CenterPoint Energy 2009 Annual Report Download - page 28

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was implemented. During the years ended December 31, 2007 and 2008, CenterPoint Houston recognized
approximately $42 million and $5 million, respectively, in operating income from the CTC.
As of December 31, 2009, we have not recognized an allowed equity return of $193 million on CenterPoint
Houston’s true-up balance because such return will be recognized as it is recovered in rates. Additionally, during the
years ended December 31, 2007, 2008 and 2009, CenterPoint Houston recognized approximately $14 million,
$13 million and $13 million, respectively, of the allowed equity return not previously recognized.
Hurricane Ike
CenterPoint Houston’s electric delivery system suffered substantial damage as a result of Hurricane Ike, which
struck the upper Texas coast in September 2008.
As is common with electric utilities serving coastal regions, the poles, towers, wires, street lights and pole
mounted equipment that comprise CenterPoint Houston’s transmission and distribution system are not covered by
property insurance, but office buildings and warehouses and their contents and substations are covered by insurance
that provides for a maximum deductible of $10 million. Current estimates are that total losses to property covered by
this insurance were approximately $30 million.
CenterPoint Houston deferred the uninsured system restoration costs as management believed it was probable that
such costs would be recovered through the regulatory process. As a result, system restoration costs did not affect
CenterPoint Energy’s or CenterPoint Houston’s reported operating income for 2008 or 2009.
Legislation enacted by the Texas Legislature in April 2009 authorized the Texas Utility Commission to conduct
proceedings to determine the amount of system restoration costs and related costs associated with hurricanes or
other major storms that utilities are entitled to recover, and to issue financing orders that would permit a utility like
CenterPoint Houston to recover the distribution portion of those costs and related carrying costs through the
issuance of non-recourse system restoration bonds similar to the securitization bonds issued previously. The
legislation also allowed such a utility to recover, or defer for future recovery, the transmission portion of its system
restoration costs through the existing mechanisms established to recover transmission costs.
Pursuant to such legislation, CenterPoint Houston filed with the Texas Utility Commission an application for
review and approval for recovery of approximately $678 million, including approximately $608 million in system
restoration costs identified as of the end of February 2009, plus $2 million in regulatory expenses, $13 million in
certain debt issuance costs and $55 million in incurred and projected carrying costs calculated through August 2009.
In July 2009, CenterPoint Houston announced a settlement agreement with the parties to the proceeding. Under that
settlement agreement, CenterPoint Houston was entitled to recover a total of $663 million in costs relating to
Hurricane Ike, along with carrying costs from September 1, 2009 until system restoration bonds were issued. The
Texas Utility Commission issued an order in August 2009 approving CenterPoint Houston’s application and the
settlement agreement and authorizing recovery of $663 million, of which $643 million was attributable to
distribution service and eligible for securitization and the remaining $20 million was attributable to transmission
service and eligible for recovery through the existing mechanisms established to recover transmission costs.
In July 2009, CenterPoint Houston filed with the Texas Utility Commission its application for a financing order to
recover the portion of approved costs related to distribution service through the issuance of system restoration
bonds. In August 2009, the Texas Utility Commission issued a financing order allowing CenterPoint Houston to
securitize $643 million in distribution service costs plus carrying charges from September 1, 2009 through the date
the system restoration bonds were issued, as well as certain up-front qualified costs capped at approximately
$6 million. In November 2009, CenterPoint Houston issued approximately $665 million of system restoration
bonds through its CenterPoint Energy Restoration Bond Company, LLC subsidiary with interest rates of 1.833% to
4.243% and final maturity dates ranging from February 2016 to August 2023. The bonds will be repaid over time
through a charge imposed on customers.
In accordance with the financing order, CenterPoint Houston also placed a separate customer credit in effect
when the storm restoration bonds were issued. That credit (ADFIT Credit) is applied to customers’ bills while the
bonds are outstanding to reflect the benefit of accumulated deferred federal income taxes (ADFIT) associated with