CenterPoint Energy 2010 Annual Report Download - page 40

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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. 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.
In February 2011, the Railroad Commission approved a rule requiring evaluation of natural gas distribution
systems and submission of a plan by August 2011 to address the risks identified. Each operator's risk-based program
is to be developed in conjunction with the recently enacted federal regulations regarding integrity management for
distribution system operators. The rule allows Gas Operations to record a regulatory asset to account for amounts
spent to comply with the rule and to accrue carrying costs. The determination of the reasonableness and necessity of
any investment or expense will be determined in the next rate case. We do not anticipate compliance with this rule
will cause a material increase in capital expenditures or operating costs.
The Texas legislature periodically reviews the performance of and the need for government agencies such as the
Railroad Commission under the Texas Sunset law. In January 2011, the Sunset Commission established by the
legislature issued its report on the Railroad Commission for consideration by the Texas legislature during its 2011
session. The recommendations by the Sunset Commission include replacing the three-member elected Railroad
Commission with a single elected Commissioner, and moving hearings currently conducted at the Railroad
Commission to the State Office of Administrative Hearings. The Sunset Commission also recommended changing
the name of the Railroad Commission to the ―Texas Oil and Gas Commission.‖ We cannot predict what action, if
any, the Texas legislature may take with respect to those recommendations.
Minnesota. In November 2008, Gas Operations filed a request with the Minnesota Public Utilities Commission
(MPUC) to increase its rates for utility distribution service by $59.8 million annually. In addition, Gas Operations
sought an adjustment mechanism that would annually adjust rates to reflect changes in use per customer. In
December 2008, the MPUC accepted the case and approved an interim rate increase of $51.2 million, which became
effective on January 2, 2009, subject to refund. In January 2010, the MPUC issued its decision authorizing a revenue
increase of $40.8 million per year, with an overall rate of return of 8.09% (10.24% return on equity). The MPUC
also authorized Gas Operations to implement a pilot program for residential and small volume commercial
customers that is intended to decouple gas revenues from customers’ natural gas usage. In July 2010, Gas
Operations implemented the revised rates approved by the MPUC and in August 2010 completed the refund to
customers of the difference between the amounts finally approved by the MPUC and interim amounts collected. In
October 2010, the MPUC approved a request by Gas Operations to implement a rate adjustment to increase its