CenterPoint Energy 2008 Annual Report Download - page 37

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weather such as hurricanes and certain other force majeure events. CenterPoint Houston must make a new base rate
filing not later than June 30, 2010, based on a test year ended December 31, 2009, unless the staff of the Texas
Utility Commission and certain cities notify it that such a filing is unnecessary.
Natural Gas Distribution
In almost all communities in which Gas Operations provides natural gas distribution services, it operates under
franchises, certificates or licenses obtained from state and local authorities. The original terms of the franchises, with
various expiration dates, typically range from 10 to 30 years, although franchises in Arkansas are perpetual. Gas
Operations expects to be able to renew expiring franchises. In most cases, franchises to provide natural gas utility
services are not exclusive.
Substantially all of Gas Operations is subject to cost-of-service regulation by the relevant state public utility
commissions and, in Texas, by the Railroad Commission of Texas (Railroad Commission) and those municipalities
Gas Operations serves that have retained original jurisdiction.
In March 2008, Gas Operations filed a request to change its rates with the Railroad Commission and the 47 cities
in its Texas Coast service territory, an area consisting of approximately 230,000 customers in cities and
communities on the outskirts of Houston. The request sought to establish uniform rates, charges and terms and
conditions of service for the cities and environs of the Texas Coast service territory. Of the 47 cities, 23 either
affirmatively approved or allowed the filed rates to go into effect by operation of law. Nine other cities were
represented by the Texas Coast Utilities Coalition (TCUC) and 15 cities were represented by the Gulf Coast
Coalition of Cities (GCCC). In July 2008, Gas Operations reached a settlement agreement with the GCCC. That
settlement agreement, if implemented across the entire Texas Coast service territory, would allow Gas Operations a
$3.4 million annual increase in revenues. The TCUC cities denied the rate change request and Gas Operations
appealed the denial of rates to the Railroad Commission. The Railroad Commission issued an order in October 2008,
which, if implemented across the entire Texas Coast service territory, would result in an annual revenue increase of
$3.7 million. Both the Railroad Commission order and the settlement provide for an annual rate adjustment
mechanism to reflect changes in operating expenses and revenues as well as changes in capital investment and
associated changes in revenue-related taxes. In December 2008, the Railroad Commission issued an order on
rehearing. Parties have filed second motions for rehearing on this order. However, in December 2008, Gas
Operations implemented the approved rates for the nine TCUC cities and the environs, subject to refund. The
impact of the Railroad Commission’s order on rehearing on the settled rates is still under review, and how rates will
be conformed among all cities in the Texas Coast service territory is unknown at this time. A final decision from the
Railroad Commission regarding the second motions for rehearing is expected no later than March 2009.
Minnesota. In November 2006, the Minnesota Public Utilities Commission (MPUC) denied a request filed by Gas
Operations for a waiver of MPUC rules in order to allow Gas Operations to recover approximately $21 million in
unrecovered purchased gas costs related to periods prior to July 1, 2004. Those unrecovered gas costs were
identified as a result of revisions to previously approved calculations of unrecovered purchased gas costs. Following
that denial, Gas Operations recorded a $21 million adjustment to reduce pre-tax earnings in the fourth quarter of
2006 and reduced the regulatory asset related to these costs by an equal amount. In March 2007, following the
MPUC’s denial of reconsideration of its ruling, Gas Operations petitioned the Minnesota Court of Appeals for
review of the MPUC’s decision, and in May 2008 that court ruled that the MPUC had been arbitrary and capricious
in denying Gas Operations a waiver. The court ordered the case remanded to the MPUC for reconsideration under
the same principles the MPUC had applied in previously granted waiver requests. The MPUC sought further review
of the court of appeals decision from the Minnesota Supreme Court, and in July 2008, the Minnesota Supreme Court
agreed to review the decision. In January 2009, the Minnesota Supreme Court heard oral arguments. While there is
no deadline for a decision, a decision is expected by the end of the third quarter of 2009. While no prediction can be
made as to the ultimate outcome, this matter will have no negative impact on our financial condition, results of
operations or cash flows.
In November 2008, Gas Operations filed a request with the MPUC to increase its rates for utility distribution
service. If approved by the MPUC, the proposed new rates would result in an overall increase in annual revenue of
$59.8 million. The proposed increase would allow Gas Operations to recover increased operating costs, including
higher bad debt and collection expenses, the cost of improved customer service and inflationary increases in other