CenterPoint Energy 2008 Annual Report Download - page 27

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of appeals ordered that this issue be remanded to the Texas Utility Commission, as that commission requested. No
party, in the petitions for review or briefs filed with the Texas Supreme Court, has challenged that order by the court
of appeals, though the Texas Supreme Court, if it grants review, will have authority to consider all aspects of the
rulings above, not just those challenged specifically by the appellants. We and CenterPoint Houston will continue to
pursue a favorable resolution of this issue through the appellate or administrative process. Although the Texas
Utility Commission has not previously required a company subject to its jurisdiction to take action that would result
in a normalization violation, no prediction can be made as to the ultimate action the Texas Utility Commission may
take on this issue on remand.
The Texas electric restructuring law allowed the amounts awarded to CenterPoint Houston in the Texas Utility
Commission’s True-Up Order to be recovered either through securitization or through implementation of a CTC or
both. Pursuant to a financing order issued by the Texas Utility Commission in March 2005 and affirmed by a Travis
County district court, in December 2005 a subsidiary of CenterPoint Houston issued $1.85 billion in transition bonds
with interest rates ranging from 4.84% to 5.30% and final maturity dates ranging from February 2011 to August
2020. Through issuance of the transition bonds, CenterPoint Houston recovered approximately $1.7 billion of the
true-up balance determined in the True-Up Order plus interest through the date on which the bonds were issued.
In July 2005, CenterPoint Houston received an order from the Texas Utility Commission allowing it to implement
a CTC designed to collect the remaining $596 million from the True-Up Order over 14 years plus interest at an
annual rate of 11.075% (CTC Order). The CTC Order authorized CenterPoint Houston to impose a charge on REPs
to recover the portion of the true-up balance not recovered through a financing order. The CTC Order also allowed
CenterPoint Houston to collect approximately $24 million of rate case expenses over three years without a return
through a separate tariff rider (Rider RCE). CenterPoint Houston implemented the CTC and Rider RCE effective
September 13, 2005 and began recovering approximately $620 million. The return on the CTC portion of the true-up
balance was included in CenterPoint Houston’s tariff-based revenues beginning September 13, 2005. Effective
August 1, 2006, the interest rate on the unrecovered balance of the CTC was reduced from 11.075% to 8.06%
pursuant to a revised rule adopted by the Texas Utility Commission in June 2006. Recovery of rate case expenses
under Rider RCE was completed in September 2008.
Certain parties appealed the CTC Order to a district court in Travis County. In May 2006, the district court issued
a judgment reversing the CTC Order in three respects. First, the court ruled that the Texas Utility Commission had
improperly relied on provisions of its rule dealing with the interest rate applicable to CTC amounts. The district
court reached that conclusion based on its belief that the Texas Supreme Court had previously invalidated that entire
section of the rule. The 11.075% interest rate in question was applicable from the implementation of the CTC Order
on September 13, 2005 until August 1, 2006, the effective date of the implementation of a new CTC in compliance
with the revised rule discussed above. Second, the district court reversed the Texas Utility Commission’s ruling that
allows CenterPoint Houston to recover through the Rider RCE the costs (approximately $5 million) for a panel
appointed by the Texas Utility Commission in connection with the valuation of electric generation assets. Finally,
the district court accepted the contention of one party that the CTC should not be allocated to retail customers that
have switched to new on-site generation. The Texas Utility Commission and CenterPoint Houston appealed the
district court’s judgment to the Texas Third Court of Appeals, and in July 2008, the court of appeals reversed the
district court’s judgment in all respects and affirmed the Texas Utility Commission’s order. Two of the appellants
have requested further review from the Texas Supreme Court. The ultimate outcome of this matter cannot be
predicted at this time. However, the Company does not expect the disposition of this matter to have a material
adverse effect on our or CenterPoint Houston’s financial condition, results of operations or cash flows.
During the years ended December 31, 2006, 2007 and 2008, CenterPoint Houston recognized approximately
$55 million, $42 million and $5 million, respectively, in operating income from the CTC. Additionally, during the
years ended December 31, 2006, 2007 and 2008, CenterPoint Houston recognized approximately $13 million,
$14 million and $13 million, respectively, of the allowed equity return not previously recognized. As of
December 31, 2008, we have not recognized an allowed equity return of $207 million on CenterPoint Houston’s
true-up balance because such return will be recognized as it is recovered in rates.
During the 2007 legislative session, the Texas legislature amended statutes prescribing the types of true-up
balances that can be securitized by utilities and authorized the issuance of transition bonds to recover the balance of
the CTC. In June 2007, CenterPoint Houston filed a request with the Texas Utility Commission for a financing order