CenterPoint Energy 2012 Annual Report Download - page 25

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Houston to recover a true-up balance of approximately $2.3 billion, which included interest through August 31, 2004, and provided
for adjustment of the amount to be recovered to include interest on the balance until recovery, along with the principal portion of
additional excess mitigation credits returned to customers after August 31, 2004 and certain other adjustments. To reflect the
impact of the True-Up Order, in 2004 and 2005, CenterPoint Energy recorded a net after-tax extraordinary loss of $947 million.
Various parties, including CenterPoint Houston, appealed the True-Up Order. These appeals were heard first by a district
court in Travis County, Texas, then by the Texas Third Court of Appeals and finally by the Texas Supreme Court. In March 2011,
the Texas Supreme Court issued a unanimous ruling on such appeals in which it affirmed in part and reversed in part the decision
of the Texas Utility Commission. In June 2011, the Texas Supreme Court issued a final mandate remanding the case to the Texas
Utility Commission for further proceedings (the Remand Proceeding).
In September 2011, CenterPoint Houston reached an agreement in principle with the staff of the Texas Utility Commission
and certain intervenors to settle the issues in the Remand Proceeding (the Settlement). In October 2011, the Texas Utility
Commission approved a final order (the Final Order) in the Remand Proceeding consistent with the Settlement. The Final Order
provided that (i) CenterPoint Houston was entitled to recover an additional true-up balance of $1.695 billion (the Recoverable
True-Up Balance) in the Remand Proceeding, (ii) no further interest would accrue on the Recoverable True-Up Balance, and (iii)
CenterPoint Houston would reimburse certain parties for their reasonable rate case expenses.
In October 2011, the Texas Utility Commission also issued a financing order (the Financing Order) that authorized the issuance
of transition bonds by CenterPoint Houston to securitize the Recoverable True-Up Balance. In January 2012, CenterPoint Energy
Transition Bond Company IV, LLC (Bond Company IV), a new special purpose subsidiary of CenterPoint Houston, issued $1.695
billion of transition bonds in three tranches with interest rates ranging from 0.9012% to 3.0282% and final maturity dates ranging
from April 15, 2018 to October 15, 2025. Through the issuance of these transition bonds, CenterPoint Houston recovered the
Recoverable True-Up Balance, less approximately $10.4 million of offering expenses. The transition bonds will be repaid through
a charge imposed on customers in CenterPoint Houston's service territory.
As a result of the Final Order, in 2011 CenterPoint Houston recorded a pre-tax extraordinary gain of $921 million ($587
million after-tax) and $352 million ($224 million after-tax) of Other Income related to a portion of interest on the appealed amount.
An additional $405 million ($258 million after-tax) will be recorded as an equity return over the life of the transition bonds.
Customers
CenterPoint Houston serves nearly all of the Houston/Galveston metropolitan area. At December 31, 2012, CenterPoint
Houston's customers consisted of approximately 75 REPs, which sell electricity to over two million metered customers in
CenterPoint Houston's certificated service area, and municipalities, electric cooperatives and other distribution companies located
outside CenterPoint Houston's certificated service area. Each REP is licensed by, and must meet minimum creditworthiness criteria
established by, the Texas Utility Commission.
Sales to REPs that are affiliates of NRG Energy, Inc. (NRG) represented approximately 38%, 36% and 39% of CenterPoint
Houston's transmission and distribution revenues in 2010, 2011 and 2012, respectively. Sales to REPs that are affiliates of Energy
Future Holdings Corp. (Energy Future Holdings) represented approximately 12%, 11% and 10% of CenterPoint Houston's
transmission and distribution revenues in 2010, 2011 and 2012, respectively. CenterPoint Houston's aggregate billed receivables
balance from REPs as of December 31, 2012 was $158 million. Approximately 42% and 2% of this amount was owed by affiliates
of NRG and Energy Future Holdings, respectively. CenterPoint Houston does not have long-term contracts with any of its customers.
It operates using a continuous billing cycle, with meter readings being conducted and invoices being distributed to REPs each
business day.
Advanced Metering System and Distribution Grid Automation (Intelligent Grid)
In December 2008, CenterPoint Houston received approval from the Texas Utility Commission to deploy an advanced metering
system (AMS) across its service territory during the following five years. CenterPoint Houston began installing advanced meters
in March 2009. In May 2012, CenterPoint Houston substantially completed the deployment of the advanced metering system
having installed approximately 2.2 million smart meters. This technology should encourage greater energy conservation by giving
Houston-area electric consumers the ability to better monitor and manage their electric use and its cost in near real time. To recover
the cost of the AMS, the Texas Utility Commission approved a monthly surcharge payable by REPs, initially over 12 years. For
the first 24 months, which began in February 2009, the surcharge for residential customers was $3.24 per month. Beginning in
February 2011, the surcharge was reduced to $3.05 per month. In September 2011, the surcharge duration was reduced from 12
years to approximately six years for residential customers and approximately eight years for commercial customers. The surcharge