CenterPoint Energy Inc (CNP) 2004 Q4 法說會逐字稿

At this time I would like to welcome everyone to the CenterPoint Energy Fourth Quarter and Full-year 2004 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and- answer period.

If you would like to ask a question during this time, simply press star, then the number one on your telephone key pad.

If you would like to withdraw your question, press star, then the number two on your telephone key pad.

Thank you.

I will now turn the conference over to Marianne Paulsen.

Please go ahead, ma'am.

Thank you very much Michelle.

Good morning, everyone.

This is Marianne Paulsen, Director of Investor Relations, for CenterPoint Energy.

I would like to welcome you to our fourth quarter and full-year 2004 earnings conference call.

Thank you for joining us today.

David McClanahan, President and CEO of CenterPoint Energy, and Gary Whitlock, Executive VP and Chief Financial Officer of the company, will discuss our fourth quarter and full-year results, and will also provide highlights on other key activities In addition to Mr. McClanahan And Mr. Whitlock, we have other members of CenterPoint Energy's management with us who may assist in answering questions following the prepared remarks.

The fourth quarter and full year 2004 earnings release is posted on our Web site, 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 Securities and Exchange Commission.

Before Mr. McClanahan begins, I would like to mention that a replay of our call this morning will be available until 6:00 p.m.

Central Time, through Tuesday, March 15, 2005.

To access the replay, please call 1-800-642-1687, or (706) 645-9291, and enter the conference I.D. number 3266239.

You can also listen to an online replay of the call via the Web site that I just mentioned.

We will also archive the call on CenterPoint Energy's Web site for at least one year.

With that, I would like to turn it over to David McClanahan.

David?

Thank you, Marianne.

Good morning, ladies and gentlemen.

Thank you for joining us today and thank you for your interest in CenterPoint Energy.

The year 2004 was one of milestones for the company.

We've completed a number of steps that we had been planning since the company's inception, mainly, the sale of our generating assets and the completion of our true-up proceeding.

We also continued our improvements in our core operating units performance.

And I believe all three of our business segments are well positioned for the future.

I'll spend a few minutes summarizing each of these three areas this morning.

As most of you know, we declared an additional first quarter common dividend last week.

I'll also explain the reason for this action.

Following me, Gary Whitlock, our Chief Financial Officer, will describe the actions we have recent -- taken recently to further strengthen our balance sheet and further enhance our flexibility.

Let me begin with an overview of our fourth quarter and full-year results.

This morning we reported net income from the fourth quarter of $100 million, or $0.29 per diluted share.

This compares to net income for the fourth quarter of 2003 of $70 million or $0.21 per diluted share.

The fourth quarter's results conclude an extraordinary loss of $84 million, reflecting a further writedown of our generation-related regulatory assets, resulting from our assessment of the amount of our true-up balance that we can ultimately recover.

On a positive side, we recorded $226 million in interest on our true-up amounts for the period January 2002 through December 2004, on an after-tax impact on that income of $147 million.

Income from continuing operations for the fourth quarter of 2004 was $163 million or $0.46 per diluted share, compared to $47 million or $0.14 per diluted share for the fourth quarter of 2003.

The fourth quarter of 2004 included the after-tax income of $147 million related to interest on our true-up amount.

While the fourth quarter of 2003 included after-tax income of $134 million related to ECOM's revenues.

I'm very pleased to say that our core businesses performed very strongly in the quarter.

Our TDU reported operating income of $95 million, compared to $69 million in 2003.

Our Gas Distribution and Sales segment reported operating income of $85 million, compared to 56 million in 2003.

And our Pipeline and Gas Gathering group, achieved operating income of $57 million, compared to $34 million in 2003.

In summary, our operating units had a strong quarter.

For the full year of 2004, we recorded a net loss of $905 million.

We've included an extraordinary loss of $977 million related to our true-up proceedings, and a $133 million loss from continued operations related to the sale of our generating assets.

This compares to a net income of $484 million for 2003, which included after-tax income of $429 million related to ECOM revenues.

As you may know, ECOM was only applicable to 2002 and 2003, so no revenues associated with ECOM are included in 2004.

Income from continuing operations for 2004 was $206 million or $0.61 per diluted share, compared to $409 million or $1.24 per diluted share for 2003. 2004 included after-tax income of $147 million related to interest on the approved true-up amount, while 2003 included an after-tax impact of $429 million from ECOM revenues.

Our operating units performed well during 2004.

The TDU's operating income increased to $441 million, or $33 million over 2003.

Our Gas Distribution and Sales segment increased this operating income by $20 million to $222 million.

Our Pipeline and Gas Gathering unit took advantage of very attractive market dynamics, and achieved operating income of $180 million, an increase of $22 million over 2003.

Overall, a very strong year for each of our core operating units.

As most of you know, our financial results continue to be burdened by a significant amount of interest.

However, we began our deleveraging strategy in the fourth quarter by using most of the proceeds from the first debt in the sale of our generation assets to reduce outstanding debt.

Additionally, we made a $420 million contribution to our pension plan in the fourth quarter, bringing our total contribution for the year to $476 million.

Both of these events will have a very positive impact in 2005, and into the future.

Now, let me turn to the two milestone events that occurred last year.

I am pleased to say that these two events that we have long anticipated are well on their way to completion.

Let me first update you on the sale of Texas Genco.

We're very pleased with the progress to date of the sale.

As you may recall in July of last year, we announced a definitive agreement to sell Texas Genco for approximately $3.65 billion.

This transaction was structured to be accomplished in two steps.

The first included the buyout of the 19 percent minority interest and the sale of our coal, lignite and gas-fired plants.

We completed this step in December and CenterPoint Energy received cash proceeds of $2.231 billion.

In the second step of the transaction, the company's remaining assets, primarily our interest in the South Texas Nuclear Project, will be sold.

This step will occur after we receive NRC approval.

We filed for approval last October, and it typically takes six months or so to receive such approval.

So we anticipate completing this step in the second quarter of this year.

Cash proceeds to CenterPoint Energy from this debt will be $700 million, bringing the total to about 2.9 billion for our 81 percent interest in Texas Genco.

Now I'd like to turn to our true-up proceeding, which is another major milestone in the company's history, and a lot has happened in connection with this proceeding.

As outlined in the Texas Electric Restructuring Law and as a result of the implementation of wholesale and retail electric deregulation in the state, electric utilities are, by law, allowed to recover their stranded costs and other items related to the transition to competition.

On March 31st of last year, we filed our stranded cost true-up application with the Texas Public Utility Commission.

We requested $3.7 billion excluding interest.

In December, the PUC issued its final order allowing us to recover approximately $2.3 billion including interest through August 31, 2004.

It's an understatement to say that we are very disappointed in the amount granted by the Commission, since we believe that we follow both the letter and the spirit of the law.

Consequently in January of this year, we began the appeals process by filing an appeal with the Travis County District Court.

We anticipate the full appeals process will take up to three years to complete.

In early December of last year, we filed an application for a financing order asking for authority to issue transition bonds to securitize all or part of the true-up amount.

A draft financing order was issued by the PUC last week, which would allow us to securitize $1.5 billion plus additional amounts for excess mitigation credits paid and interest which has accrued since August 31st of last year.

With these additions, we estimate that we will be able to issue transition bonds for about $1.8 billion later this year.

Issuance of these bonds could be delayed if our financing order is appealed, and there are parties in our true-up proceeding who seem to believe they benefit from the delay.

Gary will describe what we've done to protect ourselves against this possibility.

In January, we filed an application with the PUC which seeks to establish a competition transition charge that will enable the company to collect the true-up amount that will not be securitized.

Based on the draft order and the securitization proceedings, and taking into account the deferred tax reduction to that balance, the company anticipates approximately $600 million will be recovered through this transition charge.

Also in January, we filed a writ of mandamus with the Supreme Court of Texas seeking immediate termination of the excess mitigation credits.

We provide credits in excess of $20 million every month.

Our mandamus also seeks full recovery of all excess mitigation credits paid by the company.

The Court has requested parties to submit written responses to our mandamus later this week.

Under a settlement reached along various parties in Reliant Energy's priced to be proceeding, the excess mitigation credits would terminate at the end of April.

The PUC has not yet ruled on that settlement, and is scheduled to take it up later this month.

Either of these two actions could result in the excess mitigation credits terminating in the next few months.

Before I turn the call over to Gary, let me discuss the additional first quarter dividend that our Board of Directors declared last week.

As we have disclosed in the past, the spinoff of Reliant Resources in October 2002, resulted in the company having a retained deficit.

Further, as described earlier, last year we recorded extraordinary charges to earnings related to the true-up, and the sale of our generation assets increasing our retained deficit.

Since we currently do not have retained earnings from which to pay dividends under the Public Utility Holding Company Act, we're limited to payment of dividends from quarterly earnings unless the specific authorization is obtained from the SEC.

As you know, our businesses are seasonal.

The second quarter is typically our lowest earnings quarter.

Because we won't retire Houston Electric's high-cost term loan until November of this year, our earnings are further burdened by a significant amount of interest.

On the other hand, the first quarter is generally the strongest quarter for our gas distribution businesses.

We expect our first quarter earnings this year to be sufficient to cover both the first quarter's regular dividends of $0.10, which will be paid on March 10, and an additional $0.10 dividend to be paid on March 31st, for a total dividend of $0.20 per share this quarter.

As a result of this additional first quarter dividend, we do not expect to declare another dividend until the third quarter.

As we have discussed in the past, we are considering a quasi reorganization to reset our retained earnings to zero.

However this type of reorganization requires that assets and liabilities be adjusted to fair value, and could result in a reduction in common stock equity.

We will be discussing this with the SEC staff later this week.

It is still too soon to know whether we will, in fact, complete this reorganization.

Let me close by saying that I am pleased with our progress in implementing our business strategy.

We are competent executing on the plans we developed and communicated to you, even prior to the formation of CenterPoint Energy.

Our core businesses are performing well and improving their financial and operating results.

We look forward to continuing to make progress as our transition comes to an end at the end of this year.

Now I'll turn the call over to Gary.

Thank you, David, and good morning to everyone.

This morning David gave you the highlights of our quarterly and annual results.

Now, I would like to update you on a number of matters.

First, I'll describe the use of cash proceeds we received in the fourth quarter from the sale of Texas Genco's fossil asset and the receipt of the retail claw back payment from Reliant.

As David described, we have two additional significant sources of cash to be received this year from transition bonds and the sale of our remaining interest in Texas Genco.

Both of which will be used to further pay down debt.

I will also update you on our three new bank credit facilities totaling $2.51 billion, which we closed yesterday.

I will also discuss our convertible securities and our plan to minimize dilution to EPS.

Now let me discuss the use of proceeds received in 2004.

In the fourth quarter, we received $177 million from the retail clawback and $2.231 billion from the sale of Texas Genco's fossil generation assets.

Under the terms of CenterPoint's prior credit agreement, we were obligated to apply the net proceeds received from the sale of Texas Genco to pay off the term-loan component of that facility.

In December, we paid down the $915 million outstanding under the term loan.

Second, we were obligated to permanently reduce the commitments under the revolving credit component of that same facility to $750 million from $1.425 billion, which we did.

At the same time, we paid dow the total amount outstanding under t he revolver, which on December 15 was $767 million.

Additionally, we redeemed approximately $375 million of trust preferred securities.

In total then, at the end of 2004, we reduced debt by approximately $2 billion compared to year-end 2003.

In addition to debt reduction, we utilized a portion of the proceeds to prefund estimated future pension obligations.

In the fourth quarter we contributed $420 million for the pension plan, bringing the total contribution for the year to $476 million.

The plan contribution essentially brought the plan assets and accumulated benefit obligation into balance.

This contribution allowed us to adjust the minimum pension liability, which added $350 million to shareholders' equity in 2004.

As a result of these contributions, we will be able to reduce pension costs by about $40 million in 2005.

Looking forward, as David described, we expect to complete the second step of the sale of Texas Genco early in the second quarter.

Cash proceeds to CenterPoint for this step will be $700 million, bringing the total received for Texas Genco to $2.9 billion.

In addition to the $700 million for Texas Genco, the PUC issued a draft of its financing order last week, which in our estimatation will allow us to securitize approximately $1.8 billion through the issuance of transition bonds.

We anticipate that we could be in a position to issue those bonds by around mid-year.

We will use the proceeds from the Texas Genco sale and the transition bonds to reduce debt, specifically the $1.31 billion term-loan due in November at CenterPoint Energy/ Houston Electric and a $325 million note due in July at CERC.

Additional debt repayments will be based on the most efficient use of funds.

Now let me describe our new credit facilities.

We announced yesterday that we have closed on three new bank credit facilities, which have the benefit of reducing our interest costs, extending maturities, eliminating certain restrictive terms and conditions, and providing a backstop financing for the $1.31 billion term loan maturing in November of this year.

The first facility is is a $1 billion, 5-year senior unsecured revolving credit facility at CenterPoint Energy, which replaces a $750 million revolver which would have matured in October of 2006.

The first drawn costs to the new facility is LIBOR plus 100 basis points, compared to LIBOR plus 300 basis points for the previous facility.

A second credit facility established at the company's Electric Transmission and Distribution subsidiary, CenterPoint Energy Houston Electric, is a $200 million, 5-year revolver that has a first-drawn cost of LIBOR plus 75 points.

This is an unsecured facility designed to provide additional, independent liquidity at the TDU through 2000 -- to 2010.

As David indicated, the third credit facility is a $1.31 billion senior secured revolving-credit facility, or backstop facility, at CenterPoint Energy Houston Electric.

By establishing this facility, we have taken a proactive step to ensure that we will be able to satisfy the $1.31 billion term loan in the event that sufficient proceeds from the issuance of this transition bonds are not received prior to its November 2005 maturity.

This facility, if drawn, will would be secured by general mortgage bonds and would have an interest rate of LIBOR plus 75 basis points and any borrowings may be termed out for two years.

We're extremely pleased with all of the terms and conditions in these facilities, as we believe they're in line with those of other investment grade utilities and reflect our improving credit metrics.

Now let me discuss the actions we have taken to date and plan to take relative to convertible securities that we issued in 2003.

As indicated in our press release this morning, we adopted EITF 04-8 related to contingently convertible securities as of December 31st of last year.

And as result, we reported a diluted impact of $0.05 per share for 2004, and $0.10 per share for 2003, related to our $575 million convertible security.

The indenture for the $255 million 27/8 percent convertible notes was amended without the need to obtain bond holder consent to provide that the principle amount of $255 million must be settled with cash upon conversion.

Since this occurred prior to year end 2004, this security did not impact the company's diluted EPS.

However, the indenture for the $575 million convertible notes does not provide the unilateral flexibility for the company to choose whether to settle the conversion in cash or stock.

Therefore, it is not possible to similarly amend that indenture.

The company has been considering alternatives for decreasing the dilutive effect of these convertible- notes including an exchange offer.

In fact, we have just filed a registration statement with the SEC regarding a proposed exchange offer.

Our goal is to substantially diminish dilution in future periods resulting from the adoption of EITF 04-8

And finally, many of you have asked about our position on providing earnings guidance for 2005 and beyond.

As we have described this morning, there remain a number of unique variables, mainly timing related, that will impact our earnings per share.

For example, the timing of the proceeds from our transition bond issuance, and the amount, structure, and timing of the implementing at CTC.

However, I'm hopeful that later this year we will have gained sufficient clarity around these events to be in a position to provide meaningful earnings guidance.

Now, let me thank you for your interest in the company, and I'll turn the call back to Marianne.

Thank you very much, Gary.

It's now time for the Q-and-A period.

So, Michelle, if you could provide the instructions on how to ask a question?

Thanks so much.

[Operator instructions] Your first question comes from David Frank with Zimmer Lucas Partners.

Yeah.

Hi.

Good morning.

Good morning, David.

I was wondering if you could tell us what the year-end common equity was for the company?

Well, we'll give you a round number.

Obviously, we didn't include a balance sheet with these statements.

But it's, again, --

It's $1.8 billion.

1.8

1.1 billion [voices speaking at once] 1.1 -- I'm sorry.

Okay.

And do you anticipate taking any more writeoffs related to the true-up proceeding or -- or the financing proceeding?

We don't, David.

We've tried to estimate to the best of our ability today what the total amount of the writeoff would be.

Obviously all of the proceedings in Austin are not complete.

But we feel pretty comfortable that we've got this writeoff amount accurate.

Okay.

That's good.

And I think very briefly, David, you made a comment regarding the potential for a quasi reorg.

You said it involves the reevaluation of assets and liabilities.

You made it sound like a potential for a writeoff related to that.

Is there any more detail you could provide?

Why would you take a writeoff?

And -- and what -- could you quantify the size?

David, whenever you do a quasi reorganization, you have to revalue your assets and liabilities.

Now in the regulated businesses, you don't have a major issue assets and liabilities basically are book value.

Our main issue goes to the reevaluation of some of our debt.

Because its trading at a very -- at a premium to its par value.

Because we're in a much healthier position today than we were when we issued it.

As a result of that, you have to state that debt at fair value.

And the debit has to go somewhere.

And the debit goes against your common stock equity account.

Now, you get that back over time if you do it.

But, that's what we're examining now.

We just received a report from the independent third parties who did the valuation work for us.

And we're evaluating that at this time.

Okay.

Because it would seem almost a bit of a catch-22 if you're doing the quasi reorg to restate retained earnings to zero so you could pay a dividend but you actually impaired your balance sheet in the process.

I don't know if I'm making sense here.

But I thought the concern was the balance sheet.

So --

David, as you know, the reason we were looking at a quasi reorganization is to restate retained earnings.

In doing so, you don't want it to impair your balance sheet like you said.

Because you may solve one problem just to create another.

And that's obviously what we're looking at.

I think you said it well.

We just haven't reached any conclusions.

We're going to be talking about it with the SEC staff.

We'll figure out, probably, sometime later this month or early next month exactly what we want to do here.

Okay.

All right.

Well, thank you for the explanation.

You bet.

Thank you, David.

Your next question question comes from Ali Agha with Wells Fargo Securities.

Good morning.

Good morning.

I wanted to -- Gary, understand or clarify, could you just remind us again how does the regulatory income get calculated?

And how should we figure that amount in 2005?

The regulated income?

I'm sorry, Ali.

Explain that again?

The 147 million after tax.

Oh.

The interest?

The interest.

I'm sorry.

Interest.

The interest is computed based on a interest rate of about a little over 6 percent.

We have been authorized to recover a little over 11 percent, but we can't book the full amount under GAAP.

We have to wait until we actually get the money to book the difference between 11 and 6.

So, we're booking interest at a 6-percent rate on the true-up balance.

And we'll get another what 5 percent down the road whenever we start recovering the cash.

Okay.

So but when you issued the securitization bonds, does that amount get taken out of the calculation?

Or how should we think about that?

No.

The securitization bonds, the amount we issue, will include the full 11-percent interest.

Because we are calculating it and it is subject to being securitized, we just cannot, under GAAP, record that amount today.

I see.

And separately, you talked about the 1.01 billion of equity.

I don't know we don't have an balance sheet, but could you put that in context?

What does that mean in terms of debt to cap ratio at year end?

It's less than 15 percent.

Probably -- probably closer to -- 12 percent.

I see.

Okay.

And my final question would be assuming that all of the transactions play out at least through of the close of the year, and '05 ends up being the transitional year, and we look at 2006 as a clean year.

In the past you talked about an earnings base of $0.80 to a dollar, then I think you had refined that to the lower of end of the range, if I recall correctly.

How should we think about '06 presuming that is a clean year if all of this is done in '05?

Well, you know we haven't actually come up with our new aspirations.

I think, with the way you described it, it's accurate.

But we are -- you know, we are refreshing our numbers now.

In one way it's based upon kind of how these proceedings play out over the next few months to make sure we know exactly how much earnings we'll have from the CTC.

But I think the low end of the $80 to $1 is the right way to think of it for '06.

I see and Just one clarification.

There is no shared issuance of equity issuance presumed in that?

Is that correct?

Excuse me.

Gary has just reminded me that that's an $0.85 to $1 range.

I apologize.

You know, when we think about common equity, we think in two ways, Ali.

One, is if we want to buy something, if we go out and buy something, that would be a time when we would issue equity.

The only other reason we would issue it would be in connection with the 35 Act in trying to meet a target there or trying to satisfy some type of rating agency requirement.

But at this time, you know, that's still work in progress.

Right.

Thank you very much.

You bet.

Your next question comes from Nathan Judd [ph] with Atlantic Equities.

Good morning.

I just wanted to ask a quick question on Houston Electric.

Do you have the calculated earned ROE for the past -- past 2004?

Nathan, I don't think we've done those calculations yet.

Okay.

You don't happen to have what the equity base was at Houston Electric yet, do you?

We'll file the Qs -- I mean the K's next week.

It will be in there.

I don't think we have it here in the room with us now.

Fine.

Could you give us an update on -- I know you're going through several rate cases, especially at the regulated distribution business.

Could you just give us an update on Mada Gas Co and with some of the others, how they are proceeding?

Mada Gas Co. reached a settlement with various parties on their case.

They held a hearing at -- before the Minnesota Commission a couple of weeks ago.

The settlement amount was for about $9 million, as I recall.

We expect to get an order out of that Commission some time in the second quarter, I think -- I think the statutory deadline is June -- June of this year.

But that's not too far off of what we expect that we'll get.

We solved -- we settled a case in Oklahoma, and we got $3 million worth of rate release there.

We have a case on file in Arkansas.

That case, I think, is right -- is for about $34 million.

We're in discovery at this time.

So, it's too early to really comment on that.

We expect to have an answer on that one in the fall.

And this last question.

You did vary your delivery business.

Houston Electric did very, very, well year-over-year, and actually increased quite considerably.

Could you give us a bit of more information on some of the drivers there?

I know you listed quite a few in the press release.

But just a bit more color on that improvement on the color year-over-yea?.

I think there's really two things you ought to focus on.

One, is we continue to have a very robust service territory.

We're growing our customers almost at $50,000 --- 50,000 customers a year, which is better than 2 percent.

This is, like, the eighth year in a row that we have grown our customer base greater than 2 percent.

Still a very good service area and we -- that's continuing this year.

We continue to see developers continuing to develop new residential subdivisions.

Secondly is, we have had a real concerted effort to implement process improvements in that business, and to hold down inflation increase there.

I think it is -- we are having some successes in connection with that.

We've got -- our --- our medical didn't go up nearly as much as we thought it was going to up.

Now that we've done our pension contribution, we expect that pension costs will go down across all of our business units.

Now, we did have a few things that happened in '04 that were a little unusual.

We sold some land, and that's reported as a credit in your O&M expenses and as I recall, that was $10 million or $11 million.

A few things that were, perhaps, unusual in '04.

But overall that business is running very well.

And we're pleased with the progress we've made there.

Is it reasonable to expect that the fourth quarter level of EBIDTA would be pretty much a good ongoing rate?

Or is this for some other reason something that's caused fourth quarter to be actually higher than what you would expect on an ongoing basis?

Well, the fourth quarter got the benefit of a little weather in Houston Electric.

We -- we -- I think it was a few million dollars there that we got from the benefit of weather.

I think, the other thing you have to be careful about is that -- in Texas we have something called T-costs.

Where, basically transmission costs are born by all of the T&D units, and our share of the state's transmission costs is expected to increase in '05 versus '04.

The final matrix is not out yet so we can't tell you exactly how much that's going to be.

But we do know we're going to bear more T-costs in '05 than we did in '04, which obviously will impact earnings there.

Thank you very much.

Your next question comes from Angela Utaris [ph] with Oppenheimer Funds.

Hi.

You mentioned that the back stop security was going to be secured by a mortgage.

Can you be a little more specific?

It's a mortgage on what?

This would be -- this is Gary.

Yeah.

The backstop facility is a $1.3 million backstop facility.

Meaning that it would be drawn, as a I described in the instance where or the situation where we did not have adequate securitization proceeds at that date.

It would be a secured facility.

These are general mortgage bonds of Houston Electric, the utility.

And as -- this is David -- you might recall, Angela, the term loan that's being paid off is also secured by this general mortgage.

So, it just goes from -- the general mortgage goes from the term loan to the credit facility.

There is no change in the amount of general mortgage security there.

So the total amount of general mortgage security is what?

What is it, Mark?

Do you know how many?

General mortgage secured?

We have got a couple billion dollars at Houston Electric.

We've got 1.3--

Close to three, I think.

Right, we changed in where we used to use first mortgage, we now use a general mortgage.

We have a few hundred million dollars of first mortgage bonds still outstanding.

Everything else is secured with a general mortgage.

And Mark,[inaudible] still believes it's around $3 billion.

Okay.

Your next question comes from Chris Melendez with UBS Principal Financial.

Hi.

Based on the backstop facility, is it safe to I assume that there is no way you'll come to the capital markets for that 1.31 billion, because you probably will have access to the markets at the NC without any problem at all?

Certainly if we -- we could go to the capital markets.

I think that Chris, what we've done, this facility addresses that issue.

As you know, if drawn, it terms out for two years.

So, you know, clearly -- look, this is a timing issue.

We are going to issue securitization bonds.

This really is truly a backstop facility.

Our expectation is that we'll issue as we described this morning, $1.8 million.

We hope to do that by mid-year.

In the event it was delayed for regulatory reasons or the interveners or any situation, we are prepared for it.

Right.

And I guess just to drive the point home.

It's just that you would eventually expect to get securitization.

You don't want to term it out in the capital markets for any extended period of time.

That's exactly right.

Okay.

Thanks.

Your next question comes from Rudy Palatino [ph] with Prudential Equity Group.

Can you gave us -- can you tell us what the rate base was at the end of the 2004?

For which?

For bot the electric and the gas companies.

Let's see if we have that, Rudy.

And while you're looking, have you given any CapEx guidance for the company?

The CapEx guidance will be in the 10-K, which we're going to file next week.

We'll lay that out for the next five years.

Okay.

Thank you.

Your next current question comes from Deborah Romberg [ph]with Jefferies &Co.

Hi.

Good morning.

Most of my questions were asked.

I just had two.

One related to the $147 million of after-tax interest on rig assets recorded in 2004.

What was the amount in the fourth quarter?

We recorded all of that in the fourth quarter.

How much of that would have pertained to the fourth quarter?

Oh.

Because, this was for two or three years, right?

Right.

Yes.

It was.

Let's see if we have that, Deborah.

While you're checking that, should I go ahead with the other question?

Yes.

Of the estimated $40 million of savings in pension expense that you're expecting this year --

Yes.

--roughly how much of that should we expect at Houston Electric?

About a third.

About a third.

Got it.

About a third of it is directly related to employees at Houston Electric.

Give or take.

There is also -- part of it go to share service business and shared service business employees.

They're charged back to Houston Electric too.

They'll be the beneficiary of a little bit more on that.

So somewhere between a third and a half, maybe?

Hang on.

Just a minute.

Did you say.

What was that, Deborah?

Somewhere between a third and a half?

Yes.

I think that's fair.

Okay.

You're next question comes from Eric Lambert with Attacus Capital.

Hi.

Yes.

I just wanted to know what you're current thinking is on potential further asset dispositions?

We missed that question.

Would you ask it again?

Yes.

Sorry.

Just wanted to know what the current thinking is on potential further asset dispositions.

You know, we have basically sold all our non-core assets .

We have done that over the last two years.

What we have today are clearly part of our core business.

That's not to say we won't consider selling something in the future.

But at this time, the assets we have, we believe are all related to our core business.

Thank you.

Okay.

Before we take the next call, let me answer a couple of these questions that were asked and we didn't get the answer to.

On fourth quarter interest, the amount of interest for just the fourth quarter was $36 million.

Now on the rate base, the rate base is was about -- for the gas LDC is about 1.6 to 1.7 billion.

And for the TDU it's about -- I would guess -- We don't have those numbers -- around 3.2 billion, maybe 3.3 billion.

It hasn't changed much since our last case, and our last case, it was around 3.3 billion.

Okay operator.

Your next question comes from the Michael Goldenberg with Luminous Management

Good morning, guys.

Good morning.

Good morning.

Just wanted to talk more about the O&M number at T&D.

Is this kind of decrease expected to continue?

Or, will it flatten out in '04?

You've showed very good decrease from '03 to '04 on the O&M line.

All right now, what you have to be careful of in the '03 line for the TDU, that includes the writeoff of the over and under fuel piece in '03.

Oh.

That's right.

Okay.

You have to -- that was around 87 -- no, about $87 million that you would have to adjust.

Then if the first quarter -- Hello?

Yes.

Yeah.

Okay.

Just two more questions.

On the growing margin at your gas operations, if all of your rate cases were to, you know, come out your way.

How much more would we expect the EBIDTA to increase?

Well, we have, as I listed earlier, a number of pending cases.

We have 9 million in Minnesota; that's a settlement.

We have got $34 million at Arkansas.

We have some small cases in Texas for probably around a $500,000.

If you add all those up, you're going to get pretty close to $50 million.

Now I think it's unlikely that you would ever receive what you, what we requested.

It typically doesn't happen that way.

So, you have to factor in some adjustments that will occur in the regulatory process itself.

Okay.

Thank you very much.

Just one final question.

I think you mentioned something about not paying until the third quarter.

I missed the first part of the sentence in your opening remarks.

What we said, Michael, is since we declared the additional first quarter dividends, which is basically in lieu of the second quarter, our next common dividend is expected to be considered in the third quarter.

We won't declare another dividend in the second quarter.

Gotcha.

So the second quarter dividend will come early.

The third quarter dividend will come on time?

That's our expectations.

Gotcha.

Thank you.

Your next question comes from Daniele Seitz with Maxcor Financial.

Good morning.

Just was wondering -- do you have an idea of the interest expense for '05 given so far what you have been doing -- what you have been doing in redemptions and refinancing?

Well --

Is the fourth quarter a good indication?

No, Daniele, this is Gary.

The fourth quarter is not a good indication.

As I described in the opening comments and you've heard today, we have a number of moving parts on interest expense.

Uh-huh.

That you really can't take a quarter and extrapolate it, but what you can do of course, is that we reduced debt by about $2 billion, as I described.

And certainly, that's in the door.

So, 2005 interest expense will be less by obviously the amount of interest on that principle.

Second, we're going to have the -- before before the end of the year, we'll retire the term loan, which is a a pretty expensive debt as you know.

The certain notes that that I described.

So as you put those together, you can see the moving parts that we have.

We really need to let this year play out before we can lock in exactly.

Certainly by the end of the year, for 2006, we'll be able to get a --- what I would describe as a run rate of our interest expense.

Right.

No, I was just wondering if you had -- because of the secured facilities, etc., Actually, I thought aside from the 2 billion, there may not be that much advantageous in addition to that -- in addition of the assets exception for the 200 basis points of the spread in between your refinancing.

Well, we'll certainly have the benefit of reduced interest rates on any drawings that we have -- interim drawings that we have to meet any near-term cash needs.

But, I think the way to look at it, if you took our interest expense for 2004, reduced it by the transition bond interest, that would give you a number.

Then you'd reduce that by the retirements that we had last year.

The interest expense and then we'll retire the buffet loan at the end of the year.

We'll retire the cert notes.

And then, of course, on a go-forward basis, the new revolver will be at lower rates to the extent its drawn.

And then I think, again, not to be evasive on this, these timing issues are important.

Again, when we retire the bucket loan, there is up front costs on that loan that have to be taken in 2005.

That will not impact us going forward.

We need for let these things play out, more specifically to get a go forward interest expense for the company.

All right.

Thanks.

Your next question comes from Jeffrey Covello [ph] with Duquesne Capital.

Good morning.

How are you?

Good morning.

I have a few follow ups on Ali's questions.

Just on the range for 2006, I was wondering if it was based on the current rate level at Houston Electric ?

Jeff, yes, it is.

Okay.

And then you mentioned that there was just two instances in which you would consider equity.

Could you just please reiterate them?

I wasn't sure what the first one was.

I think the first one was -- something to do for the 35 Act, and I would assume that is tied to something having to do with the quasi reorg.

We know we have low equity in our business.

There are two reasons why we would want to issue equity in my opinion.

First, is that if we found something we wanted to buy and that we could buy it through the use of equity, partially or completely, and still be -- have it be value-created to our shareholders.

That's what we would prefer to do is to issue equity in connection with expanding our business.

Uh-huh.

Secondly, is that under the 35 Act, the staff has said they want us to achieve a 30 percent common equity ratio.

We've -- you know, we have some time to do that, hopefully.

At one point in time, we thought we were going to achieve that by 2006.

But these writeoffs we took, or going to make that difficult.

We're not real sure exactly how soon we have to achieve that 30 percent test.

And then, together with that, it's whether or not the rating agencies would in some way want us to issue equity.

We think that having investment-grade ratings at the utilities is extremely important.

But at this stage, I think they recognize where we are from a balance-sheet stand point.

I think their focus is more on other metrics.

I think we're -- we believe we satisfy an investment-grade company from that standpoint.

Got it.

So I guess with the staff of the SEC, it's just a matter of reaching a conclusion when they want you to be there.

And then -- what I guess the quasi organize it would fixed retained earnings.

It would not fix equity to cap ratio.

It creates more difficulty with the common equity ratio.

Got it.

That's a work in progress.

We obviously are -- we meet with them fairly often trying to find the solution to some of these issues.

We'll continue to try to find that solution.

Got it.

Thank you very much.

You bet.

Operator, I think we have time for one more question or so.

Thanks.

Okay, your final question comes from Paul Ridzon with Key McDonald.

How much of the 147 million of interest income was related to 2004, and what do you expect that to be in 2005?

Hang on, Paul.

Let's see if we can calculate it real quick.

Paul, give us a minute here.

Sure.

The interest that has accrued as -- on the true-up balance is 11 percent as prescribed by the commission.

As David mentioned earlier, under GAAP we're only allowed to record the debt component of that as interest income.

That's the $226 million recorded in the fourth quarter.

That covers the three years, '02, '03, and '04 The balance is still a regulatory asset.

It will be securitized when we sell the bonds later this year.

So the timing in '05, really is a function of when we sell the bonds.

Because the interest will stop accruing at the time we sell the bonds, or at the time the CTC is put ito place, and we start recovering that on a cash basis.

So, how much was related to '04 only?

I think it's 94 million after tax, related for the year '04.

Thank you very much.

You're welcome.

Okay.

Well, that concludes our conference call today.

Thank you very much for your participation.

Have a great day.

Thank you, ladies and gentlemen.

This does conclude today's CenterPoint Energy Fourth quarter and Full-year's Earnings Conference Call.

You may now disconnect.