CenterPoint Energy, Inc. (CNP)

CNP 
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CenterPoint Energy (CNP)

Q2 2011 Earnings Call

August 04, 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

Analysts

James Krapfel - Morningstar Inc.

Carl Kirst - BMO Capital Markets U.S.

Andrew Weisel - Macquarie Research

Presentation

Operator

Good morning, and welcome to CenterPoint Energy's Second 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, Dea. Good morning, everyone. I'm Marianne Paulsen, Director of Investor Relations for CenterPoint Energy. I'd like to welcome you to our second 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 second quarter 2011 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-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 Thursday, August 11, 2011.

To access the replay, please call 1 (800) 642-1687 or (706) 645-9291 and enter the conference ID number 75341557. 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 the company. This morning, I will update you on our true-up appeal, then describe our second quarter financial results, and provide the operating results for each of our business segments.

Let me begin with 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 certain costs and certain other transition expenses in what is known as a true-up proceeding.

In 2005, the Texas PUC issued a decision that tailed to allow us to recover some of the amounts, which we had requested in our application. As a result, we took a $1.5 billion pretax charge to earnings and appeal the PUC decision. The appeal was heard in the District Court, followed by the Court of Appeals and finally, the Texas Supreme Court.

In March of this year, the Supreme Court issued a favorable decision in our appeal and reversed the PUC on a number of points. Several parties subsequently filed motions for rehearing, which have been denied by the court. The case has now been remanded to the commission for implementation.

Based on the court's decision, we will be seeking recovery of approximately $1.9 billion in the remand proceeding, an amount which includes interest through October of this year. Intravenous [ph] of asset condition to hold hearings to review several issues, including the tax normalization issue that arose from the PUC's original decision, the interest rates to be applied to the true-up balance and certain tax benefits and the recoverability of transaction costs associated with the sale of Texas Genco and rate case expenses.

We believe the commission can properly complete any necessary reviews of these issues. And while there has not been a procedural schedule established, we hope these proceedings can be concluded by early fall.

Now let me review the company's overall results for the second quarter. This morning, we reported net income of $119 million, or $0.28 per diluted share. This compares to net income of $81 million or $0.20 per diluted share for the second quarter of 2011.

Operating income for the second quarter was $303 million compared to $263 million last year. We also reported $10 million in lower interest expense this year compared to the second quarter of 2010.

Houston Electric had a strong quarter, reporting operating income of $153 million, about $31 million above the second quarter of 2010. Operating income benefited from increased usage, primarily related to warmer weather.

Higher transmission revenues received from other providers partially offset by higher transmission cost and lower depreciation expense. We also benefited from growth of more than 32,000 customers since the second quarter of last year. This represents a growth rate of over 1.5%, and is an indication that our service territory continues to rebound. Offsetting these benefits were higher operating expenses.

The second quarter results do not reflect the impact of our recent Houston Electric rate case. Although there are pending motions for rehearing, we now expect new tariffs to be implemented in early September. As I indicated earlier this year, the cash flow impact from this case should be minimal, but we anticipate Houston Electric's operating income will be negatively impacted by approximately $30 million on an annualized basis once the new rates are in effect.

Read the rest of this transcript for free on seekingalpha.com