CenterPoint Energy 2010 Annual Report Download - page 107

85
the denial of the full 2009 performance bonus and lost revenue to the 201st district court in Travis County, Texas,
where the case remains pending.
In March 2008, the natural gas distribution business 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 Houston. In
2008, the Railroad Commission approved the implementation of rates increasing annual revenues by approximately
$3.5 million. The approved rates were contested by a coalition of nine cities in an appeal to the 353rd district court
in Travis County, Texas. In January 2010, that court reversed the Railroad Commission’s order in part and
remanded the matter to the Railroad Commission. In its final judgment, the court ruled that the Railroad
Commission lacked authority to impose the approved cost of service adjustment mechanism in both those nine cities
and in those areas in which the Railroad Commission has original jurisdiction. The Railroad Commission and Gas
Operations have appealed the court’s ruling on the cost of service adjustment mechanism to the 3rd Court of Appeals
at Austin, Texas. Oral arguments were held in February 2011. CenterPoint Energy does not expect the outcome of
this matter to have a material adverse impact on its financial condition, results of operations or cash flows. The cost
of service adjustment was initially effective for three successive years ending in calendar year 2010, but would
automatically renew for successive three-year periods unless Gas Operations or the regulatory authority having
original jurisdiction gave written notice to discontinue the adjustment mechanism by February 1, 2011. Certain cities
that agreed to the initial implementation notified Gas Operations by February 1, 2011 of their desire to discontinue
the adjustment mechanism. Gas Operations will continue the cost of service adjustments for the remaining areas.
In July 2009, Gas Operations filed a request to change its rates with the Railroad Commission and the 29 cities in
its Houston service territory, consisting of approximately 940,000 customers in and around Houston. The request
sought to establish uniform rates, charges and terms and conditions of service for the cities and environs of the
Houston service territory. As finally submitted to the Railroad Commission and the cities, the proposed new rates
would have resulted in an overall increase in annual revenue of $20.4 million, excluding carrying costs of
approximately $2 million on its gas inventory, and would be subject to an annual cost of service adjustment. In
January 2010, Gas Operations withdrew its request for an annual cost of service adjustment mechanism due to the
uncertainty caused by the court’s ruling in the above-mentioned Texas Coast appeal. In February 2010, the Railroad
Commission issued its decision authorizing a revenue increase of $5.1 million annually, reflecting reduced
depreciation rates as well as adjustments to pension and other employee benefits, accumulated deferred income
taxes and other items. The Railroad Commission also approved a surcharge of $0.9 million per year to recover
Hurricane Ike costs over three years. These rates went into effect in March 2010. Gas Operations and other parties
are seeking judicial review of the Railroad Commission’s decision in the 261st District Court in Travis County,
Texas.
In December 2010, Gas Operations filed a request to change its rates with the Railroad Commission and the 66
cities in its South Texas service territory, consisting of approximately 137,000 customers. The request seeks an
increase in base revenues of approximately $6.5 million, based on an 11% return on equity and a capital structure of
56% equity and 44% debt. A decision from the Railroad Commission is anticipated in the summer of 2011.
Rulemaking Proceedings. In January 2010, the Texas Utility Commission published proposed amendments to its
energy efficiency rule. During the statutory comment period, CenterPoint Houston urged the adoption of a lost
revenue recovery mechanism as part of the rule amendments to keep whole the utilities participating in the required
energy efficiency programs. In July 2010, the Texas Utility Commission adopted amendments to its energy
efficiency program rules, but concluded it did not have the statutory authority to permit recovery of lost revenue
associated with energy efficiency programs. CenterPoint Houston has appealed the rule to the Texas 3rd Court of
Appeals at Austin, Texas on the basis it is invalid as amended because it does not permit lost revenue recovery.
In October 2010, amended rules of the Texas Utility Commission relating to the Transmission Cost Recovery
Factor (TCRF) became effective. The amended rules permit a distribution service provider (DSP) such as
CenterPoint Houston to defer for future recovery increases in transmission costs that are charged to the DSP by
transmission service providers (TSPs) during the interim period before the DSP is authorized to request an
adjustment to its TCRF. The TCRF permits a DSP to recover from REPs approved changes in transmission charges
from TSPs, but the TCRF can be changed by the DSP only twice per year on application to the Texas Utility
Commission. The revised rules permit DSPs to obtain full recovery of the increased transmission charges.