CenterPoint Energy 2010 Annual Report Download - page 27

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flows in addition to any potential loss resulting from final resolution of the True-Up Order. Following the adoption
by the IRS of the final regulations described above, the Texas Utility Commission requested, and the court of
appeals ordered, that this issue be remanded to that commission for further consideration. No party has challenged
that order by the court of appeals although the Texas Supreme Court has the 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 and administrative process. Although the Texas
Utility Commission has requested that this issue be remanded to it by the courts and 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 new special purpose 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 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 and on October 22, 2010, the Texas Supreme Court issued
an opinion affirming the judgment of the court of appeals. The Texas Supreme Court’s decision did not have an
impact on our or CenterPoint Houston’s financial position, 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