CenterPoint Energy Inc (CNP) 2009 Q3 法說會逐字稿

Good morning, and welcome to CenterPoint Energy's third-quarter 2009 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).

I will now turn the call over to Ms.

Marianne Paulsen, Director of Investor Relations.

Good morning everyone.

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

I'd like to welcome you to our third-quarter 2009 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 2009 results and will also provide highlights on other key activities.

In addition to Mr.

McClanahan and Mr.

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

Our earnings press release and Form 10-Q filed earlier today are posted on our website, which is www.CenterPointEnergy.com, under the investor 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 PM Central Time through Wednesday, November 4, 2009.

To access the replay, please call 1-800-642-1687 or 706-645-9291 and enter the conference ID number 32554354.

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

We will archive the call on the CenterPoint Energy website for at least one year.

With that I will now turn the call over to David McClanahan.

Good morning ladies and gentlemen.

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

This morning we reported net income of $114 million for the third quarter or $0.31 per diluted share.

This compares to net income of $136 million or $0.39 per diluted share for the same period of 2008.

Operating income for the third quarter of 2009 was $287 million compared to $337 million for the same period of 2008.

Our electric and gas distribution utilities and our interstate pipelines, which are our core regulated businesses, achieved solid results this quarter despite the challenging economic climate.

Lower natural gas and liquids prices negatively impacted our field services business, but we continued to position this unit for the future with the addition of several new contracts in the Haynesville Shale play.

Due to reduced basis differentials, operating income at our energy services business was also negatively impacted.

Let me give you a little bit more detail regarding the performance of each of our business segments this quarter, beginning with Houston Electric.

Our regulated transmission and distribution utility, Houston Electric, reported operating income of $187 million, an $18 million increase from the $169 million reported for the third quarter of 2008.

Last year's third-quarter operating income, you may remember, was negatively impacted by $12 million as a result of Hurricane Ike.

After adjusting for this impact, Houston Electric achieved growth of over 3% in operating income.

This improvement was principally the result of increased electricity usage due to warmer than normal weather throughout most of the quarter, the addition of over 26,000 customers since the third quarter of last year, and the benefits of a transmission rate increase implemented last November.

Our service territory continues to grow at a 1.0% to 1.5% annual rate, which is somewhat below our recent growth rate of 2.0%.

We don't expect to return to that level for at least 12 months or so.

As we have discussed in the past, Houston Electric is in the process of installing an advanced metering system, and we are pleased to report that the implementation and operation of the system is going well.

We have installed over 100,000 smart meters so far, and we are on target to install approximately 145,000 smart meters by the end of this year.

Under our current plan, we will deploy more than 2 million smart meters across our service territory over the next five years.

In early August Houston Electric filed an application with the Department of Energy for $200 million in federal stimulus funds available through the American Recovery and Reinvestment Act of 2009.

In our application we requested $150 million to accelerate the implementation of our advanced metering system, and $50 million to support our intelligent grid initiative.

Yesterday the DOE notified us that we had been selected for award negotiations.

Assuming that the project is funded in accordance with our application, we will accelerate our AMS deployment to substantially complete the project by 2012.

Because the DOE funds require matching expenditures, there will be some acceleration of company funding, but we don't expect it to be material to either cash flow or earnings.

In a few moments Gary will report on our storm cost recovery bonds we expect to issue later this year to recover our costs related to Hurricane Ike.

Our natural gas distribution business typically reports a loss in the third quarter due to its seasonal nature, and this year was no different.

The operating loss this quarter was $15 million compared to a $6 million loss last year.

The decline was principally due to an $8 million increase in pension expense as well as increases in other operating expenses, primarily employee related and customer service related costs.

Mitigating the expense increases were benefits from rate changes and miscellaneous revenues totaling approximately $8 million, and lower bad debt expense of $4 million.

In July we filed two rate cases.

In our Houston service territory, which covers 29 cities serving nearly 1 million metered customers, we requested a revenue increase of a little over $25 million.

In Mississippi, we requested a $6.2 million increase.

In both cases we asked to recover increased operating costs driven in large part by higher pension and employee related expenses as well as costs related to increased investments in facilities since the last rate case.

In Houston we also requested a mechanism that would annually adjust rates to reflect changes in investment, expenses and usage, similar to the mechanism recently approved for our Texas coast service territory.

We expect the Mississippi case to be decided late this year and Houston to be decided early next year.

In our Minnesota case, which we filed with the Minnesota Public Utilities Commission last November, we asked to increase rates by approximately $60 million and to decouple revenues from the volume of gas sold.

In January we implemented a $51 million interim rate increase, which is subject to refund.

The commission should make its decision in December and issue a final order early next year.

Our competitive natural gas sales and services business reported an operating loss of $8 million for the third quarter of 2009 compared to operating income of $35 million for 2008.

We recorded mark to market charges of $8 million this quarter compared to gains of $46 million last year.

As you know, this mark to market impacts are associated with derivatives we use to lock in economic gains.

In addition, in the third quarter of last year we recorded a $24 million write-down of inventory to the lower of average cost or market.

Excluding these items, our energy service business was down approximately $15 million from last year.

This decline is principally the result of reduced wholesale opportunities because of significantly tighter locational price differentials.

Our retail business for the quarter was down about $3 million, due principally to reduced gas usage by our customers.

However, for the year our retail sales have been stable.

Our interstate pipelines recorded operating income of $64 million for the third quarter of this year compared to $55 million for 2008.

The third quarter of last year included a $7 million write-down associated with pipeline assets removed from service.

Adjusting for this write-down, operating income increased approximately $2 million this quarter.

Our core business continues to perform well, building on its strong fee-based foundation, with increased margin from our Carthage to Perryville pipeline as well as increased revenues related to new firm contracts to serve power generation facilities on our system.

This core margin growth more than offset reduced ancillary and other transportation services as well as higher operating costs associated with new facilities and increased pension expense.

Our equity income from ongoing operations of the Southeast Supply Header, or SESH, our joint venture with Spectra, was $6 million for the quarter.

However, this gain was more than offset by an $11 million non-cash charge to reflect SESH's decision to discontinue the use of regulatory accounting.

In the third quarter of last year, equity income was $18 million, primarily from allowance for funds used during construction.

Now let me turn to our field services segment.

We reported operating income of $23 million for the third quarter of 2009 compared to $44 million last year.

Operating income for the third quarter of last year included a gain of $7 million associated with the settlement of system imbalances, compared to a gain of $3 million this quarter.

The remaining $17 million increase in operating income was primarily the result of significantly lower natural gas and natural gas liquids prices this year.

We also experienced reduced gathering and processing in our traditional natural gas basins due to a significant decline in drilling activity.

However, we more than offset this decline by increased gathering in the shale plays.

In addition to operating income, also recorded equity income of $2 million from our jointly owned natural gas processing facilities compared to $4 million the previous year.

Again, the decline was primarily due to lower liquids prices.

Last month we signed long-term agreements with subsidiaries of EnCana and Shell to provide gathering and treating services for their growing Haynesville Shale natural gas production.

We acquired facilities that are gathering and treating production of over 100 million cubic feet per day and are expanding these facilities to gather and treat up to 700 million cubic feet per day.

This expansion is expected to be completed in about 18 months and cost up to $325 million.

The agreements have minimum volume commitments and provide us exclusive rights to gather and treat their natural gas production.

As part of the agreement, EnCana and Shell can commit to additional volumes, and we will further expand the facilities to gather and treat up to an additional 1 billion cubic feet per day, which could cost up to an additional $300 million.

Despite an over 50% year on year decline in drilling activity in the traditional basins, activity in the shale areas, particularly the Haynesville, Woodford and Fayetteville shales, has been minimally affected -- although with less drilling activity than we anticipated.

Producer activity has remained steady and this is where we are concentrating our activities.

Because of acreage dedications, volume commitments and/or guaranteed return contracts, we believe we are well positioned as drilling activity escalates.

In closing I'd like to remind you of the $0.19 per share quarterly dividend declared by our Board of Directors on October 22.

We believe our dividend action continues 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 I will now turn the call over to Gary.

Thank you David, good morning to everyone.

Today I would like to discuss a few items with you, beginning with an update on the process for recovering our costs related to Hurricane Ike.

As we have previously discussed, the Texas legislature earlier this year passed a bill that authorizes utilities to issue nonrecourse system restoration securitization bonds to recover costs associated with hurricanes and other major storms occurring subsequent to January 1, 2008.

These bonds are similar to the three series of transition bonds we previously issued to recover our stranded costs and have the dual benefit of allowing us to recover our hurricane-related costs in a timely fashion and lowering the ultimate cost to consumers.

The PUC has now issued the necessary orders to allow us to recover approximately $663 million in storm restoration costs associated with Hurricane Ike.

Of the $663 million, approximately $643 million is related to our distribution system and will be recovered through the issuance of bonds plus carrying costs from September 1, 2009.

The balance of $20 million plus carrying costs relates to our transmission system and will be recovered in rates set in our next transmission cost of service proceeding.

In our financing order the PUC allows us to issue bonds for the full amount of storm restoration costs incurred without reducing that amount by deferred tax benefits related to the storm restoration costs.

Instead, we will apply a credit to our customers' bills to reflect a benefit of approximately $207 million of deferred taxes, effective on the same date as the system restoration charges.

In 2010 this will result in reduced operating income of nearly $24 million at Houston Electric, decreasing over time as the deferred tax is reversed.

Depending on market conditions, we expect to issue the bonds in the fourth quarter of this year.

Based on this expectation and having the hurricane season effectively over for this year, Houston Electric terminated its 364-day $600 million secured credit facility on October 6.

This facility served an important purpose as a liquidity safety net for Houston Electric this past year.

Now let me discuss our recent financing activities.

In August, SESH secured permanent financing through the issuance of $375 million of 4.85% senior notes due in 2014.

A subsidiary of CERC received a construction loan repayment of $186 million, representing our half of the proceeds from the issuance of the note.

Proceeds from the construction loan repayment were used to repay borrowings under CERC's credit facility.

On October 9 CERC extended its receivables facility for one year.

The facility size ranges from $150 million to $375 million, consistent with seasonal changes in receivable balances and provides additional liquidity for CERC.

We have continued to improve our balance sheet this year.

In September we raised approximately $280 million in an underwritten equity offering in conjunction with the announcement of our field services business signing excellent long-term agreements with EnCana and Shell to expand gathering and treating facilities in the Haynesville Shale.

Combined with the sale of common stock through our previously announced continuous offering program and the issuance of common stock through our savings plan and enhanced dividend reinvestment plan, we have raised approximately $485 million through the sale of 43.6 million shares of common stock through September 30.

The combination of internally generated cash and cash from our financing activities this year will allow us to reduce debt, and we expect to end the year with a significant cash balance and be undrawn in our various credit facilities.

We continue to have a relatively large capital budget, which includes our regulated operations franchise required capital and a number of very attractive projects, particularly in our pipeline and field services segments.

Producer activity continues to be fairly active in the shale plays, and we remain committed to pursue value creating opportunities that this activity presents.

We have consistently stated that our objective is to improve our balance sheet and enhance our credit metrics to ensure that we have the financial flexibility to execute our business plan, and we are committed to financing our operations using an optimal mix of debt and equity, in line with our overall business risk profile.

My final topic will be our 2009 earnings guidance.

This morning in our earnings release we announced that we reaffirmed our 2009 earnings guidance range of $1.05 to $1.15 per diluted share.

In providing our guidance we considered our performance to date as well as various economic, operational, financing and regulatory assumptions, including the timing of the sale of storm restoration bonds associated with Hurricane Ike.

We have assumed normal weather in both the electric and gas utilities, and we have excluded the effects of mark to market or inventory accounting on the earnings of our competitive natural gas sales and services business.

We have also excluded any impact to income from our pending true-up appeal and from any change in the value of Time Warner stocks and the related then securities.

In addition, we have excluded the impact to income from the discontinued use of regulatory accounting at SESH.

Finally we have assumed a full year tax rate of 34% that takes into consideration our third quarter tax rate of 25%, that reflected the recent settlements of tax audits for 2004 and 2005.

Now I would like to turn the call back to Marianne.

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).

Lasan Johong, RBC Capital Markets.

Can I ask a question on this DOE grant money?

I'm a little confused as to what the schedule looks like.

It sounds like you're completing the AMR program by 2012, but earlier on, David, you said that it would take five years to complete 2 million meters.

So I'm kind of wondering what I am missing here.

I probably confused you.

That's our original schedule.

Our original schedule had us completing it by 2014.

With the DOE funding -- and $150 million of the stimulus funds goes to advanced metering -- we will accelerate that from 2014 to 2012.

And then we've got $50 million that we are going to put in -- start putting in our intelligent grid, our mid-grid intelligence.

So those two components add up to the $200 million.

I got you.

The other question I had was on the acquisition, 100 million cubic feet per day of gathering, potentially going to 700 million cubic feet.

What would trigger those growth patterns?

And how do we monitor that and CapEx spending associated with that?

And is the acquisition in general what you had expected?

Shell and EnCana -- and these are two separate contracts -- they have a very aggressive drilling program in the Haynesville area.

So we expect, based on their productions' drilling schedule and estimated production schedule, that we are going to ramp up to that 700 million after we get all these facilities completed.

However, the company has volume commitments, so if they don't hit their drilling schedule, or their production schedule, we have protections to get paid anyway.

So we are hoping they do well.

There are some upsides if they in fact produce and we don't have to rely on volume commitments.

Of course we would like to see them be very successful where they could go ahead and elect to expand these facilities, and we would even put in more.

Do you think -- is this acquisition as you would expect it?

Better than you expected?

How would you characterize it so far?

We are delighted with this acquisition.

It's -- or these contracts.

We've been working on them for a number of months.

They are in our sweet spot.

We gather gas in northern Louisiana -- have for a long time.

We wanted to be in the Haynesville Shale play.

We had some minor activities in that area.

So we are really excited about this.

I think it's exactly what we wanted to do, and we're just hoping it's the start of something even bigger.

On the CapEx spending you need to get up to 700 million cubic feet.

Can you kind of give us timing and amounts?

We are going to spend -- we've spent -- we'll spend about $125 million of the $300 million or so this year.

And then the remainder of those expenditures will be spent in '010 and the first half of '011.

Great, thank you very much.

Faisel Khan, Citigroup.

Just trying to figure out how the acceleration and the DOE grant kind of benefit the shareholders in terms of your CapEx planning for smart grid and the transmission lines.

Well first, we only earn on our net investment here.

And because of this funding by the federal government of $150 million, we are going to have less invested in this program.

But our customers are going to get the benefit of that because they're going to have to pay $150 million less.

We think that's a win/win situation.

What's good for our customers in the long term is going to be good for us.

And this is enabling technology.

It will enable our customers to be -- to do things with home area networks and smart appliances and time of day rates that they can't do today.

So -- and I think that along the way we are going to have some opportunities arise because of that.

The other piece of this is we get to start now investing in the mid grid in putting sensors and automated pole top switches and other things on the grid that's going to make the grid more reliable, it's going to make us more efficient, we are going to be able to heal the grid quicker following outages, we will be more preventative rather than reactive in our maintenance.

So I think it's going to make us a more efficient utility.

In the long run that's going to bode well for us.

In theory over the long -- over the next five years, your net rate base should go up with these investments.

Is that a fair statement?

That's correct.

And just a follow-up question, your operating cash flows for the nine months today were about $1.4 billion.

You also talked about the bonds that you would issue for storm recovery.

By the end of the year with all this cash coming in the door, including the equity offering you had in the second quarter, what are you looking at your debt to cap to be by the end of the year?

Debt cap will be about 73%.

We will pay down debt this year of a little more than $1 billion.

We will end the year with about -- between $600 million and $700 million on our balance sheet.

Of cash?

Of cash.

Okay.

Great.

Thanks, I'll get back in line.

Scott Engstrom, Blenheim Capital Management.

Just wanted to follow up on your comments on the guidance.

You pointed out a number of exceptions.

What I was trying to understand is, are those exceptions, are you talking about those specifically as it relates to the fourth quarter?

Or are you saying going back and adjusting the numbers so far through nine months for some of the things you pointed out?

It would be going back for nine months.

And we have been consistent on these.

And let me just give you third quarter and then year-to-date to help you.

If you look at the third quarter, we reported $0.31 a share.

If you adjust for the mark to market and inventory, the Time Warner shares, and the SESH write-off, which was an accounting change, the application of an accounting standard, you are still back to $0.31 a share.

If you look at that for the nine months, and I'll just give you the numbers, we reported $0.74, there's a $0.05 adjustment for mark to market and inventory.

As you know, those are temporal, they should -- they'll return to it.

The Time Warner is then $0.03, and then $0.03 the other way for the SESH write-off by adding that back.

So you get to $0.80.

So on our guidance for this year, we really don't exclude that much, frankly, come from our guidance.

What we are trying to show you is that we are at $0.80 for nine months.

I think if you look at the tax rate earlier in the year, I started at a higher tax rate, we guided you to 35%.

This quarter is a 25% tax rate because we actually settled those 2004/2005 audits with the IRS.

So for the full year you will come back to 34%.

In fact, our year-to-date tax rate's 33%.

I want to remind you and others as you look forward to 2010, though, our tax rate should return to more of a normalized rate of 37%, 38%, and we will give you some guidance on that early next year.

Great, that was very helpful, thanks a lot.

Steve Gambuzza, Longbow Capital.

I was wondering if you could just -- the question about cash flow, $1.4 billion through the first nine months of the year.

What would you expect cash flow from operations for the full year to be?

Well, I think you've got to -- first of all I think the number you're picking up probably includes the securitization bond.

But if you look for our nine months, we will have -- our debt level at the end of this quarter is $7.045 billion.

We will not increase debt in the fourth quarter.

So we will end the year with about $7 billion of debt, $7.045 billion, that sort of range, and with between $600 million and $700 million of cash on the balance sheet.

So for this year in terms of operational cash flow -- and again, this has two elements I want to bring to your attention.

One, we've done I think an excellent job managing working capital, putting new asset management agreements in place that really allow us to more effectively manage our working capital over the long term, plus we've had the benefits that I mentioned of the deferred -- continued some deferred tax benefits on accelerated depreciation, bonus depreciation.

So for this year we will fund fully our CapEx program, our dividend, and we will again, as I said, and the year with $600 million $700 million of cash on the balance sheet.

Now, of course that includes the financing that we did at SESH that we are the beneficiary of.

We had been funding that ourselves, and we had $186 million, or really a total to $215 million coming back on that.

And of course we've had $485 million of equity issuance this year as well.

So I think what you see is an improved balance sheet, which was our commitment as we started this year.

We have improved our balance sheet and put ourselves in I think a strong position as we look to execute our business plan in 2010 and beyond.

Clearly the free cash flow has been fantastic.

I can't -- looking at the cash flow statement, I can't back out the securitization impact quickly.

But the SESH cash flow looks like that came back on the investing section of the cash flow statement?

It did.

(multiple speakers) And there are two elements of that.

That was the financing that we did at SESH, and then there was a payment that we received from Sonat that flowed back to us as well.

I guess really my question is, as we look to the fourth quarter given your net income guidance, there has been very substantial cash flow benefits other than net income and depreciation for the first nine months of the year.

You've pulled orphan capital out, you've had substantial deferred tax benefits.

As we look to the fourth quarter of this year and think about fourth quarter cash flow, will there be other components to cash flow, besides net income and appreciation, of consequence?

I.e., more deferred taxes and more working capital reductions?

Or would you expect it (multiple speakers)

Not material in the fourth quarter.

And then you also mentioned that you signed some new contracts in the Haynesville or some of the shale plays, in your opening remarks.

I was wondering if you could please elaborate on those.

Those are really the two that I mentioned with Shell and EnCana.

And these are terrific contracts, at least in our minds.

We will spend on the first phase up to $325 million to gather and treat up to 700 million a day.

And then both parties have an option to increase their volumes in increments of 200 million a day, up to a total of 1 billion a day.

They have to just give us notice to do that.

And it takes about a year to make these kind of -- you have to acquire the equipment and right-of-ways and so forth.

So -- but we are excited about them.

We think it's a great -- Haynesville is probably one of the most prolific gas plays discovered in the US in many, many years, if not ever.

And to be in there at this -- in a really good spot, we are excited about.

When you look forward to 2010, given the dynamics of kind of growth in the shale plays and potentially continuing declines for some of the traditional areas, do you feel like volumes are apt to be positive to flat versus what they were this year for your field services business?

If you look at what's happened so far this year, we are kind of flat on a year-to-date basis.

There is no question we are experiencing volume losses in our traditional basins.

There hadn't been very much drilling at all in those basins, and as a result of that you are seeing volumes start to decline.

We are offsetting those volumes with these new shale plays, both in the Fayetteville, Woodford and the Haynesville.

And I expect that will more than offset the declines that we are experiencing in our traditional basins.

We also hope that if gas prices firm up a little bit, that we will see a resumption of some level of activity in our traditional basins.

And if we do, I think we are very well positioned then with both the shale plays and these traditional basins because we have very good facilities there, we only -- not only gather the gas, we process a lot of it.

So we are very well positioned I think once drilling picks back up.

Thanks very much.

Mark Rogers, Gagnon Securities.

I was just wondering, when you first started discussing smart grid initiatives, you had to come up with -- both internally and with the Texas PUC -- an agreed upon rate increase to cover the capital investment.

Correct?

Correct.

So now with $150 million less being spent, are you revising that rate increase?

What will happen -- or one of two things.

One is that the tariff just won't go as long.

We obviously have to recover $150 million less, and that's what we'd prefer to happen because we are going to be funding a fairly large amount of capital over the next two or three years.

The other thing is they could reduce -- the PUC could reduce the tariff to reflect this reduction in capital, and we will be going in I think next year for a reconciliation, and I am sure that will be discussed at that time.

And I am not trying to be negative on this, I am just wondering -- for the foreseeable future, probably at least a year into this reconciliation, the customer is actually not going to be seeing any savings with the $150 million support from the DOE.

It would have to be until the rate base is readjusted.

Yes.

The tariff is not going to change, but the value of the smart grid, of the advanced metering, is what they can do with their energy consumption.

How they can manage their home.

You're going to have communications where they are going to be able to see essentially on a real-time basis how much energy they are using.

You're going to be able to communicate with smart appliances.

You're going to be able to have home area networks that are focused around energy.

So there's going to be different ways for them to get value out of this.

But you are right.

Our plan is not to go in and change the tariff immediately, and so -- but I think there's -- the value of this is in -- it's an enabling technology and it's how you use it.

Absolutely.

And then one quick follow-up.

The meters on the smart grid really is one of the easier things to implement.

You just turn on the meters.

But the backhaul systems need to be there.

With this two-year accelerated deployment schedule, from 2014 to 2012, are the rest of your processes going to be able to ramp -- to be able to be ramped up faster, such as the dynamic pricing models, the substations, all the two-way communication modules necessary, the networking capability?

Or are the meters going to be ready with everything else to follow?

We will have to accelerate the implementation of our communications infrastructure.

I think you've hit on a very important part.

You have to have the communications network there in advance of when the meter gets there so you can communicate with it.

But we have a plan that we have put together that in fact will do that.

We will probably begin that this year, in fact, so we can be ready as these new meters get here and we can start basically doubling our installation rate monthly.

So -- but we believe we have a good plan put together and we can handle it, yes.

Just one follow-up.

You're using Itron for your meters.

That's publicly disclosed.

Are you using them for the communication modules as well?

No.

Oh.

You are not.

No.

So this doubling of deployment schedules, is this something we can see starting -- because you still have to get checks.

I've been looking at some of these delays.

They say maybe even three months.

This is a Q1, Q2 story on deploying, doubling the deployment schedule?

I think that's right.

You have to negotiate these agreements, and we will start that the middle of next month.

We expect by the first quarter, early in the second quarter, we will start this ramp-up.

But we are very confident we will get it, so we are going to start planning on that and anticipating it from a communications standpoint.

Great.

Congratulations.

Lasan Johong, RBC Capital Markets.

I hope a final question.

Cash balance is $600 million to $700 million by year-end.

That's a pretty large chunk of cash to have on your balance sheet.

Do you have any preliminary plan of what you want to do with it?

We're going to fund operations and capital going forward.

I think the decisions on that -- and we will give you more a view of that when we release fourth quarter earnings.

We really need to look at our CapEx program next year, both franchise required capital and, as David mentioned and I mentioned as well, we have a number of projects we are continuing to look at both in pipelines and field services.

So we really want to see our CapEx program.

But I think the real take-away is that we have been executing our business plan, which is improving this balance sheet.

I think raising this equity capital has been very helpful to our company.

And of course recovering the hurricane Ike costs through the sale of these bonds.

And that's the real key to having the cash.

We expended that cash.

Now we are getting it back plus a return.

So we're going to be very thoughtful about it, and we need to really look at our CapEx program as that unfolds with more specificity in the next 60 days or so.

Specifically I was wondering if you thought of any potential shareholder initiatives like a share repurchase program or something like that.

No, not really.

Look, I think where we are, we still look at our leverage.

We've made good progress.

We've paid down debt.

We are undrawn using our credit facilities.

But over the long term for us to execute our business plan, we want to continue to improve the balance sheet, obviously.

And I don't think that would be in our -- in the best interest of our shareholders at this point.

I think we're going to continue focus looking at our dividends.

The Board will take a very thoughtful look at that early in the new year, and I think we have been paying our dividend so far in a very thoughtful way.

We're going to continue to look at that.

So I think our shareholders should be rewarded through the dividend and then our ability to invest our capital and grow this company over the long term.

Understood, thank you.

Stephen Wong, Carlson Capital.

I just had a follow-up on the field service business.

I know you guys had like 100, 125 million I think for next year, on top of the Shell and EnCana deal.

How does that look today based off what you talk to the producers?

And how should we think about that for next year and then kind of like '11?

Well, we have the Shell/EnCana schedule, and so we feel pretty confident in that.

So we will be spending, after the $125 million this year in '09, $175 million on those projects the next year, year and a half.

But we have some other significant projects that we are going to continue.

We had a capital budget this year of $277 million in field services.

We are going to probably spend about $185 million or so, maybe $200 million of that budget.

The rest of it is going to be carried over into '010.

And then we have the Shell/EnCana on top of that.

So we are going to have a sizable capital budget in field services next year.

At least we hope we are because these are very attractive projects that have good -- and they are good contracts, and we look forward to getting the facilities in the ground.

But I thought that next year's CapEx for field service, before the rollover, was already $100 million to $125 million, excluding Shell/EnCana.

Let me look and see if I can refresh my memory on our CapEx for (multiple speakers)

How should I think about CapEx for field services all-in for next year?

Let's see here.

Last year we said that field services' capital budget was going to be $142 million.

We will spend that plus probably $130 million more on the Shell/EnCana, plus we will have some carryover from this year of $70 million or $80 million on top of that.

Now, we will have to look at some of our assumptions.

We may bring that $142 million down a little bit, but we are going to have -- this year we had a $277 million capital budget.

We are not going to probably have quite that big a budget.

We are going to have pretty close to that budget next year, I would expect, if not -- it's going to be right around that $250 million to $300 million level.

I just wanted to make sure that that $70 million to $80 million in carryover wasn't cutting down the $142 million.

No.

The $142 million -- of course that's a year old now, and that had some greenfield projects that we assumed.

So there will be some averaging out there, but we are going to spend $142 million plus some on -- from -- without the Shell/EnCana.

And then how should we kind of think of like milestones for the incremental 1B on the Shell/EnCana?

Like you said it takes one year out.

Next year is there even a possibility that they could come on?

I think because -- indicated next year?

Is this more of a 2011 event?

I would say it's 2011.

They have to give us notice so we can order the equipment and then install it.

I will say that once we get notice I am sure that we will tell the market about it, so we will let you know if we are going to expand these.

But I think both Shell and EnCana will -- it's going to be based on the success of their drilling program.

And as they get more experience there, I think they will decide what they want to do.

The then just a last one here, and I'm following up with your comments here on the pipeline side of the business.

Based off -- we were wondering with all the -- how prolific the shale play has been, should we anticipate any expansion of SESH coming up, especially with FPL losing their approval on their pipeline in Florida?

Or even the -- I think you guys are also looking to do additional Haynesville pipe.

How should we think about what's going on there?

We continue to talk with shippers on SESH, and when the timing is right there, we will expand that.

And we are continuing to talk to the folks that are shipping on it now, as well as others.

So I don't think that's imminent, but I think we are clearly in talks with folks about it.

We still are looking at the Haynesville area and whether or not additional pipe is needed there, and talking to producers and others about that.

But in order to do a pipe like that, we would have to have substantial commitments by producers to do that.

But those conversations go on every week.

So we are -- continue actively looking at new projects in that area.

But the SESH contract, this summer I think you had some short-term contracts.

Has there been any new longer-term contracts signed up for SESH?

I don't think so.

We had about 205 million a day that we could sell this year.

Part of that was the shippers' firm commitments didn't start until next year and then '011.

There's about 85 million that really isn't sold.

I think they've sold through the middle of the fall about -- all but about 65 million of that.

But to my knowledge there are no new long-term contracts.

All these are short-term, firm contracts, or just interruptible contracts.

Thank you.

We'll take one more question.

Faisel Khan, Citigroup.

Just a couple more questions.

Gary, could you elaborate a little more on the tax rate in the quarter?

I think you talked about it, but I may have missed your commentary on it.

A little bit lower than (multiple speakers)

Yes.

Yes, I'll be glad to.

First of all, I think if I think about the full year first -- and let me come back to that.

Full year tax rate now, we are guiding at 34%.

Our year to date tax rate now is 33%.

In the third quarter, though, we actually completed or finalized our 2004/2005 audits with the Internal Revenue Service.

As such we -- and had some other minor adjustments, but that was the bulk of it.

We had about a $16 million favorable entry to taxes.

So our tax rate in the third quarter is 25%.

Understood.

Last question, given your strong balance sheet position going into next year, is it fair to say that you are properly capitalized for most of your projects, along with the potential expansion of the gathering and processing system for Shell/EnCana?

I know you have this 700 million cubic feet a day expansion, but there's also the incremental Bcf a day above and beyond that.

Does the equity you raised and the balance sheet position you'll be in at the end of the year fully fund that development of that expansion also?

I think the way -- and I think that's a good question, it's a fair question.

We've raised, as we mentioned, $485 million of equity capital.

At this point we still have turned on our DRIP program and our savings plan as well, which generates around $75 million or so of equity capital.

So I think at this point we feel good about our position to execute our business plan.

I will say this, though, it's dependent on our capital plan for next year.

So to the extent we have more capital in field services, or significantly more capital, we'll have to always make sure we have the correct mix of debt and equity.

So it really depends on that go-forward capital.

By the way, I would be excited, as David said, if we can execute some really great contracts similar to the Shell/EnCana.

That would be a great thing for our shareholders.

Makes sense.

Thanks a lot.

Appreciate the time guys.

All right.

Thank you very much to everyone.

I would like to thank you for participating on our call today, and we appreciate your support very much.

Have a great day.

Ladies and gentlemen, this concludes CenterPoint Energy's third quarter 2009 earnings conference call.

Thank you for your participation.