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| CNP > SEC Filings for CNP > Form 10-Q on 5-Nov-2008 | All Recent SEC Filings |
5-Nov-2008
Quarterly Report
The following discussion and analysis should be read in combination with our Interim Condensed Financial Statements contained in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2007 (2007 Form 10-K).
Hurricane Ike
The electric delivery system of our electric transmission and distribution subsidiary, CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), suffered substantial damage as a result of Hurricane Ike, which struck the upper Texas coast early Saturday, September 13, 2008.
The strong Category 2 storm initially left more than 90 percent of CenterPoint Houston's more than 2 million metered customers without power, the largest outage in CenterPoint Houston's 130-year history. Most of the widespread power outages were due to power lines damaged by downed trees and debris blown by Hurricane Ike's hurricane-force wind. In addition, on Galveston Island and along the coastal areas of the Gulf of Mexico and Galveston Bay, the storm surge and flooding from rains accompanying the storm caused significant damage or destruction of houses and businesses served by CenterPoint Houston.
CenterPoint Houston estimates that total costs to restore the electric delivery facilities damaged as a result of Hurricane Ike will be in the range of $650 million to $750 million. As is common with electric utilities serving coastal regions, the poles, towers, wires, street lights and pole mounted equipment that comprise CenterPoint Houston's transmission and distribution system are not covered by property insurance, but office buildings and warehouses and their contents and substations are covered by insurance that provides for a maximum deductible of $10 million. Current estimates are that total losses to property covered by this insurance were approximately $25 million.
In addition to storm restoration costs, CenterPoint Houston estimates that it lost approximately $17 million in revenue through September 30, 2008, and will continue to lose minor amounts of revenue that would otherwise have been anticipated from those customers whose service will not be restored for a longer period. Within the first 18 days after the storm, CenterPoint Houston had restored power to all customers capable of receiving it.
CenterPoint Houston is deferring the uninsured storm restoration costs as management believes it is probable that such costs will be recovered through the regulatory process. As a result, storm restoration costs will not affect our or CenterPoint Houston's reported net income for 2008. As of September 30, 2008, CenterPoint Houston recorded an increase of $141 million in construction work in progress and $434 million in regulatory assets for restoration costs incurred through September 30, 2008. Approximately $503 million of these costs are based on estimates and are included in accounts payable as of September 30, 2008. Additional restoration costs will continue to be incurred during the fourth quarter of 2008 and possibly during the first quarter of 2009.
Assuming necessary enabling legislation is enacted by the Texas Legislature in the session that begins in January 2009, CenterPoint Houston expects to obtain recovery of its storm restoration costs through the issuance of non-recourse securitization bonds similar to the storm recovery bonds issued by another Texas utility following Hurricane Rita. Assuming those bonds are issued, CenterPoint Houston will recover the amount of storm restoration costs approved by the Public Utility Commission of Texas out of the bond proceeds, with the bonds being repaid over time through a charge imposed on customers. Alternatively, if securitization is not available, recovery of those costs would be sought through traditional regulatory mechanisms. Under its 2006 rate case settlement, CenterPoint Houston is entitled to seek an adjustment to rates in this situation, even though in most instances its rates are frozen until 2010.
The natural gas distribution business (Gas Operations) of CenterPoint Energy Resources Corp. (CERC Corp., and, together with its subsidiaries, CERC) also suffered some damage to its system in Houston, Texas and in other portions of its service territory across Texas and Louisiana. As of September 30, 2008, Gas Operations has deferred
approximately $3 million of costs related to Hurricane Ike for recovery as part of future natural gas distribution rate proceedings.
CERC Receivables Facility
CERC's receivables facility terminated on October 28, 2008. Advances under the receivables facility of $150 million were repaid upon termination of the facility. CERC is currently negotiating a new receivables facility to replace the expired facility, but there can be no assurance that a new facility with acceptable terms can be obtained.
Interstate Pipeline Expansion
Southeast Supply Header. The Southeast Supply Header (SESH) pipeline project, a joint venture between CenterPoint Energy Gas Transmission, a wholly owned subsidiary of CERC Corp., and Spectra Energy Corp., received Federal Energy Regulatory Commission (FERC) approval to begin operation with limited exclusions in August 2008. The pipeline was placed into commercial service on September 6, 2008. This new 270-mile pipeline, which extends from the Perryville Hub, near Perryville, Louisiana, to an interconnection with the Gulf Stream Natural Gas System near Mobile, Alabama, has a maximum design capacity of approximately 1 billion cubic feet per day. The pipeline represents a new source of natural gas supply for the Southeast United States and offers greater supply diversity to this region. We now expect our share of SESH's net costs to be approximately $620 million.
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