CenterPoint Energy Inc (CNP) 2010 Q1 法說會逐字稿

Good morning and welcome to CenterPoint Energy's first quarter 2010 earnings conference call with senior management.

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

There will be a question and answer session after management's remarks.

(Operator Instructions).

I will now turn the call over to Ms.

Marianne Paulsen, Director of Investor Relations.

Ms.

Paulsen?

Thank you very much.

Good morning, everyone.

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

I'd like to welcome you to our first quarter 2010 earnings conference call.

Thank you for joining us today.

David McClanahan, President and CEO, and Gary Whitlock, Executive Vice President and Chief Financial Officer, will discuss our first quarter 2010 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 Investors section.

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

Before Mr.

McClanahan begins, I would like to mention a replay of this call will be available until 6 PM Central Time through Wednesday, May 12, 2010.

To access the replay please call 1-800-642-1687 or 706-645-9291 and enter the conference ID number 66178412.

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

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

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

Thank you, Marianne.

Good morning, ladies and gentlemen.

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

I'd like to begin with an overview of our first quarter 2010 results.

Overall this was a very solid quarter with most business units performing at or ahead of our expectations.

This morning we reported net income of $114 million for the first quarter or $0.29 per diluted share.

This compares with net income of $67 million or $0.19 per diluted share for the same period of 2009.

Like a number of other companies, we were required to take a first quarter charge as a result of the recent healthcare legislation.

This charge reduced earnings by $21 million or $0.05 per diluted share due to an increase in federal income tax expense arising from the elimination of the future tax deductibility of certain retiree healthcare costs.

Operating income for the first quarter of 2010 was $357 million compared to $285 million for the same period of 2009, an increase of about 25%.

I will begin my review of our individual business segments with our regulated electric and natural gas distribution utilities.

These businesses achieved very strong results this quarter.

Houston Electric, our transmission and distribution utility, reported operating income of $71 million compared to $37 million for 2009, an increase of $34 million.

This increase was primarily due to higher energy usage due in part to much colder winter weather this year.

In addition, you might recall that in the first quarter of last year, we experienced a noticeable decline in energy usage which was not attributable to weather.

We did not experience a similar decline this year.

We also benefited from higher net transmission related revenues as well as the addition of nearly 22,000 customers over the last 12 months.

Operation and maintenance expenses remained essentially flat.

Since late 2006, we've been operating under the terms of a Settlement Agreement that froze our electric distribution rates through June of this year.

Under the terms of that agreement, we must file a rate case by June 30th.

We are currently preparing our rate filing and while we have not yet determined amount of rate relief, or the specific tariff changes that we will request, we will be requesting a higher equity capital percentage than the 40% currently reflected in rights.

We will also seek the recovery of our increased annual pension cost and the amortization of the pension cost we have deferred since the beginning of last year and the $20 million of transmission related cost we incurred in restoring service after Hurricane Ike.

We anticipate a final order in early 2011.

As we've discussed in the past, Houston Electric is progressing well in implementing its advanced metering system.

Through April, we have installed over 300,000 smart meters along with the supporting communications equipment and information systems.

This complex undertaking is going well with no significant issues arising so far.

We are also successfully completing negotiations with the Department of Energy and in March signed the contract to receive $200 million in federal stimulus funds.

$150 million will go to accelerate the completion of our advanced metering system to 2012 rather than 2014 as originally planned.

The remaining $50 million will be used to support our intelligent grid initiative.

Under the terms of the agreement, the DOE will reimburse 50% of the cost of both projects as costs are incurred until the grants are fully funded.

Now let me turn to our natural gas distribution business.

This segment reported operating income of $139 million compared to $118 million for 2009, a $21 million increase in operating income.

The increase was driven by higher system throughput, in part due to colder winter weather in our southern service territories, higher non-volumetric revenues such as connect and disconnect fees, and operational efficiencies, the most significant of which were reductions in credit and collection cost.

We worked diligently on reducing customer delinquencies and bad debt expense and I'm pleased to say that we continued to see the benefit of that effort in the first quarter.

These efficiency improvements resulted in a small reduction in total operation and maintenance expense for this segment in the first quarter.

Like our electric business, our gas business also had customer growth during the last 12 months adding over 16,000 customers, mostly in Texas and Minnesota.

Final rates from our Houston rate case were implemented on March 15th and we are currently working with the regulators in Minnesota to finalize the implementation of the new decoupling mechanism approved as part of that rate case.

With these two rate cases essentially behind us, our natural gas distribution business will assess the need for additional long term rate relief.

In the near term, margin growth will come from tariff adjustment mechanisms, revenue sharing from asset management agreements, and customer additions.

Our competitive natural gas sales and services business reported operating income of $15 million compared to $2 million for 2009.

We recorded mark-to-market gains of $3 million in the first quarter of 2010 compared to charges of $19 million in 2009.

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

In addition, the first quarter of 2009 included a $6 million writedown of inventory to the lower of average cost or market .

Excluding these items, our energy services business would have reported operating income of $12 million for the first quarter of 2010 compared to $27 million for 2009.

Our natural gas sales to commercial and industrial customers this quarter remained at levels comparable to last year.

However, we continue to experience fewer wholesale opportunities due to significantly smaller locational price differentials and decreased winter storage spreads.

Now let me turn to our Interstate Pipelines unit.

Interstate Pipelines recorded operating income of $72 million compared to $69 million for 2009.

Our core business performed well, building on its strong fee based foundation with increased margins from firm contracts.

A primary driver was Chesapeake's increasing Haynesville production which began moving to market on our Carthage to Perryville pipeline last April.

The February completion of Phase 4 of this pipeline also allowed us to provide additional firm service two months ahead of schedule.

Our equity income from ongoing operations from the Southeast Supply Header, or SES, our joint venture with Spectra, was $3 million for each of the first quarters of 2010 and 2009.

During the first quarter of last year, we took a $5 million non-cash charge to reflect SES's discontinued use of regulatory accounting.

Our Field Services segment reported operating income of $23 million compared to $26 million for the first quarter of 2009.

Revenue growth from higher gathering volumes and higher natural gas liquids prices was more than offset by lower natural gas prices for our retained volumes and higher operating expenses primarily related to facility expansions.

Field Services achieved a 12% increase in throughput in the first quarter of this year versus the fourth quarter of 2009, primarily associated with the Haynesville, Fayetteville and Woodford shales.

I'll provide more detail around our Haynesville gathering activities in a minute.

In addition to operating income, we also recorded equity income of $2 million from our jointly owned natural gas processing facilities for each of the first quarters of 2010 and 2009.

Our natural gas liquids prices this year were offset by lower processing volumes due to a third parties supply line rupture and unscheduled maintenance at a customers plant.

Now let me update you on recent developments regarding our projects in the Haynesville shale.

Last September, we signed long term agreements with subsidiaries of Shell and Encana to provide gathering and treating services for their growing northern Haynesville shale natural gas production.

The trunk line and aiming facilities to gather and treat 700 million cubic feet per day are nearly complete and substantial volumes are already flowing.

Volumes on this system, which we call the Magnolia Gathering System averaged about 300 million cubic feet per day in the first quarter and recently throughput has increased to more than 550 million cubic feet per day.

Our overall investment for the 700 million cubic feet per day project is expected to be around $325 million with all major facilities in service by year-end.

We have spent about $260 million through the end of the first quarter.

Under these agreements, Shell and Encana can request us to expand the system up to an additional 1 billion cubic feet per day.

In March they made their first request for an expansion to provide gathering and treating services for an additional 200 million cubic feet per day and increase their volume commitments accordingly.

We expect to spend $50 million to $70 million in 2010 on this expansion primarily for additional aiming and treating capacity and partial looping of the gathering trunk line.

If we are ultimately requested to expand our facilities to the full 1 billion cubic feet per day of incremental capacity, our total capital investment in the Magnolia Gathering System could be as much as $625 million and total capacity would be 1.7 billion cubic feet per day.

On Monday of this week, we announced additional agreements with Encana and Shell to gather and treat their Southern Haynesville production.

These contracts are structured very similarly to the Magnolia system agreements with minimum throughput commitments and the exclusive rights to gather and treat their natural gas production in designated Haynesville acreage.

As part of these new agreements, we acquired their existing facilities and will expand those facilities to gather and treat 580 million cubic feet per day, with the potential to add additional capacity of 520 million cubic feet per day at their election.

We refer to this project as the Olympia Gathering System and the capital investment for the initial phase is approximately $400 million of which $300 million is expected to be spent this year.

The total cost of this system is expected to be as much as $600 million if all of the incremental capacity is elected to bring the Olympia System to 1.1 billion billion cubic feet a day.

In summary, a total of 1.5 billion cubic feet per day of capacity has been contracted to date under the various agreements with Encana and Shell with corresponding throughput agreements over the first 10 years.

These facilities are expected to cost up to $800 million in capital.

If all incremental expansions are elected, total capacity for the combined systems would be 2.8 billion cubic feet per day with up to 1.25 billion invested in facilities.

Committed volumes would be increased accordingly.

Overall we're very proud of our project execution and high level of customer service.

Two attributes that helped forge a great working relationship with these customers and helped secure these long term agreements for our Field Services business.

In closing I'd like to remind you of the $0.195 per share quarterly dividend declared by our Board of Directors on April 22nd.

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

With that I'll now turn the call over to

Thank you, David, and good morning to everyone.

Today I'd like to discuss a few items with you.

Let me start with the credit rating agencies.

We are very pleased with the positive rating actions recently taken by both S&P and Moody's.

S&P revised its outlook on the CenterPoint family from negative to stable, affirmed our long term rating and raised the short-term rating.

Moody's placed the ratings of CE under review for possible upgrade and changed the ratings outlook for both the CenterPoint parent and CERT to positive from stable.

Obviously we are very pleased with these actions as they reflect the business performance and financing actions we have taken to date and our consistent committment to improve our financial position in order to effectively execute our business plan.

In his comments, David updated you on the status of the contracts we executed last year with Shell and Encana in the northern Haynesville shale including their first request for a system expansion.

He also discussed the new agreements we have just signed to gather and treat their Southern Haynesville production.

The estimated capital for the commitments we have made so far for both the North and South is expected to be approximately $800 million.

For 2010, our revised capital estimate for Field Services is approximately $575 million, an increase of $350 million from our original 2010 capital estimates.

The Company's total capital spending for all of our businesses in 2010 is now estimated to be approximately $1.5 billion.

We are very pleased about these additional high quality value-creating capital investment opportunities.

Our overall business performance remains solid and we will continue to generate significant cash from operations.

However as we have consistently stated, we are committed to financing our operations using an optimal mix of debt and equity while improving our balance sheet and enhancing our credit metrics.

We remain in a very strong liquidity position and our various credit facilities are essentially undrawn other than relatively small amounts supporting letters of credit.

In the first quarter, we reduced non-securitized debt by approximately $386 million and today remain in an investment position.

Finally, let me discuss our earnings guidance.

We were pleased with our overall business performance in the first quarter and this morning we have reaffirmed our 2010 earnings guidance in the range of $1.02 to $1.12 per diluted share.

As David mentioned, as a result of the recent healthcare legislation, we were required to take a $21 million charge to income tax expense that reduced our first quarter net income by $0.05 per diluted share, and increased our tax rate to 47% for the quarter versus a normal rate of approximately 37%.

We have excluded this item from the determination of our earnings guidance.

In providing earnings guidance we have taken into consideration our first quarter performance as well as various economic, operational and regulatory assumptions.

We have also assumed normal weather for the remainder of the year in both the gas and electric utilities.

And as you know, providing guidance, we routinely exclude the effects of mark-to-market and inventory accounting as they are timing related.

Also we do not try to include any potential impact to income from our pending true-up appeal, the change in the value of Time-Warner stocks and the related securities or any mandated accounting changes that may occur during the year.

As the year progresses we'll keep you updated on our earnings expectations.

Now I'd like to turn the call back to Marianne.

Thank you, Gary.

With that we will now open the call to questions and 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).

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

Thanks, good morning, everybody, and nice quarter and certainly congratulations on the Olympia contract, which is actually my first question.

David, you may have mentioned that the contracts are structurally similar.

Given that we've seen a little bit increased competition coming into the Haynesville Kinder Morgan enterprise, et cetera, were you able to maintain the same very strong economics you had on the Magnolia or has that slipped a little bit?

No, they're very comparable.

I would consider the economics equivalent between the two and really, the terms of the contracts are essentially equivalent.

There was a few changes just because of different locations but these are essentially all the same contract.

That's great, and then just on a second question on the sales and the services and I appreciate you breaking it out on a mark-to-market adjusted basis.

Given that we continued to be in a relatively flat basis market that's probably not changing any time soon.

Should we look for this sort of zero to $10 million in sales and services going forward or do you still expect a lot of volatility in there?

Just hoping to get some color.

We don't know what's going to happen that could trigger basis but right now it looks like basis is pretty flat, which is going to hold back wholesale opportunities on that front.

We think there will be some storage opportunities as the year goes by and we see a little bit of that now and we're locking in a little of that.

And I think the retail business though continues to do very well.

We're adding customers and winning new customers and that business is fine.

But the wholesale is going to be a drag on the business like you said, so I don't think we're going to see any huge upside there, at least in the near term.

Great.

I'll jump back in queue, thank you.

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

Thank you.

Great quarter.

Gary, the $0.05 healthcare charge is one-time but do you have any ongoing charges for FX?

We do.

They are pretty minimal going forward, so we've excluded this from guidance.

Going forward it's fairly minimal.

Like under $0.01 basically?

Yes, under $0.01 is the way to think about it, exactly.

Okay, David, drilling acceleration, are you still seeing acceleration in drilling particularly in the liquids rich areas?

We're not seeing any increase in drilling in our traditional basins where the liquids were.

The shale plays that we're gathering are not liquids rich.

They are pretty dry.

We did see a little uptick in the second and third quarter of last year with a few more rigs going into some of the more traditional basins.

They've stayed there but it's not anything to write home about so almost all of the real significant drilling activities are in the shale plays.

Great.

One last quick question.

Any impact from the Gulf of Mexico oil spill?

No.

We haven't seen anything.

Great.

Thank you.

Our next question will come from the line of Ali Agha with SunTrust.

Hello, thank you, good morning.

Gary, could you quantify what exactly was the weather impact to you guys, a favorable pick up in the quarter?

I'll let David take that.

We have weather models that predict this or try to predict it.

They tend to think it's in the $8 million to $10 million range.

I would say that we think they understate weather a little bit so we're thinking weather had about $10 million to $12 million impact on operating income across our LDC's and our electric business.

We did, as I noted, last year we saw a fairly steep decline at Houston Electric in usage that we didn't attribute to weather.

We really attributed it to the fall out from Hurricane Ike, the weak economy and really high electric prices that still remained in Texas.

The good news is that all came back.

We didn't see that kind of decline this year so we're hoping that bodes well for the rest of the year.

And second question, David.

On Houston Electric as you're going in to file the rate case, could you just remind us on an LTM basis what your ROE is both assuming a 40% equity ratio and perhaps assuming a 45% equity ratio?

As I recall, we have a little over 45% equity in the business on an actual basis.

Last year we earned on an unadjusted basis a little over 11% but on a weather adjusted basis, we earned I think about 9.8%.

Now I don't have the numbers, maybe somebody around the table can get them for us.

It's probably 10.7%, 10.8% if you take it down to the 40% equity level, but it would be up in that upper tens, I imagine.

And just to clarify, David, the benchmark would be 10.5%, is that considered the reasonable ROE?

That's what we've seen, the Commission, those levels being authorized recently.

That's right.

I might also say that we don't really expect this rate case to be an earnings driven where we're going to get a lot of new operating income that falls to the bottom line.

It's really a cash flow rate case where we'll get to recover increased expenses whether they are mainly the pension and the deferred pension and amortize these transmission costs that we incurred during Hurricane Ike that we haven't gotten recovery for.

There could be some improvement in the bottom line but I tend to think of this as a cash flow type of case as opposed to a big earnings type of case.

Understood, thank you.

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

Good morning.

I think when you provided your outlook in the last year-end, you indicated that you would expect Field Services to have positive or growing operating income in 2010 versus 2009.

And I was just curious given the drop in gas prices and perhaps some decline in volumes from when you originally issued guidance on some of the traditional basins, has your outlook for Field Services changed at all?

No, it really hasn't.

We were essentially on plan on what we expected to occur in the first quarter so it's tracking really right along what we thought it would do.

As you know, you tend to incur some expenses, especially on these big facilities we're building in the Haynesville, before all of the volumes come through.

And it will be, the third and fourth quarter is where we're going to see the full impact of that first phase starting to show up.

We might see a little bit of it in the second quarter but we still believe this year is going to be a good solid year for Field Services.

I was more concerned about the potential for some of the producers in the Fayetteville or the Woodford to stop producing at the current gas prices, or if gas prices were to go down a little bit from current levels and that might affect your volumes.

Is that something that you think is possible or something you don't expect gas prices?

I guess it's possible but a lot of the drilling being done in the Haynesville today is to hold the leases.

They've got to drill within three years of the date they signed those leases or they will lose them and they pay the fair amount to get those leases.

So it's driven by that today.

But I think if you look at the economics of the shale plays and even where the prices are today, they can still make money at this level if you believe the published numbers and that's really what I'm basing my comments on.

Haynesville has almost the lowest costs of any of the shale plays other than maybe the Eagleford.

But you also operate in the Woodford and the Fayetteville is that right?

Yes, that's right.

And the other thing I was reminded, most of these producers have hedged their volumes for not only this year but for next year and a little into 2012, so they aren't getting compensated based on today's prices.

They've hedged these at significantly higher prices.

Fair enough.

And final question, it sounds like you've spent a significant amount of at least the first phase of the Shell and Encana JV, you've invested a good amount of capital through the end of the first quarter.

From a budget standpoint do you feel like you're tracking well in terms of the cost of the project versus your initial estimates?

Yes, we are.

There have been no surprises.

We're tracking right what we expected so no big surprises there.

Thanks very much.

Our next question will come from the line of Daniele Seitz with Dudack.

I was wondering if you still anticipate CapEx to be a bit higher next year as well?

There will be a little bit more CapEx because of these contracts we've signed.

I would say I think we're estimating a little over $100 million of incremental capital above what we had in our 10-K due to these contracts and that could increase if they elect any further expansions.

We've seen our first expansion on the northern properties and we'll see really how their production goes but I think a minimum of incremental $100 million for next year on Field Services.

And your sensitivity to gas prices regarding sales services, do you sense that it is working according to your forecast as well?

Has that changed somehow?

It really hasn't.

We hedged most of our projected retained volumes this year so we're not as sensitive to gas prices the remainder of this year.

Obviously we're going to be a little bit more sensitive once these hedges fall off if gas prices stay low, but we really expect retained volumes to increase over time which is going to more than offset any price declines, so we feel good about where we are.

Our fee base is still, without even taking into account the gas we retained is still 75% of our margin there.

Thanks.

And the competitive natural gas business, is this something that you really feel there's growth there or is the outlook for gas prices just changing the aspect of what you were expecting?

I think the growth is really in the retail side.

We're competing hard for new customers.

We're winning new customers.

I think gas en a carbon constrained world is going to be favored so I think it's really on the retail side where we see some opportunities.

On the wholesale side because of where you make money is through basis differentials and through our storage.

We see storage being very favorable but we see basis being the area that's going to be limited in the future.

Thanks.

Thank you very much.

Our next question will come from the line of Barry Kline with Citi.

Hi guys.

Just a clarification, you talked about conservation not doing as bad as last year at the (inaudible) division.

Was there a rebound or was it just not a decline when you looked at the numbers there?

No, there was a rebound.

It went back to the levels we would have expected the first quarter of last year to be but we saw that decline and it was one that we couldn't fully explain.

It went back to levels that we would have expected it to be.

Even ex-weather?

Excluding weather, right.

We saw some increase in margin there that we didn't fully predict because we weren't fully sure if this was going to come back or not so I think you have to be cautious.

One quarter is too early to be a trend but we do feel pretty good about what we saw the usage.

We saw both at the electric side and at the gas side.

We have seen continued decline in residential usage on a weather adjusted basis for a long time.

This quarter, we didn't see that.

We didn't see a decline, matter of fact we think we saw some increase in weather adjusted usage which is good news.

It could be related to the economy, it could be related to lower gas prices, a lot of factors, but I think the news is good coming out of the first quarter.

Okay, thanks a lot.

Our next question will come from the line of Stephen Wong with Carlson Capital.

Good morning guys.

Just a quick question on something you mentioned before, the Eagleford shale.

Can you give us an update on any of the opportunities there since I know you have that extra capacity on your pipeline there?

We continue to talk with producers there.

We have some of our customers that have acreage in there and we're talking to them.

I don't think we can say much more than that.

We don't have any contracts or anything of that nature.

We do have some capacity, it's really our energy services business on NG BPL that runs near there which I think is going to be valuable at some point in time.

But really not anything else to say other than we're interested moving to that area, we think it's going to be a pretty interesting area.

It's a lot more liquids heavy than other shale areas that we're in today.

Are you involved with any RFPs, is there a time frame which you just look for like the Haynesville?

No, we haven't been.

These have been private discussions one on one and not responding to RFPs.

And then on SESH, Spectrum mentioned that there's an opportunity to expand that for Phase II in the not too distant future.

Can you give an update on that in terms of your thoughts on that?

I think that the comments were probably based on the utilities in Florida shifting to gas for power plant production.

We fully expect it will be expanded.

We're not sure exactly when.

They've got folks on the ground talking to the Florida utilities all the time and they would probably have a lot more insight into that but we do believe that's going to be expanded at some point in time.

We still have about 80 million a day that is not subscribed on the original capacity and obviously we've got to sell that before we think about expanding it.

And the last thing I have, on Olympia, is it similar to Magnolia in terms of the elections by Shell?

Is it increments of 100 or 200?

Yes, that's exactly right.

Okay, thank you.

Our next question will come from the line of Neil Stein with Levin Capital.

Yes, i good morning and forgive me if you already answered this question.

Equity needs associated with any of your recent midstream investments, will you be requiring external equity funding?

I think the way we think about that is really the evaluation of our capital structure which is continue to improve our capital structure to insure we can execute our business plan.

Certainly CapEx related to Field Services which are non-rate regulated businesses, will require a portion of equity but let me maybe describe it like this.

At this point we started the year with a significant amount of cash on hand that we've used to pay down debt.

Our businesses still generate a significant amount of cash.

They're performing solid after dividends.

Certainly with a $1.5 billion CapEx program, we'll have a shortfall there, but we're going to do this in a thoughtful way and continue to look at it.

We don't think of it as financing for a project.

We think of our capital structure and how we can continue to improve that.

But over the long term, as we are able to execute more of these very accretive growth opportunities in Field Services, there will be the right mix of debt and equity in our balance sheet.

When do you think you'll make a final decision on that?

I couldn't comment on that.

I think this is an ongoing evaluation.

We're looking at our sources and uses of cash and timing.

Okay.

And all these projects you announced are all very sound and seem to have very attractive economics, but when we look at your earnings power over the last four our five years it's been plus or minus $1, and fairly steady for a long period of time.

Can you talk about just longer term what your targeted growth rate is and do you hope to grow EPS from here?

We do hope to grow it.

There's no question about that.

You have to look at our portfolio.

About 80% is really rate regulated.

A big part of that is Houston Electric and the LDCs and that probably represents a little over 60%, and that's going to grow at a rate that a typical distribution company would grow and it's based on service area growth.

It's in the 2% to 4% range probably.

We believe there's substantial growth opportunities in Field Services and it's been growing at a clip of about 20%.

And then Pipeline went through a big burst of growth where we built two new pipelines.

That slowed down some but we still are looking at additional opportunities there.

So we think the growth in that sector, Pipelines and Field Services is in the 5%-plus and maybe Field Services it could be repeating the 20% for a while that we've seen the last five years.

So we think there's going to be growth.

As you may have seen we have issued a fair amount of equity, and that obviously takes its toll on earnings growth when you do that.

Last year we issued over $500 million.

There's good reasons to do that.

We started out in life with a pretty leveraged balance sheet and we've had to strengthen it over time and we've been able to do that.

And now we're really focused on growing the business and hopefully that will produce positive growth in earnings per share.

And when you talk about those growth figures, is that net income growth or is that EPS growth because as you alluded to there has been a big difference.

I was referring to the growth in each individual business segment.

We tend to think about that as operating income.

That will flow through down to the bottom line but obviously it depends to some extent on the way you finance those opportunities.

But overall, if you look at our Company, we're not going to grow at double digit growth rates as a Company.

If we could grow at the 5% annual growth rate, I think we would be very pleased with that given our very solid regulatory base that we're working with.

And do you think you could actually demonstrate 5% EPS growth in the near term, meaning 2011, 2012?

We haven't provided guidance for those years and I don't think it would be appropriate to comment on that.

I will tell you that we're working hard to grow the business.

Our shareholders want good dividends, solid dividends, secure dividends but they also want some growth in those dividends so we're focused hard on trying to grow our earnings so we can grow dividends.

I think it's clear to say we will grow net income, absolutely, during this time frame.

And as you look at our capital structure we're going to thoughtfully evaluate that capital structure.

These are very good solid businesses obviously.

And then if you look at the growth opportunities that we've been executing only speak for themselves.

The net income growth has been pretty clear.

It's been the EPS growth that's been the challenge.

Well I'd say challenge, you can describe it as a challenge but I think the equity raises that we have in the future will be to fund growth, as we've said.

I think we've done a good job repairing our balance sheet and getting ourselves into position to execute on very accretive growth.

That will be our objective going forward.

Okay, thanks very much.

Your next question is a follow-up question from Carl Kirst with BMO Capital Markets.

Appreciate the time.

Actually just a couple of follow-ups from Neil and Steven.

The first is on SESH.

Refresh my memory, aside from the 80 million that's not sold out there was some long term contracts that were being phased in over time.

Does that finish phasing in this year or do they finish phasing in next year?

No, it's actually next year.

There's still about 200 million this year that we can sell and in fact we've sold part of that on a short-term basis and it runs through the fall.

And then there will still be a piece next year that's unsold.

But I think there's something like out of the 1 Bcf, we've sold 950 million a day, I'm just rounding now, and all of that will come into play I think toward the end of next year where it's fully subscribed or implemented.

Absent the 80 million which hasn't been contracted?

Right.

Okay, I appreciate that.

Second question was just on the timing of the Olympia system.

It sounds like with the bulk of the spend here this year we might be able to get the Olympia fully up and running by next spring.

Is that a fair assessment?

I think first quarter of next year we would expect to see a lot of volumes flowing through there.

And we bought existing facilities, so there's going to be a little contribution this year but we have to build a trunk line and some aiming facilities.

We've got all of the aiming facilities on order but it will be toward the end of this year before they get in and get put in place.

Fair enough.

And last question.

if I could, and goes to the capital structure, Gary.

Obviously you guys are looking to be prudent with your balance sheet and it's starting to be reflected in the rating agencies.

Are there opportunities because perhaps the uncertainty of whatever the Texas Supreme Court may rule and whether or not there may be any cash that ultimately comes to the balance sheet, is there any way to fund things using synthetic or other not common equity in the near term?

I know it's a difficult question to answer.

We haven't really looked into that.

I think as I said earlier in my prepared comments, we have a very significant liquidity and cash on hand so I think it's a separate issue around liquidity and funding.

Our capital structure, both the utilities and of course the parent company which we will over the long term, as you know, Carl, continue to delever the parent, we think of the capital structure in the long term, not the near term.

So funding is not an issue.

We'll certainly hope that the true-up proceeding is finally over with and justice is done but we'll just have to wait and see how that plays out.

Again, the way we think about the capital structure is clearly the long term not the short-term.

No, I appreciate that.

And then just to ask what is probably fairly obvious but no word from the Texas Supreme Court, right?

Haven't heard a thing.

Fair enough.

Thanks guys.

Our next question will come from the line of Tom O'Neill with Green Arrow.

Good morning.

I'm just curious, to round out the questions, get your current thoughts on the formation of an MLP versus raising common equity.

We continue to look at an MLP.

I think the MLP equity market is much better this year than it has been for probably 12, 18 months.

It kind of went into the ditch in late '08.

So we continue to look at that and we think there's some fair arguments to be made if you can raise equity at a less expensive price at the subsidiary through the MLP as opposed to the parent you should look at it and we do.

It's continuously on our agenda.

But as you know, we've looked at it in the past and have chosen not to do it but that doesn't mean we won't in the future.

Great.

Thank you.

Our next question is a follow-up question from Lasan Johong with RBC Capital Markets.

My question has been answered, thank you.

Thank you.

Our next question will come from Daniele Seitz with Dudack.

Do you see a possibility for a settlement in Texas since most of the issues have already been possibly understood by the Commission?

On our rate case?

Yes.

We always work to settle and if you look at what we've done the last few times that we've been at the Commission we have settled.

So that's certainly something that will be considered and we'll look at it.

I don't know that what the other parties do but we typically.

There is no reasons to go through the full rate case or is there really a major reason at this point?

There are going to be some points of contention, there's no question about it, and it just depends if we can find common ground.

It's really hard for us to estimate it but we always look to settle if we can.

Thank you.

(Operator Instructions).

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

On the financing front, could you remind us if you have a dividend reinvestment plan and how much equity you'd expect to issue under the plan?

Yes, this is Gary.

We do.

Our benefit plans, both the DRIP plan and our savings plan.

And I would think this year think of $70 million to $80 million.

As I said those plans have been turned on and we'll continue to go forward.

So think of $70 million to $80 million.

Were you at something close to that run rate in Q1?

Yes.

And then do you also have a periodic stock issuance program that's effective now?

I know you had one previously.

No, no, we do not.

Okay, so that is presumably one of the tools you'll evaluate to meet your needs?

Yes.

Again, as I said we're looking at this capital structure for the very long term as we execute a business plan and I think all of those things are in the tool box.

Okay, thanks very much.

Our next question will come from the line of Ali Agha with SunTrust.

Just wanted to clarify the Texas filing, the rate case filing coming up for Houston Electric.

As you point out, depending on the equity ratio calculation and other issues, you may end up having a higher ROE than the threshold, except you said points of contention.

Are you concerned that at the end of the day there could be a ruling that you need to give back because of excess earnings?

They called you in primarily to justify the ROEs, so how concerned are you of any potential giveback when all is said and done?

We're not overly concerned.

Obviously any time you go in you run a risk, you never know what the other parties are going to do.

I fully expect that some parties are going to push for a big rate reduction because you always see that happening because they take fairly extreme positions on some issues.

I'm not overly concerned about it but it's always a risk.

Okay, I will keep track on that, thanks.

Okay, I think that's about all the time we have left, so thank you very much to everyone.

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

Have a wonderful day.

This concludes today's CenterPoint Energy first quarter 2010 earnings conference call.

Thank you for your participation and you may now disconnect.