CenterPoint Energy 2009 Annual Report Download - page 39

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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 MPUC sought further review of the court of appeals decision from the
Minnesota Supreme Court. In July 2009, the Minnesota Supreme Court reversed the decision of the Minnesota
Court of Appeals and upheld the MPUC’s decision to deny the requested variance. The court’s decision had no
negative impact on our financial condition, results of operations or cash flows, as the costs at issue were written off
at the time they were disallowed.
In November 2008, Gas Operations filed a request with the MPUC to increase its rates for utility distribution
service by $59.8 million annually. In addition, Gas Operations sought an adjustment mechanism that would annually
adjust rates to reflect changes in use per customer. In December 2008, the MPUC accepted the case and approved
an interim rate increase of $51.2 million, which became effective on January 2, 2009, subject to refund. In January
2010, the MPUC issued its decision authorizing a revenue increase of $41 million per year, with an overall rate of
return of 8.09% (10.24% return on equity). The difference between the rates approved by the MPUC and amounts
collected under the interim rates, $10 million as of December 31, 2009, is recorded in other current liabilities and
will be refunded to customers. The MPUC also authorized Gas Operations to implement a pilot program for
residential and small volume commercial customers that is intended to decouple gas revenues from customers’
natural gas usage. In February 2010, CERC filed a request for rehearing of the order by the MPUC. No other party
to the case filed such a request. CERC and CenterPoint Energy do not expect a final order to be issued in this
proceeding until spring 2010.
Mississippi. In July 2009, Gas Operations filed a request to increase its rates for utility distribution service with
the Mississippi Public Service Commission (MPSC). In November 2009, as part of a settlement agreement in which
the MPSC approved Gas Operations’ retention of the compensation paid under the terms of an asset management
agreement, Gas Operations withdrew its rate request.
Department of Transportation
In December 2006, Congress enacted the Pipeline Inspection, Protection, Enforcement and Safety Act of 2006
(2006 Act), which reauthorized the programs adopted under the Pipeline Safety Improvement Act of 2002 (2002
Act). These programs included several requirements related to ensuring pipeline safety, and a requirement to assess
the integrity of pipeline transmission facilities in areas of high population concentration. Under the legislation,
remediation activities are to be performed over a 10-year period. Our pipeline subsidiaries are on schedule to
comply with the timeframe mandated for completion of integrity assessment and remediation.
Pursuant to the 2002 Act, and then the 2006 Act, the Pipeline and Hazardous Materials Safety Administration
(PHMSA) of the U.S. Department of Transportation (DOT) has adopted a number of rules concerning, among other
things, distinguishing between gathering lines and transmission facilities, requiring certain design and construction
features in new and replaced lines to reduce corrosion and requiring pipeline operators to amend existing written
operations and maintenance procedures and operator qualification programs.
We anticipate that compliance with these regulations and performance of the remediation activities by CERC’s
interstate and intrastate pipelines, and natural gas distribution companies will require increases in both capital
expenditures and operating costs. The level of expenditures will depend upon several factors, including age, location
and operating pressures of the facilities. Based on our interpretation of the rules written to date and preliminary
technical reviews, we believe compliance will require annual expenditures (capital and operating costs combined) of
approximately $16 million to $18 million during the next three years.