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Houston - Nov. 2, 2006 - CenterPoint Energy, Inc. (NYSE: CNP) today reported net income and income from continuing operations of $83 million, or $0.26 per diluted share, for the third quarter of 2006 compared to $50 million, or $0.15 per diluted share, for the same period of 2005. ”I’m pleased with the overall performance of our business and the progress that we are achieving,” said David M. McClanahan, president and chief executive officer of CenterPoint Energy. “This continued strong performance, combined with the growth prospects in our pipeline and field services operations, positions us well for the future.” For the nine months ended September 30, 2006, net income was $365 million, or $1.14 per diluted share, compared to $171 million, or $0.51 per diluted share, for the same period of 2005. Income from continuing operations before extraordinary item for the nine months ended September 30, 2006, was also $365 million, or $1.14 per diluted share, compared to $144 million, or $0.43 per diluted share, for the same period of 2005. Results for the nine months ended September 30, 2006, included the impact of two second quarter settlements. The first was an agreement with the Internal Revenue Service regarding the tax treatment of the company’s Zero Premium Exchangeable Subordinated Notes (ZENS) and its former Automatic Common Exchange Securities (ACES). This agreement, which is subject to approval by the Joint Committee on Taxation of the U. S. Congress, resulted in a reduction to the company’s previously accrued tax and related interest reserves, adding $119 million ($0.37 per diluted share) to income. The second was an agreement settling all issues related to the remand to the Texas Public Utility Commission of the company’s 2001 unbundled cost of service order (UCOS) which reduced income by $21 million after-tax, or $0.07 per diluted share. Net income for the nine months ended September 30, 2005, included an extraordinary gain of $30 million, or $0.09 per diluted share, reflecting an adjustment to the extraordinary loss recorded in the second half of 2004 to write down generation-related regulatory assets. In addition, net income for the nine months ended September 30, 2005, included a loss of $3 million, or $0.01 per diluted share, from discontinued operations.
Operating Income by Segment Detailed
Electric Transmission & Distribution
The electric transmission & distribution segment reported operating income of $219 million in the third quarter of 2006, consisting of $187 million for the regulated electric transmission & distribution utility (TDU) (including $14 million for the competition transition charge (CTC)) and $32 million related to the transition bonds. Operating income for the third quarter of 2005 totaled $183 million, consisting of $174 million for the TDU (including $2 million for the CTC) and $9 million related to the transition bonds. The TDU’s revenues continued to benefit from solid customer growth, with nearly 49,000 metered customers added since September 2005. Houston experienced normal weather during the third quarter of 2006, which created an unfavorable weather variance when compared to the abnormally warm weather in 2005. Operation and maintenance expenses were unchanged. Operating income for the nine months ended September 30, 2006, was $480 million, consisting of $384 million for the TDU (including $44 million for the CTC) and $96 million related to the transition bonds. Operating income for the same period of 2005 totaled $385 million, consisting of $358 million for the TDU (including $2 million for the CTC) and $27 million related to the transition bonds. The TDU’s operating income for the nine months ended September 30, 2006, includes the $32 million adverse impact of the resolution of the 2001 UCOS order recorded in the second quarter of 2006.
Natural Gas Distribution
The natural gas distribution segment reported an operating loss of $11 million for the third quarter of 2006 compared to a loss of $16 million for the same period of 2005. Due to seasonal impacts, the third quarter for this segment is typically one of the weakest of the year. Higher margins from rate increases and rate design changes, along with the addition of nearly 43,000 customers since September 2005, were partially offset by increased operation and maintenance expenses driven primarily by higher bad debt expense due to high natural gas prices. Operating income for the nine months ended September 30, 2006, was $90 million compared to $116 million for the same period of 2005. In addition to the factors noted above, operating income for the nine months ended September 30, 2006, was adversely affected by unfavorable weather, decreased usage and costs associated with staff reductions.
Competitive Natural Gas Sales and Services
The competitive natural gas sales and services segment reported operating income of $12 million for the third quarter of 2006 compared to $4 million for the same period of 2005. The increase was primarily driven by increased sales of gas from inventory, reduced bad debt expenses and a $21 million favorable variance related to mark-to-market accounting for non-trading financial derivatives used to lock in the economic value associated with basis differentials. These positive variances were partially offset by a $26 million write-down of natural gas inventory to the lower of average cost or market. The company purchases and stores natural gas to meet certain future sales requirements and enters into derivative contracts to hedge the economic value of the future sales. Due to the inventory write-downs, operating income in the future periods, when these sales occur, is expected to be higher. Operating income for the nine months ended September 30, 2006, was $44 million compared to $30 million for the same period of 2005. Operating income for the nine months ended September 30, 2006, included improved margins, a $34 million favorable variance related to mark-to-market accounting and $56 million of write-downs of natural gas inventory.
Pipelines and Field Services
The pipelines and field services segment reported operating income of $69 million for the third quarter of 2006 compared to $52 million for the same period of 2005. This segment’s businesses continue to benefit from favorable dynamics in the markets for natural gas gathering and transportation services in the Gulf Coast and Mid-Continent regions. Within this segment, the pipeline business achieved higher operating income ($48 million vs. $36 million) resulting primarily from the sale of excess gas no longer required following improvements to a storage facility. The field services business achieved higher operating income ($21 million vs. $16 million) driven by increased throughput. In addition, this business recorded equity income of $2 million in the third quarter of 2006 ($1 million for the same period in 2005) from its 50 percent interest in a jointly-owned gas processing plant. These amounts are included in Other - net under the Other Income (Expense) caption. Operating income for the nine months ended September 30, 2006, was $203 million compared to $168 million for the same period of 2005. The pipeline business achieved operating income of $137 million for the nine months ended September 30, 2006, compared to $119 million for the same period of 2005. The field services business achieved operating income of $66 million for the nine months ended September 30, 2006, compared to $49 million for the same period of 2005. Equity income from the jointly-owned gas processing plant was $7 million for the nine months ended September 30, 2006, compared to $4 million for the same period of 2005.
Dividend Declaration
On October 26, 2006, CenterPoint Energy’s board of directors declared a regular quarterly cash dividend of $0.15 per share of common stock payable on December 8, 2006, to shareholders of record as of the close of business on November 16, 2006.
Outlook for 2006
CenterPoint Energy expects diluted earnings per share for 2006 to be in the range of $1.00 to $1.10 compared to its prior expectation of $0.90 to $1.00. This guidance excludes any impacts related to the ZENS and ACES, including the negative impact of $0.04 per diluted share related to the increase in the tax reserve recorded in the first quarter 2006 and the one-time positive impact of $0.37 per diluted share related to the company’s settlement regarding the tax treatment of the ZENS and ACES recorded in the second quarter 2006. This guidance also excludes the one-time adverse impact of $0.07 per diluted share related to the settlement of the 2001 UCOS order recorded in the second quarter 2006. This guidance includes an estimated impact of the settlement of the TDU’s rate case and takes into consideration various economic and operational assumptions related to the business segments in which the company operates. The company has made certain assumptions regarding the impact to earnings of various other regulatory proceedings, but cannot predict the ultimate outcome of any of those proceedings. In providing this guidance, the company has not projected the impact of any changes in accounting standards, any impact from acquisitions or divestitures, or the outcome of the TDU’s true-up appeal.
Webcast of Earnings Conference Call
CenterPoint Energy’s management will host an earnings conference call on Thursday, November 2, 2006, at 10:30 a.m. Central time or 11:30 a.m. Eastern time. Interested parties may listen to a live audio broadcast of the conference call at www.CenterPointEnergy.com/investors/events. A replay of the call can be accessed approximately two hours after the completion of the call and will be archived on the web site for at least one year.
CenterPoint Energy, Inc., headquartered in Houston, Texas, is a domestic energy delivery company that includes electric transmission & distribution, natural gas distribution, competitive natural gas sales and services, and pipeline and field services operations. The company serves more than five million metered customers primarily in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma, and Texas. Assets total approximately $17 billion. With about 9,000 employees, CenterPoint Energy and its predecessor companies have been in business for more than 130 years. For more information, visit the Web site at www.CenterPointEnergy.com. This news release includes forward-looking statements. Actual events and results may differ materially from those projected. The statements in this news release regarding future financial performance and results of operations and other statements that are not historical facts are forward-looking statements. Factors that could affect actual results include the timing and outcome of appeals from the true-up proceedings, the timing and impact of future regulatory, legislative and IRS decisions, effects of competition, weather variations, changes in CenterPoint Energy’s or its subsidiaries’ business plans, financial market conditions, the timing and extent of changes in commodity prices, particularly natural gas, the impact of unplanned facility outages, and other factors discussed in CenterPoint Energy’s and its subsidiaries’ Form 10-Ks for the period ended December 31, 2005, Form 10-Qs for the periods ended March 31, 2006, June 30, 2006, and September 30, 2006, and other filings with the Securities and Exchange Commission.
