CenterPoint Energy, Inc. (CNP)

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CenterPoint Energy (CNP)

Q1 2011 Earnings Call

May 05, 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

Andrew Smith - JP Morgan Chase & Co

Steven Gambuzza - Longbow Capital

Yves Siegel - Crédit Suisse AG

Debra Bromberg - Jefferies & Company, Inc.

Carl Kirst - BMO Capital Markets U.S.

Ali Agha - SunTrust Robinson Humphrey, Inc.

Presentation

Operator

Good morning, and welcome to CenterPoint Energy's First Quarter 2011 Earnings Conference Call with senior management. [Operator Instructions] I will now turn the call over to Marianne Paulsen, Director of Investor Relations. Ms. Paulsen?

Marianne Paulsen

Thank you very much, Tina [ph]. Good morning, everyone. This is Marianne Paulsen, Director of Investor Relations for CenterPoint Energy. I'd like to welcome you to our first quarter 2011 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 2011 results and will also provide highlights of the 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-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. [ph] McClanahan begins, I would like to mention that a replay of this call will be available until 6:00 p.m. Central Time to Thursday, May 12, 2011. To access the replay, please call 1 (800) 642-1687 or 706-645-9291 and enter the conference ID number 52480366. 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 1 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 a significant development that occurred during the first quarter, then describe our first quarter financial results, and provide the operating results for each of our business segments. Let me begin with the discussion of our true-up appeal.

As most of you probably know, the 1999 law, which restructured the electric industry in Texas, allowed electric utilities to recover stranded costs and certain other transition expenses in what is known as a "true-up proceeding." In 2005, the Texas PUC issued the decision that failed to allow us to recover some of the costs to which we believe we were entitled. As a result, we took a $947 million after-tax extraordinary loss, and appealed the PUC decision. The appeal was heard in the district court, followed by the Court of Appeals and finally the Texas Supreme Court. On March 18, the Supreme Court issued its decision in our true-up appeal.

The court reversed the PUC on a number of points and remanded the case back to the commission for implementation. As a result of the decision of the Supreme Court and of the earlier decision by the Court of Appeals, we will be able to seek in the remand proceeding recovery of the following: $210 million of excess mitigation credits paid to retail electric providers; $146 million of deferred federal income taxes that had reduced stranded costs; $378 million in depreciation; and $414 million from the capacity auction true-up. The Supreme Court also determined that the PUC should have valued our generation assets for stranded cost purposes by using the subsequent sales price of those assets. This decision reduced the amount we can seek to recover by $252 million. The net result of the court's decision is approximately $922 million in additional stranded costs and transition expenses.

A number of parties have asked for a rehearing of the Supreme Court's decision. The court has 180 days to act on those motions, or they are denied.

Based on the court's decision, we believe we are entitled to seek recovery of approximately $1.85 billion in the remand proceedings. We conclude the calculation of interest through the third quarter of this year. We will also seek a financing order from the PUC to allow us to issue transition bonds to recover the allowed amounts. While there is no statutory deadline for the PUC to act on the remand, interest on the unrecovered true-up balance will continue to accrue at a rate of about 8% until the transition bonds are issued. In his remarks, Gary will discuss the expected accounting treatment and cash flow impacts of the true-up decision.

Now let me review the company's overall results for the first quarter. This morning, we reported net income of $148 million or $0.35 per diluted share. This compares to net income of $114 million or $0.29 per diluted share for the first quarter of 2010. Operating income for the first quarter was $364 million, compared to $357 million last year. We also reported lower interest expense and federal income taxes this year compared to the first quarter of 2010.

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