CenterPoint Energy 2008 Annual Report Download - page 28

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6
that would allow the securitization of the remaining balance of the CTC, adjusted to refund certain unspent
environmental retrofit costs and to recover the amount of the final fuel reconciliation settlement. CenterPoint
Houston reached substantial agreement with other parties to this proceeding, and a financing order was approved by
the Texas Utility Commission in September 2007. In February 2008, pursuant to the financing order, a new special
purpose subsidiary of CenterPoint Houston issued approximately $488 million of transition bonds in two tranches
with interest rates of 4.192% and 5.234% and final maturity dates of February 2020 and February 2023,
respectively. Contemporaneously with the issuance of those bonds, the CTC was terminated and a transition charge
was implemented.
Hurricane Ike
CenterPoint Houston’s electric delivery system suffered substantial damage as a result of Hurricane Ike, which
struck the upper Texas coast early Saturday, September 13, 2008.
The strong Category 2 storm initially left more than 90% of CenterPoint Houston’s more than 2 million metered
customers without power, the largest outage in CenterPoint Houston’s 130-year history. Most of the widespread
power outages were due to power lines damaged by downed trees and debris blown by Hurricane Ike’s winds. In
addition, on Galveston Island and along the coastal areas of the Gulf of Mexico and Galveston Bay, the storm surge
and flooding from rains accompanying the storm caused significant damage or destruction of houses and businesses
served by CenterPoint Houston.
CenterPoint Houston estimates that total costs to restore the electric delivery facilities damaged as a result of
Hurricane Ike will be in the range of $600 million to $650 million. 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
$17 million.
In addition to storm restoration costs, CenterPoint Houston lost approximately $17 million in revenue through
December 31, 2008. Within the first 18 days after the storm, CenterPoint Houston had restored power to all
customers capable of receiving it.
CenterPoint Houston has deferred the uninsured storm restoration costs as management believes it is probable
that such costs will be recovered through the regulatory process. As a result, storm restoration costs did not affect
our or CenterPoint Houston’s reported net income for 2008. As of December 31, 2008, CenterPoint Houston
recorded an increase of $145 million in construction work in progress and $435 million in regulatory assets for
restoration costs incurred through December 31, 2008. Approximately $73 million of these costs are based on
estimates and are included in accounts payable as of December 31, 2008. Additional restoration costs will continue
to be incurred in 2009.
Assuming necessary enabling legislation is enacted by the Texas Legislature in the session that began in
January 2009, CenterPoint Houston expects to seek a financing order from the Texas Utility Commission to obtain
recovery of its storm restoration costs through the issuance of non-recourse securitization bonds similar to the storm
recovery bonds issued by another Texas utility following the hurricanes that affected that utility’s service territories
in 2005. Assuming those bonds are issued, CenterPoint Houston will recover the amount of storm restoration costs
determined by the Texas Utility Commission to have been prudently incurred out of the bond proceeds, with the
bonds being repaid over time through a charge imposed on customers. Alternatively, if securitization is not
available, recovery of those costs would be sought through traditional regulatory mechanisms. Under its 2006 rate
case settlement, CenterPoint Houston is entitled to seek an adjustment to rates in this situation, even though in most
instances its rates are frozen until 2010.