CenterPoint Energy 2009 Annual Report Download - page 112

90
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 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 parties appealed
the court of appeals decision to the Texas Supreme Court which heard oral argument in October 2009. The ultimate
outcome of this matter cannot be predicted at this time. However, CenterPoint Energy does not expect the
disposition of this matter to have a material adverse effect on CenterPoint Energy’s or CenterPoint Houston’s
financial condition, results of operations or cash flows.
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
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. 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, CenterPoint Energy has 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. 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.
(c) Rate Proceedings
Texas. In March 2008, the natural gas distribution businesses of CERC (Gas Operations) filed a request to change
its rates with the Railroad Commission of Texas (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