CenterPoint Energy Inc (CNP) 2007 Q3 法說會逐字稿

Good morning and welcome to CenterPoint Energy's third 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'll now turn the call over to Marianne Paulsen, Director of Investor Relations.

Thank you very much.

Good morning, everyone.

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

I would like to welcome you to our third 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 third quarter 2007 results and we'll 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 investor's 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 Friday, November 9th, 2007.

To access the replay, please call 1-800-642-1687 or 706-645-9291 and enter the conference ID number 19320755.

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.

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 we reported our third quarter earnings.

We had a good quarter.

Our performance is consistent with our expectations for this year and I'm pleased with our overall results.

Net income was $91 million for the third quarter of 2007 or $0.27 per diluted share.

This compares to net income of $83 million or $0.26 per diluted share for the same period last year.

Operating income was $287 million for the third quarter of 2007 compared to $284 million for the same quarter of 2006.

The increase in operating income for the quarter was driven by strong performances in our interstate pipeline and field services businesses and continued improvement in our natural gas distribution utility, partially offset by the effect of our electric rate settlement that was implemented in October of last year.

Houston Electric reported operating income of $166 million for the third quarter of 2007, compared to $187 million last year.

Excluding income from the CTC of $11 million this year and $14 million last year, our core regulated electric utility earned $155 million, compared to $173 million for the same period of 2006.

While Houston Electric continues to enjoy the benefits of strong customer growth in our service territory, adding more than 47,000 customers since last September, the rate settlement implemented last October reduced this quarter's operating income by $25 million.

Considering the impact of the rate settlement, Houston Electric's financial results were as expected and it continued its solid operational performance.

Our Natural Gas Distribution segment reported an operating loss of $8 million for the quarter compared to a loss of $11 million for the same period last year.

We continue to experience positive results from our productivity improvement efforts and from strong customer growth, adding nearly 48,000 customers since September of last year.

However, this is a seasonal business and the third quarter is typically the weakest of the year.

I'm pleased that we were able to settle the Arkansas rate case.

We worked diligently with the commission staff to find common ground, and thus avoided extended litigation.

The final order issued by the commission approved a base rate increase of $20 million, which went into affect yesterday.

In addition, the commission approved a decoupling mechanism that will help stabilize revenues and earnings and will be consistent with the Arkansas commission's initiative, as well as our desire to promote energy efficiency.

Overall, I am very pleased with the progress we continue to make in pursuing rate strategies and operational efficiencies in order to improve the financial performance of our Gas LDC businesses.

Our competitive Natural Gas Sales and Services segment reported operating income of $4 million compared to $11 million for the third quarter of 2006.

The decline is primarily related to a reduction in locational and seasonal natural gas price differentials, which in turn reduces the opportunity to create value from optimizing our pipeline and storage assets.

In addition, we recorded a $2 million gain from marked-to-market accounting for derivatives used to lock in margins, compared to $21 million marked-to-market gain last year.

We also recorded a $5 million write-down of natural gas inventory to lower of cost or market in the third quarter of this year, compared to $26 million inventory write-down last year.

Year-to-date, we have recorded operating income of $56 million compared to $44 million last year.

Some of the income recorded in the early part of 2007 related to transactions that originated in the more volatile markets in the aftermath of hurricanes Katrina and Rita.

Market conditions during most of 2007 have been less volatile and more like historical norms.

As a result, we have not had as many opportunities for asset optimization this year.

Nevertheless, our base commercial and industrial sales business continues to do well and we remain well-positioned to take advantage of future market opportunities, should they arise.

Our Interstate Pipelines segment recorded strong results this quarter, reporting $70 million of operating income, compared to $48 million in 2006.

The main contributor to this increase was the completion of the first two phases of our new 172-mile pipeline between Carthage, Texas and our Perryville hub in northeast Louisiana.

Phase I with almost 1 billion cubic feet per day of capacity went into service on May 1st.

Phase II, which added about 250 million cubic feet per day went into service on August 1st.

Ultimately, we plan to expand this project to a total of 1.5 billion cubic feet per day by adding additional compression and increasing operating pressure.

All approvals have been received and we expect the third phase to be in service in the first quarter of 2008.

A second major project, the Southeast Supply Header, or SESH, a joint venture with Spectra, continues to make progress.

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

We received FERC authorization to build the new pipeline in September and construction is underway.

We anticipate that it will be in service in the middle of next year.

Earlier this year, we executed contracts with Southwestern Electric Power, a subsidiary of AEP, to construct pipeline and compression facilities to serve a new power plant with up to 480 megawatts of capacity.

Our facilities will be built in two phases.

The first phase was placed into service a few months ago and the second phase is expected to be in service in the second quarter of 2009 following FERC approval.

Our Field Services segment also reported solid results with operating income of $26 million compared to $21 million in 2006.

The core business continues to benefit from strong drilling activity in the midcontinent area and higher demand for ancillary services.

This year we expect to invest over $100 million in new facilities.

Natural gas development near our existing assets remains very active and additional facilities will be needed to get natural gas reserves to market.

We are very active in pursuing these projects.

Overall, we are pleased with the continued growth opportunities and the financial results of this segment and we expect to continue to grow this business.

Now let me provide you an update on some other important initiatives.

Houston Electric continues to actively pursue advanced metering, using broadband over power line technology and multifunctional smart meters and ultimately the implementation of an intelligent distribution grid.

As part of our assessment of the advanced metering system, we have installed approximately 10,000 smart meters to evaluate any issues relating to system-wide implementation.

Results so far have been encouraging and we continue to take a very disciplined approach to ensure the technology can be scaled up efficiently to serve our entire system.

An advanced metering rule pertaining to technical requirements for installing these type of systems and a valuation model for an advanced metering surcharge have been approved by the Texas Public Utility Commission.

We expect to file a deployment plan and a request for surcharge before the end of this year.

This plan would entail the rollout of advanced meters over a five-year period at a cost of approximately $150 million per year.

Any decision to move forward with this plan will depend on the results of the limited deployment program and an appropriate PUC order.

I know that you are interested in the status of our true-up appeal.

Unfortunately, there is nothing new to report.

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

Interveners have also appealed various aspects of the PUC's final order.

Our true-up appeal remains at the Third Court of Appeals, where oral arguments were held in January.

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

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

In closing, I would like to remind you of the $0.17 per quarterly -- per share quarterly dividend declared by our Board of Directors on October 25th.

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

Now I'll turn the call over to Gary.

Thank you, David, and good morning to everyone.

I would like to discuss a few items with you this morning.

Over the last several months, we have taken a number of steps to continue to strengthen our our liquidity.

As I mentioned during our last call, in June we amended our three bank credit facilities, which now total $2.45 billion and extended their maturities to 2012.

Over the last four years, we have steadily and significantly strengthened our liquidity and enhanced our financial flexibility through the improvement in size, price, and tenor of our working capital facilities.

Last week we closed on the sale of $500 million of CERC notes split between two series, $250 million of 10-year notes bearing a coupon of 6.125% and $250 million of 30-year notes having a coupon of 6.625%.

Proceeds from these notes will be used to retire $300 million of CERC debt that matures on February 1, 2008, and to pay down short-term debt at CERC.

Even though the $300 million of CERC debt is not due to mature for about three months, we wanted to lock in the rate at today's relatively attractive rates, particularly given the volatility in the debt capital markets that we have seen this year.

We believe this step to be consistent with our conservative financial policy.

We are also working to securitize the balance of our true-up costs that we are currently recovering through a competition transition charge or CTC.

As we have previously discussed, last spring the Texas legislature amended the law relating to securitization.

The change permits us to securitize the balance of our CTC.

In September the PUC issued a financing order, authorizing us to issue approximately $500 million of additional transition bonds.

We hope to be able to complete that process before the end of the year.

In addition, if we are successful in our true-up appeals, we plan to request a financing order to securitize any amount which ultimately results from these appeals.

This leads to my next topic.

Among the issues raised in our true-up appeal is the PUC's reduction of stranded cost recovery by approximately $146 million for the present value of certain deferred tax benefits associated with our former electric generation asset.

We believe that the PUC based this reduction in large part on proposed normalization regulations issued by the Internal Revenue Service in March of 2003, which were withdrawn after the PUC issued its true-up order.

In August of this year, we received a private letter ruling in which the IRS concluded that such reductions would cause normalization violations.

We do not believe the PUC intended that its action in the true-up proceedings should have the consequence of depriving us or our customers of the deferred tax benefits.

In September, the PUC requested the court to remand the normalization issue in light of the position taken by the IRS in the PLR.

We cannot predict whether the court will remand the issue to the PUC or the ultimate outcome of this matter, but we hope that in light of the private letter ruling, all parties will see the benefit of permitting us to recover the disallowed amount plus interest.

Let me also discuss our financial strategy as we continue to focus on improving and growing the profitability of our businesses.

We increased our dividends in each of the past two years while funding a significant number of excellent growth opportunities, as well as our ongoing capital requirements.

We accomplished this largely through internally generated cash flow and true-up proceeds with a minimal increase in debt.

Future growth opportunities will be funded through internally-generated cash flow, any additional true-up proceeds and the optimum mix of debt and equity.

We remain committed to taking steps necessary to maintain and enhance the credit metrics and credit ratings of both the parent company and our utility subsidiaries.

Finally, I would like to discuss our earnings guidance.

This morning in our earnings release, we announced that we expect our 2007 earnings to be at the high end of our previously-provided guidance range of $1.02 to $1.12 per diluted share.

In making our earnings estimate for the year, we have assumed normal weather for the balance of the year and we have made certain economic and operational assumptions, including the timing and outcome of various regulatory and legal proceedings.

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.

With that we'd now like to take your questions.

And in the interest of time, I would ask you to please limit yourselves to one question and a follow-up.

So, LuAnn, would you please give the instructions on how to ask a question?

(OPERATOR INSTRUCTIONS) Your first question comes from Daniele Seitz with Dahlman Rose.

Hi.

I just was wondering the advance metering, have you -- this has already been in principal allowed by the commission and when do you anticipate this to go into place?

Daniele, we'll be filing, like I said, our plan in December.

They have 150 days to make a decision, so we would anticipate a decision by April or May of next year.

And assuming that we get an appropriate order out of the commission that gives us some assurances we're going to get full recovery of our investment here, because it's a large investment, we'd start deploying meters in the second half of next year and really get in probably the real swing of things in early 2009.

And will you ask for some sort of rider or is it going to be the kind of thing that you will have to file for on a regular basis?

No.

The PUC has provided a special tariff.

It's an advanced metering tariff which we would start immediately employing.

The way we have been and expect to propose it is that we would apply this tariff to all customers from the get-go, so we would have some prefunding, so to speak, as we went through this, but we don't have to go in and ask for a rate case, change our rates, this will be a separate tariff that is a rider onto our existing tariff.

Great.

Thank you.

Your next question comes from Lasan Johong with RBC Capital Markets.

Good morning.

Nice quarter.

I wanted to ask you kind of more of a strategic questions, pulling back from some of the micro details.

Longer-term, say five years out, how do you project earnings growth rate to look like for CenterPoint?

Well, Lasan, I guess it depends on a number of things, but certainly every aspect of our business we intend to grow.

We've had some wonderful opportunities in our pipeline business, in our field services businesses and, to be very frank, we're in a very good spot right now.

Strategically, the areas in the United States where there's lots of drilling, it's right in our footprint.

That gas has to be gathered, some of it has to be processed, and certainly it's ultimately going to have to get to market.

So I think it creates a lot of opportunities there.

Clearly, storage and other opportunities of that sort are clearly on our mind as well.

So we expect our pipeline and field services business to continue to grow.

Now, our regulated utility business, as you know, basically grows as fast as our service territory and our investments to serve these new customers, but we serve very nice, fast-growing areas of the country, Minneapolis, Houston, and we've had a growth rate of better than 2% there for the last ten years.

So we don't expect any slowdown.

There'll be dips along the way.

The softness that other areas of the country are seeing in housing, we see a little of that in Houston, not a lot, to be very honest.

So we expect those pieces of our business will grow slower, but we still believe there's going to be nice, rate-based growth which is going to provide for growth in earnings there as well.

That's great.

One quick follow-up question, to Daniele's question, any chance that you guys might do a metering question in Minnegasco?

This is an electric initiative, so the gas side, though, will be implemented in Houston, because it will piggyback on the electric meter and really we would -- we already have automated metering deployed in Minnegasco to be honest.

We have Hertz on every meter and so we don't send out meter readers as we do here in Houston.

But if Xcel or others in Minneapolis and Minnesota would deploy something like this, we would look to see if there would be a better way to read the gas meters.

But we've already done a lot of that in Minnesota, I guess what I'm saying.

Thank you.

Your next question comes from Carl Kirst with Credit Suisse.

Good morning, everybody.

Good morning.

Nice quarter as well.

Could you refresh us on where we are, just looking at the legacy true-up costs, the stranded costs?

If we take the 1.3 and the $146 million that's included in that, what are those numbers inclusive of interest expense right now?

I can tell you what the -- the 146 which is the normalization issue that Gary spoke of is probably with interest $250 million today.

Maybe a little bit more than that.

I honestly haven't run the numbers on the $1.3 billion.

Obviously, it's going to be a number a lot bigger than that.

Have we run any numbers on the 650 that -- let us -- you know, the district court overturned the commission on two issues that amounted to about $650 million and I think with interest today, that would be on the order of -- it's north of $1 billion.

North of $1 billion.

Yeah.

North of $1 billion from the lower court's decision?

Correct.

Okay.

That's very helpful.

Then just one other question on the securitization, hopefully that come by year end.

Has it been sort of formally declared what use of proceeds will be for that?

Well, we have to -- under the law, we have to either pay down debt or pay down equity and what we'd expect to do would be to dividend that money out of Houston Electric to the parent company.

Right.

But from there --

We have lots of -- Gary, you might want to speak to, this but we have lots of projects -- growth projects on the table and they'd go towards these growth projects.

Carl, the way you look at it, if you look at our debt this year, we started the year with about 6.75 of corporate debt.

It's about 7.4 now.

In other words, $657 million up.

This would effectively go to pay down debt.

The ultimate use, as David described, has been to fund our capital projects.

So it effectively will pay down the debt and continue to fund the capital projects.

Great.

Thanks, guys.

Your next question comes from Debra Bromberg with Jefferies and Company.

Hi.

Good morning.

Good morning.

What was the amount of the settlement of the state tax issues at Pipelines?

And also, could you provide a little more color around residential electric sales in the quarter?

The settlement was $4 million around the taxes, Debra.

Weather was basically normal for the quarter.

We had a real mild July and August and we caught up in September.

We continue to see a little bit of weakness in usage.

We don't really know if our models can't determine how much is weather and how much is usage, but we're watching that pretty closely.

Electric rates have continued to stay pretty high in Texas and we think there's probably some conservation impact there.

It's not a huge amount.

And certainly the growth that we're seeing more than outstrips any weather usage decline, but I think it's worth watching to make sure it's not a big pattern here.

Thank you.

Your next question comes from Charlie Spencer with Morgan Stanley.

Good quarter, guys.

In Texas, the Houston zone is becoming one of the more congested areas and I was wondering if that's going to up further transmission CapEx opportunities for you, potentially going up -- connecting towards the north --

It is.

North into Houston is congested and I think ERCOT is looking at some new transmission that would need to be built in order to alleviate that congestion.

,And yeah, I think it would open up some opportunities for Houston Electric to build it.

It would be in part of the area that we typically build transmission.

So we work with ERCOT very closely on that and we put -- I'd expect we're going to put some dollars in our future capital budgets to reflect some of that in the next three to four years, if not sooner.

Do you have any idea just the general dollar amount?

Obviously, it's early days at this point, but just any sort of general range as to how much money that might take to help alleviate some of that congestion.

Well, last year -- last year we had $400 million worth of transmission in our five-year capital budget, and that was without any of these large congestions being resolved.

I would imagine it's going to be north of 4, probably north of $500 million.

We haven't got all those numbers, but they're increasing just because of this congestion issue you noted.

Thank you.

Your next question comes from Faisel Khan with Citigroup.

Good afternoon.

Good afternoon.

With the recent -- with the recent sale of TXU to private holders, there's a possibility that a piece of their delivery business could come up -- could come up for sale.

How strategic are those assets?

Would they make -- would they make sense to operate those assets together with yours or how much is -- how are you guys thinking about something like a potential opportunity like that?

Well, Faisel, I think we've said in the past, we're interested in T&D businesses, we like the business, we would like to own more of the business.

We clearly believe there would be a fair amount of synergies between our business and a business like Encore.

So -- and if in fact that business goes on the market, we'd absolutely take a look at it.

But we do think there would be a lot of synergies in operating them together.

There's no question about it in our mind.

We haven't done any detailed work on that, but just general business knowledge, we believe it would be pretty strong.

Okay.

And on the appeals case, is there any precedence for a case taking this long to be decided?

Have cases in the past taken this long to be decided?

Let me ask Scott Rozzell to address that.

Thank you.

Faisel, yes, it's not uncommon for appeals to last this long.

In fact, we have another appeal before that same court that's actually been pending for an additional two months longer than this.

And there are other cases on the docket that are longer.

I would say, as we've said before, that a good benchmark for every level of the appellate process is about a year from filing to disposition.

And this one is getting closer to two years now.

So I think this is a much longer time than is normal, but it's certainly not longer than we have seen in the past for complicated matters.

Okay, great.

Thanks for the time.

Your next question comes from Patrick Forkin with Tejas Securities.

Good morning.

Just wanted to clarify, the total investment opportunity for the smart metering project is $750 million over five years?

That would -- the $750 is probably a little over five years.

It would be five or a little over five years.

And that's just the advanced metering on the electric side.

We do have some additional dollars that we'd spend for the intelligent grid.

Those aren't going to be spent nearly as quick, but there's probably another $150 million or so that over a seven, ten-year period that would be spent there.

But metering is about $750 over a little over five years, based on the plan we're going to propose.

Now the PUC is going to weigh in on this too, I'm sure, but I think they're going to like our plan, because I think we've got a good, solid plan.

And I expect we're going to be the first one in the state to file it.

Okay.

And then assuming you do make that filing in December, does that indicate that you're happy with the technology that you've tested in, and subject to approval from your commission, that you're going to move forward?

Yeah.

We've been testing lots of pieces of this.

The Itron meter, the OpenWay meter.

We've been testing our BPL technology and we've also been testing a lot of prototype models where you have to gather all the metering data and give reps access to it.

So all along the way, we've been very pleased with how this technology has come together.

We haven't identified any deal breakers, obviously.

They've been making improvements as we went along, but at this point in time, we're pretty pleased with with a we've seen so far.

We think we've gone -- we're pretty much to the end of that pilot phase.

Okay, very good.

Thank you.

Your next question comes from Steve Gambuzza with Longbow Capital.

Good afternoon.

Hello.

Hi.

I'm sorry if you covered this already, but is there any expected timing on the appellate court decision?

You know, there's really not.

Scott Rozzell, our General Counsel addressed this.

We really expected it to have happened by now, but it can be anytime.

But we just haven't heard anything yet.

Okay.

So really there's no kind of -- when you look at the calendar of the court, are there any particular windows where you would expect there not to be a decision?

So for example, if you were not to get a decision by December 15th, would that automatically push it through to past the new year, or any color on that in terms of the court calendar?

Well, there's nothing -- this is Scott Rozzell, there is nothing really that would indicate that the court doesn't issue decisions at any particular point in time.

I think just as a matter of human experience, we know that things slow down during the holidays, but that's about as much as I could offer on that.

I think this is, as David mentioned, a decision that could come at any time.

So the process has completely run its course and the next step is the court will issue its decision, which it could happen tomorrow or it could happen three months from now?

That's right.

There's no statutory deadline that the court has to abide by and they will issue this decision when they've completed their deliberations and the process of drafting and having that opinion reviewed.

Okay.

And then finally, the 750 over five years for the AMI, that's just for the meters and then $150 million for additional smart grid technology over a longer period; is that correct?

Yeah.

The 750 obviously is much more than meters.

There's lots of BPL technology.

There's lots of computer programs and architecture that goes along with that.

But that is -- the 750 is the way we've couched this whole advanced metering project, just a lot of components of it.

The additional amount is unrelated to the metering.

It's just how you manage the grid, putting sensors on the grid, being able to operate the grid digitally, monitoring performance of the grid and that would roll out over a fairly lengthy time.

But at this stage, we're thinking $150 million or so is an appropriate number to be thinking about.

Great.

Thank you very much.

Your next question comes from David Grumhaus with Copia Capital.

Good morning, guys.

Good morning.

Two quick questions for you.

One, on the court case, the normalization with the Texas attorney general coming back to the court, is that slowing the process at all, or does that not have any affect on the rendering of the decision?

I don't think that that will -- this is Scott Rozzell again.

I don't believe that that will have an impact on the pace of the overall appeal.

What the attorney general did was to ask the court to remand the normalization issue back to the commission in light of this private letter ruling that we've received and the commission could choose to do do that remand as a part of its -- I'm sorry, the court could choose to do that remand as a part of its decision on the overall appeal, or it could choose to sever that issue and remand it earlier.

But either way, I don't think it slows down the resolution of the remaining issues.

Okay, that's helpful.

Then field services, another solid quarter, are you still seeing good growth opportunities there is?

I know you like your positioning -- is your view you can continue just to keep growing that business at the rate you've been able to do so in the last couple of years?

We continue to see a tremendous amount of activity.

We'll connect 400 wells again this year.

We have each of the last four years, including this one.

That's from an historical level of 220 a year, so activity's way up, but we're seeing a lot of activity around the shale plays which are right near where we have facilities and some other new development areas.

So we really think that we're in the right spot when it comes to field services and there's going to be lots of opportunities.

We clearly have to capture them and we -- so it's up to us to get out there and do that, but we've got a lot in front of us that we can work with.

That's helpful.

Look forward to seeing you at the EI.

Take care.

Great.

Your next question comes from Carl Kirst with Credit Suisse.

Sorry, guys.

Just two quick follow-ups.

The first is -- actually, want to clarify the smart meter spend one more time.

The $750 was a little bit higher than we were expecting.

Is that just electric or does that include the $100 million of gas?

No, that's just electric.

So, I don't know if you can say before you actually file, but have you decided against, then, spending on the gas or is that going to be addressed as a separate issue?

No.

We wouldn't file that in the electric case, but to be very honest, we jointly read meters in Houston now, gas and electric, and so we would expect that it's just a follow-on on this technology and I think anywhere from 80 to 90, $100 million over a five or six-year period on the gas side is what we'd see there.

But we would expect to deploy that at the same time.

Okay.

But it wouldn't about be part of this -- of the proceeding at the commission.

Very helpful.

And then just lastly on the gas side, Minnesota, as far as the potential for rate relief next year, has there been any update in thinking or magnitude?

No, not at this stage.

They passed a law last -- earlier this year, I guess, that -- where they wanted to do some piloting on decoupling.

Certainly, we're interested in decoupling, especially in Minnesota and we're trying to decide now exactly how to manage that and what that means to us and whether it means we have to go in for a rate case to do it or we can do it some other way.

But we're not ready to announce anything, because it's still under consideration.

Fair enough.

Thanks, guys.

Your next question comes from Daniele Seitz with Dahlman Rose.

Just -- I was wondering if there were any other projects along the pipeline area aside from the next one that you have been talking about for a while?

We continue to look at a number of projects there, Daniele, but we have nothing to announce.

There's clearly a lot of gas in the shale reserves and in the midcontinent area that are going to have to get to market.

And our assessment is you're going to need some more pipelines to do it, but we haven't got anything to announce there.

Okay, great.

And as far as the rate-making regarding transmission, is it -- are there incentive returns, et cetera and riders for specific projects, or is it just going into a base like any other incremental capital expansion?

Well, in Texas, we have something called TCOST, transmission cost of service where you can get an update to your tariff for transmission without going in for a full rate case and then you reconcile it when you do go in for a rate case.

And we are -- we can go in in 2008 as part of our overall rate settlement.

We agreed to not go in and ask for an increase in our transmission rates before then, but we might very well -- we've spent a fair amount of money and I think we're looking at whether or not we need to go in toward the end of next year for a TCOST revision.

Okay.

Thank you.

Your next question comes from [Josh Silverstein] with Highbridge.

Hey, guys.

Just had a similar question to Daniele.

Was just wondering given the increase in cost for services, steel, transmission lines, given that you guys are operating under a rate freeze right now, would that kind of pressure earnings growth there until you come out of the rate freeze, or can you actually go in or are there savings that you guys are finding on the OEM side right now.

We can't go in and file until '010.

So we are under a freeze.

We do have a very attractive service territory that continues to grow at a very nice clip and clearly the growth there is -- can offset expense increases.

Just like any other company, we continue to see some labor increases, where we have a lot of -- the biggest part of our cost is labor, other than capital.

But we constantly are looking for ways to be more efficient.

We know we're in a rate freeze.

We know we have to be more efficient, and we have folks looking at that every day.

And if you look at our track record over the last three, four years, I think we've been very successful in being able to hold down cost and find efficiencies and we continue to look for those.

Got it.

Great.

Thanks.

Your next question comes from Lasan Johong with RBC Capital Markets.

Yeah, David, I just wanted to ask you quickly about preparations or how preparations are going for the transition towards nodal market within maybe about a year and change?

I'm not sure I'm the best one to answer this.

It is moving forward.

It's a very expensive proposition.

ERCOT is dealing with it, obviously, as well as the PUC, but they're still moving forward with a 2009 expected implementation, but there's lots of work to be done between now and then.

But it's still moving forward, Lasan.

How much do you think it's going to end up costing you and will you get rate recovery or rate relief from it, for it?

I think ERCOT and going to spend something like 250 plus million and really they'll recover that through an increased fee they charge and it really won't be us.

We don't have a lot of costs that will be -- that will incur as a result of this, but certainly the market and ERCOT are having to redevelop their systems and we may have some minor cost increases just to interface with them.

But this isn't really a ticket for us, it's for others that are dealing with that.

Perfect, thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from Charlie Spencer with Morgan Stanley.

Hi.

Just one follow-up on someone else's earlier question.

In terms of potential other P&D opportunities, in terms of investing outside of your territory, would you be interested in like minority stakes?

I understand the synergies on buying entire businesses, but from a minority stake, is that something that interests you or is that -- I mean --

I think, Charlie, it really depends on where we think the investment would take us.

If we think it positions us for a bigger stake and maybe a stake to own the whole thing, we might very well be interested.

If it's simply a minority stake that you never could get the kind of efficiencies and synergies if you own the whole thing, than we probably wouldn't be as interested in that.

Thank you.

There are no further questions at this time.

Okay.

Great.

Thank you very much, everybody, for participating in our call.

We appreciate your interest and support as always.

Thank you and have a great afternoon.

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

Thank you for your participation.