8-KOther Events

CENTERPOINT ENERGY INC 8-K Report, Corporate Update (Sep 29, 2011)

Filed September 29, 2011For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) has announced a significant development concerning a long-standing "true-up" proceeding for its transmission and distribution subsidiary, CenterPoint Energy Houston Electric, LLC (CenterPoint Houston). On September 28, 2011, CenterPoint Houston reached an agreement in principle with the Public Utility Commission of Texas (Texas Utility Commission) staff and certain intervenors to resolve issues related to a 2004 "true-up order." This agreement, if finalized and approved by the Texas Utility Commission, would allow CenterPoint Houston to recover $1.695 billion of the "recoverable true-up balance." This recovery is anticipated to be achieved through the issuance of transition bonds by special purpose subsidiaries, a process that will require further regulatory approval and favorable market conditions. The agreement also stipulates that CenterPoint Houston will reimburse certain parties for rate case expenses and bear the costs associated with issuing these transition bonds, while no further interest will accrue on the recoverable true-up balance.

Key Highlights

  • 1CenterPoint Energy Houston Electric, LLC has reached an agreement in principle to resolve a 2004 "true-up order" proceeding.
  • 2The settlement would allow CenterPoint Houston to recover $1.695 billion of a "recoverable true-up balance."
  • 3Recovery of the balance is planned through the issuance of transition bonds by special purpose subsidiaries.
  • 4CenterPoint Houston will reimburse certain parties for rate case expenses as part of the settlement.
  • 5The company will bear the costs associated with issuing the transition bonds.
  • 6No further interest will accrue on the recoverable true-up balance.
  • 7The agreement is subject to final documentation, party agreement, and final approval by the Texas Utility Commission.

Frequently Asked Questions

The "true-up order" relates to a regulatory process where utilities can recover certain past costs. The resolution of this long-standing proceeding is significant as it allows CenterPoint Houston to potentially recover a substantial amount ($1.695 billion) of its "recoverable true-up balance," which has been a point of contention and financial uncertainty.

The anticipated method of recovery is through the issuance of transition bonds. These bonds would likely be issued by new, separate special purpose subsidiaries, a common securitization technique in the utility industry. This process will require further approvals from the Texas Utility Commission and is subject to market conditions.

The settlement offers clarity and a path to recover a significant amount of past costs, which is positive. However, investors should note that CenterPoint Houston will bear the costs of issuing the transition bonds and will reimburse certain parties for rate case expenses. The ultimate financial impact will depend on the final terms, successful bond issuance, and market conditions.

Yes, the settlement is not final. It is subject to final documentation and agreement among the parties, and critically, requires final approval from the Texas Utility Commission. Furthermore, the planned issuance of transition bonds is contingent on regulatory approval of a financing order, potential appeals, and favorable future market conditions. The cautionary statement also highlights that actual events could differ materially from projections.