CenterPoint Energy Inc (CNP) 2007 Q1 法說會逐字稿

Good morning.

Welcome to CenterPoint Energy's first quarter 2007 earnings conference call with senior management.

During the Company's prepared remarks all participants will be in a listen-only mode.

There will be a Question and Answer Session after management's remarks.

(OPERATOR INSTRUCTIONS)

I will now turn the call over to Marianne Paulsen, Director of Investor Relations.

Ms.

Paulsen.

Thank you very much, Louann.

Good morning, everyone.

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

I would like to welcome you to our first quarter 2007 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 2007 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 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 invest investor section.

I would like to remind that you any projections or forward-looking statements made during this call are subject to the cautionary statements on forward-looking forward-looking information in the Company's filings with the SEC.

Before Mr.

McClanahan begins I would like to mention a replay of this call will be available until 6 P.M.

Central time through Friday May 11, 2007.

To access the replay, please call 1-800-642-1687 or 706-645-9291 and enter the conference ID number 4770950.

You can also listen to an online replace 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.

With that, I will now turn the call over to 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.

I am very pleased with our first quarter 2007 performance, and I would like to summarize our results.

This morning we reported net income of $130 million for the first quarter of 2007 or $0.38 per diluted share.

This compares to net income of $88 million or $0.28 per diluted share for the same period last year.

When comparing this year's earnings to last year, let me remind you that the first quarter of 2006 included in addition to the tack reserves related to the Company's ZINs tax issue which reduced earnings by $14 million or $0.04 per diluted share.

Excluding this impact, diluted earnings per share for the first quarter of last year would have been $0.32.

As you know, this tax issue has been favorable resolved.

Operating income was $353 million for the first quarter of 2007 compared to $306 million for the first quarter of 2006.

The increase in operating income for the quarter was driven by increased customer usage in our electric and gas utilities primarily due to more normal weather compared to last year and excellent results from our competitive natural gas marketing business.

These positive impacts were partially offset by a full quarter effect of our electric rate reduction and settlement that was implemented in October of last year.

Now I would like to review our 2000 results by segment and update you on a number of significant items.

Houston Electric reported operating income of $73 million for the first quarter of 2007 compared to $78 million last year.

The decrease is primarily related to the reduction in the allowed rate of return on the unrecovered CTC balance.

As you may recall, this return was reduced from 11% to 8% in August of last year.

Higher customer usage due primarily to colder winter weather and the addition of nearly 39,000 metered customers since March of last year increased operating income by approximately $26 million which more than offset the effects of last year's base rate reduction and settlement.

The first quarter of 2006 also had the benefit of a $14 million gain from a land sale.

Overall, I am very pleased with Houston Electric's financial results, its solid operational performance, and the consistent and strong customer growth in its service territories.

Our natural gas distribution segment reported operating income of $129 million for the quarter compared to $103 million for the same period last year, a 25% improvement.

Similar to Houston Electric, our Natural Gas Distribution business benefited from higher customer usage primarily due to a return to more normal weather which increased operating income by $20 million.

We also conditioned to benefit from solid customer growth adding nearly 48,000 customers since March of last year.

As I shared with you on our last call, we made a number of changes to improve the financial and operational performance of our gas LDCs.

In January of this year we filed a rate case in Arkansas requesting additional annual base revenues of $51 million.

As part of this filing we proposed a mechanism that would help to stabilize revenues and minimize the need for future rate cases and would also be consistent with the Arkansas commission's initiative to promote energy efficiency.

The hearing is scheduled for October, and we expect a decision from the commission by year-end.

From an operational standpoint, last year we reorganized the businesses into regions in order to reduce structural costs and eliminate redundant functions.

We continued to implement best practices across all our service territories.

In addition, we are pursuing rate strategies that would mitigate the impact of weather and declining customer usage.

I am very pleased that we have now begun to realize the benefits from these changes.

Our competitive natural gas sales and services segment had another strong quarter.

This business reported operating income of $56 million compared to $25 million for the first quarter of 2006.

Approximately $28 million of operating income was due to gains on the sale of natural gas inventory.

Most of this gas was purchased last year and had been written down to a lower value when natural gas prices softened in 2006.

This positive effect on operating income was partially offset by a $14 million unfavorable change in mark-to-market accounting for derivatives used to lock in seasonal or locational price differentials.

In addition, last year's quarter included a $13 million write down of natural gas inventory.

I am pleased with this quarter's results and our ability to increase profitability by leveraging our market knowledge, scale and capabilities.

Our interstate pipeline segment recorded solid results this quarter reporting $44 million of operating income compared to $49 million in 2006.

The $5 million decline in operating income was primarily due to higher expenses and the absence of a one-time gas storage adjustment in 2006.

As I have previously discussed with you, our growth projects have the potential to push this segment's earnings to a new level.

Let me update you on those projects.

Our new 172-mile pipeline between Carthage, Texas and our Perryville hub in Northeast, Louisiana was placed into commercial service on May 1st.

This first phase has about 1 BCF per day of capacity.

In addition we continue to expect a second phase of this project to be placed in service this summer bringing the capacity to a little over 1.2 billion cubic feet per day.

Based on strong interest for our third phase and subject to the receipt of regulatory approvals, we plan to expand this project to a total of 1.5 billion cubic feet per day by adding additional compression and increasing the maximum allowed operating pressure.

This remains an excellent project in a capacity constrained area and is expected to provide attractive returns.

Once the three phases are complete, we expect that this project should add between 85 to $95 million of operating income per year.

A second major project, the South East Supply Header or SESH, a joint venture with Spectra is progressing well.

A solid group of shippers has subscribed to approximately 95% of the 1 BCF per day of capacity.

We continue to expect the total cost to build this pipeline will be in the range of $700 to $800 million excluding the incremental capacity to be owned by southern natural gas.

On April 27, a FERC staff released a favorable draft statement indicating that there were no significant environmental impacts along the proposed route.

We expect FERC authorization in the second half of this year, this project is expected to be in service in mid-2008.

Natural gas production areas near our existing pipeline remain very active and additional pipeline capacity will be needed to get these reserves to market.

We remain very active in pursuing other projects.

Our fuel services segment also reported solid results with operating income of $22 million compared to $24 million in 2006.

The core business continues to benefit from strong drilling activity in the mid-continent area.

Lower commodity prices negatively affected operating income for the quarter.

We are pleased with the financial results of this segment and we expect to continue to grow earnings through on-system expansions, and by using our skill sets and good customer relationships to capture off-system growth opportunities.

Now let me provide you an update on other initiatives which we discussed on your year-end earnings call.

Houston Electric continues to actively pursue a distribution grid automation strategy which involves the implementation of an intelligent grid using broadband overpower line technology in multi-functional smart meters.

We have installed approximately 10,000 smart meters to evaluate any issues relating to system wide implementation.

Results so far have been very encouraging.

This exciting technology has the potential to significantly improve metering, grid planning, and the operation and maintenance of our system while providing the market with on-demand retail usage data.

We believe this technology will improve the operational efficiency and reliability of our system while furthering retail electric competition.

The Texas PEC is considering rules to ex expedite the installation of these types of systems including the timely recovery of automated metering investments.

We expect the rule pertaining to technical requirements to be approved next week and the cost recovery rule to follow.

Any decision to move forward with a comprehensive system wide implementation will be contingent upon successful results in the limited deployment program in our ability to recover the investment including a reasonable return through rates on a timely basis.

Finally Let me provide a brief update on our true-up appeal.

As you recall, we appealed decisions by the Texas PEC that in the aggregate total $1.3 billion.

Intervener also appealed very aspects of the PEC's final order.

Our true-up appeal remains at the third quarter of appeals where oral arguments were held in January.

There is no statutory time frame under which the Court has to render a decision on the appeal, but a decision could come at any at any time.

Of course regardless of the outcome we expect parties to appeal the decision to the Texas Supreme Court.

Legislatures are in session in many of the states in which we do business, and we spend considerable time monitoring proposed legislation.

Of particular interest to us is the debate in Texas regarding possible changes in the retail and wholesale markets in ERGOT and the process for the public utility commission to review mergers and acquisitions of electric utilities.

There is also a bill pending in the Texas Senate that would allow us to securitize our remaining CTC balance that Gary will discuss in a few minutes.

In addition, we are monitoring an energy efficiency and decoupling build in Minnesota.

In closing, I would like to remind you of the $0.17 per share quarterly dividend declared by our Board of Directors on April 26th.

I believe our dividend actions continue to demonstrate a strong committment to our shareholders and the confidence the Board of Directors has in our ability to deliver sustainable earnings and cash flow.

Now I will turn the call over to Gary.

Thank you, David, and good morning to everyone.

I would like to discuss two items with you this morning.

First, we re remain hopeful that a bill will be adopted in the Texas Legislature this session that will permit us to securitize the balance of our true-up costs that we're currently recovering through a composition transmission charge or CTC.

We estimate the balance to be securitized would be approximately $500 million.

Bills have been introduced in both the Texas House and Senate that support the securitization.

The Texas House of Representatives has passed the legislation with a vote of 149 to 0 but the legislation is not yet been taken up by the Senate.

Assuming the legislation passes, we will work with the Texas Public Utility Commission to obtain a financing order that would allow us to issue transition bonds as soon as possible.

We believe this would result in a win-win situation and that our customers save money while we accelerate the collection of the remainder of our true-up balance.

In addition, if we're successful in our true-up appeals we also plan to securitize any amounts ultimately allowed by the Courts.

The second item I would like to discuss is earnings guidance, this morning in our earnings release we announced that we continue to expect our 2007 earnings to be in the range of 1.02 to $1.12 per diluted share.

In making our earnings estimates for the year we have assumed normal weather, and we have made certain economic and operational assumptions including the timing of the start-up of our pipeline projects as well as the outcomes of various regulatory and legal proceedings.

As David mentioned, we are pleased with our first quarter results and we will of course continue to update our guidance as the year unfolds.

Now let me thank you for your interest in the Company, and I will turn the call back to Marianne.

Thank you, Gary.

With that we would now like it take your questions in the interest of time, I would ask you to please limit yourself to one question and a follow-up.

Louann, would you please give the instructions on how to ask a question.

(OPERATOR INSTRUCTIONS) Our first question comes from Lasan Johong with RBC Capital.

Good morning.

Nice quarter.

There has been talk about the drilling slowing down in the Mid-Continent because of cost escalations and service companies.

Have you seen any evidence of this at all?

Lasan, we haven't yet.

We heard the saying, kind of rumors.

Our first quarter well connects were at the same record pace as they were last year when we connected over 400, so we haven't seen the slowdown yet, and we continue to see lots of activity in the area, but we hear the same kind of rumors that you hear.

Right.

One other quick question.

What kind of cost savings do you envision with the intelligent grid once the full deployment has been achieved and do you plan any layoffs of people?

Lasan, we really hadn't made any estimates of cost savings yet because this new technology will involve some additional technical expertise.

Certainly meter readers and field service reps jobs will change, and we expect there will be some gains in the area but on the other hand there could be some cost increases in some other areas, so at this time we're looking forward just to getting the technology and getting the benefits that I spoke about, but we're really not providing any cost savings as of this time.

Great.

Thank you.

You bet.

Your next question comes from Carl Kirst with Credit Suisse.

Good morning, everybody.

Good morning.

I just wanted to ask a question on the storage gains of $28 million profit.

I understand that part of that is reversal of low com here but is that principally just the benefit of the wide summer/winter spreads we had last year?

If that's the case, do you think it is going to be a challenge to repeat this next year or is greater activity in the marketing going to be able to offset the more narrower spreads we have right now.

Carl, I think most of the gas we purchased were in connection with these large spreads we saw last spring, late winter where we had $4 or $5 spreads and put a lot of gas and inventory and locked those spreads in for first quarter delivery, so, yes, and as during last year as prices softened, we wrote that inventory down.

This $28 million absolutely related to the good work we did last year in locking in all these profits.

We don't see that kind of spread today.

I think there may be a couple of dollars spread between now and next January and February so we don't see quite the spreads, and we're going to have to work hard to repeat this profitability.

We think we'll have a good solid year, but we said all along the market dynamics the last couple years have provided us opportunities we took advantage of, but they may not always repeat themselves, and we're really working hard to build our retail base where you have repeatable customer business each year, and that's where we're focused, but we'll certainly take advantage of what the market provides us and capture these type of profits where they occur.

Absolutely.

One other question if I could, then just looking on the mid-stream side, can you help us out with perhaps with the unit sensitivities are to commodity prices?

I know on kind of a unit tariff basis the gathering unit was down around $0.42 from $0.47.

I thought most of that was fee-based.

Can you just kind of give some sensitivities if you have any?

Let me -- the reason that margins or operating income declined was really due to commodity prices, -- we are primarily a fee-based business, but we saw commodity prices in the first quarter of last year at like $9.20 versus I think we locked in at $6.60, and so it is really -- there is a couple $2 or $3 million impact there, maybe it is $4 million or so, so I think that's kind of the couple of $2.50 swing in commodity prices is why you saw the small decline.

We actually had I think good growth in the core business, but the decline in commodity pricing kind of masked that growth a little bit.

Okay.

It is fairly nominal in the grand scheme of things.

I wanted to make sure we were looking at it correctly.

It is not real big, but obviously when you go from that real high environment to a more modern environment it has some impact.

Great.

I will jump back in the queue.

Thank you.

Thanks.

Your next question comes from Daniele Seitz with Dahlman Rose.

Hi.

Thanks.

I just was wondering first what what would be the timing of the CTC issue, when do you anticipate that this will be implemented and the effect will be -- will it be just on 2008 at this point?

Let me ask Gary to address that.

Danielle, as I said first of all it needs it get through the legislature.

Hopeful that will happen.

I would look for maybe the fall time period, fall of this year.

Okay.

Again, the number is around $500 million is what we expect to securitize at that time.

Obviously you will be losing the return that amount, and can you quantify that in terms of earnings?

Yes.

If you recall, that return was reduced from a little over 11% to 8%, so you're really thinking about the difference between 8 and the new rate.

I think you're really talking about $0.01 for full year.

It is not material at all.

Okay.

And the use of the cash is for the CapEx that you have in mind or any other plans for the redeployment of the cash?

It is for the CapEx program that we have in which we're very pleased with the projects and that's what we'll use the funds for.

Great.

And in term of the guidance, your guidance related to last year I was wondering if it was because you expect the impact of the rate decrease to be more important in the third quarter I suppose?

I don't think there is anything more or less important, Danielle.

I think we're pleased with the first quarter.

We kept the guidance where it is because we do have a couple of variables that need to play out as David mentioned the start-up of our pipelines.

We got Phase II on that, and let us get through another quarter, and we think we've given what we think is a reasonable and appropriate range on our guidance.

You.

You know, Danielle, if you look at last year's earnings on a normalized basis they were about $1.11 if you take out (inaudible) some of the noise.

That's what I was looking at, yes.

Of course the top end of our guidance is above that, and that's in the face of a $58 million rate reduction plus $20 million in expenditures -- additional expenditures obligated by Houston Electric, so really we think we're going to have some good growth in other parts of our business to offset that, but the electric business is a summertime business here in Texas, so we have to get through that time frame, make sure that we understand the consumption patterns and if we need to we'll update the guidance then.

Sure.

Thank you.

Our next question comes from Patrick Forkin with TeJas Securities.

Question with respect to your plans on the intelligent grid.

Do you expect to make -- I know you got 10,000 end points you're testing.

Would you expect that you will finalize the decision for a full deployment by the end of this year?

That's our plan.

You know, we need two things to happen.

We need to see the smart metering rule be finalized at the commission.

We're hopeful and optimistic about that, and secondly, we have to get through our testing of these 10,000 meters and like I said we didn't -- we've been very encouraged by what we've seen, so I think it is year-end is a very realistic time frame.

Okay.

Very good.

The total size of that project is somewhere between 4 and 500 million?

We're estimates with the BPL backhaul is between 500 and 600 million.

Okay.

Good.

Thank you.

You bet.

Your next question is from David Grumhaus with Copia Capital.

Recovery of your CapEx in the TND business, you obviously have the additional maintenance CapEx, the transmission spend and potentially the smart grid.

Given your rate case situation there where you're essential apply frozen, do you have a mechanism to recovery recover those additional investments and if so, what is it?

On the transmission side we do.

We can have a transmission cost of service case in 2008, so next year, and our estimate over the next five years is we'll spend about 400 million-dollars plus or minus on transmission.

On the smart metering, intelligent grid, that will be through a separate tariff on top of our existing tariff, so that way we'll recover that.

The rest of our business will be simple recovered through growth and efficiencies in our business because we can't go in for a rate case before 2010.

As you know, we continue to have very robust growth here, 2% or so, and so we're finding ways to run the business better, so we're pretty optimistic about our ability to do that.

Okay.

Quick follow-up on the field services.

You talk bed the commodity effect.

If we were to have pretty much a flat commodity environment here, what sort of growth do you think you'll see in that business?

You talk about 400 hook-ups.

Obviously you're putting capital into it.

What sort of growth can we expect out that far if we take the commodity side of the equation out of it?

I hadn't done the calculations,s, but I would say it is north of 10%.

It would be in that range, 10% or so.

We're seeing a fair number of well connects.

We had over 400 the last three years each year off a normal base of a little over 200.

So the thing we're seeing more now of is processing and treating, and that's a nice business we see coming out of some of this new drilling, so we think that in the 10% or better range is a realistic range.

Great.

Thanks for the help.

Okay.

Your next question comes from Faisel Khan with Citigroup.

Good afternoon.

Yes, it is afternoon where you you are, HUH?

Yes, it is.

One quick question on the Natural Gas Distribution growth, the customer growth where is the customer growth coming from, from the north or the south?

It is Texas and Minnesota.

Okay.

That's where it is coming from.

Houston is enjoying it, plus many parts of Texas, and Minnesota has good growth.

We're obviously a little -- we're not experiencing the same growth in Arkansas and Oklahoma.

There are parts of Mississippi that have really good growth, but it is not a real big service territory for us in parts of Louisiana, but I think overall I would focus on Texas and Minnesota.

Okay.

Fair enough.

And then was there any initial impact from the benefit?

Was there a benefit of weather in the quarter at all or do you think it was mostly neutral?

In the LDCs?

I think across the LDC and the electric business do you see any benefit versus normal for weather?

Versus normal?

Just a little.

It was actually on the electric side.

The electric side probably got 3 million or so above normal.

The gas was essentially flat, maybe a $ 1million, but I would say it is essentially normal weather overall.

Now, Minnesota was a little bit milder than normal, and the south was a little bit colder than normal, but it kind of averaged out that that business was normal.

Okay.

Great.

Thanks for the time.

Your next question comes from David Frank with [Catapult] Partners.

Hi, David, it is actually Steve [Glickman] How are you?

Hi, Steve.

I know at AGA you're continue to go look a little bit at M&A activity.

How important is that still part of the strategy and are there stunts you could pursue like MLP or something to give yourself even a better currency to do that?

Our number one objective is to grow our business organically.

We have good service territories, strategic pipes and fuel services, geographic areas, so that's our first priority.

We think we have a lot of good growth that we can get from there.

I think secondly is our M&A strategy, and we're clearly interested in growing our business, but we're not going to grow just to get bigger.

We're going to grow if we really believe it is going to create shareholder value.

The MLP side of this we continue to look at it.

We think certainly on the fuel services side there is a roll there if we believe that by not being in an MLP we're at a distinct disadvantage.

We haven't seen that to date, but as we talked at AGA we see a lot of MLPs in this space, so we continue to monitor that, but it is not something we feel we have to do right now, but it is certainly something we studied and will continue to study to determine if there is a time and place for it.

Another question on financing growth, and other things you expect that you can finance all that through internal funds in organic growth.

This is Gary.

We basically spend more than a $1 billion last year and our debt levels just slightly increase.

Our debt levels are for $185 million for year-end.

As I mentioned we have a $500 million source of funds coming from the CTC, so in the near-term we certainly with a combination of those sources of funds and our internal cash generation can support this CapEx program, certainly we would like to be in a position that the have more and better projects, so again on the SESH project if you recall which is our joint venture with spectra we'll ultimately finance that as a joint venture level so the requirement of cash for us will be approximately half of our total which is 400 million, our portion of that, 800 million total for the project, so we feel good about it.

Thank you.

Thank you, Steve.

Your next question comes from Debra Bromberg with Jefferies.

Hi, guys.

Hi.

At the logic company there was a $20 million increase in O&M year-over-year, and I was wondering what were the key drivers there and is the gain from the land sale from last year included in that?

It is.

There is two pieces, two big pieces.

One is the gain which is $14 million, and the second is an increase in T- cost expenses we get allocated from other utilities of a little over 6.

The combination of those is the 20.

Other than that the business, the O&M, there was lots of in's and outs but it was essentially flat.

The T-cost expenses, is any that far being recovered through a transmission rider?

We get some of it through it.

Each year ERGOT comes up with the T-cost matrix based on four coincidental peaks of the previous year and you get basically costs of the other utilities based on that and those costs just went up a little bit more in at least our estimate is more in '07 than it was in '06.

We do get as utilities change their factor and charge us we're able to increase our T-costs as well but not on our own but those that are charged to us from other utilities.

I think we did have some incremental revenues of in the revenue side of about $4 million, so the net impact of T-costs was 3 million dollars at the operating income line.

Okay.

That's helpful.

Just one other quick question at the pipelines.

What was the favorable one-time storage adjustment that you had last year?

It is about a $3 million -- a little less than $3 million of the total decrease.

Great.

Thank you.

Okay.

(OPERATOR INSTRUCTIONS) Your next question is a follow-up from Carl Kirst with Credit Suisse.

A couple quick follow-ups.

Next week with respect to the smart meter program, I understand you're saying we're hope to go get some clarification on the technical requirements.

David and Gary, can you help me on the May 8th agenda were we also going to get recommendations by the staff with respect to cost recovery or has that been pushed out?

We think we might very well get some.

It is unclear.

I think the staff was instructed by one commissioner at the last open meeting to try to accelerate their draft proposal, so we might very well see something next week, but I think we just kind of have so wait and see to make sure they finish their work.

Fair enough.

Last question with respect to Phase III of the Carthage to Perryville pipeline, are there any other steps that are needed to be done aside from getting I guess certification from the FERC, is there any I guess subscription that needs to be done is that pretty much fully subscribed and now it is just getting authorization?

The actually we're asking for authorization really from DOT to operate the pipeline at 80% rather than 70% which has been granted to a number of new pipes, so it is not FERC.

I think it is DOT if I am not mistaken, and secondly, we have a fair amount of that capacity sold but not all of it.

I think I have been reminded there is some compression that has to be approved by the FERC on Phase III as well, so there is kind of FERC approval and DOT approval, and then we've sold probably a third or if not more that far capacity we've had a lot of folks interested in it, and our commercial people believe that we'll have real good response to getting that thing pretty well subscribed once we get it approved.

Right now you sold out 100 million of the 300 incremental.

Pretty close to that.

Thank you very much.

Your next question is a follow-up from David Grumhaus with Copia Capital.

When do you think phase III will come on?

We think January time frame, early next year.

It is early '08.

All right.

One question for you on the interest breakout you showed on one of your exhibits.

The amortization of the deferred financing costs was up about 6 million year-over-year.

Is that -- I know you took bonds out at a premium in the quarter.

Is that the effect of that or what's driving that and should we sort of expect a $6 million increase there for the next four quarters and beyond?

No.

This is Gary, you should not.

That is related to the takeout of the convertible acceleration.

It will likely go back down to more year-on-year number?

That's right.

Okay.

That's helpful.

Thanks, Gary.

Your next question is a follow-up from Daniele Seitz with Dahlman Rose.

I was just wondering in the rate case trying to put together nor the smart grid is the idea of conservation and if that's the case, would you have have a (inaudible) that keeps you whole not just from an investment standpoint but also from a sales stand pointed?

We don't have anything from a sales standpoint.

This is truly from our investment, and most of these the tariff is not going to be volume metrically based we hope.

We proposed a customer base but a charge for our investment in new metering, but obviously if you have a significant amount of energy conservation the rest of our tariffs are volume metrically based on the residential side, and we're in a rate freeze.

We would ultimately have to go in and get that address, but it is not part of this filing.

Nothing many this filing but maybe in the future the incentives for additional conservation like it exists in other states?

Yes, we think decoupling on the electric side just like on the gas side is something that we need if the utilities are really going to push energy conservation and energy efficiency, so it won't hurt us to be very honest and I think it is going to come to the TDU as well as our gas LDCs and it is going to be a couple years down the road before we get to ask for that.

Now, this will take three plus years to deploy, so we're going to -- we won't get the full deployment started until '08, so we could have a little impact in the interim, but I think by the time this gets fully deployed we can go back into the commission and try to get the right rates in place.

-- the right design in place.

Thanks.

Your final question comes from Lasan Johong with RBC capitals.

Gary, I was thinking about the MLP again, and is it fair to say that should there be an interesting opportunity on the acquisition side or there is a fairly large hole for CapEx spending for growth purposes internally, that at that time on MLP is more likely than currently, A, and, B, would you then seek a like kind exchange treatment from that transaction?

I guess, Lasan, certainly as David said we're going to continue to look at the MLP we have been, and what you described frankly are one of the variables is that a more effective capital rate and the core benefit having a lower cost to capital if we can be more competitive to grow our business.

We have not delve into the like kind exchange on an acquisition but certainly if the tax rules would allow something we're always going to do what's most tax efficient.

Thank you.

Yes.

Thank you very much, everyone, for participating on our call today.

We appreciate your interest and support as always.

Have a great afternoon.

Thank you.

This concludes CenterPoint Energy's first quarter 2007 earnings conference call.

Thank you for your participation.