CenterPoint Energy 2012 Annual Report Download - page 91

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69
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 over
time through a charge imposed on customers in CenterPoint Houston's service territory. The holders of the transition bonds do not
have recourse to any assets or revenues of CenterPoint Houston, and the creditors of CenterPoint Houston do not have recourse
to any assets or revenues of Bond Company IV, including, without limitation, the transition property transferred to Bond Company
IV in connection with the issuance of the transition bonds. The transition property includes the right to impose, collect and receive
an irrevocable, non-bypassable charge payable by CenterPoint Houston's retail electric customers.
As a result of the Final Order, in 2011 CenterPoint Houston recorded a pre-tax extraordinary gain of $921 million ($587
million after taxes of $334 million) 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.
(6) Stock-Based Incentive Compensation Plans and Employee Benefit Plans
(a) Stock-Based Incentive Compensation Plans
CenterPoint Energy has long-term incentive plans (LTIPs) that provide for the issuance of stock-based incentives, including
stock options, performance awards, restricted stock unit awards and restricted and unrestricted stock awards to officers, employees
and non-employee directors. Approximately 14 million shares of CenterPoint Energy common stock are authorized under these
plans for awards.
Equity awards are granted to employees without cost to the participants. The performance awards granted in 2010, 2011 and
2012 are distributed based upon the achievement of certain objectives over a three-year performance cycle. The stock awards
granted in 2010, 2011 and 2012 are subject to the performance condition that total common dividends declared during the three-
year vesting period must be at least $2.34, $2.37 and $2.43 per share, respectively. The stock awards generally vest at the end of
a three-year period. Upon vesting, both the performance and stock awards are issued to the participants along with the value of
dividend equivalents earned over the performance cycle or vesting period. CenterPoint Energy issues new shares in order to satisfy
stock-based payments related to LTIPs.
CenterPoint Energy recorded LTIP compensation expense of $17 million, $19 million and $18 million for the years ended
December 31, 2010, 2011 and 2012, respectively. This expense is included in Operation and Maintenance Expense in the
Statements of Consolidated Income.
The total income tax benefit recognized related to LTIPs was $6 million, $7 million and $7 million for the years ended
December 31, 2010, 2011 and 2012, respectively. No compensation cost related to LTIPs was capitalized as a part of inventory
or fixed assets in 2010, 2011 or 2012. The actual tax benefit realized for tax deductions related to LTIPs totaled $5 million, $8
million and $14 million for 2010, 2011 and 2012, respectively.