commission reduced Houston Electric's revenue requirement by about $10 million to reflect tax savings in other CenterPoint businesses. This is commonly referred to as the consolidated tax savings adjustment. While it had been -- previously been the practice of the commission to make this type of an adjustment, it did not do so in the recent Oncor case, and we were hopeful the commission would follow the precedent set in that case. The commission had a lengthy discussion about the calculation and indicated that it would initiate a workshop to consider whether this issue should be the subject of a rule making.

Rate base was reduced to reflect the PUC's assumptions regarding the company's liability for uncertain tax positions. This change in rate base resulted in a revenue requirement reduction of approximately $17 million. However, a tractor was established to capture the revenue requirement difference between the assumed and actual tax outcome.

I might also add that our AMS investment of approximately $121 million was moved from a surcharge into base rates. This change has no effect on operating income since we were already recognizing a return on this investment under the smart meter surcharge.

Now let me update you on our advanced technology deployments. The implementation of an advanced metering system in our Houston Electric service territory is progressing well. We are currently installing over 80,000 smart meters per month, and we celebrated the installation of our 1 millionth smart meter last week. We have invested approximately $240 million through December, excluding $100 million we have requested under our DOE grant.

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