CenterPoint Energy Inc CNP
Q4 2012 Earnings Call Transcript
Transcript Call Date 02/27/2013

Operator: Good morning, and welcome to CenterPoint Energy's Fourth Quarter and Full Year 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 the managements' remarks.

I will now turn the call over to Carla Kneipp, Vice President of Investor Relations. Ms. Kneipp?

Carla Kneipp - VP IR: Thank you very much, Sarah. Good morning, everyone. This is Carla Kneipp, Vice President of Investor Relations. Welcome to our fourth quarter and full year 2012 earnings conference call. Thank you for joining us today.

David McClanahan, President and CEO; Scott Prochazka, Executive Vice President and Chief Operating Officer and Gary Whitlock, Executive Vice President and CFO will discuss our fourth quarter and full year 2012 results and provide highlights on other key activities. We also have other members of management who may assist in answering questions following the prepared remarks.

Our earnings press release, Form 10-K and supplemental materials are posted on our website at under the Investors' section. These supplemental materials are for informational purposes and we will not be referring to them during the prepared remarks.

I'll 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 David begins, I would like to mention that a replay of this call will be available through Wednesday, March 6. To access the replay, please call 855-859-2056 or 404-537-3406, and enter the conference ID number 71670373. You can also listen to an online replay on our website and we will archive the call for at least one year.

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

David M. McClanahan - President and CEO: Thank you, Carla. Good morning, ladies and gentlemen. Thank you for joining us today and thank you for your interest in CenterPoint Energy. This morning we reported full year earnings of $470 million or $0.97 per diluted share, as compared to $1.36 billion or $3.17 per diluted share in 2011.

I'd like to remind you of the unusual items that occurred during each year. In 2012, we recorded a non-cash goodwill impairment charge, as well as a non-cash pretax gain from an acquisition. In 2011, we recorded the results of the final resolution of our true up appeal. Excluding the effects of these unusual items, net income for 2012 would've been $581 million or $1.35 per diluted share, compared to $546 million or $1.27 per diluted share in 2011. Using the same basis that we used when providing guidance, full year adjusted earnings would have been $1.25 per diluted share in 2012, compared to $1.20 for 2011.

Our regulated electric and gas utilities benefited from strong service territories, timely rate recovery, mechanisms and effective expense management. Our midstream and energy services businesses performed well given the current market environment of low natural gas prices and minimal geographic price differentials. Our financial results, once again highlight the strength of our balanced energy delivery. We are looking forward to another good year in 2013. We are stronger financially than we've ever been and have good investment opportunities across all of our businesses.

Last year we celebrated our 10th anniversary as a standalone independent public company. When we first became CenterPoint Energy we indicated we would focus on domestic energy delivery with a balance portfolio of electric and natural gas businesses. Further we committed to building a company that provides a competitive dividend with growth. 10 years later, we are proud of our accomplishments and remain committed to these objectives.

I would like to take this opportunity to thank the employees who have made the past 10 years of success. I am very proud that our employees stayed focused on and believed in the vision, values and strategy that have come to define us. Without their hard work and dedication we would not be where we are today.

Now, I'll ask Scott Prochazka, our Chief Operating Officer to update you on our business unit performance and our expectations for 2013.

Scott M. Prochazka - EVP and Chief Operating Officer: Thank you, David and good morning to everyone. I will start with our largest business Houston Electric which had a good year. Core operating income was $492 million compared to $496 million in 2011. The modest decline was due to more normal weather when compared to the extreme heat we experienced in the prior year as well as the adverse effects from new rates implemented in September of 2011. These impacts were almost entirely offset by a number of positive factors including a continued strong Houston economy marked by the addition of more than 44,000 new metered customers, ongoing recognition of deferred equity returns associated with the Company's true-up proceeds and decrease labor and benefit costs. (indiscernible) revenues approached $27 million which is substantially above historical levels of $2 million to $3 million per year.

The increased interest in our right-of-way easement is another sign of the strong economic activity in Houston. Our gas LDCs also had a good year. Operating income in 2012 was equal to that of 2011 at $226 million. Despite record mild temperatures in the first quarter of 2012.

Over the year, weather negatively impacted this unit by about $47 million compared to the prior year. We were able to mitigate approximately $26 million of the weather impact through our use of our financial hedge and weather normalization rate adjustments. We were able to cost offset the remaining weather effects through reduced operations and maintenance expenses, lower bad debt expense, the addition of more than 22,000 customers, and the effects of other rate adjustments.

Now let me turn to our midstream businesses. Our interstate pipelines achieved operating results including equity income from SESH of $233 million last year, down from $269 million the previous year. The decline was due to a backhaul contract that expired during 2011 as well as the associated reduction in compressor efficiency on our Carthage to Perryville pipeline. Other factors included low commodity prices and significantly compressed basis which contributed to lower off system transportation revenues, lower season and market sensitive transportation contracts and reduced ancillary services.

Equity income from SESH was $26 million for 2012 compared to $21 million previous year. This increase reflects the full year benefit of a restructured long-term agreement with an existing anchor shipper.

Our field services unit had a strong year. Full year operating income was $214 million compared to $189 million the previous year. This improvement was driven by increased margins from gathering projects, guaranteed returns and throughput commitments in our contracts and acquisitions made in 2012. Our total gathering throughput increased approximately 9% compared to the previous year. These benefits were partly offset by the lower contribution of sales from retained gas as a result of lower commodity prices.

Our final segment is our competitive gas sales and services business. Setting aside the good will impairment charge in the third quarter, this business performed better in 2012 as compared to the prior year. In 2012, we continued to adapt this business to new market realities by focusing on retail, commercial and industrial customers. This business is benefiting from a strategic reduction of uneconomic fixed cost, transportation and storage agreements, as well as a 14% increase in our customer base.

Now, I would like to discuss 2013 and give you some insight into each business units' prospects. Houston Electric is fortunate to have a robust and growing service territory. We estimate that annual customer growth will continue at around 2%. This level of growth should add approximately $25 million in base revenues. We expect 2013 revenue from right-of-way to remain above historical levels. You may recall that we recognized all revenue of these leases in the year each agreement is signed. Future right-of-way revenues will depend on subsequent economic activity in our service territory, particularly around the Houston ship channel. This year, we expect our capital investment in this business will exceed $700 million. Inter-capital expenditures are expected to range between $500 million and $700 million annually and produce annual average rate base growth of approximately 5%. This capital will be used to help improve service reliability and system resiliency, upgrade our systems to enhance customer service and support normal load growth and system maintenance. Our vibrant service territory and rate recovery mechanisms should allow us to earn our authorized rate of return the next several years.

Turning now to our gas operations group, we expect 2013 to be another good year. We will continue to execute our strategy of improving operational efficiency as well as implementing new and innovative rate mechanisms. A number of our jurisdictions now have annual mechanisms which provide more timely recovery of capital investment or just for deviations from normal weather or both.

In addition, some jurisdictions have adopted rate designs that decouple the recovery of our revenue requirements from the volumes of gas sales. These mechanisms are more efficient form of regulation that emphasizes auto based procedures and requires less expensive and time-consuming litigation.

In 2012, revenue increased approximately $37 million as a result of the successful implementation of this rate strategy. In this business we anticipate investing on average $400 million of capital per year over the next five years, much of which we expect to recover through annual mechanisms. Capital investment will be primarily for growth, system modernization and safety related infrastructure which results in annual average rate base growth of approximately 7%.

Switching to interstate pipelines, low natural gas prices and compressed basis differentials are expected to continue to impact this business. We anticipate the third and fourth quarter of 2012 results to represent a more normalized performance level in this environment.

Our pipelines' capital budget for 2013 is approximately $200 million and will be used primarily for pipeline maintenance line replacements and pipeline safety and integrity projects. Our pipelines remain highly subscribed at around 95%. Nearly 40% of our contracted demand is to serve the LDC and industrial load near our pipeline. As we have indicated in the past, we are seeking rate adjustments for MRT and CEGT pipeline and are continuing customer settlement discussions.

From a market perspective, while the construction of a large expansion in our footprint is less likely given current market conditions, we do see interest in expanding services to our producer customers in the form of supply laterals, and of course we continue to pursue market opportunities on or near our pipelines with particular focus on power generation load.

Moving to our field services business. In 2013, we expect to see continued opportunities to expand our geographic footprint and service offerings. On February 19, we announced a finding open season to develop and operate a crude oil gathering system in North Dakota liquid rich Bakken Shale. The open season will remain active through March 29 at our expectation is that we will have signed an agreement with a major producer by that time.

Our field services capital budget for 2013 is approximately $270 million, with more than three quarters allocated to growth projects. We will continue to look for other growth opportunities both in and outside of our current footprint.

Natural gas gathering volumes averaged about 2.5 billion cubic feet per day in 2012. While we have seen some recent announcements of increased rig counts in dry gas areas, we expect our volumes to remain at these levels in 2013, given the lower commodity prices, we continue to see the benefit of our contracting strategy, our input commitments and guaranteed rates of return. Although we increased our processing activity through acquisitions, today it represent less than 15% of our overall margin contribution within field services. Further, 50% to 60% of that processing capability is volumetric based fee, volumetric fee based and not subject to commodity risk. As a rule of thumb, we estimate that our sensitivity to changes in the price of natural gas liquids is approximately $3 million in revenue, for every $0.10 change in natural gas liquids pricing.

Finally, our competitive gas sales and services business will continue to focus on expanding its customer base, reducing fixed cost and growing product and service offerings. We expect 2013 performance to be an improvement over 2012. Reporting on our 2012 performance, I'm pleased with the results, we achieved. I’m optimistic about our prospects for 2013 and we will work diligently to ensure our businesses perform as expected.

Further, we will continue to look for opportunities to invest where we believe we can create value for our shareholders.

I will now turn the call over to Gary.

Gary L. Whitlock - EVP and CFO: Thank you, Scott, and good morning to everyone. As David mentioned in his remarks, we are very pleased to have celebrated our 10-year anniversary at CenterPoint Energy. As you all know, the formation of our Company in October 2002, we were very highly leveraged with limited financial flexibility. However, since that time, we have worked diligently to recapitalize our Company and today, we have a strong balance sheet and solid investment grade credit ratings. The 2013 capital plan that Scott discussed totals approximately $1.7 billion. Our cash on hand, internally generated cash and other liquidity sources will fund this capital plan.

In addition, to ensure we align the Houston Electric capital structure to the capital structure approved in its last rate proceedings, our 2013 financing plans will include the repayment of $450 million of maturing debt at Houston Electric in March of this year.

Now, I'd like to discuss our earnings guidance for 2013. This morning in our earning release we announced guidance in the range of $1.22 to $1.30 per diluted share. This guidance range takes into consideration a number of economic and operational variables that may impact our actual 2013 earnings performance. The most significant variables we consider for our annual guidance or commodity prices, volume throughput, weather, regulatory proceedings and our effective tax rate and we have developed our guidance range by using a combination of these variables. We have assumed natural gas pricing in 2013 of approximately $3.50 per MMBtu and $0.95 per gallon for our mix of natural gas liquids.

In addition, we have assumed a return to a more normal effective tax rate of approximately 37% and average share count of approximately 430 million as well as lower interest expense. As the year progresses, we will keep you updated on our earnings expectations.

Finally, I'd like to remind you of the $20.75 per share quarterly dividend declared by our Board of Directors on January 25th. This marks the 8th consecutive year that we have increased our dividend. We believe our dividend actions continue to demonstrate its strong commitment to our shareholders and the confidence of management and the Board of Directors and our ability to deliver sustainable earnings and cash flow.

Now let me thank you for your continued interest in CenterPoint Energy and I will turn the call back over to Carla.

Carla Kneipp - VP IR: Thank you, Gary. We will now open the call for questions. In the interest of time, I would ask you to please limit yourself to one question and a follow-up. Sarah, would you please give the instructions.

Transcript Call Date 02/27/2013

Operator: Carl Kirst, BMO Capital.

Carl Kirst - BMO Capital: First question and I don't want to read too much into this, but just notice that in the guidance for 2013, you guys are putting out an $0.08 spread versus, I think what we started with this time last year with maybe a wider $0.12 spread. Again I hesitate to read into that, but I didn't know, if you there was any implication of either more certitude or less variability around your planning process, and I don't if there was any color on that?

David M. McClanahan - President and CEO: Carl, I wouldn't read much into that. As you might recall last year, when we started the year, we had a much wider – we had a natural gas price that was much more influx. We were assuming something in our (prion) sort of less than $4 and it was $2.50 at the time we had our call. So, I think, that's part of it, but generally I wouldn't read much at all into that the entire spread.

Carl Kirst - BMO Capital: Just the second question here and it really speaks to the gas utility with the earnings power. I think historically, we had been thinking of the normalized earnings power of the gas utility in the maybe 200 million to 220 million range and so, here you guys had a really nice year considering that there was $25 million of still weather impact. So, I guess, the question is, do you think the great expense management that you had for this year, is that sustainable meaning that have we in effect listed the new normal earnings power for this segment up in the 250 million range?

David M. McClanahan - President and CEO: First, I think we have listed it so. I think you're right, but I'm going to ask Scott to address the O&M side of this.

Scott M. Prochazka - EVP and Chief Operating Officer: Yeah, I think some of the O&M is sustainable. I wouldn't say all of it. Knowing that we started the year in such a whole with the weather, we looked at where we could defer some of the O&M and so some of that will move out into the future, but there are some improvements that we made that would be sustainable. The other point I would probably add here is that we did pretty well on our bad debt expense and as gas prices grow, even if we stay at a fairly competitive or aggressive low rate in terms of our write-offs as gas prices increase which we have on our forecast going forward. That number will naturally increase. So, there will be some degradation in terms of having more bad debt expense on a go forward basis.

Carl Kirst - BMO Capital: One clarification. Is the CapEx that you mentioned for field services, does that include the Bakken project?

Scott M. Prochazka - EVP and Chief Operating Officer: It does.

Operator: Charles Fishman, Morningstar.

Charles Fishman - Morningstar: I was wondering, if you could explain to me the mechanics of the weather hedge on the natural gas and I guess, specifically is that something that you eventually have to share with customers that $8 million benefit in 2012?

David M. McClanahan - President and CEO: Scott, you want to take that?

Scott M. Prochazka - EVP and Chief Operating Officer: Yeah. The mechanics of this we calculate or determine what we believe the value of heating degree days are we can hedge against those with a third-party, such that if it goes one way there is payment to the party and if it goes the other way then the party pays us, so it's kind of a small structure. But it's geared around calculation of normal weather and a determination of what the value each heating degree day is within the regions, which we carry the event. As far as weather this ends up getting shared, we hold these hedges at corporate and we do this really to target kind of stabilizing the earnings. So, some year it's up, some years it is down, but it's geared around stabilizing the earnings in that unit.

Operator: Ali Agha, SunTrust.

Ali Agha - SunTrust Robinson Humphrey: David or Gary, you know, for those of us who have been keeping track of the excess cash balance and you guys have been keeping us up to date on that as well, as I recall, you indicated at the end of the last quarter that excess cash balance was $600 million. Can you update us on what that number is as of the end of the year and also where we stand in terms of deploying that for new projects?

David M. McClanahan - President and CEO: Ali, it's about $500 million, give or take. That varies depending on when we pay our gas bills, but it's about $500 million. As Gary said, we have $1.7 billion CapEx in front of us. It's a large capital program cutting across all our businesses and we are going to be using this money to fund those projects as well as any new growth projects that have not been identified, but that we have the unit, we are pursuing. So, I would say that by the end of this year, we're going to come close to spending most of that cash if not all of it.

Ali Agha - SunTrust Robinson Humphrey: Then secondly in terms of spending the cash clearly the focus has historically been on the field services area and the Bakken project seems to be going forward. At the same time, you've also been pretty clear and open about your interest in Oncor. So, I wanted to just understand where the focus remains in terms of at least opportunities right now and whether the financial issues going on with Energy Futures Holding does that cause the Oncor monetization to become more front burner or are you seeing any activity on that front?

David M. McClanahan - President and CEO: First, we're still interested in growing field services, it's a big focus of ours. But it's not at the – it's not exclusively field services. We are very interested in growing our regulated businesses and so we've said in the past Oncor would come on the market it'd be an unit that we'd absolutely look at. But it's not stopping us from doing what we would normally do anyway. So, yes, we're interested, but we are pursuing a number of different options and it just not Oncor.

Ali Agha - SunTrust Robinson Humphrey: One last question, Gary, just to clarify the '13 guidance at the EPS level, it's pretty relatively flat with '12 and where you going through the segment discussions look like you were net, net higher, so is it all the higher tax rate that's causing flat EPS or can you just give us a little more color on why flat versus the '12 actual?

Gary L. Whitlock - EVP and CFO: I'll take the short at that person certainly Scott can add to it but let's talk about the tax rate. I think that is important thing to focus on. The ongoing tax rate will be 37%, if you recall last year we ended up with the 45% tax rate, but that have non-tax deductible goodwill impairment so you take that out. We ended up with the tax rate of approximately 33% and that was really due to a lot of hard work over the last number of years to resolves issues with (RS) mainly legacy issues. So, we did have a benefit intact. In fact, some of it actually was reported another income. So, we had a benefit of approximately $0.09 to all-in if you will. So, that's kind of come back, so we effectively have a higher tax rate this year, so the guidance reflects that our expectation higher tax rate this year. Now, in addition to that though we do expect lower interest expense, because as you know we have been recapitalizing the company in the sense of some refunding, but primarily some restructuring over that, so we continued lower interest expense this year was lower by about $34 million next year. Think of maybe equivalent number, maybe a little bit more than that so that's favorable up to this (indiscernible) and then the business you heard, Scott, describe the businesses from over the long-term they will grow and you describe those sort of net neutral to up a bit, I think when you put it all together. So, again we still have a range because we still have some variables and as you know our objective is always we are; a, keep you inform, but our goal is to work as hard as we can to exceed the midpoint of that range and continue to grow our company this year.

Operator: John Edwards, Credit Suisse.

John Edwards - Credit Suisse: Just real quick question. Going forward given how the competitive natural gas sales and services came in pretty significant increase what's the reasonable run rate to think about for that segment going forward?

David M. McClanahan - President and CEO: We used to say we thought that pure retail side of this was in the $30 million range. I think long-term it is probably in the near-term it is more in the $20 million range. So, we are working hard to improve the profitability there. We've gotten rid of a lot of the uneconomic contracts which helps a lot, but the key is to grow the business and improve margins, and that's what we are attempting to do.

John Edwards - Credit Suisse: And then just real quick on your natural gas distribution. It obviously was really good quarter and the margin per customer was up quite a bit versus what we were thinking. Just maybe you give a little more granularity on that, I mean, we've already talked about something cost savings and rates and so on. If there is any other things in that regard?

David M. McClanahan - President and CEO: Scott, do you have anything to add there. Bad debt expense has been something that we've been working on for several years. As Scott said that may tick up, but the new policies and procedures around credit and collections are not going to change. So, I think we've got a good handle on that. We are running a pretty tight ship now it has taken us three or four years to completely kind of revamp the way we run that business and I think it is showing through this reduced O&M. But we do have a lot of new rate mechanisms that's gone in over the last three to four years that provide for annual or automatic adjustment, so we don't have to go in and see great increases. I think those are important and they are starting to have a very positive effect on this business.

Scott M. Prochazka - EVP and Chief Operating Officer: I'll just add to that as well, the couple other things that – one of the bigger items that was – if you're just looking at the quarter against prior quarter, it was around weather and usage, between the two of those, they were up $6 million to $8 million over the prior quarter, so that was a good part of the delta.

Operator: Faisel Khan, Citi.

Faisel Khan - Citi: I wonder if you could give us a little bit more detail on the Bakken project. I see the open season and I guess it's for both gathering and pipeline takeaway capacity for, I guess, crude oil, liquids and natural gas, but if you can go to a little bit more granularity in terms of what the open season encompasses, that'd be great.

David M. McClanahan - President and CEO: Let me ask Greg Harper to get that.

C. Gregory Harper - SVP: The open seasons is primarily for a crude gathering system and it would have a little tank storage potential as well, that does not contemplate takeaway pipelines from those gathering termination points. We would be putting into rail or other pipelines as the contemplation at this time. So, it is strictly a gathering system. So, taking crude oil from wellhead to simple control points and then on to tankage.

Faisel Khan - Citi: If our numbers are right, there's about, I guess, I think about 75% of the crude oil and the Bakken is gathered by truck right now. Is that a fair estimate, is that the business you're going after?

C. Gregory Harper - SVP: Exactly. You've nailed it right on the head, Faisel. This is a great opportunity to, number one, help the state get those trucks off the road, and we think it's a competitive opportunity and alternative right now for the producers in this area.

David M. McClanahan - President and CEO: I think you'll also see this type of crude gathering system being employed in other areas around the country, because of the amount of trucks necessary to move this, there's lots of wanting to get an alternative to trucking and this is the best alternative. Definitely there's the paradigm shift with the number of trucks they've mentioned is a kind of result of the prolific nature of the crude coming on from the drilling and the fracing.

Faisel Khan - Citi: So, I take it also that in this gathering system, you would tie in the associated gas production that's being flared into this system too? Is that right?

David M. McClanahan - President and CEO: That's not contemplated in this particular offering. It would be something that we would be prepared to do. Obviously having a footprint in that area if we get the appropriate nominations.

Faisel Khan - Citi: So, how do you guys compete versus everybody else? Like, what's the competitive landscape like in Bakken? I would assume it's pretty competitive, but I don't know how you guys go about getting the business versus somebody else?

Scott M. Prochazka - EVP and Chief Operating Officer: I mentioned before as we step out of our footprint that a key strategy for us was to do it with maybe a major producer, friend or companies, and that's what we've been trying to do, but here in the Bakken, as we look at Mississippi Lime, as we look at Tuscaloosa Marine, as we look at even Marcellus, we're not the type of Company that's going to go out and do something speculative, we're going to do something that is kind of in concert with a big producer customer and have a similar type of contract that we've had in the past in our new gathering footprint.

Faisel Khan - Citi: And whatever happened with the Mississippi Lime open season that was like in the first quarter of last year?

Scott M. Prochazka - EVP and Chief Operating Officer: What we found in the Mississippi Lime, what we're looking at is, there's a lot of high nitrogen issues and we are just not seeing enough gas to gather to offset that issue for it takes to treat it. Another major producer that had an RFP out has withdrawn that and that maybe the producer has moved to different area in Mississippi line and is expected to issue an RFP and we will be participating in that. So, ongoing negotiations with smaller customers but again right now the aggregation level that we are seeing doesn't contemplate a project at this point in time that we stay in constant communications with these customers.

Faisel Khan - Citi: On the results of Field Services throughput a lot down from 237 to 205 but operating income up year-over-year. Can you just walk us through the math on how that happen. I suspect it is from your newer gathering contracts that are in place but give us an idea of what is declining in the background as we see these volumes sort of come off from current levels?

C. Gregory Harper - SVP: I'll give you a high level. I will give you an exact numbers because let me get into our producers falling volumes. But I would say that the difference, obviously, going from 237 to 205 is a decline just across the board on our footprint but the make-up and obviously the increased margin on the top line I think goes from 91 million to 109 million. That growth is driven by our contracts, the guaranteed return contract and primarily these volume commitment contracts.

Faisel Khan - Citi: So, do you expect volumes to continue to decline for the rest of this year?

C. Gregory Harper - SVP: We expect volumes to be at the same level as last year. I think David, or Scott mentioned in the call, but I think they have some producers moving into our area back in the Haynesville area, Encanaa announced that on their earnings call with an increase in 5 rigs by year end. We don't have in our planner and Gary's projections right now that that would increase volume flow. We see that as protecting and preserving current levels, if we get upside, that's going to be great.

C. Gregory Harper - SVP: Faisel, I might also add, I think in '12 we lost something like $28 million due to lower commodity prices primarily natural gas. So, we've got some upside if natural gas prices firm up, and then probably again, in our projection they will be higher in '13 than they were '12. So, even if you get the same volumes, there could be some potential increased profitability there.

Faisel Khan - Citi: Then just on the pipeline, as you guys mentioned you were 90% subscribed on the pipeline. Are there any contracts that are up for renewal in the next 24 months that we got to be concerned about?

C. Gregory Harper - SVP: I don't want you to be concerned about anything. It's our job to go and get those renewed, but I think our fleet agreement is an evergreen within the next 24 months. So that's – again, we serve liquid via MRT, that is the asset that we are currently in the middle of a rate case at FERC on. And we've had a settlement conference on that. So we see that. That is obviously a very large contract on MRT, and we will work to extend that and renegotiate and extend. On CEGT, there is a mishmash of contracts that can come up and roll off, but I think the largest contracts on CEGT would be Line CP in 2017 or so.

Faisel Khan - Citi: Then just last question for me on CapEx you guys mentioned I think $1.8 billion in CapEx can you guys give a breakdown of your prepared remarks? If you did don’t worry about it, I'll go back to the transcript, but if you didn’t, I'd appreciate a breakdown of that the CapEx?

David M. McClanahan - President and CEO: We've got those documented in the 10-K plus, if you look at the supplemental material, it's right out there and has a fair amount of detail, so probably the best way.

Operator: Andrew Weisel, Macquarie Research.

Andrew Weisel - Macquarie Research: Just a couple of questions on CapEx. First with the electric utility. It looks like some pretty big declines after '13 and '14 mostly in this public and system improvements category. Is a lot of that conservatism. It's not related to the load growth. So, just wondering why it drops, and if there's potential upside there?

Scott M. Prochazka - EVP and Chief Operating Officer: I'll take that. There is, as you noted, some downward movement. Perhaps there is some conservatism in there, but there's also some projects that we have early on that end at that point. We're putting in a backup control center, which consumes about, a couple of hundred million dollars' worth of investment over the near term and once that ends, that's part of the reason it turns down, but the theme of kind of maintain the ongoing investment in infrastructure for hardening and system maintenance as well as load growth, that theme would kind of carry through, but we'll have to see what actually happens in terms of weather, growth picks up or slows down and maintenance requirements change, but most of it is driven by some big projects that we, that we know we have early on. You may end up having some additional bigger projects that materialize down the road, that could fill that gap, but right now, this larger slug is really related to a large project.

Andrew Weisel - Macquarie Research: So, then when you talked about the 5% annual rate base growth, should that be front end loaded? Meaning, faster than that in '13 and '14?

Scott M. Prochazka - EVP and Chief Operating Officer: It really looks at the total capital spend over the period. So, if you look at where we get to rate base was by the end of this period, it looks at what that rate would represent, and an average growth rate from the starting point to the ending point. It just so happens that it's kind of front end loaded.

Andrew Weisel - Macquarie Research: Then on usage, I think I heard you say you're expecting 2% growth in customer accounts in 2013, how has usage per account been trending and what's your expectation for total weather adjusted load growth?

Scott M. Prochazka - EVP and Chief Operating Officer: Over the past, load growth we saw kind of flat maybe slightly declining this was looking back several years. Interestingly, this year we've seen load – we've actually seen usage increase slightly. We believe it has to do perhaps with the economy and with the economy strengthening here in Houston as well as the relatively low price of power. So, we have seen a little of bounce in usage this year. Going forward we forecast usage to be about flat, but we do know that we continue to see what we think will be some ongoing headwind on the downside just from things like replacements of appliances with more efficient, replacement of air conditionings units and winding standard that type of thing. But more or less we look at it as about even to maybe a slight decline as we look forward.

Andrew Weisel - Macquarie Research: Then next question on the just on the Field Services CapEx. Obviously, the acquisition was the biggest chunk from 2012, but the other CapEx was quite a bit lower than what you would expect, what you forecasted in the 10-K year ago. Just wondering if a lot of that stuff was stuff that has been deferred based on the acquisitions or cancels or how to think about that going forward and maybe little more color in 2013 on the Bakken spending you mentioned as a big piece of the growth and what else might be including in that?

C. Gregory Harper - SVP: This is Greg. I will answer the 2012 question first. The capital was low in 2012 and that's primarily from deferrals. Most of our capital that we look to deploy are based on existing contracts and we are obviously in communication with our producers weekly, monthly, to extra where deploying our capital ratably relative to their growth and when they bring on to production. So basically, some of them had a forecast early in the year, maybe fourth quarter of 2011, what they would be doing in 2012, modifying that during the year, and so we just pulled back the capital. However, they're committed to their acreage to us and/or volume commitments to those areas. So that will come once they start drilling. As far as 2013, that's the same thing we planned out this year. I think the Bakken is probably under around $120 million or so, $125 million. So the balance, the majority of the balance is still growth capital. I think Scott mentioned 75% of our capital is growth. So the remaining 50% to 60% of the balance is growth capital. And that, again, is tied into what our producers are telling us right now, where they think they'll be by year-end.

Andrew Weisel - Macquarie Research: Then just lastly, if you can let us know how much operating income came from the acquisition last summer and if doubling that would be a good proxy for 2013 and beyond run rate?

Gary L. Whitlock - EVP and CFO: $13 million for 2012 came from the two acquisitions. We expect to do better than double that in 2013. They came on at different times of the year, one was August 1, and one was a little bit earlier than that but our plan calls for more than doubling that in 2013.

Operator: Scott Senchak, Decade Capital.

Scott Senchak - Decade Capital: Just looks like about 70% of your CapEx spend in '13 is going to the regulated electric and gas distribution segments and just as I look out in your CapEx forecast in the K, its roughly to same kind of spread and just wondering is that kind of change in theme going forward or is that where the opportunity as you right now exist?

David M. McClanahan - President and CEO: No, this is really – it's much easier to see the spend in the regulated utilities than site field Services, because we don't speculate about projects that we're not sure of in the 10-K, but for our Houston Electric and our gas LDCs, we have plans to go in and replace pipe or improve systems. Our bill control center, so it's – we have a lot of clarity around regulated capital expenditures. When it gets to Field Services, we put in there what we know, but we don't put in there what we don't know. I would be very disappointed if we don't have some growth projects that come up in Field Services that would increase the level of expenditures in that unit.

Scott Senchak - Decade Capital: Then in the past you've given us some growth rates for each of the businesses, has that changed at all or is that still kind of the same outlook and can you comment on that?

David M. McClanahan - President and CEO: We've given overall that we want to be in the 4% to, say, 7% EPS growth rate, that's our long-term, and each one of our units have a little different growth around it. Houston Electric, gas LDCs, you heard Scott talk about rate base growth there of 5% up to 7%. So they're going to provide some growth. Pipelines are the ones that probably are little less certain. That's probably flat to slightly up if we move in some of the projects we're going after, and Field Services, we expect it's going to grow. It's been our fastest-growing unit the last 3, 4 years, it's grown a little less than 20% a year and as it gets bigger, that percentage will come down, but we expect Field Services to continue to be our fastest-growing business segment. So overall, our goal is to achieve that 4% to 7% or 5% to 7% growth in earnings.

Operator: (Scott Graham, Collinger Capital).

John Kian - Collinger Capital: I know you talked a little about this already but can you just give a little bit more color around some of your plans to allocate capital between field services and the regulated use and more specifically talk a little bit about the status of using an MLP is a financial vehicle for some of the projects that you are currently working on like for example the Bakken project within field services please?

Gary L. Whitlock - EVP and CFO: Maybe to start while we just start with MLP, we being consistent on this john as you know in our continue that we continue to see the formation of the EMLP as an effectively financing vehicle, certainly in terms of funding the growth for our midstream business. As to the timing of that, as we reported this morning we've talked about on the call. We do have a sizeable CapEx program certainly a significant amount of that visibility is in the regulated business and we are pleased about it but as you know we've been funding all of that – funding our capital through internal sources of cash including this year as you know we also have another benefit of bonus depreciation which is about another $170 million. So, in terms of funding it has been internal sources cash on hand but as we talked about David alluded to and Scott and certainly Greg as we have more visibility around that midstream growth in the Bakken I think sets the stage for hopefully additional growth there and beyond. I think the MLP becomes front and center as a financing vehicle as David said, we would think by the end of this year cash on hand plus internal sources, at some point we'll need a financing need in the future and we have visibility around that growth, I think the MLP again is front in center. So, absolutely not off the table, on the table, and I think it's really related to when we see the need for it.

John Kian - Collinger Capital: So, it sounds like, I guess, the good news is that the financial stability of the Company just from the perspective of excess cash on hand and also some additional cash flow from bonus depreciation gives you a lot of flexibility at the moment to fund CapEx both on the regulated side but also importantly on the field services side with that internally generated cash flow is that…?

David M. McClanahan - President and CEO: John, I think that's right. But I also don't want you to walk away our other investors everything is that precise and again – as Greg and his team worked very diligently to originate business and we see we have the growth there. I don’t think that having cash on hand and available liquidity will hold it back from forming an MLP because it takes time to form it. Obviously, we've done all the ministerial things of audits and those things, so we are prepared to doing MLP, can do one. We just want to make sure it's at the right time in the best interest of our shareholders to do so.

John Kian - Collinger Capital: Then one other separate question. How should we think about the potential fit or strategic benefits hypothetically speaking from Oncor is, I think you all were discussing a little bit earlier? When you said you would considering taking a look at it if it was for sale. Is it something that helps to balance out the non-regulated earnings from field services. How should we think about some type of business like that for you all?

David M. McClanahan - President and CEO: Well, it certainly would do that. Obviously, Oncor is a sizeable electric T&D business. It would add substantial amount of regulated assets and earnings to our portfolio, and we recognize that we need to have a good regulated base as we grow our unregulated base. So, it certainly fits that – it fits that pistol for us. We're going to be diligent about looking at it, if it ever comes on the market and I think it would be a nice fit, but it's all about making sure you can buy it for a price that creates shareholder value and we work hard at it if it ever comes on the market.

Operator: (Steve Myers, Citizens Trust.)

Steve Myers - Citizens Trust: Two questions please. Number one, going back to a previous comment regarding the 75% of your Bakken crude being handled by truck and you guys are probably salivating over that, would there be any maybe joint venture being done with say, railroads in the same area?

David M. McClanahan - President and CEO: Steve, we haven't entertained anything like that, because we're really doing it at the gathering level and not the long haul level and there's some other folks looking at big pipes coming out of that area, to basically compete with the railroads, but I don't think – that's not something we're interest in right now.

C. Gregory Harper - SVP: I think it was Faisel or Carl that mentioned the 75%. In our particular counties, we're looking at 100% as truck.

Steve Myers - Citizens Trust: With the earlier question regarding the CapEx on your electric operations, possibly declining this year, and/or next,? Would that therefore push you folks to maybe a positive cash flow overall for this year or next year?

David M. McClanahan - President and CEO: One is that capital in our electric business is going to be much higher in 2013 than it was in 2012, and it's going to stay pretty high for a number of years. I think we're projecting pretty close to $700 million this year and next year before it starts declining down to the mid-$550 million. So it's going to be high. We've got $1.7 billion capital program. We can't fund that from internally generated funds. We do have cash on hand that we can utilize, but – if you're in the utility business, you want to be growing rate base and you don't want to necessarily have excess cash flow for very long, and it probably means you're in pretty stagnant service territories. So we expect that these capital expenditure numbers are going to remain at this level for some time, because the service area that we're in is, I would venture to say, is probably, if not the best, one of the best in the country.

Operator: Ali Agha, SunTrust.

Ali Agha - SunTrust Robinson Humphrey: I just wanted to follow-up on two issues. One, on the use of the excess cash, I know we've had discussions in the past, and I know cash is fungible, but we've tried to look at that excess cash as perhaps adding to the overall growth profile for the Company. You've obviously been using the cash, as you mentioned, you've got about $500 million left. I just wanted to get your sense of what are you thinking of that cash right now, in the context of that, say 4% to 7% EPS growth rate? Does that cash puts you at 100 basis points to that, I mean, keep you at the higher end? How should we think of the cash as it's being deployed, and how does it manifest in that growth rate that you're targeting?

David M. McClanahan - President and CEO: We've talked about this in the past. It certainly doesn't change the opportunities we look at. We think we have lots of opportunities, but the fact that it doesn't have a cost to it, it does add to your return in the near-term. So I think there will be some upside in that because we don't have a cost associated with it but in terms of changing opportunity set, I don't think so.

Ali Agha - SunTrust Robinson Humphrey: Then second, you've talked about the MLP also frequently in the past as kind of a funding vehicle. At the same time, you've also acknowledged that your Company is more of a conglomerate, if you will, of the regulated businesses and the unregulated piece. Have you all thought about looking at those businesses and perhaps looking at them as two separate entities and creating or unlocking shareholder value that way as opposed to just being driven by the funding needs? What's your latest thinking on looking at these as two separate companies and perhaps unlocking some conglomerate value that's being discounted right now?

David M. McClanahan - President and CEO: Ali, I think it's a good question and we clearly think about that. To some extent, the MLP gets at both of those, both the funding issue and the independent valuation issue. So I think we do consider, is there a way to unlock value where the sum of the parts that's being reflected in our stock price today is different, and I think an MLP has the potential to do that for us. So yeah, we're looking at that, and if you're thinking about maybe we spend one off versus keep the other, we did that study a number of years ago, we didn't think we had enough scale at the time, and I don't think that's really in our thinking today but ways to unlock value are absolutely in our thinking and we'll attempt to do that.

Ali Agha - SunTrust Robinson Humphrey: And assuming the plan works out as you're envisioning the rest of the year, should we think of this as a 2014 event?

David M. McClanahan - President and CEO: I would say, we continue to look at and I'm not sure what the timing will be and I don't think I can really comment on that, but I want to tell you, the management team's standpoint is absolutely focused on trying to create shareholder value and if we think there's a way to do it, we're going to pursue it.

Ali Agha - SunTrust Robinson Humphrey: 2013, not likely. Is that fair?

Gary L. Whitlock - EVP and CFO: This is Gary. I don't think I would start characterizing like that. I really wouldn't. I'm not trying to be cute about it. I think 2013, could it be viable, of course it could, but you come back to what would make it viable for us, of course it is viable, but in the sense that when we see the visibility of the growth and as we describe, we do have a lot of clarity around the CapEx plan on the regulated businesses. Greg is working diligently, and they have been originating business and we see that there is more clarity there and I think we can execute and sort of describe to you, we can execute quickly on that. So, we have the ministerial work done, and it's a question of doing the filing. So, don't try to put in 2013 or '14. I think what said it's front and center at the right now.

Ali Agha - SunTrust Robinson Humphrey: One point I'd just clarity, but looking at the CapEx, that you've laid out for us currently, that CapEx would not necessarily support this. You would probably need some new projects beyond that. Is that fair?

Gary L. Whitlock - EVP and CFO: I think there is some validity in what you said, but we need to make sure we have compliments that we're going to be able to grow business and I think we're getting more and more confident all the time around that. So, I would say, just kind of stay tuned on this one.

Operator: Andrew Weisel, Macquarie Research.

Andrew Weisel - Macquarie Research: Just a follow-up on one of the comments you just made. I just want to make I heard it right. You are now look for long-term growth of 5% to 7% is that compared to 4% to 6% previously?

David M. McClanahan - President and CEO: Internally we say 4% to 7%. We did say 4% to 6%. We've kind of set our goals a little bit higher here than in the past, but I would say that that doesn't indicate a change in our thinking.

Carla Kneipp - VP IR: Thank you. Since we do not have any other questions we will end the call. Thank you very much for participating today. And we appreciate your support. Have a nice day.

Operator: This concludes today's conference call. You may now disconnect.