CenterPoint Energy Inc (CNP) 2008 Q3 法說會逐字稿

Good morning and welcome to CenterPoint Energy's third quarter 2008 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 managements remarks.

(OPERATOR INSTRUCTIONS) Thank you.

I would now like to turn the conference over to Marianne Paulsen, Director of Investor Relations.

Ms.

Paulsen.

Thank you very much, Tina.

Good morning everyone.

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

I'd like to welcome to you our third quarter 2008 earnings conference call.

Thank you for joining us today.

David McClanahan, President and CEO, and Gary Whitlock, EVP and Chief Financial Officer, will discuss our third quarter 2008 results and will also provide highlights on other key activities.

In addition to Mr.

McClanahan and Mr.

Whitlock, we have other members of management with us who may assist in answering questions following their prepared remarks.

Our earnings press release and Form 10Q filed earlier today are posted on our website which is www.centerpointenergy.com under the Investor Relations 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 central time through Wednesday, November 12, 2008.

To access the replay please call 1(800)642-1687, or (706)645-9291, and enter the conference ID number, 68361847.

You can also listen to an online replay of the call through the website that I just mentioned.

With 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'm pleased to summarize our performance for the third quarter of 2008.

This morning we reported net income of $136 million for the third quarter, or $0.39 per diluted share.

This compares to net income of $91 million, or $0.27 per diluted share for the same period last year.

Operating income was $337 million for the third quarter of 2008, compared to $287 million for the third quarter of 2007.

I believe our overall financial results continue to demonstrate the benefit of our balanced portfolio of electric and natural gas assets.

Before I review the performance of each of our businesses I want to discuss a significant event that occurred in September.

Hurricane Ike struck our service territory early in the morning of September 13, and over 90% of our customers lost power as a result of the storm.

Many of our customers suffered extensive damage to their homes and businesses.

I am extremely proud of the employees from all of our business units and 11,000 personnel from 35 states and Canada who responded to our call for assistance.

Together we restored power to all customers capable of receiving service in just 18 days.

I cannot say enough good things about their efforts and the response of the communities we serve during this difficult period.

Some work is ongoing to replace temporary repairs that we made in order to restore power as quickly as possible but we expect to have our system returned to its prehurricane condition soon.

We have estimated the total cost for this storm restoration effort will be in the range of $650 million to $750 million.

These costs are being deferred for future recovery and therefore do not affect our third quarter earnings.

Gary will explain the recovery process and expected timing in his comments.

Now let me review the performance of each of our business segments beginning with Houston Electric.

Houston Electric reported operating income of $169 million in the quarter compared to operating income of $155 million last year.

As a result of the timely restoration effort after Hurricane Ike, the estimated loss of third quarter revenue was limited to $17 million, which was partially offset by expense savings of $5 million as normally incurred operating and maintenance costs were postponed because of a storm.

The quarter benefit from strong growth in our Houston service territory where we added over 42,000 customers since September 2007.

While this growth has moderated since the first half of the year, the Houston economy has not been as adversely affected as other parts of the country and we still expect solid customer growth for the year.

We also benefited from increased customer usage in July and August when compared to last year.

In addition to these factors, taxes other than income taxes declined by $10 million as a result of the state margin tax being reclassified as income tax in 2008 and a state franchise tax refund.

Over the last several years we've continued to invest in a number of new electric transmission projects in our service territories.

In order to recover the increased costs related to them, we filed for a transmission cost of service rate increase in September in which we requested an increase of $22.5 million over our existing rates.

Since about 74% of that increase will be paid by other ERCOT utilities we expect an annual operating income increase of approximately $17 million.

This morning the Public Utility Commission approved this quest and it is effective immediately.

As you know utilities in Texas can change their transmission rates to reflect new investments without going through a complete rate case which mitigates the regulatory lag associated with transmission investments.

Houston Electric continues to pursue an advanced metering system and the implementation of an intelligent grid.

In May we filed an initial advanced metering deployment plan and surcharge request.

We have been exploring ways to settle the timing and nature of our deployment with the other parties in this proceeding.

As you would expect these discussions were interrupted as a result of Hurricane Ike and have just recently resumed.

However, no agreement has been reached so far.

In the interim, the PUC has approved an agreement between us and the retail electric providers in our service territory which allows REP to request the early it installation of up to 125,000 advanced meters, so long as the requesting REP agrees to fund the associated cost.

Today there has been only limited participation in this voluntary program.

Now let me turn to our natural gas distribution business.

Our gas distribution system was also damaged by the various hurricanes that affected our service territory.

We incurred approximately $3 million of Hurricane Ike related cost, which are also being deferred for future recovery.

Our gas operations personnel responded quickly to safely restore the system following Ike, enabling them to then assist in the electric restoration.

I am extremely proud of our employees who worked diligently to ensure the public safety and reliability of our system.

This unit reported an operating loss of $6 million compared to a loss of $8 million for the same period of 2007.

Due to its seasonal nature the third quarter is typically the weakest quarter for this business.

We do continue to benefit from solid customer growth adding nearly 26,000 customers since September 2007.

We also benefited from a rate increase implemented in Arkansas last November.

We are continuing to pursue rate strategies to decouple our revenues from the volume of gas we sell, to encourage conservation and to recover costs on a more timely basis.

This strategy encompasses mechanisms such as: weather normalization clauses, revenue and cost of service adjustments and decoupling.

These strategies are particularly important in the current volatile natural gas price environment which has increased the focus on conservation and energy efficiency.

Last year we were successful in implementing rate decoupling in Arkansas and this year we obtained weather normalization in Oklahoma.

Recent decisions in our Texas coast jurisdiction provides for an annual cost of service adjustment mechanism to recognize changes in usage, operating cost and investment.

Earlier this week we filed a request with the Minnesota Public Utilities Commission to increase our Minnesota rates by approximately $60 million.

As part of this filing we are also asking to decouple revenues from the volume of gas sold.

Last year the Minnesota legislature enacted legislation encouraging utilities to pursue decoupling initiatives and promote energy conservation.

Our decoupling request is based on this new legislation.

We do not expect final action on our request until the fourth quarter of next year.

However, interim rates are expected to be effective January 2009 subject to refund.

Our competitive natural gas sales and services segment reported operating income of $35 million for the third quarter of 2008, compared to $4 million last year.

We did not experience the same volatility in the natural gas markets after Hurricane Ike as we did in 2005 following Hurricanes Katrina and Rita.

Our core business of selling natural gas to commercial and industrial customers increased by approximately $7 million due primarily to favorable locational and seasonal price differentials.

In the third quarter of this year we recorded a $24 million write down of natural gas inventory to the lower of average cost to market, compared to a $5 million inventory write down last year.

This quarter we also recorded mark-to-market gains of $46 million associated with derivatives we used to lock in economic gains, compared to $2 million last year.

Our interstate pipeline segment recorded operating income of $55 million compared to $70 million last year.

Higher income from our pipeline between Carthage, Texas and Perryville hub in Northeast Louisiana helped reduce ancillary services and higher operating expenses.

Operating income for the third quarter also included a $7 million charge associated with pipeline assets that were removed from service.

The third quarter of last year included tax refunds of $4 million related to settlements of certain state tax issues and a gain of $5 million associated with the sale of our pipeline services business.

We have built a number of new laterals off our existing pipelines to serve new customer facilities.

In addition, producer interest in the Woodford, Fayetteville and Haynesville shale areas near our facilities remains high, and we continue to work with producers on getting new natural gas production to market.

In September, the southeast supply header, or SESH, our joint venture with [spectra] was placed into commercial operation and began flowing gas primarily to the Florida markets.

SESH is well-positioned to serve the growing southeast market and there are future expansion options if warranted by market demand.

SESH has applied for a waiver to operate at a higher operating pressure and that waiver should be received later this month.

Upon receipt of a waiver will have one billion cubic feet per day of which a substantial portion is already under long-term contracts with a solid group of shippers.

Now let me turn to our field services segment.

We reported operating income of $44 million for the third quarter of 2008 compared to $26 million for 2007.

This business unit continues to benefit from the strong drilling activity and increased production in the mid continent area.

Our field services business also has a 50% ownership in natural gas processing facilities that continue to expand.

The equity income that we recorded from this joint venture increased to $4 million compared to $2 million in the third quarter of 2007.

Well connected in and around our existing gathering footprint in the [Arcoma, Anadarko and Arklatec] company and architect basins are running specifically ahead of last year but we are beginning to see a reduction in drilling activities in these basins.

However, in the Woodford, Fayetteville and Haynesville shale areas drilling activity remains high, resulting in a substantial increase in new project opportunities.

We will continue to pursue attractive growth projects in our footprint in order to enhance the long-term profitability of this business.

In closing I'd like to remind you of the $0.1825 per share quarterly dividend declared by our Board of Directors at the end of last month.

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.

With that we will now 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.

First let me describe the process we will pursue to recover our costs related to Hurricane Ike.

When the Texas legislature convenes in January 2009, we will seek enabling legislation similar to that which was passed in 2006 following Hurricane Rita.

Such legislation would allow us to issue storm cost recovery securitization bonds similar to the three series of transition bonds the company has issued in connection with its stranded cost recovery and would require the Texas Public Utility Commission to review our costs and issue a financing order.

These bonds would have the dual benefit of allowing us to recover our Hurricane Ike costs in a timely fashion while lowering the ultimate cost to our customers.

We believe that this securitization method of recovery has the support of state and local officials and our Public Utility Commission.

Assuming early passage of storm cost securitization legislation we hope to be able to complete the regulatory process and issue bonds by next summer.

Now let me address recent credit rating agency actions.

Following the review of the impact of Hurricane Ike on our liquidity, profitability and the regulatory recovery process for storm costs, both S&P and Moody's affirmed the ratings and ratings outlook on CenterPoint Energy and its subsidiary Houston Electric and [CERP] and reports issued on October 9th.

All three rating agencies continue to have stable outlooks on the debt of the parent company and its subsidiary.

I would now like to address our liquidity position in light of the storm costs and the unprecedented conditions and turmoil in the capital markets.

Over the years we have taken significant steps to augment our liquidity in order to ensure that we maintain financial flexibility and a strong liquidity position even in the face of disruptions like Hurricane Ike and its related cost.

Currently we have a $1.2 billion credit facility at the parent company, a $300 million facility at Houston Electric, and a $950 million facility at [CERP]

These facilities do not expire until the second quarter 2012 and do not contain [mac] clauses inform August we amended the financial covenant ratio of consolidated debt to EBITDA and the parent company credit facility so that the permitted ratio of debt to EBITDA will remain at five times for the duration of the facility.

We did so with 100% support from our bank group while needing only a 51% vote.

This action had the effect of increasing our debt capacity for 2009 and beyond since the covenant was scheduled to reduce to four and one half time at the end of 2008.

There are no covenants in the Houston Electric or CERP facilities that would be expected to limit borrowings under those facilities.

As of September 30th, CenterPoint Energy had liquidity of approximately $1.2 billion under its various committed credit facilities.

Considering the estimated storm cost and our other cash requirements for the remainder of 2008, we believe our liquidity under the existing facilities coupled with other cash we expect to generate from our businesses, will be adequate to satisfy our projected requirements even if we took no further steps.

In light of the continuing disruptions in the capital markets however we are taking additional steps to further strengthen our liquidity position.

First we are in the process of amending our parent company credit facility to in effect exclude the storm costs from the covenant calculation by increasing the debt to EBITDA ratio to 5.5 times.

The ratio would revert to five times at the earlier of December 31, 2009, or when we receive securitization proceeds.

Second, we are working with our banks to syndicate a new, $450 million, 364 day revolving credit facility at Houston electric, although the ultimate size of the facility could vary.

This facility will provide additional liquidity if needed.

At this point we do not anticipate the need to draw on this facility, but we think it is prudent to have a back stop facility in place for the next year's protection in this period of contingent instability and uncertain access to the capital markets.

And finally we are taking steps internally million to enhance our liquidity position while improved and growing the profitability of our businesses.

Our business performance remains solid and generates significant operational cash flow.

We will continue to prudently allocate capital to our regulated operations as well as to value creating opportunities in our pipeline and field services businesses.

However we are actively identifying discretionary capital expenditures that can be either deferred or eliminated without affecting the reliability of our systems or limiting our long-term business prospects.

In addition we are focused on efficiently managing our working capital.

Let me also point out that the consolidated group has no material debt maturities until September of 2010 when $200 million of parent company debt comes due.

There are a couple of financing developments that I want to do share with you this morning as well.

First as many of you know, search receivable facilities expired on October 28.

Advances under the facility of $150 million were repaid on termination.

Due to the disruption from Hurricane Ike the due diligence process necessary to implement a new one year facility was delayed for a few weeks.

We anticipate that CERP will have a new one year receivables facility in place shortly.

Second as David indicated the SESH project our joint venture with [spectra] was placed into service in early September.

Both partners very funding their respective shares of the construction costs so far.

We have been working jointly with spectra in planning a permanent financing for the project and once we can access the capital markets in an efficient and cost-effective manner, our intention is to do so.

Finally, I'd like to discuss our revised earnings guidance.

This morning in our earnings release we announced that we now expect our 2008 earnings to be in the range of $1.25 to $1.35 per diluted share.

An increase in our guidance we considered our performance to date in addition to various economic, operational and regulatory assumptions.

We have assumed normal weather in both the gas and electric utilities for the rest of the year, and we have not attempted to predict the timing effects of mark-to-market or inventory accounting on the earning of our competitive natural gas sales and services business.

These effects are timing related and ultimately do not impact the economics of the underlying transactions.

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

Thank you, Gary.

With that, we will now open the call to questions.

In the interest of time I would ask you to please limit yourself to one question and a follow up.

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

(OPERATOR INSTRUCTIONS) Thank you.

Our first question will come from the line of Lasan Johong with RBC Capital Markets.

Good morning, nice quarter.

On the recovery of the storm damage, Gary, if there's a delay in the legislation or the legislators say, we'll pass on this one for whatever reasons, what would be the contingency for recovering the storm damage costs?

Lasan, I'll ask Scott Rozzell to answer that.

Well, Lasan, there's a couple of permutations probably that will I might mention, the passage of the legislation is something that we will be working very hard to achieve.

And that can be done early in the session or perhaps later on.

Early in the session requires some procedural steps that are unusual but which we think are lined up pretty well for this time around.

In the event that there is not legislation passed we have a history of a storm recovery process in this state that allows us to defer those costs and recover them as parts of a normal rate making process.

Lasan, this is Gary.

Our focus really, and I think we feel confident about the process I outlined in my comments, what we are doing is ensure frankly that we have and we do have adequate liquidity, as I mentioned we are going to put a back stop credit facility into Houston Electric.

I think the thing that has concerned us probably in the near term is really access to the capital markets.

I don't expect it to happen but we were -- would have to go down a path of a rate case to recover these costs and we would look at permanent financing at CE.

But I think the key now is to ensure that we have the adequate liquidity which we do and this process will play out over the next number of months and we feel confident about what I outlined in my prepared comments as the process that we'll follow.

Lasan, David, I think, mentioned in his comments in securitization process which we have some experience with here in Texas is one that generally enjoys widespread support, because it allows us to get our money relatively quickly, but it also ultimately lowers the cost that is paid by the ultimate customer.

Storm restoration recovery periods that in the past before we used securitization were actually reasonably short.

So you'd have a fairly large amount recovered over a fairly short period of time if you went a traditional route.

That's why I think most people favor securitization.

Pardon me for asking a silly question or dumb question, if capital markets are somewhat discombobulated, either one or two things I suspect will happen, either the interest that needs to be paid on this securitization bonds will be very expensive, or the size of the facility may intimidate enough that it may not happen.

So in either case even if legislation was passed, I would assume CenterPoint would defer access to the capital market.

And, so the question is if that does happen, in the meantime, are you able to collect as if this were a normal part of your rate base?

Lasan, I don't think it's going to be a normal part of the rate base, but as you saw in our [strand] of cost recovery we did recover interest from the date we incurred the cost until we recovered those through the sale of the transition bonds.

It wasn't a full rate of return, but it was more like an interest component.

And that interest component would be based on your current cost of capital or your current debt cost of capital?

I'm not sure exactly how we did this.

I think Entergy got interest when they recovered their storm costs back following Katrina and Rita and I don't recall how the commission set that interest.

But it would be set to cover the cost that the utility is inoccurring to carry the storm cost.

Got you.

On the fuel services business, you mentioned that in the architects area the drilling activity is kind of slowing down but in the Haynesville, Woodford and Fayetteville shale plays, the drilling activity seems to be still robust.

Can I assume that the two kind of cancel each other out?

I think we still have plenty of opportunities, plenty of well conducts there that we are pursuing.

And this is all around the weakness we've seen in natural gas prices the last couple of months and really the amount of gas that is being produced in this mid continent area.

This could be just a temporary slow down or it could be a sign of more to come.

But today we still see lots of opportunities in this area when you look at the big picture.

Okay.

And just quickly on prices of commodities.

On the oil and gas side how does the change in price affect your earnings from fuel services?

It doesn't really affect it very much from an oil standpoint, we do have a little commodity exposure.

We have some processing facilities where we take a percentage of proceeds.

So liquids prices do matter.

They've been holding pretty firm to be very honest.

And we have a little exposure to natural gas prices because there is some system imbalance in gas we sell each month.

But these are not big impacts, but they can impact I guess $5 million or $6 million with every $1 or so decline in the price of natural gas.

$5 million or $6 million for every $1 change in gas price.

Yes, that's just kind of a general guide, Yes, I think that's a fair guide.

Okay.

On the SESH project I assume the same parameters would hold if the market is chilly, you wouldn't go and access the capital markets at a higher cost of capital, you would wait until there was a better situation, correct?

I think that's exactly right, Lasan.

These are unprecedented situations at the moment, although I would say getting better to be honest about it but credit spread is wide and this is a great project from a financing point of view but both ourselves and our partner, I can't speak for them but certainly we are both going to be patient at least that's our decision at this point.

And we have the financial stability and flexibility to take the time necessary.

But let's hope these capital markets do start getting better sooner rather than later, not just for our company but frankly for all companies.

One more question if you don't mind, can you talk about how if all of this disruption in the crament is affecting your capital expenditures plans going forward and if you're delaying projects and pushing back Capex spending on typical maintenance stuff, things like that?

Lasan as you would expect and probably like every other company in America we are absolutely looking at all our capital plans and our all our expenditures plans, whether it's capital or operating or maintenance.

And I expect that we are going to be able to push some out..

Now as you know in the business we are in there's a certain amount of dollars we have to spend.

We are not going to do anything to public safety so there's a given level of expenditures you have you have to spend every year and we are going to do that.

But there's timing of some of those expenditures we are going to look at and there are some discretionary projects we can defer either off until later next year or beyond or just cancel all together.

So we are actively looking at that, putting together new budgets and so I feel pretty good about the approach we are taking there.

If I can imply something from what you just said would it be correct to say that your net overall growth rate over a three to five-year period is unchanged, maybe the shape of it is a little different, but is generally unchanged?

I think it's way too early in this process.

I think we will see some tempering of capital expenditures in the near term.

We are just going to have to see how this all place out.

You would spend it in the longer term, no.

If the opportunities are still there, sure, we hope to be able to do it.

We just it's hard to go beyond a year or two and suggest all this capital will be spent in the future.

Okay.

Thank you very much.

I appreciate your help.

Our next question will come from the line of Carl Kirst with BMO Capital.

Hi.

Good morning, everybody.

Several of my questions have been asked, let me just a few follow-ups, actually just a couple of clarifications first.

With respect to guidance just want to make sure we are on the same page.

When you guys are using the $1.25 to $1.35, that's based on the year to date results of $1.05 implying a $0.20, $0.30 fourth quarter, just to be clear?

Yes.

Okay.

We do this -- we don't look at mark-to-market or inventory write downs even in the actuals.

We eliminate those in making our estimate for the year.

Just wanted to make sure I was on the same page.

Seconds small question, Hurricane Ike impact, $17 million in the third quarter.

Do you have a sense what have kind of follow on impact will be in the fourth quarter here as we kind of get it it back up to pre-Ike levels.

There shouldn't a significant impact.

We've got probably around 5,000 customers down along the coast, residential customers that are without power because their homes have been substantially impacted and destroyed in some cases.

But I don't think that will -- you will be able to really detect that in the numbers.

So I would suggest that the impact from a revenue standpoint should be very, very minimal going forward.

Okay.

Appreciate that.

And then last question, just going back to the field services that had a nice bump up in the EBIT.

I guess I just wanted to make sure I understood what if any of the commodity component was in there year over year if you look at volumes, volumes were up a little bit, just purely on kind of a tariff revenue divided by volume, there was a nice, big spike in the implied fee if you will.

Just want to make sure I understand specifically what's going on there.

Third quarter commodity prices had little impact if any on our EBIT.

I would say it's negligible.

All of that increase came from two areas.

One was just throughput.

We had more facilities.

We had greater volumes, and that's a reflection of really a lot of the investment we've been making over the years.

And secondly we did have a -- some system gas due to system imbalance that were trued-up and we had a $7 million favorable gain from that.

That's a one time, that happens from time to time but it's not certainly not something you count on.

But I think to look at a run rate you eliminate that $7 million from the change and you get a good run rate year over year.

Okay.

Thanks for the clarification.

Okay.

Our next question will come from the line of Mark Seigel with Canaccord Adams.

Hi, good morning.

With regards to your plans to implement AMI, do you still anticipate a PUC ruling by year end and what are your end point deployment expectations for '09?

It's really hard to say, Mark.

My guess today is that we will not get an order out of the commission.

There have been no hearings held.

All those hearings were put on hold as we talked.

And the parties continue to talk, but I think there's a lot of issues we are talking about there now.

So I would expect it would be end of next year before we get an agreement that we get before the PUC, or the PUC may actually have to hear the case, so I think it will be well into next year before we start spending a lot of money on advanced metering.

Okay.

And any sense of what participation levels have been like in the accelerated 125,000 ends point opportunities?

Very minor.

I mean a handful, I would say.

Reliant Energy was very interested in that, and I think they've run into their own issues and they've slowed down a lot.

Okay.

Thanks so much.

Okay.

Our next question will come from the line of Michael Goldenberg with Luminous Management.

Good morning.

Good morning.

Congratulations on an excellent quarter.

Wanted to further ask about your liquidity position and just ability to generate cash flow and invest in capital expenditures, even if there's a delay in recovery of the storm costs.

Can you walk me through that again just in case there is a delay?

Okay, be glad to, this is Gary.

I think if you go back to my prepared comments obviously we have our credit facilities that are available to us and liquidity that are undrawn on those.

But I think, Michael, you have to really start looking at our businesses which are very solid businesses.

So if you think about sources of cash in the company, the sources of cash are our operating cash flows from our businesses.

And as David described, we are very focused on working capital management and management of allocating, frankly, fixed capital as well.

So we are going to continue and if you think about the fourth quarter and you think about in the next year we are going to generate sources of cast from operational cash flow which will fund our CapEx and our dividend and will fund Hurricane Ike.

We may draw some of our facilities to funds a portion of the Ike cost, but frankly that will depends on the capital markets.

As I said earlier, Michael, one source of cash for us will be the SESH financing issue.

Now as I mentioned earlier we have been funding that, our partner has been funding it as well, and our expectation is to permanently finance that into the capital markets.

So that will be a source of cash.

But we will continue to generate operational cash flow.

We are going to do one other thing as I mentioned on the call.

And this is really for timing purposes and I don't expect to draw it, but we are going to put a backup credit facility at Houston Electric, a back stop credit facility.

We've launched it at $450 million.

We think it's prudent, frankly, not from the standpoint of the process that we will follow with the both the legislative process and the PUC.

It's really the capital markets and making sure that we have a good solid position behind the capital markets end insuring that they open up and they open up effectively in the next year.

And as you know this is a financing for next year.

So fingers crossed for everyone that capital markets start opening up.

So we have set ourselves up with solid liquidity facilities that support our business and then we generated significant amount of liquidity ourselves and we'll manage that as well as possible.

And you've cleared your plan with rating agencies and they are all on board and everything is fine with them.

The rating agencies, we have an active dialogue and as I mentioned I just updated you on the rating agencies discussion and they absolutely see where we are going with the company in this regard.

And finally maybe I missed this one point but of the $650 million to $750 million cost, how much has actually already been paid?

What percentage of invoices have already been settled?

Look, through September as would you expect, through September 30, about $72 million of the amount had been paid.

If you look at year end, we will probably have another $600 million of that.

The total cost, some of these will trail into next year and we will have it all accrued obviously by the ends of the year.

About $72 million paid at September 30, there's another $600 million that will be paid in the fourth quarter.

Got it.

Thank you.

Thank you, Michael.

Our next question will come from the line of Steve Gambuzza with Longbow Capital.

Good morning.

I was wondering if you could comment specifically on the field services CapEx.

I think your prior guidance was something for around $85 million of CapEx in '09 down from around $150 million in '08.

Can you comment on was expect '08 to be and if the '09 outlook for field services CapEx is still around that level?

Yes.

Let me just remind myself.

I think we are continuing to see a lot of opportunities in this area.

We've got a lot of good solid producers we are working with.

I expect that the capital opportunities in '09 are going to be at least if not more than the opportunities we saw in '08.

In '08 we had a total capital budget of about $166 million.

We may not spend all of that.

But we see lots of good opportunities out there.

We've got some great relationships with some producers that -- we are working with them very close to the make sure that we understand the timing of their drilling and their production.

So we don't put facilities in place until they are absolutely needed.

But I think we are going to have some very attractive opportunities next year, Steve.

What was the spending for the first nine months of the year in fuel services?

Let's see.

It was about $77 million -- about $80 million.

About $80 million, okay.

So you expect '09 should at least be at an equal run rate with '08 based on what you see today.

I think that's exactly right.

I actually think it's going to be more than '08 given some of the opportunities we see today.

Okay.

And it looks like the volume growth this quarter and really, frankly, for the first nine months of the year is somewhat accelerate from what you've seen in past years.

And I'm just curious you mentioned some regional differences in some of the areas you operate in.

I'm just curious if you have a view on kind of how the markets you're operating in how they are growing versus how your business is growing.

Do you still see the markets growing in excess of what you are growing at or is it the other way around?

I haven't ever made a study of how our throughput compares to kind of the overall increase in the marketplace.

I do know this.

The shale plays whether it be Fayetteville, Haynesville, Woodford, there is lots of drilling in that production is way up and the traditional basin that is we've gathered in for many, many years, that production continues to be up as well.

It hadn't been up as much as the shale plays because they are starting in terms of percentage wise they are starting from a much different point, but I think that we are seeing, we've seen substantial production in both the traditional and new shale plays.

The real question I think is will the traditional basins, will they still continue the level of drilling in those areas.

The last four, five years we've connected 400 wells to our system each year, most of those have been in these traditional basins, and certainly I think there's going to be continued drilling.

It's just not going to fall off the wall, but we think that it could ratchet back from the 400 level.

Back five years ago before natural gas prices started accelerating we would see around 220 to 250 wells a year connected to our system.

So it's probably going to be somewhere between where it was back then and what we've seen the last few years.

I guess based on your view to commit high levels of capital to the business in total you expect volume to continue to grow.

Is that fair?

Yes, I think that's exactly right.

And my final question is on another topic for Houston Electric in terms of the storm costs, are you able to capitalize the interest costs associated with funding those expenditures until you at least securitized them, or will they be expensed, are the interest costs be expensed between now and securitization?

I don't think we capitalized them, but we expect to be able to recover the carrying costs once we get into securitization, but until we get a financing order out of the commission we are not going to be capitalizing any of the interest carry on those storm costs.

It will be some of what a of a timing mismatch, you are going to have expense in the first two quarters and then revenue recovering that, to offset that expense.

That's correct, there will be somewhat of a mismatch in timing.

Okay.

Thank you very much.

Our next question will come from the line of Faisel Khan with Citigroup.

Hi, guys.

Just if can you remind us what the process was for Entergy when they went through this and how long it took them from when they went to the legislature to when they got the recovery bond?

Faisel, it's Scott.

Their situation was a little different in that the storm that they were dealing with, Rita and Katrina, happened at all the same time during the year, September time frame.

But they were in an off year, so they actually had their legislation passed as part of a special session.

So the two time frames are not exactly consistent.

But my recollection is that the storm was in September.

The legislation was passed.

They took their -- made their application before the Public Utility Commission.

They then settled their financing order and their cost recovery docket with the various interveners in that case.

Then I believe they actually issued their securitization bonds about a year after the storm.

Okay.

Got you.

In the case that we are talking about here, would we would be looking at the alleges legislature meeting in January and then a projected issuance of securitization bonds before the end of the second quarter.

Is that right?

Right, and let me explain to you, there is -- we are speculating a little bit in that that we expect our legislation to mirror the Entergy legislation, and the Entergy laying had a 150 day time frame for the PUC to act once the application for the securitization bonds was filing, the application for the cost to recovery time frame.

So we expect the legislation to begin meeting in January which it will.

And in Texas the governor has the ability to include within his call to the legislature a series of legislation that can be acted upon within the first 60 days.

And we anticipate that the governor will include in that call all of the various hurricane-related pieces of legislation that the legislature has to take up.

So our hope is that we will have the legislative authorization done relatively quickly in the session and then the timing will be related to do how quickly we can actually file with the commission for a cost recovery and how quickly the commission will act on that, or we are able work out a settlement with our various parties the way Entergy did.

And Scott, the only other thing, you mentioned by the end of the second quarter, hopefully we can do it that quickly but it may be into the third quarter before these bonds get out the door.

It really depends on how quickly this process goes that Scott described.

Okay.

Got you.

Gary, I believe you said the available -- can you remind me what the available liquidity is currently?

I know you mentioned it but I kind of missed that number.

$1.2 billion.

Got you.

And the incremental rates that you guys got on your transmission assets for new capital that went into those, into that PP&E, you said $17 million in operating income is what you expect.

Is that kind of -- is that next year?

We'll get a little this year because it went into effect today, a couple million dollars but the majority of it will be next year.

And the Minnesota rate case, the $60 million rate quest, that's been filed and what's the time line on that?

We probably had not get an order until the fourth quarter of next year.

Okay.

Is there a potential for a settlement there or is that going to be litigated do you think?

I'm not sure how to answer that.

We always try to settle our cases.

We will put in interim rates in January, so there will be I think some impetus to try to settle, but we have not been as successful in Minnesota in settling rate cases as in other jurisdictions.

So I think you can probably assume a fully litigated case here.

Then on the -- in terms of the number of customers you have in the competitive natural gas business that seemed to have jumped up quite substantially over last year.

What's happening there if you can just kind of give us a little color around that?

I think that relates to a small book of business we bought last year and it's really that was the increase from last year.

It's reflected in this year's number, it's happened since the third quarter of last year, so it's simply the customers we purchased in essence, and then there are -- we've added some customers but not that magnitude.

One last question, on the AMI kind of interest you said there was only a limited amount of participation by the reps including the reps are having then own issues right now.

Being that the PUCT seems to have a desire to put this technology in place what do you think the ends game is here given the situation with the reps and given the desire by the PUCT to put these meters in place?

I think ultimately we are going to have full deployment across all our system, Faisel, I think the real question is one of timing.

I think it's when we get started and how fast we go, but I think over a five or six-year period I think we are going to have a fully deployed advanced measuring system in Houston.

Great.

Thanks for the time, guys.

Our next question will come from the line of Yiktat Fung with Zimmer Lucas Partners.

Hello?

Hello.

Yes.

Good morning.

First a couple of questions regarding the revision in guidance.

I was just wondering exactly which segments are currently performing better than what you expected at the beginning of this year.

I would say that, we've had good performance, to be very honest, across the board, but certainly our field services and our pipeline segments have performed better than our expectations.

Gas LDCs are performing more or less the way we expected them to.

Houston Electric, especially given Ike, I think is doing well but the biggest increases have been in our pipeline and field services over what we expected at the beginning of the year.

And when should we expect the company to issue 2009 guidance?

We usually do that when we release fourth quarter earnings which would be in February, March of next year -- February of next year, I guess.

Okay.

Earlier in the call you were talking about how the fuel services segment has a bit of exposure to commodities through it's processing contracts.

I was wondering what portion of those contracts are fee-based versus commodity sensitive?

If you look at our pure gathering, it's 95% fee based.

But we do have processing facilities that are not completely fee based.

And but we have no [kepo] contracts, we have a percentage of proceeds so we take liquids and we sell those liquids and those prices have been very attractive so we've done well with those.

But I would say that 90% of our revenues are fee based.

But we have some exposure to both natural gas prices and liquids prices for that other 10%.

And just one last question.

You talked a bit about the transmission rate increase for Houston Electric.

I was wondering when the next distribution rate case would be.

Well, we are in a rate freeze today.

We have to -- we can file as early as 2010, using a test year I think, 12 months in at 2009.

So -- December, 2009.

So the first time we could file would be in June of 2010.

Thank you very much.

Okay.

Our next question will come from the line of Debra Bromberg with Jefferies & Company.

Hi, good morning.

I just want to do get clarification on something regarding the expected timing of the issuance of securitization bonds if you go in that direction.

Did you say that you are looking at some time mid next year?

Yes, we've said that by the summer of next year and that's a pretty wide range, we recognize that can, but it just depends on how quickly we can get the legislation passed and the regulatory process takes.

But we believe by mid year next year is a good target to be targeting and that's what we are trying to push for.

Because I think with Entergy and Hurricane Rita, if I'm not mistaken, it took well over a year, so that's why that time frame sounded a little aggressive to me.

What are your thoughts on the time frame for the regulatory process at the PUC?

I think it's probably three or four months, I would say.

We've talked to the commission.

They understand we want to have a quick but thorough review of all these costs, I think they believe that the securitization is the right way to go.

But you have to get all the costs in, you have to get them all reviewed and audited and documented.

So that's going to take time and to be very honest that's probably one of the steps that determines when we can actually file, because it does take a while to get some of these costs in.

We still have contractors from out of state doing work on our system damage.

We believe by the middle of this month all of those contractors will be back where they came from, but then they have to get all their costs billed to us.

We have to audit them.

So that's going to take some time.

It will be well into early next year to get that done.

Then we can -- and simultaneously we will be working with the legislature trying to get some legislation passed and hopefully those two things will coincide and we can get something filed in the first quarter of next year and then keep that process moving.

Thank you.

Okay.

Our next question will come from the line of Danielle Seitz with Seitz Research.

Danielle?

-- to pension funding.

Could you address that?

Yes.

Our pension assets have been impacted just like I guess every other pension assets across the country.

And we've had substantial under performance against our assumed return.

We assume these assets will earn at 8.5%.

So there could be a substantial change in our asset base and if that happens at the end of the year we are going to see higher pension costs.

There's no doubt about that.

I think we have to kind of let this play out, but it's -- that's an issue that could impact us next year, yes.

Okay.

You will have more color at the end of the year?

I'm sorry, would you ask that again.

You will have more details at the -- towards the end of the year?

Yes.

Absolutely.

You have to get to the end of the year, see where your assets at, run your actuarial studies to get what your pension costs are, and certainly when we discuss guidance in the first quarter of next year we will give full disclosure on that, or a full discussion on it.

And just a more general question, what, given the fact that your earnings are getting more diversified, what type of payout ratio will you feel comfortable with over the longer term?

Pay out ratio?

Yes, please.

We've talked about that we want to pay out between 50% and 75% of our earnings and dividends and I think that's still a good range to be using.

So that's what guides us.

We clearly know that our investors look at us as a dividend yield play and they want growth, but they want growth that is based on a fairly low risk kind of growth.

So but we look at growing our dividend and hopefully we can do that in the future.

Thank you.

Okay.

Tina.

Yes, ma'am.

We are running a little bit over but I think we will take one more question.

Thank you, our final question will come from the line of Leon Dubov with Catapult Capital Management.

Good morning.

Just wanted to check on this Minnesota rate hike that you guys are going to put in interim rates for.

Do you get to book all of those as earnings, or is it just cash until you get the final order?

You get the cash and we will make an estimate and a fairly conservative estimate of how much of them we think will get to ultimately keep, and we will -- so we will not book them all as revenues.

We will make some type of estimate of what we think will ultimately happen in the rate case.

Okay.

And also you gave out a franchise tax refund.

How big was that?

It was a little less than $5 million.

Okay.

And one final question.

You had -- you said you're not really seeing many gas players pulling back in your regions.

What price level do you think is sort of the break-even point for a lot of the drillers there?

Where -- like if gas continues to slide, I guess, where do you think will we see an impact?

I wish I knew the answer to that.

I will say a number of the producers we work with, they hedge their gas forward for a year at a time.

So it probably will not impact next year nearly as much as it might impact the following years.

But I would say in the $5 and $6 range these shale plays still look attractive.

If you get down much below that, people will start slowing down.

But that's purely an educated guess on my part, and I wouldn't put a lot of weight on that.

Okay.

Thank you very much.

You bet.

Okay, thank you very much, Tina.

I would like to thank everyone for participating in our call today.

We appreciate your support very much.

Have a great day.

Ladies and gentlemen, this concludes CenterPoint Energy's third quarter 2008 earnings conference call.

Thank you for your participation.

You may now disconnect.