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| CNP > SEC Filings for CNP > Form 10-Q on 29-Apr-2009 | All Recent SEC Filings |
29-Apr-2009
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 December31, 2008 (2008 Form 10-K).
Hurricane Ike
CenterPoint Houston's electric delivery system suffered substantial damage as a result of Hurricane Ike, which struck the upper Texas coast in September 2008.
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 $17 million.
CenterPoint Houston deferred the uninsured system restoration costs as management believes it is probable that such costs will be recovered through the regulatory process. As a result, system restoration costs did not affect the Company's or CenterPoint Houston's reported net income for 2008 or the first quarter of 2009. As of March 31, 2009, CenterPoint Houston had balances of $161 million in construction work in progress and $437 million in regulatory assets related to restoration costs incurred through March 31, 2009. In April 2009, CenterPoint Houston filed with the Public Utility Commission of Texas (Texas Utility Commission) an application for review and approval for recovery of approximately $608 million in system restoration costs identified as of the end of February 2009, plus $2 million in regulatory expenses, $13 million in certain debt issuance costs, and $55 million in carrying costs, pursuant to the legislation described below. CenterPoint Houston expects to incur additional costs, currently estimated at $12 million, related to Hurricane Ike, principally related to the reconstruction of certain substations on Galveston Island, and will seek to recover those costs through the regulatory process at a later date.
In April 2009, the Texas Legislature enacted legislation that authorizes the Texas Utility Commission to conduct proceedings to determine the amount of system restoration costs and related costs associated with hurricanes or other major storms that utilities are entitled to recover through charges to customers. The legislation authorizes the Texas Utility Commission to issue a financing order that would permit a utility like CenterPoint Houston to recover the distribution portion of those costs and related carrying costs through the issuance of non-recourse system restoration bonds similar to the securitization bonds issued previously. The legislation also allows such a utility to recover, or defer for future recovery, the transmission portion of its system restoration costs through the existing mechanisms established to recover transmission level costs. The legislation requires the Texas Utility Commission to make its determination of recoverable system restoration costs within 150 days of the filing of a utility's application and to rule on a utility's application for a financing order for the issuance of system restoration bonds within 90 days of the filing of that application. The time periods for the Texas Utility Commission to act on the two applications can run concurrently, but the Texas Utility Commission can delay issuing a financing order until it has ruled on the amount of recoverable system restoration costs. Alternatively, if securitization is not the least-cost option for rate payers, the legislation authorizes the Texas Utility Commission to allow a utility to recover those costs through a customer surcharge mechanism.
In the application it filed in April 2009, CenterPoint Houston seeks approval for recovery of a total of approximately $678 million, which includes the $608 million in system restoration costs described above plus related regulatory expenses, certain debt issuance costs, and carrying costs calculated through August 2009. CenterPoint Houston also plans to apply for a financing order which would authorize CenterPoint Houston to issue system restoration bonds to recover the portion of the $678 million related to distribution service, or approximately $657 million. Assuming those bonds are issued, CenterPoint Houston will recover the distribution portion of system restoration costs out of the bond proceeds, with the bonds being repaid over time through a charge imposed on customers. CenterPoint Houston will also seek to recover the remaining approximately $21 million related to transmission service through the existing annual transmission cost of service tariff. Although the Company and
CenterPoint Houston believe the storm restoration costs CenterPoint Houston is seeking authorization to recover and the amounts it will seek authorization to securitize are in accordance with applicable regulatory requirements, as in any regulatory proceeding, there can be no assurance that the Texas Utility Commission will authorize recovery or securitization of the full amounts requested by CenterPoint Houston.
Debt Financing Transactions
In January 2009, CenterPoint Houston issued $500 million aggregate principal amount of general mortgage bonds due in March 2014 with an interest rate of 7.00%. The proceeds from the sale of the bonds were used for general corporate purposes, including the repayment of outstanding borrowings under its revolving credit facility and the money pool, capital expenditures and storm restoration costs associated with Hurricane Ike.
Equity Financing Transactions
During the three months ended March 31, 2009, we received proceeds of approximately $26 million from the sale of approximately 2.2 million common shares to our defined contribution plan and proceeds of approximately $3 million from the sale of approximately 0.4 million common shares to participants in our enhanced dividend reinvestment plan.
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