UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
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Form 10-K
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(Mark
One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the fiscal year ended December 31, 2008
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or
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period from to .
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Commission
File Number 1-31447
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CenterPoint
Energy, Inc.
(Exact
name of registrant as specified in its charter)
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Texas
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74-0694415
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1111
Louisiana
Houston,
Texas 77002
(Address
and zip code of principal executive offices)
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(713)
207-1111
(Registrant’s
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Name of each exchange on which
registered
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Common
Stock, $0.01 par value and associated
rights
to purchase preferred stock
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New
York Stock Exchange
Chicago
Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein and
will not be contained, to the best of each of the registrants’ knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer þ Accelerated
filer o Non-accelerated
filer o (Do not
check if a smaller reporting company) Smaller
reporting company o
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The
aggregate market value of the voting stock held by non-affiliates of CenterPoint
Energy, Inc. (Company) was $5,451,652,076 as of June 30, 2008, using the
definition of beneficial ownership contained in Rule 13d-3 promulgated
pursuant to the Securities Exchange Act of 1934 and excluding shares held by
directors and executive officers. As of February 13, 2009, the Company had
347,404,023 shares of Common Stock outstanding. Excluded from the number of
shares of Common Stock outstanding are 166 shares held by the Company as
treasury stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the definitive proxy statement relating to the 2009 Annual Meeting of
Shareholders of the Company, which will be filed with the Securities and
Exchange Commission within 120 days of December 31, 2008, are
incorporated by reference in Item 10, Item 11, Item 12,
Item 13 and Item 14 of Part III of this
Form 10-K.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time
to time we make statements concerning our expectations, beliefs, plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements that are not historical facts. These statements
are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
expressed or implied by these statements. You can generally identify our
forward-looking statements by the words “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,”
“plan,” “potential,” “predict,” “projection,” “should,” “will” or other similar
words.
We have
based our forward-looking statements on our management’s beliefs and assumptions
based on information available to our management at the time the statements are
made. We caution you that assumptions, beliefs, expectations, intentions and
projections about future events may and often do vary materially from actual
results. Therefore, we cannot assure you that actual results will not differ
materially from those expressed or implied by our forward-looking
statements.
Some of
the factors that could cause actual results to differ from those expressed or
implied by our forward-looking statements are described under “Risk Factors” in
Item 1A of this report.
You
should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement.
PART I
OUR
BUSINESS
Overview
We are a
public utility holding company whose indirect wholly owned subsidiaries
include:
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CenterPoint
Energy Houston Electric, LLC (CenterPoint Houston), which engages in the
electric transmission and distribution business in a 5,000-square mile
area of the Texas Gulf Coast that includes
Houston; and
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CenterPoint
Energy Resources Corp. (CERC Corp. and, together with its subsidiaries,
CERC), which owns and operates natural gas distribution systems in six
states. Subsidiaries of CERC Corp. own interstate natural gas pipelines
and gas gathering systems and provide various ancillary services. A wholly
owned subsidiary of CERC Corp. offers variable and fixed-price physical
natural gas supplies primarily to commercial and industrial customers and
electric and gas utilities.
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Our
reportable business segments are Electric Transmission & Distribution,
Natural Gas Distribution, Competitive Natural Gas Sales and Services, Interstate
Pipelines, Field Services and Other Operations. From time to time, we consider
the acquisition or the disposition of assets or businesses.
Our
principal executive offices are located at 1111 Louisiana, Houston, Texas 77002
(telephone number: 713-207-1111).
We make
available free of charge on our Internet website our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after we electronically file such reports with, or
furnish them to, the Securities and Exchange Commission (SEC). Additionally, we
make available free of charge on our Internet website:
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our
Code of Ethics for our Chief Executive Officer and Senior Financial
Officers;
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our
Ethics and Compliance Code;
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our
Corporate Governance Guidelines;
and
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the
charters of our audit, compensation, finance and governance committees of
the Board of Directors.
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Any
shareholder who so requests may obtain a printed copy of any of these documents
from us. Changes in or waivers of our Code of Ethics for our Chief Executive
Officer and Senior Financial Officers and waivers of our Ethics and Compliance
Code for directors or executive officers will be posted on our Internet website
within five business days of such change or waiver and maintained for at least
12 months or reported on Item 5.05 of Form 8-K. Our website
address is www.centerpointenergy.com.
Except to the extent explicitly stated herein, documents and information
on our website are not incorporated by reference herein.
Electric
Transmission & Distribution
In 1999,
the Texas legislature adopted the Texas Electric Choice Plan (Texas electric
restructuring law) that led to the restructuring of certain integrated electric
utilities operating within Texas. Pursuant to that legislation, integrated
electric utilities operating within the Electric Reliability Council of Texas,
Inc. (ERCOT) were required to unbundle their integrated operations into separate
retail sales, power generation and transmission and distribution companies. The
legislation also required that the prices for wholesale generation and retail
electric sales be unregulated, but services by companies providing transmission
and distribution service, such as CenterPoint Houston, would
continue
to be regulated by the Public Utility Commission of Texas (Texas Utility
Commission). The legislation provided for a transition period to move to the new
market structure and provided a true-up mechanism for the formerly integrated
electric utilities to recover stranded and certain other costs resulting from
the transition to competition. Those costs are recoverable after approval by the
Texas Utility Commission either through the issuance of securitization bonds or
through the implementation of a competition transition charge (CTC) as a rider
to the utility’s tariff.
CenterPoint
Houston is the only business of CenterPoint Energy that continues to engage in
electric utility operations. It is a transmission and distribution electric
utility that operates wholly within the state of Texas. Neither CenterPoint
Houston nor any other subsidiary of CenterPoint Energy makes sales of electric
energy at retail or wholesale, or owns or operates any electric generating
facilities.
Electric
Transmission
On behalf
of retail electric providers (REPs), CenterPoint Houston delivers electricity
from power plants to substations, from one substation to another and to retail
electric customers taking power at or above 69 kilovolts (kV) in locations
throughout CenterPoint Houston’s certificated service territory. CenterPoint
Houston provides transmission services under tariffs approved by the Texas
Utility Commission.
Electric
Distribution
In ERCOT,
end users purchase their electricity directly from certificated REPs.
CenterPoint Houston delivers electricity for REPs in its certificated service
area by carrying lower-voltage power from the substation to the retail electric
customer. CenterPoint Houston’s distribution network receives electricity from
the transmission grid through power distribution substations and delivers
electricity to end users through distribution feeders. CenterPoint Houston’s
operations include construction and maintenance of electric transmission and
distribution facilities, metering services, outage response services and call
center operations. CenterPoint Houston provides distribution services under
tariffs approved by the Texas Utility Commission. Texas Utility Commission rules
and market protocols govern the commercial operations of distribution companies
and other market participants. Rates for these existing services are established
pursuant to rate proceedings conducted before municipalities that have original
jurisdiction and the Texas Utility Commission.
ERCOT
Market Framework
CenterPoint
Houston is a member of ERCOT. ERCOT serves as the regional reliability
coordinating council for member electric power systems in Texas. ERCOT
membership is open to consumer groups, investor and municipally-owned electric
utilities, rural electric cooperatives, independent generators, power marketers
and REPs. The ERCOT market includes most of the State of Texas, other than a
portion of the panhandle, portions of the eastern part of the state bordering
Louisiana and the area in and around El Paso. The ERCOT market represents
approximately 85% of the demand for power in Texas and is one of the nation’s
largest power markets. The ERCOT market includes an aggregate net generating
capacity of approximately 73,000 megawatts (MW). There are only limited direct
current interconnections between the ERCOT market and other power markets in the
United States and Mexico.
The ERCOT
market operates under the reliability standards set by the North American
Electric Reliability Council (NERC) and approved by the Federal Energy
Regulatory Commission (FERC). These reliability standards are administered by
the Texas Regional Entity (TRE), a functionally independent division of ERCOT.
The Texas Utility Commission has primary jurisdiction over the ERCOT market to
ensure the adequacy and reliability of electricity supply across the state’s
main interconnected power transmission grid. The ERCOT independent system
operator (ERCOT ISO) is responsible for operating the bulk electric power supply
system in the ERCOT market. Its responsibilities include ensuring that
electricity production and delivery are accurately accounted for among the
generation resources and wholesale buyers and sellers. Unlike certain other
regional power markets, the ERCOT market is not a centrally dispatched power
pool, and the ERCOT ISO does not procure energy on behalf of its members other
than to maintain the reliable operations of the transmission system. Members who
sell and purchase power are responsible for contracting sales and purchases of
power bilaterally. The ERCOT ISO also serves as agent for procuring ancillary
services for those members who elect not to provide their own ancillary
services.
CenterPoint
Houston’s electric transmission business, along with those of other owners of
transmission facilities in Texas, supports the operation of the ERCOT ISO. The
transmission business has planning, design, construction, operation and
maintenance responsibility for the portion of the transmission grid and for the
load-serving substations it owns, primarily within its certificated area.
CenterPoint Houston participates with the ERCOT ISO and other ERCOT utilities to
plan, design, obtain regulatory approval for and construct new transmission
lines necessary to increase bulk power transfer capability and to remove
existing constraints on the ERCOT transmission grid.
Recovery
of True-Up Balance
The Texas
electric restructuring law substantially amended the regulatory structure
governing electric utilities in order to allow retail competition for electric
customers beginning in January 2002. The Texas electric restructuring law
required the Texas Utility Commission to conduct a “true-up” proceeding to
determine CenterPoint Houston’s stranded costs and certain other costs resulting
from the transition to a competitive retail electric market and to provide for
its recovery of those costs.
In March
2004, CenterPoint Houston filed its true-up application with the Texas Utility
Commission, requesting recovery of $3.7 billion, excluding interest, as
allowed under the Texas electric restructuring law. In December 2004, the
Texas Utility Commission issued its final order (True-Up Order) allowing
CenterPoint 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 (EMCs) returned to customers after August 31, 2004 and
certain other adjustments.
CenterPoint
Houston and other parties filed appeals of the True-Up Order to a district court
in Travis County, Texas. In August 2005, that court issued its judgment on the
various appeals. In its judgment, the district court:
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reversed
the Texas Utility Commission’s ruling that had denied recovery of a
portion of the capacity auction true-up
amounts;
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reversed
the Texas Utility Commission’s ruling that precluded CenterPoint Houston
from recovering the interest component of the EMCs paid to REPs;
and
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affirmed
the True-Up Order in all other
respects.
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The
district court’s decision would have had the effect of restoring approximately
$650 million, plus interest, of the $1.7 billion the Texas Utility
Commission had disallowed from CenterPoint Houston’s initial
request.
CenterPoint
Houston and other parties appealed the district court’s judgment to the Texas
Third Court of Appeals, which issued its decision in December 2007. In
its decision, the court of appeals:
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reversed
the district court’s judgment to the extent it restored the capacity
auction true-up amounts;
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reversed
the district court’s judgment to the extent it upheld the Texas Utility
Commission’s decision to allow CenterPoint Houston to recover EMCs paid to
Reliant Energy, Inc. (RRI);
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ordered
that the tax normalization issue described below be remanded to the Texas
Utility Commission as requested by the Texas Utility Commission;
and
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affirmed
the district court’s judgment in all other
respects.
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In April
2008, the court of appeals denied all motions for rehearing and reissued
substantially the same opinion as it had rendered in
December 2007.
In June
2008, CenterPoint Houston petitioned the Texas Supreme Court for review of the
court of appeals decision. In its petition, CenterPoint Houston seeks reversal
of the parts of the court of appeals decision that (i)
denied
recovery of EMCs paid to RRI, (ii) denied recovery of the capacity auction true
up amounts allowed by the district court, (iii) affirmed the Texas Utility
Commission’s rulings that denied recovery of approximately $378 million
related to depreciation and (iv) affirmed the Texas Utility Commission’s refusal
to permit CenterPoint Houston to utilize the partial stock valuation methodology
for determining the market value of its former generation assets. Two other
petitions for review were filed with the Texas Supreme Court by other parties to
the appeal. In those petitions parties contend that (i) the Texas Utility
Commission was without authority to fashion the methodology it used for valuing
the former generation assets after it had determined that CenterPoint Houston
could not use the partial stock valuation method, (ii) in fashioning the method
it used for valuing the former generating assets, the Texas Utility Commission
deprived parties of their due process rights and an opportunity to be heard,
(iii) the net book value of the generating assets should have been adjusted
downward due to the impact of a purchase option that had been granted to RRI,
(iv) CenterPoint Houston should not have been permitted to recover construction
work in progress balances without proving those amounts in the manner required
by law and (v) the Texas Utility Commission was without authority to award
interest on the capacity auction true up award.
Review by
the Texas Supreme Court of the court of appeals decision is at the discretion of
the court. In November 2008, the Texas Supreme Court requested the parties
to the Petitions for Review to submit briefs on the merits of the
issues raised. Briefing at the Texas Supreme Court should be completed in the
second quarter of 2009. Although the Texas Supreme Court has not indicated
whether it will grant review of the lower court’s decision, its
request for full briefing on the merits allowed the parties to more fully
explain their positions. There is no prescribed time in which the Texas Supreme
Court must determine whether to grant review or, if review is granted, for a
decision by that court. Although we and CenterPoint Houston believe that
CenterPoint Houston’s true-up request is consistent with applicable statutes and
regulations and, accordingly, that it is reasonably possible that it will be
successful in its appeal to the Texas Supreme Court, we can provide no assurance
as to the ultimate court rulings on the issues to be considered in the appeal or
with respect to the ultimate decision by the Texas Utility Commission on the tax
normalization issue described below.
To
reflect the impact of the True-Up Order, in 2004 and 2005, we recorded a net
after-tax extraordinary loss of $947 million. No amounts related to the
district court’s judgment or the decision of the court of appeals have been
recorded in our consolidated financial statements. However, if the court of
appeals decision is not reversed or modified as a result of further review by
the Texas Supreme Court, we anticipate that we would be required to record an
additional loss to reflect the court of appeals decision. The amount of that
loss would depend on several factors, including ultimate resolution of the tax
normalization issue described below and the calculation of interest on any
amounts CenterPoint Houston ultimately is authorized to recover or is required
to refund beyond the amounts recorded based on the True-up Order, but could
range from $170 million to $385 million (pre-tax) plus interest
subsequent to December 31, 2008.
In the
True-Up Order, the Texas Utility Commission reduced CenterPoint Houston’s
stranded cost recovery by approximately $146 million, which was included in
the extraordinary loss discussed above, for the present value of certain
deferred tax benefits associated with its former electric generation assets. We
believe that the Texas Utility Commission based its order on proposed
regulations issued by the Internal Revenue Service (IRS) in March 2003 that
would have allowed utilities owning assets that were deregulated before
March 4, 2003 to make a retroactive election to pass the benefits of
Accumulated Deferred Investment Tax Credits (ADITC) and Excess Deferred Federal
Income Taxes (EDFIT) back to customers. However, the IRS subsequently withdrew
those proposed normalization regulations and in March 2008 adopted final
regulations that would not permit utilities like CenterPoint Houston to pass the
tax benefits back to customers without creating normalization violations. In
addition, we received a Private Letter Ruling (PLR) from the IRS in August 2007,
prior to adoption of the final regulations that confirmed that the Texas Utility
Commission’s order reducing CenterPoint Houston’s stranded cost recovery by
$146 million for ADITC and EDFIT would cause normalization violations with
respect to the ADITC and EDFIT.
If the
Texas Utility Commission’s order relating to the ADITC reduction is not reversed
or otherwise modified on remand so as to eliminate the normalization violation,
the IRS could require us to pay an amount equal to CenterPoint Houston’s
unamortized ADITC balance as of the date that the normalization violation is
deemed to have occurred. In addition, the IRS could deny CenterPoint Houston the
ability to elect accelerated tax depreciation benefits beginning in the taxable
year that the normalization violation is deemed to have occurred. Such
treatment, if required by the IRS, could have a material adverse impact on our
results of operations, financial condition and cash
flows in
addition to any potential loss resulting from final resolution of the True-Up
Order. In its opinion, the court of appeals ordered that this issue be remanded
to the Texas Utility Commission, as that commission requested. No party, in the
petitions for review or briefs filed with the Texas Supreme Court, has
challenged that order by the court of appeals, though the Texas Supreme Court,
if it grants review, will have authority to consider all aspects of the rulings
above, not just those challenged specifically by the appellants. We and
CenterPoint Houston will continue to pursue a favorable resolution of this issue
through the appellate or administrative process. Although the Texas Utility
Commission has not previously required a company subject to its jurisdiction to
take action that would result in a normalization violation, no prediction can be
made as to the ultimate action the Texas Utility Commission may take on this
issue on remand.
The Texas
electric restructuring law allowed the amounts awarded to CenterPoint Houston in
the Texas Utility Commission’s True-Up Order to be recovered either through
securitization or through implementation of a CTC or both. Pursuant to a
financing order issued by the Texas Utility Commission in March 2005 and
affirmed by a Travis County district court, in December 2005 a subsidiary
of CenterPoint Houston issued $1.85 billion in transition bonds with
interest rates ranging from 4.84% to 5.30% and final maturity dates ranging from
February 2011 to August 2020. Through issuance of the transition bonds,
CenterPoint Houston recovered approximately $1.7 billion of the true-up
balance determined in the True-Up Order plus interest through the date on which
the bonds were issued.
In July
2005, CenterPoint Houston received an order from the Texas Utility Commission
allowing it to implement a CTC designed to collect the remaining
$596 million from the True-Up Order over 14 years plus interest at an
annual rate of 11.075% (CTC Order). The CTC Order authorized CenterPoint Houston
to impose a charge on REPs to recover the portion of the true-up balance not
recovered through a financing order. The CTC Order also allowed CenterPoint
Houston to collect approximately $24 million of rate case expenses over
three years without a return through a separate tariff rider (Rider RCE).
CenterPoint Houston implemented the CTC and Rider RCE effective
September 13, 2005 and began recovering approximately $620 million.
The return on the CTC portion of the true-up balance was included in CenterPoint
Houston’s tariff-based revenues beginning September 13, 2005. Effective
August 1, 2006, the interest rate on the unrecovered balance of the CTC was
reduced from 11.075% to 8.06% pursuant to a revised rule adopted by the Texas
Utility Commission in June 2006. Recovery of rate case expenses under Rider RCE
was completed in September 2008.
Certain
parties appealed the CTC Order to a district court in Travis County. In May
2006, the district court issued a judgment reversing the CTC Order in three
respects. First, the court ruled that the Texas Utility Commission had
improperly relied on provisions of its rule dealing with the interest rate
applicable to CTC amounts. The district court reached that conclusion based on
its belief that the Texas Supreme Court had previously invalidated that entire
section of the rule. The 11.075% interest rate in question was applicable from
the implementation of the CTC Order on September 13, 2005 until
August 1, 2006, the effective date of the implementation of a new CTC in
compliance with the revised rule discussed above. Second, the district court
reversed the Texas Utility Commission’s ruling that allows CenterPoint Houston
to recover through the Rider RCE the costs (approximately $5 million) for a
panel appointed by the Texas Utility Commission in connection with the valuation
of electric generation assets. Finally, the district court accepted the
contention of one party that the CTC should not be allocated to retail customers
that have switched to new on-site generation. The Texas Utility Commission and
CenterPoint Houston appealed the district court’s judgment to the Texas
Third Court of Appeals, and in July 2008, the court of appeals reversed the
district court’s judgment in all respects and affirmed the Texas Utility
Commission’s order. Two of the appellants have requested further review from the
Texas Supreme Court. The ultimate outcome of this matter cannot be predicted at
this time. However, the Company does not expect the disposition of this matter
to have a material adverse effect on our or CenterPoint Houston’s financial
condition, results of operations or cash flows.
During
the years ended December 31, 2006, 2007 and 2008, CenterPoint Houston
recognized approximately $55 million, $42 million and $5 million,
respectively, in operating income from the CTC. Additionally, during the years
ended December 31, 2006, 2007 and 2008, CenterPoint Houston recognized
approximately $13 million, $14 million and $13 million,
respectively, of the allowed equity return not previously recognized. As of
December 31, 2008, we have not recognized an allowed equity return of
$207 million on CenterPoint Houston’s true-up balance because such return
will be recognized as it is recovered in rates.
During the 2007 legislative session, the Texas legislature amended statutes
prescribing the types of true-up balances that can be securitized by utilities
and authorized the issuance of transition bonds to recover the balance of
the CTC.
In June 2007, CenterPoint Houston filed a request with the Texas Utility
Commission for a financing order that would allow the securitization of the
remaining balance of the CTC, adjusted to refund certain unspent environmental
retrofit costs and to recover the amount of the final fuel reconciliation
settlement. CenterPoint Houston reached substantial agreement with other parties
to this proceeding, and a financing order was approved by the Texas Utility
Commission in September 2007. In February 2008, pursuant to the financing order,
a new special purpose subsidiary of CenterPoint Houston issued approximately
$488 million of transition bonds in two tranches with interest rates of
4.192% and 5.234% and final maturity dates of February 2020 and February 2023,
respectively. Contemporaneously with the issuance of those bonds, the CTC was
terminated and a transition charge was implemented.
Hurricane
Ike
CenterPoint
Houston’s electric delivery system 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% 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 winds. 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 $600 million
to $650 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
$17 million.
In
addition to storm restoration costs, CenterPoint Houston lost approximately
$17 million in revenue through December 31, 2008. Within the first 18
days after the storm, CenterPoint Houston had restored power to all customers
capable of receiving it.
CenterPoint
Houston has deferred 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 did not affect our or CenterPoint
Houston’s reported net income for 2008. As of December 31, 2008,
CenterPoint Houston recorded an increase of $145 million in construction
work in progress and $435 million in regulatory assets for restoration
costs incurred through December 31, 2008. Approximately $73 million of
these costs are based on estimates and are included in accounts payable as of
December 31, 2008. Additional restoration costs will continue to be
incurred in 2009.
Assuming
necessary enabling legislation is enacted by the Texas Legislature in the
session that began in January 2009, CenterPoint Houston expects to seek a
financing order from the Texas Utility Commission 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 the hurricanes that affected that utility’s service territories in
2005. Assuming those bonds are issued, CenterPoint Houston will recover the
amount of storm restoration costs determined by the Texas Utility Commission to
have been prudently incurred 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.
Customers
CenterPoint
Houston serves nearly all of the Houston/Galveston metropolitan area.
CenterPoint Houston’s customers consist of 79 REPs, which sell electricity to
over 2 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 minimal creditworthiness criteria established
by, the Texas Utility Commission. Two of the REPs in CenterPoint Houston’s
service area are subsidiaries of RRI. Sales to subsidiaries of RRI represented
approximately 56%, 51% and 48% of CenterPoint Houston’s transmission and
distribution revenues in 2006, 2007 and 2008, respectively. CenterPoint
Houston’s billed receivables balance from REPs as of December 31, 2008 was
$141 million. Approximately 46% of this amount was owed by subsidiaries of
RRI. CenterPoint Houston does not have long-term contracts with any of its
customers. It operates on a continuous billing cycle, with meter readings being
conducted and invoices being distributed to REPs each business day.
Advanced
Metering System and Distribution 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 over the next five years. CenterPoint Houston plans to begin
installing advanced meters in March 2009. This innovative 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. CenterPoint Houston will recover the cost for the AMS through a
monthly surcharge to all REPs over 12 years. The surcharge for each residential
consumer for the first 24 months, beginning in February 2009, will be $3.24 per
month; thereafter, the surcharge is scheduled to be reduced to $3.05 per month.
These amounts are subject to upward or downward adjustment in future proceedings
to reflect actual costs incurred and to address required changes in scope.
CenterPoint Houston projects capital expenditures of approximately
$640 million for the installation of the advanced meters and corresponding
communication and data management systems over the five-year deployment
period.
CenterPoint
Houston is also pursuing possible deployment of an electric distribution grid
automation strategy that involves the implementation of an “Intelligent Grid”
which would make use of CenterPoint Houston’s facilities to provide on-demand
data and information about the status of facilities on its system. Although this
technology is still in the developmental stage, CenterPoint Houston believes it
has the potential to provide a significant improvement in grid planning,
operations and maintenance of the CenterPoint Houston distribution system. These
improvements would be expected to contribute to fewer and shorter outages,
better customer service, improved operations costs, improved security and more
effective use of our workforce. Texas Utility Commission approval and
appropriate rate treatment would be sought in connection with any actual
deployment of this technology.
Competition
There are
no other electric transmission and distribution utilities in CenterPoint
Houston’s service area. In order for another provider of transmission and
distribution services to provide such services in CenterPoint Houston’s
territory, it would be required to obtain a certificate of convenience and
necessity from the Texas Utility Commission and, depending on the location of
the facilities, may also be required to obtain franchises from one or more
municipalities. We know of no other party intending to enter this business in
CenterPoint Houston’s service area at this time.
Seasonality
A
significant portion of CenterPoint Houston’s revenues is derived from rates that
it collects from each REP based on the amount of electricity it delivers on
behalf of such REP. Thus, CenterPoint Houston’s revenues and results of
operations are subject to seasonality, weather conditions and other changes in
electricity usage, with revenues being higher during the warmer
months.
Properties
All of
CenterPoint Houston’s properties are located in Texas. Its properties consist
primarily of high voltage electric transmission lines and poles, distribution
lines, substations, service wires and meters. Most of CenterPoint
Houston’s
transmission and distribution lines have been constructed over lands of others
pursuant to easements or along public highways and streets as permitted by
law.
All real
and tangible properties of CenterPoint Houston, subject to certain exclusions,
are currently subject to:
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the
lien of a Mortgage and Deed of Trust (the Mortgage) dated November 1,
1944, as supplemented; and
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the
lien of a General Mortgage (the General Mortgage) dated October 10,
2002, as supplemented, which is junior to the lien of the
Mortgage.
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As of
December 31, 2008, CenterPoint Houston had outstanding approximately
$2.6 billion aggregate principal amount of general mortgage bonds under the
General Mortgage, including approximately $527 million held in trust to
secure pollution control bonds for which CenterPoint Energy is obligated,
$600 million securing borrowings under a credit facility which was
unutilized and approximately $229 million held in trust to secure pollution
control bonds for which CenterPoint Houston is obligated. Additionally,
CenterPoint Houston had outstanding approximately $253 million aggregate
principal amount of first mortgage bonds under the Mortgage, including
approximately $151 million held in trust to secure certain pollution
control bonds for which CenterPoint Energy is obligated. CenterPoint Houston may
issue additional general mortgage bonds on the basis of retired bonds, 70% of
property additions or cash deposited with the trustee. Approximately
$1.8 billion of additional first mortgage bonds and general mortgage bonds
in the aggregate could be issued on the basis of retired bonds and 70% of
property additions as of December 31, 2008. However, CenterPoint Houston
has contractually agreed that it will not issue additional first mortgage bonds,
subject to certain exceptions. In January 2009, CenterPoint Houston issued
$500 million aggregate principal amount of general mortgage bonds in a
public offering.
Electric Lines —
Overhead. As of December 31, 2008, CenterPoint Houston
owned 27,603 pole miles of overhead distribution lines and 3,727 circuit miles
of overhead transmission lines, including 423 circuit miles operated at 69,000
volts, 2,088 circuit miles operated at 138,000 volts and 1,216 circuit miles
operated at 345,000 volts.
Electric Lines —
Underground. As of December 31, 2008, CenterPoint Houston
owned 19,690 circuit miles of underground distribution lines and 26 circuit
miles of underground transmission lines, including 2 circuit miles operated at
69,000 volts and 24 circuit miles operated at 138,000 volts.
Substations. As of December 31, 2008, CenterPoint Houston
owned 229 major substation sites having a total installed rated transformer
capacity of 51,400 megavolt amperes.
Service
Centers. CenterPoint Houston operates 14 regional service
centers located on a total of 291 acres of land. These service centers
consist of office buildings, warehouses and repair facilities that are used in
the business of transmitting and distributing electricity.
Franchises
CenterPoint
Houston holds non-exclusive franchises from the incorporated municipalities in
its service territory. In exchange for the payment of fees, these franchises
give CenterPoint Houston the right to use the streets and public rights-of way
of these municipalities to construct, operate and maintain its transmission and
distribution system and to use that system to conduct its electric delivery
business and for other purposes that the franchises permit. The terms of the
franchises, with various expiration dates, typically range from 30 to
50 years.
Natural
Gas Distribution
CERC
Corp.’s natural gas distribution business (Gas Operations) engages in regulated
intrastate natural gas sales to, and natural gas transportation for,
approximately 3.2 million residential, commercial and industrial customers
in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. The largest
metropolitan areas served in each state by Gas Operations are Houston, Texas;
Minneapolis, Minnesota; Little Rock, Arkansas; Shreveport, Louisiana; Biloxi,
Mississippi; and Lawton, Oklahoma. In 2008, approximately 43% of Gas Operations’
total throughput was to residential customers and approximately 57% was to
commercial and industrial customers.
Gas
Operations also provides unregulated services consisting of heating, ventilating
and air conditioning (HVAC) equipment and appliance repair, and sales of HVAC,
hearth and water heating equipment in Minnesota.
The
demand for intrastate natural gas sales to, and natural gas transportation for,
residential, commercial and industrial customers is seasonal. In 2008,
approximately 71% of the total throughput of Gas Operations’ business occurred
in the first and fourth quarters. These patterns reflect the higher demand for
natural gas for heating purposes during those periods.
Gas
Operations also suffered some damage to its system in Houston, Texas and in
other portions of its service territory across Texas and Louisiana as a result
of Hurricane Ike. As of December 31, 2008, Gas Operations has deferred
approximately $4 million of costs related to Hurricane Ike for recovery as
part of future natural gas distribution rate proceedings.
Supply and
Transportation. In 2008, Gas Operations purchased virtually
all of its natural gas supply pursuant to contracts with remaining terms varying
from a few months to four years. Major suppliers in 2008 included BP Canada
Energy Marketing Corp. (13.4% of supply volumes), Tenaska Marketing Ventures
(11.5%), Oneok Energy Marketing (10.2%), Coral Energy Resources (6.6%) and
Cargill, Inc. (5.8%). Numerous other suppliers provided the remaining 52.5% of
Gas Operations’ natural gas supply requirements. Gas Operations transports its
natural gas supplies through various intrastate and interstate pipelines,
including those owned by our other subsidiaries, under contracts with remaining
terms, including extensions, varying from one to fifteen years. Gas Operations
anticipates that these gas supply and transportation contracts will be renewed
or replaced prior to their expiration.
We
actively engage in commodity price stabilization pursuant to annual gas supply
plans presented to and/or filed with each of our state regulatory authorities.
These price stabilization activities include use of storage gas, contractually
establishing fixed prices with our physical gas suppliers and utilizing
financial derivative instruments to achieve a variety of pricing structures
(e.g., fixed price, costless collars and caps). Our gas supply plans generally
call for 25-50% of winter supplies to be hedged in some fashion.
Generally,
the regulations of the states in which Gas Operations operates allow it to pass
through changes in the cost of natural gas, including gains and losses on
financial derivatives associated with the index-priced physical supply, to its
customers under purchased gas adjustment provisions in its tariffs. Depending
upon the jurisdiction, the purchased gas adjustment factors are updated
periodically, ranging from monthly to semi-annually, using estimated gas costs.
The changes in the cost of gas billed to customers are subject to review by the
applicable regulatory bodies.
Gas
Operations uses various third-party storage services or owned natural gas
storage facilities to meet peak-day requirements and to manage the daily changes
in demand due to changes in weather and may also supplement contracted supplies
and storage from time to time with stored liquefied natural gas and propane-air
plant production.
Gas
Operations owns and operates an underground natural gas storage facility with a
capacity of 7.0 billion cubic feet (Bcf). It has a working capacity of 2.0
Bcf available for use during a normal heating season and a maximum daily
withdrawal rate of 50 million cubic feet (MMcf). It also owns nine
propane-air plants with a total production rate of 200 MMcf per day and
on-site storage facilities for 12 million gallons of propane (1.0 Bcf
natural gas equivalent). It owns liquefied natural gas plant facilities with a
12 million-gallon liquefied natural gas storage tank (1.0 Bcf natural
gas equivalent) and a production rate of 72 MMcf per day.
On an
ongoing basis, Gas Operations enters into contracts to provide sufficient
supplies and pipeline capacity to meet its customer requirements. However, it is
possible for limited service disruptions to occur from time to time due to
weather conditions, transportation constraints and other events. As a result of
these factors, supplies of natural gas may become unavailable from time to time,
or prices may increase rapidly in response to temporary supply constraints or
other factors.
Assets
As of
December 31, 2008, Gas Operations owned approximately 70,000 linear miles
of natural gas distribution mains, varying in size from one-half inch to
24 inches in diameter. Generally, in each of the cities, towns and
rural
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areas
served by Gas Operations, it owns the underground gas mains and service lines,
metering and regulating equipment located on customers’ premises and the
district regulating equipment necessary for pressure maintenance. With a few
exceptions, the measuring stations at which Gas Operations receives gas are
owned, operated and maintained by others, and its distribution facilities begin
at the outlet of the measuring equipment. These facilities, including odorizing
equipment, are usually located on the land owned by
suppliers.
Competition
Gas
Operations competes primarily with alternate energy sources such as electricity
and other fuel sources. In some areas, intrastate pipelines, other gas
distributors and marketers also compete directly for gas sales to end-users. In
addition, as a result of federal regulations affecting interstate pipelines,
natural gas marketers operating on these pipelines may be able to bypass Gas
Operations’ facilities and market and sell and/or transport natural gas directly
to commercial and industrial customers.
Competitive
Natural Gas Sales and Services
CERC
offers variable and fixed-priced physical natural gas supplies primarily to
commercial and industrial customers and electric and gas utilities through
CenterPoint Energy Services, Inc. (CES) and its subsidiary, CenterPoint Energy
Intrastate Pipelines, LLC (CEIP).
In 2008,
CES marketed approximately 528 Bcf of natural gas, transportation and
related energy services to approximately 9,700 customers (including
approximately 9 Bcf to affiliates). CES customers vary in size from small
commercial customers to large utility companies in the central and eastern
regions of the United States, and are served from offices located in Arkansas,
Illinois, Indiana, Louisiana, Minnesota, Missouri, Pennsylvania, Texas and
Wisconsin. The business has three operational functions: wholesale, retail and
intrastate pipelines, which are further described below.
Wholesale
Operations. CES offers a portfolio of physical delivery
services and financial products designed to meet wholesale customers’ supply and
price risk management needs. These customers are served directly through
interconnects with various inter- and intra-state pipeline companies, and
include gas utilities, large industrial customers and electric generation
customers.
Retail
Operations. CES offers a variety of natural gas management
services to smaller commercial and industrial customers, municipalities,
educational institutions and hospitals, whose facilities are located downstream
of natural gas distribution utility city gate stations. These services include
load forecasting, supply acquisition, daily swing volume management, invoice
consolidation, storage asset management, firm and interruptible transportation
administration and forward price management. CES manages transportation
contracts and energy supply for retail customers in sixteen states.
Intrastate Pipeline
Operations. CEIP primarily provides transportation services to
shippers and end-users and contracts out approximately 2.3 Bcf of storage at its
Pierce Junction facility in Texas.
CES
currently transports natural gas on over 32 interstate and intrastate pipelines
within states located throughout the central and eastern United States. CES
maintains a portfolio of natural gas supply contracts and firm transportation
and storage agreements to meet the natural gas requirements of its customers.
CES aggregates supply from various producing regions and offers contracts to buy
natural gas with terms ranging from one month to over five years. In addition,
CES actively participates in the spot natural gas markets in an effort to
balance daily and monthly purchases and sales obligations. Natural gas supply
and transportation capabilities are leveraged through contracts for ancillary
services including physical storage and other balancing
arrangements.
As
described above, CES offers its customers a variety of load following services.
In providing these services, CES uses its customers’ purchase commitments to
forecast and arrange its own supply purchases, storage and transportation
services to serve customers’ natural gas requirements. As a result of the
variance between this forecast activity and the actual monthly activity, CES
will either have too much supply or too little supply relative to its customers’
purchase commitments. These supply imbalances arise each month as customers’
natural gas requirements are scheduled and corresponding natural gas supplies
are nominated by CES for delivery to those
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customers.
CES’ processes and risk control environment are designed to measure and value
imbalances on a real-time basis to ensure that CES’ exposure to commodity price
risk is kept to a minimum. The value assigned to these imbalances is calculated
daily and is known as the aggregate Value at Risk (VaR). In 2008, CES’ VaR
averaged $1.5 million with a high of $2.8 million.
The
CenterPoint Energy risk control policy, governed by our Risk Oversight
Committee, defines authorized and prohibited trading instruments and trading
limits. CES is a physical marketer of natural gas and uses a variety of tools,
including pipeline and storage capacity, financial instruments and physical
commodity purchase contracts to support its sales. The CES business optimizes
its use of these various tools to minimize its supply costs and does not engage
in proprietary or speculative commodity trading. The VaR limits within which CES
operates are consistent with its operational objective of matching its aggregate
sales obligations (including the swing associated with load following services)
with its supply portfolio in a manner that minimizes its total cost of
supply.
Assets
CEIP owns
and operates approximately 227 miles of intrastate pipeline in Louisiana
and Texas and holds storage facilities of approximately 2.3 Bcf in Texas
under long-term leases. In addition, CES leases transportation capacity of
approximately 1.1 Bcf per day on various inter- and intrastate pipelines
and approximately 8.8 Bcf of storage to service its customer
base.
Competition
CES
competes with regional and national wholesale and retail gas marketers including
the marketing divisions of natural gas producers and utilities. In addition, CES
competes with intrastate pipelines for customers and services in its market
areas.
Interstate
Pipelines
CERC’s
pipelines business operates interstate natural gas pipelines with gas
transmission lines primarily located in Arkansas, Illinois, Louisiana, Missouri,
Oklahoma and Texas. CERC’s interstate pipeline operations are primarily
conducted by two wholly owned subsidiaries that provide gas transportation and
storage services primarily to industrial customers and local distribution
companies:
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CenterPoint
Energy Gas Transmission Company (CEGT) is an interstate pipeline that
provides natural gas transportation, natural gas storage and pipeline
services to customers principally in Arkansas, Louisiana, Oklahoma and
Texas; and
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CenterPoint
Energy-Mississippi River Transmission Corporation (MRT) is an interstate
pipeline that provides natural gas transportation, natural gas storage and
pipeline services to customers principally in Arkansas and
Missouri.
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The rates
charged by CEGT and MRT for interstate transportation and storage services are
regulated by the FERC. Our interstate pipelines business operations may be
affected by changes in the demand for natural gas, the available supply and
relative price of natural gas in the Mid-continent and Gulf Coast natural gas
supply regions and general economic conditions.
In 2008,
approximately 15% of CEGT and MRT’s total operating revenue was attributable to
services provided to Gas Operations, an affiliate, and approximately 7% was
attributable to services provided to Laclede Gas Company (Laclede), an
unaffiliated distribution company, that provides natural gas utility service to
the greater St. Louis metropolitan area in Illinois and Missouri. Services to
Gas Operations and Laclede are provided under several long-term firm storage and
transportation agreements. Effective April 1, 2008, MRT signed a 5-year
extension of its firm transportation and storage contracts with Laclede.
Agreements for firm transportation, “no notice” transportation service
and storage services in certain of Gas Operations’ service areas (Arkansas,
Louisiana, Oklahoma and Texas) will expire in 2012.
Carthage to
Perryville. In April 2008, CEGT completed the Phase III
expansion of the Carthage to Perryville pipeline. This expansion included
additional compression and authorization from the Pipeline and Hazardous
Materials Safety Administration (PHMSA) to operate the line at higher pressures.
The Carthage to Perryville pipeline can now operate at up to 1.5 Bcf per day.
CEGT filed with FERC on December 5, 2008 to increase the Carthage to Perryville
capacity to approximately 1.9 Bcf per day. The expansion includes a new
compressor unit at two of CEGT’s existing stations and is currently projected to
be placed in service in the second quarter of 2010.
Southeast Supply
Header. The Southeast Supply Header (SESH) pipeline project, a
joint venture between CEGT and Spectra Energy Corp., 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 one Bcf 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. Our share of SESH’s net construction costs is approximately
$625 million.
Assets
Our
interstate pipelines business currently owns and operates approximately 8,000
miles of natural gas transmission lines primarily located in Arkansas, Illinois,
Louisiana, Missouri, Oklahoma and Texas. We also own and operate six natural gas
storage fields with a combined daily deliverability of approximately
1.2 Bcf and a combined working gas capacity of approximately 59 Bcf. We
also own a 10% interest in the Bistineau storage facility located in Bienville
Parish, Louisiana, with the remaining interest owned and operated by Gulf South
Pipeline Company, LP. Our storage capacity in the Bistineau facility is
8 Bcf of working gas with 100 MMcf per day of deliverability. Most
storage operations are in north Louisiana and Oklahoma.
Competition
Our
interstate pipelines business competes with other interstate and intrastate
pipelines in the transportation and storage of natural gas. The principal
elements of competition among pipelines are rates, terms of service, and
flexibility and reliability of service. Our interstate pipelines business
competes indirectly with other forms of energy, including electricity, coal and
fuel oils. The primary competitive factor is price. Changes in the availability
of energy and pipeline capacity, the level of business activity, conservation
and governmental regulations, the capability to convert to alternative fuels,
and other factors, including weather, affect the demand for natural gas in areas
we serve and the level of competition for transportation and storage
services.
Field
Services
CERC’s
field services business operates gas gathering, treating, and processing
facilities and also provides operating and technical services and remote data
monitoring and communication services.
CERC’s
field services operations are conducted by a wholly owned subsidiary,
CenterPoint Energy Field Services, Inc. (CEFS). CEFS provides natural gas
gathering and processing services for certain natural gas fields in the
Mid-continent region of the United States that interconnect with CEGT’s and
MRT’s pipelines, as well as other interstate and intrastate pipelines. CEFS
gathers approximately 1.3 Bcf per day of natural gas and, either directly or
through its 50% interest in a joint venture, processes in excess of
240 MMcf per day of natural gas along its gathering system. CEFS, through
its ServiceStar operating division, provides remote data monitoring and
communications services to affiliates and third parties.
Our field
services business operations may be affected by changes in the demand for
natural gas and natural gas liquids (NGLs), the available supply and relative
price of natural gas and NGLs in the Mid-continent and Gulf Coast natural gas
supply regions and general economic conditions.
Assets
Our field
services business owns and operates approximately 3,600 miles of gathering
pipelines and processing plants that collect, treat and process natural gas from
approximately 150 separate systems located in major producing fields in
Arkansas, Louisiana, Oklahoma and Texas.
Competition
Our field
services business competes with other companies in the natural gas gathering,
treating, and processing business. The principal elements of competition are
rates, terms of service and reliability of services. Our field services business
competes indirectly with other forms of energy, including electricity, coal and
fuel oils. The primary competitive factor is price. Changes in the availability
of energy and pipeline capacity, the level of business activity, conservation
and governmental regulations, the capability to convert to alternative fuels,
and other factors, including weather, affect the demand for natural gas in areas
we serve and the level of competition for gathering, treating, and processing
services. In addition, competition among forms of energy is impacted by
commodity pricing levels and influences the level of drilling activity and
demand for our gathering operations.
Other
Operations
Our Other
Operations business segment includes office buildings and other real estate used
in our business operations and other corporate operations that support all of
our business operations.
Financial
Information About Segments
For
financial information about our segments, see Note 14 to our consolidated
financial statements, which note is incorporated herein by
reference.
REGULATION
We are
subject to regulation by various federal, state and local governmental agencies,
including the regulations described below.
Federal
Energy Regulatory Commission
The FERC
has jurisdiction under the Natural Gas Act and the Natural Gas Policy Act of
1978, as amended, to regulate the transportation of natural gas in interstate
commerce and natural gas sales for resale in intrastate commerce that are not
first sales. The FERC regulates, among other things, the construction of
pipeline and related facilities used in the transportation and storage of
natural gas in interstate commerce, including the extension, expansion or
abandonment of these facilities. The rates charged by interstate pipelines for
interstate transportation and storage services are also regulated by the FERC.
The Energy Policy Act of 2005 (Energy Act) expanded the FERC’s authority to
prohibit market manipulation in connection with FERC-regulated transactions and
gave the FERC additional authority to impose significant civil and criminal
penalties for statutory violations and violations of the FERC’s rules or orders
and also expanded criminal penalties for such violations. Our competitive
natural gas sales and services subsidiary markets natural gas in interstate
commerce pursuant to blanket authority granted by the FERC.
Our
natural gas pipeline subsidiaries may periodically file applications with the
FERC for changes in their generally available maximum rates and charges designed
to allow them to recover their costs of providing service to customers (to the
extent allowed by prevailing market conditions), including a reasonable rate of
return. These rates are normally allowed to become effective after a suspension
period and, in some cases, are subject to refund under applicable law until such
time as the FERC issues an order on the allowable level of rates.
CenterPoint
Houston is not a “public utility” under the Federal Power Act and, therefore, is
not generally regulated by the FERC, although certain of its transactions are
subject to limited FERC jurisdiction. The Energy Act conferred new jurisdiction
and responsibilities on the FERC with respect to ensuring the reliability of
electric transmission service, including transmission facilities owned by
CenterPoint Houston and other utilities within ERCOT. Under this authority, the
FERC has designated the NERC as the Electric Reliability Organization (ERO) to
promulgate
standards, under FERC oversight, for all owners, operators and users of the bulk
power system (Electric Entities). The ERO and the FERC have authority to impose
fines and other sanctions on Electric Entities that fail to comply with the
standards. The FERC has approved the delegation by the NERC of authority for
reliability in ERCOT to the TRE. CenterPoint Houston does not anticipate that
the reliability standards proposed by the NERC and approved by the FERC will
have a material adverse impact on its operations. To the extent that CenterPoint
Houston
is required to make additional expenditures to comply with these standards, it
is anticipated that CenterPoint Houston will seek to recover those costs through
the transmission charges that are imposed on all distribution service providers
within ERCOT for electric transmission provided.
Under the
Public Utility Holding Company Act of 2005 (PUHCA 2005), the FERC has authority
to require holding companies and their subsidiaries to maintain certain books
and records and make them available for review by the FERC and state regulatory
authorities in certain circumstances. In December 2005, the FERC issued
rules implementing PUHCA 2005. Pursuant to those rules, in June 2006, we filed
with the FERC the required notification of our status as a public utility
holding company. In October 2006, the FERC adopted additional rules regarding
maintenance of books and records by utility holding companies and additional
reporting and accounting requirements for centralized service companies that
make allocations to public utilities regulated by the FERC under the Federal
Power Act. Although we provide services to our subsidiaries through a service
company, our service company is not subject to the FERC’s service company
rules.
State
and Local Regulation
Electric
Transmission & Distribution
CenterPoint
Houston conducts its operations pursuant to a certificate of convenience and
necessity issued by the Texas Utility Commission that covers its present service
area and facilities. The Texas Utility Commission and those municipalities that
have retained original jurisdiction have the authority to set the rates and
terms of service provided by CenterPoint Houston under cost of service rate
regulation. CenterPoint Houston holds non-exclusive franchises from the
incorporated municipalities in its service territory. In exchange for payment of
fees, these franchises give CenterPoint Houston the right to use the streets and
public rights-of-way of these municipalities to construct, operate and maintain
its transmission and distribution system and to use that system to conduct its
electric delivery business and for other purposes that the franchises permit.
The terms of the franchises, with various expiration dates, typically range from
30 to 50 years.
CenterPoint
Houston’s distribution rates charged to REPs for residential customers are based
on amounts of energy delivered, whereas distribution rates for a majority of
commercial and industrial customers are based on peak demand. All REPs in
CenterPoint Houston’s service area pay the same rates and other charges for the
same transmission and distribution services. Transmission rates charged to other
distribution companies are based on amounts of energy transmitted under “postage
stamp” rates that do not vary with the distance the energy is being transmitted.
All distribution companies in ERCOT pay CenterPoint Houston the same rates and
other charges for transmission services. This regulated delivery charge includes
the transmission and distribution rate (which includes municipal franchise
fees), a system benefit fund fee imposed by the Texas electric restructuring
law, a nuclear decommissioning charge associated with decommissioning the South
Texas nuclear generating facility and transition charges associated with
securitization of regulatory assets and securitization of stranded
costs.
Recovery of True-Up
Balance. For a discussion of CenterPoint Houston’s true-up
proceedings, see “— Our Business — Electric Transmission & Distribution —
Recovery of True-Up Balance” above.
CenterPoint Houston Interim
Transmission Costs of Service Update. In September 2008,
CenterPoint Houston filed an application with the Texas Utility Commission
requesting an interim update to its wholesale transmission rate. The filing
resulted in a revenue requirement increase of $22.5 million over rates then
in effect. Approximately 74% will be paid by distribution companies other than
CenterPoint Houston. The remaining 26% represents CenterPoint Houston’s share.
That amount cannot be included in rates until 2010 under the terms of the rate
freeze implemented in the settlement of CenterPoint Houston’s 2006 rate
proceeding described below. In November 2008, the Texas Utility Commission
approved CenterPoint Houston’s request. The interim rates became effective for
service on and after November 5, 2008.
CenterPoint Houston Rate
Agreement. CenterPoint Houston’s transmission and distribution
rates are subject to the terms of a Settlement Agreement effective in October
2006. The Settlement Agreement provides that until June 30, 2010
CenterPoint Houston will not seek to increase its base rates and the other
parties will not petition to decrease those rates. The rate freeze is subject to
adjustment for certain limited matters, including the results of the appeals of
the True-Up Order, the implementation of charges associated with
securitizations, the impact of severe
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weather
such as hurricanes and certain other force majeure events. CenterPoint Houston
must make a new base rate filing not later than June 30, 2010, based on a test
year ended December 31, 2009, unless the staff of the Texas Utility
Commission and certain cities notify it that such a filing is
unnecessary.
Natural
Gas Distribution
In almost
all communities in which Gas Operations provides natural gas distribution
services, it operates under franchises, certificates or licenses obtained from
state and local authorities. The original terms of the franchises, with various
expiration dates, typically range from 10 to 30 years, although franchises
in Arkansas are perpetual. Gas Operations expects to be able to renew expiring
franchises. In most cases, franchises to provide natural gas utility services
are not exclusive.
Substantially
all of Gas Operations is subject to cost-of-service regulation by the relevant
state public utility commissions and, in Texas, by the Railroad Commission of
Texas (Railroad Commission) and those municipalities Gas Operations serves that
have retained original jurisdiction.
In March
2008, Gas Operations filed a request to change its rates with the Railroad
Commission and the 47 cities in its Texas Coast service territory, an area
consisting of approximately 230,000 customers in cities and communities on the
outskirts of Houston. The request sought to establish uniform rates, charges and
terms and conditions of service for the cities and environs of the Texas Coast
service territory. Of the 47 cities, 23 either affirmatively approved or allowed
the filed rates to go into effect by operation of law. Nine other cities were
represented by the Texas Coast Utilities Coalition (TCUC) and 15 cities were
represented by the Gulf Coast Coalition of Cities (GCCC). In July 2008, Gas
Operations reached a settlement agreement with the GCCC. That settlement
agreement, if implemented across the entire Texas Coast service territory, would
allow Gas Operations a $3.4 million annual increase in revenues. The TCUC
cities denied the rate change request and Gas Operations appealed the denial of
rates to the Railroad Commission. The Railroad Commission issued an order in
October 2008, which, if implemented across the entire Texas Coast service
territory, would result in an annual revenue increase of $3.7 million. Both
the Railroad Commission order and the settlement provide for an annual rate
adjustment mechanism to reflect changes in operating expenses and revenues as
well as changes in capital investment and associated changes in revenue-related
taxes. In December 2008, the Railroad Commission issued an order on
rehearing. Parties have filed second motions for rehearing on this order.
However, in December 2008, Gas Operations implemented the approved rates
for the nine TCUC cities and the environs, subject to refund. The impact of the
Railroad Commission’s order on rehearing on the settled rates is still under
review, and how rates will be conformed among all cities in the Texas Coast
service territory is unknown at this time. A final decision from the Railroad
Commission regarding the second motions for rehearing is expected no later than
March 2009.
Minnesota. In
November 2006, the Minnesota Public Utilities Commission (MPUC) denied a request
filed by Gas Operations for a waiver of MPUC rules in order to allow Gas
Operations to recover approximately $21 million in unrecovered purchased
gas costs related to periods prior to July 1, 2004. Those unrecovered gas
costs were identified as a result of revisions to previously approved
calculations of unrecovered purchased gas costs. Following that denial, Gas
Operations recorded a $21 million adjustment to reduce pre-tax earnings in
the fourth quarter of 2006 and reduced the regulatory asset related to these
costs by an equal amount. In March 2007, following the MPUC’s denial of
reconsideration of its ruling, Gas Operations petitioned the Minnesota Court of
Appeals for review of the MPUC’s decision, and in May 2008 that court ruled that
the MPUC had been arbitrary and capricious in denying Gas Operations a waiver.
The court ordered the case remanded to the MPUC for reconsideration under the
same principles the MPUC had applied in previously granted waiver requests. The
MPUC sought further review of the court of appeals decision from the Minnesota
Supreme Court, and in July 2008, the Minnesota Supreme Court agreed to review
the decision. In January 2009, the Minnesota Supreme Court heard oral arguments.
While there is no deadline for a decision, a decision is expected by the end of
the third quarter of 2009. While no prediction can be made as
to the ultimate outcome, this matter will have no negative impact on our
financial condition, results of operations or cash flows.
In
November 2008, Gas Operations filed a request with the MPUC to increase its
rates for utility distribution service. If approved by the MPUC, the proposed
new rates would result in an overall increase in annual revenue of
$59.8 million. The proposed increase would allow Gas Operations to recover
increased operating costs, including higher bad debt and collection expenses,
the cost of improved customer service and inflationary increases in
other
15
expenses.
It also would allow recovery of increased costs related to conservation
improvement programs and provide a return for the additional capital invested to
serve its customers. In addition, Gas Operations is seeking an adjustment
mechanism that would annually adjust rates to reflect changes in use per
customer. In December 2008, the MPUC accepted the case and approved an
interim rate increase of $51.2 million, which became effective on January
2, 2009, subject to refund. The MPUC is allowed ten months to issue a final
decision; however, an extension of time can occur in certain
circumstances.
Department
of Transportation
In
December 2006, Congress enacted the Pipeline Inspection, Protection,
Enforcement and Safety Act of 2006 (2006 Act), which reauthorized the programs
adopted under the Pipeline Safety Improvement Act of 2002 (2002 Act). These
programs included several requirements related to ensuring pipeline safety, and
a requirement to assess the integrity of pipeline transmission facilities in
areas of high population concentration. Under the legislation, remediation
activities are to be performed over a 10-year period. Our pipeline subsidiaries
are on schedule to comply with the timeframe mandated for completion of
integrity assessment and remediation.
Pursuant
to the 2002 Act, and then the 2006 Act, the Pipeline and Hazardous Materials
Safety Administration (PHMSA) of the U.S. Department of Transportation (DOT) has
adopted a number of rules concerning, among other things, distinguishing between
gathering lines and transmission facilities, requiring certain design and
construction features in new and replaced lines to reduce corrosion and
requiring pipeline operators to amend existing written operations and
maintenance procedures and operator qualification programs.
We
anticipate that compliance with these regulations and performance of the
remediation activities by CERC’s interstate and intrastate pipelines, and
natural gas distribution companies will require increases in both capital
expenditures and operating costs. The level of expenditures will depend upon
several factors, including age, location and operating pressures of the
facilities. Based on our interpretation of the rules written to date and
preliminary technical reviews, we believe compliance will require annual
expenditures (capital and operating costs combined) of approximately $17 to
24 million during the initial 10-year period.
ENVIRONMENTAL
MATTERS
Our
operations are subject to stringent and complex laws and regulations pertaining
to health, safety and the environment. As an owner or operator of natural gas
pipelines, gas gathering and processing systems, and electric transmission and
distribution systems, we must comply with these laws and regulations at the
federal, state and local levels. These laws and regulations can restrict or
impact our business activities in many ways, such as:
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•
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restricting
the way we can handle or dispose of
wastes;
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•
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limiting
or prohibiting construction activities in sensitive areas such as
wetlands, coastal regions, or areas inhabited by endangered
species;
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•
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requiring
remedial action to mitigate pollution conditions caused by our operations,
or attributable to former operations;
and
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•
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enjoining
the operations of facilities deemed in non-compliance with permits issued
pursuant to such environmental laws and
regulations.
|
In order
to comply with these requirements, we may need to spend substantial amounts and
devote other resources from time to time to:
|
|
•
|
construct
or acquire new equipment;
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|
•
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acquire
permits for facility operations;
|
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•
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modify
or replace existing and proposed equipment;
and
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•
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clean
up or decommission waste disposal areas, fuel storage and management
facilities and other locations and
facilities.
|
Failure
to comply with these laws and regulations may trigger a variety of
administrative, civil and criminal enforcement measures, including the
assessment of monetary penalties, the imposition of remedial actions, and the
issuance of orders enjoining future operations. Certain environmental statutes
impose strict, joint and several liability for costs required to clean up and
restore sites where hazardous substances have been disposed or otherwise
released. Moreover, it is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the release of hazardous substances or other waste products into the
environment.
The trend
in environmental regulation is to place more restrictions and limitations on
activities that may affect the environment, and thus there can be no assurance
as to the amount or timing of future expenditures for environmental compliance
or remediation, and actual future expenditures may be different from the amounts
we currently anticipate. We try to anticipate future regulatory requirements
that might be imposed and plan accordingly to remain in compliance with changing
environmental laws and regulations and to minimize the costs of such
compliance.
Based on
current regulatory requirements and interpretations, we do not believe that
compliance with federal, state or local environmental laws and regulations will
have a material adverse effect on our business, financial position, results of
operations or cash flows. In addition, we believe that our current environmental
remediation activities will not materially interrupt or diminish our operational
ability. We cannot assure you, however, that future events, such as changes in
existing laws, the promulgation of new laws, or the development or discovery of
new facts or conditions will not cause us to incur significant costs. The
following is a discussion of all material environmental and safety laws and
regulations that relate to our operations. We believe that we are in substantial
compliance with all of these environmental laws and regulations.
Global
Climate Change
In recent years, there has been
increasing public debate regarding the potential impact on global climate change
by various “greenhouse gases” such as carbon dioxide, a byproduct of burning
fossil fuels, and methane, the principal component of the natural gas that we
transport and deliver to customers. Legislation to regulate emissions of
greenhouse gases has been introduced in Congress, and there has been a
wide-ranging policy debate, both nationally and internationally, regarding the
impact of these gases and possible means for their regulation. Some of the
proposals would require industries such as the utility industry to meet
stringent new standards requiring substantial reductions in carbon emissions.
Those reductions could be costly and difficult to implement. Some proposals
would provide for credits to those who reduce emissions below certain levels and
would allow those credits to be traded and/or sold to others. While there is
growing consensus that some form of global climate change program will be
adopted, it is too early to determine when, and in what form, a regulatory
scheme regarding greenhouse gas emissions will be adopted or what specific
impacts a new regulatory scheme might have on us and our subsidiaries. However,
as a distributor and transporter of natural gas and consumer of natural gas in
its pipeline and gathering businesses, CERC’s revenues, operating costs and
capital requirements could be adversely affected as a result of any regulatory
scheme that would reduce consumption of natural gas if ultimately adopted. Our
electric transmission and distribution business, unlike most electric utilities,
does not generate electricity and thus is not directly exposed to the risk of
high capital costs and regulatory uncertainties that face electric utilities
that are in the business of generating electricity. Nevertheless, CenterPoint
Houston’s revenues could be adversely affected to the extent any resulting
regulatory scheme has the effect of reducing consumption of electricity by
ultimate consumers within its service territory.
Air
Emissions
Our
operations are subject to the federal Clean Air Act and comparable state laws
and regulations. These laws and regulations regulate emissions of air pollutants
from various industrial sources, including our processing plants and compressor
stations, and also impose various monitoring and reporting requirements. Such
laws and regulations may require that we obtain pre-approval for the
construction or modification of certain projects or facilities expected to
produce air emissions or result in the increase of existing air emissions,
obtain and strictly comply with air permits containing various emissions and
operational limitations, or utilize specific emission control technologies
to
17
limit
emissions. Our failure to comply with these requirements could subject us to
monetary penalties, injunctions, conditions or restrictions on operations, and
potentially criminal enforcement actions. We may be required to incur certain
capital expenditures in the future for air pollution control equipment in
connection with obtaining and maintaining operating permits and approvals for
air emissions. We believe, however, that our operations will not be materially
adversely affected by such requirements, and the requirements are not expected
to be any more burdensome to us than to other similarly situated
companies.
Water
Discharges
Our
operations are subject to the Federal Water Pollution Control Act of 1972, as
amended, also known as the Clean Water Act, and analogous state laws and
regulations. These laws and regulations impose detailed requirements and strict
controls regarding the discharge of pollutants into waters of the United States.
The unpermitted discharge of pollutants, including discharges resulting from a
spill or leak incident, is prohibited. The Clean Water Act and regulations
implemented thereunder also prohibit discharges of dredged and fill material in
wetlands and other waters of the United States unless authorized by an
appropriately issued permit. Any unpermitted release of petroleum or other
pollutants from our pipelines or facilities could result in fines or penalties
as well as significant remedial obligations.
Hazardous
Waste
Our
operations generate wastes, including some hazardous wastes, that are subject to
the federal Resource Conservation and Recovery Act (RCRA), and comparable state
laws, which impose detailed requirements for the handling, storage, treatment
and disposal of hazardous and solid waste. RCRA currently exempts many natural
gas gathering and field processing wastes from classification as hazardous
waste. Specifically, RCRA excludes from the definition of hazardous waste waters
produced and other wastes associated with the exploration, development, or
production of crude oil and natural gas. However, these oil and gas exploration
and production wastes are still regulated under state law and the less stringent
non-hazardous waste requirements of RCRA. Moreover, ordinary industrial wastes
such as paint wastes, waste solvents, laboratory wastes, and waste compressor
oils may be regulated as hazardous waste. The transportation of natural gas in
pipelines may also generate some hazardous wastes that would be subject to RCRA
or comparable state law requirements.
Liability
for Remediation
The
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (CERCLA), also known as “Superfund,” and comparable state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons responsible for the release of hazardous substances
into the environment. Such classes of persons include the current and past
owners or operators of sites where a hazardous substance was released and
companies that disposed or arranged for the disposal of hazardous substances at
offsite locations such as landfills. Although petroleum, as well as natural gas,
is excluded from CERCLA’s definition of a “hazardous substance,” in the course
of our ordinary operations we generate wastes that may fall within the
definition of a “hazardous substance.” CERCLA authorizes the United States
Environmental Protection Agency (EPA) and, in some cases, third parties to take
action in response to threats to the public health or the environment and to
seek to recover from the responsible classes of persons the costs they incur.
Under CERCLA, we could be subject to joint and several liability for the costs
of cleaning up and restoring sites where hazardous substances have been
released, for damages to natural resources, and for the costs of certain health
studies.
Liability
for Preexisting Conditions
Manufactured Gas Plant
Sites. CERC and its predecessors operated manufactured gas
plants (MGPs) in the past. In Minnesota, CERC has completed remediation on two
sites, other than ongoing monitoring and water treatment. There are five
remaining sites in CERC’s Minnesota service territory. CERC believes that it has
no liability with respect to two of these sites.
At
December 31, 2008, CERC had accrued $14 million for remediation of
these Minnesota sites and the estimated range of possible remediation costs for
these sites was $4 million to $35 million based on remediation
continuing for 30 to 50 years. The cost estimates are based on studies of a site
or industry average costs for
18
remediation
of sites of similar size. The actual remediation costs will be dependent upon
the number of sites to be remediated, the participation of other potentially
responsible parties (PRPs), if any, and the remediation methods used. CERC has
utilized an environmental expense tracker mechanism in its rates in Minnesota to
recover estimated costs in excess of insurance recovery. As of December 31,
2008, CERC had collected $13 million from insurance companies and rate
payers to be used for future environmental remediation.
In
addition to the Minnesota sites, the EPA and other regulators have investigated
MGP sites that were owned or operated by CERC or may have been owned by one of
its former affiliates. CERC has been named as a defendant in a lawsuit filed in
the United States District Court, District of Maine, under which contribution is
sought by private parties for the cost to remediate former MGP sites based on
the previous ownership of such sites by former affiliates of CERC or its
divisions. CERC has also been identified as a PRP by the State of Maine for a
site that is the subject of the lawsuit. In June 2006, the federal district
court in Maine ruled that the current owner of the site is responsible for site
remediation but that an additional evidentiary hearing is required to determine
if other potentially responsible parties, including CERC, would have to
contribute to that remediation. CERC is investigating details regarding the site
and the range of environmental expenditures for potential remediation. However,
CERC believes it is not liable as a former owner or operator of the site under
CERCLA, and applicable state statutes, and is vigorously contesting the suit and
its designation as a PRP.
Mercury
Contamination. Our pipeline and distribution operations have
in the past employed elemental mercury in measuring and regulating equipment. It
is possible that small amounts of mercury may have been spilled in the course of
normal maintenance and replacement operations and that these spills may have
contaminated the immediate area with elemental mercury. We have found this type
of contamination at some sites in the past, and we have conducted remediation at
these sites. It is possible that other contaminated sites may exist and that
remediation costs may be incurred for these sites. Although the total amount of
these costs is not known at this time, based on our experience and that of
others in the natural gas industry to date and on the current regulations
regarding remediation of these sites, we believe that the costs of any
remediation of these sites will not be material to our financial condition,
results of operations or cash flows.
Asbestos. Some
facilities owned by us contain or have contained asbestos insulation and other
asbestos-containing materials. We or our subsidiaries have been named, along
with numerous others, as a defendant in lawsuits filed by a number of
individuals who claim injury due to exposure to asbestos. Some of the claimants
have worked at locations owned by us, but most existing claims relate to
facilities previously owned by our subsidiaries. We anticipate that additional
claims like those received may be asserted in the future. In 2004, we sold our
generating business, to which most of these claims relate, to Texas Genco LLC,
which is now known as NRG Texas LP. Under the terms of the arrangements
regarding separation of the generating business from us and our sale to NRG
Texas LP, ultimate financial responsibility for uninsured losses from claims
relating to the generating business has been assumed by NRG Texas LP, but we
have agreed to continue to defend such claims to the extent they are covered by
insurance maintained by us, subject to reimbursement of the costs of such
defense from the purchaser. Although their ultimate outcome cannot be predicted
at this time, we intend to continue vigorously contesting claims that we do not
consider to have merit and do not expect, based on our experience to date, these
matters, either individually or in the aggregate, to have a material adverse
effect on our financial condition, results of operations or cash
flows.
Groundwater Contamination
Litigation. Predecessor entities of CERC, along with several
other entities, are defendants in litigation, St. Michel Plantation, LLC, et al,
v. White, et al., pending in civil district court in Orleans Parish,
Louisiana. In the lawsuit, the plaintiffs allege that their property in
Terrebonne Parish, Louisiana suffered salt
water contamination as a result of oil and gas drilling activities conducted by
the defendants. Although a predecessor of CERC held an interest in two oil and
gas leases on a portion of the property at issue, neither it nor any other CERC
entities drilled or conducted other oil and gas operations on those leases. In
January 2009, CERC and the plaintiffs reached agreement on the terms of a
settlement that, if ultimately approved by the Louisiana Department of Natural
Resources and the court, is expected to finally resolve this litigation. We and
CERC do not expect the outcome of this litigation to have a material adverse
impact on the financial condition, results of operations or cash flows of either
us or CERC.
Other
Environmental. From time to time we have received notices from
regulatory authorities or others regarding our status as a PRP in connection
with sites found to require remediation due to the presence of
environmental
19
contaminants.
In addition, we have been named from time to time as a defendant in litigation
related to such sites. Although the ultimate outcome of such matters cannot be
predicted at this time, we do not expect, based on our experience to date, these
matters, either individually or in the aggregate, to have a material adverse
effect on our financial condition, results of operations or cash
flows.
EMPLOYEES
As of
December 31, 2008, we had 8,801 full-time employees. The following
table sets forth the number of our employees by business segment:
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Business
Segment
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Number
|
Number
Represented
by
Unions or
Other
Collective
Bargaining
Groups
|
||||||
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Electric
Transmission & Distribution
|
2,858 | 1,236 | ||||||
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Natural
Gas Distribution
|
3,652 | 1,405 | ||||||
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Competitive
Natural Gas Sales and Services
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122 | — | ||||||
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Interstate
Pipelines
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654 | — | ||||||
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Field
Services
|
215 | — | ||||||
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Other
Operations
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1,300 | — | ||||||
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Total
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8,801 | 2,641 | ||||||
As of
December 31, 2008, approximately 30% of our employees are subject to
collective bargaining agreements. One of the collective bargaining agreements
covering approximately 5% of our employees, Gas Workers Union Local No. 340, is
scheduled to expire in 2009. We have a good relationship with this bargaining
unit and expect to negotiate a new agreement in 2009.
EXECUTIVE
OFFICERS
(as
of February 25, 2009)
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Name
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Age
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Title
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David
M. McClanahan
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59
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President
and Chief Executive Officer and Director
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Scott
E. Rozzell
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59
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Executive
Vice President, General Counsel and Corporate Secretary
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Gary
L. Whitlock
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59
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Executive
Vice President and Chief Financial Officer
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C.
Gregory Harper
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44
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Senior
Vice President and Group President, CenterPoint Energy Pipelines and Field
Services
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Thomas
R. Standish
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59
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Senior
Vice President and Group President — Regulated
Operations
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David M. McClanahan has been
President and Chief Executive Officer and a director of CenterPoint Energy since
September 2002. He served as Vice Chairman of Reliant Energy, Incorporated
(Reliant Energy) from October 2000 to September 2002 and as President and Chief
Operating Officer of Reliant Energy’s Delivery Group from April 1999 to
September 2002. He previously served as Chairman of the Board of Directors of
ERCOT, Chairman of the Board of the University of St. Thomas in Houston and the
Chairman of the Board of the American Gas Association. He currently serves on
the boards of the Edison Electric Institute and the American Gas
Association.
Scott E. Rozzell has served as
Executive Vice President, General Counsel and Corporate Secretary of CenterPoint
Energy since September 2002. He served as Executive Vice President and General
Counsel of the Delivery Group of Reliant Energy from March 2001 to September
2002. Before joining Reliant Energy in 2001, Mr. Rozzell was a senior partner in
the law firm of Baker Botts L.L.P. He currently serves on the Board of Directors
of the Association of Electric Companies of Texas.
Gary L. Whitlock has served as
Executive Vice President and Chief Financial Officer of CenterPoint Energy since
September 2002. He served as Executive Vice President and Chief Financial
Officer of the Delivery Group of Reliant Energy from July 2001 to September
2002. Mr. Whitlock served as the Vice President, Finance and Chief Financial
Officer of Dow AgroSciences, a subsidiary of The Dow Chemical Company, from 1998
to 2001.
C. Gregory Harper has served
as Senior Vice President and Group President of CenterPoint Energy Pipelines and
Field Services since December 2008. Before joining CenterPoint Energy in
2008, Mr. Harper served as President, Chief Executive Officer and as a Director
of Spectra Energy Partners, LP from March 2007 to December 2008. From
January 2007 to March 2007, Mr. Harper was Group Vice President of Spectra
Energy Corp., and he was Group Vice President of Duke Energy from January 2004
to December 2006. Mr. Harper served as Senior Vice President of Energy
Marketing for Duke Energy North America from January 2003 until January 2004 and
Vice President of Business Development for Duke Energy Gas Transmission and Vice
President of East Tennessee Natural Gas, LLC from March 2002 until January 2003.
He currently serves on the Board of Directors of the Interstate Natural Gas
Association of America.
Thomas R. Standish has served
as Senior Vice President and Group President-Regulated Operations of CenterPoint
Energy since August 2005, having previously served as Senior Vice President and
Group President and Chief Operating Officer of CenterPoint Houston from June
2004 to August 2005 and as President and Chief Operating Officer of CenterPoint
Houston from August 2002 to June 2004. He served as President and Chief
Operating Officer for both electricity and natural gas for Reliant Energy’s
Houston area from 1999 to August 2002.
We are a
holding company that conducts all of our business operations through
subsidiaries, primarily CenterPoint Houston and CERC. The following, along with
any additional legal proceedings identified or incorporated by reference in
Item 3 of this report, summarizes the principal risk factors associated
with the businesses conducted by each of these subsidiaries:
Risk
Factors Affecting Our Electric Transmission & Distribution
Business
CenterPoint
Houston may not be successful in ultimately recovering the full value of
its true-up
components, which could result in the elimination of certain tax benefits and
could have an adverse impact on CenterPoint Houston’s results of operations,
financial condition and cash flows.
In March
2004, CenterPoint Houston filed its true-up application with the Texas Utility
Commission, requesting recovery of $3.7 billion, excluding interest, as
allowed under the Texas electric restructuring law. In December 2004, the
Texas Utility Commission issued its True-Up Order allowing CenterPoint 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 EMCs returned to customers after
August 31, 2004 and certain other adjustments.
CenterPoint
Houston and other parties filed appeals of the True-Up Order to a district court
in Travis County, Texas. In August 2005, that court issued its judgment on the
various appeals. In its judgment, the district court:
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•
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reversed
the Texas Utility Commission’s ruling that had denied recovery of a
portion of the capacity auction true-up
amounts;
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•
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reversed
the Texas Utility Commission’s ruling that precluded CenterPoint Houston
from recovering the interest component of the EMCs paid to
REPs; and
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•
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affirmed
the True-Up Order in all other
respects.
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The
district court’s decision would have had the effect of restoring approximately
$650 million, plus interest, of the $1.7 billion the Texas Utility
Commission had disallowed from CenterPoint Houston’s initial
request.
CenterPoint
Houston and other parties appealed the district court’s judgment to the Texas
Third Court of Appeals, which issued its decision in December 2007. In its
decision, the court of appeals:
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•
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reversed
the district court’s judgment to the extent it restored the capacity
auction true-up amounts;
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•
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reversed
the district court’s judgment to the extent it upheld the Texas Utility
Commission’s decision to allow CenterPoint Houston to recover EMCs paid to
RRI;
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•
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ordered
that the tax normalization issue described below be remanded to the Texas
Utility Commission as requested by the Texas Utility
Commission; and
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•
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affirmed
the district court’s judgment in all other
respects.
|
In April
2008, the court of appeals denied all motions for rehearing and reissued
substantially the same opinion as it had rendered in
December 2007.
In June
2008, CenterPoint Houston petitioned the Texas Supreme Court for review of the
court of appeals decision. In its petition, CenterPoint Houston seeks reversal
of the parts of the court of appeals decision that (i) denied recovery of
EMCs paid to RRI, (ii) denied recovery of the capacity auction true-up
amounts allowed by the district court, (iii) affirmed the Texas Utility
Commission’s rulings that denied recovery of approximately $378 million
related to depreciation and (iv) affirmed the Texas Utility Commission’s
refusal to permit CenterPoint Houston to utilize the partial stock valuation
methodology for determining the market value of its former generation assets.
Two other petitions for review were filed with the Texas Supreme Court by other
parties to the appeal. In those petitions parties contend that (i) the
Texas Utility Commission was without authority to fashion the methodology it
used for valuing the former generation assets after it had determined that
CenterPoint Houston could not use the partial stock valuation method,
(ii) in fashioning the method it used for valuing the former generating
assets, the Texas Utility Commission deprived parties of their due process
rights and an opportunity to be heard, (iii) the net book value of the
generating assets should have been adjusted downward due to the impact of a
purchase option that had been granted to RRI, (iv) CenterPoint Houston
should not have been permitted to recover construction work in progress balances
without proving those amounts in the manner required by law and (v) the
Texas Utility Commission was without authority to award interest on the capacity
auction true up award.
Review by
the Texas Supreme Court of the court of appeals decision is at the discretion of
the court. In November 2008, the Texas Supreme Court requested the parties
to the Petitions for Review to submit briefs on the merits of the
issues raised. Briefing at the Texas Supreme Court should be completed in the
second quarter of 2009. Although the Texas Supreme Court has not indicated
whether it will grant review of the lower court’s decision, its
request for full briefing on the merits allowed the parties to more fully
explain their positions. There is no prescribed time in which the Texas Supreme
Court must determine whether to grant review or, if review is granted, for a
decision by that court. Although we and CenterPoint Houston believe that
CenterPoint Houston’s true-up request is consistent with applicable statutes and
regulations and, accordingly, that it is reasonably possible that it will be
successful in its appeal to the Texas Supreme Court, we can provide no assurance
as to the ultimate court rulings on the issues to be considered in the appeal or
with respect to the ultimate decision by the Texas Utility Commission on the tax
normalization issue described below.
To
reflect the impact of the True-Up Order, in 2004 and 2005, we recorded a net
after-tax extraordinary loss of $947 million. No amounts related to the
district court’s judgment or the decision of the court of appeals have been
recorded in our consolidated financial statements. However, if the court of
appeals decision is not reversed or modified as a result of further review by
the Texas Supreme Court, we anticipate that we would be required to record an
additional loss to reflect the court of appeals decision. The amount of that
loss would depend on several factors, including ultimate resolution of the tax
normalization issue described below and the calculation of interest on any
amounts CenterPoint Houston ultimately is authorized to recover or is required
to refund beyond the amounts recorded
based on the True-Up Order, but could range from $170 million to
$385 million (pre-tax) plus interest subsequent to December 31,
2008.
In the
True-Up Order, the Texas Utility Commission reduced CenterPoint Houston’s
stranded cost recovery by approximately $146 million, which was included in
the extraordinary loss discussed above, for the present value of certain
deferred tax benefits associated with its former electric generation assets. We
believe that the Texas Utility Commission based its order on proposed
regulations issued by the IRS in March 2003 that would have allowed utilities
owning assets that were deregulated before March 4, 2003 to make a
retroactive election to pass the benefits of ADITC and EDFIT back to customers.
However, the IRS subsequently withdrew those proposed normalization regulations
and in March 2008 adopted final regulations that would not permit utilities like
CenterPoint Houston to
22
pass the
tax benefits back to customers without creating normalization violations. In
addition, we received a PLR from the IRS in August 2007, prior to adoption of
the final regulations that confirmed that the Texas Utility Commission’s order
reducing CenterPoint Houston’s stranded cost recovery by $146 million for
ADITC and EDFIT would cause normalization violations with respect to the ADITC
and EDFIT.
If the
Texas Utility Commission’s order relating to the ADITC reduction is not reversed
or otherwise modified on remand so as to eliminate the normalization violation,
the IRS could require us to pay an amount equal to CenterPoint Houston’s
unamortized ADITC balance as of the date that the normalization violation is
deemed to have occurred. In addition, the IRS could deny CenterPoint Houston the
ability to elect accelerated tax depreciation benefits beginning in the taxable
year that the normalization violation is deemed to have occurred. Such
treatment, if required by the IRS, could have a material adverse impact on our
results of operations, financial condition and cash flows in addition to any
potential loss resulting from final resolution of the True-Up Order. In its
opinion, the court of appeals ordered that this issue be remanded to the Texas
Utility Commission, as that commission requested. No party, in the petitions for
review or briefs filed with the Texas Supreme Court, has challenged that order
by the court of appeals, though the Texas Supreme Court, if it grants review,
will have authority to consider all aspects of the rulings above, not just those
challenged specifically by the appellants. We and CenterPoint Houston will
continue to pursue a favorable resolution of this issue through the appellate or
administrative process. Although the Texas Utility Commission has not previously
required a company subject to its jurisdiction to take action that would result
in a normalization violation, no prediction can be made as to the ultimate
action the Texas Utility Commission may take on this issue on
remand.
CenterPoint
Houston must seek recovery of significant restoration costs arising from
Hurricane
Ike.
CenterPoint
Houston’s electric delivery system suffered substantial damage as a result of
Hurricane Ike, which struck the upper Texas coast on September 13, 2008.
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
$600 million to $650 million.
CenterPoint
Houston believes it is entitled to recover prudently incurred storm costs in
accordance with applicable regulatory and legal principles. The Texas
Legislature currently is considering passage of legislation that
would (i) authorize the Texas Utility Commission to determine the amount of
storm restoration costs that CenterPoint Houston would be entitled to recover
and (ii) permit the Texas Utility Commission to issue a financing order
that would allow CenterPoint Houston to recover the amount of storm restoration
costs determined in such a proceeding through issuance of dedicated
securitization bonds, which would be repaid over time through a charge imposed
on REPs. In proceedings to determine and seek recovery of storm restoration
costs under the proposed legislation, CenterPoint Houston would be required to
prove to the Texas Utility Commission’s satisfaction its prudently incurred
costs as well as to demonstrate the cost benefit from using securitization to
recover those costs instead of alternative means. Alternatively, CenterPoint
Houston has the right to seek recovery of these costs under traditional rate
making principles. CenterPoint Houston’s failure to recover costs incurred as a
result of Hurricane Ike could adversely affect its liquidity, results of
operations and financial condition. For more information about CenterPoint
Houston’s recovery from Hurricane Ike, please read “Business — Electric
Transmission & Distribution — Hurricane Ike” in Item 1 of
this report.
CenterPoint
Houston’s receivables are concentrated in a small number of retail electric
providers, and any delay or default in payment could adversely affect
CenterPoint
Houston’s cash flows, financial condition and results of
operations.
CenterPoint
Houston’s receivables from the distribution of electricity are collected from
REPs that supply the electricity CenterPoint Houston distributes to their
customers. As of December 31, 2008, CenterPoint Houston did business with
79 REPs. Adverse economic conditions, structural problems in the market served
by ERCOT or financial difficulties of one or more REPs could impair the ability
of these REPs to pay for CenterPoint Houston’s services or could cause them to
delay such payments. In 2008, seven REPs selling power within CenterPoint
Houston’s service territory ceased to operate, and their customers were
transferred to the provider of last resort or to other REPs. CenterPoint Houston
depends on these REPs to remit payments on a timely basis. Applicable regulatory
provisions require that customers be shifted to a provider of last resort if a
REP cannot make timely payments. Applicable Texas Utility Commission regulations
significantly limit the extent to which CenterPoint Houston can demand credit
protection from REPs for payments not made prior to the shift to the provider of
last resort. However,
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the Texas
Utility Commission is currently considering proposed revisions to those
regulations that, as currently proposed, would (i) increase the credit
protections that could be required from REPs, and (ii) allow utilities to defer
the loss of payments for recovery in a future rate case. Whether such
revised regulations will ultimately be adopted and their terms cannot now be
determined. RRI, through its subsidiaries, is CenterPoint Houston’s largest
customer. Approximately 46% of CenterPoint Houston’s $141 million in billed
receivables from REPs at December 31, 2008 was owed by subsidiaries of RRI.
Any delay or default in payment by REPs such as RRI could adversely affect
CenterPoint Houston’s cash flows, financial condition and results of operations.
RRI’s unsecured debt ratings are currently below investment grade. If RRI were
unable to meet its obligations, it could consider, among various options,
restructuring under the bankruptcy laws, in which event RRI’s subsidiaries might
seek to avoid honoring their obligations and claims might be made by creditors
involving payments CenterPoint Houston has received from RRI’s
subsidiaries.
Rate regulation
of CenterPoint Houston’s business may delay or deny CenterPoint Houston’s ability
to earn a reasonable return and fully recover its costs.
CenterPoint
Houston’s rates are regulated by certain municipalities and the Texas Utility
Commission based on an analysis of its invested capital and its expenses in a
test year. Thus, the rates that CenterPoint Houston is allowed to charge may not
match its expenses at any given time. The regulatory process by which rates are
determined may not always result in rates that will produce full recovery of
CenterPoint Houston’s costs and enable CenterPoint Houston to earn a reasonable
return on its invested capital.
In this
regard, pursuant to the Stipulation and Settlement Agreement approved by the
Texas Utility Commission in September 2006, until June 30, 2010
CenterPoint Houston is limited in its ability to request retail rate relief. For
more information on the Stipulation and Settlement Agreement, please read
“Business — Regulation — State and Local Regulation — Electric
Transmission & Distribution — CenterPoint Houston Rate Agreement”
in Item 1 of this report.
Disruptions at
power generation facilities owned by third parties could interrupt CenterPoint
Houston’s sales of transmission and distribution services.
CenterPoint
Houston transmits and distributes to customers of REPs electric power that the
REPs obtain from power generation facilities owned by third parties. CenterPoint
Houston does not own or operate any power generation facilities. If power
generation is disrupted or if power generation capacity is inadequate,
CenterPoint Houston’s sales of transmission and distribution services may be
diminished or interrupted, and its results of operations, financial condition
and cash flows could be adversely affected.
CenterPoint
Houston’s revenues and results of operations are seasonal.
A
significant portion of CenterPoint Houston’s revenues is derived from rates that
it collects from each REP based on the amount of electricity it delivers on
behalf of such REP. Thus, CenterPoint Houston’s revenues and results of
operations are subject to seasonality, weather conditions and other changes in
electricity usage, with revenues being higher during the warmer
months.
Risk Factors Affecting Our Natural
Gas Distribution, Competitive Natural Gas Sales and Services, Interstate Pipelines
and Field Services Businesses
Rate regulation
of CERC’s business may delay or deny CERC’s ability to earn a reasonable return
and fully recover its costs.
CERC’s
rates for Gas Operations are regulated by certain municipalities and state
commissions, and for its interstate pipelines by the FERC, based on an analysis
of its invested capital and its expenses in a test year. Thus, the rates that
CERC is allowed to charge may not match its expenses at any given time. The
regulatory process in which rates are determined may not always result in rates
that will produce full recovery of CERC’s costs and enable CERC to earn a
reasonable return on its invested capital.
CERC’s businesses
must compete with alternate energy sources, which could result in CERC marketing
less natural gas, and its interstate pipelines and field services businesses must
compete directly with others in the transportation, storage, gathering,
treating and processing of natural gas, which could lead to lower prices
and reduced
volumes, either of which could have an adverse impact on CERC’s results
of
operations, financial condition and cash flows.
CERC
competes primarily with alternate energy sources such as electricity and other
fuel sources. In some areas, intrastate pipelines, other natural gas
distributors and marketers also compete directly with CERC for natural gas sales
to end-users. In addition, as a result of federal regulatory changes affecting
interstate pipelines, natural gas marketers operating on these pipelines may be
able to bypass CERC’s facilities and market, sell and/or transport natural gas
directly to commercial and industrial customers. Any reduction in the amount of
natural gas marketed, sold or transported by CERC as a result of competition may
have an adverse impact on CERC’s results of operations, financial condition and
cash flows.
CERC’s
two interstate pipelines and its gathering systems compete with other interstate
and intrastate pipelines and gathering systems in the transportation and storage
of natural gas. The principal elements of competition are rates, terms of
service, and flexibility and reliability of service. They also compete
indirectly with other forms of energy, including electricity, coal and fuel
oils. The primary competitive factor is price. The actions of CERC’s competitors
could lead to lower prices, which may have an adverse impact on CERC’s results
of operations, financial condition and cash flows. Additionally, any reduction
in the volume of natural gas transported or stored may have an adverse impact on
CERC’s results of operations, financial condition and cash flows.
CERC’s natural
gas distribution and competitive natural gas sales and services businesses are
subject to fluctuations in natural gas prices, which could affect the
ability of CERC’s suppliers and customers to meet their obligations or
otherwise
adversely affect CERC’s liquidity and results of operations.
CERC is
subject to risk associated with increases in the price of natural gas. Increases
in natural gas prices might affect CERC’s ability to collect balances due from
its customers and, for Gas Operations, could create the potential for
uncollectible accounts expense to exceed the recoverable levels built into
CERC’s tariff rates. In addition, a sustained period of high natural gas prices
could (i) apply downward demand pressure on natural gas consumption in the
areas in which CERC operates thereby resulting in decreased sales volumes and
revenues and (ii) increase the risk that CERC’s suppliers or customers fail
or are unable to meet their obligations. Additionally, increasing natural gas
prices could create the need for CERC to provide collateral in order to purchase
natural gas.
A decline in
CERC’s credit rating could result in CERC’s having to provide collateral
in order to
purchase gas.
If CERC’s
credit rating were to decline, it might be required to post cash collateral in
order to purchase natural gas. If a credit rating downgrade and the resultant
cash collateral requirement were to occur at a time when CERC was experiencing
significant working capital requirements or otherwise lacked liquidity, CERC’s
results of operations, financial condition and cash flows could be adversely
affected.
The revenues and
results of operations of CERC’s interstate pipelines and field services
businesses are subject to fluctuations in the supply and price of natural
gas.
CERC’s
interstate pipelines and field services businesses largely rely on natural gas
sourced in the various supply basins located in the Mid-continent region of the
United States. The level of drilling and production activity in these regions is
dependent on economic and business factors beyond our control. The primary
factor affecting both the level of drilling activity and production volumes is
natural gas pricing. A sustained decline in natural gas prices could result in a
decrease in exploration and development activities in the regions served by our
gathering and pipeline transportation systems and our natural gas treating and
processing activities. A sustained decline could also lead producers to shut in
production from their existing wells. Other factors that impact production
decisions include the level of production costs relative to other available
production, producers’ access to needed capital and the cost of that capital,
the ability of producers to obtain necessary drilling and other governmental
permits, access to drilling rigs and regulatory changes. Because of these
factors, even if new natural gas reserves are discovered in areas served by our
assets, producers may choose not to develop those reserves or to shut in
production from
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existing
reserves. To the extent the availability of this supply is substantially
reduced, it could have an adverse effect on CERC’s results of operations,
financial condition and cash flows.
CERC’s
revenues from these businesses are also affected by the prices of natural gas
and natural gas liquids (NGL). NGL prices generally fluctuate on a basis that
correlates to fluctuations in crude oil prices. In the past, the prices of
natural gas and crude oil have been extremely volatile, and we expect this
volatility to continue. The markets and prices for natural gas, NGLs and crude
oil depend upon factors beyond our control. These factors include supply of and
demand for these commodities, which fluctuate with changes in market and
economic conditions and other factors.
CERC’s
revenues and results of operations are seasonal.
A
substantial portion of CERC’s revenues is derived from natural gas sales and
transportation. Thus, CERC’s revenues and results of operations are subject to
seasonality, weather conditions and other changes in natural gas usage, with
revenues being higher during the winter months.
The actual cost
of pipelines under construction and related compression facilities may be
significantly higher than CERC had planned.
Subsidiaries
of CERC Corp. have been recently involved in significant pipeline construction
projects and, depending on available opportunities, may, from time to time, be
involved in additional significant pipeline construction projects in the future.
The construction of new pipelines and related compression facilities requires
the expenditure of significant amounts of capital, which may exceed CERC’s
estimates. These projects may not be completed at the planned cost, on schedule
or at all. The construction of new pipeline or compression facilities is subject
to construction cost overruns due to labor costs, costs of equipment and
materials such as steel and nickel, labor shortages or delays, weather delays,
inflation or other factors, which could be material. In addition, the
construction of these facilities is typically subject to the receipt of
approvals and permits from various regulatory agencies. Those agencies may not
approve the projects in a timely manner or may impose restrictions or conditions
on the projects that could potentially prevent a project from proceeding,
lengthen its expected completion schedule and/or increase its anticipated cost.
As a result, there is the risk that the new facilities may not be able to
achieve CERC’s expected investment return, which could adversely affect CERC’s
financial condition, results of operations or cash flows.
The states in
which CERC provides regulated local gas distribution may, either through
legislation or rules, adopt restrictions similar to or broader than those
under the
Public Utility Holding Company Act of 1935 regarding organization, financing and
affiliate transactions that could have significant adverse impacts on
CERC’s
ability to operate.
The
Public Utility Holding Company Act of 1935, to which we and our subsidiaries
were subject prior to its repeal in the Energy Act, provided a comprehensive
regulatory structure governing the organization, capital structure, intracompany
relationships and lines of business that could be pursued by registered holding
companies and their member companies. Following repeal of that Act, some states
in which CERC does business have sought to expand their own regulatory
frameworks to give their regulatory authorities increased jurisdiction and
scrutiny over similar aspects of the utilities that operate in their states.
Some of these frameworks attempt to regulate financing
activities, acquisitions and divestitures, and arrangements between the
utilities and their affiliates, and to restrict the level of non-utility
businesses that can be conducted within the holding company structure.
Additionally they may impose record keeping, record access, employee training
and reporting requirements related to affiliate transactions and reporting in
the event of certain downgrading of the utility’s bond rating.
These
regulatory frameworks could have adverse effects on CERC’s ability to operate
its utility operations, to finance its business and to provide cost-effective
utility service. In addition, if more than one state adopts restrictions over
similar activities, it may be difficult for CERC and us to comply with competing
regulatory requirements.
Risk
Factors Associated with Our Consolidated Financial Condition
If we are unable
to arrange future financings on acceptable terms, our ability to refinance
existing indebtedness could be limited.
As of
December 31, 2008, we had $10.7 billion of outstanding indebtedness on
a consolidated basis, which includes $2.6 billion of non-recourse
transition bonds. As of December 31, 2008, approximately $953 million
principal amount of this debt is required to be paid through 2011. This amount
excludes principal repayments of approximately $669 million on transition
bonds, for which a dedicated revenue stream exists. Our future financing
activities may be significantly affected by, among other things:
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the
resolution of the true-up components, including, in particular, the
results of appeals to the courts regarding rulings obtained to
date;
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CenterPoint
Houston’s recovery of costs arising from Hurricane
Ike;
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general
economic and capital market
conditions;
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credit
availability from financial institutions and other
lenders;
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investor
confidence in us and the markets in which we
operate;
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maintenance
of acceptable credit ratings;
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market
expectations regarding our future earnings and cash
flows;
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market
perceptions of our ability to access capital markets on reasonable
terms;
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our
exposure to RRI in connection with its indemnification obligations arising
in connection with its separation from
us; and
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provisions
of relevant tax and securities
laws.
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As of
December 31, 2008, CenterPoint Houston had outstanding approximately
$2.6 billion aggregate principal amount of general mortgage bonds,
including approximately $527 million held in trust to secure pollution
control bonds for which we are obligated, $600 million securing borrowings
under a credit facility which was unutilized and approximately $229 million
held in trust to secure pollution control bonds for which CenterPoint Houston is
obligated. Additionally, CenterPoint Houston had outstanding approximately
$253 million aggregate principal amount of first mortgage bonds, including
approximately $151 million held in trust to secure certain pollution
control bonds for which we are obligated. CenterPoint Houston may issue
additional general mortgage bonds on the basis of retired bonds, 70% of property
additions or cash deposited with the trustee. Approximately $1.8 billion of
additional first mortgage bonds and general mortgage bonds in the aggregate
could be issued on the basis of retired bonds and 70% of property additions as
of December 31, 2008. However, CenterPoint Houston has contractually agreed
that it will not issue additional first mortgage bonds, subject to certain
exceptions. In January 2009, CenterPoint Houston issued $500 million
aggregate principal amount of general mortgage bonds in a public
offering.
Our
current credit ratings are discussed in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations of CenterPoint Energy, Inc. and
Subsidiaries — Liquidity and Capital Resources — Future Sources
and Uses of Cash — Impact on Liquidity of a Downgrade in Credit Ratings” in
Item 7 of this report. These credit ratings may not remain in effect for
any given period of time and one or more of these ratings may be lowered or
withdrawn entirely by a rating agency. We note that these credit ratings are not
recommendations to buy, sell or hold our securities. Each rating should be
evaluated independently of any other rating. Any future reduction or withdrawal
of one or more of our credit ratings could have a material adverse impact on our
ability to access capital on acceptable terms.
As a holding
company with no operations of our own, we will depend on distributions
from our
subsidiaries to meet our payment obligations, and provisions of
applicable law or
contractual restrictions could limit the amount of those
distributions.
We derive
all our operating income from, and hold all our assets through, our
subsidiaries. As a result, we will depend on distributions from our subsidiaries
in order to meet our payment obligations. In general, these subsidiaries are
separate and distinct legal entities and have no obligation to provide us with
funds for our payment obligations, whether by dividends, distributions, loans or
otherwise. In addition, provisions of applicable law, such as those limiting the
legal sources of dividends, limit our subsidiaries’ ability to make payments or
other distributions to us, and our subsidiaries could agree to contractual
restrictions on their ability to make distributions.
Our right
to receive any assets of any subsidiary, and therefore the right of our
creditors to participate in those assets, will be effectively subordinated to
the claims of that subsidiary’s creditors, including trade creditors. In
addition, even if we were a creditor of any subsidiary, our rights as a creditor
would be subordinated to any security interest in the assets of that subsidiary
and any indebtedness of the subsidiary senior to that held by us.
The use of
derivative contracts by us and our subsidiaries in the normal course of
business
could result in financial losses that could negatively impact our results
of operations and
those of our subsidiaries.
We and
our subsidiaries use derivative instruments, such as swaps, options, futures and
forwards, to manage our commodity, weather and financial market risks. We and
our subsidiaries could recognize financial losses as a result of volatility in
the market values of these contracts, or should a counterparty fail to perform.
In the absence of actively quoted market prices and pricing information from
external sources, the valuation of these financial instruments can involve
management’s judgment or use of estimates. As a result, changes in the
underlying assumptions or use of alternative valuation methods could affect the
reported fair value of these contracts.
Risks
Common to Our Businesses and Other Risks
We are subject to
operational and financial risks and liabilities arising from environmental
laws and regulations.
Our
operations are subject to stringent and complex laws and regulations pertaining
to health, safety and the environment as described in “Business
— Environmental Matters” in Item 1 of this Form 10-K. As an owner
or operator of natural gas pipelines and distribution systems, gas gathering and
processing systems, and electric transmission and distribution systems, we must
comply with these laws and regulations at the federal, state and local levels.
These laws and regulations can restrict or impact our business activities in
many ways, such as:
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restricting
the way we can handle or dispose of
wastes;
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limiting
or prohibiting construction activities in sensitive areas such as
wetlands, coastal regions, or areas inhabited by endangered
species;
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requiring
remedial action to mitigate pollution conditions caused by our operations,
or attributable to former
operations; and
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enjoining
the operations of facilities deemed in non-compliance with permits issued
pursuant to such environmental laws and
regulations.
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In order
to comply with these requirements, we may need to spend substantial amounts and
devote other resources from time to time to:
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construct
or acquire new equipment;
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acquire
permits for facility operations;
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modify
or replace existing and proposed
equipment; and
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clean
up or decommission waste disposal areas, fuel storage and management
facilities and other locations and
facilities.
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Failure
to comply with these laws and regulations may trigger a variety of
administrative, civil and criminal enforcement measures, including the
assessment of monetary penalties, the imposition of remedial actions, and the
issuance of orders enjoining future operations. Certain environmental statutes
impose strict, joint and several liability for costs required to clean up and
restore sites where hazardous substances have been disposed or otherwise
released. Moreover, it is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the release of hazardous substances or other waste products into the
environment.
Our insurance
coverage may not be sufficient. Insufficient insurance coverage and increased
insurance costs could adversely impact our results of operations,
financial condition and
cash flows.
We
currently have general liability and property insurance in place to cover
certain of our facilities in amounts that we consider appropriate. Such policies
are subject to certain limits and deductibles and do not include business
interruption coverage. Insurance coverage may not be available in the future at
current costs or on commercially reasonable terms, and the insurance proceeds
received for any loss of, or any damage to, any of our facilities may not be
sufficient to restore the loss or damage without negative impact on our results
of operations, financial condition and cash flows.
In common
with other companies in its line of business that serve coastal regions,
CenterPoint Houston does not have insurance covering its transmission and
distribution system because CenterPoint Houston believes it to be cost
prohibitive. CenterPoint Houston may not be able to recover the costs incurred
in restoring its transmission and distribution properties following Hurricane
Ike, or any such costs sustained in the future, through a change in its
regulated rates, and any such recovery may not be timely granted. Therefore,
CenterPoint Houston may not be able to restore any loss of, or damage to, any of
its transmission and distribution properties without negative impact on its
results of operations, financial condition and cash flows.
We, CenterPoint
Houston and CERC could incur liabilities associated with businesses and assets that
we have transferred to others.
Under
some circumstances, we, CenterPoint Houston and CERC could incur liabilities
associated with assets and businesses we, CenterPoint Houston and CERC no longer
own. These assets and businesses were previously owned by Reliant Energy,
Incorporated (Reliant Energy), a predecessor of CenterPoint Houston, directly or
through subsidiaries and include:
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merchant
energy, energy trading and REP businesses transferred to RRI or its
subsidiaries in connection with the organization and capitalization of RRI
prior to its initial public offering in
2001; and
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Texas
electric generating facilities transferred to Texas Genco Holdings, Inc.
(Texas Genco) in 2004 and early
2005.
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In
connection with the organization and capitalization of RRI, RRI and its
subsidiaries assumed liabilities associated with various assets and businesses
Reliant Energy transferred to them. RRI also agreed to indemnify, and
cause the
applicable transferee subsidiaries to indemnify, us and our subsidiaries,
including CenterPoint Houston and CERC, with respect to liabilities associated
with the transferred assets and businesses. These indemnity provisions were
intended to place sole financial responsibility on RRI and its subsidiaries for
all liabilities associated with the current and historical businesses and
operations of RRI, regardless of the time those liabilities arose. If RRI were
unable to satisfy a liability that has been so assumed in circumstances in which
Reliant Energy and its subsidiaries were not released from the liability in
connection with the transfer, we, CenterPoint Houston or CERC could be
responsible for satisfying the liability.
Prior to
the distribution of our ownership in RRI to our shareholders, CERC had
guaranteed certain contractual obligations of what became RRI’s trading
subsidiary. Under the terms of the separation agreement between the companies,
RRI agreed to extinguish all such guaranty obligations prior to separation, but
at the time of separation
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in
September 2002, RRI had been unable to extinguish all obligations. To secure
CERC against obligations under the remaining guaranties, RRI agreed to provide
cash or letters of credit for CERC’s benefit, and undertook to use commercially
reasonable efforts to extinguish the remaining guaranties. In
December 2007, we, CERC and RRI amended that agreement and CERC released
the letters of credit it held as security. Under the revised agreement, RRI
agreed to provide cash or new letters of credit to secure CERC against exposure
under the remaining guaranties as calculated under the revised agreement if and
to the extent changes in market conditions exposed CERC to a risk of loss on
those guaranties.
The
potential exposure to CERC under the guaranties relates to payment of demand
charges related to transportation contracts. The present value of the demand
charges under these transportation contracts, which will be effective until
2018, was approximately $108 million as of December 31, 2008. RRI
continues to meet its obligations under the contracts, and on the basis of
market conditions, we and CERC have not required additional security. However,
if RRI should fail to perform its obligations under the contracts or if RRI
should fail to provide adequate security in the event market conditions change
adversely, we would retain our exposure to the counterparty under the
guaranty.
RRI’s
unsecured debt ratings are currently below investment grade. If RRI were unable
to meet its obligations, it would need to consider, among various options,
restructuring under the bankruptcy laws, in which event RRI might not honor its
indemnification obligations and claims by RRI’s creditors might be made against
us as its former owner.
Reliant
Energy and RRI are named as defendants in a number of lawsuits arising out of
energy sales in California and other markets and financial reporting matters.
Although these matters relate to the business and operations of RRI, claims
against Reliant Energy have been made on grounds that include the effect of
RRI’s financial results on Reliant Energy’s historical financial statements and
liability of Reliant Energy as a controlling shareholder of RRI. We, CenterPoint
Houston or CERC could incur liability if claims in one or more of these lawsuits
were successfully asserted against us, CenterPoint Houston or CERC and
indemnification from RRI were determined to be unavailable or if RRI were unable
to satisfy indemnification obligations owed with respect to those
claims.
In
connection with the organization and capitalization of Texas Genco, Texas Genco
assumed liabilities associated with the electric generation assets Reliant
Energy transferred to it. Texas Genco also agreed to indemnify, and cause the
applicable transferee subsidiaries to indemnify, us and our subsidiaries,
including CenterPoint Houston, with respect to liabilities associated with the
transferred assets and businesses. In many cases the liabilities assumed were
obligations of CenterPoint Houston and CenterPoint Houston was not released by
third parties from these liabilities. The indemnity provisions were intended
generally to place sole financial responsibility on Texas Genco and its
subsidiaries for all liabilities associated with the current and historical
businesses and operations of Texas Genco, regardless of the time those
liabilities arose. In connection with the sale of Texas Genco’s fossil
generation assets (coal, lignite and gas-fired plants) to NRG Texas LP
(previously named Texas Genco LLC), the separation agreement we entered
into with Texas Genco in connection with the organization and capitalization of
Texas Genco was amended to provide that all of Texas Genco’s rights and
obligations under the separation agreement relating to its fossil generation
assets, including Texas Genco’s obligation to indemnify us with respect to
liabilities associated with the fossil generation assets and related business,
were assigned to and assumed by NRG Texas LP. In addition, under the amended
separation agreement, Texas Genco is no longer liable for, and we have assumed
and agreed to indemnify NRG Texas LP
against, liabilities that Texas Genco originally assumed in connection with its
organization to the extent, and only to the extent, that such liabilities are
covered by certain insurance
policies or other similar agreements held by us. If Texas Genco or NRG Texas LP
were unable to satisfy a liability that had been so assumed or indemnified
against, and provided Reliant Energy had not been released from the liability in
connection with the transfer, CenterPoint Houston could be responsible for
satisfying the liability.
We or our
subsidiaries have been named, along with numerous others, as a defendant in
lawsuits filed by a number of individuals who claim injury due to exposure to
asbestos. Most claimants in such litigation have been workers who participated
in construction of various industrial facilities, including power plants. Some
of the claimants have worked at locations owned by us, but most existing claims
relate to facilities previously owned by us or our subsidiaries but currently
owned by NRG Texas LP. We anticipate that additional claims like those received
may be asserted in the future. Under the terms of the arrangements regarding
separation of the generating business from us and its sale to NRG Texas LP,
ultimate financial responsibility for uninsured losses from claims relating
to
30
the
generating business has been assumed by NRG Texas LP, but we have agreed to
continue to defend such claims to the extent they are covered by insurance
maintained by us, subject to reimbursement of the costs of such defense by NRG
Texas LP.
The global
financial crisis may have impacts on our business, liquidity and financial
condition that we currently
cannot predict.
The
continued credit crisis and related turmoil in the global financial system may
have an impact on our business, liquidity and our financial condition. Our
ability to access the capital markets may be severely restricted at a time when
we would like, or need, to access those markets, which could have an impact on
our liquidity and flexibility to react to changing economic and business
conditions. In addition, the cost of debt financing and the proceeds of equity
financing may be materially adversely impacted by these market conditions. With
respect to our existing debt arrangements, Lehman Brothers Bank, FSB, which had
an approximately four percent participation in our credit facility and each of
the then-existing credit facilities of our subsidiaries, stopped funding its
commitments following the bankruptcy filing of its parent in September 2008 and
was subsequently terminated as a lender in our facility and the facility of
CenterPoint Houston. Defaults of other lenders should they occur could adversely
affect our liquidity. Capital market turmoil was also reflected in significant
reductions in equity market valuations in 2008, which significantly reduced the
value of assets of our pension plan. These reductions are expected to result in
increased non-cash pension expense in 2009, which will impact 2009 results of
operations.
In
addition to the credit and financial market issues, the national and local
recessionary conditions may impact our business in a variety of ways. These
include, among other things, reduced customer usage, increased customer default
rates and wide swings in commodity prices.
Item 1B.
Unresolved Staff
Comments
Not
applicable.
Item 2. Properties
Character
of Ownership
We own or
lease our principal properties in fee, including our corporate office space and
various real property. Most of our electric lines and gas mains are located,
pursuant to easements and other rights, on public roads or on land owned by
others.
Electric
Transmission & Distribution
For
information regarding the properties of our Electric Transmission &
Distribution business segment, please read “Business — Our Business —
Electric Transmission & Distribution — Properties” in Item 1
of this report, which information is incorporated herein by
reference.
Natural
Gas Distribution
For
information regarding the properties of our Natural Gas Distribution business
segment, please read “Business — Our Business — Natural Gas
Distribution — Assets” in Item 1 of this report, which information is
incorporated herein by reference.
Competitive
Natural Gas Sales and Services
For
information regarding the properties of our Competitive Natural Gas Sales and
Services business segment, please read “Business — Our Business —
Competitive Natural Gas Sales and Services — Assets” in Item 1 of this
report, which information is incorporated herein by reference.
Interstate
Pipelines
For
information regarding the properties of our Interstate Pipelines business
segment, please read “Business — Our Business — Interstate
Pipelines — Assets” in Item 1 of this report, which information is
incorporated herein by reference.
Field
Services
For
information regarding the properties of our Field Services business segment,
please read “Business — Our Business — Field Services — Assets”
in Item 1 of this report, which information is incorporated herein by
reference.
Other
Operations
For
information regarding the properties of our Other Operations business segment,
please read “Business — Our Business — Other Operations” in
Item 1 of this report, which information is incorporated herein by
reference.
Item 3. Legal
Proceedings
For a
discussion of material legal and regulatory proceedings affecting us, please
read “Business — Regulation” and “Business — Environmental Matters” in
Item 1 of this report and Notes 3 and 10(d) to our consolidated
financial statements, which information is incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of
Security Holders
There
were no matters submitted to the vote of our security holders during the fourth
quarter of 2008.
PART II
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
As of
February 13, 2009, our common stock was held of record by approximately
47,327 shareholders. Our common stock is listed on the New York and Chicago
Stock Exchanges and is traded under the symbol “CNP.”
The
following table sets forth the high and low closing prices of the common stock
of CenterPoint Energy on the New York Stock Exchange composite tape during the
periods indicated, as reported by Bloomberg, and the cash
dividends declared in these periods.
|
Market
Price
|
Dividend
|
|||||||||||
|
Declared
|
||||||||||||
|
High
|
Low
|
Per
Share
|
||||||||||
|
2007
|
||||||||||||
|
First
Quarter
|
$ | 0.17 | ||||||||||
|
January
18
|
$ | 16.51 | ||||||||||
|
February
26
|
$ | 18.37 | ||||||||||
|
Second
Quarter
|
$ | 0.17 | ||||||||||
|
May
9
|
$ | 20.02 | ||||||||||
|
June 22
|
$ | 16.90 | ||||||||||
|
Third
Quarter
|
$ | 0.17 | ||||||||||
|
July 13
|
$ | 17.88 | ||||||||||
|
August
15
|
$ | 15.15 | ||||||||||
|
Fourth
Quarter
|
$ | 0.17 | ||||||||||
|
October
19
|
$ | 15.97 | ||||||||||
|
November
8
|
$ | 18.51 | ||||||||||
|
2008
|
||||||||||||
|
First
Quarter
|
$ | 0.1825 | ||||||||||
|
January
9
|
$ | 16.98 | ||||||||||
|
March
17
|
$ | 13.84 | ||||||||||
|
Second
Quarter
|
$ | 0.1825 | ||||||||||
|
April
1
|
$ | 14.66 | ||||||||||
|
May
29
|
$ | 17.16 | ||||||||||
|
Third
Quarter
|
$ | 0.1825 | ||||||||||
|
August
11
|
$ | 16.59 | ||||||||||
|
September
18
|
$ | 13.98 | ||||||||||
|
Fourth
Quarter
|
$ | 0.1825 | ||||||||||
|
October
1
|
$ | 14.40 | ||||||||||
|
October
10
|
$ | 9.08 | ||||||||||
The
closing market price of our common stock on December 31, 2008 was
$12.62 per share.
The
amount of future cash dividends will be subject to determination based upon our
results of operations and financial condition, our future business prospects,
any applicable contractual restrictions and other factors that our board of
directors considers relevant and will be declared at the discretion of the board
of directors.
On
January 22, 2009, we announced a regular quarterly cash dividend of
$0.19 per share, payable on March 10, 2009 to shareholders of record
on February 16, 2009.
Repurchases
of Equity Securities
During
the quarter ended December 31, 2008, none of our equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934
were purchased by or on behalf of us or any of our “affiliated purchasers,” as
defined in Rule 10b-18(a)(3) under the Securities Exchange Act of
1934.
The
following table presents selected financial data with respect to our
consolidated financial condition and consolidated results of operations and
should be read in conjunction with our consolidated financial statements and the
related notes in Item 8 of this report.
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2004(1)
|
2005(2)
|
2006
|
2007
|
2008
|
||||||||||||||||
|
(In
millions, except per share amounts)
|
||||||||||||||||||||
|
Revenues
|
$ | 7,999 | $ | 9,722 | $ | 9,319 | $ | 9,623 | $ | 11,322 | ||||||||||
|
Income
from continuing operations before extraordinary item
|
205 | 225 | 432 | 399 | 447 | |||||||||||||||
|
Discontinued
operations, net of tax
|
(133 | ) | (3 | ) | — | — | — | |||||||||||||
|
Extraordinary
item, net of tax
|
(977 | ) | 30 | — | — | — | ||||||||||||||
|
Net
income (loss)
|
$ | (905 | ) | $ | 252 | $ | 432 | $ | 399 | $ | 447 | |||||||||
|
Basic
earnings (loss) per common share:
|
||||||||||||||||||||
|
Income
from continuing operations before extraordinary item
|
$ | 0.67 | $ | 0.72 | $ | 1.39 | $ | 1.25 | $ | 1.33 | ||||||||||
|
Discontinued
operations, net of tax
|
(0.43 | ) | (0.01 | ) | — | — | — | |||||||||||||
|
Extraordinary
item, net of tax
|
(3.18 | ) | 0.10 | — | — | — | ||||||||||||||
|
Basic
earnings (loss) per common share
|
$ | (2.94 | ) | $ | 0.81 | $ | 1.39 | $ | 1.25 | $ | 1.33 | |||||||||
|
Diluted
earnings (loss) per common share:
|
||||||||||||||||||||
|
Income
from continuing operations before extraordinary item
|
$ | 0.61 | $ | 0.67 | $ | 1.33 | $ | 1.17 | $ | 1.30 | ||||||||||
|
Discontinued
operations, net of tax
|
(0.37 | ) | (0.01 | ) | — | — | — | |||||||||||||
|
Extraordinary
item, net of tax
|
(2.72 | ) | 0.09 | — | — | — | ||||||||||||||
|
Diluted
earnings (loss) per common share
|
$ | (2.48 | ) | $ | 0.75 | $ | 1.33 | $ | 1.17 | $ | 1.30 | |||||||||
|
Cash
dividends paid per common share
|
$ | 0.40 | $ | 0.40 | $ | 0.60 | $ | 0.68 | $ | 0.73 | ||||||||||
|
Dividend
payout ratio from continuing operations
|
60 | % | 56 | % | 43 | % | 54 | % | 55 | % | ||||||||||
|
Return
from continuing operations on average common equity
|
14.4 | % | 18.7 | % | 30.3 | % | 23.7 | % | 23.2 | % | ||||||||||
|
Ratio
of earnings from continuing operations to fixed charges
|
1.43 | 1.51 | 1.77 | 1.86 | 2.09 | |||||||||||||||
|
At
year-end:
|
||||||||||||||||||||
|
Book
value per common share
|
$ | 3.59 | $ | 4.18 | $ | 4.96 | $ | 5.61 | $ | 5.89 | ||||||||||
|
Market
price per common share
|
11.30 | 12.85 | 16.58 | 17.13 | 12.62 | |||||||||||||||
|
Market
price as a percent of book value
|
315 | % | 307 | % | 334 | % | 305 | % | 214 | % | ||||||||||
|
Assets
of discontinued operations
|
$ | 1,565 | $ | — | $ | — | $ | — | $ | — | ||||||||||
|
Total
assets
|
18,096 | 17,116 | 17,633 | 17,872 | 19,676 | |||||||||||||||
|
Short-term
borrowings (3)
|
— | — | 187 | 232 | 153 | |||||||||||||||
|
Transition
bonds, including current maturities
|
676 | 2,480 | 2,407 | 2,260 | 2,589 | |||||||||||||||
|
Other
long-term debt, including current maturities
|
8,353 | 6,427 | 6,593 | 7,419 | 7,925 | |||||||||||||||
|
Capitalization:
|
||||||||||||||||||||
|
Common
stock equity
|
11 | % | 13 | % | 15 | % | 16 | % | 16 | % | ||||||||||
|
Long-term
debt, including current maturities
|
89 | % | 87 | % | 85 | % | 84 | % | 84 | % | ||||||||||
|
Capitalization,
excluding transition bonds:
|
||||||||||||||||||||
|
Common
stock equity
|
12 | % | 17 | % | 19 | % | 20 | % | 20 | % | ||||||||||
|
Long-term
debt, excluding transition bonds, including current
maturities
|
88 | % | 83 | % | 81 | % | 80 | % | 80 | % | ||||||||||
|
Capital
expenditures, excluding discontinued operations
|
$ | 530 | $ | 719 | $ | 1,121 | $ | 1,011 | $ | 1,053 | ||||||||||
|
(1)
|
Net
income for 2004 includes an after-tax extraordinary loss of
$977 million ($3.18 and $2.72 loss per basic and diluted share,
respectively) based on our analysis of the Public Utility Commission of
Texas’ (Texas Utility Commission) order in the 2004 True-Up Proceeding.
Additionally, we recorded as discontinued operations a net after-tax loss
of approximately $133 million ($0.43 and $0.37 loss per basic and
diluted share, respectively) in 2004 related to our interest in Texas
Genco.
|
|
(2)
|
Net
income for 2005 includes an after-tax extraordinary gain of
$30 million ($0.10 and $0.09 per basic and diluted share,
respectively) recorded in the first quarter reflecting an adjustment to
the extraordinary loss recorded in the last half of 2004 to write down
generation-related regulatory assets as a result of the final orders
issued by the Texas Utility
Commission.
|
|
(3)
|
Under
the terms of the receivables facilities in place since October 2006, the
provisions for sale accounting under Statement of Financial Accounting
Standards No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,” have not been met.
Accordingly, advances received upon the sale of receivables are accounted
for as short-term borrowings as of December 31, 2006, 2007 and 2008.
As of December 31, 2008, short-term borrowings included a
$75 million inventory financing obligation related to an asset
management agreement. For more information regarding this transaction, see
Note 8(a).
|
The following discussion and
analysis should be read in combination with our consolidated financial statements
included in Item 8 herein.
OVERVIEW
Background
We are a
public utility holding company whose indirect wholly owned subsidiaries
include:
|
|
•
|
CenterPoint
Energy Houston Electric, LLC (CenterPoint Houston), which engages in the
electric transmission and distribution business in a 5,000-square mile
area of the Texas Gulf Coast that includes Houston;
and
|
|
|
•
|
CenterPoint
Energy Resources Corp. (CERC Corp. and, together with its subsidiaries,
CERC), which owns and operates natural gas distribution systems in six
states. Subsidiaries of CERC Corp. own interstate natural gas pipelines
and gas gathering systems and provide various ancillary services. A wholly
owned subsidiary of CERC Corp. offers variable and fixed-price physical
natural gas supplies primarily to commercial and industrial customers and
electric and gas utilities.
|
Business
Segments
In this
Management’s Discussion, we discuss our results from continuing operations on a
consolidated basis and individually for each of our business segments. We also
discuss our liquidity, capital resources and certain critical accounting
policies. We are first and foremost an energy delivery company and it is our
intention to remain focused on this segment of the energy business. The results
of our business operations are significantly impacted by weather, customer
growth, economic conditions, cost management, rate proceedings before regulatory
agencies and other actions of the various regulatory agencies to which we are
subject. Our electric transmission and distribution services are subject to rate
regulation and are reported in the Electric Transmission & Distribution
business segment, as are impacts of generation-related stranded costs and other
true-up balances recoverable by the regulated electric utility. Our natural gas
distribution services are also subject to rate regulation and are reported in
the Natural Gas Distribution business segment. A summary of our reportable
business segments as of December 31, 2008 is set forth below:
Electric
Transmission & Distribution
Our
electric transmission and distribution operations provide electric transmission
and distribution services to retail electric providers (REPs) serving over
2 million metered customers in a 5,000-square-mile area of the Texas Gulf
Coast that has a population of approximately 5.6 million people and
includes Houston.
On behalf
of REPs, CenterPoint Houston delivers electricity from power plants to
substations, from one substation to another and to retail electric customers in
locations throughout CenterPoint Houston’s certificated service territory. The
Electric Reliability Council of Texas, Inc. (ERCOT) serves as the regional
reliability coordinating council for member electric power systems in Texas.
ERCOT membership is open to consumer groups, investor and municipally-owned
electric utilities, rural electric cooperatives, independent generators, power
marketers and REPs. The ERCOT market represents approximately 85% of the demand
for power in Texas and is one of the nation’s largest power markets.
Transmission and distribution services are provided under tariffs approved by
the Texas Utility Commission.
Natural
Gas Distribution
CERC owns
and operates our regulated natural gas distribution business (Gas Operations),
which engages in intrastate natural gas sales to, and natural gas transportation
for, approximately 3.2 million residential, commercial and industrial
customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and
Texas.
Competitive
Natural Gas Sales and Services
CERC’s
operations also include non-rate regulated retail and wholesale natural gas
sales to, and transportation services for, commercial and industrial customers
in the six states listed above as well as several other Midwestern and Eastern
states.
Interstate
Pipelines
CERC’s
interstate pipelines business owns and operates approximately 8,000 miles
of natural gas transmission lines primarily located in Arkansas, Illinois,
Louisiana, Missouri, Oklahoma and Texas. It also owns and operates six natural
gas storage fields with a combined daily deliverability of approximately
1.2 billion cubic feet (Bcf) and a combined working gas capacity of
approximately 59 Bcf. It also owns a 10% interest in the Bistineau storage
facility located in Bienville Parish, Louisiana, with the remaining interest
owned and operated by Gulf South Pipeline Company, LP. Its storage capacity in
the Bistineau facility is 8 Bcf of working gas with 100 million cubic
feet per day of deliverability. Most storage operations are in north Louisiana
and Oklahoma.
Field
Services
CERC’s
field services business owns and operates approximately 3,600 miles of
gathering pipelines and processing plants that collect, treat and process
natural gas from approximately 150 separate systems located in major producing
fields in Arkansas, Louisiana, Oklahoma and Texas.
Other
Operations
Our other
operations business segment includes office buildings and other real estate used
in our business operations and other corporate operations which support all of
our business operations.
EXECUTIVE
SUMMARY
Significant
Events in 2008 and 2009
Hurricane
Ike
CenterPoint
Houston’s electric delivery system 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% 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 winds. 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 $600 million
to $650 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
$17 million.
In
addition to storm restoration costs, CenterPoint Houston lost approximately
$17 million in revenue through December 31, 2008. Within the first 18
days after the storm, CenterPoint Houston had restored power to all customers
capable of receiving it.
CenterPoint
Houston has deferred 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 did not affect our or CenterPoint
Houston’s reported net income for 2008. As of December 31, 2008,
CenterPoint Houston recorded an increase of $145 million in construction
work in progress and $435 million in regulatory assets for restoration
costs incurred through December 31, 2008. Approximately $73 million of
these costs are based on estimates and are included in accounts payable as of
December 31, 2008. Additional restoration costs will continue to be
incurred in 2009.
Assuming
necessary enabling legislation is enacted by the Texas Legislature in the
session that began in January 2009, CenterPoint Houston expects to seek a
financing order from the Texas Utility Commission 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 the hurricanes that affected that utility’s service territories in
2005. Assuming those bonds are issued, CenterPoint Houston will recover the
amount of storm restoration costs determined by the Texas Utility Commission to
have been prudently incurred 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.
Gas
Operations also suffered some damage to its system in Houston, Texas and in
other portions of its service territory across Texas and Louisiana. As of
December 31, 2008, Gas Operations has deferred approximately
$4 million of costs related to Hurricane Ike for recovery as part of future
natural gas distribution rate proceedings.
Debt
Financing Transactions
Pursuant
to a financing order issued by the Texas Utility Commission in September 2007,
in February 2008 a subsidiary of CenterPoint Houston issued approximately
$488 million in transition bonds in two tranches with interest rates of
4.192% and 5.234% and final maturity dates in February 2020 and February 2023,
respectively. Scheduled final payment dates are February 2017 and February 2020.
Through issuance of the transition bonds, CenterPoint Houston securitized
transition property of approximately $483 million representing the
remaining balance of the competition transition charge (CTC) adjusted to refund
certain unspent environmental retrofit costs and to recover the amount of the
fuel reconciliation settlement.
In April
2008, we purchased $175 million principal amount of pollution control bonds
issued on our behalf at 102% of their principal amount. Prior to the purchase,
$100 million principal amount of such bonds had a fixed rate of interest of
7.75% and $75 million principal amount of such bonds had a fixed rate of
interest of 8%. Depending on market conditions, we may remarket both series of
bonds, at 100% of their principal amounts, in 2009.
In April
2008, we called our 3.75% convertible senior notes for redemption on
May 30, 2008. At the time of the announcement, the notes were convertible
at the option of the holders, and substantially all of the notes were submitted
for conversion on or prior to the May 30, 2008 redemption date. During the
year ended December 31, 2008, we issued 16.9 million shares of our
common stock and paid cash of approximately $532 million to settle
conversions of approximately $535 million principal amount of our 3.75%
convertible senior notes.
In May
2008, we issued $300 million aggregate principal amount of senior notes due
in May 2018 with an interest rate of 6.50%. The proceeds from the sale of the
senior notes were used for general corporate purposes, including the
satisfaction of cash payment obligations in connection with conversions of our
3.75% convertible senior notes as discussed above.
In May
2008, CERC Corp. issued $300 million aggregate principal amount of senior
notes due in May 2018 with an interest rate of 6.00%. The proceeds from the sale
of the senior notes were used for general corporate purposes, including capital
expenditures, working capital and loans to or investments in
affiliates.
In
November 2008, CERC replaced a receivables facility that had expired in October
2008 with a new receivables facility that expires in November 2009. Availability
under the new facility ranges from $128 million to $375 million,
reflecting seasonal changes in receivables balances.
In
November 2008, CenterPoint Houston entered into a $600 million 364-day
credit facility. The credit facility will terminate if bonds are issued to
securitize the costs incurred as a result of Hurricane Ike and if those bonds
are issued prior to the November 24, 2009 expiration of the facility.
CenterPoint Houston expects to seek legislative and regulatory approval for the
issuance of such bonds during 2009.
In
December 2008, CERC entered into an asset management agreement whereby it
sold $110 million of its natural gas in storage and agreed to repurchase an
equivalent amount of natural gas during the 2008-2009 winter heating season for
payments totaling $114 million. This transaction was accounted for as a
financing and, as of December 31, 2008, the consolidated financial
statements reflect natural gas inventory of $75 million and a financing
obligation of $75 million related to this transaction.
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
In 2008,
we received proceeds of approximately $65 million from the sale of
approximately 4.9 million common shares to our defined contribution plan
and proceeds of approximately $13 million from the sale of approximately
0.9 million common shares to participants in our enhanced dividend
reinvestment plan.
Interstate
Pipeline Expansion
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., 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
one Bcf 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.
Our share of SESH’s net construction costs is approximately
$625 million.
Outlook
During
2008, economic conditions in the United States declined significantly, with
several large bank failures and consolidations, large declines in the values of
securities, disruptions in the capital markets, which made it difficult to raise
debt and equity, and increased costs for capital when it was available. Many of
the factors that led to the economic decline are continuing into 2009, but it is
impossible to predict the impacts such events may have in the future. Although
our businesses and the areas in which we serve have, to date, not been as
significantly affected as some others, in 2008, we experienced substantial
declines in the value of our pension plan assets as a result of the stock market
declines. Disruptions in the bank and capital markets during the last two
quarters of 2008 have led to higher borrowing costs and greater uncertainty
regarding the ability to execute transactions in these markets.
Although
we cannot predict future performance, the decline in the value of our pension
plan assets that occurred during 2008 will result in increased non-cash
charges to pension plan expense in 2009, which will adversely impact earnings,
and may also result in the need for us to make significant cash contributions to
our pension plan subsequent to 2009. We also expect to experience higher
borrowing costs and greater uncertainty in executing capital markets
transactions if conditions in financial markets do not improve from their
current state.
To the
extent the adverse economic conditions affect our suppliers and customers,
results from our energy delivery businesses may suffer. The current low
commodity prices for natural gas and other energy products may cause energy
producers to scale back projects such as drilling new gas wells or constructing
new facilities. Reduced demand
and lower energy prices could lead to financial pressure on some of our
customers who operate within the energy industry. Also, adverse economic
conditions, coupled with concerns for protecting the environment, may cause
consumers to use less energy or avoid expansions of their facilities, resulting
in less demand for our services.
These
factors may lead to reduced earnings during 2009, compared to 2008, if they
continue significantly into 2009 or if the magnitude of the economic downturn
increases beyond the impacts experienced in 2008.
CERTAIN
FACTORS AFFECTING FUTURE EARNINGS
Our past
earnings and results of operations are not necessarily indicative of our future
earnings and results of operations. The magnitude of our future earnings and
results of our operations will depend on or be affected by numerous factors
including:
|
|
•
|
the
resolution of the true-up components, including, in particular, the
results of appeals to the courts regarding rulings obtained to
date;
|
|
|
•
|
state
and federal legislative and regulatory actions or developments, including
deregulation, re-regulation, environmental regulations, including
regulations related to global climate change, and changes in or
application of laws or regulations applicable to the various aspects of
our business;
|
|
|
•
|
timely
and appropriate legislative and regulatory actions allowing securitization
or other recovery of costs associated with Hurricane
Ike;
|
|
|
•
|
timely
and appropriate rate actions and increases, allowing recovery of costs and
a reasonable return on investment;
|
|
|
•
|
cost
overruns on major capital projects that cannot be recouped in
prices;
|
|
|
•
|
industrial,
commercial and residential growth in our service territory and changes in
market demand and demographic
patterns;
|
|
|
•
|
the
timing and extent of changes in commodity prices, particularly natural gas
and natural gas liquids;
|
|
|
•
|
the
timing and extent of changes in the supply of natural
gas;
|
|
|
•
|
the
timing and extent of changes in natural gas basis
differentials;
|
|
|
•
|
weather
variations and other natural
phenomena;
|
|
|
•
|
changes
in interest rates or rates of
inflation;
|
|
|
•
|
commercial
bank and financial market conditions, our access to capital, the cost of
such capital, and the results of our financing and refinancing efforts,
including availability of funds in the debt capital
markets;
|
|
|
•
|
actions
by rating agencies;
|
|
|
•
|
effectiveness
of our risk management activities;
|
|
|
•
|
inability
of various counterparties to meet their obligations to
us;
|
|
|
•
|
non-payment
for our services due to financial distress of our customers, including
Reliant Energy, Inc. (RRI);
|
|
|
•
|
the
ability of RRI and its subsidiaries to satisfy their other obligations to
us, including indemnity obligations, or in connection with the contractual
arrangements pursuant to which we are their
guarantor;
|
|
|
•
|
the
outcome of litigation brought by or against
us;
|
|
|
•
|
our
ability to control costs;
|
|
|
•
|
the
investment performance of our employee benefit
plans;
|
|
|
•
|
our
potential business strategies, including acquisitions or dispositions of
assets or businesses, which we cannot assure will be completed or will
have the anticipated benefits to
us;
|
|
|
•
|
acquisition
and merger activities involving us or our competitors;
and
|
|
|
•
|
other
factors we discuss under “Risk Factors” in Item 1A of this report and
in other reports we file from time to time with the Securities and
Exchange Commission.
|
CONSOLIDATED
RESULTS OF OPERATIONS
All
dollar amounts in the tables that follow are in millions, except for per share
amounts.
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Revenues
|
$ | 9,319 | $ | 9,623 | $ | 11,322 | ||||||
|
Expenses
|
8,274 | 8,438 | 10,049 | |||||||||
|
Operating
Income
|
1,045 | 1,185 | 1,273 | |||||||||
|
Gain
(Loss) on Time Warner Investment
|
94 | (114 | ) | (139 | ) | |||||||
|
Gain
(Loss) on Indexed Debt Securities
|
(80 | ) | 111 | 128 | ||||||||
|
Interest
and Other Finance Charges
|
(470 | ) | (503 | ) | (466 | ) | ||||||
|
Interest
on Transition Bonds
|
(130 | ) | (123 | ) | (136 | ) | ||||||
|
Distribution
from AOL Time Warner Litigation Settlement
|
— | 32 | — | |||||||||
|
Additional
Distribution to ZENS Holders
|
— | (27 | ) | — | ||||||||
|
Equity
in Earnings of Unconsolidated Affiliates
|
6 | 16 | 51 | |||||||||
|
Other
Income, net
|
29 | 17 | 14 | |||||||||
|
Income
Before Income Taxes
|
494 | 594 | 725 | |||||||||
|
Income
Tax Expense
|
(62 | ) | (195 | ) | (278 | ) | ||||||
|
Net
Income
|
$ | 432 | $ | 399 | $ | 447 | ||||||
|
Basic
Earnings Per Share
|
$ | 1.39 | $ | 1.25 | $ | 1.33 | ||||||
|
Diluted
Earnings Per Share
|
$ | 1.33 | $ | 1.17 | $ | 1.30 | ||||||
2008
Compared to 2007
Net Income. We reported net
income of $447 million ($1.30 per diluted share) for 2008 compared to
$399 million ($1.17 per diluted share) for the same period in 2007.
The increase in net income of $48 million was primarily due to an
$88 million increase in operating income, a $37 million decrease in
interest expense, excluding transition bond-related interest expense, a
$35 million increase in equity in earnings of unconsolidated affiliates
related primarily to SESH and a $17 million increase in the gain on our
indexed debt securities. These increases in net income were partially offset by
an $83 million increase in income tax expense, a $25 million increase
in the loss on our Time Warner investment and a $13 million increase in
interest expense on transition bonds.
Income Tax Expense. Our 2008
effective tax rate of 38.4% differed from the 2007 effective tax rate of 32.8%
primarily as a result of revisions to the Texas State Franchise Tax Law (Texas
margin tax) which was reported as an operating expense prior to 2008 and is now
being reported as an income tax for CenterPoint Houston and a Texas state tax
examination in 2007.
2007
Compared to 2006
Net Income. We reported net
income of $399 million ($1.17 per diluted share) for 2007 compared to
$432 million ($1.33 per diluted share) for the same period in 2006.
The decrease in net income of $33 million was primarily due to a
$208 million increase in the loss on our Time Warner investment, a
$133 million increase in income tax expense primarily as a result of the
favorable tax settlement reached with the Internal Revenue Service (IRS) in 2006
related to our 2.0% Zero Premium Exchangeable Subordinated Notes due 2029 (ZENS)
and Automatic Common Exchange Securities (ACES) and a $33 million increase
in interest expense, excluding transition bond-related interest expense, due to
higher borrowing levels. These decreases in net income were partially offset by
a $191 million increase in the gain on our indexed debt securities, a
$140 million increase in operating income and a $10 million increase
in equity in earnings of unconsolidated affiliates.
Income Tax Expense. In 2007,
our effective tax rate of 32.8% was lower than the expected statutory tax rate
as a result of the revised Texas margin tax and a Texas state tax examination
for tax years 2002 through 2004. Our 2007 effective tax rate differed from the
2006 effective tax rate of 12.6% primarily due to the favorable tax settlement
reached with the IRS in 2006 as discussed above.
RESULTS
OF OPERATIONS BY BUSINESS SEGMENT
The
following table presents operating income (in millions) for each of our business
segments for 2006, 2007 and 2008. Included in revenues are intersegment sales.
We account for intersegment sales as if the sales were to third parties, that
is, at current market prices.
Operating
Income (Loss) by Business Segment
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Electric
Transmission & Distribution
|
$ | 576 | $ | 561 | $ | 545 | ||||||
|
Natural
Gas Distribution
|
124 | 218 | 215 | |||||||||
|
Competitive
Natural Gas Sales and Services
|
77 | 75 | 62 | |||||||||
|
Interstate
Pipelines
|
181 | 237 | 293 | |||||||||
|
Field
Services
|
89 | 99 | 147 | |||||||||
|
Other
Operations
|
(2 | ) | (5 | ) | 11 | |||||||
|
Total
Consolidated Operating Income
|
$ | 1,045 | $ | 1,185 | $ | 1,273 | ||||||
Electric
Transmission & Distribution
The
following tables provide summary data of our Electric Transmission &
Distribution business segment, CenterPoint Houston, for 2006, 2007 and 2008 (in
millions, except throughput and customer data):
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Revenues:
|
||||||||||||
|
Electric
transmission and distribution utility
|
$ | 1,516 | $ | 1,560 | $ | 1,593 | ||||||
|
Transition
bond companies
|
265 | 277 | 323 | |||||||||
|
Total
revenues
|
1,781 | 1,837 | 1,916 | |||||||||
|
Expenses:
|
||||||||||||
|
Operation
and maintenance, excluding transition bond companies
|
611 | 652 | 703 | |||||||||
|
Depreciation
and amortization, excluding transition bond companies
|
243 | 243 | 277 | |||||||||
|
Taxes
other than income taxes
|
212 | 223 | 201 | |||||||||
|
Transition
bond companies
|
139 | 158 | 190 | |||||||||
|
Total
expenses
|
1,205 | 1,276 | 1,371 | |||||||||
|
Operating
Income
|
$ | 576 | $ | 561 | $ | 545 | ||||||
|
Operating
Income:
|
||||||||||||
|
Electric
transmission and distribution operations
|
$ | 395 | $ | 400 | $ | 407 | ||||||
|
Competition
transition charge
|
55 | 42 | 5 | |||||||||
|
Transition
bond companies (1)
|
126 | 119 | 133 | |||||||||
|
Total
segment operating income
|
$ | 576 | $ | 561 | $ | 545 | ||||||
|
Throughput
(in gigawatt-hours (GWh)):
|
||||||||||||
|
Residential
|
23,955 | 23,999 | 24,258 | |||||||||
|
Total
|
75,877 | 76,291 | 74,840 | |||||||||
|
Number
of metered customers at period end:
|
||||||||||||
|
Residential
|
1,743,963 | 1,793,600 | 1,821,267 | |||||||||
|
Total
|
1,980,960 | 2,034,074 | 2,064,854 | |||||||||
|
|
__________
|
|
(1)
|
Represents
the amount necessary to pay interest on the transition
bonds.
|
2008 Compared to 2007. Our
Electric Transmission & Distribution business segment reported operating
income of $545 million for 2008, consisting of $407 million from our
regulated electric transmission and distribution utility operations (TDU),
exclusive of an additional $5 million from the competition transition
charge (CTC), and $133 million related to transition bond companies. For
2007, operating income totaled $561 million, consisting of
$400 million from the TDU, exclusive of an additional $42 million from
the CTC, and $119 million related to
transition bond companies. Revenues for the TDU increased due to customer
growth, with over 30,000 metered customers added in 2008
($23 million), increased usage ($15 million) in part caused by
favorable weather experienced in 2008, increased transmission-related revenues
($21 million) and increased revenues from ancillary services
($5 million), partially offset by reduced revenues due to Hurricane Ike
($17 million) and the settlement of the final fuel reconciliation in 2007
($5 million). Operation and maintenance expense increased primarily due to
higher transmission costs ($43 million), the settlement of the final fuel
reconciliation in 2007 ($13 million) and increased support services
($13 million), partially offset by a gain on sale of land ($9 million)
and normal operating and maintenance expenses that were postponed as a result of
Hurricane Ike restoration efforts ($10 million). Depreciation and
amortization increased $34 million primarily due to amounts related to the
CTC ($30 million), which were offset by similar amounts in revenues. Taxes
other than income taxes declined $21 million primarily as a result of the
Texas margin tax being classified as an income tax for financial reporting
purposes in 2008 ($19 million) and a refund of prior years’ state franchise
taxes ($5 million).
2007 Compared to 2006. Our
Electric Transmission & Distribution business segment reported operating
income of $561 million for 2007, consisting of $400 million from the
TDU, exclusive of an additional $42 million from the CTC, and
$119 million related to transition bond companies. For 2006, operating
income totaled $576 million, consisting of $395 million from the TDU,
exclusive of an additional $55 million from the CTC, and $126 million
related to transition bond companies. Revenues increased due to growth
($22 million), with over 53,000 metered customers added in 2007, higher
transmission-related revenues ($22 million), increased miscellaneous
service charges ($15 million), increased demand ($7 million), interest
on settlement of the final fuel reconciliation ($4 million) and a one-time
charge in the second quarter of 2006 related to the resolution of the unbundled
cost of service order ($32 million). These increases were partially offset
by the rate reduction resulting from the 2006 rate case settlement that was
implemented in October 2006 ($41 million) and lower CTC return resulting
from the reduction in the allowed interest rate on the unrecovered CTC balance
from 11.07% to 8.06% in 2006 ($13 million). Operation and maintenance
expense increased primarily due to higher transmission costs ($25 million),
the absence of a gain on the sale of property in 2006 ($13 million), and
increased expenses, primarily related to low income and energy efficiency
programs as required by the 2006 rate case settlement ($8 million),
partially offset by settlement of the final fuel reconciliation
($13 million).
Natural
Gas Distribution
The
following table provides summary data of our Natural Gas Distribution business
segment for 2006, 2007 and 2008 (in millions, except throughput and customer
data):
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Revenues
|
$ | 3,593 | $ | 3,759 | $ | 4,226 | ||||||
|
Expenses:
|
||||||||||||
|
Natural
gas
|
2,598 | 2,683 | 3,124 | |||||||||
|
Operation
and maintenance
|
594 | 579 | 589 | |||||||||
|
Depreciation
and amortization
|
152 | 155 | 157 | |||||||||
|
Taxes
other than income taxes
|
125 | 124 | 141 | |||||||||
|
Total
expenses
|
3,469 | 3,541 | 4,011 | |||||||||
|
Operating
Income
|
$ | 124 | $ | 218 | $ | 215 | ||||||
|
Throughput
(in Bcf):
|
||||||||||||
|
Residential
|
152 | 172 | 175 | |||||||||
|
Commercial
and industrial
|
224 | 232 | 236 | |||||||||
|
Total
Throughput
|
376 | 404 | 411 | |||||||||
|
Number
of customers at period end:
|
||||||||||||
|
Residential
|
2,926,483 | 2,961,110 | 2,987,222 | |||||||||
|
Commercial
and industrial
|
246,351 | 249,877 | 248,476 | |||||||||
|
Total
|
3,172,834 | 3,210,987 | 3,235,698 | |||||||||
2008 Compared to 2007. Our
Natural Gas Distribution business segment reported operating income of
$215 million for 2008 compared to $218 million for 2007. Operating
income declined due to a combination of non-weather-related usage
($13 million), due in part to higher gas prices, higher customer-related
and support services costs ($9 million), higher bad debts and collection
costs ($4 million), increased costs of materials and supplies ($4 million),
and an increase in depreciation and amortization and taxes other than income
taxes ($3 million) resulting from increased investment in property, plant
and equipment. The adverse impacts on operating income were partially offset by
the net impact of rate increases ($11 million), lower labor and benefits
costs ($14 million), and customer growth from the addition of approximately
25,000 customers in 2008 ($6 million).
2007 Compared to 2006. Our
Natural Gas Distribution business segment reported operating income of
$218 million for 2007 compared to $124 million for 2006. Operating
income improved as a result of increased usage primarily due to a return to more
normal weather in 2007 compared to the unusually mild weather in 2006
($33 million), growth from the addition of over 38,000 customers in 2007
($9 million), the effect of the 2006 purchased gas cost write-off
($21 million), the effect of rate changes ($7 million) and reduced
operation and maintenance expenses ($15 million). Operation and maintenance
expenses declined primarily as a result of costs associated with staff
reductions incurred in 2006 ($17 million) and settlement of certain rate
case-related items ($9 million), partially offset by increases in bad debts
and collection costs ($8 million) and other services
($5 million).
Competitive
Natural Gas Sales and Services
The
following table provides summary data of our Competitive Natural Gas Sales and
Services business segment for 2006, 2007 and 2008 (in millions, except
throughput and customer data):
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Revenues
|
$ | 3,651 | $ | 3,579 | $ | 4,528 | ||||||
|
Expenses:
|
||||||||||||
|
Natural
gas
|
3,540 | 3,467 | 4,423 | |||||||||
|
Operation
and maintenance
|
30 | 31 | 39 | |||||||||
|
Depreciation
and amortization
|
1 | 5 | 3 | |||||||||
|
Taxes
other than income taxes
|
3 | 1 | 1 | |||||||||
|
Total
expenses
|
3,574 | 3,504 | 4,466 | |||||||||
|
Operating
Income
|
$ | 77 | $ | 75 | $ | 62 | ||||||
|
Throughput
(in Bcf)
|
555 | 522 | 528 | |||||||||
|
Number
of customers at period end
|
7,024 | 7,139 | 9,771 | |||||||||
2008 Compared to 2007. Our
Competitive Natural Gas Sales and Services business segment reported operating
income of $62 million for the year ended December 31, 2008 compared to
$75 million for the year ended December 31, 2007. The decrease in
operating income of $13 million primarily resulted from lower gains on
sales of gas from previously written down inventory ($24 million) and
higher operation and maintenance costs ($6 million), which were partially
offset by improved margin as basis and summer/winter spreads increased
($12 million). In addition, 2008 included a gain from mark-to-market
accounting ($13 million) and a write-down of natural gas inventory to the
lower of average cost or market ($30 million), compared to a charge to
income from mark-to-market accounting for non-trading derivatives
($10 million) and a write-down of natural gas inventory to the lower of
average cost or market ($11 million) for 2007. Our Competitive Natural Gas
Sales and Services business segment purchases and stores natural gas to meet
certain future sales requirements and enters into derivative contracts to hedge
the economic value of the future sales.
2007 Compared to 2006. Our
Competitive Natural Gas Sales and Services business segment reported operating
income of $75 million for 2007 compared to $77 million for 2006. The
decrease in operating income of $2 million was primarily due to reduced
opportunities for optimization of pipeline and storage assets resulting from
lower locational and seasonal natural gas price differentials in the wholesale
business ($10 million) offset by an increase in sales to commercial and
industrial customers in the retail business ($3 million). In addition, 2007
included a charge
43
to income
from mark-to-market accounting for non-trading derivatives ($10 million)
and a write-down of natural gas inventory to the lower of average cost or market
($11 million), compared to a gain from mark-to-market accounting
($37 million) and an inventory write-down ($66 million) for
2006.
Interstate
Pipelines
The
following table provides summary data of our Interstate Pipelines business
segment for 2006, 2007 and 2008 (in millions, except throughput
data):
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Revenues
|
$ | 388 | $ | 500 | $ | 650 | ||||||
|
Expenses:
|
||||||||||||
|
Natural
gas
|
31 | 83 | 155 | |||||||||
|
Operation
and maintenance
|
120 | 125 | 133 | |||||||||
|
Depreciation
and amortization
|
37 | 44 | 46 | |||||||||
|
Taxes
other than income taxes
|
19 | 11 | 23 | |||||||||
|
Total
expenses
|
207 | 263 | 357 | |||||||||
|
Operating
Income
|
$ | 181 | $ | 237 | $ | 293 | ||||||
|
Transportation
throughput (in Bcf)
|
939 | 1,216 | 1,538 | |||||||||
2008 Compared to 2007. Our
Interstate Pipeline business segment reported operating income of
$293 million for 2008 compared to $237 million for 2007. The increase
in operating income was primarily driven by increased margins (revenues less
natural gas costs) on the Carthage to Perryville pipeline that went into service
in May 2007 ($51 million), increased transportation and ancillary services
($27 million), and a gain on the sale of two storage development projects
($18 million). These increases are partially offset by higher operation and
maintenance expenses ($19 million), a write-down associated with pipeline
assets removed from service ($7 million), increased depreciation expense
($2 million), and higher taxes other than income taxes ($12 million),
largely due to tax refunds in 2007.
2007 Compared to 2006. Our
Interstate Pipeline business segment reported operating income of
$237 million for 2007 compared to $181 million for 2006. The increase
in operating income of $56 million was driven primarily by the new Carthage
to Perryville pipeline ($42 million), other transportation and ancillary
services ($20 million), lower spending in 2007 on project development costs
($6 million) and a decrease in other taxes ($8 million) related to the
settlement of certain state tax issues. These favorable variances to operating
income were partially offset by lower sales in 2007 of excess gas associated
with storage enhancement projects ($15 million) and increased operating
expenses ($6 million).
Equity Earnings. In addition,
this business segment recorded equity income of $6 million and
$36 million (including $6 million and $33 million of
pre-operating allowance for funds used during construction) in the years ended
December 31, 2007 and 2008, respectively, from its 50 percent interest
in SESH, a jointly-owned pipeline. These amounts are included in Equity in
earnings of unconsolidated affiliates under the Other Income (Expense)
caption.
Field
Services
The
following table provides summary data of our Field Services business segment for
2006, 2007 and 2008 (in millions, except throughput data):
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Revenues
|
$ | 150 | $ | 175 | $ | 252 | ||||||
|
Expenses:
|
||||||||||||
|
Natural
gas
|
(10 | ) | (4 | ) | 21 | |||||||
|
Operation
and maintenance
|
59 | 66 | 69 | |||||||||
|
Depreciation
and amortization
|
10 | 11 | 12 | |||||||||
|
Taxes
other than income taxes
|
2 | 3 | 3 | |||||||||
|
Total
expenses
|
61 | 76 | 105 | |||||||||
|
Operating
Income
|
$ | 89 | $ | 99 | $ | 147 | ||||||
|
Gathering
throughput (in Bcf)
|
375 | 398 | 421 | |||||||||
2008 Compared to 2007. Our
Field Services business segment reported operating income of $147 million
for 2008 compared to $99 million for 2007. The increase in operating income
of $48 million resulted from higher margins (revenue less natural gas
costs) from gas gathering, ancillary services and higher commodity prices
($34 million) and a one-time gain related to a settlement and contract
buyout of one of our customers ($11 million). Operating expenses increased
from 2007 to 2008 due to higher expenses associated with new assets and general
cost increases, partially offset by a gain related to the sale of
assets in 2008 ($7 million).
2007 Compared to 2006. Our
Field Services business segment reported operating income of $99 million
for 2007 compared to $89 million for 2006. Continued increased demand for
gas gathering and ancillary services ($27 million) was partially offset by
lower commodity prices ($10 million) and increased operation and
maintenance expenses related to cost increases and expanded operations
($7 million).
Equity Earnings. In addition,
this business segment recorded equity income of $6 million,
$10 million and $15 million for the years ended December 31,
2006, 2007 and 2008, respectively, from its 50 percent interest in a
jointly-owned gas processing plant. These amounts are included in Equity in
earnings of unconsolidated affiliates under the Other Income (Expense)
caption.
Other
Operations
The
following table provides summary data for our Other Operations business segment
for 2006, 2007 and 2008 (in millions):
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Revenues
|
$ | 15 | $ | 10 | $ | 11 | ||||||
|
Expenses
|
17 | 15 | – | |||||||||
|
Operating
Income (Loss)
|
$ | (2 | ) | $ | (5 | ) | $ | 11 | ||||
2008 Compared to 2007. Our
Other Operations business segment’s operating income in 2008 compared to 2007
increased by $16 million primarily as a result of a decrease in franchise
taxes ($7 million) and a decrease in benefits accruals
($4 million).
2007 Compared to 2006. Our
Other Operations business segment’s operating loss in 2007 compared to 2006
increased by $3 million.
LIQUIDITY
AND CAPITAL RESOURCES
Historical
Cash Flow
The net
cash provided by (used in) operating, investing and financing activities for
2006, 2007 and 2008 is as follows (in millions):
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Cash
provided by (used in):
|
||||||||||||
|
Operating
activities
|
$ | 991 | $ | 774 | $ | 851 | ||||||
|
Investing
activities
|
(1,056 | ) | (1,300 | ) | (1,368 | ) | ||||||
|
Financing
activities
|
118 | 528 | 555 | |||||||||
Cash
Provided by Operating Activities
Net cash
provided by operating activities in 2008 increased $77 million compared to
2007 primarily due to decreased tax payments/increased tax refunds
($289 million), increased net accounts receivable/payable
($190 million), increased fuel cost recovery ($138 million) and
increased pre-tax income ($131 million). These increases were partially
offset by increased net regulatory assets and liabilities ($447 million)
and increased net margin deposits ($247 million).
Net cash
provided by operating activities in 2007 decreased $217 million compared to
2006 primarily due to the timing of fuel recovery ($204 million), increased
tax payments ($10 million), increased interest payments ($40 million),
increased gas storage inventory ($36 million) and decreased net accounts
receivable/payable ($178 million). These decreases were partially offset by
decreased reductions in customer margin deposit requirements ($76 million)
and decreases in our margin deposit requirements
($145 million).
Cash
Used in Investing Activities
Net cash
used in investing activities increased $68 million in 2008 compared to 2007
due to increased investment in unconsolidated affiliates of $167 million,
primarily related to the SESH pipeline project, which was partially offset by
decreased capital expenditures of $94 million.
Net cash
used in investing activities increased $244 million in 2007 compared to
2006 due to increased capital expenditures of $107 million primarily
related to pipeline projects for our Interstate Pipelines business segment,
increased notes receivable from unconsolidated affiliates of $148 million
and increased investment in unconsolidated affiliates of $26 million,
primarily related to the SESH pipeline project.
Cash
Provided by Financing Activities
Net cash
provided by financing activities in 2008 increased $27 million compared to
2007 primarily due to increased borrowings under revolving credit facilities
($779 million) and increased proceeds from long-term debt
($188 million), which were partially offset by increased repayments of
long-term debt ($825 million) and decreased short-term borrowings
($124 million).
Net cash
provided by financing activities in 2007 increased $410 million compared to
2006 primarily due to increased borrowings under revolving credit facilities
($334 million) and increased proceeds from long-term debt
($576 million), which were partially offset by increased repayments of
long-term debt ($319 million), increased dividend payments
($31 million) and decreased short-term borrowings
($142 million).
Future
Sources and Uses of Cash
Our
liquidity and capital requirements are affected primarily by our results of
operations, capital expenditures, debt service requirements, tax payments,
working capital needs, various regulatory actions and appeals relating to such
regulatory actions. Our principal anticipated cash requirements for 2009 include
the following:
|
|
•
|
approximately
$1.1 billion of capital
expenditures;
|
|
|
•
|
maturing
long-term debt aggregating approximately $216 million, including
$208 million of transition bonds;
and
|
|
|
•
|
dividend
payments on CenterPoint Energy common stock and interest payments on
debt.
|
We expect
that borrowings under our credit facilities and anticipated cash flows from
operations will be sufficient to meet our anticipated cash needs in 2009. Cash
needs or discretionary financing or refinancing may result in the issuance of
equity or debt securities in the capital markets or the arrangement of
additional credit facilities. Issuances of equity or debt in the capital markets
and additional credit facilities may not, however, be available to us on
acceptable terms.
The
following table sets forth our capital expenditures for 2008 and estimates of
our capital requirements for 2009 through 2013 (in millions):
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
|||||||||||||||||||
|
Electric
Transmission & Distribution
|
$ | 481 | $ | 422 | $ | 591 | $ | 579 | $ | 504 | $ | 506 | ||||||||||||
|
Natural
Gas Distribution
|
214 | 155 | 234 | 241 | 243 | 249 | ||||||||||||||||||
|
Competitive
Natural Gas Sales and Services
|
8 | 3 | 3 | 3 | 3 | 3 | ||||||||||||||||||
|
Interstate
Pipelines
|
189 | 202 | 151 | 87 | 67 | 70 | ||||||||||||||||||
|
Field
Services
|
122 | 277 | 142 | 82 | 93 | 85 | ||||||||||||||||||
|
Other
Operations
|
39 | 39 | 38 | 39 | 31 | 27 | ||||||||||||||||||
|
Total
|
$ | 1,053 | $ | 1,098 | $ | 1,159 | $ | 1,031 | $ | 941 | $ | 940 | ||||||||||||
The
following table sets forth estimates of our contractual obligations, including
payments due by period (in millions):
|
Contractual
Obligations
|
Total
|
2009
|
2010-2011 | 2012-2013 |
2014
and
thereafter
|
|||||||||||||||
|
Transition
bond debt
|
$ | 2,589 | $ | 208 | $ | 461 | $ | 546 | $ | 1,374 | ||||||||||
|
Other
long-term debt(1)
|
8,624 | 8 | 792 | 2,732 | 5,092 | |||||||||||||||
|
Interest
payments — transition bond debt(2)
|
794 | 140 | 227 | 177 | 250 | |||||||||||||||
|
Interest
payments — other long-term debt(2)
|
4,812 | 481 | 948 | 794 | 2,589 | |||||||||||||||
|
Short-term
borrowings
|
153 | 153 | — | — | — | |||||||||||||||
|
Capital
leases
|
1 | — | — | — | 1 | |||||||||||||||
|
Operating
leases(3)
|
75 | 14 | 23 | 13 | 25 | |||||||||||||||
|
Benefit
obligations(4)
|
— | — | — | — | — | |||||||||||||||
|
Purchase
obligations(5)
|
24 | 24 | — | — | — | |||||||||||||||
|
Non-trading
derivative liabilities
|
134 | 87 | 41 | 6 | — | |||||||||||||||
|
Other
commodity commitments(6)
|
3,520 | 776 | 911 | 877 | 956 | |||||||||||||||
|
Income
taxes(7)
|
121 | 121 | — | — | — | |||||||||||||||
|
Other
|
30 | 5 | 13 | 12 | — | |||||||||||||||
|
Total
contractual cash obligations
|
$ | 20,877 | $ | 2,017 | $ | 3,416 | $ | 5,157 | $ | 10,287 | ||||||||||
__________
|
(1)
|
ZENS
obligations are included in 2029 at their contingent principal amount of
$817 million. These obligations are exchangeable for cash at any time
at the option of the holders for 95% of the current value of the Time
Warner reference shares ($218 million at December 31, 2008), as
discussed in Note 6 to our consolidated financial
statements.
|
|
(2)
|
We
calculated estimated interest payments for long-term debt as follows: for
fixed-rate debt and term debt, we calculated interest based on the
applicable rates and payment dates; for variable-rate debt and/or non-term
debt, we used interest rates in place as of December 31, 2008. We
typically expect to settle such interest payments with cash flows from
operations and short-term
borrowings.
|
|
(3)
|
For
a discussion of operating leases, please read Note 10(b) to our
consolidated financial statements.
|
|
(4)
|
Material
contributions to our qualified pension plan are not expected in 2009.
However, we expect to contribute approximately $9 million and
$18 million, respectively, to our non-qualified pension and
postretirement benefits plans in
2009.
|
|
(5)
|
Represents
capital commitments for material in connection with the construction of a
pipeline by our Interstate Pipelines business segment. This project has
been included in the table of capital expenditures presented
above.
|
|
(6)
|
For
a discussion of other commodity commitments, please read Note 10(a) to our
consolidated financial statements.
|
|
(7)
|
Represents
estimated income tax liability for settled positions for tax years under
examination. In addition, as of December 31, 2008, the liability for
uncertain income tax positions was $117 million. However, due to the
high degree of uncertainty regarding the timing of potential future cash
flows associated with these liabilities, we are unable to make a
reasonably reliable estimate of the amount and period in which these
liabilities might be paid.
|
Off-Balance Sheet
Arrangements. Other than operating leases and the guaranties
described below, we have no off-balance sheet arrangements.
Prior to
the distribution of our ownership in RRI to our shareholders, CERC had
guaranteed certain contractual obligations of what became RRI’s trading
subsidiary. Under the terms of the separation agreement between the companies,
RRI agreed to extinguish all such guaranty obligations prior to separation, but
at the time of separation in September 2002, RRI had been unable to extinguish
all obligations. To secure CERC against obligations under the remaining
guaranties, RRI agreed to provide cash or letters of credit for CERC’s benefit,
and undertook to use commercially reasonable efforts to extinguish the remaining
guaranties. In December 2007, we, CERC and RRI amended that agreement and
CERC released the letters of credit it held as security. Under the revised
agreement RRI agreed to provide cash or new letters of credit to secure CERC
against exposure under the remaining guaranties as calculated under the new
agreement if and to the extent changes in market conditions exposed CERC to a
risk of loss on those guaranties.
The
potential exposure to CERC under the guaranties relates to payment of demand
charges related to transportation contracts. The present value of the demand
charges under these transportation contracts, which will be effective until
2018, was approximately $108 million as of December 31, 2008. RRI
continues to meet its obligations under the contracts, and on the basis of
market conditions, we and CERC have not required additional security. However,
if RRI should fail to perform its obligations under the contracts or if RRI
should fail to provide adequate security in the event market conditions change
adversely, we would retain our exposure to the counterparty under the
guaranty.
Debt Financing
Transactions. Pursuant to a financing order issued by the
Texas Utility Commission in September 2007, in February 2008 a subsidiary of
CenterPoint Houston issued approximately $488 million in transition bonds
in two tranches with interest rates of 4.192% and 5.234% and final maturity
dates in February 2020 and February 2023, respectively. Scheduled final payment
dates are February 2017 and February 2020. Through issuance of the transition
bonds, CenterPoint Houston securitized transition property of approximately
$483 million representing the remaining balance of the CTC, adjusted to
refund certain unspent environmental retrofit costs and to recover the amount of
the fuel reconciliation settlement.
In April
2008, we purchased $175 million principal amount of pollution control bonds
issued on our behalf at 102% of their principal amount. Prior to the purchase,
$100 million principal amount of such bonds had a fixed rate of interest of
7.75% and $75 million principal amount of such bonds had a fixed rate of
interest of 8%. Depending on market conditions, we may remarket both series of
bonds, at 100% of their principal amounts, in 2009.
In April
2008, we called our 3.75% convertible senior notes for redemption on
May 30, 2008. At the time of the announcement, the notes were convertible
at the option of the holders, and substantially all of the notes were submitted
for conversion on or prior to the May 30, 2008 redemption date. During the
year ended December 31,
2008, we
issued 16.9 million shares of our common stock and paid cash of
approximately $532 million to settle conversions of approximately
$535 million principal amount of our 3.75% convertible senior
notes.
In May
2008, we issued $300 million aggregate principal amount of senior notes due
in May 2018 with an interest rate of 6.50%. The proceeds from the sale of the
senior notes were used for general corporate purposes, including the
satisfaction of cash payment obligations in connection with conversions of our
3.75% convertible senior notes as discussed above.
In May
2008, CERC Corp. issued $300 million aggregate principal amount of senior
notes due in May 2018 with an interest rate of 6.00%. The proceeds from the sale
of the senior notes were used for general corporate purposes, including capital
expenditures, working capital and loans to or investments in
affiliates.
In
December 2008, CERC entered into an asset management agreement whereby it
sold $110 million of its natural gas in storage and agreed to repurchase an
equivalent amount of natural gas during the 2008-2009 winter heating season for
payments totaling $114 million. This transaction was accounted for as a
financing and, as of December 31, 2008, the consolidated financial
statements reflect natural gas inventory of $75 million and a financing
obligation of $75 million related to this transaction.
In
January 2009, CenterPoint Houston issued $500 million 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 from the money pool, capital expenditures and storm restoration
costs associated with Hurricane Ike.
Equity Financing
Transactions. In 2008, we received proceeds of approximately
$65 million from the sale of approximately 4.9 million common shares
to our defined contribution plan and proceeds of approximately $13 million
from the sale of approximately 0.9 million common shares to participants in
our enhanced dividend reinvestment plan.
Credit and Receivables
Facilities. In November 2008, CenterPoint Houston entered
into a $600 million 364-day credit facility. The credit facility will
terminate if bonds are issued to securitize the costs incurred as a result of
Hurricane Ike and if those bonds are issued prior to the November 24, 2009
expiration of the facility. CenterPoint Houston expects to seek legislative and
regulatory approval for the issuance of such bonds during 2009.
The
364-day credit facility is secured by a pledge of $600 million of general
mortgage bonds issued by CenterPoint Houston. Borrowing costs for London
Interbank Offered Rate (LIBOR)-based loans will be at a margin of
2.25 percent above LIBOR rates, based on CenterPoint Houston’s current
ratings. In addition, CenterPoint Houston will pay lenders, based on current
ratings, a per annum commitment fee of 0.5 percent for their commitments
under the facility and a quarterly duration fee of 0.75 percent on the
average amount of outstanding borrowings during the quarter. The spread to LIBOR
and the commitment fee fluctuate based on the borrower’s credit rating. The
facility contains covenants, including a debt (excluding transition and other
securitization bonds) to total capitalization covenant.
Our
$1.2 billion credit facility has a first drawn cost of LIBOR plus 55 basis
points based on our current credit ratings. The facility contains a debt
(excluding transition bonds) to earnings before interest, taxes, depreciation
and amortization (EBITDA) covenant, which was modified (i) in August 2008 so
that the permitted ratio of debt to EBITDA would continue at its then-current
level for the remaining term of the facility and (ii) in November 2008 so that
the permitted ratio of debt to EBITDA would be temporarily increased until the
earlier of December 31, 2009 or CenterPoint Houston’s issuance of bonds to
securitize the costs incurred as a result of Hurricane Ike, after which time the
permitted ratio would revert to the level that existed prior to the November
2008 modification.
CenterPoint
Houston’s $289 million credit facility’s first drawn cost is LIBOR plus 45
basis points based on CenterPoint Houston’s current credit ratings. The facility
contains a debt (excluding transition and other securitization bonds) to total
capitalization covenant.
CERC
Corp.’s $950 million credit facility’s first drawn cost is LIBOR plus 45
basis points based on CERC Corp.’s current credit ratings. The facility contains
a debt to total capitalization covenant.
Under our
$1.2 billion credit facility, CenterPoint Houston’s $289 million
credit facility and CERC Corp’s $950 million credit facility, an additional
utilization fee of 5 basis points applies to borrowings any time more than 50%
of the facility is utilized. The spread to LIBOR and the utilization fee
fluctuate based on the borrower’s credit rating.
Borrowings
under each of the facilities are subject to customary terms and conditions.
However, there is no requirement that we, CenterPoint Houston or CERC Corp. make
representations prior to borrowings as to the absence of material adverse
changes or litigation that could be expected to have a material adverse effect.
Borrowings under each of the credit facilities are subject to acceleration upon
the occurrence of events of default that we, CenterPoint Houston or CERC Corp.
consider customary.
In
November 2008, CERC replaced a receivables facility that had expired in October
2008 with a new receivables facility that expires in November 2009. Availability
under the new facility ranges from $128 million to $375 million,
reflecting seasonal changes in receivables balances.
We,
CenterPoint Houston and CERC Corp. are currently in compliance with the various
business and financial covenants contained in the respective credit facilities
as disclosed above.
As of
February 13, 2009, we had the following facilities (in millions):
|
Date
Executed
|
Company
|
Type
of
Facility
|
Size
of
Facility
|
Amount
Utilized
at
February
13,
2009
|
Termination
Date
|
|||||||||
|
June
29, 2007
|
CenterPoint
Energy
|
Revolver
|
$
|
1,156
|
|
$
|
184
|
(2)
|
June
29, 2012
|
|||||
|
June
29, 2007
|
CenterPoint
Houston
|
Revolver
|
289
|
|
4
|
|
June
29, 2012
|
|||||||
|
June
29, 2007
|
CERC
Corp.
|
Revolver
|
950
|
(1)
|
781
|
(1)
|
June
29, 2012
|
|||||||
|
November 25,
2008
|
CERC Corp. |
Receivables
|
375 |
—
|
November
24, 2009
|
|||||||||
|
November
25, 2008
|
CenterPoint Houston |
Revolver
|
600 |
—
|
November
24,
2009
|
|||||||||
|
(1)
|
Lehman
Brothers Bank, FSB, stopped funding its commitments following the
bankruptcy filing of its parent in September 2008, effectively causing a
reduction to the total available capacity of $20 million under CERC
Corp.’s facility.
|
|
(2)
|
Includes
$155 million of borrowings and $29 million of outstanding
letters of credit.
|
|
(3)
|
Includes
$4 million of outstanding letters of
credit.
|
Our
$1.2 billion credit facility backstops a $1.0 billion CenterPoint
Energy commercial paper program under which we began issuing commercial paper in
June 2005. The $950 million CERC Corp. credit facility backstops a
$915 million commercial paper program under which CERC Corp. began issuing
commercial paper in February 2008. The CenterPoint Energy commercial paper is
rated “Not Prime” by Moody’s Investors Service, Inc. (Moody’s), “A-2” by
Standard & Poor’s Rating Services (S&P), a division of The
McGraw-Hill Companies, and “F3” by Fitch, Inc. (Fitch). The CERC Corp.
commercial paper is rated “P-3” by Moody’s, “A-2” by S&P, and “F2” by Fitch.
As a result of the credit ratings on the two commercial paper programs, we do
not expect to be able to rely on the sale of commercial paper to fund all of our
short-term borrowing requirements. We cannot assure you that these ratings, or
the credit ratings set forth below in “— Impact on Liquidity of a Downgrade
in Credit Ratings,” will remain in effect for any given period of time or that
one or more of these ratings will not be lowered or withdrawn entirely by a
rating agency. We note that these credit ratings are not recommendations to buy,
sell or hold our securities and may be revised or withdrawn at any time by the
rating agency. Each rating should be evaluated independently of any other
rating. Any future reduction or withdrawal of one or more of our credit ratings
could have a material adverse impact on our ability to obtain short- and
long-term financing, the cost of such financings and the execution of our
commercial strategies.
Securities Registered with the
SEC. In October 2008, CenterPoint Energy and CenterPoint
Houston jointly registered indeterminate principal amounts of CenterPoint
Houston’s general mortgage bonds and CenterPoint Energy’s senior
debt securities and junior subordinated debt securities and an indeterminate
number of CenterPoint
Energy’s
shares of common stock, shares of preferred stock, as well as stock purchase
contracts and equity units. In addition, CERC Corp. has a shelf registration
statement covering $500 million principal amount of senior debt
securities.
Temporary
Investments. As of February 13, 2009, we had no external
temporary investments.
Money Pool. We
have a money pool through which the holding company and participating
subsidiaries can borrow or invest on a short-term basis. Funding needs are
aggregated and external borrowing or investing is based on the net cash
position. The net funding requirements of the money pool are expected to be met
with borrowings under our revolving credit facility or the sale of our
commercial paper.
Impact on Liquidity of a Downgrade
in Credit Ratings. As of February 13, 2009, Moody’s, S&P,
and Fitch had assigned the following credit ratings to senior debt of
CenterPoint Energy and certain subsidiaries:
|
Moody’s
|
S&P
|
Fitch
|
||||||||||
|
Company/Instrument
|
Rating
|
Outlook(1)
|
Rating
|
Outlook(2)
|
Rating
|
Outlook(3)
|
||||||
|
CenterPoint
Energy Senior Unsecured Debt
|
Ba1
|
Stable
|
BBB-
|
Stable
|
BBB-
|
Stable
|
||||||
|
CenterPoint
Houston Senior Secured
Debt
(First Mortgage Bonds)
|
Baa2
|
Stable
|
BBB+
|
Stable
|
A-
|
Stable
|
||||||
|
CenterPoint
Houston Senior Secured
Debt
(General Mortgage Bonds)
|
Baa2
|
Stable
|
BBB+
|
Stable
|
BBB+
|
Stable
|
||||||
|
CERC
Corp. Senior Unsecured Debt
|
Baa3
|
Stable
|
BBB
|
Stable
|
BBB
|
Stable
|
||||||
__________
|
(1)
|
A
“stable” outlook from Moody’s indicates that Moody’s does not expect to
put the rating on review for an upgrade or downgrade within 18 months from
when the outlook was assigned or last
affirmed.
|
|
(2)
|
An
S&P rating outlook assesses the potential direction of a long-term
credit rating over the intermediate to longer
term.
|
|
(3)
|
A
“stable” outlook from Fitch encompasses a one- to two-year horizon as to
the likely ratings direction.
|
A decline
in these credit ratings could increase borrowing costs under our
$1.2 billion credit facility, CenterPoint Houston’s $289 million
credit facility and CERC Corp.’s $950 million credit facility. A decline in
credit ratings would also increase the interest rate on long-term debt to be
issued in the capital markets and could negatively impact our ability to
complete capital market transactions. Additionally, a decline in credit ratings
could increase cash collateral requirements and reduce earnings of our Natural
Gas Distribution and Competitive Natural Gas Sales and Services business
segments.
In
September 1999, we issued ZENS having an original principal amount of
$1.0 billion of which $840 million remain outstanding. Each ZENS note
is exchangeable at the holder’s option at any time for an amount of cash equal
to 95% of the market value of the reference shares of Time Warner Inc. common
stock (TW Common) attributable to each ZENS note. If our creditworthiness were
to drop such that ZENS note holders thought our liquidity was adversely affected
or the market for the ZENS notes were to become illiquid, some ZENS note holders
might decide to exchange their ZENS notes for cash. Funds for the payment of
cash upon exchange could be obtained from the sale of the shares of TW Common
that we own or from other sources. We own shares of TW Common equal to
approximately 100% of the reference shares used to calculate our obligation to
the holders of the ZENS notes. ZENS note exchanges result in a cash outflow
because tax liabilities related to the ZENS notes and TW Common shares
become current tax obligations when ZENS notes are exchanged or otherwise
retired and TW Common shares are sold. A tax obligation of approximately
$378 million would have been payable with respect to the ZENS for the
2008 tax year if all of the ZENS had been exchanged for cash on
December 31, 2008. The ultimate tax obligation related to the ZENS notes
continues to increase by the amount of the tax benefit realized each year and
there could be a significant cash outflow when the taxes are paid as a result of
the retirement of the ZENS notes. The
American Recovery and Reinvestment Act of 2009, enacted on February 17, 2009,
allows us to elect to defer this tax obligation until 2014 and to recognize it
over the period from 2014 through 2018 for any ZENS retired in 2009 or
2010.
CenterPoint
Energy Services, Inc. (CES), a wholly owned subsidiary of CERC Corp. operating
in our Competitive Natural Gas Sales and Services business segment, provides
comprehensive natural gas sales and
services
primarily to commercial and industrial customers and electric and gas utilities
throughout the central and eastern United States. In order to economically hedge
its exposure to natural gas prices, CES uses derivatives with provisions
standard for the industry, including those pertaining to credit thresholds.
Typically, the credit threshold negotiated with each counterparty defines the
amount of unsecured credit that such counterparty will extend to CES. To the
extent that the credit exposure that a counterparty has to CES at a particular
time does not exceed that credit threshold, CES is not obligated to provide
collateral. Mark-to-market exposure in excess of the credit threshold is
routinely collateralized by CES. As of December 31, 2008, the amount posted
as collateral aggregated approximately $229 million. Should the credit
ratings of CERC Corp. (as the credit support provider for CES) fall below
certain levels, CES would be required to provide additional collateral on two
business days’ notice up to the amount of its previously unsecured credit limit.
We estimate that as of December 31, 2008, unsecured credit limits extended
to CES by counterparties aggregate $250 million; however, utilized credit
capacity is significantly lower. In addition, CERC Corp. and its subsidiaries
purchase natural gas under supply agreements that contain an aggregate credit
threshold of $100 million based on CERC Corp.’s S&P Senior Unsecured
Long-Term Debt rating of BBB. Upgrades and downgrades from this BBB rating will
increase and decrease the aggregate credit threshold accordingly.
Pipeline
tariffs and contracts typically provide that if the credit ratings of a shipper
or the shipper’s guarantor drop below a threshold level, which is generally
investment grade ratings from both Moody’s and S&P, cash or other collateral
may be demanded from the shipper in an amount equal to the sum of three months’
charges for pipeline services plus the unrecouped cost of any lateral built for
such shipper. If the credit ratings of CERC Corp. decline below the applicable
threshold levels, CERC Corp. might need to provide cash or other collateral of
as much as $160 million, the amount depending on seasonal variations in
transportation levels.
Cross Defaults. Under our
revolving credit facility, a payment default on, or a non-payment default that
permits acceleration of, any indebtedness exceeding $50 million by us or
any of our significant subsidiaries will cause a default. In addition, four
outstanding series of our senior notes, aggregating $950 million in
principal amount as of February 13, 2009, provide that a payment default by us,
CERC Corp. or CenterPoint Houston in respect of, or an acceleration of, borrowed
money and certain other specified types of obligations, in the aggregate
principal amount of $50 million, will cause a default. A default by
CenterPoint Energy would not trigger a default under our subsidiaries’ debt
instruments or bank credit facilities.
Possible Acquisitions, Divestitures
and Joint Ventures. From time to time, we consider the acquisition
or the disposition of assets or businesses or possible joint ventures or other
joint ownership arrangements with respect to assets or businesses. Any
determination to take any action in this regard will be based on market
conditions and opportunities existing at the time, and accordingly, the timing,
size or success of any efforts and the associated potential capital commitments
are unpredictable. We may seek to fund all or part of any such efforts with
proceeds from debt and/or equity issuances. Debt or equity financing may not,
however, be available to us at that time due to a variety of events, including,
among others, maintenance of our credit ratings, industry conditions, general
economic conditions, market conditions and market perceptions.
Other Factors that Could Affect Cash
Requirements. In addition to the above factors, our liquidity and capital
resources could be affected by:
|
|
•
|
cash
collateral requirements that could exist in connection with certain
contracts, including gas purchases, gas price hedging and gas storage
activities of our Natural Gas Distribution and Competitive Natural Gas
Sales and Services business segments, particularly given gas price levels
and volatility;
|
|
|
•
|
acceleration
of payment dates on certain gas supply contracts under certain
circumstances, as a result of increased gas prices and concentration of
natural gas suppliers;
|
|
|
•
|
increased
costs related to the acquisition of natural
gas;
|
|
|
•
|
increases
in interest expense in connection with debt refinancings and borrowings
under credit facilities;
|
|
|
•
|
various
regulatory actions;
|
|
|
•
|
the
ability of RRI and its subsidiaries to satisfy their obligations as the
principal customers of CenterPoint Houston and in respect of RRI’s
indemnity obligations to us and our subsidiaries or in connection with the
contractual obligations to a third party pursuant to which CERC is a
guarantor;
|
|
|
•
|
slower
customer payments and increased write-offs of receivables due to higher
gas prices or changing economic
conditions;
|
|
|
•
|
the
outcome of litigation brought by and against
us;
|
|
|
•
|
contributions
to benefit plans;
|
|
|
•
|
restoration
costs and revenue losses resulting from natural disasters such as
hurricanes and the timing of recovery of such restoration costs;
and
|
|
|
•
|
various
other risks identified in “Risk Factors” in Item 1A of this
report.
|
Certain Contractual Limits on Our
Ability to Issue Securities and Borrow Money. CenterPoint Houston’s
credit facilities limit CenterPoint Houston’s debt (excluding transition bonds)
as a percentage of its total capitalization to 65%. CERC Corp.’s bank facility
and its receivables facility limit CERC’s debt as a percentage of its total
capitalization to 65%. Our $1.2 billion credit facility contains a debt,
excluding transition bonds, to EBITDA covenant. Such covenant was modified twice
in 2008 to provide additional debt capacity. The second modification was to
provide debt capacity for the financing of system restoration costs following
Hurricane Ike. Additionally, CenterPoint Houston has contractually agreed that
it will not issue additional first mortgage bonds, subject to certain
exceptions.
CRITICAL
ACCOUNTING POLICIES
A
critical accounting policy is one that is both important to the presentation of
our financial condition and results of operations and requires management to
make difficult, subjective or complex accounting estimates. An accounting
estimate is an approximation made by management of a financial statement
element, item or account in the financial statements. Accounting estimates in
our historical consolidated financial statements measure the effects of past
business transactions or events, or the present status of an asset or liability.
The accounting estimates described below require us to make assumptions about
matters that are highly uncertain at the time the estimate is made.
Additionally, different estimates that we could have used or changes in an
accounting estimate that are reasonably likely to occur could have a material
impact on the presentation of our financial condition or results of operations.
The circumstances that make these judgments difficult, subjective and/or complex
have to do with the need to make estimates about the effect of matters that are
inherently uncertain. Estimates and assumptions about future events and their
effects cannot be predicted with certainty. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments. These estimates may change as new events occur, as more experience is
acquired, as additional information is obtained and as our operating environment
changes. Our significant accounting policies are discussed in Note 2 to our
consolidated financial statements. We believe the following accounting policies
involve the application of critical accounting estimates. Accordingly, these
accounting estimates have been reviewed and discussed with the audit committee
of the board of directors.
Accounting
for Rate Regulation
Statement
of Financial Accounting Standards (SFAS) No. 71, “Accounting for the
Effects of Certain Types of Regulation” (SFAS No. 71), provides that
rate-regulated entities account for and report assets and liabilities consistent
with the recovery of those incurred costs in rates if the rates established are
designed to recover the costs of providing the regulated service and if the
competitive environment makes it probable that such rates can be charged and
collected. Our Electric Transmission & Distribution business segment,
our Natural Gas Distribution business segment and portions of our Interstate
Pipelines business segment apply SFAS No. 71. Certain expenses and
revenues subject to utility regulation or rate determination normally reflected
in income are deferred on the balance sheet as regulatory assets or liabilities
and are recognized in income as the related amounts are included in service
rates and recovered from or refunded to customers. Regulatory assets and
liabilities are recorded when it is
probable,
as defined in SFAS No. 5, “Accounting for Contingencies” (SFAS No. 5), that
these items will be recovered or reflected in future rates. Determining
probability requires significant judgment on the part of management and
includes, but is not limited to, consideration of testimony presented in
regulatory hearings, proposed regulatory decisions, final regulatory orders and
the strength or status of applications for rehearing or state court appeals. If
events were to occur that would make the recovery of these assets and
liabilities no longer probable, we would be required to write off or write down
these regulatory assets and liabilities. At December 31, 2008, we had
recorded regulatory assets of $3.7 billion and regulatory liabilities of
$821 million.
Impairment
of Long-Lived Assets and Intangibles
We review
the carrying value of our long-lived assets, including goodwill and identifiable
intangibles, whenever events or changes in circumstances indicate that such
carrying values may not be recoverable, and at least annually for goodwill as
required by SFAS No. 142, “Goodwill and Other Intangible Assets.” No
impairment of goodwill was indicated based on our annual analysis as of
July 1, 2008. Unforeseen events and changes in circumstances and market
conditions and material differences in the value of long-lived assets and
intangibles due to changes in estimates of future cash flows, interest rates,
regulatory matters and operating costs could negatively affect the fair value of
our assets and result in an impairment charge.
Fair
value is the amount at which the asset could be bought or sold in a current
transaction between willing parties and may be estimated using a number of
techniques, including quoted market prices or valuations by third parties,
present value techniques based on estimates of cash flows, or multiples of
earnings or revenue performance measures. The fair value of the asset could be
different using different estimates and assumptions in these valuation
techniques.
Asset
Retirement Obligations
We
account for our long-lived assets under SFAS No. 143, “Accounting for Asset
Retirement Obligations” (SFAS No. 143), and Financial Accounting Standards
Board (FASB) Interpretation No. (FIN) 47, “Accounting for Conditional Asset
Retirement Obligations — An Interpretation of SFAS No. 143”
(FIN 47). SFAS No. 143 and FIN 47 require that an asset
retirement obligation be recorded at fair value in the period in which it is
incurred if a reasonable estimate of fair value can be made. In the same period,
the associated asset retirement costs are capitalized as part of the carrying
amount of the related long-lived asset. Rate-regulated entities may recognize
regulatory assets or liabilities as a result of timing differences between the
recognition of costs as recorded in accordance with SFAS No. 143 and
FIN 47, and costs recovered through the ratemaking process.
We
estimate the fair value of asset retirement obligations by calculating the
discounted cash flows that are dependent upon the following
components:
|
|
•
|
Inflation
adjustment — The estimated cash flows are adjusted for inflation
estimates for labor, equipment, materials, and other disposal
costs;
|
|
|
•
|
Discount
rate — The estimated cash flows include contingency factors that were
used as a proxy for the market risk
premium; and
|
|
|
•
|
Third-party
markup adjustments — Internal labor costs included in the cash flow
calculation were adjusted for costs that a third party would incur in
performing the tasks necessary to retire the
asset.
|
Changes
in these factors could materially affect the obligation recorded to reflect the
ultimate cost associated with retiring the assets under SFAS No. 143 and
FIN 47. For example, if the inflation adjustment increased 25 basis points,
this would increase the balance for asset retirement obligations by
approximately 3.0%. Similarly, an increase in the discount rate by 25 basis
points would decrease asset retirement obligations by approximately the same
percentage. At December 31, 2008, our estimated cost of retiring these
assets is approximately $63 million.
Unbilled
Energy Revenues
Revenues
related to electricity delivery and natural gas sales and services are generally
recognized upon delivery to customers. However, the determination of deliveries
to individual customers is based on the reading of their
54
meters,
which is performed on a systematic basis throughout the month. At the end of
each month, deliveries to customers since the date of the last meter reading are
estimated and the corresponding unbilled revenue is estimated. Unbilled
electricity delivery revenue is estimated each month based on daily supply
volumes, applicable rates and analyses reflecting significant historical trends
and experience. Unbilled natural gas sales are estimated based on estimated
purchased gas volumes, estimated lost and unaccounted for gas and tariffed rates
in effect. As additional information becomes available, or actual amounts are
determinable, the recorded estimates are revised. Consequently, operating
results can be affected by revisions to prior accounting
estimates.
Pension
and Other Retirement Plans
We
sponsor pension and other retirement plans in various forms covering all
employees who meet eligibility requirements. We use several statistical and
other factors that attempt to anticipate future events in calculating the
expense and liability related to our plans. These factors include assumptions
about the discount rate, expected return on plan assets and rate of future
compensation increases as estimated by management, within certain guidelines. In
addition, our actuarial consultants use subjective factors such as withdrawal
and mortality rates. The actuarial assumptions used may differ materially from
actual results due to changing market and economic conditions, higher or lower
withdrawal rates or longer or shorter life spans of participants. These
differences may result in a significant impact to the amount of pension expense
recorded. Please read “— Other Significant Matters — Pension Plans”
for further discussion.
NEW
ACCOUNTING PRONOUNCEMENTS
See
Note 2(o) to our consolidated financial statements for a discussion of new
accounting pronouncements that affect us.
OTHER
SIGNIFICANT MATTERS
Pension Plans. As
discussed in Note 2(p) to our consolidated financial statements, we
maintain a non-contributory qualified defined benefit pension plan covering
substantially all employees. Employer contributions for the qualified plan are
based on actuarial computations that establish the minimum contribution required
under the Employee Retirement Income Security Act of 1974 (ERISA) and the
maximum deductible contribution for income tax purposes.
Under the
terms of our pension plan, we reserve the right to change, modify or terminate
the plan. Our funding policy is to review amounts annually and contribute an
amount at least equal to the minimum contribution required under
ERISA.
We made
no contribution to the qualified pension plans in 2007 and 2008. The minimum
funding requirements for these plans did not require contributions for the
respective years.
Additionally,
we maintain an unfunded non-qualified benefit restoration plan that allows
participants to receive the benefits to which they would have been entitled
under our non-contributory pension plan except for the federally mandated limits
on qualified plan benefits or on the level of compensation on which qualified
plan benefits may be calculated. Employer contributions for the non-qualified
benefit restoration plan represent benefit payments made to participants and
totaled $9 million and $8 million in 2007 and 2008,
respectively.
In
accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” changes
in pension obligations and assets may not be immediately recognized as pension
expense in the income statement, but generally are recognized in future years
over the remaining average service period of plan participants. As such,
significant portions of pension expense recorded in any period may not reflect
the actual level of benefit payments provided to plan participants.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans — An Amendment of
FASB Statements No. 87, 88, 106 and 132(R)” (SFAS No. 158). SFAS No.
158 requires us, as the sponsor of a plan, to (a) recognize on our balance
sheet as an asset a plan’s over-funded status or as a liability such plan’s
under-funded status, (b) measure a plan’s assets and obligations as of
the
55
end of
our fiscal year and (c) recognize changes in the funded status of our plans
in the year that changes occur through adjustments to other comprehensive
income.
As a
result of the adoption of SFAS No. 158 as of December 31, 2006, we
recorded a regulatory asset of $466 million and a charge to accumulated
comprehensive income of $79 million, net of tax.
At
December 31, 2008, the projected benefit obligation exceeded the market
value of plan assets of our pension plans by $434 million. Changes in
interest rates or the market values of the securities held by the plan during
2009 could materially, positively or negatively, change our funded status and
affect the level of pension expense and required contributions.
Pension
expense was $46 million, $15 million and $1 million for 2006,
2007 and 2008, respectively.
The
calculation of pension expense and related liabilities requires the use of
assumptions. Changes in these assumptions can result in different expense and
liability amounts, and future actual experience can differ from the assumptions.
Two of the most critical assumptions are the expected long-term rate of return
on plan assets and the assumed discount rate.
As of
December 31, 2008, our qualified pension plan had an expected long-term
rate of return on plan assets of 8.00%, which was 0.50% lower than the rate
assumed as of December 31, 2007. We believe that our actual asset
allocation, on average, will approximate the targeted allocation and the
estimated return on net assets. We regularly review our actual asset allocation
and periodically rebalance plan assets as appropriate.
As of
December 31, 2008, the projected benefit obligation was calculated assuming
a discount rate of 6.90%, which is a 0.50% increase from the 6.40% discount rate
assumed in 2007. The discount rate was determined by reviewing yields on
high-quality bonds that receive one of the two highest ratings given by a
recognized rating agency and the expected duration of pension obligations
specific to the characteristics of our plan.
Pension
expense for 2009, including the benefit restoration plan, is estimated to be
$112 million, of which we expect $89 million to impact pre-tax
earnings, based on an expected return on plan assets of 8.0% and a discount rate
of 6.90% as of December 31, 2008. If the expected return assumption were
lowered by 0.5% (from 8.00% to 7.50%), 2009 pension expense would increase by
approximately $6 million.
As of
December 31, 2008, the pension plan projected benefit obligation exceeded
plan assets (including the unfunded benefit restoration plan) by
$434 million. If the discount rate were lowered by 0.5% (from 6.90% to
6.40%), the assumption change would increase our projected benefit obligation
and 2009 pension expense by approximately $74 million and $5 million,
respectively. In addition, the assumption change would impact our Consolidated
Balance Sheet by increasing the regulatory asset recorded as of
December 31, 2008 by $59 million and would result in a charge to
comprehensive income in 2008 of $10 million, net of tax.
Future
changes in plan asset returns, assumed discount rates and various other factors
related to the pension plan will impact our future pension expense and
liabilities. We cannot predict with certainty what these factors will
be.
Impact
of Changes in Interest Rates and Energy Commodity Prices
We are
exposed to various market risks. These risks arise from transactions entered
into in the normal course of business and are inherent in our consolidated
financial statements. Most of the revenues and income from our business
activities are impacted by market risks. Categories of market risk include
exposure to commodity prices through non-trading activities, interest rates and
equity prices. A description of each market risk is set forth
below:
|
|
•
|
Commodity
price risk results from exposures to changes in spot prices, forward
prices and price volatilities of commodities, such as natural gas, natural
gas liquids and other energy
commodities.
|
|
|
•
|
Interest
rate risk primarily results from exposures to changes in the level of
borrowings and changes in interest
rates.
|
|
|
•
|
Equity
price risk results from exposures to changes in prices of individual
equity securities.
|
Management
has established comprehensive risk management policies to monitor and manage
these market risks. We manage these risk exposures through the implementation of
our risk management policies and framework. We manage our commodity price risk
exposures through the use of derivative financial instruments and derivative
commodity instrument contracts. During the normal course of business, we review
our hedging strategies and determine the hedging approach we deem appropriate
based upon the circumstances of each situation.
Derivative
instruments such as futures, forward contracts, swaps and options derive their
value from underlying assets, indices, reference rates or a combination of these
factors. These derivative instruments include negotiated contracts, which are
referred to as over-the-counter derivatives, and instruments that are listed and
traded on an exchange.
Derivative
transactions are entered into in our non-trading operations to manage and hedge
certain exposures, such as exposure to changes in natural gas prices. We believe
that the associated market risk of these instruments can best be understood
relative to the underlying assets or risk being hedged.
Interest
Rate Risk
As of
December 31, 2008, we had outstanding long-term debt, bank loans, lease
obligations, and our obligations under our ZENS that subject us to the risk of
loss associated with movements in market interest rates.
Our
floating-rate obligations aggregated $563 million and $1.5 billion at
December 31, 2007 and 2008, respectively. If the floating interest rates
were to increase by 10% from December 31, 2008 rates, our combined interest
expense would increase by approximately $3 million annually.
At
December 31, 2007 and 2008, we had outstanding fixed-rate debt (excluding
indexed debt securities) aggregating $9.2 billion and $9.0 billion,
respectively, in principal amount and having a fair value of $9.7 billion
and $8.5 billion, respectively. Because these instruments are fixed-rate,
they do not expose us to the risk of loss in earnings due to changes in market
interest rates (please read Note 8 to our consolidated financial
statements). However, the fair value of these instruments would increase by
approximately $310 million if interest rates were to decline by 10% from
their levels at December 31, 2008. In general, such an increase in fair
value would impact earnings and cash flows only if we were to reacquire all or a
portion of these instruments in the open market prior to their
maturity.
As
discussed in Note 6 to our consolidated financial statements, the ZENS
obligation is bifurcated into a debt component and a derivative component. The
debt component of $117 million at December 31, 2008 was a fixed-rate
obligation and, therefore, did not expose us to the risk of loss in earnings due
to changes in market interest rates. However, the fair value of the debt
component would increase by approximately $19 million if interest rates
were to decline by 10% from levels at December 31, 2008. Changes in the
fair value of the derivative component, a $133 million recorded liability
at December 31, 2008, are recorded in our Statements of Consolidated Income
and, therefore, we are exposed to changes in the fair value of the derivative
component as a result of changes in the underlying risk-free interest rate. If
the risk-free interest rate were to increase by 10% from December 31, 2008
levels, the fair value of the derivative component liability would increase by
approximately $2 million, which would be recorded as an unrealized loss in
our Statements of Consolidated Income.
Equity
Market Value Risk
We are
exposed to equity market value risk through our ownership of 21.6 million
shares of TW Common, which we hold to facilitate our ability to meet our
obligations under the ZENS. Please read Note 6 to our consolidated
financial statements for a discussion of our ZENS obligation. A decrease of 10%
from the December 31, 2008 market value of TW Common would result in a net
loss of approximately $5 million, which would be recorded as an unrealized
loss in our Statements of Consolidated Income.
Commodity
Price Risk From Non-Trading Activities
We use
derivative instruments as economic hedges to offset the commodity price exposure
inherent in our businesses. The stand-alone commodity risk created by these
instruments, without regard to the offsetting effect of the underlying exposure
these instruments are intended to hedge, is described below. We measure the
commodity risk of our non-trading energy derivatives using a sensitivity
analysis. The sensitivity analysis performed on our non-trading energy
derivatives measures the potential loss in fair value based on a hypothetical
10% movement in energy prices. At December 31, 2008, the recorded fair
value of our non-trading energy derivatives was a net liability of
$183 million (before collateral). The net liability consisted of a net
liability of $224 million associated with price stabilization activities of
our Natural Gas Distribution business segment and a net asset of
$41 million related to our Competitive Natural Gas Sales and Services
business segment. Net assets or liabilities related to the price stabilization
activities correspond directly with net over/under recovered gas cost
liabilities or assets on the balance sheet. A decrease of 10% in the market
prices of energy commodities from their December 31, 2008 levels would have
increased the fair value of our non-trading energy derivatives net liability by
$118 million with all of the increase attributable to price stabilization
activities related to our Natural Gas Distribution business segment. There would
be no consolidated income statement impact of the $118 million as the
Natural Gas Distribution segment records the offset to net over/under recovered
gas cost liabilities or assets on the balance sheet.
The above
analysis of the non-trading energy derivatives utilized for commodity price risk
management purposes does not include the favorable impact that the same
hypothetical price movement would have on our physical purchases and sales of
natural gas to which the hedges relate. Furthermore, the non-trading energy
derivative portfolio is managed to complement the physical transaction
portfolio, reducing overall risks within limits. Therefore, the adverse impact
to the fair value of the portfolio of non-trading energy derivatives held for
hedging purposes associated with the hypothetical changes in commodity prices
referenced above is expected to be substantially offset by a favorable impact on
the underlying hedged physical transactions.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
CenterPoint
Energy, Inc.
Houston,
Texas
We have
audited the accompanying consolidated balance sheets of CenterPoint Energy, Inc.
and subsidiaries (the "Company") as of December 31, 2008 and 2007, and the
related statements of consolidated income, comprehensive income, shareholders’
equity, and cash flows for each of the three years in the period ended
December 31, 2008. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of CenterPoint Energy, Inc. and subsidiaries at
December 31, 2008 and 2007, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
2008, in conformity with accounting principles generally accepted in the United
States of America.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2008, based on the criteria established in
Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 25, 2009, expressed an
unqualified opinion on the Company's internal control over financial
reporting.
DELOITTE &
TOUCHE LLP
Houston,
Texas
February 25,
2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
CenterPoint
Energy, Inc.
Houston,
Texas
We have
audited the internal control over financial reporting of CenterPoint Energy,
Inc. and subsidiaries (the "Company") as of December 31, 2008, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2008 of the Company and our report dated
February 25, 2009 expressed an unqualified
opinion on those financial statements.
DELOITTE
& TOUCHE LLP
Houston,
Texas
February
25, 2009
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL
OVER
FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities
Exchange Act of 1934 as a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers and effected by
the company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
|
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•
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
|
|
|
•
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and
directors of the company; and
|
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•
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Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
|
Management
has designed its internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America. Management’s assessment included
review and testing of both the design effectiveness and operating effectiveness
of controls over all relevant assertions related to all significant accounts and
disclosures in the financial statements.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on
our evaluation under the framework in Internal Control — Integrated
Framework, our management has concluded that our internal control over financial
reporting was effective as of December 31, 2008.
Deloitte &
Touche LLP, the Company’s independent registered public accounting firm, has
issued an attestation report on the effectiveness of our internal control over
financial reporting as of December 31, 2008 which is included herein on
page 60.
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/s/ DAVID
M. MCCLANAHAN
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President
and Chief Executive Officer
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/s/ GARY
L. WHITLOCK
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Executive
Vice President and Chief
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Financial
Officer
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February
25, 2009
CENTERPOINT
ENERGY, INC. AND SUBSIDIARIES
STATEMENTS
OF CONSOLIDATED INCOME
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
(In
millions,
|
||||||||||||
|
except
for share amounts)
|
||||||||||||
|
Revenues
|
$ | 9,319 | $ | 9,623 | $ | 11,322 | ||||||
|
Expenses:
|
||||||||||||
|
Natural
gas
|
5,909 | 5,995 | 7,466 | |||||||||
|
Operation
and maintenance
|
1,399 | 1,440 | 1,502 | |||||||||
|
Depreciation
and amortization
|
599 | 631 | 708 | |||||||||
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Taxes
other than income taxes
|
367 | 372 | 373 | |||||||||
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Total
|
8,274 | 8,438 | 10,049 | |||||||||
|
Operating
Income
|
1,045 | 1,185 | 1,273 | |||||||||
|
Other
Income (Expense):
|
||||||||||||
|
Gain
(loss) on Time Warner investment
|
94 | (114 | ) | (139 | ) | |||||||
|
Gain
(loss) on indexed debt securities
|
(80 | ) | 111 | 128 | ||||||||
|
Interest
and other finance charges
|
(470 | ) | (503 | ) | (466 | ) | ||||||
|
Interest
on transition bonds
|
(130 | ) | (123 | ) | (136 | ) | ||||||
|
Distribution
from AOL Time Warner litigation settlement
|
— | 32 | — | |||||||||
|
Additional
distribution to ZENS holders
|
— | (27 | ) | — | ||||||||
|
Equity
in earnings of unconsolidated affiliates
|
6 | 16 | 51 | |||||||||
|
Other,
net
|
29 | 17 | 14 | |||||||||
|
Total
|
(551 | ) | (591 | ) | (548 | ) | ||||||
|
Income
Before Income Taxes
|
494 | 594 | 725 | |||||||||
|
Income
tax expense
|
(62 | ) | (195 | ) | (278 | ) | ||||||
|
Net
Income
|
$ | 432 | $ | 399 | $ | 447 | ||||||
|
Basic
Earnings Per Share
|
$ | 1.39 | $ | 1.25 | $ | 1.33 | ||||||
|
Diluted
Earnings Per Share
|
$ | 1.33 | $ | 1.17 | $ | 1.30 | ||||||
See Notes
to the Company’s Consolidated Financial Statements
CENTERPOINT
ENERGY, INC. AND SUBSIDIARIES
STATEMENTS
OF CONSOLIDATED COMPREHENSIVE INCOME
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Net
income
|
$ | 432 | $ | 399 | $ | 447 | ||||||
|
Other
comprehensive income (loss):
|
||||||||||||
|
Adjustment
to pension and other postretirement plans (net of tax of $-0-, $28 and
$32)
|
— | 34 | (79 | ) | ||||||||
|
Minimum
pension liability adjustment (net of tax of $6, $-0- and
$-0-)
|
12 | — | — | |||||||||
|
Net
deferred gain (loss) from cash flow hedges (net of tax of $11, $6 and
$2)
|
22 | 11 | (4 | ) | ||||||||
|
Reclassification
of deferred loss (gain) from cash flow hedges realized in net income (net
of tax of $8, $14 and $2)
|
14 | (20 | ) | (4 | ) | |||||||
|
Other
comprehensive income (loss)
|
48 | 25 | (87 | ) | ||||||||
|
Comprehensive
income
|
$ | 480 | $ | 424 | $ | 360 | ||||||
See Notes
to the Company’s Consolidated Financial Statements
CENTERPOINT
ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
December 31,
2007
|
December 31,
2008
|
|||||||
|
(In
millions)
|
||||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 129 | $ | 167 | ||||
|
Investment
in Time Warner common stock
|
357 | 218 | ||||||
|
Accounts
receivable, net
|
910 | 1,009 | ||||||
|
Accrued
unbilled revenues
|
558 | 541 | ||||||
|
Inventory
|
490 | 569 | ||||||
|
Non-trading
derivative assets
|
38 | 118 | ||||||
|
Prepaid
expense and other current assets
|
306 | 413 | ||||||
|
Total
current assets
|
2,788 | 3,035 | ||||||
|
Property,
Plant and Equipment, net
|
9,740 | 10,296 | ||||||
|
Other
Assets:
|
||||||||
|
Goodwill
|
1,696 | 1,696 | ||||||
|
Regulatory
assets
|
2,993 | 3,684 | ||||||
|
Non-trading
derivative assets
|
11 | 20 | ||||||
|
Investment
in unconsolidated affiliates
|
88 | 345 | ||||||
|
Notes
receivable from unconsolidated affiliates
|
148 | 323 | ||||||
|
Other
|
408 | 277 | ||||||
|
Total
other assets
|
5,344 | 6,345 | ||||||
|
Total
Assets
|
$ | 17,872 | $ | 19,676 | ||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Short-term
borrowings
|
$ | 232 | $ | 153 | ||||
|
Current
portion of long-term debt
|
1,315 | 333 | ||||||
|
Indexed
debt securities derivative
|
261 | 133 | ||||||
|
Accounts
payable
|
726 | 897 | ||||||
|
Taxes
accrued
|
316 | 189 | ||||||
|
Interest
accrued
|
170 | 180 | ||||||
|
Non-trading
derivative liabilities
|
61 | 87 | ||||||
|
Accumulated
deferred income taxes, net
|
350 | 372 | ||||||
|
Other
|
360 | 504 | ||||||
|
Total
current liabilities
|
3,791 | 2,848 | ||||||
|
Other
Liabilities:
|
||||||||
|
Accumulated
deferred income taxes, net
|
2,235 | 2,609 | ||||||
|
Unamortized
investment tax credits
|
31 | 24 | ||||||
|
Non-trading
derivative liabilities
|
14 | 47 | ||||||
|
Benefit
obligations
|
499 | 833 | ||||||
|
Regulatory
liabilities
|
828 | 821 | ||||||
|
Other
|
300 | 276 | ||||||
|
Total
other liabilities
|
3,907 | 4,610 | ||||||
|
Long-term
Debt
|
8,364 | 10,181 | ||||||
|
Commitments
and Contingencies (Note 10)
|
||||||||
|
Shareholders’
Equity
|
1,810 | 2,037 | ||||||
|
Total
Liabilities and Shareholders’ Equity
|
$ | 17,872 | $ | 19,676 | ||||
See Notes
to the Company’s Consolidated Financial Statements
CENTERPOINT
ENERGY, INC. AND SUBSIDIARIES
STATEMENTS
OF CONSOLIDATED CASH FLOWS
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Cash
Flows from Operating Activities:
|
||||||||||||
|
Net
income
|
$ | 432 | $ | 399 | $ | 447 | ||||||
|
Adjustments
to reconcile income from continuing operations to net cash provided by
operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
599 | 631 | 708 | |||||||||
|
Amortization
of deferred financing costs
|
56 | 65 | 28 | |||||||||
|
Deferred
income taxes
|
(241 | ) | — | 487 | ||||||||
|
Tax
and interest reserves reductions related to ZENS and ACES
settlement
|
(107 | ) | — | — | ||||||||
|
Unrealized
loss (gain) on Time Warner investment
|
(94 | ) | 114 | 139 | ||||||||
|
Unrealized
loss (gain) on indexed debt securities
|
80 | (111 | ) | (128 | ) | |||||||
|
Write-down
of natural gas inventory
|
66 | 11 | 30 | |||||||||
|
Equity
in earnings of unconsolidated affiliates, net of
distributions
|
(5 | ) | (13 | ) | (51 | ) | ||||||
|
Changes
in other assets and liabilities:
|
||||||||||||
|
Accounts
receivable and unbilled revenues, net
|
262 | — | (82 | ) | ||||||||
|
Inventory
|
(82 | ) | (102 | ) | (109 | ) | ||||||
|
Taxes
receivable
|
53 | — | — | |||||||||
|
Accounts
payable
|
(269 | ) | (185 | ) | 87 | |||||||
|
Fuel
cost over (under) recovery
|
111 | (93 | ) | 45 | ||||||||
|
Non-trading
derivatives, net
|
(18 | ) | 11 | (25 | ) | |||||||
|
Margin
deposits, net
|
(156 | ) | 65 | (182 | ) | |||||||
|
Interest
and taxes accrued
|
230 | (33 | ) | (118 | ) | |||||||
|
Net
regulatory assets and liabilities
|
79 | 81 | (366 | ) | ||||||||
|
Other
current assets
|
(76 | ) | 13 | (27 | ) | |||||||
|
Other
current liabilities
|
18 | (20 | ) | 29 | ||||||||
|
Other
assets
|
48 | (20 | ) | (20 | ) | |||||||
|
Other
liabilities
|
6 | (51 | ) | (8 | ) | |||||||
|
Other,
net
|
(1 | ) | 12 | (33 | ) | |||||||
|
Net
cash provided by operating activities
|
991 | 774 | 851 | |||||||||
|
Cash
Flows from Investing Activities:
|
||||||||||||
|
Capital
expenditures
|
(1,007 | ) | (1,114 | ) | (1,020 | ) | ||||||
|
Increase
in restricted cash of transition bond companies
|
(32 | ) | (1 | ) | (11 | ) | ||||||
|
Increase
in notes receivable from unconsolidated affiliates
|
— | (148 | ) | (175 | ) | |||||||
|
Investment
in unconsolidated affiliates
|
(13 | ) | (39 | ) | (206 | ) | ||||||
|
Other,
net
|
(4 | ) | 2 | 44 | ||||||||
|
Net
cash used in investing activities
|
(1,056 | ) | (1,300 | ) | (1,368 | ) | ||||||
|
Cash
Flows from Financing Activities:
|
||||||||||||
|
Increase
(decrease) in short-term borrowings, net
|
187 | 45 | (79 | ) | ||||||||
|
Long-term
revolving credit facility, net
|
(3 | ) | 331 | 1,110 | ||||||||
|
Proceeds
from long-term debt
|
324 | 900 | 1,088 | |||||||||
|
Payments
of long-term debt
|
(229 | ) | (548 | ) | (1,373 | ) | ||||||
|
Debt
issuance costs
|
(5 | ) | (9 | ) | (26 | ) | ||||||
|
Payment
of common stock dividends
|
(187 | ) | (218 | ) | (246 | ) | ||||||
|
Proceeds
from issuance of common stock, net
|
27 | 22 | 80 | |||||||||
|
Other,
net
|
4 | 5 | 1 | |||||||||
|
Net
cash provided by financing activities
|
118 | 528 | 555 | |||||||||
|
Net
Increase in Cash and Cash Equivalents
|
53 | 2 | 38 | |||||||||
|
Cash
and Cash Equivalents at Beginning of Year
|
74 | 127 | 129 | |||||||||
|
Cash
and Cash Equivalents at End of Year
|
$ | 127 | $ | 129 | $ | 167 | ||||||
|
Supplemental
Disclosure of Cash Flow Information:
|
||||||||||||
|
Cash
Payments:
|
||||||||||||
|
Interest,
net of capitalized interest
|
$ | 532 | $ | 572 | $ | 586 | ||||||
|
Income
taxes (refunds), net
|
195 | 205 | (84 | ) | ||||||||
|
Non-cash
transactions:
|
||||||||||||
|
Accounts
payable related to capital expenditures
|
173 | 75 | 96 | |||||||||
See Notes
to the Company’s Consolidated Financial Statements
CENTERPOINT
ENERGY, INC. AND SUBSIDIARIES
STATEMENTS
OF CONSOLIDATED SHAREHOLDERS’ EQUITY
|
2006
|
2007
|
2008
|
||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||
|
(In
millions of dollars and shares)
|
||||||||||||||||||||||||
|
Preference
Stock, none outstanding
|
— | $ | — | — | $ | — | — | $ | — | |||||||||||||||
|
Cumulative
Preferred Stock, $0.01 par value; authorized 20,000,000 shares,
none outstanding
|
— | — | — | — | — | — | ||||||||||||||||||
|
Common
Stock, $0.01 par value; authorized
1,000,000,000 shares
|
||||||||||||||||||||||||
|
Balance,
beginning of year
|
310 | 3 | 314 | 3 | 323 | 3 | ||||||||||||||||||
|
Issuances
related to benefit and investment plans
|
4 | — | 2 | — | 6 | — | ||||||||||||||||||
|
Issuances
related to convertible debt conversions
|
— | — | 7 | — | 17 | — | ||||||||||||||||||
|
Balance,
end of year
|
314 | 3 | 323 | 3 | 346 | 3 | ||||||||||||||||||
|
Additional
Paid-in-Capital
|
||||||||||||||||||||||||
|
Balance,
beginning of year
|
— | 2,931 | — | 2,977 | — | 3,023 | ||||||||||||||||||
|
Issuances
related to benefit and investment plans
|
— | 46 | — | 46 | — | 112 | ||||||||||||||||||
|
Balance,
end of year
|
— | 2,977 | — | 3,023 | — | 3,135 | ||||||||||||||||||
|
Accumulated
Deficit
|
||||||||||||||||||||||||
|
Balance,
beginning of year
|
(1,600 | ) | (1,355 | ) | (1,172 | ) | ||||||||||||||||||
|
Net
income
|
432 | 399 | 447 | |||||||||||||||||||||
|
Cumulative
effect of uncertain tax positions standard
|
— | 2 | — | |||||||||||||||||||||
|
Common
stock dividends — $0.60 per share in 2006, $0.68 per share
in 2007, and $0.73 per share in 2008
|
(187 | ) | (218 | ) | (245 | ) | ||||||||||||||||||
|
Balance,
end of year
|
(1,355 | ) | (1,172 | ) | (970 | ) | ||||||||||||||||||
|
Accumulated
Other Comprehensive Loss
|
||||||||||||||||||||||||
|
Balance,
end of year:
|
||||||||||||||||||||||||
|
Adjustment
to pension and postretirement plans
|
(82 | ) | (48 | ) | (127 | ) | ||||||||||||||||||
|
Net
deferred gain (loss) from cash flow hedges
|
13 | 4 | (4 | ) | ||||||||||||||||||||
|
Total
accumulated other comprehensive loss, end of year
|
(69 | ) | (44 | ) | (131 | ) | ||||||||||||||||||
|
Total
Shareholders’ Equity
|
$ | 1,556 | $ | 1,810 | $ | 2,037 | ||||||||||||||||||
See Notes
to the Company’s Consolidated Financial Statements
CENTERPOINT
ENERGY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(1) Background
CenterPoint
Energy, Inc. (the Company) is a public utility holding company. The Company’s
operating subsidiaries own and operate electric transmission and distribution
facilities, natural gas distribution facilities, interstate pipelines and
natural gas gathering, processing and treating facilities. As of
December 31, 2008, the Company’s indirect wholly owned subsidiaries
included:
|
|
•
|
CenterPoint
Energy Houston Electric, LLC (CenterPoint Houston), which engages in the
electric transmission and distribution business in a 5,000-square mile
area of the Texas Gulf Coast that includes
Houston; and
|
|
|
•
|
CenterPoint
Energy Resources Corp. (CERC Corp. and, together with its subsidiaries,
CERC), which owns and operates natural gas distribution systems in six
states. Subsidiaries of CERC own interstate natural gas pipelines and gas
gathering systems and provide various ancillary services. A wholly owned
subsidiary of CERC Corp. offers variable and fixed-price physical natural
gas supplies primarily to commercial and industrial customers and electric
and gas utilities.
|
For a
description of the Company’s reportable business segments, see
Note 14.
(2) Summary
of Significant Accounting Policies
(a) Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(b) Principles
of Consolidation
The
accounts of the Company and its wholly owned and majority owned subsidiaries are
included in the consolidated financial statements. All intercompany transactions
and balances are eliminated in consolidation. The Company uses the equity method
of accounting for investments in entities in which the Company has an ownership
interest between 20% and 50% and exercises significant influence. The Company’s
investments in unconsolidated affiliates include a 50% ownership interest in
Southeast Supply Header, LLC (SESH) which owns and operates a 270-mile
interstate natural gas pipeline and a 50% interest in Waskom Gas Processing
Company, a Texas general partnership, which owns and operates a natural gas
processing plant. Other investments, excluding marketable securities, are
carried at cost.
(c) Revenues
The
Company records revenue for electricity delivery and natural gas sales and
services under the accrual method and these revenues are recognized upon
delivery to customers. Electricity deliveries not billed by month-end are
accrued based on daily supply volumes, applicable rates and analyses reflecting
significant historical trends and experience. Natural gas sales not billed by
month-end are accrued based upon estimated purchased gas volumes, estimated lost
and unaccounted for gas and currently effective tariff rates. The Interstate
Pipelines and Field Services business segments record revenues as transportation
and processing services are provided.
(d) Long-lived
Assets and Intangibles
The
Company records property, plant and equipment at historical cost. The Company
expenses repair and maintenance costs as incurred. Property, plant and equipment
include the following:
|
Weighted
Average
|
||||||||||||
|
Useful
Lives
|
December 31,
|
|||||||||||
|
(Years)
|
2007
|
2008
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Electric
Transmission & Distribution
|
27
|
$ | 6,993 | $ | 7,256 | |||||||
|
Natural
Gas Distribution
|
32
|
3,065 | 3,266 | |||||||||
|
Competitive
Natural Gas Sales and Services
|
23
|
59 | 67 | |||||||||
|
Interstate
Pipelines
|
56
|
2,194 | 2,334 | |||||||||
|
Field
Services
|
51
|
493 | 601 | |||||||||
|
Other
property
|
26
|
446 | 482 | |||||||||
|
Total
|
13,250 | 14,006 | ||||||||||
|
Accumulated
depreciation and amortization:
|
||||||||||||
|
Electric
Transmission & Distribution
|
2,602 | 2,652 | ||||||||||
|
Natural
Gas Distribution
|
590 | 708 | ||||||||||
|
Competitive
Natural Gas Sales and Services
|
9 | 11 | ||||||||||
|
Interstate
Pipelines
|
160 | 182 | ||||||||||
|
Field
Services
|
29 | 28 | ||||||||||
|
Other
property
|
120 | 129 | ||||||||||
|
Total
accumulated depreciation and amortization
|
3,510 | 3,710 | ||||||||||
|
Property,
plant and equipment, net
|
$ | 9,740 | $ | 10,296 | ||||||||
Goodwill
by reportable business segment as of December 31, 2007 and 2008 is as
follows (in millions):
|
Natural
Gas Distribution
|
$ | 746 | ||
|
Interstate
Pipelines
|
579 | |||
|
Competitive
Natural Gas Sales and Services
|
335 | |||
|
Field
Services
|
25 | |||
|
Other
Operations
|
11 | |||
|
Total
|
$ | 1,696 |
The
Company performs its goodwill impairment tests at least annually and evaluates
goodwill when events or changes in circumstances indicate that the carrying
value of these assets may not be recoverable. The impairment evaluation for
goodwill is performed by using a two-step process. In the first step, the fair
value of each reporting unit is compared with the carrying amount of the
reporting unit, including goodwill. The estimated fair value of the reporting
unit is generally determined on the basis of discounted future cash flows. If
the estimated fair value of the reporting unit is less than the carrying amount
of the reporting unit, then a second step must be completed in order to
determine the amount of the goodwill impairment that should be recorded. In the
second step, the implied fair value of the reporting unit’s goodwill is
determined by allocating the reporting unit’s fair value to all of its assets
and liabilities other than goodwill (including any unrecognized intangible
assets) in a manner similar to a purchase price allocation. The resulting
implied fair value of the goodwill that results from the application of this
second step is then compared to the carrying amount of the goodwill and an
impairment charge is recorded for the difference.
The
Company performed the test at July 1, 2008, the Company’s annual impairment
testing date, and determined that no impairment charge for goodwill was
required.
The
Company periodically evaluates long-lived assets, including property, plant and
equipment, and specifically identifiable intangibles, when events or changes in
circumstances indicate that the carrying value of these assets may not be
recoverable. The determination of whether an impairment has occurred is based on
an estimate of undiscounted cash flows attributable to the assets, as compared
to the carrying value of the assets.
At
December 31, 2007 and 2008, the Company’s asset retirement obligations were
$81 million and $63 million, respectively. The decrease in asset
retirement obligations in 2008 of $18 million is primarily attributable to
the increase in the credit-adjusted risk-free rate used to value the asset
retirement obligations as of the end of the period.
The
decrease in asset retirement obligations results in an increase in removal cost
regulatory liabilities as discussed in Note 2(e).
(e) Regulatory
Assets and Liabilities
The
Company applies the accounting policies established in Statement of Financial
Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain
Types of Regulation” (SFAS No. 71), to the Electric Transmission &
Distribution business segment and the Natural Gas Distribution business segment
and to portions of the Interstate Pipelines business segment.
The
following is a list of regulatory assets/liabilities reflected on the Company’s
Consolidated Balance Sheets as of December 31, 2007 and 2008:
|
December 31,
|
||||||||
|
2007
|
2008
|
|||||||
|
(In
millions)
|
||||||||
|
Electric
generation-related regulatory assets (1)
|
$ | 545 | $ | 3 | ||||
|
Securitized
regulatory asset (1)
|
2,131 | 2,430 | ||||||
|
Unrecognized
equity return
|
(220 | ) | (207 | ) | ||||
|
Unamortized
loss on reacquired debt
|
79 | 73 | ||||||
|
Hurricane
Ike restoration cost (2)
|
— | 435 | ||||||
|
Pension
and postretirement-related regulatory asset (3)
|
360 | 848 | ||||||
|
Other
long-term regulatory assets
|
98 | 102 | ||||||
|
Total
regulatory assets (2)
|
2,993 | 3,684 | ||||||
|
Electric
generation-related regulatory liabilities
|
44 | — | ||||||
|
Estimated
removal costs
|
734 | 779 | ||||||
|
Other
long-term regulatory liabilities
|
50 | 42 | ||||||
|
Total
regulatory liabilities
|
828 | 821 | ||||||
|
Total
regulatory assets and liabilities, net
|
$ | 2,165 | $ | 2,863 | ||||
__________
|
(1)
|
As
discussed in Note 8(b), the Company securitized approximately
$483 million of electric generation-related regulatory assets in
February 2008.
|
|
(2)
|
Pending
review and approval by the Public Utility Commission of Texas (Texas
Utility Commission), the Company is not recording a return on its
Hurricane Ike restoration costs, see Note 3(a). Other regulatory assets
that are not earning a return were not material at December 31, 2007
and 2008.
|
|
(3)
|
Upon
adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans — An Amendment of FASB
Statements No. 87, 88, 106 and 132(R)” (SFAS No. 158), the Company
recorded a regulatory asset for its unrecognized costs associated with
operations that have historically recovered and currently recover pension
and postretirement expenses in
rates.
|
The
Company’s rate-regulated businesses recognize removal costs as a component of
depreciation expense in accordance with regulatory treatment. As of
December 31, 2007 and 2008, these removal costs of $734 million and
$779 million, respectively, are classified as regulatory liabilities in the
Company’s Consolidated Balance Sheets. A portion of the amount of removal
costs that relate to asset retirement obligations have been reclassified from a
regulatory liability to an asset retirement liability in accordance with
Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 47,
“Accounting for Conditional Asset Retirement Obligations”
(FIN 47).
(f) Depreciation
and Amortization Expense
Depreciation
is computed using the straight-line method based on economic lives or a
regulatory-mandated recovery period. Amortization expense includes amortization
of regulatory assets and other intangibles. See Notes 2(e) and 3(a)
for additional discussion of these items.
The
following table presents depreciation and amortization expense for 2006, 2007
and 2008.
|
2006
|
2007
|
2008
|
||||||||||
|
Depreciation
expense
|
$ | 440 | $ | 455 | $ | 478 | ||||||
|
Amortization
expense
|
159 | 176 | 230 | |||||||||
|
Total
depreciation and amortization expense
|
$ | 599 | $ | 631 | $ | 708 | ||||||
(g) Capitalization
of Interest and Allowance for Funds Used During Construction
Allowance
for funds used during construction (AFUDC) represents the approximate net
composite interest cost of borrowed funds and a reasonable return on the equity
funds used for construction. Although AFUDC increases both utility plant and
earnings, it is realized in cash when the assets are included in rates for
subsidiaries that apply SFAS No. 71. Interest and AFUDC for subsidiaries
that apply SFAS No. 71 are capitalized as a component of projects under
construction and will be amortized over the assets’ estimated useful lives.
During 2006, 2007 and 2008, the Company capitalized interest and AFUDC of
$10 million, $21 million and $12 million,
respectively.
(h) Income
Taxes
The
Company files a consolidated federal income tax return and follows a policy of
comprehensive interperiod tax allocation. The Company uses the asset and
liability method of accounting for deferred income taxes in accordance with SFAS
No. 109, “Accounting for Income Taxes”. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Investment tax credits that were
deferred are being amortized over the estimated lives of the related property. A
valuation allowance is established against deferred tax assets for which
management believes realization is not considered more likely than
not.
Prior to
2007, the Company evaluated uncertain income tax positions and recorded a tax
liability for those positions that management believed were probable of an
unfavorable outcome and could be reasonably estimated. Effective January 1,
2007, the Company accounts for the tax effects of uncertain income tax positions
in accordance with FIN 48, “Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement No. 109” (FIN 48). The
Company recognizes interest and penalties as a component of income tax expense.
For additional information regarding income taxes, see Note 9.
(i) Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are net of an allowance for doubtful accounts of $38 million and
$35 million at December 31, 2007 and 2008, respectively. The provision
for doubtful accounts in the Company’s Statements of Consolidated Income for
2006, 2007 and 2008 was $35 million, $45 million and $54 million,
respectively.
On
November 25, 2008, CERC replaced a receivables facility that had terminated
on October 28, 2008 with a new 364-day receivables facility. Availability
under the new facility ranges from $128 million to $375 million,
reflecting seasonal changes in receivables balances. At December 31, 2007
and 2008, the facility size was $300 and $128 million, respectively. As of
December 31, 2007 and 2008, advances under the receivables facilities were
$232 million and $78 million, respectively.
(j) Inventory
Inventory
consists principally of materials and supplies and natural gas. Materials and
supplies are valued at the lower of average cost or market. Natural gas
inventories of the Company’s Competitive Natural Gas Sales and Services business
segment are also primarily valued at the lower of average cost or market.
Natural gas inventories of the Company’s Natural Gas Distribution business
segment are primarily valued at weighted average cost. During 2007 and 2008, the
Company recorded $11 million and $30 million, respectively, in
write-downs of natural gas inventory to the lower of average cost or
market.
|
December 31,
|
||||||||
|
2007
|
2008
|
|||||||
|
(In
millions)
|
||||||||
|
Materials
and supplies
|
$ | 95 | $ | 128 | ||||
|
Natural
gas
|
395 | 441 | ||||||
|
Total
inventory
|
$ | 490 | $ | 569 | ||||
(k) Derivative
Instruments
The
Company utilizes derivative instruments such as physical forward contracts,
swaps and options to mitigate the impact of changes in commodity prices, weather
and interest rates on its operating results and cash flows. Such contracts are
recognized in the Company’s Consolidated Balance Sheets at their fair value
unless the Company elects the normal purchase and sales exemption for qualified
physical transactions. A derivative contract may be designated as a normal
purchase or sale if the intent is to physically receive or deliver the product
for use or sale in the normal course of business. If derivative contracts are
designated as a cash flow hedge according to SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (SFAS No. 133), the effective
portions of the changes in their fair values are reflected initially as a
separate component of shareholders’ equity and subsequently recognized in income
at the same time the hedged items impact earnings. The ineffective portions of
changes in fair values of derivatives designated as hedges are immediately
recognized in income. Changes in other derivatives not designated as normal or
as a cash flow hedge are recognized in income as they occur. The Company does
not enter into or hold derivative instruments for trading purposes.
The
Company has a Risk Oversight Committee composed of corporate and business
segment officers that oversees all commodity price, weather and credit risk
activities, including the Company’s marketing, risk management services and
hedging activities. The committee’s duties are to establish the Company’s
commodity risk policies, allocate risk capital within limits established by the
Company’s board of directors, approve use of new products and commodities,
monitor positions and ensure compliance with the Company’s risk management
policies and procedures and limits established by the Company’s board of
directors.
The
Company’s policies prohibit the use of leveraged financial instruments. A
leveraged financial instrument, for this purpose, is a transaction involving a
derivative whose financial impact will be based on an amount other than the
notional amount or volume of the instrument.
(l) Investments
in Other Debt and Equity Securities
In
accordance with SFAS No. 115, “Accounting for Certain Investments in Debt
and Equity Securities” (SFAS No. 115), the Company reports
“available-for-sale” securities at estimated fair value within other long-term
assets in the Company’s Consolidated Balance Sheets and any unrealized gain or
loss, net of tax, as a separate component of shareholders’ equity and
accumulated other comprehensive income. In accordance with SFAS No. 115,
the Company reports “trading” securities at estimated fair value in the
Company’s Consolidated Balance Sheets, and any unrealized holding gains and
losses are recorded as other income (expense) in the Company’s Statements of
Consolidated Income.
As of
December 31, 2007 and 2008, the Company held an investment in Time Warner
Inc. (TW) common stock (TW Common), which was classified as a “trading”
security. For information regarding this investment, see
Note 6.
(m) Environmental
Costs
The
Company expenses or capitalizes environmental expenditures, as appropriate,
depending on their future economic benefit. The Company expenses amounts that
relate to an existing condition caused by past operations that do not have
future economic benefit. The Company records undiscounted liabilities related to
these future costs when environmental assessments and/or remediation activities
are probable and the costs can be reasonably estimated.
(n) Statements
of Consolidated Cash Flows
For
purposes of reporting cash flows, the Company considers cash equivalents to be
short-term, highly liquid investments with maturities of three months or less
from the date of purchase. In connection with the issuance of transition bonds
in October 2001, December 2005 and February 2008, the Company was required
to establish restricted cash accounts to collateralize the bonds that were
issued in these financing transactions. These restricted cash accounts are not
available for withdrawal until the maturity of the bonds. Cash and cash
equivalents does not include restricted cash of $49 million and
$60 million at December 31, 2007 and 2008, respectively, which is
included in other current assets in the Company’s Consolidated Balance Sheets.
For additional information regarding transition bonds, see Notes 3(b) and
8(b). Cash and cash equivalents includes $128 million and $166 million
at December 31, 2007 and 2008, respectively, that is held by the Company’s
transition bond subsidiaries solely to support servicing the transition
bonds.
(o) New
Accounting Pronouncements
In April
2007, the FASB issued Staff Position No. FIN 39-1, “Amendment of FASB
Interpretation No. 39” (FIN 39-1), which permits companies that enter into
master netting arrangements to offset cash collateral receivables or payables
with net derivative positions under certain circumstances. The Company adopted
FIN 39-1 effective January 1, 2008 and began netting cash collateral
receivables and payables and also its derivative assets and liabilities with the
same counterparty subject to master netting agreements.
In
February 2007, the FASB issued Statement of Financial Accounting Standard
(SFAS) No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 115”
(SFAS No. 159). SFAS No. 159 permits the Company to choose,
at specified election dates, to measure eligible items at fair value (the “fair
value option”). The Company would report unrealized gains and losses on items
for which the fair value option has been elected in earnings at each subsequent
reporting period. This accounting standard is effective as of the beginning of
the first fiscal year that begins after November 15, 2007 but is not
required to be applied. The Company currently has no plans to apply SFAS No.
159.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations”
(SFAS No. 141R). SFAS
No. 141R will significantly change the accounting for business combinations.
Under SFAS No. 141R, an acquiring entity will be required to recognize all the
assets acquired and liabilities assumed in a transaction at the acquisition date
fair value with limited exceptions. SFAS No. 141R also includes a substantial
number of new disclosure requirements and applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. As the
provisions of SFAS No. 141R are applied prospectively, the impact to the Company
cannot be determined until applicable transactions occur.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51” (SFAS No. 160).
SFAS No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This accounting standard is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
Company will adopt SFAS No. 160 as of January 1, 2009. The Company expects that
the adoption of SFAS No. 160 will not have a material impact on its financial
position, results of operations or cash flows.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities - an amendment of FASB Statement
No. 133” (SFAS No. 161). SFAS No. 161 amends SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (SFAS No. 133) and requires
enhanced disclosures of derivative instruments and hedging activities such as
the fair value of derivative instruments and presentation of their gains or
losses in tabular format, as well as disclosures regarding credit risks and
strategies and objectives for using derivative instruments. SFAS No. 161 is
effective for fiscal years and interim periods beginning after November 15,
2008. The Company expects that the adoption of SFAS No. 161 will not have a
material impact on its financial position, results of operations or cash
flows.
In May
2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1 “Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement),” which will change the accounting treatment
for convertible securities that the issuer may settle fully or partially in
cash. The FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years, with retrospective application required. Under the final FSP, cash
settled convertible securities will be separated into their debt and equity
components. The value assigned to the debt component will be the estimated fair
value, as of the issuance date, of a similar debt instrument without the
conversion feature, and the difference between the proceeds for the convertible
debt and the amount reflected as a debt liability will be recorded as additional
paid-in capital. As a result, the debt will be recorded at a discount reflecting
its below market coupon
interest
rate. The debt will subsequently be accreted to its par value over its expected
life, with the rate of interest that reflects the market rate at issuance being
reflected on the income statement. The Company currently has no convertible debt
that is within the scope of this FSP, but did during prior periods presented.
Accordingly, the implementation of the FSP will have a non-cash affect on net
income for prior periods and the consolidated balance sheets when the Company
had contingently convertible debt outstanding. The effect on net income for the
years ended December 31, 2007 and 2008 will be a decrease in net income of
$4 million and $1 million, respectively. Upon adoption of this FSP,
the effect on the balance sheet as of December 31, 2008 will be a credit to
Additional Paid-In-Capital of $23 million, with an offsetting debit to
retained earnings of $23 million.
(p) Stock-Based
Incentive Compensation Plans and Employee Benefit Plans
Stock-Based
Incentive Compensation Plans
The
Company has long-term incentive compensation plans (LICPs) that provide for the
issuance of stock-based incentives, including performance-based shares,
performance-based units, restricted shares and stock options to officers and key
employees. A maximum of approximately 34 million shares of CenterPoint
Energy common stock is authorized to be issued under these plans.
Equity
awards are granted to employees without cost to the participants. The
performance shares are distributed based upon the achievement of certain
objectives over a three-year performance cycle. The stock awards granted in
2006, 2007 and 2008 are subject to the operational condition that total common
dividends declared during the three-year vesting period must be at least $1.80,
$2.04 and $2.19 per share, respectively. The stock awards vest at the end
of a three-year period. Upon vesting, both the performance shares and the stock
awards are issued to the participants along with the value of dividend
equivalents earned over the performance cycle or vesting period. The Company
issues new shares in order to satisfy share-based payments related to
LICPs.
Option
awards are generally granted with an exercise price equal to the average of the
high and low sales price of the Company’s stock at the date of grant. These
option awards generally become exercisable in one-third increments on each of
the first through third anniversaries of the grant date and have 10-year
contractual terms. No options were granted during 2006, 2007 and
2008.
The
Company recorded LICP compensation expense of $10 million in each of the
years ended December 31, 2006, 2007 and 2008.
The total
income tax benefit recognized related to such arrangements was $4 million
in each of the years ended December 31, 2006, 2007 and 2008. No
compensation cost related to such arrangements was capitalized as a part of
inventory or fixed assets in 2006, 2007 or 2008.
Compensation
costs for performance shares and stock awards granted under the LICPs are
measured using fair value and expected achievement levels on the grant date.
Forfeitures are estimated on the date of grant and are adjusted as required
through the remaining vesting period.
The
following tables summarize the Company’s LICP activity for
2008:
Stock
Options
|
Outstanding
Options
Year
Ended December 31, 2008
|
||||||||||||||||
|
Shares
(Thousands)
|
Weighted-Average
Exercise
Price
|
Remaining
Average
Contractual
Life
(Years)
|
Aggregate
Intrinsic
Value
(Millions)
|
|||||||||||||
|
Outstanding
at December 31, 2007
|
6,770 | $ | 17.78 | |||||||||||||
|
Forfeited
or expired
|
(629 | ) | 22.11 | |||||||||||||
|
Exercised
|
(285 | ) | 10.46 | |||||||||||||
|
Outstanding
at December 31, 2008
|
5,856 | 17.67 | 2.5 | $ | 12 | |||||||||||
|
Exercisable
at December 31, 2008
|
5,856 | 17.67 | 2.5 | 12 | ||||||||||||
Performance
Shares
|
Outstanding
and Non-Vested Shares
Year
Ended December 31, 2008
|
||||||||||||
|
Shares
(Thousands)
|
Weighted-Average
Grant
Date
Fair
Value
|
Remaining
Average
Contractual
Life
(Years)
|
Aggregate
Intrinsic
Value
(Millions)
|
|||||||||
|
Outstanding
at December 31, 2007
|
2,132 | $ | 14.21 | |||||||||
|
Granted
|
896 | 15.40 | ||||||||||
|
Forfeited
or cancelled
|
(569 | ) | 13.02 | |||||||||
|
Vested
and released to participants
|
(357 | ) | 12.30 | |||||||||
|
Outstanding
at December 31, 2008
|
2,102 | 15.37 |
1.1
|
$ |
17
|
|||||||
The
non-vested and outstanding shares displayed in the above tables assume that
shares are issued at the maximum performance level (150%). The aggregate
intrinsic value reflects the impacts of current expectations of achievement and
stock price.
Stock
Awards
|
Outstanding
and Non-Vested Stock Awards
Year
Ended December 31, 2008
|
||||||||||||
|
Shares
(Thousands)
|
Weighted-Average
Grant
Date
Fair
Value
|
Remaining
Average
Contractual
Life
(Years)
|
Aggregate
Intrinsic
Value
(Millions)
|
|||||||||
|
Outstanding
at December 31, 2007
|
720 | $ | 14.45 | |||||||||
|
Granted
|
401 | 15.09 | ||||||||||
|
Forfeited
|
(64 | ) | 14.84 | |||||||||
|
Vested
and released to participants
|
(268 | ) | 12.72 | |||||||||
|
Outstanding
at December 31, 2008
|
789 | 15.33 |
1.2
|
$ |
10
|
|||||||
The
weighted-average grant-date fair values of awards granted were as follows for
2006, 2007 and 2008:
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Performance
shares
|
$ | 13.05 | $ | 18.20 | $ | 15.40 | ||||||
|
Stock
awards
|
12.96 | 18.29 | 15.09 | |||||||||
The total
intrinsic value of awards received by participants was as follows for 2006, 2007
and 2008:
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Options
exercised
|
$ | 10 | $ | 13 | $ | 2 | ||||||
|
Performance
shares
|
10 | — | 6 | |||||||||
|
Performance
units
|
— | 3 | — | |||||||||
|
Stock
awards
|
7 | 4 | 5 | |||||||||
As of
December 31, 2008 there was $22 million of total unrecognized
compensation cost related to non-vested LICP arrangements. That cost is expected
to be recognized over a weighted-average period of 1.7 years.
Cash
received from LICPs was $17 million, $22 million and $3 million
for 2006, 2007 and 2008, respectively.
The
actual tax benefit realized for tax deductions related to LICPs totaled
$11 million, $7 million and $5 million, for 2006, 2007 and 2008,
respectively.
Pension
and Postretirement Benefits
The
Company maintains a non-contributory qualified defined benefit plan covering
substantially all employees, with benefits determined using a cash balance
formula. Under the cash balance formula, participants accumulate a retirement
benefit based upon 5% of eligible earnings, which increased from 4% effective
January 1, 2009, and accrued
interest. Prior to 1999, the pension plan accrued benefits based on years of
service, final average pay and covered compensation. Certain employees
participating in the plan as of December 31, 1998 automatically receive the
greater of the accrued benefit calculated under the prior plan formula through
2008 or the cash balance formula. Participants have historically been 100%
vested in their benefit after completing five years of service. Effective
January 1, 2008, the Company changed the vesting schedule to provide for 100%
vesting after three years to comply with the Pension Protection Act of 2006. In
addition to the non-contributory qualified defined benefit plan, the Company
maintains unfunded non-qualified benefit restoration plans which allow
participants to receive the benefits to which they would have been entitled
under the Company’s non-contributory pension plan except for federally mandated
limits on qualified plan benefits or on the level of compensation on which
qualified plan benefits may be calculated.
The
Company provides certain healthcare and life insurance benefits for retired
employees on a contributory and non-contributory basis. Employees become
eligible for these benefits if they have met certain age and service
requirements at retirement, as defined in the plans. Under plan amendments,
effective in early 1999, healthcare benefits for future retirees were changed to
limit employer contributions for medical coverage.
Such
benefit costs are accrued over the active service period of employees. The net
unrecognized transition obligation, resulting from the implementation of accrual
accounting, is being amortized over approximately 20 years.
On
January 5, 2006, the Company offered a Voluntary Early Retirement Program
(VERP) to approximately 200 employees who were age 55 or older with at
least five years of service as of February 28, 2006. The election period
was from January 5, 2006 through February 28, 2006. For those electing
to accept the VERP, three years of age and service were added to their qualified
pension plan benefit and three years of service were added to their
postretirement benefit. The one-time additional pension and postretirement
expense of $9 million is reflected in the table below as a benefit
enhancement.
The
Company’s net periodic cost includes the following components relating to
pension, including the benefit restoration plan, and postretirement
benefits:
|
Year
Ended December 31,
|
||||||||||||||||||||||||
|
2006
|
2007
|
2008
|
||||||||||||||||||||||
|
Pension
Benefits
|
Postretirement
Benefits
|
Pension
Benefits
|
Postretirement
Benefits
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||||||
|
(In
millions)
|
||||||||||||||||||||||||
|
Service
cost
|
$ | 37 | $ | 2 | $ | 37 | $ | 2 | $ | 31 | $ | 1 | ||||||||||||
|
Interest
cost
|
101 | 26 | 100 | 26 | 101 | 27 | ||||||||||||||||||
|
Expected
return on plan assets
|
(143 | ) | (12 | ) | (149 | ) | (12 | ) | (147 | ) | (12 | ) | ||||||||||||
|
Amortization
of prior service cost (credit)
|
(7 | ) | 2 | (7 | ) | — | (8 | ) | 3 | |||||||||||||||
|
Amortization
of net loss
|
50 | — | 34 | 3 | 23 | — | ||||||||||||||||||
|
Amortization
of transition obligation
|
— | 7 | — | 7 | — | 7 | ||||||||||||||||||
|
Benefit
enhancement
|
8 | 1 | — | — | 1 | — | ||||||||||||||||||
|
Net
periodic cost
|
$ | 46 | $ | 26 | $ | 15 | $ | 26 | $ | 1 | $ | 26 | ||||||||||||
The
Company used the following assumptions to determine net periodic cost relating
to pension and postretirement benefits:
|
December 31,
|
||||||||||||||||||||||||
|
2006
|
2007
|
2008
|
||||||||||||||||||||||
|
Pension
Benefits
|
Postretirement
Benefits
|
Pension
Benefits
|
Postretirement
Benefits
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||||||
|
Discount
rate
|
5.70 | % | 5.70 | % | 5.85 | % | 5.85 | % | 6.40 | % | 6.40 | % | ||||||||||||
|
Expected
return on plan assets
|
8.50 | 8.00 | 8.50 | 7.60 | 8.50 | 7.60 | ||||||||||||||||||
|
Rate
of increase in compensation levels
|
4.60 | — | 4.60 | — | 4.60 | — | ||||||||||||||||||
In
determining net periodic benefits cost, the Company uses fair value, as of the
beginning of the year, as its basis for determining expected return on plan
assets.
The
following table summarizes changes in the benefit obligation, plan assets, the
amounts recognized in consolidated balance sheets and the key assumptions of the
Company’s pension, including benefit restoration, and postretirement plans. The
measurement dates for plan assets and obligations were December 31, 2007
and 2008.
|
December 31,
|
||||||||||||||||
|
2007
|
2008
|
|||||||||||||||
|
Pension
Benefits
|
Postretirement
Benefits
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||
|
(In
millions, except for actuarial assumptions)
|
||||||||||||||||
|
Change
in Benefit Obligation
|
||||||||||||||||
|
Benefit
obligation, beginning of year
|
$ | 1,776 | $ | 469 | $ | 1,645 | $ | 437 | ||||||||
|
Service
cost
|
37 | 2 | 31 | 1 | ||||||||||||
|
Interest
cost
|
100 | 26 | 101 | 27 | ||||||||||||
|
Participant
contributions
|
— | 5 | — | 5 | ||||||||||||
|
Benefits
paid
|
(145 | ) | (35 | ) | (123 | ) | (38 | ) | ||||||||
|
Actuarial
gain
|
(123 | ) | (33 | ) | (59 | ) | (10 | ) | ||||||||
|
Plan
amendment
|
— | — | 114 | — | ||||||||||||
|
Medicare
reimbursement
|
— | 3 | — | 4 | ||||||||||||
|
Benefit
enhancement
|
— | — | 1 | — | ||||||||||||
|
Benefit
obligation, end of year
|
1,645 | 437 | 1,710 | 426 | ||||||||||||
|
Change
in Plan Assets
|
||||||||||||||||
|
Plan
assets, beginning of year
|
1,806 | 158 | 1,792 | 161 | ||||||||||||
|
Employer
contributions
|
9 | 22 | 8 | 27 | ||||||||||||
|
Participant
contributions
|
— | 5 | — | 5 | ||||||||||||
|
Benefits
paid
|
(145 | ) | (35 | ) | (123 | ) | (38 | ) | ||||||||
|
Actual
investment return
|
122 | 11 | (401 | ) | (20 | ) | ||||||||||
|
Plan
assets, end of year
|
1,792 | 161 | 1,276 | 135 | ||||||||||||
|
Funded
status, end of year
|
$ | 147 | $ | (276 | ) | $ | (434 | ) | $ | (291 | ) | |||||
|
Amounts
Recognized in Balance Sheets
|
||||||||||||||||
|
Other
assets-other
|
$ | 231 | $ | — | $ | — | $ | — | ||||||||
|
Current
liabilities-other
|
(8 | ) | (8 | ) | (9 | ) | (10 | ) | ||||||||
|
Other
liabilities-benefit obligations
|
(76 | ) | (268 | ) | (425 | ) | (281 | ) | ||||||||
|
Net
asset (liability), end of year
|
$ | 147 | $ | (276 | ) | $ | (434 | ) | $ | (291 | ) | |||||
|
Actuarial
Assumptions
|
||||||||||||||||
|
Discount
rate
|
6.40 | % | 6.40 | % | 6.90 | % | 6.90 | % | ||||||||
|
Expected
return on plan assets
|
8.50 | 7.60 | 8.00 | 7.05 | % | |||||||||||
|
Rate
of increase in compensation levels
|
4.60 | — | 4.60 | — | ||||||||||||
|
Healthcare
cost trend rate assumed for the next year
|
— | 7.00 | — | 6.50 | ||||||||||||
|
Prescription
drug cost trend rate assumed for the next year
|
— | 13.00 | — | 12.00 | ||||||||||||
|
Rate
to which the cost trend rate is assumed to decline (the ultimate trend
rate)
|
— | 5.50 | — | 5.50 | ||||||||||||
|
Year
that the healthcare rate reaches the ultimate trend rate
|
— |
2012
|
— |
2011
|
||||||||||||
|
Year
that the prescription drug rate reaches the ultimate trend
rate
|
— |
2015
|
— |
2014
|
||||||||||||
At
December 31, 2008, the pension benefit obligation increased by $114 million due
to a plan amendment effective January 1, 2009. The amendment increased
certain cash balance accounts in conjunction with a transition to a uniform cash
balance program effective 2009.
The
accumulated benefit obligation for all defined benefit pension plans was
$1,623 million and $1,708 million as of December 31, 2007 and
2008, respectively.
The
expected rate of return assumption was developed by reviewing the targeted asset
allocations and historical index performance of the applicable asset classes
over a 15-year period, adjusted for investment fees and diversification
effects.
The
discount rate was determined by reviewing yields on high-quality bonds that
receive one of the two highest ratings given by a recognized rating agency and
the expected duration of obligations specific to the characteristics of the
Company’s plans.
For
measurement purposes, healthcare costs are assumed to increase 6.50% during
2009, after which this rate decreases until reaching the ultimate trend rate of
5.5% in 2011. Prescription drug costs are assumed to increase 12% during 2009,
after which this rate decreases until reaching the ultimate trend rate of 5.5%
in 2014.
Amounts
recognized in accumulated other comprehensive income consist of the
following:
|
December 31,
|
||||||||||||||||
|
2007
|
2008
|
|||||||||||||||
|
Pension
Benefits
|
Postretirement
Benefits
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Unrecognized
actuarial loss (gain)
|
$ | 99 | $ | (4 | ) | $ | 181 | $ | 5 | |||||||
|
Unrecognized
prior service cost (credit)
|
(6 | ) | 14 | 17 | 11 | |||||||||||
|
Unrecognized
transition obligation
|
— | 4 | — | 3 | ||||||||||||
|
Net
amount recognized in other comprehensive income
|
$ | 93 | $ | 14 | $ | 198 | $ | 19 | ||||||||
The
changes in plan assets and benefit obligations recognized in other comprehensive
income during 2008 are as follows (in millions):
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||
|
Net
loss
|
$ | 89 | $ | 9 | ||||
| Amortization of net loss | (7 | ) | — | |||||
| Prior service cost | 22 |
—
|
||||||
|
Amortization
of prior service credit (cost)
|
1 | (3 | ) | |||||
|
Amortization
of transition obligation
|
— | (1 | ) | |||||
|
Total
recognized in comprehensive income
|
$ | 105 | $ | 5 | ||||
The total
expense recognized in net periodic costs and other comprehensive income was
$106 million and $31 million for pension and postretirement benefits,
respectively, for the year ended December 31, 2008.
The
amounts in accumulated other comprehensive income expected to be recognized as
components of net periodic benefit cost during 2009 are as follows (in
millions):
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||
|
Unrecognized
actuarial loss
|
$ | 15 | $ | — | ||||
|
Unrecognized
prior service cost
|
1 | 2 | ||||||
|
Amounts
in comprehensive income to be recognized in net periodic cost in
2009
|
$ | 16 | $ | 2 | ||||
The
following table displays pension benefits related to the Company’s pension plans
that have accumulated benefit obligations in excess of plan assets:
|
December 31,
|
||||||||||||||||
|
2007
|
2008
|
|||||||||||||||
|
Pension
Qualified
|
Pension
Non-qualified
|
Pension
Qualified
|
Pension
Non-qualified
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Accumulated
benefit obligation
|
$ | 1,541 | $ | 82 | $ | 1,622 | $ | 86 | ||||||||
|
Projected
benefit obligation
|
1,561 | 84 | 1,624 | 86 | ||||||||||||
|
Plan
assets
|
1,792 | — | 1,276 | — | ||||||||||||
Assumed
healthcare cost trend rates have a significant effect on the reported amounts
for the Company’s postretirement benefit plans. A 1% change in the assumed
healthcare cost trend rate would have the following effects:
|
1%
Increase
|
1%
Decrease
|
|||||||
|
(In
millions)
|
||||||||
|
Effect
on the postretirement benefit obligation
|
$ | 17 | $ | 14 | ||||
|
Effect
on total of service and interest cost
|
1 | 1 | ||||||
The
following table displays the weighted-average asset allocations as of
December 31, 2007 and 2008 for the Company’s pension and postretirement
benefit plans:
|
December 31,
|
||||||||||||||||
|
2007
|
2008
|
|||||||||||||||
|
Pension
Benefits
|
Postretirement
Benefits
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||
|
Domestic
equity securities
|
49 | % | 26 | % | 27 | % | 26 | % | ||||||||
|
Global
equity securities
|
11 | — | 8 | — | ||||||||||||
|
International
equity securities
|
12 | 9 | 18 | 9 | ||||||||||||
|
Debt
securities
|
27 | 64 | 46 | 65 | ||||||||||||
|
Real
estate
|
1 | — | 1 | — | ||||||||||||
|
Cash
|
— | 1 | — | — | ||||||||||||
|
Total
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
In
managing the investments associated with the benefit plans, the Company’s
objective is to preserve and enhance the value of plan assets while maintaining
an acceptable level of volatility. These objectives are expected to be achieved
through an investment strategy that manages liquidity requirements while
maintaining a long-term horizon in making investment decisions and efficient and
effective management of plan assets.
As part
of the investment strategy discussed above, the Company has adopted and
maintains the following weighted average allocation targets for its benefit
plans:
|
Pension
Benefits
|
Postretirement
Benefits
|
|||||||
|
Domestic
equity securities
|
25-35 | % | 21-31 | % | ||||
|
Global
equity securities
|
7-13 | % | — | |||||
|
International
equity securities
|
17-23 | % | 4-14 | % | ||||
|
Debt
securities
|
34-44 | % | 60-70 | % | ||||
|
Real
estate
|
0-5 | % | — | |||||
|
Cash
|
0-2 | % | 0-2 | % | ||||
The
pension plan did not include any holdings of CenterPoint Energy common stock as
of December 31, 2007 or 2008.
The
Company contributed $8 million and $20 million to its non-qualified
pension and postretirement benefits plans in 2008, respectively. The Company
expects to contribute approximately $9 million and $18 million to its
non-qualified pension and postretirement benefits plans in 2009,
respectively.
The
following benefit payments are expected to be paid by the pension and
postretirement benefit plans (in millions):
|
Postretirement
Benefit Plan
|
||||||||||||
|
Pension
Benefits
|
Benefit
Payments
|
Medicare
Subsidy
Receipts
|
||||||||||
|
2009
|
$ | 137 | $ | 34 | $ | (3 | ) | |||||
|
2010
|
141 | 36 | (4 | ) | ||||||||
|
2011
|
142 | 38 | (4 | ) | ||||||||
|
2012
|
147 | 39 | (5 | ) | ||||||||
|
2013
|
150 | 41 | (6 | ) | ||||||||
|
2014-2018
|
755 | 221 | (36 | ) | ||||||||
Savings
Plan
The
Company has a qualified employee savings plan that includes a cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code of 1986, as
amended (the Code), and an employee stock ownership plan (ESOP) under
Section 4975(e)(7) of the Code. Under the plan, participating employees may
contribute a portion of their compensation, on a pre-tax or after-tax basis,
generally up to a maximum of 50%, which increased from 16% in prior years, of
compensation. Effective January 1, 2009, the Company matches 100% of the first
6% of each employee’s compensation contributed. The Company previously matched
75% of the first 6% of each employee’s
compensation contributed with the potential for an additional discretionary
match of up to 50% of the first 6% of each employee’s compensation contributed.
The matching contributions are fully vested at all times.
Participating
employees may elect to invest all or a portion of their contributions to the
plan in CenterPoint Energy common stock, to have dividends reinvested in
additional shares or to receive dividend payments in cash on any investment in
CenterPoint Energy common stock, and to transfer all or part of their investment
in CenterPoint Energy common stock to other investment options offered by the
plan.
The
savings plan has significant holdings of CenterPoint Energy common stock. As of
December 31, 2008, 21,352,777 shares of CenterPoint Energy’s common stock
were held by the savings plan, which represented 24.5% of its investments. Given
the concentration of the investments in CenterPoint Energy’s common stock, the
savings plan and its participants have market risk related to this
investment.
The
Company’s savings plan benefit expenses were $34 million, $35 million
and $39 million in 2006, 2007 and 2008, respectively.
Postemployment
Benefits
Net
postemployment benefit costs for former or inactive employees, their
beneficiaries and covered dependents, after employment but before retirement
(primarily healthcare and life insurance benefits for participants in the
long-term disability plan) were $6 million in 2006. The Company recorded
postemployment benefit income of $2 million and $1 million in 2007 and
2008, respectively.
Included
in “Benefit Obligations” in the accompanying Consolidated Balance Sheets at
December 31, 2007 and 2008 was $37 million and $32 million,
respectively, relating to postemployment obligations.
Other
Non-Qualified Plans
The
Company has non-qualified deferred compensation plans that provide benefits
payable to directors, officers and certain key employees or their designated
beneficiaries at specified future dates, upon termination, retirement or death.
Benefit payments are made from the general assets of the Company. During 2006,
2007 and 2008, the Company recorded benefit expense relating to these plans of
$6 million, $7 million and $4 million, respectively. Included in
“Benefit Obligations” in the accompanying Consolidated Balance Sheets at
December 31, 2007 and 2008 was $100 million and $83 million,
respectively, relating to deferred compensation plans.
Change
in Control Agreements and Other Employee Matters
The
Company has agreements with certain of its officers that generally provide, to
the extent applicable, in the case of a change in control of the Company and
termination of employment, for severance benefits of up to three times annual
base salary plus bonus, and other benefits. These agreements are for a one-year
term with automatic renewal unless action is taken by the Company’s board of
directors prior to the renewal.
As of
December 31, 2008, approximately 30% of the Company’s employees are subject
to collective bargaining agreements. One of the collective bargaining agreements
covering approximately 5% of the Company’s employees, Gas Workers Union Local
No. 340, is scheduled to expire in 2009. The Company has a good relationship
with this bargaining unit and expects to negotiate a new agreement in
2009.
(3) Regulatory
Matters
(a) 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.
The
strong Category 2 storm initially left more than 90% 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 winds. 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 $600 million
to $650 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
$17 million.
CenterPoint
Houston has deferred 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 did not affect the Company’s or
CenterPoint Houston’s reported net income for 2008. As of December 31,
2008, CenterPoint Houston recorded an increase of $145 million in
construction work in progress and $435 million in regulatory assets for
restoration costs incurred through December 31, 2008. Approximately
$73 million of these costs are based on estimates and are included in
accounts payable as of December 31, 2008. Additional restoration costs will
continue to be incurred in 2009.
Assuming
necessary enabling legislation is enacted by the Texas Legislature in the
session that began in January 2009, CenterPoint Houston expects to seek a
financing order from the Texas Utility Commission 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 the hurricanes that affected that utility’s service territories in
2005. Assuming those bonds are issued, CenterPoint Houston will recover the
amount of storm restoration costs determined by the Texas Utility Commission to
have been prudently incurred 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 of CERC (Gas Operations) also suffered some
damage to its system in Houston, Texas and in other portions of its service
territory across Texas and Louisiana. As of December 31, 2008,
80
Gas
Operations has deferred approximately $4 million of costs related to
Hurricane Ike for recovery as part of future natural gas distribution rate
proceedings.
(b) Recovery
of True-Up Balance
In March
2004, CenterPoint Houston filed its true-up application with the Texas Utility
Commission, requesting recovery of $3.7 billion, excluding interest, as
allowed under the Texas Electric Choice Plan (Texas electric restructuring law).
In December 2004, the Texas Utility Commission issued its final order
(True-Up Order) allowing CenterPoint 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 (EMCs) returned to customers after
August 31, 2004 and certain other adjustments.
CenterPoint
Houston and other parties filed appeals of the True-Up Order to a district court
in Travis County, Texas. In August 2005, that court issued its judgment on the
various appeals. In its judgment, the district court:
|
|
•
|
reversed
the Texas Utility Commission’s ruling that had denied recovery of a
portion of the capacity auction true-up
amounts;
|
|
|
•
|
reversed
the Texas Utility Commission’s ruling that precluded CenterPoint Houston
from recovering the interest component of the EMCs paid to retail electric
providers (REPs); and
|
|
|
•
|
affirmed
the True-Up Order in all other
respects.
|
The
district court’s decision would have had the effect of restoring approximately
$650 million, plus interest, of the $1.7 billion the Texas Utility
Commission had disallowed from CenterPoint Houston’s initial
request.
CenterPoint
Houston and other parties appealed the district court’s judgment to the Texas
Third Court of Appeals, which issued its decision in December 2007. In
its decision, the court of appeals:
|
|
•
|
reversed
the district court’s judgment to the extent it restored the capacity
auction true-up amounts;
|
|
|
•
|
reversed
the district court’s judgment to the extent it upheld the Texas Utility
Commission’s decision to allow CenterPoint Houston to recover EMCs paid to
Reliant Energy, Inc. (RRI);
|
|
|
•
|
ordered
that the tax normalization issue described below be remanded to the Texas
Utility Commission as requested by the Texas Utility Commission;
and
|
|
|
•
|
affirmed
the district court’s judgment in all other
respects.
|
In April
2008, the court of appeals denied all motions for rehearing and reissued
substantially the same opinion as it had rendered in
December 2007.
In June
2008, CenterPoint Houston petitioned the Texas Supreme Court for review of the
court of appeals decision. In its petition, CenterPoint Houston seeks reversal
of the parts of the court of appeals decision that (i) denied recovery of EMCs
paid to RRI, (ii) denied recovery of the capacity auction true up amounts
allowed by the district court, (iii) affirmed the Texas Utility Commission’s
rulings that denied recovery of approximately $378 million related to
depreciation and (iv) affirmed the Texas Utility Commission’s refusal to permit
CenterPoint Houston to utilize the partial stock valuation methodology for
determining the market value of its former generation assets. Two other
petitions for review were filed with the Texas Supreme Court by other parties to
the appeal. In those petitions parties contend that (i) the Texas Utility
Commission was without authority to fashion the methodology it used for valuing
the former generation assets after it had determined that CenterPoint Houston
could not use the partial stock valuation method, (ii) in fashioning the method
it used for valuing the former generating assets, the Texas Utility Commission
deprived parties of their due process rights and an opportunity to be heard,
(iii) the net book value of the generating assets should have been adjusted
downward due to the impact of a purchase option that had been granted to RRI,
(iv) CenterPoint Houston should not have been permitted to recover
81
construction
work in progress balances without proving those amounts in the manner required
by law and (v) the Texas Utility Commission was without authority to award
interest on the capacity auction true up award.
Review by
the Texas Supreme Court of the court of appeals decision is at the discretion of
the court. In November 2008, the Texas Supreme Court requested the parties
to the Petitions for Review to submit briefs on the merits of the
issues raised. Briefing at the Texas Supreme Court should be completed in the
second quarter of 2009. Although the Texas Supreme Court has not indicated
whether it will grant review of the lower court’s decision, its
request for full briefing on the merits allowed the parties to more fully
explain their positions. There is no prescribed time in which the Texas Supreme
Court must determine whether to grant review or, if review is granted, for a
decision by that court. Although the Company and CenterPoint Houston believe
that CenterPoint Houston’s true-up request is consistent with applicable
statutes and regulations and, accordingly, that it is reasonably possible that
it will be successful in its appeal to the Texas Supreme Court, the Company can
provide no assurance as to the ultimate court rulings on the issues to be
considered in the appeal or with respect to the ultimate decision by the Texas
Utility Commission on the tax normalization issue described below.
To
reflect the impact of the True-Up Order, in 2004 and 2005, the Company recorded
a net after-tax extraordinary loss of $947 million. No amounts related to
the district court’s judgment or the decision of the court of appeals have been
recorded in the Company’s consolidated financial statements. However, if the
court of appeals decision is not reversed or modified as a result of further
review by the Texas Supreme Court, the Company anticipates that it would be
required to record an additional loss to reflect the court of appeals decision.
The amount of that loss would depend on several factors, including ultimate
resolution of the tax normalization issue described below and the calculation
of interest on any amounts CenterPoint Houston ultimately is authorized to
recover or is required to refund beyond the amounts recorded based on the
True-up Order, but could range from $170 million to $385 million
(pre-tax) plus interest subsequent to December 31, 2008.
In the
True-Up Order, the Texas Utility Commission reduced CenterPoint Houston’s
stranded cost recovery by approximately $146 million, which was included in
the extraordinary loss discussed above, for the present value of certain
deferred tax benefits associated with its former electric generation assets. The
Company believes that the Texas Utility Commission based its order on proposed
regulations issued by the Internal Revenue Service (IRS) in March 2003 that
would have allowed utilities owning assets that were deregulated before
March 4, 2003 to make a retroactive election to pass the benefits of
Accumulated Deferred Investment Tax Credits (ADITC) and Excess Deferred Federal
Income Taxes (EDFIT) back to customers. However, the IRS subsequently withdrew
those proposed normalization regulations and in March 2008 adopted final
regulations that would not permit utilities like CenterPoint Houston to pass the
tax benefits back to customers without creating normalization violations. In
addition, the Company received a Private Letter Ruling (PLR) from the IRS in
August 2007, prior to adoption of the final regulations that confirmed that the
Texas Utility Commission’s order reducing CenterPoint Houston’s stranded cost
recovery by $146 million for ADITC and EDFIT would cause normalization
violations with respect to the ADITC and EDFIT.
If the
Texas Utility Commission’s order relating to the ADITC reduction is not reversed
or otherwise modified on remand so as to eliminate the normalization violation,
the IRS could require the Company to pay an amount equal to CenterPoint
Houston’s unamortized ADITC balance as of the date that the normalization
violation is deemed to have occurred. In addition, the IRS could deny
CenterPoint Houston the ability to elect accelerated tax depreciation benefits
beginning in the taxable year that the normalization violation is deemed to have
occurred. Such treatment, if required by the IRS, could have a material adverse
impact on the Company’s results of operations, financial condition and cash
flows in addition to any potential loss resulting from final resolution of the
True-Up Order. In its opinion, the court of appeals ordered that this issue be
remanded to the Texas Utility Commission, as that commission requested. No
party, in the petitions for review or briefs filed with the Texas Supreme Court,
has challenged that order by the court of appeals, though the Texas Supreme
Court, if it grants review, will have authority to consider all aspects of the
rulings above, not just those challenged specifically by the appellants. The
Company and CenterPoint Houston will continue to pursue a favorable resolution
of this issue through the appellate or administrative process. Although the
Texas Utility Commission has not previously required a company subject to its
jurisdiction to take action that would result in a normalization violation, no
prediction can be made as to the ultimate action the Texas Utility Commission
may take on this issue on remand.
The Texas
electric restructuring law allowed the amounts awarded to CenterPoint Houston in
the Texas Utility Commission’s True-Up Order to be recovered either through
securitization or through implementation of a competition transition charge
(CTC) or both. Pursuant to a financing order issued by the Texas Utility
Commission in March 2005 and affirmed by a Travis County district court, in
December 2005 a subsidiary of CenterPoint Houston issued $1.85 billion
in transition bonds with interest rates ranging from 4.84% to 5.30% and final
maturity dates ranging from February 2011 to August 2020. Through issuance of
the transition bonds, CenterPoint Houston recovered approximately
$1.7 billion of the true-up balance determined in the True-Up Order plus
interest through the date on which the bonds were issued.
In July
2005, CenterPoint Houston received an order from the Texas Utility Commission
allowing it to implement a CTC designed to collect the remaining
$596 million from the True-Up Order over 14 years plus interest at an
annual rate of 11.075% (CTC Order). The CTC Order authorized CenterPoint Houston
to impose a charge on REPs to recover the portion of the true-up balance not
recovered through a financing order. The CTC Order also allowed CenterPoint
Houston to collect approximately $24 million of rate case expenses over
three years without a return through a separate tariff rider (Rider RCE).
CenterPoint Houston implemented the CTC and Rider RCE effective
September 13, 2005 and began recovering approximately $620 million.
The return on the CTC portion of the true-up balance was included in CenterPoint
Houston’s tariff-based revenues beginning September 13, 2005. Effective
August 1, 2006, the interest rate on the unrecovered balance of the CTC was
reduced from 11.075% to 8.06% pursuant to a revised rule adopted by the Texas
Utility Commission in June 2006. Recovery of rate case expenses under Rider RCE
was completed in September 2008.
Certain
parties appealed the CTC Order to a district court in Travis County. In May
2006, the district court issued a judgment reversing the CTC Order in three
respects. First, the court ruled that the Texas Utility Commission had
improperly relied on provisions of its rule dealing with the interest rate
applicable to CTC amounts. The district court reached that conclusion based on
its belief that the Texas Supreme Court had previously invalidated that entire
section of the rule. The 11.075% interest rate in question was applicable from
the implementation of the CTC Order on September 13, 2005 until
August 1, 2006, the effective date of the implementation of a new CTC in
compliance with the revised rule discussed above. Second, the district court
reversed the Texas Utility Commission’s ruling that allows CenterPoint Houston
to recover through the Rider RCE the costs (approximately $5 million) for a
panel appointed by the Texas Utility Commission in connection with the valuation
of electric generation assets. Finally, the district court accepted the
contention of one party that the CTC should not be allocated to retail customers
that have switched to new on-site generation. The Texas Utility Commission and
CenterPoint Houston appealed the district court’s judgment to the Texas
Third Court of Appeals, and in July 2008, the court of appeals reversed the
district court’s judgment in all respects and affirmed the Texas Utility
Commission’s order. Two of the appellants have requested further review from the
Texas Supreme Court. The ultimate outcome of this matter cannot be predicted at
this time. However, the Company does not expect the disposition of this matter
to have a material adverse effect on the Company’s or CenterPoint Houston’s
financial condition, results of operations or cash flows.
During
the years ended December 31, 2006, 2007 and 2008, CenterPoint Houston
recognized approximately $55 million, $42 million and $5 million,
respectively, in operating income from the CTC. Additionally, during the years
ended December 31, 2006, 2007 and 2008, CenterPoint Houston recognized
approximately $13 million, $14 million and $13 million,
respectively, of the allowed equity return not previously recognized. As of
December 31, 2008, the Company had not recognized an allowed equity return
of $207 million on CenterPoint Houston’s true-up balance because such
return will be recognized as it is recovered in rates.
During
the 2007 legislative session, the Texas legislature amended statutes prescribing
the types of true-up balances that can be securitized by utilities and
authorized the issuance of transition bonds to recover the balance of the CTC.
In June 2007, CenterPoint Houston filed a request with the Texas Utility
Commission for a financing order that would allow the securitization of the
remaining balance of the CTC, adjusted to refund certain unspent environmental
retrofit costs and to recover the amount of the final fuel reconciliation
settlement. CenterPoint Houston reached substantial agreement with other parties
to this proceeding, and a financing order was approved by the Texas Utility
Commission in September 2007. In February 2008, pursuant to the financing order,
a new special purpose subsidiary of CenterPoint Houston issued approximately
$488 million of transition bonds in two tranches with interest rates of
4.192% and 5.234% and final maturity dates of February 2020 and February 2023,
respectively. Contemporaneously with the issuance of those bonds, the CTC was
terminated and a transition charge was implemented.
(c) Rate
Proceedings
Texas. In March
2008, Gas Operations filed a request to change its rates with the Railroad
Commission of Texas (Railroad Commission) and the 47 cities in its Texas Coast
service territory, an area consisting of approximately 230,000 customers in
cities and communities on the outskirts of Houston. The request sought to
establish uniform rates, charges and terms and conditions of service for the
cities and environs of the Texas Coast service territory. Of the 47 cities, 23
either affirmatively approved or allowed the filed rates to go into effect by
operation of law. Nine other cities were represented by the Texas Coast
Utilities Coalition (TCUC) and 15 cities were represented by the Gulf Coast
Coalition of Cities (GCCC). In July 2008, Gas Operations reached a settlement
agreement with the GCCC. That settlement agreement, if implemented across the
entire Texas Coast service territory, would allow Gas Operations a
$3.4 million annual increase in revenues. The TCUC cities denied the rate
change request and Gas Operations appealed the denial of rates to the Railroad
Commission. The Railroad Commission issued an order in October 2008, which, if
implemented across the entire Texas Coast service territory, would result in an
annual revenue increase of $3.7 million. Both the Railroad Commission order
and the settlement provide for an annual rate adjustment mechanism to reflect
changes in operating expenses and revenues as well as changes in capital
investment and associated changes in revenue-related taxes. In
December 2008, the Railroad Commission issued an order on rehearing.
Parties have filed second motions for rehearing on this order. However, in
December 2008, Gas Operations implemented the approved rates for the nine
TCUC cities and the environs, subject to refund. The impact of the Railroad
Commission’s order on rehearing on the settled rates is still under review, and
how rates will be conformed
among all cities in the Texas Coast service territory is unknown at this time. A
final decision from the Railroad Commission regarding the second motions for
rehearing is expected no later than March 2009.
In
September 2008, CenterPoint Houston filed an application with the Texas Utility
Commission requesting an interim update to its wholesale transmission rate. The
filing resulted in a revenue requirement increase of $22.5 million over
rates then in effect. Approximately 74% will be paid by distribution companies
other than CenterPoint Houston. The remaining 26% represents CenterPoint
Houston’s share. That amount cannot be included in rates until 2010 under the
terms of the rate freeze implemented in the settlement of CenterPoint Houston’s
2006 rate proceeding. In November 2008, the Texas Utility Commission approved
CenterPoint Houston’s request. The interim rates became effective for service on
and after November 5, 2008.
Minnesota. In
November 2006, the Minnesota Public Utilities Commission (MPUC) denied a request
filed by Gas Operations for a waiver of MPUC rules in order to allow Gas
Operations to recover approximately $21 million in unrecovered purchased
gas costs related to periods prior to July 1, 2004. Those unrecovered gas
costs were identified as a result of revisions to previously approved
calculations of unrecovered purchased gas costs. Following that denial, Gas
Operations recorded a $21 million adjustment to reduce pre-tax earnings in
the fourth quarter of 2006 and reduced the regulatory asset related to these
costs by an equal amount. In March 2007, following the MPUC’s denial of
reconsideration of its ruling, Gas Operations petitioned the Minnesota Court of
Appeals for review of the MPUC’s decision, and in May 2008 that court ruled that
the MPUC had been arbitrary and capricious in denying Gas Operations a waiver.
The court ordered the case remanded to the MPUC for reconsideration under the
same principles the MPUC had applied in previously granted waiver requests. The
MPUC sought further review of the court of appeals decision from the Minnesota
Supreme Court, and in July 2008, the Minnesota Supreme Court agreed to review
the decision. In January 2009, the Minnesota Supreme Court heard oral arguments.
While there is no deadline for a decision, a decision is expected by the end of
the third quarter of 2009. While no prediction can be made as to the ultimate
outcome, this matter will have no negative impact on the Company’s financial
condition, results of operations or cash flows.
In
November 2008, Gas Operations filed a request with the MPUC to increase its
rates for utility distribution service. If approved by the MPUC, the proposed
new rates would result in an overall increase in annual revenue of
$59.8 million. The proposed increase would allow Gas Operations to recover
increased operating costs, including higher bad debt and collection expenses,
the cost of improved customer service and inflationary increases in other
expenses. It also would allow recovery of increased costs related to
conservation improvement programs and provide a return for the additional
capital invested to serve its customers. In addition, Gas Operations is seeking
an adjustment mechanism that would annually adjust rates to reflect changes in
use per customer. In December 2008, the MPUC accepted the case and approved
an interim rate increase of $51.2 million, which became effective on
January 2, 2009, subject to refund. The MPUC is allowed ten months to issue a
final decision; however, an extension of time can occur in certain
circumstances.
(4) Derivative
Instruments
The
Company is exposed to various market risks. These risks arise from transactions
entered into in the normal course of business. The Company utilizes derivative
instruments such as physical forward contracts, swaps and options to mitigate
the impact of changes in commodity prices, weather and interest rates on its
operating results and cash flows.
(a) Non-Trading
Activities
Cash Flow
Hedges. The Company has entered into certain derivative
instruments that qualify as cash flow hedges under SFAS No. 133. The
objective of these derivative instruments is to hedge the price risk associated
with natural gas purchases and sales to reduce cash flow variability related to
meeting the Company’s wholesale and retail customer obligations. During the year
ended December 31, 2006, hedge ineffectiveness resulted in a gain of
$2 million and during both the years ended December 31, 2007 and 2008,
hedge ineffectiveness resulted in a loss of less than $1 million from
derivatives that qualify for and are designated as cash flow hedges. No
component of the derivative instruments’ gain or loss was excluded from the
assessment of effectiveness. If it becomes probable that an anticipated
transaction being hedged will not occur, the Company realizes in net income the
deferred gains and losses previously recognized in accumulated other
comprehensive loss. When an anticipated transaction being hedged
affects earnings, the accumulated deferred gain or loss recognized in
accumulated other comprehensive loss is reclassified and included in the
Statements of Consolidated Income under the “Expenses” caption “Natural gas.”
Cash flows resulting from these transactions in non-trading energy derivatives
are included in the Statements of Consolidated Cash Flows in the same category
as the item being hedged. As of December 31, 2008, the Company expects less
than $1 million in accumulated other comprehensive income to be
reclassified as a decrease in Natural gas expense during the next twelve
months.
The
length of time the Company is hedging its exposure to the variability in future
cash flows using derivative instruments that have been designated and have
qualified as cash flow hedging instruments is less than one year. The Company’s
policy is not to exceed ten years in hedging its exposure.
Other Derivative
Instruments. The Company enters into certain derivative
instruments to manage physical commodity price risks that do not qualify or are
not designated as cash flow or fair value hedges under SFAS No. 133. The
Company utilizes these financial instruments to manage physical commodity price
risks and does not engage in proprietary or speculative commodity trading.
During the year ended December 31, 2006, the Company decreased natural gas
expense from unrealized net gains of $34 million. During the year ended
December 31, 2007, the Company increased natural gas expense from
unrealized net losses of $10 million. During the year ended
December 31, 2008, the Company increased revenues from unrealized net gains
of $101 million and increased natural gas expense from unrealized net
losses of $88 million, a net unrealized gain of
$13 million.
Weather
Derivatives. The Company has weather normalization or other
rate mechanisms that mitigate the impact of weather in Arkansas, Louisiana,
Oklahoma and a portion of Texas. The remaining Gas Operations jurisdictions,
Minnesota, Mississippi and most of Texas, do not have such mechanisms. As a
result, fluctuations from normal weather may have a significant positive or
negative effect on the results of these operations.
In 2007,
the Company entered into heating-degree day swaps to mitigate the effect of
fluctuations from normal weather on its financial position and cash flows for
the 2007-2008 winter heating season. The swaps were based on ten-year normal
weather and provided for a maximum payment by either party of $18 million.
In July 2008, the Company entered into heating-degree day swaps to mitigate the
effect of fluctuations from normal weather on its financial position and cash
flows for the 2008-2009 winter heating season. The swaps are based on ten-year
normal weather and provide for a maximum payment by either party of
$11 million. During the years ended December 31, 2007 and 2008, the
Company recognized losses of $-0- and $17 million, respectively, related to
these swaps. Such amounts were substantially offset by increased margin due to
colder than normal weather. These weather derivative losses are included in
revenues in the Statements of Consolidated Income.
Interest Rate
Swaps. During 2002, the Company settled forward-starting
interest rate swaps having an aggregate notional amount of $1.5 billion at
a cost of $156 million, which was recorded in other comprehensive loss and
was amortized into interest expense over the five-year life of the designated
fixed-rate debt. The settlement amount was
85
fully
amortized at December 31, 2007. Amortization of amounts deferred in
accumulated other comprehensive loss for 2006 and 2007 was $31 million and
$20 million, respectively.
Hedging of Future Debt
Issuances. In December 2007 and January 2008, the Company
entered into treasury rate lock derivative instruments (treasury rate locks)
having an aggregate notional amount of $300 million and a weighted-average
locked U.S. treasury rate on ten-year debt of 4.05%. These treasury rate locks
were executed to hedge the ten-year U.S. treasury rate expected to be used in
pricing $300 million of fixed-rate debt the Company planned to issue in
2008, because changes in the U.S treasury rate would cause variability in the
Company’s forecasted interest payments. These treasury rate lock derivatives
were designated as cash flow hedges. Accordingly, unrealized gains and losses
associated with the treasury rate lock derivative instruments were recorded as a
component of accumulated other comprehensive income. In May 2008, the Company
settled its treasury rate locks for a payment of $7 million. The
$7 million loss recognized upon settlement of the treasury rate locks was
recorded as a component of accumulated other comprehensive loss and will be
recognized as a component of interest expense over the ten-year life of the
related $300 million senior notes issued in May 2008. Amortization of
amounts deferred in accumulated other comprehensive loss for the year ended
December 31, 2008 was less than $1 million. During the years ended
December 31, 2007 and 2008, the Company recognized a loss of
$2 million and $5 million, respectively, for these treasury rate locks
in accumulated other comprehensive loss. Ineffectiveness for the treasury rate
locks was not material during the years ended December 31, 2007 and
2008.
(b) Credit
Risks
In
addition to the risk associated with price movements, credit risk is also
inherent in the Company’s non-trading derivative activities. Credit risk relates
to the risk of loss resulting from non-performance of contractual obligations by
a counterparty. The following table shows the composition of the non-trading
derivative assets of the Company as of December 31, 2007 and 2008 (in
millions):
|
December 31,
2007
|
December 31,
2008
|
|||||||||||||||
|
Investment
Grade(1)
|
Total
|
Investment
Grade(1)
|
Total
|
|||||||||||||
|
Energy
marketers
|
$ | 16 | $ | 18 | $ | 8 | $ | 9 | ||||||||
|
Financial
institutions
|
25 | 25 | 4 | 4 | ||||||||||||
|
Retail
end users (2)
|
3 | 7 | 5 | 125 | ||||||||||||
|
Total
|
$ | 44 | $ | 50 | $ | 17 | $ | 138 | ||||||||
|
(1)
|
“Investment
grade” is primarily determined using publicly available credit ratings
along with the consideration of credit support (such as parent company
guaranties) and collateral, which encompass cash and standby letters of
credit. For unrated counterparties, the Company performs financial
statement analysis, considering contractual rights and restrictions and
collateral, to create a synthetic credit
rating.
|
|
(2)
|
Retail
end users represent commercial and industrial customers who have
contracted to fix the price of a portion of their physical gas
requirements for future periods.
|
(5) Fair
Value Measurements
Effective
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements”
(SFAS No. 157), which requires additional disclosures about the Company’s
financial assets and liabilities that are measured at fair value. FASB Staff
Position No. FAS 157-2 delays the effective date for SFAS No. 157 for
nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis, to
fiscal years, and interim periods within those fiscal years, beginning after
November 15, 2008. The Company has elected to defer the adoption of SFAS No. 157
for its goodwill impairment test and the measurement of asset retirement
obligations until January 1, 2009 as permitted. Beginning in January 2008,
assets and liabilities recorded at fair value in the Consolidated Balance Sheet
are categorized based upon the level of judgment associated with the inputs used
to measure their value. Hierarchical levels, as defined in SFAS No. 157 and
directly related to the amount of subjectivity associated with the inputs to
fair valuations of these assets and liabilities, are as follows:
Level 1:
Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities at the measurement date. The types of assets carried at Level 1 fair
value generally are financial derivatives, investments and equity securities
listed in active markets.
Level 2:
Inputs, other than quoted prices included in Level 1, are observable for the
asset or liability, either directly or indirectly. Level 2 inputs include quoted
prices for similar instruments in active markets, and inputs other than quoted
prices that are observable for the asset or liability. Fair value assets and
liabilities that are generally included in this category are derivatives with
fair values based on inputs from actively quoted markets.
Level 3:
Inputs are unobservable for the asset or liability, and include situations where
there is little, if any, market activity for the asset or liability. In certain
cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, the level in the fair value hierarchy
within which the fair value measurement in its entirety falls has been
determined based on the lowest level input that is significant to the fair value
measurement in its entirety. The Company’s assessment of the significance of a
particular input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the asset. Generally, assets and
liabilities carried at fair value and included in this category are financial
derivatives.
The
following table presents information about the Company’s assets and liabilities
(including derivatives that are presented net) measured at fair value on a
recurring basis as of December 31, 2008, and indicates the fair value
hierarchy of the valuation techniques utilized by the Company to determine such
fair value.
|
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level
1)
|
Significant
Other
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
Netting
Adjustments (1)
|
Balance
as
of
December 31,
2008
|
||||||||||||||||
|
(in
millions)
|
||||||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Corporate
equities
|
$ | 218 | $ | — | $ | — | $ | — | $ | 218 | ||||||||||
|
Investments,
including money market funds
|
70 | — | — | — | 70 | |||||||||||||||
|
Derivative
assets
|
8 | 155 | 49 | (74 | ) | 138 | ||||||||||||||
|
Total
assets
|
$ | 296 | $ | 155 | $ | 49 | $ | (74 | ) | $ | 426 | |||||||||
|
Liabilities
|
||||||||||||||||||||
|
Indexed
debt securities derivative
|
$ | — | $ | 133 | $ | — | $ | — | $ | 133 | ||||||||||
|
Derivative
liabilities
|
44 | 244 | 107 | (261 | ) | 134 | ||||||||||||||
|
Total
liabilities
|
$ | 44 | $ | 377 | $ | 107 | $ | (261 | ) | $ | 267 | |||||||||
|
(1)
|
Amounts
represent the impact of legally enforceable master netting agreements that
allow the Company to settle positive and negative positions and also cash
collateral held or placed with the same
counterparties.
|
The
following table presents additional information about assets or liabilities,
including derivatives that are measured at fair value on a recurring basis for
which the Company has utilized Level 3 inputs to determine fair value, for the
year ended December 31, 2008:
|
Fair
Value Measurements
Using
Significant
Unobservable
Inputs
(Level
3)
|
||||
|
Derivative
assets and
liabilities,
net
|
||||
|
(in
millions)
|
||||
|
Beginning
liability balance as of January 1, 2008
|
$ | (3 | ) | |
|
Total
gains or (losses) (realized and unrealized):
|
||||
|
Included in deferred fuel cost
recovery
|
(10 | ) | ||
|
Included in
earnings
|
(11 | ) | ||
|
Purchases,
sales, other settlements, net:
|
||||
|
Included
in deferred fuel cost recovery
|
(41 | ) | ||
|
Included
in earnings
|
6 | |||
|
Net
transfers into Level 3
|
1 | |||
|
Ending
liability balance as of December 31, 2008
|
$ | (58 | ) | |
|
The
amount of total gains for the period included in earnings attributable to
the change in unrealized gains or losses relating to assets still held at
the reporting date
|
$ | 7 | ||
(6) Indexed Debt Securities (ZENS) and Time Warner Securities
(a) Original
Investment in Time Warner Securities
In 1995,
the Company sold a cable television subsidiary to TW and received TW convertible
preferred stock (TW Preferred) as partial consideration. In July 1999, the
Company converted its 11 million shares of TW Preferred into
45.8 million shares of TW Common. A subsidiary of the Company now holds
21.6 million shares of TW Common which are classified as trading securities
under SFAS No. 115 and are expected to be held to facilitate the Company’s
ability to meet its obligation under the 2.0% Zero-Premium Exchangeable
Subordinated Notes due 2029 (ZENS).
Unrealized gains and losses resulting from changes in the market value of the TW
Common are recorded in the Company’s Statements of Consolidated
Income.
(b) ZENS
In
September 1999, the Company issued its ZENS having an original principal amount
of $1.0 billion. ZENS are exchangeable for cash equal to the market value
of a specified number of shares of TW common. The Company pays interest on the
ZENS at an annual rate of 2% plus the amount of any quarterly cash dividends
paid in respect of the shares of TW Common attributable to the ZENS. The
principal amount of ZENS is subject to being increased or decreased to the
extent that the annual yield from interest and cash dividends on the reference
shares of TW Common is less than or more than 2.309%. This is defined in the
ZENS instrument as “contingent principal.” At December 31, 2008, ZENS
having an original principal amount of $840 million and a contingent
principal amount of $817 million were outstanding and were exchangeable, at
the option of the holders, for cash equal to 95% of the market value of
21.6 million shares of TW Common deemed to be attributable to the ZENS. At
December 31, 2008, the market value of such shares was approximately
$218 million, which would provide an exchange amount of $246 for each
$1,000 original principal amount of ZENS. At maturity of the ZENS in 2029, the
Company will be obligated to pay in cash the higher of the contingent principal
amount of the ZENS or an amount based on the then-current market value of TW
Common, or other securities distributed with respect to TW Common.
The ZENS
obligation is bifurcated into a debt component and a derivative component (the
holder’s option to receive the appreciated value of TW Common at maturity). The
bifurcated debt component accretes through interest charges at 17.4% annually up
to the contingent principal amount of the ZENS in 2029. Such accretion will be
reduced by annual cash interest payments, as described above. The derivative
component is recorded at fair value and changes in the fair value of the
derivative component are recorded in the Company’s Statements of
Consolidated
88
Income.
During 2006, 2007 and 2008, the Company recorded a gain (loss) of
$94 million, $(114) million and $(139) million, respectively, on
the Company’s investment in TW Common. During 2006, 2007 and 2008, the Company
recorded a gain (loss) of $(80) million, $111 million and
$128 million, respectively, associated with the fair value of the
derivative component of the ZENS obligation. Changes in the fair value of the TW
Common held by the Company are expected to substantially offset changes in the
fair value of the derivative component of the ZENS.
The
following table sets forth summarized financial information regarding the
Company’s investment in TW Common and the Company’s ZENS obligation (in
millions).
|
TW
Investment
|
Debt
Component
of
ZENS
|
Derivative
Component
of
ZENS
|
||||||||||
|
Balance
at December 31, 2005
|
$ | 377 | $ | 109 | $ | 292 | ||||||
|
Accretion
of debt component of ZENS
|
— | 19 | — | |||||||||
|
2%
interest paid
|
— | (17 | ) | — | ||||||||
|
Loss
on indexed debt securities
|
— | — | 80 | |||||||||
|
Gain
on TW Common
|
94 | — | — | |||||||||
|
Balance
at December 31, 2006
|
471 | 111 | 372 | |||||||||
|
Accretion
of debt component of ZENS
|
— | 20 | — | |||||||||
|
2%
interest paid
|
— | (17 | ) | — | ||||||||
|
Gain
on indexed debt securities
|
— | — | (111 | ) | ||||||||
|
Loss
on TW Common
|
(114 | ) | — | — | ||||||||
|
Balance
at December 31, 2007
|
357 | 114 | 261 | |||||||||
|
Accretion
of debt component of ZENS
|
— | 20 | — | |||||||||
|
2%
interest paid
|
— | (17 | ) | — | ||||||||
|
Gain
on indexed debt securities
|
— | — | (128 | ) | ||||||||
|
Loss
on TW Common
|
(139 | ) | — | — | ||||||||
|
Balance
at December 31, 2008
|
$ | 218 | $ | 117 | $ | 133 | ||||||
(7) Equity
(a) Capital
Stock
CenterPoint
Energy has 1,020,000,000 authorized shares of capital stock, comprised of
1,000,000,000 shares of $0.01 par value common stock and
20,000,000 shares of $0.01 par value preferred stock.
(b) Shareholder
Rights Plan
The
Company has a Shareholder Rights Plan that states that each share of its common
stock includes one associated preference stock purchase right (Right) which
entitles the registered holder to purchase from the Company a unit consisting of
one-thousandth of a share of Series A Preference Stock. The Rights, which
expire on December 11, 2011, are exercisable upon some events involving the
acquisition of 20% or more of the Company’s outstanding common stock. Upon the
occurrence of such an event, each Right entitles the holder to receive common
stock with a current market price equal to two times the exercise price of the
Right. At any time prior to becoming exercisable, the Company may repurchase the
Rights at a price of $0.005 per Right. There are 700,000 shares of
Series A Preference Stock reserved for issuance upon exercise of the
Rights.
(8) Short-term
Borrowings and Long-term Debt
|
December 31,
2007
|
December 31,
2008
|
|||||||||||||||
|
Long-Term
|
Current(1)
|
Long-Term
|
Current(1)
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Short-term
borrowings:
|
||||||||||||||||
|
CERC
Corp. receivables facility
|
$ | — | $ | 232 | $ | — | $ | 78 | ||||||||
|
Inventory
financing
|
— | — | — | 75 | ||||||||||||
|
Total
short-term borrowings
|
— | 232 | — | 153 | ||||||||||||
|
Long-term
debt:
|
||||||||||||||||
|
CenterPoint
Energy:
|
||||||||||||||||
|
ZENS(2)
|
— | 114 | — | 117 | ||||||||||||
|
Senior
notes 5.875% to 7.25% due 2008 to 2018
|
650 | 200 | 950 |
—
|
||||||||||||
|
Convertible
senior notes 3.75% due 2023(3)
|
— | 535 | — |
—
|
||||||||||||
|
Pollution
control bonds 4.00% due 2015(4)
|
151 | — | 151 | — | ||||||||||||
|
Pollution
control bonds 4.70% to 8.00% due 2011 to 2030(5)
|
1,046 | — | 871 | — | ||||||||||||
|
Bank
loans due 2012(6)
|
131 | — | 264 | — | ||||||||||||
|
Other
|
— | — | 12 | 1 | ||||||||||||
|
CenterPoint
Houston:
|
||||||||||||||||
|
First
mortgage bonds 9.15% due 2021
|
102 | — | 102 | — | ||||||||||||
|
General
mortgage bonds 5.60% to 6.95% due 2013 to 2033
|
1,262 | — | 1,262 | — | ||||||||||||
|
Pollution
control bonds 3.625% to 5.60% due 2012 to 2027(7)
|
229 | — | 229 | — | ||||||||||||
|
Transition
Bonds 4.192% to 5.63% due 2008 to 2020
|
2,101 | 159 | 2,381 | 208 | ||||||||||||
|
Bank
loans due 2012(6)
|
50 | — | 251 | — | ||||||||||||
|
CERC
Corp.:
|
||||||||||||||||
|
Convertible
subordinated debentures 6.00% due 2012
|
50 | 7 | 44 | 7 | ||||||||||||
|
Senior
notes 5.95% to 7.875% due 2008 to 2037
|
2,447 | 300 | 2,747 |
—
|
||||||||||||
|
Bank
loans due 2012(6)
|
150 | — | 926 | — | ||||||||||||
|
Other
|
1 | — | 1 | — | ||||||||||||
|
Unamortized
discount and premium(8)
|
(6 | ) | — | (10 | ) | — | ||||||||||
|
Total
long-term debt
|
8,364 | 1,315 | 10,181 | 333 | ||||||||||||
|
Total
debt
|
$ | 8,364 | $ | 1,547 | $ | 10,181 | $ | 486 | ||||||||
__________
|
(1)
|
Includes
amounts due or exchangeable within one year of the date
noted.
|
|
(2)
|
The
Company’s ZENS obligation is bifurcated into a debt component and an
embedded derivative component. For additional information regarding ZENS,
see Note 6(b). As ZENS are exchangeable for cash at any time at the option
of the holders, these notes are classified as a current portion of
long-term debt.
|
|
(3)
|
Substantially
all of the Company’s 3.75% convertible senior notes were submitted
for conversion in 2008, as described in Note 8(b), “Long-term
Debt — Convertible Debt.”
|
|
(4)
|
These
series of debt are secured by first mortgage bonds of CenterPoint
Houston.
|
|
(5)
|
$527 million
of these series of debt is secured by general mortgage bonds of
CenterPoint Houston.
|
|
(6)
|
Classified
as long-term debt because the termination dates of the facilities under
which the funds were borrowed are more than one year from the date
noted.
|
|
(7)
|
These
series of debt are secured by general mortgage bonds of CenterPoint
Houston.
|
|
(8)
|
Debt
acquired in business acquisitions is adjusted to fair market value as of
the acquisition date. Included in long-term debt is additional unamortized
premium related to fair value adjustments of long-term debt of
$3 million at both December 31, 2007 and 2008, which is being
amortized over the respective remaining term of the related long-term
debt.
|
(a) Short-term
Borrowings
Receivables
Facility. On November 25, 2008, CERC replaced a receivables
facility that had terminated on October 28, 2008 with a new 364-day
receivables facility. Availability under the new facility ranges from
$128 million to $375 million, reflecting seasonal changes in
receivables balances. At December 31, 2007 and 2008 the facility size was
$300 and $128 million, respectively. As of December 31, 2007 and 2008,
advances under the receivables facilities were $232 million and
$78 million, respectively. As of December 31, 2008, advances had an
interest rate of 3.81%.
Inventory
Financing. In December 2008, CERC entered into an asset
management agreement whereby it sold $110 million of its natural gas in
storage and agreed to repurchase an equivalent amount of natural gas during the
2008-2009 winter heating season for payments totaling $114 million. This
transaction was accounted for as a financing and, as of December 31, 2008,
the Company’s financial statements reflect natural gas inventory of
$75 million and a financing obligation of $75 million related to this
transaction.
Revolving Credit
Facility. In November 2008, CenterPoint Houston entered
into a $600 million 364-day credit facility. The $600 million
CenterPoint Houston credit facility will terminate if bonds are issued to
securitize the costs incurred as a result of Hurricane Ike and if those bonds
are issued prior to the November 24, 2009 expiration of the facility.
CenterPoint Houston expects to seek legislative and regulatory approval for the
issuance of such bonds during 2009.
The
$600 million CenterPoint Houston credit facility is secured by a pledge of
$600 million of general mortgage bonds issued by CenterPoint Houston.
Borrowing costs for London Interbank Offered Rate (LIBOR)-based loans will be at
a margin of 2.25 percent above LIBOR rates, based on CenterPoint Houston’s
current ratings. In addition, CenterPoint Houston will pay lenders, based on
current ratings, a per annum commitment fee of 0.5 percent for their
commitments under the facility and a quarterly duration fee of 0.75 percent
on the average amount of outstanding borrowings during the quarter. The spread
to LIBOR and the commitment fee fluctuate based on the borrower’s credit rating.
The facility contains covenants, including a debt (excluding transition and
other securitization bonds) to total capitalization covenant. As of
December 31, 2008, there were no borrowings outstanding under the
$600 million CenterPoint Houston credit facility.
(b) Long-term
Debt
Senior Notes and General Mortgage
Bonds. In May 2008, the Company issued $300 million aggregate
principal amount of senior notes due in May 2018 with an interest rate of 6.50%.
The proceeds from the sale of the senior notes were used for general corporate
purposes, including the satisfaction of cash payment obligations in connection
with conversions of the Company’s 3.75% convertible senior
notes.
In May
2008, CERC Corp. issued $300 million aggregate principal amount of senior
notes due in May 2018 with an interest rate of 6.00%. The proceeds from the sale
of the senior notes were used for general corporate purposes, including capital
expenditures, working capital and loans to or investments in
affiliates.
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.
Revolving Credit
Facilities. The Company’s $1.2 billion credit facility
has a first-drawn cost of LIBOR plus 55 basis points based on the Company’s
current credit ratings. The facility contains a debt (excluding transition
bonds) to earnings before interest, taxes, depreciation and amortization
(EBITDA) covenant, which was modified (i) in August 2008 so that the permitted
ratio of debt to EBITDA would continue at its then-current level for the
remaining term of the facility and (ii) in November 2008 so that the permitted
ratio of debt to EBITDA would be temporarily increased until the earlier of
December 31, 2009 or CenterPoint Houston’s issuance of bonds to securitize
the costs incurred as a result of Hurricane Ike, after which time the permitted
ratio would revert to the level that existed prior to the November 2008
modification.
CenterPoint
Houston’s $289 million credit facility’s first drawn cost is LIBOR plus 45
basis points based on CenterPoint Houston’s current credit ratings. The facility
contains a debt (excluding transition bonds) to total capitalization
covenant.
CERC
Corp.’s $950 million credit facility’s first drawn cost is LIBOR plus 45
basis points based on CERC Corp.’s current credit ratings. The facility contains
a debt to total capitalization covenant.
Under the
Company’s $1.2 billion credit facility, CenterPoint Houston’s
$289 million credit facility and CERC Corp’s $950 million credit
facility, an additional utilization fee of 5 basis points applies to borrowings
any time more than 50% of the facility is utilized. The spread to LIBOR and the
utilization fee fluctuate based on the borrower’s credit rating.
As of
December 31, 2007 and 2008, the following loan balances were outstanding
under the Company’s revolving credit facilities (in millions):
|
December 31,
2007
|
December 31,
2008
|
|||||||
|
CenterPoint Energy
$1.2 billion credit facility borrowings
|
$ | 131 | $ | 264 | ||||
|
CenterPoint Houston
$289 million credit facility borrowings
|
50 | 251 | ||||||
|
CERC Corp. $950 million
credit facility borrowings
|
150 | 926 | ||||||
|
Total credit facility
borrowings
|
$ | 331 | $ | 1,441 | ||||
In
addition, as of December 31, 2007 and 2008, the Company had approximately
$28 million and $27 million, respectively, of outstanding letters of
credit under its $1.2 billion credit facility and CenterPoint Houston had
approximately $4 million of outstanding letters of credit under its
$289 million credit facility as of both December 31, 2007 and 2008.
There was no commercial paper outstanding that would have been backstopped by
the Company’s $1.2 billion credit facility or CERC Corp.’s
$950 million credit facility at December 31, 2007 and 2008. The
Company, CenterPoint Houston and CERC Corp. were in compliance with all debt
covenants as of December 31, 2008.
Transition Bonds. Pursuant to
a financing order issued by the Texas Utility Commission in September 2007, in
February 2008 a subsidiary of CenterPoint Houston issued approximately
$488 million in transition bonds in two tranches with interest rates of
4.192% and 5.234% and final maturity dates of February 2020 and February 2023,
respectively. Scheduled final payment dates are February 2017 and February 2020.
Through issuance of the transition bonds, CenterPoint Houston securitized
transition property of approximately $483 million representing the
remaining balance of the CTC less an environmental refund as reduced by the fuel
reconciliation settlement amount. See Note 3(b) for further
discussion.
Convertible
Debt. On May 19, 2003, the Company issued
$575 million aggregate principal amount of convertible senior notes due
May 15, 2023 with an interest rate of 3.75%.
In the
fourth quarter of 2007, holders of the Company’s 3.75% convertible senior notes
converted approximately $40 million principal amount of such notes.
Substantially all of such conversions were settled with a cash payment for the
principal amount and delivery of 1.3 million shares of the Company’s common
stock for the excess value due converting holders.
In April
2008, the Company called its 3.75% convertible senior notes for redemption on
May 30, 2008. At the time of the announcement, the notes were convertible
at the option of the holders, and substantially all of the notes were submitted
for conversion on or prior to the May 30, 2008 redemption date. During the
year ended December 31, 2008, the Company issued 16.9 million shares
of its common stock and paid cash of approximately $532 million to settle
conversions of approximately $535 million principal amount of its 3.75%
convertible senior notes.
In
December 2006, the Company called its 2.875% convertible senior notes
for redemption on January 22, 2007. The 2.875% convertible senior
notes became immediately convertible at the option of the holders upon the call
for redemption and were convertible through the close of business on the
redemption date. Substantially all the $255 million aggregate principal
amount of the 2.875% convertible senior notes were converted in January
2007.
92
The
$255 million principal amount of the 2.875% convertible senior notes
was settled in cash and the excess value due converting holders of
$97 million was settled by delivering approximately 5.6 million shares
of the Company’s common stock.
Purchase of Pollution Control
Bonds. In April 2008, the Company purchased $175 million
principal amount of pollution control bonds issued on its behalf at 102% of
their principal amount. Prior to the purchase, $100 million principal
amount of such bonds had a fixed rate of interest of 7.75% and $75 million
principal amount of such bonds had a fixed rate of interest of 8%. Depending on
market conditions, the Company may remarket both series of bonds, at 100% of
their principal amounts, in 2009.
Maturities. The
Company’s maturities of long-term debt, capital leases and sinking fund
requirements, excluding the ZENS obligation, are $216 million in 2009,
$438 million in 2010, $815 million in 2011, $1.8 billion in 2012
and $1.5 billion in 2013.
Liens. As of
December 31, 2008, CenterPoint Houston’s assets were subject to liens
securing approximately $253 million of first mortgage bonds. Sinking or
improvement fund and replacement fund requirements on the first mortgage bonds
may be satisfied by certification of property additions. Sinking fund and
replacement fund requirements for 2006, 2007 and 2008 have been satisfied by
certification of property additions. The replacement fund requirement to be
satisfied in 2009 is approximately $170 million, and the sinking fund
requirement to be satisfied in 2009 is approximately $3 million. The
Company expects CenterPoint Houston to meet these 2009 obligations by
certification of property additions. As of December 31, 2008, CenterPoint
Houston’s assets were also subject to liens securing approximately
$2.6 billion of general mortgage bonds which are junior to the liens of the
first mortgage bonds.
(9) Income
Taxes
The
components of the Company’s income tax expense (benefit) were as
follows:
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 373 | $ | 163 | $ | (220 | ) | |||||
|
State
|
37 | 32 | 11 | |||||||||
|
Total
current
|
410 | 195 | (209 | ) | ||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(362 | ) | 47 | 437 | ||||||||
|
State
|
14 | (47 | ) | 50 | ||||||||
|
Total
deferred
|
(348 | ) | — | 487 | ||||||||
|
Income
tax expense
|
$ | 62 | $ | 195 | $ | 278 | ||||||
A
reconciliation of the federal statutory income tax rate to the effective income
tax rate is as follows:
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Income
before income taxes
|
$ | 494 | $ | 594 | $ | 725 | ||||||
|
Federal
statutory rate
|
35 | % | 35 | % | 35 | % | ||||||
|
Income
taxes at statutory rate
|
173 | 208 | 254 | |||||||||
|
Net
addition (reduction) in taxes resulting from:
|
||||||||||||
|
State
income taxes (benefit), net of valuation allowance and federal income
tax
|
33 | (10 | ) | 40 | ||||||||
|
Amortization
of investment tax credit
|
(7 | ) | (8 | ) | (7 | ) | ||||||
|
Tax
basis balance sheet adjustments
|
— | 25 | — | |||||||||
|
Increase
(decrease) in settled and uncertain income tax positions
|
(118 | ) | (20 | ) | 8 | |||||||
|
Other,
net
|
(19 | ) | — | (17 | ) | |||||||
|
Total
|
(111 | ) | (13 | ) | 24 | |||||||
|
Income
tax expense
|
$ | 62 | $ | 195 | $ | 278 | ||||||
|
Effective
income tax rate
|
12.6 | % | 32.8 | % | 38.4 | % | ||||||
Changes
in the Texas State Franchise Tax Law (Texas margin tax) resulted in classifying
Texas margin tax of approximately $8 million, net of federal income tax
effect, as income tax expense in 2008 for CenterPoint Houston. The 2007 state
income tax benefit of $10 million includes a benefit of approximately
$30 million, net of federal income tax effect, as a result of the Texas
margin tax and a Texas state tax examination for the tax years 2002 through
2004.
The tax
effects of temporary differences that give rise to significant portions of
deferred tax assets and liabilities were as follows:
|
December 31,
|
||||||||
|
2007
|
2008
|
|||||||
|
(In
millions)
|
||||||||
|
Deferred
tax assets:
|
||||||||
|
Current:
|
||||||||
|
Allowance
for doubtful accounts
|
$ | 17 | $ | 15 | ||||
|
Deferred
gas costs
|
26 | 13 | ||||||
|
Other
|
— | 1 | ||||||
|
Total
current deferred tax assets
|
43 | 29 | ||||||
|
Non-current:
|
||||||||
|
Loss
and credit carryforwards
|
52 | 36 | ||||||
|
Employee
benefits
|
173 | 360 | ||||||
|
Other
|
6 | 57 | ||||||
|
Total
non-current deferred tax assets before valuation allowance
|
231 | 453 | ||||||
|
Valuation
allowance
|
(18 | ) | (5 | ) | ||||
|
Total
non-current deferred tax assets
|
213 | 448 | ||||||
|
Total
deferred tax assets, net
|
256 | 477 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Current:
|
||||||||
|
Unrealized
gain on indexed debt securities
|
294 | 373 | ||||||
|
Unrealized
gain on TW Common
|
77 | 28 | ||||||
|
Other
|
22 | — | ||||||
|
Total
current deferred tax liabilities
|
393 | 401 | ||||||
|
Non-current:
|
||||||||
|
Depreciation
|
1,359 | 1,679 | ||||||
|
Regulatory
assets, net
|
1,039 | 1,319 | ||||||
|
Other
|
50 | 59 | ||||||
|
Total
non-current deferred tax liabilities
|
2,448 | 3,057 | ||||||
|
Total
deferred tax liabilities
|
2,841 | 3,458 | ||||||
|
Accumulated
deferred income taxes, net
|
$ | 2,585 | $ | 2,981 | ||||
Tax Attribute Carryforwards and
Valuation Allowance. At December 31, 2008, the Company
has approximately $138 million of state net operating loss carryforwards
which expire in various years between 2009 and 2028. A valuation allowance has
been established for approximately $60 million of the state net operating
loss carryforwards that may not be realized. The Company has a state tax credit
carryforward of approximately $44 million which expires in 2026. At
December 31, 2008, the Company has approximately $244 million of state
capital loss carryforwards which expire in 2017 for which a valuation allowance
has been established.
Uncertain Income Tax
Positions. The Company adopted the provisions of FIN 48 on
January 1, 2007. As a result of the adoption of FIN 48, the Company
recognized a decrease of approximately $2 million in the liability for
unrecognized tax benefits, which was accounted for as a reduction to the
January 1, 2007 accumulated deficit. A reconciliation of the change in
unrecognized tax benefits for 2007 and 2008 is as follows:
|
December 31,
|
||||||||
|
2007
|
2008
|
|||||||
|
(In
millions)
|
||||||||
|
Balance,
beginning of year
|
$ | 72 | $ | 82 | ||||
|
Tax
positions related to prior years:
|
||||||||
|
Additions
|
28 | 20 | ||||||
|
Reductions
|
(20 | ) | (2 | ) | ||||
|
Tax
positions related to current year:
|
||||||||
|
Additions
|
4 | 17 | ||||||
|
Settlements
|
(2 | ) | — | |||||
|
Balance,
end of year
|
$ | 82 | $ | 117 | ||||
The
Company has approximately $10 million and $14 million of unrecognized
tax benefits that, if recognized, would reduce the effective income tax rate for
2007 and 2008, respectively. The Company recognizes interest and penalties as a
component of income tax expense. The Company recognized approximately
$3 million and $6 million of interest on uncertain income tax
positions during 2007 and 2008, respectively. The Company had accrued
$4 million and $10 million of interest on uncertain income tax
positions at December 31, 2007 and 2008, respectively. The Company does not
expect the amount of unrecognized tax benefits to change significantly over the
next 12 months.
Tax Audits and
Settlements. The Company’s consolidated federal income tax
returns have been audited and settled through the 2003 tax year. The Company is
currently under examination by the IRS for tax years 2004 through 2007 and is at
various stages of the examination process. The Company has considered the
effects of these examinations in its accrual for settled issues and liability
for uncertain income tax positions as of December 31, 2008.
In the
fourth quarter of 2006, the Company reached a final settlement with the IRS on
the ACES and ZENS issues and executed a closing agreement on the ZENS resulting
in a net reduction in income tax expense in 2006 of approximately
$92 million. The Company also reached a tentative settlement on other tax
issues, including those related to prior acquisitions and dispositions,
resulting in a reduction in income tax expense for 2006 of approximately
$26 million.
(10) Commitments
and Contingencies
(a) Natural
Gas Supply Commitments
Natural
gas supply commitments include natural gas contracts related to the Company’s
Natural Gas Distribution and Competitive Natural Gas Sales and Services business
segments, which have various quantity requirements and durations, that are not
classified as non-trading derivative assets and liabilities in the Company’s
Consolidated Balance Sheets as of December 31, 2007 and December 31,
2008 as these contracts meet the SFAS No. 133 exception to be classified as
“normal purchases contracts” or do not meet the definition of a derivative.
Natural gas supply commitments also include natural gas transportation contracts
that do not meet the definition of a derivative. As of December 31, 2008,
minimum payment obligations for natural gas supply commitments are approximately
$776 million in 2009, $474 million in 2010, $437 million in 2011,
$430 million in 2012, $447 million in 2013 and $956 million in
2014 and thereafter.
(b) Lease
Commitments
The
following table sets forth information concerning the Company’s obligations
under non-cancelable long-term operating leases at December 31, 2008, which
primarily consist of rental agreements for building space, data processing
equipment and vehicles (in millions):
|
2009
|
$ | 14 | ||
|
2010
|
12 | |||
|
2011
|
11 | |||
|
2012
|
7 | |||
|
2013
|
6 | |||
|
2014
and beyond
|
25 | |||
|
Total
|
$ | 75 |
Total
lease expense for all operating leases was $56 million, $48 million
and $46 million during 2006, 2007 and 2008, respectively.
(c) Other
Commitments
In
December 2008, the Company entered into an agreement to purchase software
licenses, support and maintenance over the next five years. As of
December 31, 2008, payment obligations under this agreement are
$5 million in 2009, $7 million in 2010, $6 million in 2011,
$6 million in 2012 and $6 million in 2013.
In 2007,
CenterPoint Energy Gas Transmission Company (CEGT) completed phases one and two
of its Carthage to Perryville pipeline project with a total capacity of
1.25 billion cubic feet (Bcf) per day. In 2008, CEGT completed the Phase
III expansion of the Carthage to Perryville pipeline which increased total
capacity to 1.5 Bcf per day. During the four-year period subsequent to the
in-service date of the pipeline, XTO Energy, CEGT’s anchor shipper, can request,
and subject to mutual negotiations that meet specific financial parameters and
to FERC approval, CEGT would construct a 67-mile extension from CEGT’s
Perryville hub to an interconnect with Texas Eastern Gas Transmission at Union
Church, Mississippi. CEGT filed with FERC on December 5, 2008 to increase the
Carthage to Perryville capacity to approximately 1.9 Bcf per day. The expansion
includes a new compressor unit at two of CEGT’s existing stations and is
currently projected to be placed in service in the second quarter of
2010.
(d) Legal,
Environmental and Other Regulatory Matters
Legal
Matters
RRI
Indemnified Litigation
The
Company, CenterPoint Houston or their predecessor, Reliant Energy, Incorporated
(Reliant Energy), and certain of their former subsidiaries are named as
defendants in several lawsuits described below. Under a master separation
agreement between the Company and Reliant Energy, Inc. (formerly Reliant
Resources, Inc.) (RRI), the Company and its subsidiaries are entitled to be
indemnified by RRI for any losses, including attorneys’ fees and other costs,
arising out of the lawsuits described below under “Gas Market Manipulation
Cases,” and “Electricity Market Manipulation Cases.” Pursuant to the
indemnification obligation, RRI is defending the Company and its subsidiaries to
the extent named in these lawsuits. Although the ultimate outcome of these
matters cannot be predicted at this time, the Company has not considered it
necessary to establish reserves related to this litigation.
Gas Market Manipulation
Cases. A large number of lawsuits were filed against numerous
gas market participants in a number of federal and western state courts in
connection with the operation of the natural gas markets in 2000-2001. The
Company’s former affiliate, RRI, was a participant in gas trading in the
California and Western markets. These lawsuits, many of which have been filed as
class actions, allege violations of state and federal antitrust laws. Plaintiffs
in these lawsuits are seeking a variety of forms of relief, including, among
others, recovery of compensatory damages (in some cases in excess of
$1 billion), a trebling of compensatory damages, full consideration damages
and attorneys’ fees. The Company and/or Reliant Energy were named in
approximately 30 of
96
these
lawsuits, which were instituted between 2003 and 2007. In October 2006, RRI
reached a settlement of 11 class action natural gas cases pending in state court
in California. The court approved this settlement in June 2007. In the other gas
cases consolidated in state court in California, the Court of Appeals found that
the Company was not a successor to the liabilities of a subsidiary of RRI, and
the Company was dismissed from these suits in April 2008. In the Nevada federal
litigation, three of the complaints were dismissed based on defendants’ filed
rate doctrine defense, but the Ninth Circuit Court of Appeals reversed those
dismissals and remanded the cases back to the district court for further
proceedings. In July 2008, the plaintiffs in four of the federal court cases
agreed to dismiss the Company from those cases. In August 2008, the plaintiffs
in five additional cases also agreed to dismiss the Company from those cases,
but one of these plaintiffs has moved to amend its complaint to add CenterPoint
Energy Services, Inc., a subsidiary of CERC Corp., as a defendant in that case.
As a result, the Company remains a party in only two remaining gas market
manipulation cases, one pending in Nevada state court in Clark County and one in
federal district court in Nevada. The Company believes it is not a proper
defendant in the remaining cases and will continue to pursue dismissal from
those cases.
Electricity Market Manipulation
Cases. A large number of lawsuits were filed against numerous
market participants in connection with the operation of the California
electricity markets in 2000-2001. The Company’s former affiliate, RRI, was a
participant in the California markets, owning generating plants in the state and
participating in both electricity and natural gas trading in that state and in
western power markets generally. The Company
was named as a defendant in certain of these suits. These lawsuits, many of
which were filed as class actions and which were based on a number of legal
theories, have all been resolved. In August 2005, RRI reached a settlement with
the Federal Energy Regulatory Commission (FERC) enforcement staff, the states of
California, Washington and Oregon, California’s three largest investor-owned
utilities, classes of consumers from California and other western states, and a
number of California city and county government entities that resolves their
claims against RRI related to the operation of the electricity
markets in California and certain other western states in 2000-2001, including
the claims made by plaintiffs in the suits against RRI naming the Company. The
settlement was approved by the FERC, by the California Public Utilities
Commission and by the courts in which the electricity class action cases were
pending. An appeal by two parties to the California Court of Appeals was denied
with no further appeal sought. A party in the FERC proceedings sought review of
the FERC’s order approving the settlement in the Ninth Circuit Court of Appeals,
but in December 2008, that party voluntarily withdrew its petition for
review, and the settlement is now final. The Company is not a party to the
settlement, but may rely on the settlement as a defense to any
claims.
Other
Legal Matters
Natural Gas Measurement
Lawsuits. CERC Corp. and certain of its subsidiaries are
defendants in a lawsuit filed in 1997 under the Federal False Claims Act
alleging mismeasurement of natural gas produced from federal and Indian lands.
The suit seeks undisclosed damages, along with statutory penalties, interest,
costs and fees. The complaint is part of a larger series of complaints filed
against 77 natural gas pipelines and their subsidiaries and affiliates. An
earlier single action making substantially similar allegations against the
pipelines was dismissed by the federal district court for the District of
Columbia on grounds of improper joinder and lack of jurisdiction. As a result,
the various individual complaints were filed in numerous courts throughout the
country. This case has been consolidated, together with the other similar False
Claims Act cases, in the federal district court in Cheyenne, Wyoming. In October
2006, the judge considering this matter granted the defendants’ motion to
dismiss the suit on the ground that the court lacked subject matter jurisdiction
over the claims asserted. The plaintiff has sought review of that dismissal from
the Tenth Circuit Court of Appeals, where the matter remains
pending.
In
addition, CERC Corp. and certain of its subsidiaries are defendants in two
mismeasurement lawsuits brought against approximately 245 pipeline companies and
their affiliates pending in state court in Stevens County, Kansas. In one case
(originally filed in May 1999 and amended four times), the plaintiffs purport to
represent a class of royalty owners who allege that the defendants have engaged
in systematic mismeasurement of the volume of natural gas for more than 25
years. The plaintiffs amended their petition in this suit in July 2003 in
response to an order from the judge denying certification of the plaintiffs’
alleged class. In the amendment the plaintiffs dismissed their claims against
certain defendants (including two CERC Corp. subsidiaries), limited the scope of
the class of plaintiffs they purport to represent and eliminated previously
asserted claims based on mismeasurement of the British thermal unit (Btu)
content of the gas. The same plaintiffs then filed a second lawsuit, again as
representatives of a putative class of royalty owners, in which they assert
their claims that the defendants have engaged in
97
systematic
mismeasurement of the Btu content of natural gas for more than 25 years. In both
lawsuits, the plaintiffs seek compensatory damages, along with statutory
penalties, treble damages, interest, costs and fees. CERC believes that there
has been no systematic mismeasurement of gas and that the lawsuits are without
merit. CERC does not expect the ultimate outcome of the lawsuits to have a
material impact on the financial condition, results of operations or cash flows
of either the Company or CERC.
Gas Cost Recovery
Litigation. In October 2002, a lawsuit was filed on behalf of
certain CERC ratepayers in state district court in Wharton County, Texas against
the Company, CERC Corp., Entex Gas Marketing Company (EGMC), and certain
non-affiliated companies alleging fraud, violations of the Texas Deceptive Trade
Practices Act, violations of the Texas Utilities Code, civil conspiracy and
violations of the Texas Free Enterprise and Antitrust Act with respect to rates
charged to certain consumers of natural gas in the State of Texas. The
plaintiffs initially sought certification of a class of Texas ratepayers, but
subsequently dropped their request for class certification. The plaintiffs later
added as defendants CenterPoint Energy Marketing Inc., CenterPoint Energy
Pipeline Services, Inc. (CEPS), and certain other subsidiaries of CERC, and
other non-affiliated companies. In February 2005, the case was removed to
federal district court in Houston, Texas, and in March 2005, the plaintiffs
voluntarily dismissed the case and agreed not to refile the claims asserted
unless the Miller County case described below is not certified as a class action
or is later decertified.
In
October 2004, a lawsuit was filed by certain CERC ratepayers in Texas and
Arkansas in circuit court in Miller County, Arkansas against the Company, CERC
Corp., EGMC, CenterPoint Energy Gas Transmission Company (CEGT), CenterPoint
Energy Field Services (CEFS), CEPS, Mississippi River Transmission Corp. (MRT)
and various non-affiliated companies alleging fraud, unjust enrichment and civil
conspiracy with respect to rates charged to certain consumers of natural gas in
Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. Subsequently,
the plaintiffs dropped CEGT and MRT as defendants. Although the plaintiffs in
the Miller County case sought class certification, no class was certified. In
June 2007, the Arkansas Supreme Court determined that the Arkansas claims were
within the sole and exclusive jurisdiction of the Arkansas Public Service
Commission (APSC). In response to that ruling, in August 2007 the Miller County
court stayed but refused to dismiss the Arkansas claims. In February 2008, the
Arkansas Supreme Court directed the Miller County court to dismiss the entire
case for lack of jurisdiction. The Miller County court subsequently dismissed
the case in accordance with the Arkansas Supreme Court’s mandate and all
appellate deadlines have expired.
In June
2007, the Company, CERC Corp., EGMC and other defendants in the Miller County
case filed a petition in a district court in Travis County, Texas seeking a
determination that the Railroad Commission has exclusive original jurisdiction
over the Texas claims asserted in the Miller County case. In October 2007, CEFS
and CEPS joined the petition in the Travis County case. In October 2008, the
district court ruled that the Railroad Commission had exclusive original
jurisdiction over the Texas claims asserted against the Company, CERC Corp.,
EGMC and the other defendants in the Miller County case. In January 2009, the
court entered a final declaratory judgment ruling that the Railroad Commission
has exclusive jurisdiction over Texas claims. The Company does not anticipate
that an appeal will be filed.
In August
2007, the Arkansas plaintiff in the Miller County litigation initiated a
complaint at the APSC seeking a decision concerning the extent of the APSC’s
jurisdiction over the Miller County case and an investigation into the merits of
the allegations asserted in his complaint with respect to CERC. In February
2009, the Arkansas plaintiff notified the APSC that he would no longer pursue
his claims. That complaint remains pending at the APSC, subject to the review of
the Arkansas Attorney General, APSC Staff and the APSC.
In
February 2003, a lawsuit was filed in state court in Caddo Parish, Louisiana
against CERC with respect to rates charged to a purported class of certain
consumers of natural gas and gas service in the State of Louisiana. In February
2004, another suit was filed in state court in Calcasieu Parish, Louisiana
against CERC seeking to recover alleged overcharges for gas or gas services
allegedly provided by CERC to a purported class of certain consumers of natural
gas and gas service without advance approval by the Louisiana Public Service
Commission (LPSC). At the time of the filing of each of the Caddo and Calcasieu
Parish cases, the plaintiffs in those cases filed petitions with the LPSC
relating to the same alleged rate overcharges. The Caddo and Calcasieu Parish
lawsuits were stayed pending the resolution of the petitions filed with the
LPSC. In August 2007, the LPSC issued an order approving a Stipulated Settlement
in the review initiated by the plaintiffs in the Calcasieu Parish litigation. In
the LPSC proceeding, CERC’s gas purchases were reviewed back to 1971. The review
concluded that CERC’s gas costs were
98
“reasonable
and prudent,” but CERC agreed to credit to jurisdictional customers
approximately $920,000, including interest, related to certain off-system sales.
The refund was completed in the fourth quarter of 2008. A similar review by the
LPSC related to the Caddo Parish litigation was resolved without additional
payment by CERC. In October 2008, the courts considering the Caddo and Calcasieu
Parish cases dismissed these cases pursuant to motions to dismiss and these
proceedings have been concluded.
Storage Facility
Litigation. In February 2007, an Oklahoma district court in
Coal County, Oklahoma, granted a summary judgment against CEGT in a case, Deka
Exploration, Inc. v. CenterPoint Energy, filed by holders of oil and gas
leaseholds and some mineral interest owners in lands underlying CEGT’s Chiles
Dome Storage Facility. The dispute concerns “native gas” that may have been in
the Wapanucka formation underlying the Chiles Dome facility when that facility
was constructed in 1979 by a CERC entity that was the predecessor in interest of
CEGT. The court ruled that the plaintiffs own native gas underlying those lands,
since neither CEGT nor its predecessors had condemned those ownership interests.
The court rejected CEGT’s contention that the claim should be barred by the
statute of limitations, since the suit was filed over 25 years after the
facility was constructed. The court also rejected CEGT’s contention that the
suit is an impermissible attack on the determinations the FERC and Oklahoma
Corporation Commission made regarding the absence of native gas in the lands
when the facility was constructed. The summary judgment ruling was only on the
issue of liability, though the court did rule that CEGT has the burden
of
proving that any gas in the Wapanucka formation is gas that has been injected
and is not native gas. Further hearings and orders of the court are required to
specify the appropriate relief for the plaintiffs. CEGT plans to appeal through
the Oklahoma court system any judgment that imposes liability on CEGT in this
matter. The Company and CERC do not expect the outcome of this matter to have a
material impact on the financial condition, results of operations or cash flows
of either the Company or CERC.
Environmental
Matters
Manufactured Gas Plant
Sites. CERC and its predecessors operated manufactured gas
plants (MGPs) in the past. In Minnesota, CERC has completed remediation on two
sites, other than ongoing monitoring and water treatment. There are five
remaining sites in CERC’s Minnesota service territory. CERC believes that it has
no liability with respect to two of these sites.
At
December 31, 2008, CERC had accrued $14 million for remediation of
these Minnesota sites and the estimated range of possible remediation costs for
these sites was $4 million to $35 million based on remediation
continuing for 30 to 50 years. The cost estimates are based on studies of a site
or industry average costs for remediation of sites of similar size. The actual
remediation costs will be dependent upon the number of sites to be remediated,
the participation of other potentially responsible parties (PRP), if any, and
the remediation methods used. CERC has utilized an environmental expense tracker
mechanism in its rates in Minnesota to recover estimated costs in excess of
insurance recovery. As of December 31, 2008, CERC had collected
$13 million from insurance companies and rate payers to be used for future
environmental remediation.
In
addition to the Minnesota sites, the United States Environmental Protection
Agency and other regulators have investigated MGP sites that were owned or
operated by CERC or may have been owned by one of its former affiliates. CERC
has been named as a defendant in a lawsuit filed in the United States District
Court, District of Maine, under which contribution is sought by private parties
for the cost to remediate former MGP sites based on the previous ownership of
such sites by former affiliates of CERC or its divisions. CERC has also been
identified as a PRP by the State of Maine for a site that is the subject of the
lawsuit. In June 2006, the federal district court in Maine ruled that the
current owner of the site is responsible for site remediation but that an
additional evidentiary hearing is required to determine if other potentially
responsible parties, including CERC, would have to contribute to that
remediation. The Company is investigating details regarding the site and the
range of environmental expenditures for potential remediation. However, CERC
believes it is not liable as a former owner or operator of the site under the
Comprehensive Environmental, Response, Compensation and Liability Act of 1980,
as amended, and applicable state statutes, and is vigorously contesting the suit
and its designation as a PRP.
Mercury
Contamination. The Company’s pipeline and distribution
operations have in the past employed elemental mercury in measuring and
regulating equipment. It is possible that small amounts of mercury may have been
spilled in the course of normal maintenance and replacement operations and that
these spills may have contaminated the immediate area with elemental mercury.
The Company has found this type of contamination at
99
some
sites in the past, and the Company has conducted remediation at these sites. It
is possible that other contaminated sites may exist and that remediation costs
may be incurred for these sites. Although the total amount of these costs is not
known at this time, based on the Company’s experience and that of others in the
natural gas industry to date and on the current regulations regarding
remediation of these sites, the Company believes that the costs of any
remediation of these sites will not be material to the Company’s financial
condition, results of operations or cash flows.
Asbestos. Some
facilities owned by the Company contain or have contained asbestos insulation
and other asbestos-containing materials. The Company or its subsidiaries have
been named, along with numerous others, as a defendant in lawsuits filed by a
number of individuals who claim injury due to exposure to asbestos. Some of the
claimants have worked at locations owned by the Company, but most existing
claims relate to facilities previously owned by the Company’s subsidiaries. The
Company anticipates that additional claims like those received may be asserted
in the future. In 2004, the Company sold its generating business, to which most
of these claims relate, to Texas Genco LLC, which is now known as NRG Texas LP.
Under the terms of the arrangements regarding separation of the generating
business from the Company and its sale to NRG Texas LP, ultimate financial
responsibility for uninsured losses from claims relating to the generating
business has been assumed by NRG Texas LP, but the Company has agreed to
continue to defend such claims to the extent they are covered by insurance
maintained
by the Company, subject to reimbursement of the costs of such defense from the
purchaser. Although their ultimate outcome cannot be predicted at this time, the
Company intends to continue vigorously contesting claims that it does not
consider to have merit and does not expect, based on its experience to date,
these matters, either individually or in the aggregate, to have a material
adverse effect on the Company’s financial condition, results of operations or
cash flows.
Groundwater Contamination
Litigation. Predecessor entities of CERC, along with several
other entities, are defendants in litigation, St. Michel Plantation, LLC, et al,
v. White, et al., pending in civil district court in Orleans Parish,
Louisiana. In the lawsuit, the plaintiffs allege that their property in
Terrebonne Parish, Louisiana suffered salt water contamination as a result of
oil and gas drilling activities conducted by the defendants. Although a
predecessor of CERC held an interest in two oil and gas leases on a portion of
the property at issue, neither it nor any other CERC entities drilled or
conducted other oil and gas operations on those leases. In January 2009, CERC
and the plaintiffs reached agreement on the terms of a settlement that, if
ultimately approved by the Louisiana Department of Natural Resources and the
court, is expected to finally resolve this litigation. The Company and CERC do
not expect the outcome of this litigation to have a material adverse impact on
the financial condition, results of operations or cash flows of either the
Company or CERC.
Other
Environmental. From time to time the Company has received
notices from regulatory authorities or others regarding its status as a PRP in
connection with sites found to require remediation due to the presence of
environmental contaminants. In addition, the Company has been named from time to
time as a defendant in litigation related to such sites. Although the ultimate
outcome of such matters cannot be predicted at this time, the Company does not
expect, based on its experience to date, these matters, either individually or
in the aggregate, to have a material adverse effect on the Company’s financial
condition, results of operations or cash flows.
Other
Proceedings
The
Company is involved in other legal, environmental, tax and regulatory
proceedings before various courts, regulatory commissions and governmental
agencies regarding matters arising in the ordinary course of business. Some of
these proceedings involve substantial amounts. The Company regularly analyzes
current information and, as necessary, provides accruals for probable
liabilities on the eventual disposition of these matters. The Company does not
expect the disposition of these matters to have a material adverse effect on the
Company’s financial condition, results of operations or cash flows.
Guaranties
Prior to
the Company’s distribution of its ownership in RRI to its shareholders, CERC had
guaranteed certain contractual obligations of what became RRI’s trading
subsidiary. Under the terms of the separation agreement between the companies,
RRI agreed to extinguish all such guaranty obligations prior to separation, but
at the time of separation in September 2002, RRI had been unable to extinguish
all obligations. To secure CERC against obligations under the remaining
guaranties, RRI agreed to provide cash or letters of credit for CERC’s benefit,
and undertook to use commercially reasonable efforts to extinguish the remaining
guaranties. In December 2007, the Company, CERC and RRI amended that
agreement and CERC released the letters of credit it held as security. Under the
revised agreement RRI agreed to provide cash or new letters of credit to secure
CERC against
100
exposure
under the remaining guaranties as calculated under the new agreement if and to
the extent changes in market conditions exposed CERC to a risk of loss on those
guaranties.
The
potential exposure to CERC under the guaranties relates to payment of demand
charges related to transportation contracts. The present value of the demand
charges under these transportation contracts, which will be effective until
2018, was approximately $108 million as of December 31, 2008. RRI
continues to meet its obligations under the contracts, and, on the basis of
market conditions, the Company and CERC have not required additional security.
However, if RRI should fail to perform its obligations under the contracts or if
RRI should fail to provide adequate security in the event market conditions
change adversely, the Company would retain exposure to the counterparty under
the guaranty.
(11) Estimated
Fair Value of Financial Instruments
The fair
values of cash and cash equivalents, investments in debt and equity securities
classified as “available-for-sale” and “trading” in accordance with
SFAS No. 115, and short-term borrowings are estimated to be approximately
equivalent to carrying amounts and have been excluded from the table below. The
fair values of non-trading derivative assets and liabilities are equivalent to
their carrying amounts in the Consolidated Balance Sheets at December 31,
2007 and 2008 and have been determined using quoted market prices for the same
or similar instruments when available or other estimation techniques (see Notes
4 and 5). Therefore, these financial instruments are stated at fair value and
are excluded from the table below.
|
December 31,
2007
|
December 31,
2008
|
|||||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||||
|
(In
millions)
|
||||||||||||||||
|
Financial
liabilities:
|
||||||||||||||||
|
Long-term
debt (excluding capital leases)
|
$ | 9,564 | $ | 10,048 | $ | 10,396 | $ | 9,875 | ||||||||
(12) Earnings
Per Share
The
following table reconciles numerators and denominators of the Company’s basic
and diluted earnings per share calculations:
|
For
the Year Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
(In
millions, except per share and share amounts)
|
||||||||||||
|
Basic
earnings per share calculation:
|
||||||||||||
|
Net
income
|
$ | 432 | $ | 399 | $ | 447 | ||||||
|
Weighted
average shares outstanding
|
311,826,000 | 320,480,000 | 336,387,000 | |||||||||
|
Basic
earnings per share
|
$ | 1.39 | $ | 1.25 | $ | 1.33 | ||||||
|
Diluted
earnings per share calculation:
|
||||||||||||
|
Net
income
|
$ | 432 | $ | 399 | $ | 447 | ||||||
|
Weighted
average shares outstanding
|
311,826,000 | 320,480,000 | 336,387,000 | |||||||||
|
Plus:
Incremental shares from assumed conversions:
|
||||||||||||
|
Stock
options(1)
|
974,000 | 1,059,000 | 760,000 | |||||||||
|
Restricted
stock
|
1,553,000 | 1,928,000 | 1,772,000 | |||||||||
|
2.875% convertible
senior notes
|
1,625,000 | 291,000 | — | |||||||||
|
3.75% convertible
senior notes
|
8,800,000 | 18,749,000 | 4,636,000 | |||||||||
|
Weighted
average shares assuming dilution
|
324,778,000 | 342,507,000 | 343,555,000 | |||||||||
|
Diluted
earnings per share
|
$ | 1.33 | $ | 1.17 | $ | 1.30 | ||||||
__________
|
(1)
|
Options
to purchase 5,863,907, 3,225,969 and 2,617,772 shares were
outstanding for the years ended December 31, 2006, 2007 and 2008,
respectively, but were not included in the computation of diluted earnings
per share because the options’ exercise price was greater than the average
market price of the common shares for the respective
years.
|
All of the 2.875%
contingently convertible senior notes and substantially all of the 3.75%
contingently convertible senior notes provided for settlement of the principal
portion in cash rather than stock. In accordance with Emerging Issues
Task Force Issue No. 04-8, “Accounting Issues related to Certain Features of
Contingently Convertible Debt and the Effect on Diluted Earnings Per Share,” the
portion of the conversion value of such notes that must be settled in cash
rather than stock is excluded from the computation of diluted earnings per share
from continuing operations. The Company included the conversion spread in the
calculation of diluted earnings per share when the average market price of the
Company’s common stock in the respective reporting period exceeded the
conversion price. All of the Company’s
2.875% convertible senior notes were either redeemed or surrendered for
conversion in January 2007 and substantially all of the Company’s 3.75%
convertible senior notes were submitted for conversion on or prior to the May
30, 2008 redemption date, as described in Note 8(b), “Long-term Debt —
Convertible Debt.”
(13) Unaudited
Quarterly Information
Summarized
quarterly financial data is as follows:
|
Year
Ended December 31, 2007
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
(In
millions, except per share amounts)
|
||||||||||||||||
|
Revenues
|
$ | 3,106 | $ | 2,033 | $ | 1,882 | $ | 2,602 | ||||||||
|
Operating
income
|
353 | 242 | 287 | 303 | ||||||||||||
|
Net
income
|
130 | 70 | 91 | 108 | ||||||||||||
|
Basic
earnings per share(1)
|
$ | 0.41 | $ | 0.22 | $ | 0.29 | $ | 0.34 | ||||||||
|
Diluted
earnings per share(1)
|
$ | 0.38 | $ | 0.20 | $ | 0.27 | $ | 0.32 | ||||||||
|
Year
Ended December 31, 2008
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
(In millions, except
per share amounts)
|
||||||||||||||||
|
Revenues
|
$ | 3,363 | $ | 2,670 | $ | 2,515 | $ | 2,774 | ||||||||
|
Operating
income
|
336 | 297 | 337 | 303 | ||||||||||||
|
Net
income
|
123 | 101 | 136 | 87 | ||||||||||||
|
Basic
earnings per share(1)
|
$ | 0.38 | $ | 0.30 | $ | 0.40 | $ | 0.25 | ||||||||
|
Diluted
earnings per share(1)
|
$ | 0.36 | $ | 0.30 | $ | 0.39 | $ | 0.25 | ||||||||
_________
|
(1)
|
Quarterly
earnings per common share are based on the weighted average number of
shares outstanding during the quarter, and the sum of the quarters may not
equal annual earnings per common share. The Company included the
conversion spread related to its contingently convertible senior notes in
the calculation of diluted earnings per share when the average market
price of the Company’s common stock in the respective reporting period
exceeds the conversion price. All of the Company’s 2.875% convertible
senior notes were either redeemed or surrendered for conversion in January
2007 and substantially all of the Company’s 3.75% convertible senior notes
were submitted for conversion on or prior to the May 30, 2008 redemption
date, as described in Note 8(b), “Long-term Debt — Convertible
Debt.”
|
(14) Reportable
Business Segments
The
Company’s determination of reportable business segments considers the strategic
operating units under which the Company manages sales, allocates resources and
assesses performance of various products and services to wholesale or retail
customers in differing regulatory environments. The accounting policies of the
business segments are the same as those described in the summary of significant
accounting policies except that some executive benefit costs have not been
allocated to business segments. The Company uses operating income as the measure
of profit or loss for its business segments.
The
Company’s reportable business segments include the following: Electric
Transmission & Distribution, Natural Gas Distribution, Competitive
Natural Gas Sales and Services, Interstate Pipelines, Field Services and Other
Operations. The rate-regulated electric transmission and distribution function
(CenterPoint Houston) is reported in the Electric Transmission &
Distribution business segment. Natural Gas Distribution consists of
rate-regulated intrastate natural gas sales to, and natural gas transportation
and distribution for, residential, commercial, industrial and institutional
customers. Competitive Natural Gas Sales and Services represents the Company’s
non-rate regulated gas sales and services operations, which consist of three
operational functions: wholesale, retail and intrastate pipelines. The Interstate Pipelines business segment
includes the interstate natural gas pipeline operations. The Field Services
business segment includes the natural gas gathering operations. Other Operations
consists primarily of other corporate operations which support all of the
Company’s business operations.
Long-lived
assets include net property, plant and equipment, net goodwill and other
intangibles and equity investments in unconsolidated subsidiaries. Intersegment
sales are eliminated in consolidation.
Financial
data for business segments and products and services are as follows (in
millions):
|
Revenues
from
External
Customers
|
Intersegment
Revenues
|
Depreciation
and
Amortization
|
Operating
Income
(Loss)
|
Total
Assets
|
Expenditures
for
Long-Lived
Assets
|
|||||||||||||||||||
|
As
of and for the year ended December 31, 2006:
|
||||||||||||||||||||||||
|
Electric
Transmission & Distribution
|
$ | 1,781 | (1) | $ | — | $ | 379 | $ | 576 | $ | 8,463 | $ | 389 | |||||||||||
|
Natural
Gas Distribution
|
3,582 | 11 | 152 | 124 | 4,463 | 187 | ||||||||||||||||||
|
Competitive
Natural Gas Sales and Services
|
3,572 | 79 | 1 | 77 | 1,501 | 18 | ||||||||||||||||||
|
Interstate
Pipelines(2)
|
255 | 133 | 37 | 181 | 2,738 | 437 | ||||||||||||||||||
|
Field
Services(3)
|
119 | 31 | 10 | 89 | 608 | 65 | ||||||||||||||||||
|
Other
|
10 | 5 | 20 | (2 | ) | 2,047 | (4) | 25 | ||||||||||||||||
|
Reconciling
Eliminations
|
— | (259 | ) | — | — | (2,187 | ) | — | ||||||||||||||||
|
Consolidated
|
$ | 9,319 | $ | — | $ | 599 | $ | 1,045 | $ | 17,633 | $ | 1,121 | ||||||||||||
|
As
of and for the year ended December 31, 2007:
|
||||||||||||||||||||||||
|
Electric
Transmission & Distribution
|
$ | 1,837 | (1) | $ | — | $ | 398 | $ | 561 | $ | 8,358 | $ | 401 | |||||||||||
|
Natural
Gas Distribution
|
3,749 | 10 | 155 | 218 | 4,332 | 191 | ||||||||||||||||||
|
Competitive
Natural Gas Sales and Services
|
3,534 | 45 | 5 | 75 | 1,221 | 7 | ||||||||||||||||||
|
Interstate
Pipelines(2)
|
357 | 143 | 44 | 237 | 3,007 | 308 | ||||||||||||||||||
|
Field
Services(3)
|
136 | 39 | 11 | 99 | 669 | 74 | ||||||||||||||||||
|
Other
|
10 | — | 18 | (5 | ) | 1,956 | (4) | 30 | ||||||||||||||||
|
Reconciling
Eliminations
|
— | (237 | ) | — | — | (1,671 | ) | — | ||||||||||||||||
|
Consolidated
|
$ | 9,623 | $ | — | $ | 631 | $ | 1,185 | $ | 17,872 | $ | 1,011 | ||||||||||||
|
As
of and for the year ended December 31, 2008:
|
||||||||||||||||||||||||
|
Electric
Transmission & Distribution
|
$ | 1,916 | (1) | $ | — | $ | 460 | $ | 545 | $ | 8,880 | $ | 481 | (5) | ||||||||||
|
Natural
Gas Distribution
|
4,217 | 9 | 157 | 215 | 4,961 | 214 | ||||||||||||||||||
|
Competitive
Natural Gas Sales and Services
|
4,488 | 40 | 3 | 62 | 1,315 | 8 | ||||||||||||||||||
|
Interstate
Pipelines(2)
|
477 | 173 | 46 | 293 | 3,578 | 189 | ||||||||||||||||||
|
Field
Services(3)
|
213 | 39 | 12 | 147 | 826 | 122 | ||||||||||||||||||
|
Other
|
11 | — | 30 | 11 | 2,185 | (4) | 39 | |||||||||||||||||
|
Reconciling
Eliminations
|
— | (261 | ) | — | — | (2,069 | ) | — | ||||||||||||||||
|
Consolidated
|
$ | 11,322 | $ | — | $ | 708 | $ | 1,273 | $ | 19,676 | $ | 1,053 | ||||||||||||
__________
|
(1)
|
Sales
to subsidiaries of RRI in 2006, 2007 and 2008 represented approximately
$737 million, $661 million and $635 million, respectively,
of CenterPoint Houston’s transmission and distribution
revenues.
|
|
(2)
|
Interstate
Pipelines recorded equity income of $6 million and $36 million
(including $6 million and $33 million related to pre-operating
allowance for funds used during construction) in the years ended
December 31, 2007 and 2008, respectively, from its 50 percent
interest in SESH, a jointly-owned pipeline. These amounts are included in
Equity in earnings of unconsolidated affiliates under the Other Income
(Expense) caption. Interstate Pipelines’ investment in SESH was
$8 million, $58 million and $307 million as of
December 31, 2006, 2007 and 2008 and is included in Investment in
unconsolidated affiliates.
|
|
(3)
|
Field
Services recorded equity income of $6 million, $10 million and
$15 million for the years ended December 31, 2006, 2007 and
2008, respectively, from its 50 percent interest in a jointly-owned
gas processing plant. These amounts are included in Equity in earnings of
unconsolidated affiliates under the Other Income (Expense) caption. Field
Services’ investment in the jointly-owned gas processing plant was
$24 million, $30 million and $38 million as of
December 31, 2006, 2007 and 2008 and is included in Investment in
unconsolidated affiliates.
|
|
(4)
|
Included
in total assets of Other Operations as of December 31, 2006 and 2007
are pension assets of $109 million and $231 million,
respectively. Also included in total assets of Other Operations as of
December 31, 2006, 2007 and 2008, are pension related regulatory
assets of $420 million, $319 million and $800 million,
respectively, resulting from the Company’s adoption of SFAS No.
158.
|
|
(5)
|
Included
in expenditures for long-lived assets of Electric Transmission &
Distribution is $145 million related to Hurricane
Ike.
|
|
Year
Ended December 31,
|
||||||||||||
|
Revenues
by Products and Services:
|
2006
|
2007
|
2008
|
|||||||||
|
(In
millions)
|
||||||||||||
|
Electric
delivery sales
|
$ | 1,781 | $ | 1,837 | $ | 1,916 | ||||||
|
Retail
gas sales
|
4,546 | 4,941 | 6,216 | |||||||||
|
Wholesale
gas sales
|
2,331 | 2,196 | 2,295 | |||||||||
|
Gas
transport
|
550 | 532 | 756 | |||||||||
|
Energy
products and services
|
111 | 117 | 139 | |||||||||
|
Total
|
$ | 9,319 | $ | 9,623 | $ | 11,322 | ||||||
(15) Subsequent
Events
On
January 22, 2009, the Company’s board of directors declared a regular
quarterly cash dividend of $0.19 per share of common stock payable on
March 10, 2009, to shareholders of record as of the close of business on
February 16, 2009.
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and
Procedures
Disclosure
Controls And Procedures
In
accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our principal executive officer and principal financial officer, of
the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures were effective as of December 31, 2008 to provide assurance
that information required to be disclosed in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms and such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding disclosure.
There has
been no change in our internal controls over financial reporting that occurred
during the three months ended December 31, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
Item 10. Directors, Executive Officers and
Corporate Governance
The
information called for by Item 10, to the extent not set forth in
“Executive Officers” in Item 1, will be set forth in the definitive proxy
statement relating to CenterPoint Energy’s 2009 annual meeting of shareholders
pursuant to SEC Regulation 14A. Such definitive proxy statement relates to
a meeting of shareholders involving the election of directors and the portions
thereof called for by Item 10 are incorporated herein by reference pursuant
to Instruction G to Form 10-K.
Item 11. Executive
Compensation
The
information called for by Item 11 will be set forth in the definitive proxy
statement relating to CenterPoint Energy’s 2009 annual meeting of shareholders
pursuant to SEC Regulation 14A. Such definitive proxy statement relates to
a meeting of shareholders involving the election of directors and the portions
thereof called for by Item 11 are incorporated herein by reference pursuant
to Instruction G to Form 10-K.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
information called for by Item 12 will be set forth in the definitive proxy
statement relating to CenterPoint Energy’s 2009 annual meeting of shareholders
pursuant to SEC Regulation 14A. Such definitive proxy statement relates to
a meeting of shareholders involving the election of directors and the portions
thereof called for by Item 12 are incorporated herein by reference pursuant
to Instruction G to Form 10-K.
Item 13. Certain
Relationships and Related Transactions, and Director Independence
The
information called for by Item 13 will be set forth in the definitive proxy
statement relating to CenterPoint Energy’s 2009 annual meeting of shareholders
pursuant to SEC Regulation 14A. Such definitive proxy statement relates to
a meeting of shareholders involving the election of directors and the portions
thereof called for by Item 13 are incorporated herein by reference pursuant
to Instruction G to Form 10-K.
Item 14. Principal Accounting Fees and
Services
The
information called for by Item 14 will be set forth in the definitive proxy
statement relating to CenterPoint Energy’s 2009 annual meeting of shareholders
pursuant to SEC Regulation 14A. Such definitive proxy statement relates to
a meeting of shareholders involving the election of directors and the portions
thereof called for by Item 14 are incorporated herein by reference pursuant
to Instruction G to Form 10-K.
Item 15. Exhibits and Financial Statement
Schedules
(a)(1)
Financial Statements.
|
Report
of Independent Registered Public Accounting Firm
|
59
|
|
Statements
of Consolidated Income for the Three Years Ended December 31,
2008
|
62
|
|
Statements
of Consolidated Comprehensive Income for the Three Years Ended
December 31, 2008
|
63
|
|
Consolidated
Balance Sheets at December 31, 2007 and 2008
|
64
|
|
Statements
of Consolidated Cash Flows for the Three Years
Ended December 31, 2008
|
65
|
|
Statements
of Consolidated Shareholders’ Equity for the Three Years Ended
December 31, 2008
|
66
|
|
Notes
to Consolidated Financial Statements
|
67
|
(a)(2)
Financial Statement Schedules for the Three Years Ended December 31,
2008.
|
Report
of Independent Registered Public Accounting Firm
|
107
|
|
I —
Condensed Financial Information of CenterPoint Energy, Inc. (Parent
Company)
|
108
|
|
II —
Qualifying Valuation Accounts
|
113
|
The
following schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included in the
financial statements:
III, IV
and V.
(a)(3)
Exhibits.
See Index
of Exhibits beginning on page 115, which index also includes the management
contracts or compensatory plans or arrangements required to be filed as exhibits
to this Form 10-K by Item 601(b)(10)(iii) of
Regulation S-K.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
CenterPoint
Energy, Inc.
Houston,
Texas
We have
audited the consolidated financial statements of CenterPoint Energy, Inc. and
subsidiaries (the "Company") as of December 31, 2008 and 2007, and for each
of the three years in the period ended December 31, 2008, and the Company's
internal control over financial reporting as of December 31, 2008, and have
issued our reports thereon dated February 25, 2009; such reports are included
elsewhere in this Form 10-K. Our audits also included the consolidated financial
statement schedules of the Company listed in the index at Item 15 (a)(2). These
consolidated financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
DELOITTE &
TOUCHE LLP
Houston,
Texas
February 25,
2009
CENTERPOINT
ENERGY, INC.
SCHEDULE I —
CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT
ENERGY, INC. (PARENT COMPANY)
STATEMENTS
OF INCOME
|
For
the Year Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Expenses:
|
||||||||||||
|
Operation
and Maintenance Expenses
|
$ | (19 | ) | $ | (17 | ) | $ | (12 | ) | |||
|
Taxes
Other than Income
|
(2 | ) | (4 | ) | 1 | |||||||
|
Total
|
(21 | ) | (21 | ) | (11 | ) | ||||||
|
Other
Income (Expense):
|
||||||||||||
|
Interest
Income from Subsidiaries
|
18 | 22 | 12 | |||||||||
|
Other
Income (Expense)
|
6 | 1 | (5 | ) | ||||||||
|
Gain
(Loss) on Indexed Debt Securities
|
(80 | ) | 111 | 128 | ||||||||
|
Interest
Expense to Subsidiaries
|
(69 | ) | (67 | ) | (38 | ) | ||||||
|
Interest
Expense
|
(196 | ) | (219 | ) | (160 | ) | ||||||
|
Distribution
to ZENS Holders
|
— | (27 | ) | — | ||||||||
|
Total
|
(321 | ) | (179 | ) | (63 | ) | ||||||
|
Loss
Before Income Taxes
|
(342 | ) | (200 | ) | (74 | ) | ||||||
|
Income
Tax Benefit
|
214 | 84 | 31 | |||||||||
|
Loss
Before Equity in Subsidiaries
|
(128 | ) | (116 | ) | (43 | ) | ||||||
|
Equity
Income of Subsidiaries
|
560 | 515 | 490 | |||||||||
|
Net
Income
|
$ | 432 | $ | 399 | $ | 447 | ||||||
See
CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial
Statements in Part II, Item 8
CENTERPOINT
ENERGY, INC.
SCHEDULE I —
CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT
ENERGY, INC. (PARENT COMPANY)
BALANCE
SHEETS
|
December 31,
|
||||||||
|
2007
|
2008
|
|||||||
|
(In
millions)
|
||||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | — | $ | — | ||||
|
Notes
receivable — subsidiaries
|
216 | 82 | ||||||
|
Accounts
receivable — subsidiaries
|
106 | 53 | ||||||
|
Other
assets
|
2 | — | ||||||
|
Total
current assets
|
324 | 135 | ||||||
|
Other
Assets:
|
||||||||
|
Investment
in subsidiaries
|
5,848 | 5,176 | ||||||
|
Notes
receivable — subsidiaries
|
151 | 151 | ||||||
|
Other
assets
|
578 | 826 | ||||||
|
Total
other assets
|
6,577 | 6,153 | ||||||
|
Total
Assets
|
$ | 6,901 | $ | 6,288 | ||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Notes
payable — subsidiaries
|
$ | 1 | $ | 21 | ||||
|
Current
portion of long-term debt
|
849 | 117 | ||||||
|
Indexed
debt securities derivative
|
261 | 133 | ||||||
|
Accounts
payable:
|
||||||||
|
Subsidiaries
|
558 | 40 | ||||||
|
Other
|
3 | 3 | ||||||
|
Taxes
accrued
|
372 | 338 | ||||||
|
Interest
accrued
|
28 | 26 | ||||||
|
Non-trading
derivative liabilities
|
2 | — | ||||||
|
Other
|
18 | 18 | ||||||
|
Total
current liabilities
|
2,092 | 696 | ||||||
|
Other
Liabilities:
|
||||||||
|
Accumulated
deferred tax liabilities
|
193 | 138 | ||||||
|
Benefit
obligations
|
78 | 426 | ||||||
|
Notes
payable — subsidiaries
|
750 | 750 | ||||||
|
Other
|
1 | 7 | ||||||
|
Total
non-current liabilities
|
1,022 | 1,321 | ||||||
|
Long-Term
Debt
|
1,977 | 2,234 | ||||||
|
Shareholders’
Equity:
|
||||||||
|
Common
stock
|
3 | 3 | ||||||
|
Additional
paid-in capital
|
3,023 | 3,135 | ||||||
|
Accumulated
deficit
|
(1,172 | ) | (970 | ) | ||||
|
Accumulated
other comprehensive loss
|
(44 | ) | (131 | ) | ||||
|
Total
shareholders’ equity
|
1,810 | 2,037 | ||||||
|
Total
Liabilities and Shareholders’ Equity
|
$ | 6,901 | $ | 6,288 | ||||
See
CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial
Statements in Part II, Item 8
CENTERPOINT
ENERGY, INC.
SCHEDULE I —
CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT
ENERGY, INC. (PARENT COMPANY)
STATEMENTS
OF CASH FLOWS
|
For
the Year Ended December 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
(In
millions)
|
||||||||||||
|
Operating
Activities:
|
||||||||||||
|
Net
income
|
$ | 432 | $ | 399 | $ | 447 | ||||||
|
Non-cash
items included in net income:
|
||||||||||||
|
Equity
income of subsidiaries
|
(560 | ) | (515 | ) | (490 | ) | ||||||
|
Deferred
income tax expense
|
(169 | ) | 52 | 90 | ||||||||
|
Tax
and interest reserves reductions related to ZENS and ACES
settlement
|
(107 | ) | — | — | ||||||||
|
Amortization
of debt issuance costs
|
36 | 46 | 6 | |||||||||
|
Loss
(gain) on indexed debt securities
|
80 | (111 | ) | (128 | ) | |||||||
|
Changes
in working capital:
|
||||||||||||
|
Accounts
receivable/(payable) from subsidiaries, net
|
33 | 20 | (65 | ) | ||||||||
|
Accounts
payable
|
(13 | ) | 11 | — | ||||||||
|
Other
current assets
|
(1 | ) | — | 2 | ||||||||
|
Other
current liabilities
|
117 | (50 | ) | (111 | ) | |||||||
|
Common
stock dividends received from subsidiaries
|
227 | 240 | 746 | |||||||||
|
Other
|
18 | 2 | (7 | ) | ||||||||
|
Net
cash provided by operating activities
|
93 | 94 | 490 | |||||||||
|
Investing
Activities:
|
||||||||||||
|
Short-term
notes receivable from subsidiaries
|
69 | 175 | 134 | |||||||||
|
Long-term
notes receivable from subsidiaries
|
21 | — | — | |||||||||
|
Net
cash provided by investing activities
|
90 | 175 | 134 | |||||||||
|
Financing
Activities:
|
||||||||||||
|
Long-term
revolving credit facility, net
|
(3 | ) | 131 | 133 | ||||||||
|
Proceeds
from long-term debt
|
— | 250 | 300 | |||||||||
|
Payments
on long-term debt
|
— | (295 | ) | (907 | ) | |||||||
|
Debt
issuance costs
|
(3 | ) | (2 | ) | (4 | ) | ||||||
|
Common
stock dividends paid
|
(187 | ) | (218 | ) | (246 | ) | ||||||
|
Proceeds
from issuance of common stock, net
|
27 | 22 | 80 | |||||||||
|
Short-term
notes payable to subsidiaries
|
153 | (157 | ) | 20 | ||||||||
|
Long-term
notes payable to subsidiaries
|
(171 | ) | — | — | ||||||||
|
Net
cash used in financing activities
|
(184 | ) | (269 | ) | (624 | ) | ||||||
|
Net
Decrease in Cash and Cash Equivalents
|
(1 | ) | — | — | ||||||||
|
Cash
and Cash Equivalents at Beginning of Year
|
1 | — | — | |||||||||
|
Cash
and Cash Equivalents at End of Year
|
$ | — | $ | — | $ | — | ||||||
See
CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial
Statements in Part II, Item 8
CENTERPOINT
ENERGY, INC.
SCHEDULE I —
NOTES TO CONDENSED FINANCIAL INFORMATION (PARENT COMPANY)
(1) Background. The condensed parent company
financial statements and notes should be read in conjunction with the
consolidated financial statements and notes of CenterPoint Energy, Inc.
(CenterPoint Energy or the Company) appearing in the Annual Report on
Form 10-K. Bank facilities at CenterPoint Energy Houston Electric, LLC and
CenterPoint Energy Resources Corp., indirect wholly owned subsidiaries of the
Company, limit debt, excluding transition bonds, as a percentage of their total
capitalization to 65%. These covenants could restrict the ability of these
subsidiaries to distribute dividends to the Company.
(2) Derivatives. In December 2007 and
January 2008, the Company entered into treasury rate lock derivative instruments
(treasury rate locks) having an aggregate notional amount of $300 million
and a weighted-average locked U.S. treasury rate on ten-year debt of 4.05%.
These treasury rate locks were executed to hedge the ten-year U.S. treasury rate
expected to be used in pricing $300 million of fixed-rate debt the Company
planned to issue in 2008, because changes in the U.S treasury rate would cause
variability in the Company’s forecasted interest payments. These treasury rate
lock derivatives were designated as cash flow hedges. Accordingly, unrealized
gains and losses associated with the treasury rate lock derivative instruments
were recorded as a component of accumulated other comprehensive income. In May
2008, the Company settled its treasury rate locks for a payment of
$7 million. The $7 million loss recognized upon settlement of the
treasury rate locks was recorded as a component of accumulated other
comprehensive loss and will be recognized as a component of interest expense
over the ten-year life of the related $300 million senior notes issued in
May 2008. Amortization of amounts deferred in accumulated other comprehensive
loss for the year ended December 31, 2008 was less than $1 million.
During the years ended December 31, 2007 and 2008, the Company recognized a
loss of $2 million and $5 million, respectively, for these treasury
rate locks in accumulated other comprehensive loss. Ineffectiveness for the
treasury rate locks was not material during the years ended December 31,
2007 and 2008.
(3) Long-term Debt. In May 2008, the
Company issued $300 million aggregate principal amount of senior notes due
in May 2018 with an interest rate of 6.50%. The proceeds from the sale of the
senior notes were used for general corporate purposes, including the
satisfaction of cash payment obligations in connection with conversions of the
Company’s 3.75% convertible senior notes.
The
Company’s $1.2 billion credit facility has a first-drawn cost of London
Interbank Offered Rate (LIBOR) plus 55 basis points based on the Company’s
current credit ratings. The facility contains a debt (excluding transition
bonds) to earnings before interest, taxes, depreciation and amortization
(EBITDA) covenant, which was modified (i) in August 2008 so that the permitted
ratio of debt to EBITDA would continue at its then-current level for the
remaining term of the facility and (ii) in November 2008 so that the permitted
ratio of debt to EBITDA would be temporarily increased until the earlier of
December 31, 2009 or CenterPoint Houston’s issuance of bonds to securitize
the costs incurred as a result of Hurricane Ike, after which time the permitted
ratio would revert to the level that existed prior to the November 2008
modification.
Under the
Company’s $1.2 billion credit facility, an additional utilization fee of 5
basis points applies to borrowings any time more than 50% of the facility is
utilized. The spread to LIBOR and the utilization fee fluctuate based on the
borrower’s credit rating.
As of
December 31, 2008, the Company had $264 million of borrowings and
approximately $27 million of outstanding letters of credit under its
$1.2 billion credit facility. The Company had no commercial paper
outstanding at December 31, 2008. The Company was in compliance with all
covenants as of December 31, 2008.
On
May 19, 2003, the Company issued $575 million aggregate principal
amount of convertible senior notes due May 15, 2023 with an interest rate
of 3.75%.
In the
fourth quarter of 2007, holders of the Company’s 3.75% convertible senior notes
converted approximately $40 million principal amount of such notes.
Substantially all of such conversions were settled with a cash payment for the
principal amount and delivery of 1.3 million shares of the Company’s common
stock for the excess value due converting holders.
In April
2008, the Company called its 3.75% convertible senior notes for redemption on
May 30, 2008. At the time of the announcement, the notes were convertible
at the option of the holders, and substantially all of the notes were submitted
for conversion on or prior to the May 30, 2008 redemption date. During the
year ended December 31, 2008, the Company issued 16.9 million shares
of its common stock and paid cash of approximately $532 million to settle
conversions of approximately $535 million principal amount of its 3.75%
convertible senior notes.
In
December 2006, the Company called its 2.875% convertible senior notes
for redemption on January 22, 2007. The 2.875% convertible senior
notes became immediately convertible at the option of the holders upon the call
for redemption and were convertible through the close of business on the
redemption date. Substantially all the $255 million aggregate principal
amount of the 2.875% convertible senior notes were converted in January 2007.
The $255 million principal amount of the 2.875% convertible senior
notes was settled in cash and the excess value due converting holders of
$97 million was settled by delivering approximately 5.6 million shares
of the Company’s common stock.
In April
2008, the Company purchased $175 million principal amount of pollution
control bonds issued on its behalf at 102% of their principal amount. Prior to
the purchase, $100 million principal amount of such bonds had a fixed rate
of interest of 7.75% and $75 million principal amount of such bonds had a
fixed rate of interest of 8%. Depending on market conditions, the Company may
remarket both series of bonds, at 100% of their principal amounts, in
2009.
The
Company’s maturities of long-term debt, excluding the ZENS obligation, are
$-0- in 2009, $200 million in 2010, $19 million in 2011,
$264 million in 2012 and $-0- in 2013.
(4) Guaranties. CenterPoint Energy Services,
Inc. (CES) provides comprehensive natural gas sales and services to industrial
and commercial customers. In order to hedge their exposure to natural gas
prices, CES has entered standard purchase and sale agreements with various
counterparties. CenterPoint Energy has guaranteed the payment obligations of CES
under certain of these agreements, typically for one-year terms. As of
December 31, 2008, CenterPoint Energy had guaranteed $15 million under
these agreements.
(5) Investment in Subsidiaries.During
2008, the Company reduced its payables to subsidiaries, with no net asset
restrictions, by $430 million with a corresponding reduction in investment in
subsidiaries.
CENTERPOINT
ENERGY, INC.
SCHEDULE II —
QUALIFYING VALUATION ACCOUNTS
For
the Three Years Ended December 31, 2008
|
Column
A
|
Column
B
|
Column
C
|
Column
D
|
Column
E
|
||||||||||||||||
|
Description
|
Balance
at
Beginning
of
Period
|
Additions
|
Deductions
From
Reserves
(2)
|
Balance
at
End
of
Period
|
||||||||||||||||
|
Charged
to
Income
|
Charged
to
Other
Accounts
|
|||||||||||||||||||
|
(In
millions)
|
||||||||||||||||||||
|
Year
Ended December 31, 2008:
|
||||||||||||||||||||
|
Accumulated
provisions:
|
||||||||||||||||||||
|
Uncollectible
accounts receivable
|
$ | 38 | $ | 54 | $ | 3 | $ | 60 | $ | 35 | ||||||||||
|
Deferred
tax asset valuation allowance
|
18 | (1 | ) | (12 | ) (1) | — | 5 | |||||||||||||
|
Year
Ended December 31, 2007:
|
||||||||||||||||||||
|
Accumulated
provisions:
|
||||||||||||||||||||
|
Uncollectible
accounts receivable
|
33 | 45 | — | 40 | 38 | |||||||||||||||
|
Deferred
tax asset valuation allowance
|
22 | (4 | ) | — | — | 18 | ||||||||||||||
|
Year
Ended December 31, 2006:
|
||||||||||||||||||||
|
Accumulated
provisions:
|
||||||||||||||||||||
|
Uncollectible
accounts receivable
|
43 | 35 | — | 45 | 33 | |||||||||||||||
|
Deferred
tax asset valuation allowance
|
21 | 1 | — | — | 22 | |||||||||||||||
__________
|
(1)
|
The
2008 change to the deferred tax asset valuation allowance charged to other
accounts represents a reduction equal to the related deferred tax asset
reduction in 2008 for re-measurement of state tax attributes, net of
federal tax benefit. A full valuation allowance for this deferred tax
asset was established in prior
periods.
|
|
(2)
|
Deductions
from reserves represent losses or expenses for which the respective
reserves were created. In the case of the uncollectible accounts reserve,
such deductions are net of recoveries of amounts previously written
off.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Houston, the State
of Texas, on the 25th day of February, 2009.
|
CENTERPOINT
ENERGY, INC.
|
|
|
(Registrant)
|
|
|
By: /s/ David M. McClanahan
|
|
|
David
M. McClanahan
|
|
|
President
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on February 25, 2009.
|
Signature
|
Title
|
|
|
/s/ DAVID
M. MCCLANAHAN
|
President,
Chief Executive Officer and
|
|
|
David
M. McClanahan
|
Director
(Principal Executive Officer and Director)
|
|
|
/s/ GARY
L. WHITLOCK
|
Executive
Vice President and Chief
|
|
|
Gary
L. Whitlock
|
Financial
Officer (Principal Financial Officer)
|
|
|
/s/ WALTER
L. FITZGERALD
|
Senior
Vice President and Chief
|
|
|
Walter
L. Fitzgerald
|
Accounting
Officer (Principal Accounting Officer)
|
|
|
/s/ MILTON
CARROLL
|
Chairman
of the Board of Directors
|
|
|
Milton
Carroll
|
||
|
/s/ DONALD
R. CAMPBELL
|
Director
|
|
|
Donald
R. Campbell
|
||
|
/s/ DERRILL
CODY
|
Director
|
|
|
Derrill
Cody
|
||
|
/s/ O.
HOLCOMBE CROSSWELL
|
Director
|
|
|
O.
Holcombe Crosswell
|
||
|
/s/ MICHAEL
P. JOHNSON
|
Director
|
|
|
Michael
P. Johnson
|
||
|
/s/ JANIECE
M. LONGORIA
|
Director
|
|
|
Janiece
M. Longoria
|
||
|
/s/ THOMAS
F. MADISON
|
Director
|
|
|
Thomas
F. Madison
|
||
|
/s/ ROBERT
T. O’CONNELL
|
Director
|
|
|
Robert
T. O’Connell
|
||
|
/s/ SUSAN
O. RHENEY
|
Director
|
|
|
Susan
O. Rheney
|
||
|
/s/ MICHAEL
E. SHANNON
|
Director
|
|
|
Michael
E. Shannon
|
||
|
/s/ PETER
S. WAREING
|
Director
|
|
|
Peter
S. Wareing
|
||
|
/s/ SHERMAN
M. WOLFF
|
Director
|
|
|
Sherman
M. Wolff
|
||
CENTERPOINT
ENERGY, INC.
EXHIBITS TO
THE ANNUAL REPORT ON FORM 10-K
For
Fiscal Year Ended December 31, 2008
INDEX
OF EXHIBITS
Exhibits
included with this report are designated by a cross (†); all exhibits not so
designated are incorporated herein by reference to a prior filing as indicated.
Exhibits designated by an asterisk (*) are management contracts or compensatory
plans or arrangements required to be filed as exhibits to this Form 10-K by
Item 601(b)(10)(iii) of Regulation S-K. CenterPoint Energy has not
filed the exhibits and schedules to Exhibit 2. CenterPoint Energy hereby
agrees to furnish supplementally a copy of any schedule omitted from
Exhibit 2 to the SEC upon request.
The
agreements included as exhibits are included only to provide information to
investors regarding their terms. The agreements listed below may
contain representations, warranties and other provisions that were made, among
other things, to provide the parties thereto with specified rights and
obligations and to allocate risk among them, and such agreements should not be
relied upon as constituting or providing any factual disclosures about us, any
other persons, any state of affairs or other matters.
|
Exhibit
Number
|
Description
|
Report
or Registration Statement
|
SEC
File or
Registration
Number
|
Exhibit
Reference
|
||||
|
2
|
—
|
Transaction
Agreement dated July 21, 2004 among CenterPoint Energy, Utility
Holding, LLC, NN Houston Sub, Inc., Texas Genco Holdings, Inc. (“Texas
Genco”), HPC Merger Sub, Inc. and GC Power Acquisition LLC
|
CenterPoint
Energy’s Form 8-K dated July 21, 2004
|
1-31447
|
10.1
|
|||
|
3(a)
|
—
|
Restated
Articles of Incorporation of CenterPoint Energy
|
CenterPoint
Energy’s Form 8-K dated July 24, 2008
|
1-31447
|
3.2
|
|||
|
3(b)
|
—
|
Amended
and Restated Bylaws of CenterPoint Energy
|
CenterPoint
Energy’s Form 8-K dated July 24, 2008
|
1-31447
|
3.1
|
|||
|
4(a)
|
—
|
Form
of CenterPoint Energy Stock Certificate
|
CenterPoint
Energy’s Registration Statement on Form S-4
|
333-69502
|
4.1
|
|||
|
4(b)
|
—
|
Rights
Agreement dated January 1, 2002, between CenterPoint Energy and
JPMorgan Chase Bank, as Rights Agent
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2001
|
1-31447
|
4.2
|
|||
|
4(c)
|
—
|
Contribution
and Registration Agreement dated December 18, 2001 among Reliant
Energy, CenterPoint Energy and the Northern Trust Company, trustee under
the Reliant Energy, Incorporated Master Retirement Trust
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2001
|
1-31447
|
4.3
|
|||
|
4(d)(1)
|
—
|
Mortgage
and Deed of Trust, dated November 1, 1944 between Houston Lighting
and Power Company (“HL&P”) and Chase Bank of Texas, National
Association (formerly, South Texas Commercial National Bank of Houston),
as Trustee, as amended and supplemented by 20 Supplemental Indentures
thereto
|
HL&P’s
Form S-7 filed on August 25, 1977
|
2-59748
|
2(b)
|
|||
|
4(d)(2)
|
—
|
Twenty-First
through Fiftieth Supplemental Indentures to
Exhibit 4(d)(1)
|
HL&P’s
Form 10-K for the year ended December 31, 1989
|
1-3187
|
4(a)(2)
|
|||
|
4(d)(3)
|
—
|
Fifty-First
Supplemental Indenture to Exhibit 4(d)(1) dated as of March 25,
1991
|
HL&P’s
Form 10-Q for the quarter ended June 30, 1991
|
1-3187
|
4(a)
|
|
4(d)(4)
|
—
|
Fifty-Second
through Fifty-Fifth Supplemental Indentures to Exhibit 4(d)(1) each
dated as of March 1, 1992
|
HL&P’s
Form 10-Q for the quarter ended March 31, 1992
|
1-3187
|
4
|
|||
|
4(d)(5)
|
—
|
Fifty-Sixth
and Fifty-Seventh Supplemental Indentures to Exhibit 4(d)(1) each
dated as of October 1, 1992
|
HL&P’s
Form 10-Q for the quarter ended September 30,
1992
|
1-3187
|
4
|
|||
|
4(d)(6)
|
—
|
Fifty-Eighth
and Fifty-Ninth Supplemental Indentures to Exhibit 4(d)(1) each dated
as of March 1, 1993
|
HL&P’s
Form 10-Q for the quarter ended March 31, 1993
|
1-3187
|
4
|
|||
|
4(d)(7)
|
—
|
Sixtieth
Supplemental Indenture to Exhibit 4(d)(1) dated as of July 1,
1993
|
HL&P’s
Form 10-Q for the quarter ended June 30, 1993
|
1-3187
|
4
|
|||
|
4(d)(8)
|
—
|
Sixty-First
through Sixty-Third Supplemental Indentures to Exhibit 4(d)(1) each
dated as of December 1, 1993
|
HL&P’s
Form 10-K for the year ended December 31, 1993
|
1-3187
|
4(a)(8)
|
|||
|
4(d)(9)
|
—
|
Sixty-Fourth
and Sixty-Fifth Supplemental Indentures to Exhibit 4(d)(1) each dated
as of July 1, 1995
|
HL&P’s
Form 10-K for the year ended December 31, 1995
|
1-3187
|
4(a)(9)
|
|||
|
4(e)(1)
|
—
|
General
Mortgage Indenture, dated as of October 10, 2002, between CenterPoint
Energy Houston Electric, LLC and JPMorgan Chase Bank, as
Trustee
|
CenterPoint
Houston’s Form 10-Q for the quarter ended September 30,
2002
|
1-3187
|
4(j)(1)
|
|||
|
4(e)(2)
|
—
|
Second
Supplemental Indenture to Exhibit 4(e)(1), dated as of October 10,
2002
|
CenterPoint
Houston’s Form 10- Q for the quarter ended September 30,
2002
|
1-3187
|
4(j)(3)
|
|||
|
4(e)(3)
|
—
|
Third
Supplemental Indenture to Exhibit 4(e)(1), dated as of
October 10, 2002
|
CenterPoint
Houston’s Form 10-Q for the quarter ended September 30,
2002
|
1-3187
|
4(j)(4)
|
|||
|
4(e)(4)
|
—
|
Fourth
Supplemental Indenture to Exhibit 4(e)(1), dated as of October 10,
2002
|
CenterPoint
Houston’s Form 10- Q for the quarter ended September 30,
2002
|
1-3187
|
4(j)(5)
|
|||
|
4(e)(5)
|
—
|
Fifth
Supplemental Indenture to Exhibit 4(e)(1), dated as of
October 10, 2002
|
CenterPoint
Houston’s Form 10-Q for the quarter ended September 30,
2002
|
1-3187
|
4(j)(6)
|
|||
|
4(e)(6)
|
—
|
Sixth
Supplemental Indenture to Exhibit 4(e)(1), dated as of
October 10, 2002
|
CenterPoint
Houston’s Form 10-Q for the quarter ended September 30,
2002
|
1-3187
|
4(j)(7)
|
|||
|
4(e)(7)
|
—
|
Seventh
Supplemental Indenture to Exhibit 4(e)(1), dated as of October 10,
2002
|
CenterPoint
Houston’s Form 10-Q for the quarter ended September 30,
2002
|
1-3187
|
4(j)(8)
|
|||
|
4(e)(8)
|
—
|
Eighth
Supplemental Indenture to Exhibit 4(e)(1), dated as of October 10,
2002
|
CenterPoint
Houston’s Form 10-Q for the quarter ended September 30,
2002
|
1-3187
|
4(j)(9)
|
|
4(e)(9)
|
—
|
Officer’s
Certificates dated October 10, 2002 setting forth the form, terms and
provisions of the First through Eighth Series of General Mortgage
Bonds
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2003
|
1-31447
|
4(e)(10)
|
|||
|
4(e)(10)
|
—
|
Ninth
Supplemental Indenture to Exhibit 4(e)(1), dated as of
November 12, 2002
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2002
|
1-31447
|
4(e)(10)
|
|||
|
4(e)(11)
|
—
|
Officer’s
Certificate dated November 12, 2003 setting forth the form, terms and
provisions of the Ninth Series of General Mortgage Bonds
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2003
|
1-31447
|
4(e)(12)
|
|||
|
4(e)(12)
|
—
|
Tenth
Supplemental Indenture to Exhibit 4(e)(1), dated as of March 18,
2003
|
CenterPoint
Energy’s Form 8-K dated March 13, 2003
|
1-31447
|
4.1
|
|||
|
4(e)(13)
|
—
|
Officer’s
Certificate dated March 18, 2003 setting forth the form, terms and
provisions of the Tenth Series and Eleventh Series of General Mortgage
Bonds
|
CenterPoint
Energy’s Form 8-K dated March 13, 2003
|
1-31447
|
4.2
|
|||
|
4(e)(14)
|
—
|
Eleventh
Supplemental Indenture to Exhibit 4(e)(1), dated as of May 23,
2003
|
CenterPoint
Energy’s Form 8-K dated May 16, 2003
|
1-31447
|
4.2
|
|||
|
4(e)(15)
|
—
|
Officer’s
Certificate dated May 23, 2003 setting forth the form, terms and
provisions of the Twelfth Series of General Mortgage Bonds
|
CenterPoint
Energy’s Form 8-K dated May 16, 2003
|
1-31447
|
4.1
|
|||
|
4(e)(16)
|
—
|
Twelfth
Supplemental Indenture to Exhibit 4(e)(1), dated as of September 9,
2003
|
CenterPoint
Energy’s Form 8-K dated September 9, 2003
|
1-31447
|
4.2
|
|||
|
4(e)(17)
|
—
|
Officer’s
Certificate dated September 9, 2003 setting forth the form, terms and
provisions of the Thirteenth Series of General Mortgage Bonds
|
CenterPoint
Energy’s Form 8-K dated September 9, 2003
|
1-31447
|
4.3
|
|||
|
4(e)(18)
|
—
|
Thirteenth
Supplemental Indenture to Exhibit 4(e)(1), dated as of February 6,
2004
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(16)
|
|||
|
4(e)(19)
|
—
|
Officer’s
Certificate dated February 6, 2004 setting forth the form, terms and
provisions of the Fourteenth Series of General Mortgage Bonds
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(17)
|
|||
|
4(e)(20)
|
—
|
Fourteenth
Supplemental Indenture to Exhibit 4(e)(1), dated as of February 11,
2004
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(18)
|
|||
|
4(e)(21)
|
—
|
Officer’s
Certificate dated February 11, 2004 setting forth the form, terms and
provisions of the Fifteenth Series of General Mortgage Bonds
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(19)
|
|
4(e)(22)
|
—
|
Fifteenth
Supplemental Indenture to Exhibit 4(e)(1), dated as of March 31,
2004
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(20)
|
|||
|
4(e)(23)
|
—
|
Officer’s
Certificate dated March 31, 2004 setting forth the form, terms and
provisions of the Sixteenth Series of General Mortgage Bonds
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(21)
|
|||
|
4(e)(24)
|
—
|
Sixteenth
Supplemental Indenture to Exhibit 4(e)(1), dated as of March 31,
2004
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(22)
|
|||
|
4(e)(25)
|
—
|
Officer’s
Certificate dated March 31, 2004 setting forth the form, terms and
provisions of the Seventeenth Series of General Mortgage
Bonds
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(23)
|
|||
|
4(e)(26)
|
—
|
Seventeenth
Supplemental Indenture to Exhibit 4(e)(1), dated as of March 31,
2004
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(24)
|
|||
|
4(e)(27)
|
—
|
Officer’s
Certificate dated March 31, 2004 setting forth the form, terms and
provisions of the Eighteenth Series of General Mortgage Bonds
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(e)(25)
|
|||
|
4(e)(28)
|
—
|
Nineteenth
Supplemental Indenture to Exhibit 4(e)(1), dated as of November 26,
2008
|
CenterPoint
Energy’s Form 8-K dated November 25, 2008
|
1-31447
|
4.2
|
|||
|
4(e)(29)
|
—
|
Officer’s
Certificate date November 26, 2008 setting forth the form, terms and
provisions of the Twentieth Series of General Mortgage Bonds
|
CenterPoint
Energy’s Form 8-K dated November 25, 2008
|
1-31447
|
4.3
|
|||
|
4(e)(30)
|
—
|
Twentieth
Supplemental Indenture to Exhibit 4(e)(1), dated as of December 9,
2008
|
CenterPoint
Houston’s Form 8-K dated January 6, 2009
|
1-3187
|
4.2
|
|||
|
†4(e)(31)
|
—
|
|
||||||
|
†4(e)(32)
|
—
|
|
||||||
|
4(f)(1)
|
—
|
Indenture,
dated as of February 1, 1998, between Reliant Energy Resources Corp.
(“RERC Corp.”) and Chase Bank of Texas, National Association, as
Trustee
|
CERC
Corp.’s Form 8-K dated February 5, 1998
|
1-13265
|
4.1
|
|||
|
4(f)(2)
|
—
|
Supplemental
Indenture No. 1 to Exhibit 4(f)(1), dated as of February 1,
1998, providing for the issuance of RERC Corp.’s 6 1/2% Debentures
due February 1, 2008
|
CERC
Corp.’s Form 8-K dated November 9, 1998
|
1-13265
|
4.2
|
|
4(f)(3)
|
—
|
Supplemental
Indenture No. 2 to Exhibit 4(f)(1), dated as of November 1,
1998, providing for the issuance of RERC Corp.’s 6 3/8% Term Enhanced
ReMarketable Securities
|
CERC
Corp.’s Form 8-K dated November 9, 1998
|
1-13265
|
4.1
|
|||
|
4(f)(4)
|
—
|
Supplemental
Indenture No. 3 to Exhibit 4(f)(1), dated as of July 1, 2000,
providing for the issuance of RERC Corp.’s 8.125% Notes due
2005
|
CERC
Corp.’s Registration Statement on Form S-4
|
333-49162
|
4.2
|
|||
|
4(f)(5)
|
—
|
Supplemental
Indenture No. 4 to Exhibit 4(f)(1), dated as of February 15,
2001, providing for the issuance of RERC Corp.’s 7.75% Notes due
2011
|
CERC
Corp.’s Form 8-K dated February 21, 2001
|
1-13265
|
4.1
|
|||
|
4(f)(6)
|
—
|
Supplemental
Indenture No. 5 to Exhibit 4(f)(1), dated as of March 25, 2003,
providing for the issuance of CenterPoint Energy Resources Corp.’s (“CERC
Corp.’s”) 7.875% Senior Notes due 2013
|
CenterPoint
Energy’s Form 8-K dated March 18, 2003
|
1-31447
|
4.1
|
|||
|
4(f)(7)
|
—
|
Supplemental
Indenture No. 6 to Exhibit 4(f)(1), dated as of April 14, 2003,
providing for the issuance of CERC Corp.’s 7.875% Senior Notes due
2013
|
CenterPoint
Energy’s Form 8-K dated April 7, 2003
|
1-31447
|
4.2
|
|||
|
4(f)(8)
|
—
|
Supplemental
Indenture No. 7 to Exhibit 4(f)(1), dated as of November 3,
2003, providing for the issuance of CERC Corp.’s 5.95% Senior Notes
due 2014
|
CenterPoint
Energy’s Form 8-K dated October 29, 2003
|
1-31447
|
4.2
|
|||
|
4(f)(9)
|
—
|
Supplemental
Indenture No. 8 to Exhibit 4(f)(1), dated as of December 28,
2005, providing for a modification of CERC Corp.’s 6 1/2% Debentures
due 2008
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(f)(9)
|
|||
|
4(f)(10)
|
—
|
Supplemental
Indenture No. 9 to Exhibit 4(f)(1), dated as of May 18, 2006,
providing for the issuance of CERC Corp.’s 6.15% Senior Notes due
2016
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30,
2006
|
1-31447
|
4.7
|
|||
|
4(f)(11)
|
—
|
Supplemental
Indenture No. 10 to Exhibit 4(f)(1), dated as of February 6,
2007, providing for the issuance of CERC Corp.’s 6.25% Senior Notes
due 2037
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2006
|
1-31447
|
4(f)(11)
|
|||
|
4(f)(12)
|
—
|
Supplemental
Indenture No. 11 to Exhibit 4(f)(1) dated as of October 23, 2007,
providing for the issuance of CERC Corp.’s 6.125% Senior Notes due
2017
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2007
|
1-31447
|
4.8
|
|
4(f)(13)
|
—
|
Supplemental
Indenture No. 12 to Exhibit 4(f)(1) dated as of October 23, 2007,
providing for the issuance of CERC Corp.’s 6.625% Senior Notes due
2037
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30, 2008
|
1-31447
|
4.9
|
|||
|
4(f)(14)
|
—
|
Supplemental
Indenture No. 13 to Exhibit 4(f)(1) dated as of May 15, 2008, providing
for the issuance of CERC Corp.’s 6.00% Senior Notes due 2018
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30,
2008
|
1-31447
|
4.9
|
|||
|
4(g)(1)
|
—
|
Indenture,
dated as of May 19, 2003, between CenterPoint Energy and JPMorgan
Chase Bank, as Trustee
|
CenterPoint
Energy’s Form 8-K dated May 19, 2003
|
1-31447
|
4.1
|
|||
|
4(g)(2)
|
—
|
Supplemental
Indenture No. 1 to Exhibit 4(g)(1), dated as of May 19, 2003,
providing for the issuance of CenterPoint Energy’s 3.75% Convertible
Senior Notes due 2023
|
CenterPoint
Energy’s Form 8-K dated May 19, 2003
|
1-31447
|
4.2
|
|||
|
4(g)(3)
|
—
|
Supplemental
Indenture No. 2 to Exhibit 4(g)(1), dated as of May 27, 2003,
providing for the issuance of CenterPoint Energy’s 5.875% Senior
Notes due 2008 and 6.85% Senior Notes due 2015
|
CenterPoint
Energy’s Form 8-K dated May 19, 2003
|
1-31447
|
4.3
|
|||
|
4(g)(4)
|
—
|
Supplemental
Indenture No. 3 to Exhibit 4(g)(1), dated as of September 9,
2003, providing for the issuance of CenterPoint Energy’s 7.25% Senior
Notes due 2010
|
CenterPoint
Energy’s Form 8-K dated September 9, 2003
|
1-31447
|
4.2
|
|||
|
4(g)(5)
|
—
|
Supplemental
Indenture No. 4 to Exhibit 4(g)(1), dated as of December 17,
2003, providing for the issuance of CenterPoint Energy’s 2.875%
Convertible Senior Notes due 2024
|
CenterPoint
Energy’s Form 8-K dated December 10, 2003
|
1-31447
|
4.2
|
|||
|
4(g)(6)
|
—
|
Supplemental
Indenture No. 5 to Exhibit 4(g)(1), dated as of December 13,
2004, as supplemented by Exhibit 4(g)(5), relating to the issuance of
CenterPoint Energy’s 2.875% Convertible Senior Notes due
2024
|
CenterPoint
Energy’s Form 8-K dated December 9, 2004
|
1-31447
|
4.1
|
|||
|
4(g)(7)
|
—
|
Supplemental
Indenture No. 6 to Exhibit 4(g)(1), dated as of August 23, 2005,
providing for the issuance of CenterPoint Energy’s 3.75% Convertible
Senior Notes, Series B due 2023
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(g)(7)
|
|||
|
4(g)(8)
|
—
|
Supplemental
Indenture No. 7 to Exhibit 4(g)(1), dated as of February 6,
2007, providing for the issuance of CenterPoint Energy’s 5.95% Senior
Notes due 2017
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2006
|
1-31447
|
4(g)(8)
|
|
4(g)(9)
|
—
|
Supplemental
Indenture No. 8 to Exhibit 4(g)(1), dated as of May 5, 2008,
providing for the issuance of CenterPoint Energy’s 6.50% Senior Notes due
2018
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30,
2008
|
1-31447
|
4.7
|
|||
|
4(h)(1)
|
—
|
Subordinated
Indenture dated as of September 1, 1999
|
Reliant
Energy’s Form 8-K dated September 1, 1999
|
1-3187
|
4.1
|
|||
|
4(h)(2)
|
—
|
Supplemental
Indenture No. 1 dated as of September 1, 1999, between Reliant Energy
and Chase Bank of Texas (supplementing Exhibit 4(h)(1) and providing for
the issuance Reliant Energy’s 2% Zero-Premium Exchangeable Subordinated
Notes Due 2029)
|
Reliant
Energy’s Form 8-K dated September 15, 1999
|
1-3187
|
4.2
|
|||
|
4(h)(3)
|
—
|
Supplemental
Indenture No. 2 dated as of August 31, 2002, between CenterPoint
Energy, Reliant Energy and JPMorgan Chase Bank (supplementing
Exhibit 4(h)(1))
|
CenterPoint
Energy’s Form 8-K12B dated August 31, 2002
|
1-31447
|
4(e)
|
|||
|
4(h)(4)
|
—
|
Supplemental
Indenture No. 3 dated as of December 28, 2005, between CenterPoint
Energy, Reliant Energy and JPMorgan Chase Bank (supplementing
Exhibit 4(h)(1))
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2005
|
1-31447
|
4(h)(4)
|
|||
|
4(i)(1)
|
—
|
$1,200,000,000
Second Amended and Restated Credit Agreement dated as of June 29, 2007,
among CenterPoint Energy, as Borrower, and the banks named
therein
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30, 2007
|
1-31447
|
4.3
|
|||
|
4(i)(2)
|
—
|
First
Amendment to Exhibit 4(i)(1), dated as of August 20, 2008, among
CenterPoint Energy, as Borrower, and the banks named therein
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2008
|
1-31447
|
4.4
|
|||
|
4(i)(3)
|
—
|
Second
Amendment to Exhibit 4(i)(1), dated as of November 18, 2008, among
CenterPoint Energy, as Borrower, and the banks named therein
|
CenterPoint
Energy’s Form 8-K dated November 18, 2008
|
1-31447
|
4.1
|
|||
|
4(j)(1)
|
—
|
$300,000,000
Second Amended and Restated Credit Agreement dated as of June 29, 2007,
among CenterPoint Houston, as Borrower, and the banks named
therein
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30, 2007
|
1-31447
|
4.4
|
|||
|
4(j)(2)
|
—
|
First
Amendment to Exhibit 4(j)(1), dated as of November 18, 2008, among
CenterPoint Houston, as Borrower, and the banks named therein
|
CenterPoint
Energy’s Form 8-K dated November 18, 2008
|
1-31447
|
4.2
|
|||
|
4(k)
|
—
|
$950,000,000
Second Amended and Restated Credit Agreement dated as of June 29, 2007,
among CERC Corp., as Borrower, and the banks named therein
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30, 2007
|
1-31447
|
4.5
|
|
4(l)
|
—
|
$600,000,000
Credit Agreement dated as of November 25, 2008, among CenterPoint
Houston, as Borrower, and the banks named therein
|
CenterPoint
Energy’s Form 8-K dated November 25, 2008
|
1-31447
|
4.1
|
Pursuant
to Item 601(b)(4)(iii)(A) of Regulation S-K, CenterPoint Energy has
not filed as exhibits to this Form 10-K certain long-term debt instruments,
including indentures, under which the total amount of securities authorized does
not exceed 10% of the total assets of CenterPoint Energy and its subsidiaries on
a consolidated basis. CenterPoint Energy hereby agrees to furnish a copy of any
such instrument to the SEC upon request.
|
Exhibit
Number
|
Description
|
Report
or Registration Statement
|
SEC
File or
Registration
Number
|
Exhibit
Reference
|
||||
|
*10(a)
|
—
|
CenterPoint
Energy Executive Benefits Plan, as amended and restated effective
June 18, 2003
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2003
|
1-31447
|
10.4
|
|||
|
*10(b)(1)
|
—
|
Executive
Incentive Compensation Plan of Houston Industries Incorporated (“HI”)
effective as of January 1, 1982
|
HI’s
Form 10-K for the year ended December 31, 1991
|
1-7629
|
10(b)
|
|||
|
*10(b)(2)
|
—
|
First
Amendment to Exhibit 10(b)(1) effective as of March 30,
1992
|
HI’s
Form 10-Q for the quarter ended March 31, 1992
|
1-7629
|
10(a)
|
|||
|
*10(b)(3)
|
—
|
Second
Amendment to Exhibit 10(b)(1) effective as of November 4,
1992
|
HI’s
Form 10-K for the year ended December 31, 1992
|
1-7629
|
10(b)
|
|||
|
*10(b)(4)
|
—
|
Third
Amendment to Exhibit 10(b)(1) effective as of September 7,
1994
|
HI’s
Form 10-K for the year ended December 31, 1994
|
1-7629
|
10(b)(4)
|
|||
|
*10(b)(5)
|
—
|
Fourth
Amendment to Exhibit 10(b)(1) effective as of August 6,
1997
|
HI’s
Form 10-K for the year ended December 31, 1997
|
1-3187
|
10(b)(5)
|
|||
|
*10(c)(1)
|
—
|
Executive
Incentive Compensation Plan of HI as amended and restated on
January 1, 1991
|
HI’s
Form 10-K for the year ended December 31, 1990
|
1-7629
|
10(b)
|
|||
|
*10(c)(2)
|
—
|
First
Amendment to Exhibit 10(c)(1) effective as of January 1,
1991
|
HI’s
Form 10-K for the year ended December 31, 1991
|
1-7629
|
10(f)(2)
|
|||
|
*10(c)(3)
|
—
|
Second
Amendment to Exhibit 10(c)(1) effective as of March 30,
1992
|
HI’s
Form 10-Q for the quarter ended March 31, 1992
|
1-7629
|
10(d)
|
|||
|
*10(c)(4)
|
—
|
Third
Amendment to Exhibit 10(c)(1) effective as of November 4,
1992
|
HI’s
Form 10-K for the year ended December 31, 1992
|
1-7629
|
10(f)(4)
|
|||
|
*10(c)(5)
|
—
|
Fourth
Amendment to Exhibit 10(c)(1) effective as of January 1,
1993
|
HI’s
Form 10-K for the year ended December 31, 1992
|
1-7629
|
10(f)(5)
|
|
*10(c)(6)
|
—
|
Fifth
Amendment to Exhibit 10(c)(1) effective in part, January 1,
1995, and in part, September 7, 1994
|
HI’s
Form 10-K for the year ended December 31, 1994
|
1-7629
|
10(f)(6)
|
|||
|
*10(c)(7)
|
—
|
Sixth
Amendment to Exhibit 10(c)(1) effective as of August 1,
1995
|
HI’s
Form 10-Q for the quarter ended June 30, 1995
|
1-7629
|
10(a)
|
|||
|
*10(c)(8)
|
—
|
Seventh
Amendment to Exhibit 10(c)(1) effective as of January 1,
1996
|
HI’s
Form 10-Q for the quarter ended June 30, 1996
|
1-7629
|
10(a)
|
|||
|
*10(c)(9)
|
—
|
Eighth
Amendment to Exhibit 10(c)(1) effective as of January 1,
1997
|
HI’s
Form 10-Q for the quarter ended June 30, 1997
|
1-7629
|
10(a)
|
|||
|
*10(c)(10)
|
—
|
Ninth
Amendment to Exhibit 10(c)(1) effective in part, January 1,
1997, and in part, January 1, 1998
|
HI’s
Form 10-K for the year ended December 31, 1997
|
1-3187
|
10(f)(10)
|
|||
|
*10(d)
|
—
|
Benefit
Restoration Plan of HI effective as of June 1, 1985
|
HI’s
Form 10-Q for the quarter ended March 31, 1987
|
1-7629
|
10(c)
|
|||
|
*10(e)
|
—
|
Benefit
Restoration Plan of HI as amended and restated effective as of
January 1, 1988
|
HI’s
Form 10-K for the year ended December 31, 1991
|
1-7629
|
10(g)(2)
|
|||
|
*10(f)(1)
|
—
|
Benefit
Restoration Plan of HI, as amended and restated effective as of
July 1, 1991
|
HI’s
Form 10-K for the year ended December 31, 1991
|
1-7629
|
10(g)(3)
|
|||
|
*10(f)(2)
|
—
|
First
Amendment to Exhibit 10(f)(1) effective in part, August 6, 1997,
in part, September 3, 1997, and in part, October 1,
1997
|
HI’s
Form 10-K for the year ended December 31, 1997
|
1-3187
|
10(i)(2)
|
|||
|
*10(f)(3)
|
—
|
Third
Amendment to Exhibit 10(f)(1) effective as of January 1,
2008
|
CenterPoint
Energy’s Form 8-K dated December 22, 2008
|
1-31447
|
10.2
|
|||
|
*10(g)
|
—
|
CenterPoint
Energy Benefit Restoration Plan, effective as of January 1,
2008
|
CenterPoint
Energy’s Form 8-K dated December 22, 2008
|
1-31447
|
10.1
|
|||
|
†*10(h)(1)
|
—
|
|
||||||
|
†*10(h)(2)
|
—
|
|
||||||
|
*10(i)
|
—
|
CenterPoint
Energy 1985 Deferred Compensation Plan, as amended and restated effective
January 1, 2003
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2003
|
1-31447
|
10.1
|
|
*10(j)(1)
|
—
|
Reliant
Energy 1994 Long- Term Incentive Compensation Plan, as amended and
restated effective January 1, 2001
|
Reliant
Energy’s Form 10-Q for the quarter ended June 30,
2002
|
1-3187
|
10.6
|
|||
|
*10(j)(2)
|
—
|
First
Amendment to Exhibit 10(j)(1), effective December 1,
2003
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2003
|
1-31447
|
10(p)(7)
|
|||
|
*10(j)(3)
|
—
|
Form
of Non-Qualified Stock Option Award Notice under
Exhibit 10(i)(1)
|
CenterPoint
Energy’s Form 8-K dated January 25, 2005
|
1-31447
|
10.6
|
|||
|
*10(k)(1)
|
—
|
Savings
Restoration Plan of HI effective as of January 1, 1991
|
HI’s
Form 10-K for the year ended December 31, 1990
|
1-7629
|
10(f)
|
|||
|
*10(k)(2)
|
—
|
First
Amendment to Exhibit 10(k)(1) effective as of January 1,
1992
|
HI’s
Form 10-K for the year ended December 31, 1991
|
1-7629
|
10(l)(2)
|
|||
|
*10(k)(3)
|
—
|
Second
Amendment to Exhibit 10(k)(1) effective in part, August 6, 1997,
and in part, October 1, 1997
|
HI’s
Form 10-K for the year ended December 31, 1997
|
1-3187
|
10(q)(3)
|
|||
|
*10(l)(3)
|
—
|
Amended
and Restated CenterPoint Energy, Inc. 1991 Savings Restoration Plan,
effective as of January 1, 2008
|
CenterPoint
Energy’s Form 8-K dated December 22, 2008
|
1-31447
|
10.4
|
|||
|
*10(m)
|
—
|
CenterPoint
Energy Savings Restoration Plan, effective as of January 1,
2008
|
CenterPoint
Energy’s Form 8-K dated December 22, 2008
|
1-31447
|
10.3
|
|||
|
*10(n)(1)
|
—
|
CenterPoint
Energy Outside Director Benefits Plan, as amended and restated effective
June 18, 2003
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2003
|
1-31447
|
10.6
|
|||
|
*10(n)(2)
|
—
|
First
Amendment to Exhibit 10(n)(1) effective as of January 1,
2004
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30,
2004
|
1-31447
|
10.6
|
|||
|
†*10(n)(3)
|
—
|
|
||||||
|
*10(o)
|
—
|
CenterPoint
Energy Executive Life Insurance Plan, as amended and restated effective
June 18, 2003
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2003
|
1-31447
|
10.5
|
|||
|
*10(p)
|
—
|
Employment
and Supplemental Benefits Agreement between HL&P and Hugh Rice
Kelly
|
HI’s
Form 10-Q for the quarter ended March 31, 1987
|
1-7629
|
10(f)
|
|||
|
10(q)(1)
|
—
|
Stockholder’s
Agreement dated as of July 6, 1995 between Houston Industries
Incorporated and Time Warner Inc.
|
Schedule
13-D dated July 6, 1995
|
5-19351
|
2
|
|
10(q)(2)
|
—
|
Amendment
to Exhibit 10(q)(1) dated November 18, 1996
|
HI’s
Form 10-K for the year ended December 31, 1996
|
1-7629
|
10(x)(4)
|
|||
|
*10(r)(1)
|
—
|
Houston
Industries Incorporated Executive Deferred Compensation Trust effective as
of December 19, 1995
|
HI’s
Form 10-K for the year ended December 31, 1995
|
1-7629
|
10(7)
|
|||
|
*10(r)(2)
|
—
|
First
Amendment to Exhibit 10(r)(1) effective as of August 6,
1997
|
HI’s
Form 10-Q for the quarter ended June 30, 1998
|
1-3187
|
10
|
|||
|
*10(s)
|
—
|
Letter
Agreement dated May 24, 2007 between CenterPoint Energy and Milton
Carroll, Non-Executive Chairman of the Board of Directors of CenterPoint
Energy
|
CenterPoint
Energy’s Form 8-K dated May 31, 2007
|
1-31447
|
10.1
|
|||
|
*10(t)
|
—
|
Reliant
Energy, Incorporated and Subsidiaries Common Stock Participation Plan for
Designated New Employees and Non-Officer Employees, as amended and
restated effective January 1, 2001
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2002
|
1-31447
|
10(y)(2)
|
|||
|
*10(u)(1)
|
—
|
Long-Term
Incentive Plan of CenterPoint Energy, Inc. (amended and restated effective
as of May 1, 2004)
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30,
2004
|
1-31447
|
10.5
|
|||
|
*10(u)(2)
|
—
|
First
Amendment to Exhibit (u)(1), effective January 1, 2007
|
CenterPoint
Energy’s Form 10-Q for the quarter ended March 31, 2007
|
1-31447
|
10.5
|
|||
|
*10(u)(3)
|
—
|
Form
of Non-Qualified Stock Option Award Agreement under
Exhibit 10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated January 25, 2005
|
1-31447
|
10.1
|
|||
|
*10(u)(4)
|
—
|
Form
of Restricted Stock Award Agreement under Exhibit 10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated January 25, 2005
|
1-31447
|
10.2
|
|||
|
*10(u)(5)
|
—
|
Form
of Performance Share Award under Exhibit 10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated January 25, 2005
|
1-31447
|
10.3
|
|||
|
*10(u)(6)
|
—
|
Form
of Performance Share Award Agreement for 20XX-20XX Performance Cycle under
Exhibit 10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated February 22, 2006
|
1-31447
|
10.2
|
|||
|
*10(u)(7)
|
—
|
Form
of Restricted Stock Award Agreement (With Performance Vesting Requirement)
under Exhibit 10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated February 21, 2005
|
1-31447
|
10.2
|
|||
|
*10(u)(8)
|
—
|
Form
of Stock Award Agreement (With Performance Goal) under Exhibit
10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated February 22, 2006
|
1-31447
|
10.3
|
|||
|
*10(u)(9)
|
—
|
Form
of Performance Share Award Agreement for 20XX — 20XX Performance Cycle
under Exhibit 10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated February 21, 2007
|
1-31447
|
10.1
|
|
*10(u)(10)
|
—
|
Form
of Stock Award Agreement (With Performance Goal) under
Exhibit 10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated February 21, 2007
|
1-31447
|
10.2
|
|||
|
*10(u)(11)
|
—
|
Form
of Stock Award Agreement (Without Performance Goal) under Exhibit
10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated February 21, 2007
|
1-31447
|
10.3
|
|||
|
*10(u)(12)
|
—
|
Form
of Performance Share Award Agreement for 20XX — 20XX Performance Cycle
under Exhibit 10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated February 20, 2008
|
1-31447
|
10.1
|
|||
|
*10(u)(13)
|
—
|
Form
of Stock Award Agreement (With Performance Goal) under
Exhibit 10(u)(1)
|
CenterPoint
Energy’s Form 8-K dated February 20, 2008
|
1-31447
|
10.2
|
|||
|
10(v)(1)
|
—
|
Master
Separation Agreement entered into as of December 31, 2000 between
Reliant Energy, Incorporated and Reliant Resources, Inc.
|
Reliant
Energy’s Form 10-Q for the quarter ended March 31,
2001
|
1-3187
|
10.1
|
|||
|
10(v)(2)
|
—
|
First
Amendment to Exhibit 10(v)(1) effective as of February 1,
2003
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2002
|
1-31447
|
10(bb)(5)
|
|||
|
10(v)(3)
|
—
|
Employee
Matters Agreement, entered into as of December 31, 2000, between
Reliant Energy, Incorporated and Reliant Resources, Inc.
|
Reliant
Energy’s Form 10-Q for the quarter ended March 31,
2001
|
1-3187
|
10.5
|
|||
|
10(v)(4)
|
—
|
Retail
Agreement, entered into as of December 31, 2000, between Reliant
Energy, Incorporated and Reliant Resources, Inc.
|
Reliant
Energy’s Form 10-Q for the quarter ended March 31,
2001
|
1-3187
|
10.6
|
|||
|
10(v)(5)
|
—
|
Tax
Allocation Agreement, entered into as of December 31, 2000, between
Reliant Energy, Incorporated and Reliant Resources, Inc.
|
Reliant
Energy’s Form 10-Q for the quarter ended March 31,
2001
|
1-3187
|
10.8
|
|||
|
10(w)(1)
|
—
|
Separation
Agreement entered into as of August 31, 2002 between CenterPoint
Energy and Texas Genco
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2002
|
1-31447
|
10(cc)(1)
|
|||
|
10(w)(2)
|
—
|
Transition
Services Agreement, dated as of August 31, 2002, between CenterPoint
Energy and Texas Genco
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2002
|
1-31447
|
10(cc)(2)
|
|||
|
10(w)(3)
|
—
|
Tax
Allocation Agreement, dated as of August 31, 2002, between
CenterPoint Energy and Texas Genco
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2002
|
1-31447
|
10(cc)(3)
|
|
*10(x)
|
—
|
Retention
Agreement effective October 15, 2001 between Reliant Energy and David
G. Tees
|
Reliant
Energy’s Form 10-K for the year ended December 31,
2001
|
1-3187
|
10(jj)
|
|||
|
*10(y)
|
—
|
Retention
Agreement effective October 15, 2001 between Reliant Energy and
Michael A. Reed
|
Reliant
Energy’s Form 10-K for the year ended December 31,
2001
|
1-3187
|
10(kk)
|
|||
|
*10(z)
|
—
|
Non-Qualified
Unfunded Executive Supplemental Income Retirement Plan of Arkla, Inc.
effective as of August 1, 1983
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2002
|
1-31447
|
10(gg)
|
|||
|
*10(aa)(1)
|
—
|
Deferred
Compensation Plan for Directors of Arkla, Inc. effective as of
November 10, 1988
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2002
|
1-31447
|
10(hh)(1)
|
|||
|
*10(aa)(2)
|
—
|
First
Amendment to Exhibit 10(aa)(1) effective as of August 6,
1997
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2002
|
1-31447
|
10(hh)(2)
|
|||
|
*10(bb)(1)
|
—
|
CenterPoint
Energy, Inc. Deferred Compensation Plan, as amended and restated effective
January 1, 2003
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30,
2003
|
1-31447
|
10.2
|
|||
|
*10(bb)(2)
|
—
|
First
Amendment to Exhibit 10(bb)(1) effective as of January 1,
2008
|
CenterPoint
Energy’s Form 8-K dated February 20, 2008
|
1-31447
|
10.4
|
|||
|
*10(bb)(3)
|
—
|
CenterPoint
Energy 2005 Deferred Compensation Plan, effective January 1,
2008
|
CenterPoint
Energy’s Form 8-K dated February 20, 2008
|
1-31447
|
10.3
|
|||
|
*10(bb)(4)
|
—
|
Amended
and Restated CenterPoint Energy 2005 Deferred Compensation Plan, effective
January 1, 2009
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2008
|
1-31447
|
10.1
|
|||
|
*10(cc)
|
—
|
CenterPoint
Energy Short Term Incentive Plan, as amended and restated effective
January 1, 2003
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2003
|
1-31447
|
10.3
|
|||
|
*10(dd)
|
—
|
CenterPoint
Energy Stock Plan for Outside Directors, as amended and restated effective
May 7, 2003
|
CenterPoint
Energy’s Form 10-K for the year ended December 31,
2003
|
1-31447
|
10(ll)
|
|||
|
10(ee)
|
—
|
City
of Houston Franchise Ordinance
|
CenterPoint
Energy’s Form 10-Q for the quarter ended June 30,
2005
|
1-31447
|
10.1
|
|||
|
10(ff)
|
—
|
Letter
Agreement dated March 16, 2006 between CenterPoint Energy and John T.
Cater
|
CenterPoint
Energy’s Form 10-Q for the quarter ended March 30,
2006
|
1-31447
|
10
|
|||
|
10(gg)(1)
|
—
|
Amended
and Restated HL&P Executive Incentive Compensation Plan effective as
of January 1, 1985
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2008
|
1-31447
|
10.2
|
|
10(gg)(2)
|
—
|
First
Amendment to Exhibit 10(gg)(1) effective as of January 1,
2008
|
CenterPoint
Energy’s Form 10-Q for the quarter ended September 30,
2008
|
1-31447
|
10.3
|
|||||
|
†*10(hh)(1)
|
—
|
|
||||||||
|
†*10(hh)(2)
|
—
|
|
||||||||
|
†*10(ii)(1)
|
—
|
|
||||||||
|
†*10(ii)(2)
|
—
|
|
||||||||
|
†*10(jj)(1)
|
—
|
|
||||||||
|
†*10(jj)(2)
|
—
|
|
||||||||
|
†10(kk)
|
—
|
|
||||||||
|
†10(ll)
|
—
|
|
||||||||
|
†10(mm)
|
—
|
|
||||||||
|
†10(nn)
|
—
|
|
||||||||
|
†12
|
—
|
|
||||||||
|
†21
|
—
|
|
||||||||
|
†23
|
—
|
|
||||||||
|
†31.1
|
—
|
|
||||||||
|
†31.2
|
—
|
|
||||||||
|
†32.1
|
—
|
|
||||||
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†32.2
|
—
|
|
Exhibit
4(e)(31)
CenterPoint
Energy Houston Electric, LLC
1111
Louisiana
Houston,
TX 77002
=====================================================================
CENTERPOINT
ENERGY HOUSTON ELECTRIC, LLC
TO
THE BANK
OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION
(successor
in trust to JPMORGAN CHASE BANK),
as
Trustee
----------
TWENTY-FIRST
SUPPLEMENTAL INDENTURE
Dated as
of January 9, 2009
----------
Supplementing
the General Mortgage Indenture
Dated as
of October 10, 2002
Filed
under file number 030004510538 in the
Office of
the Secretary of State as an instrument
granting
a security interest by a public utility
THIS
INSTRUMENT GRANTS A SECURITY INTEREST BY A PUBLIC UTILITY
THIS
INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
This
instrument is being filed pursuant to Chapter 35 of the Texas Business and
Commerce Code
=====================================================================
TWENTY-FIRST
SUPPLEMENTAL INDENTURE, dated as of January 9, 2009, between CENTERPOINT ENERGY
HOUSTON ELECTRIC, LLC, a limited liability company organized and existing under
the laws of the State of Texas (herein called the “Company”), having its
principal office at 1111 Louisiana, Houston, Texas 77002, and THE BANK OF NEW
YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION (successor in trust to JPMORGAN
CHASE BANK), a limited purpose national banking association duly organized and
existing under the laws of the United States, as Trustee (herein called the
“Trustee”), the office of the Trustee at which on the date hereof its corporate
trust business is administered being 601 Travis Street, 16th Floor, Houston,
Texas 77002.
RECITALS
OF THE COMPANY
WHEREAS,
the Company has heretofore executed and delivered to the Trustee a General
Mortgage Indenture dated as of October 10, 2002, as supplemented and amended
(the “Indenture”), providing for the issuance by the Company from time to time
of its bonds, notes or other evidence of indebtedness to be issued in one or
more series (in the Indenture and herein called the “Securities”) and to provide
security for the payment of the principal of and premium, if any, and interest,
if any, on the Securities; and
WHEREAS,
the Company, in the exercise of the power and authority conferred upon and
reserved to it under the provisions of the Indenture and pursuant to appropriate
resolutions of the Manager, has duly determined to make, execute and deliver to
the Trustee this Twenty-First Supplemental Indenture to the Indenture as
permitted by Sections 201, 301, 403(2) and 1401 of the Indenture in order to
establish the form or terms of, and to provide for the creation and issuance of,
a twenty-first series of Securities under the Indenture in an initial aggregate
principal amount of $500,000,000 (such twenty-first series being hereinafter
referred to as the “Twenty-First Series”); and
WHEREAS,
all things necessary to make the Securities of the Twenty-First Series, when
executed by the Company and authenticated and delivered by the Trustee or any
Authenticating Agent and issued upon the terms and subject to the conditions
hereinafter and in the Indenture set forth against payment therefor the valid,
binding and legal obligations of the Company and to make this Twenty-First
Supplemental Indenture a valid, binding and legal agreement of the Company, have
been done; and
NOW,
THEREFORE, THIS TWENTY-FIRST SUPPLEMENTAL INDENTURE WITNESSETH that, in order to
establish the terms of a series of Securities, and for and in consideration of
the premises and of the covenants contained in the Indenture and in this
Twenty-First Supplemental Indenture and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, it
is mutually covenanted and agreed as follows:
ARTICLE
ONE
DEFINITIONS
AND OTHER PROVISIONS
OF
GENERAL APPLICATION
Section
101. Definitions. Each
capitalized term that is used herein and is defined in the Indenture shall have
the meaning specified in the Indenture unless such term is otherwise defined
herein.
ARTICLE
TWO
TITLE,
FORM AND TERMS OF THE BONDS
Section
201. Title
of the Bonds. This Twenty-First Supplemental Indenture hereby
creates a series of Securities designated as the “7.00% General Mortgage Bonds,
Series U, due 2014” (the “Bonds”). For purposes of the Indenture, the
Bonds shall constitute a single series of Securities and, subject to the
provisions, including, but not limited to Article Four of the Indenture, the
Bonds shall be issued in an aggregate principal amount of
$500,000,000.
Section
202. Form
and Terms of the Bonds. The form and terms of the Bonds will
be set forth in an Officer’s Certificate delivered by the Company to the Trustee
pursuant to the authority granted by this Twenty-First Supplemental Indenture in
accordance with Sections 201 and 301 of the Indenture.
Section
203. Treatment of Proceeds of
Title Insurance Policy. Any moneys received by the Trustee as
proceeds of any title insurance policy on Mortgaged Property of the Company
shall be subject to and treated in accordance with the provisions of Section
607(2) of the Indenture (other than the last paragraph thereof).
ARTICLE
THREE
MISCELLANEOUS
PROVISIONS
The
Trustee makes no undertaking or representations in respect of, and shall not be
responsible in any manner whatsoever for and in respect of, the validity or
sufficiency of this Twenty-First Supplemental Indenture or the proper
authorization or the due execution hereof by the Company or for or in respect of
the recitals and statements contained herein, all of which recitals and
statements are made solely by the Company.
Except as
expressly amended and supplemented hereby, the Indenture shall continue in full
force and effect in accordance with the provisions thereof and the Indenture is
in all respects hereby ratified and confirmed. This Twenty-First
Supplemental Indenture and all of its provisions shall be deemed a part of the
Indenture in the manner and to the extent herein and therein
provided.
This
Twenty-First Supplemental Indenture shall be governed by, and construed in
accordance with, the law of the State of New York.
This
Twenty-First Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument.
IN
WITNESS WHEREOF, the parties hereto have caused this Twenty-First Supplemental
Indenture to be duly executed as of the day and year first above
written.
CENTERPOINT
ENERGY HOUSTON ELECTRIC, LLC
|
By:
|
/s/
Marc Kilbride
|
|
Name:
Marc Kilbride
|
|
|
Title: Vice President and
Treasurer
|
|
|
THE
BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION (successor in
trust to JPMORGAN CHASE BANK), as
Trustee
|
|
By:
|
/s/
Marcella Burgess
|
|
Name:
Assistant Vice President
|
|
|
Title:
|
ACKNOWLEDGMENT
STATE OF
TEXAS )
) ss
COUNTY OF
HARRIS )
On the
9th day of January 2009, before me personally came Marc Kilbride, to me known,
who, being by me duly sworn, did depose and say that he or she resides in
Houston, Texas; that he or she is the Vice President and Treasurer of
CenterPoint Energy Houston Electric, LLC, a Texas limited liability company, the
limited liability company described in and which executed the foregoing
instrument; and that he signed his name thereto by authority of the sole manager
of said limited liability company.
|
/s/
Amelia Oviedo
|
|
|
Notary
Public
|
ACKNOWLEDGMENT
STATE OF
TEXAS )
) ss
COUNTY OF
HARRIS )
On the
9th day of January 2009, before me personally came Marcella Burgess, to me
known, who, being by me duly sworn, did depose and say that he or she resides in
Houston, Texas; that he or she is Assistant Vice President of The Bank of New
York Mellon Trust Company, National Association, a national banking association
organized under the laws of the United States, the national banking association
described in and which executed the foregoing instrument; and that she signed
her name thereto by authority of the board of directors of said national banking
association.
|
/s/
Vicki L. Anderson
|
|
|
Notary
Public
|
Exhibit 4(e)(32)
CENTERPOINT
ENERGY HOUSTON ELECTRIC, LLC
OFFICER’S
CERTIFICATE
January 9,
2009
I, the
undersigned officer of CenterPoint Energy Houston Electric, LLC, a Texas limited
liability company (the “Company”), do hereby certify that I am an Authorized
Officer of the Company as such term is defined in the Indenture (as defined
herein). I am delivering this certificate pursuant to the authority
granted in the Resolutions adopted by written consent of the sole Manager of the
Company dated January 6, 2009, and Sections 105, 201, 301, 401(1), 401(5),
403(2)(B) and 1403 of the General Mortgage Indenture, dated as of October 10,
2002, as heretofore supplemented to the date hereof (as heretofore supplemented,
the “Indenture”), between the Company and The Bank of New York Mellon Trust
Company, National Association (successor in trust to JPMorgan Chase Bank), as
Trustee (the “Trustee”). Terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Indenture, unless the
context clearly requires otherwise. Based upon the foregoing, I
hereby certify on behalf of the Company as follows:
1. The
terms and conditions of the Securities of the series described in this Officer’s
Certificate are as follows (the numbered subdivisions set forth in this
Paragraph 1 corresponding to the numbered subdivisions of Section 301 of the
Indenture):
(1) The
Securities of the twenty-first series to be issued under the Indenture shall be
designated as the “7.00% General Mortgage Bonds, Series U, due 2014” (the
“Series U Bonds”), as set forth in the Twenty-First Supplemental Indenture,
dated as of the date hereof, between the Company and the Trustee.
(2) The
Trustee shall authenticate and deliver Series U Bonds for original issue on
January 9,
2009 (the “Issue Date”) in the aggregate principal amount of
$500,000,000, upon a Company Order for the authentication and delivery thereof
and satisfaction of Section 401 of the Indenture.
(3) Interest
on the Series U Bonds shall be payable to the Persons in whose names such
Securities are registered at the close of business on the Regular Record Date
for such interest (as specified in (5) below), except as otherwise expressly
provided in the form of such Securities attached hereto as Exhibit
A.
(4) The
Series U Bonds shall mature and the principal thereof shall be due and
payable together with all accrued and unpaid interest thereon on March 1,
2014.
(5) The
Series U Bonds shall bear interest at the rate of 7.00% per
annum. Interest shall accrue on the Series U Bonds from the
Issue Date, or the most recent date to which interest has been paid or duly
provided for. The Interest Payment Dates for the Series U Bonds
shall be March 1 and September 1 in each year commencing September 1, 2009, and
the Regular Record Dates with respect to the Interest Payment Dates for the
Series U Bonds shall be the February 15 and August 15,
respectively, immediately preceding each Interest Payment Date (whether or not a
Business Day); provided
-1-
however
that interest payable at maturity, upon redemption or when principal is
otherwise due will be payable to the Holder to whom principal is
payable.
(6) The
Corporate Trust Office of The Bank of New York Mellon Trust Company, National
Association in Houston, Texas shall be the place at which (i) the principal
of and premium, if any, and interest on the Series U Bonds shall
be payable, (ii) registration of transfer of the Series U Bonds may be
effected, and (iii) exchanges of the Series U Bonds may be effected; and
the Corporate Trust Office of The Bank of New York Mellon Trust Company,
National Association in Houston, Texas shall be the place at which notices and
demands to or upon the Company in respect of the Series U Bonds and the
Indenture may be served; and The Bank of New York Mellon Trust Company, National
Association shall be the Security Registrar for the Series U Bonds;
provided, however, that the Company reserves the right to change, by one or more
Officer’s Certificates, any such place or the Security Registrar; and provided,
further, that the Company reserves the right to designate, by one or more
Officer’s Certificates, its principal office in Houston, Texas as any such place
or itself as the Security Registrar; provided, however, that there shall be only
a single Security Registrar for the Series U Bonds.
(7) The
Series U Bonds shall be redeemable, at the option of the Company, at any
time or from time to time, in whole or in part, at a price equal to the greater
of (i) 100% of the principal amount of the Series U Bonds to be redeemed or
(ii) the sum of the present values of the remaining scheduled payments of
principal and interest on the Series U Bonds to be redeemed (not including
any portion of such payments of interest accrued to the Redemption Date)
discounted to the date of redemption (the “Redemption Date”) on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months) at the
applicable Treasury Rate plus 50 basis points; plus, in each case, accrued and
unpaid interest on the principal amount being redeemed to the Redemption
Date.
“Treasury
Rate” means, with respect to any Redemption Date the yield, under the heading
which represents the average for the immediately preceding week, appearing in
the most recently published statistical release designated “H.15 (519)” or any
successor publication which is published weekly by the Board of Governors of the
Federal Reserve System and which establishes yields on actively traded U.S.
Treasury securities adjusted to constant maturity under the caption “Treasury
Constant Maturities,” for the maturity corresponding to the Comparable Treasury
Issue (if no maturity is within three months before or after the remaining life
(as defined below), yields for the two published maturities most closely
corresponding to the Comparable Treasury Issue will be determined and the
Treasury Rate will be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month); or if such release (or any
successor release) is not published during the week preceding the calculation
date or does not contain such yields, the rate per annum equal to the semiannual
equivalent yield to maturity of the Comparable Treasury Issue, calculated using
a price for the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price for such Redemption
Date. The Treasury Rate will be calculated on the third Business Day
preceding the Redemption Date.
-2-
“Comparable
Treasury Issue” means the U.S. Treasury security selected by an Independent
Investment Banker as having a maturity comparable to the remaining term
(“remaining life”) of the Series U Bonds to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such Series U Bonds.
“Comparable
Treasury Price” means (1) the average of five Reference Treasury Dealer
Quotations for such Redemption Date, after excluding the highest and lowest
Reference Treasury Dealer Quotations, or (2) if the Independent Investment
Banker obtains fewer than four such Reference Treasury Dealer Quotations, the
average of all such quotations.
“Independent
Investment Banker” means Credit Suisse Securities (USA) LLC or UBS Securities
LLC in each case as specified by the Company, or if these firms are unwilling or
unable to select the Comparable Treasury Issue, an independent investment
institution of national standing selected by the Company.
“Reference
Treasury Dealer” means (1) Credit Suisse Securities (USA) LLC or UBS Securities
LLC and their respective successors; provided, however, that if any of the
foregoing shall cease to be a primary U.S. government securities dealer in New
York City (a “Primary Treasury Dealer”), the Company will substitute therefor
another Primary Treasury Dealer and (2) any other three Primary Treasury Dealers
selected by the Company after consultation with the Independent Investment
Banker.
“Reference
Treasury Dealer Quotations” means, with respect to each Reference Treasury
Dealer and any Redemption Date, the average, as determined by the Independent
Investment Banker, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Independent Investment Banker at 5:00 p.m., New York City time,
on the third business day preceding such Redemption Date.
The
Trustee will mail a notice of redemption to each holder of Series U Bonds
to be redeemed by first-class mail at least 30 and not more than 60 days prior
to the date fixed for redemption. Unless the Company defaults on payment of the
redemption price, interest will cease to accrue on the Series U Bonds or
portions thereof called for redemption on the Redemption Date. If fewer than all
of the Series U Bonds are to be redeemed, the Trustee will select, not more
than 60 days prior to the Redemption Date, the particular Series U Bonds or
portions thereof for redemption from the outstanding Series U Bonds not
previously called by such method as the Trustee deems fair and
appropriate. The Trustee may select for redemption Series U
Bonds and portions of Series U Bonds in amounts of $1,000 or whole
multiples of $1,000.
(8)
Not applicable.
(9)
Not applicable.
(10) Not
applicable.
(11) Not
applicable.
(12) Not
applicable.
-3-
(13) See
subsection (7) above.
(14) Not
applicable.
(15) Not
applicable.
(16) Not
applicable.
(17) The
Series U Bonds shall be issuable in whole or in part in the form of one or more
Global Securities (as defined below). The Depositary Trust Company shall
initially serve as Depositary (as defined below) with respect to the Global
Securities. “Depositary” means, with respect to Securities of any
series issuable in whole or in part in the form of one or more Global
Securities, a clearing agency registered under the Exchange Act that is
designated to act as depositary for such Securities. “Global Security” means a
Security that evidences all or part of the Securities of a series and bears a
legend in substantially the following form:
THIS
SECURITY IS IN GLOBAL FORM AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY.
The
provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global
Securities:
(1) Each
Global Security authenticated under the Indenture shall be registered in the
name of the Depositary designated for such Global Security or a nominee thereof
and delivered to such Depositary or a nominee thereof or custodian therefor, and
each such Global Security shall constitute a single Security for all purposes of
the Indenture.
(2)
Notwithstanding any other provision in the Indenture, no Global Security may be
exchanged in whole or in part for Securities registered, and no transfer of a
Global Security in whole or in part may be registered, in the name of any Person
other than the Depositary for such Global Security or a nominee thereof unless
(A) the Company has notified the Trustee that the Depositary is unwilling or
unable to continue as Depositary for such Global Security, the Depositary
defaults in the performance of its duties as Depositary, or the Depositary has
ceased to be a clearing agency registered under the Exchange Act, in each case,
unless the Company has approved a successor Depositary within 90 days, (B) the
Company in its sole discretion determines that such Global Security will be so
exchangeable or transferable or (C) there shall exist such circumstances, if
any, in addition to or in lieu of the foregoing as have been specified for this
purpose as contemplated by the Indenture.
(3)
Subject to Clause (2) above, any exchange of a Global Security for other
Securities may be made in whole or in part, and all Securities issued in
exchange for a
-4-
Global
Security or any portion thereof shall be registered in such names as the
Depositary for such Global Security shall direct.
(4) Every
Security authenticated and delivered upon registration of transfer of, or in
exchange for or in lieu of, a Global Security or any portion thereof, whether
pursuant to Sections 304, 305, 306, 507 or 1406 of the Indenture or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other than
the Depositary for such Global Security or a nominee thereof.
(18) Not
applicable.
(19) Not
applicable.
(20) For
purposes of the Series U Bonds, “Business Day” shall mean any day, other
than Saturday or Sunday, on which commercial banks and foreign exchange markets
are open for business, including dealings in deposits in U.S. dollars, in New
York, New York.
(21) Not
applicable.
(22) The
Series U Bonds shall have such other terms and provisions as are provided
in the form thereof attached hereto as Exhibit A, and shall
be issued in substantially such form.
2. The
undersigned has read all of the covenants and conditions contained in the
Indenture, and the definitions in the Indenture relating thereto, relating to
the issuance of the Series U Bonds and in respect of compliance with which
this certificate is made.
3. The
statements contained in this certificate are based upon the familiarity of the
undersigned with the Indenture, the documents accompanying this certificate, and
upon discussions by the undersigned with officers and employees of the Company
familiar with the matters set forth herein.
4. In
the opinion of the undersigned, he has made such examination or investigation as
is necessary to enable him to express an informed opinion as to whether or not
such covenants and conditions have been complied with.
In the opinion of the undersigned, such
conditions and covenants have been complied with.
5. To
my knowledge, no Event of Default has occurred and is continuing.
6. The
execution of the Twenty-First Supplemental Indenture, dated as of the date
hereof, between the Company and the Trustee is authorized or permitted by the
Indenture.
7. With
respect to Section 403(2)(B) of the Indenture, First Mortgage Bonds, 7 3/4%
Series due March 15, 2023 having an aggregate principal amount of $120,865,000
out of $250,000,000, First Mortgage Bonds, 8 3/4% Series due March 1, 2022
having an aggregate principal amount of $62,275,000 out of $100,000,000, First
Mortgage Bonds, Medium-Term Note 10% Series due February 1, 2028 having an
aggregate principal amount of $75,000,000 out of $400,000,000 and General
Mortgage Bonds, Series N due November 14, 2007 having an aggregate principal
amount of $241,860,000 out of $1,310,000,000 (collectively, the “Retired
Mortgage Bonds”), have heretofore been authenticated and delivered and as of the
date of this certificate, constitute Retired Securities. $500,000,000
aggregate principal amount of such Retired Mortgage Bonds are the basis for the
authentication and delivery of $500,000,000 aggregate principal amount of the
Series U Bonds.
-5-
IN
WITNESS WHEREOF, the undersigned has executed this Officer’s Certificate on this
9th day of January, 2009.
|
/s/
Marc Kilbride
|
|
|
Name:
Marc Kilbride
|
|
|
Title:
Vice President and Treasurer
|
Acknowledged
and Received on
January 9,
2009
THE BANK
OF NEW YORK
MELLON
TRUST COMPANY,
NATIONAL
ASSOCIATION,
as
Trustee
|
/s/
Marcella Burgess
|
|
|
Name:
Marcella Burgess
|
|
|
Title:
Vice President and Treasurer
|
-6-
EXHIBIT
A
FORM
OF BOND
-7-
THIS
SECURITY IS IN GLOBAL FORM AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY.
Unless
this certificate is presented by an authorized representative of The Depository
Trust Company, a New York corporation (“DTC”), to CenterPoint Energy Houston
Electric, LLC or its agent for registration of transfer, exchange, or payment,
and any certificate issued is registered in the name of Cede & Co. or in
such other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
CENTERPOINT
ENERGY HOUSTON ELECTRIC, LLC
7.00%
General Mortgage Bonds, Series U, due 2014
|
Original
Interest Accrual Date: January 9, 2009
Stated
Maturity: March 1, 2014
Interest
Rate: 7.00%
Interest
Payment Dates: March 1 and September 1
Regular
Record Dates: February 15 and August 15
immediately preceding the
respective Interest
Payment Date
|
Redeemable: Yes [X] No
[ ]
Redemption
Date: At any time.
Redemption
Price: the greater of (i) 100% of the
principal amount of this
Security or the portion hereof
to be redeemed or (ii) the sum
of the present values of
the remaining scheduled
payments of principal and
interest on this Security or
the portion thereof to be
redeemed (not including any
portion of such payments
of interest accrued to the
Redemption Date)
discounted to the Redemption
Date on a semiannual
basis at the applicable
Treasury Rate plus 50 basis
points plus, in each case,
accrued and unpaid interest
to the Redemption Date on the
principal amount being
redeemed
|
This
Security is not an Original Issue Discount Security
within
the meaning of the within-mentioned Indenture.
_____________________________
|
Principal
Amount
|
Registered
No. T-1
|
|
$500,000,000*
|
CUSIP
15189X AJ7
|
CENTERPOINT
ENERGY HOUSTON ELECTRIC, LLC, a limited liability company duly organized and
existing under the laws of the State of Texas (herein called the “Company,”
which term includes any successor under the Indenture referred to below), for
value received, hereby promises to pay to
***CEDE
& Co.***
-8-
, or its
registered assigns, the principal sum of FIVE HUNDRED MILLION DOLLARS, on the
Stated Maturity specified above, and to pay interest
thereon from the Original Interest Accrual Date specified above or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, semi-annually in arrears on the Interest Payment Dates specified above in
each year, commencing on September 1, 2009, and at Maturity, at the Interest
Rate per annum specified above, until the principal hereof is paid or duly
provided for. The interest so payable, and paid or duly provided for,
on any Interest Payment Date shall, as provided in such Indenture, be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date specified
above (whether or not a Business Day) next preceding such Interest Payment
Date. Notwithstanding the foregoing, interest payable at Maturity
shall be paid to the Person to whom principal shall be paid. Except
as otherwise provided in said Indenture, any such interest not so paid or duly
provided for shall forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice of which shall be given to Holders of Securities of this
series not less than 10 days prior to such Special Record Date, or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities of this series may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Payment
of the principal of and premium, if any, on this Security and interest hereon at
Maturity shall be made upon presentation of this Security at the office of the
Corporate Trust Administration of The Bank of New York Mellon Trust Company,
National Association, located at 601 Travis Street, 16th Floor, Houston, Texas
77002 or at such other office or agency as may be designated for such purpose by
the Company from time to time. Payment of interest on this Security
(other than interest at Maturity) shall be made by check mailed to the address
of the Person entitled thereto as such address shall appear in the Security
Register, except that if such Person shall be a securities depositary, such
payment may be made by such other means in lieu of check, as shall be agreed
upon by the Company, the Trustee and such Person. Payment of the principal of
and premium, if any, and interest on this Security, as aforesaid, shall be made
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private
debts.
This
Security is one of a duly authorized issue of securities of the Company (herein
called the “Securities”), issued and issuable in one or more series under and
equally secured by a General Mortgage Indenture, dated as of October 10, 2002,
as supplemented and amended (such Indenture as originally executed and delivered
and as supplemented or amended from time to time thereafter, together with any
constituent instruments establishing the terms of particular Securities, being
herein called the “Indenture”), between the Company and The Bank of New York
Mellon Trust Company, National Association (successor in trust to JPMorgan Chase
Bank), trustee (herein called the “Trustee,” which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a description of the property mortgaged,
pledged and held in trust, the nature and extent of the security and the
respective rights, limitations of rights, duties and immunities of the Company,
the Trustee and the Holders of the Securities thereunder and of the terms and
conditions upon which the Securities are, and are to be, authenticated and
delivered and secured. The acceptance of this Security shall be
deemed to constitute the consent and agreement by the Holder hereof to all of
the terms and provisions of the Indenture. This Security is one of
the series designated above.
If any
Interest Payment Date, any Redemption Date or the Stated Maturity shall not be a
Business Day (as hereinafter defined), payment of the amounts due on this
Security on such date may be made on the next succeeding Business Day; and, if
such payment is made or duly provided for on such Business Day, no interest
shall accrue on such amounts for the period from and after such Interest Payment
Date, Redemption Date or Stated Maturity, as the case may be, to such Business
Day. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
This
Security is subject to redemption, at the option of the Company, at any time or
from time to time, in whole or in part, at a price equal to the greater of (i)
100% of the principal amount of this Security (or the portion hereof to be
redeemed) or (ii) the sum of the present values of the remaining scheduled
payments of principal and interest on this Security (or such portion to be
redeemed) (not including any portion of such payments of interest accrued to the
Redemption Date) discounted to the Redemption Date on a semiannual basis
(assuming a 360-day year consisting of
-9-
twelve
30-day months) at the applicable Treasury Rate plus 50 basis points; plus, in
each case, accrued and unpaid interest on the principal amount being redeemed to
the Redemption Date. The Trustee shall have no responsibility for the
calculation of such amount.
“Treasury Rate” means, with respect to
any Redemption Date the yield, under the heading which represents the average
for the immediately preceding week, appearing in the most recently published
statistical release designated “H.15 (519)” or any successor publication which
is published weekly by the Board of Governors of the Federal Reserve System and
which establishes yields on actively traded U.S. Treasury securities adjusted to
constant maturity under the caption “Treasury Constant Maturities,” for the
maturity corresponding to the Comparable Treasury Issue (if no maturity is
within three months before or after the remaining life (as defined below),
yields for the two published maturities most closely corresponding to the
Comparable Treasury Issue will be determined and the Treasury Rate will be
interpolated or extrapolated from such yields on a straight line basis, rounding
to the nearest month); or if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semiannual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such Redemption Date. The
Treasury Rate will be calculated on the third Business Day preceding the
Redemption Date.
“Comparable Treasury Issue” means the
U.S. Treasury security selected by an Independent Investment Banker as having a
maturity comparable to the remaining term (“remaining life”) of this Security to
be redeemed that would be utilized, at the time of selection and in accordance
with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of this
Security.
“Comparable Treasury Price” means (1)
the average of five Reference Treasury Dealer Quotations for such Redemption
Date, after excluding the highest and lowest Reference Treasury Dealer
Quotations, or (2) if the Independent Investment Banker obtains fewer than four
such Reference Treasury Dealer Quotations, the average of all such
quotations.
“Independent Investment Banker” means
Credit Suisse Securities (USA) LLC or UBS Securities LLC in each case as
specified by the Company, or if these firms are unwilling or unable to select
the Comparable Treasury Issue, an independent investment institution of national
standing selected by the Company.
“Reference Treasury Dealer” means (1)
Credit Suisse Securities (USA) LLC or UBS Securities LLC and their respective
successors; provided,
however, that if any of the foregoing shall cease to be a primary U.S.
government securities dealer in New York City (a “Primary Treasury Dealer”), the
Company will substitute therefor another Primary Treasury Dealer and (2) any
other three Primary Treasury Dealers selected by the Company after consultation
with the Independent Investment Banker.
“Reference Treasury Dealer Quotations”
means with respect to each Reference Treasury Dealer and any Redemption Date,
the average, as determined by the Independent Investment Banker, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Independent
Investment Banker at 5:00 p.m., New York City time, on the third Business Day
preceding such Redemption Date.
The
Trustee will mail a notice of redemption to each Holder of Securities to be
redeemed by first-class mail at least 30 and not more than 60 days prior to the
date fixed for redemption. Unless the Company defaults on payment of the
redemption price, interest will cease to accrue on the Securities or portions
thereof called for redemption on the Redemption Date. If fewer than all of the
Securities of this series are to be redeemed, the Trustee will select, not more
than 60 days prior to the Redemption Date, the particular Securities of this
series or portions thereof for redemption from the outstanding Securities of
this series not previously called by such method as the Trustee deems fair and
appropriate. The Trustee may select for redemption Securities of this
series and portions of Securities of this series in amounts of $1,000 or whole
multiples of $1,000.
The
Indenture permits, with certain exceptions as therein provided, the Trustee to
enter into one or more supplemental indentures for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate principal
-10-
amount of the Securities of all series then
Outstanding under the Indenture, considered as one class; provided, however,
that if there shall be Securities of more than one series Outstanding under the
Indenture and if a proposed supplemental indenture shall directly affect the
rights of the Holders of Securities of one or more, but less than all, of such
series, then the consent only of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of all series so directly
affected, considered as one class, shall be required; and provided, further, that if
the Securities of any series shall have been issued in more than one Tranche and
if the proposed supplemental indenture shall directly affect the rights of the
Holders of Securities of one or more, but less than all, of such Tranches, then
the consent only of the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all Tranches so directly affected, considered as
one class, shall be required; and provided, further, that the
Indenture permits the Trustee to enter into one or more supplemental indentures
for limited purposes without the consent of any Holders of
Securities. The Indenture also contains provisions permitting the
Holders of a majority in principal amount of the Securities then Outstanding, on
behalf of the Holders of all Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange therefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this
Security.
As
provided in the Indenture and subject to certain limitations therein set forth,
this Security or any portion of the principal amount hereof will be deemed to
have been paid for all purposes of the Indenture and to be no longer Outstanding
thereunder, and, at the election of the Company, the Company's entire
indebtedness in respect thereof will be satisfied and discharged, if there has
been irrevocably deposited with the Trustee or any Paying Agent (other than the
Company), in trust, money in an amount which will be sufficient and/or Eligible
Obligations, the principal of and interest on which when due, without regard to
any reinvestment thereof, will provide moneys which, together with moneys so
deposited, will be sufficient to pay when due the principal of and interest on
this Security when due.
As
provided in the Indenture and subject to certain limitations therein set forth,
the transfer of this Security is registrable in the Security Register, upon
surrender of this Security for registration of transfer at the Corporate Trust
Office of The Bank of New York Mellon Trust Company, National Association in
Houston, Texas, or such other office or agency as may be designated by the
Company from time to time, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of this series of authorized
denominations and of like tenor and aggregate principal amount, will be issued
to the designated transferee or transferees.
The
Securities of this series are issuable only as registered Securities, without
coupons, and in denominations of $1,000 and integral multiples of $1,000 in
excess thereof. As provided in the Indenture and subject to certain limitations
therein set forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of the same series and Tranche, of any
authorized denominations, as requested by the Holder surrendering the same, and
of like tenor upon surrender of the Security or Securities to be exchanged at
the office of The Bank of New York Mellon Trust Company, National Association in
Houston, Texas, or such other office or agency as may be designated by the
Company from time to time.
No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
Prior to
due presentment of this Security for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the absolute owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the
contrary.
The
Securities are not entitled to the benefit of any sinking fund.
As used
herein, “Business Day” shall mean any day, other than Saturday or Sunday, on
which commercial banks and foreign exchange markets are open for business,
including dealings in deposits in U.S. dollars, in New York, New
York. All other terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the
Indenture.
-11-
As
provided in the Indenture, no recourse shall be had for the payment of the
principal of or premium, if any, or interest on any Securities, or any part
thereof, or for any claim based thereon or otherwise in respect thereof, or of
the indebtedness represented thereby, or upon any obligation, covenant or
agreement under the Indenture, against, and no personal liability whatsoever
shall attach to, or be incurred by, any incorporator, member, manager,
stockholder, officer, director or employee, as such, past, present or future of
the Company or of any predecessor or successor corporation (either directly or
through the Company or a predecessor or successor corporation), whether by
virtue of any constitutional provision, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly agreed
and understood that the Indenture and all the Securities are solely corporate
obligations and that any such personal liability is hereby expressly waived and
released as a condition of, and as part of the consideration for, the execution
of the Indenture and the issuance of the Securities.
Unless
the certificate of authentication hereon has been executed by the Trustee or an
Authenticating Agent by manual signature, this Security shall not be entitled to
any benefit under the Indenture or be valid or obligatory for any
purpose.
[The
remainder of this page is intentionally left blank.]
-12-
IN WITNESS WHEREOF, the Company has
caused this instrument to be duly executed.
|
CENTERPOINT ENERGY
HOUSTON ELECTRIC, LLC
|
|||
|
Attest:
|
By:
|
||
|
Richard
Dauphin
|
Name:
Marc Kilbride
|
||
|
Assistant
Secretary
|
Title:
Vice President and
Treasurer
|
||
(SEAL)
CERTIFICATE
OF AUTHENTICATION
This is one of the Securities of the
series designated therein referred to in the within-mentioned
Indenture.
Date of
Authentication: January 9, 2009.
|
THE BANK OF NEW YORK MELLON TRUST
|
|||
|
COMPANY, National Association, as Trustee
|
|||
|
By:
|
|||
|
Name:
Marcella Burgess
|
|||
|
Title:
Assistant Vice President
|
|||
-13-
SCHEDULE
A
SCHEDULE
OF ADJUSTMENTS
The initial aggregate principal amount
of Securities evidenced by the Certificate to which this Schedule is attached is
$500,000,000. The notations on the following table evidence decreases
and increases in the aggregate principal amount of Securities evidenced by such
Certificate.
|
Date
of
Adjustment
|
Decrease
in Aggregate
Principal
Amount of
Securities
|
Increase
in Aggregate
Principal
Amount of
Securities
|
Aggregate
Principal
Amount
of Securities
Remaining
After
Such
Decrease or
Increase
|
Notation
by
Security
Registrar
|
||||
-14-
Exhibit
10(h)(1)
HOUSTON
INDUSTRIES INCORPORATED
1995
SECTION 415 BENEFIT RESTORATION PLAN
(Established
Effective August 1, 1995)
HOUSTON
INDUSTRIES INCORPORATED
1995
SECTION 415 BENEFIT RESTORATION PLAN
(Established
Effective August 1, 1995)
I
N D E X
|
Page
|
||
|
ARTICLE
I
|
1
|
|
|
1.1
|
Establishment
|
1
|
|
1.2
|
Purpose
|
1
|
|
1.3
|
Application
of Plan
|
1
|
|
1.4
|
ERISA
Status
|
1
|
|
ARTICLE
II
|
1
|
|
|
2.1
|
Definitions
|
1
|
|
2.2
|
Gender
and Number
|
2
|
|
2.3
|
Severability
|
2
|
|
2.4
|
Applicable
Law
|
2
|
|
2.5
|
Plan
Not an Employment Contract
|
2
|
|
2.6
|
Funding
|
2
|
|
2.7
|
Tax
Withholding
|
2
|
|
2.8
|
Effect
on Other Plans
|
2
|
|
ARTICLE
III
|
3
|
|
|
3.1
|
Purpose
|
3
|
|
3.2
|
Eligibility
|
3
|
|
3.3
|
Calculation
of Restoration Benefit
|
3
|
|
3.4
|
Form
of Payment and Commencement Date
|
3
|
|
3.5
|
Vesting
|
3
|
|
ARTICLE
IV
|
4
|
|
|
4.1
|
Administration
|
4
|
|
4.2
|
Expenses
|
4
|
|
4.3
|
Indemnification
and Exculpation
|
4
|
|
4.4
|
Non-Alienation
of Benefits
|
4
|
|
ARTICLE
V
|
4
|
|
|
5.1
|
Merger,
Consolidation or Acquisition
|
4
|
|
5.2
|
Amendment
and Termination
|
4
|
-i-
HOUSTON
INDUSTRIES INCORPORATED
1995
SECTION 415 BENEFIT RESTORATION PLAN
(Established
Effective August 1, 1995)
ARTICLE I
ESTABLISHMENT AND
PURPOSE
1.1 Establishment: Houston
Industries Incorporated, a Texas corporation (the “Company”), hereby
establishes, effective August 1, 1995, an unfunded excess benefit plan
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), for the benefit of certain eligible employees of the Company,
Houston Lighting & Power Company and Houston Industries Energy, Inc. to
be known as the Houston Industries Incorporated 1995 Section 415 Benefit
Restoration Plan (the “Plan”).
1.2 Purpose: The
purpose of this Plan is generally to provide the amount of the benefit which
would otherwise be paid from the Houston Industries Incorporated Retirement Plan
(the “Retirement Plan”) following implementation of the 1995 Voluntary Early
Retirement Program adopted by the Board of Directors of the Company on
May 3, 1995 (the “Program”), but which cannot be paid under the Retirement
Plan due to the limitations on benefits and contributions imposed by
Section 415 of the Internal Revenue Code of 1986, as amended (the
“Code”).
1.3 Application of
Plan: The
terms of this Plan are applicable only to those Persons who are Members
hereunder.
1.4 ERISA
Status: The
Plan is intended to qualify for the exemptions provided under Title I of
ERISA for plans that are excess benefit plans as defined in Section 3(36)
of ERISA.
ARTICLE II
DEFINITIONS AND
CONSTRUCTION
2.1 Definitions: Except
as otherwise indicated, the terms used in this Plan shall have the same meaning
as they have under the Retirement Plan. For purposes of this Plan,
the following definitions shall apply:
(a) “Board
of Directors” shall mean the Board of Directors of the Company.
(b) “Committee”
shall mean the Benefits Committee appointed by the Board of Directors of the
Company.
(c) “Company”
shall mean Houston Industries Incorporated.
(d) “Member”
shall mean a Person whose Houston Industries Incorporated Retirement Plan
benefits, taking into consideration the benefit resulting from the Program’s
implementation, are affected by the limitations imposed by Code
Section 415.
1
(e) “Person”
shall mean any person who fulfills the requirements for the Voluntary Early
Pension for 1995 Program participants under Section 9.7(a) of the Houston
Industries Incorporated Retirement Plan.
(f) “Program”
shall mean the 1995 Voluntary Early Retirement Program adopted by the Board of
Directors on May 3, 1995.
2.2 Gender and
Number: Except
when otherwise indicated by the context, any masculine terminology used in the
Plan shall also include the feminine gender, and the definition of any term in
the singular shall also include the plural.
2.3 Severability: In
the event any provision of the Plan shall be held invalid or illegal for any
reason, any illegality or invalidity shall not affect the remaining parts of the
Plan, but the Plan shall be construed and enforced as if the illegal or invalid
provision had never been inserted, and the Company shall have the privilege and
opportunity to correct and remedy questions of illegality or invalidity by
amendment as provided in the Plan.
2.4 Applicable
Law: This
Plan shall be governed and construed in accordance with ERISA and the laws of
the State of Texas.
2.5 Plan Not an Employment
Contract: The
Plan is not an employment contract. The receipt of benefits under the
Plan does not give to any person the right to be continued in employment by the
Company or any of its subsidiaries, and all persons remain subject to change of
salary, transfer, change of job, discipline, layoff, discharge (with or without
cause), or any other change of employment status.
2.6 Funding: The
benefits described in this Plan are contractual obligations of the Company to
pay compensation for services, and shall constitute a liability to the Members
and/or their beneficiaries in accordance with the terms hereof. All
amounts paid under this Plan shall be paid in cash from the general assets of
the Company. Benefits may be reflected on the accounting records of
the Company but shall not be construed to create, or require the creation of, a
trust, custodial or escrow account. No special or separate fund need
be established and no segregation of assets need be made to assure the payment
of such benefits. No Member shall have any right, title or interest
whatever in or to any investment reserves, accounts, funds or assets that the
Company
may purchase, establish or accumulate to aid in providing the benefits described
in this Plan. Nothing contained in this Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust or a
fiduciary relationship of any kind between the Company and its subsidiaries and
a Member or any other person. Neither a Member nor the beneficiary of
a Member shall acquire any interest hereunder greater than that of an unsecured
creditor.
2.7 Tax
Withholding: The
Company may withhold from a payment any federal, state or local taxes required
by law to be withheld with respect to such payment.
2.8 Effect on Other
Plans: Amounts
accrued or paid under this Plan shall not be considered compensation for the
purposes of the Company’s qualified or welfare plans. Benefits
payable hereunder shall not be duplicative of benefits paid under any other
similar plan maintained by the Company to provide Retirement Plan restoration
benefits to employees of the Company or its subsidiaries. In the
event duplicate coverage arises, the Committee shall decide,
2
ARTICLE III
RESTORATION OF BENEFITS
REDUCED BY CODE SECTION 415
3.1 Purpose: Code
Section 415 limits the amounts of benefits available under qualified
retirement benefit plans. The purpose of this Plan is to restore to
Members any benefits under the Retirement Plan that have been reduced as a
result of the limitations imposed by Code Section 415.
3.2 Eligibility: A
Member shall be eligible to receive benefits under this Plan as of
August 1, 1995 (or such later employment termination date as is elected by
the Member at the request of his Employer based on a specific business
need).
3.3 Calculation of Restoration
Benefit: When
a Member’s retirement benefit commences or a death benefit payable with respect
to a Member commences under the Retirement Plan, the Company will calculate a
benefit equal to the excess of the amount of the retirement benefit or death
benefit (as the case may be) which would have been payable under the Retirement
Plan, taking into consideration implementation of the Program, but for the
limitations imposed by Code Section 415, over the amount of the retirement
benefit or death benefit actually payable under the Retirement
Plan. The Company shall generally pay a restoration benefit to the
Member or to such other persons, at such times and in such manner as the
Retirement Plan benefit is payable pursuant to the terms of the Retirement
Plan. The Company shall convert the payment of a restoration benefit,
the present value of which does not exceed $10,000, into an actuarially
equivalent lump-sum payment; provided,
however, in the sole discretion of the Committee, a Member may petition for
payment at the same time and manner as the Retirement Plan benefit is payable if
the present value of such lump-sum is in excess of $3,500. Conversion
to a lump-sum shall be made in the manner determined by the Committee with the
advice of the actuary for the Retirement Plan, employing those actuarial
assumptions as are currently employed in converting Retirement Plan benefits
from one form to another, and interest at the Pension Benefit Guaranty
Corporation’s rate in effect at the beginning of the Plan Year of the
distribution.
3.4 Form of Payment and
Commencement Date:
(a) Form of
Payment: Except
as otherwise provided above, benefits payable under this Plan shall be paid in
the same manner as benefits payable under the Retirement Plan.
(b) Commencement
Date: Benefits
payable under this Plan shall commence on or about the same date that benefits
commence under the Retirement Plan.
3.5 Vesting: A
Member shall become vested in the benefit payable under this Plan at the same
time that he becomes vested under the Retirement
Plan. Notwithstanding the foregoing, a Member (and his beneficiary)
shall have no right to a benefit under this Plan if the Committee determines
that the Member engaged in a willful, deliberate or grossly negligent act or
omission injurious to the finances or reputation of the Company or any of its
subsidiaries.
3
ARTICLE IV
ADMINISTRATION
4.1 Administration: The
Plan shall be administered, construed and interpreted by the
Committee. The determinations of the Committee as to any disputed
questions arising under the Plan, including the Persons who are eligible to be
Members in the Plan and the amounts of their benefits under the Plan, and the
construction and interpretation by the Committee of any provision of the Plan,
shall be final, conclusive and binding upon all persons including Members, their
beneficiaries, the Company, its subsidiaries, stockholders and
employees.
4.2 Expenses: The
expenses of administering the Plan shall be borne by the Company.
4.3 Indemnification and
Exculpation: The
members of the Committee and its agents shall be indemnified and held harmless
by the Company against and from any and all loss, cost, liability or expenses
that may be imposed upon or reasonably incurred by them in connection with or
resulting from any claim, action, suit or proceeding to which they may be a
party or in which they may be involved by reason of any action taken or failure
to act under this Plan and against and from any and all amounts paid by them in
settlement (with the Company’s written approval) or paid by them in satisfaction
of a judgment in any such action, suit or proceeding. The foregoing
provisions shall not be applicable to any person if the loss, cost, liability or
expense is due to such person’s gross negligence or willful
misconduct.
4.4 Non-Alienation of
Benefits: Any
benefit payable under this Plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and any attempt at such shall be void, and any such benefit shall not in
any way be subject to the debts, contract, liabilities, engagements or torts of
the person who shall be entitled to such benefit, nor shall it be subject to
attachment or legal process for or against such person.
ARTICLE V
MERGER, AMENDMENT AND
TERMINATION
5.1 Merger, Consolidation or
Acquisition: In
the event of a merger, consolidation or acquisition where the Company is not the
surviving corporation, unless the successor or acquiring corporation shall elect
to continue and carry on the Plan, this Plan shall terminate, and no additional
benefits shall accrue for the Members. Unpaid benefits shall continue
to be paid as scheduled unless the successor or acquiring corporation elects to
accelerate payment.
5.2 Amendment and
Termination: The
Benefits Committee of the Board of Directors of the Company
may amend, modify, or terminate the Plan in whole or in part at any
time. In the event of a termination of the Plan pursuant to this
Section, unpaid benefits accrued at the date of Plan termination shall continue
to be an obligation of the Company and shall be paid as scheduled. No
amendment or termination shall divest a Member of any benefit which had
previously accrued to him or which had previously become payable to him under
this Plan unless the Member agrees in writing to such divestment.
4
IN
WITNESS WHEREOF, the Company has caused this instrument to be executed by its
duly authorized officers in a number of copies, each of which shall be deemed an
original but all of which shall constitute one and the same instrument, this
18th day of May, 1995, but effective as of the date stated herein.
|
HOUSTON
INDUSTRIES
INCORPORTATED
|
||
|
By:
|
/s/
D.D. Skyora
|
|
|
D.
D. Sykora
|
||
|
President
and Chief Operating Officer
|
||
|
ATTEST:
|
||
|
/s/
Richard Dauphin
|
||
|
Assistant
Corporate Secretary
|
||
Exhibit
10(h)(2)
HOUSTON
INDUSTRIES INCORPORATED
1995
SECTION 415 BENEFIT RESTORATION PLAN
(Established
Effective August 1, 1995)
First
Amendment
Houston
Industries Incorporated, a Texas corporation (the “Company”), established the
Houston Industries Incorporated 1995 Section 415 Benefit Restoration Plan,
effective August 1, 1995 (the “Plan”), for the benefit of its eligible
employees and, pursuant to Section 5.2 thereof, reserved to the Benefits
Committee of the Board of Directors of the Company the right to amend the Plan
in whole or in part at any time. The Benefits Committee does hereby
amend the Plan, effective as of August 1, 1995, as follows:
1. Section 1.2
of the Plan is hereby amended in its entirety to read as follows:
“1.2 Purpose: The
purpose of this Plan is generally to provide the amount of the benefit which
would otherwise be paid from the Houston Industries Incorporated Retirement Plan
(the ‘Retirement Plan’) following implementation of the 1995 Voluntary Early
Retirement Program adopted by the Board of Directors of the Company on
May 3, 1995 or the 1995 Supplemental Voluntary Early Retirement Program
adopted by the Board of Directors on August 2, 1995, as applicable
(together, the ‘Program’), but which cannot be paid under the Retirement Plan
due to the limitations on benefits and contributions imposed by Section 415
of the Internal Revenue Code of 1986, as amended (the ‘Code’).”
2. Part (e)
of Section 2.1 of the Plan is hereby amended in its entirety to read as
follows:
“(e) ‘Person’
shall mean any person who fulfills the requirements for the Voluntary Early
Pension for 1995 Program participants under Section 9.7(a), or for
Supplemental Program participants under Section 9.7(c), of the Houston
Industries Incorporated Retirement Plan.”
3. Part (f)
of Section 2.1 of the Plan is hereby amended in its entirety to read as
follows:
“(f) ‘Program’
shall mean the 1995 Voluntary Early Retirement Program adopted by the Board of
Directors on May 3, 1995 and the Supplemental Voluntary Early Retirement
Program adopted by the Board of Directors on August 2, 1995.”
IN
WITNESS WHEREOF, the Benefits Committee has caused these presents to be executed
by its duly authorized Chairman, on this 12th day of September, 1995, but
effective as of the date stated herein.
|
HOUSTON
INDUSTRIES INCORPORTATED
BENEFITS
COMMITTEE
|
||
|
By:
|
/s/
D.D. Skyora
|
|
|
D.
D. Sykora, Chairman
|
||
|
ATTEST:
|
||
|
/s/
Richard Dauphin
|
||
|
Secretary
|
||
Exhibit
10(n)(3)
CENTERPOINT
ENERGY, INC.
OUTSIDE
DIRECTOR BENEFITS PLAN
(As
Amended and Restated Effective December 31, 2008)
__________________________
RECITALS
WHEREAS, CenterPoint Energy,
Inc., a Texas corporation (the “Company”), maintains the CenterPoint Energy,
Inc. Outside Director Benefits Plan, as amended and restated effective June 18,
2003, and as thereafter amended (“Plan”); and
WHEREAS, the Plan is closed to
outside directors of the Company who (i) terminated service prior to January 1,
1992 and were not re-elected to the Board of Directors of the Company (“Board”)
prior to January 1, 2004 or (ii) were initially elected to the Board on or after
January 1, 2004; and
WHEREAS, on and after January
1, 2005, the Plan has been operated in good faith compliance with Section 409A
of the Internal Revenue Code (“Code”) with respect to benefits under the Plan
that are earned or vested after December 31, 2004, with such Plan benefits
earned and vested prior to January 1, 2005, subject to the terms and conditions
of the Plan as in effect on October 3, 2004; and
WHEREAS, pursuant to Section
7.1 of the Plan, the Company desires to amend the Plan to freeze the Plan
benefit and to comply with the final
regulations issued under Section 409A of the Code;
NOW, THEREFORE, in
consideration of the foregoing, the Plan is hereby amended and restated,
effective as of December 31, 2008, to read as follows:
ARTICLE
I
PURPOSE
The
purpose of the Plan is to enhance the Company’s ability to maintain a
competitive position in attracting and retaining qualified Outside Directors who
contribute, and are expected to contribute, materially to the success of the
Company and its subsidiaries by providing retainer continuation benefits for the
Outside Directors. The Plan is closed to any Outside Director (i)
whose service on the Board terminated prior to January 1, 1992 and who was not
re-elected to the Board prior to January 1, 2004, or (ii) who was first elected
to the
Board on
or after January 1, 2004. Effective as of December 31, 2008, the
benefit under the Plan is frozen.
ARTICLE
II
DEFINITIONS
For
purposes of the Plan, the terms set forth below shall have the following
meanings:
“Annual Retainer Fee” means the
annual fee paid to the Outside Director for his service on the Board exclusive
of Board and committee meeting fees and any other supplemental or special
retainer fees.
“Board” means the Board of
Directors of the Company.
“Code” means the Internal
Revenue Code of 1986, as amended from time to time.
“Company” means CenterPoint
Energy, Inc., a Texas corporation, or any successor thereto.
A “Full Year of Service” means
the completion of service in the capacity of an Outside Director from one annual
meeting of shareholders of the Company to the next following annual meeting of
shareholders of the Company; provided, however, that (1)
such calculation shall include (i) any such service as an Outside Director prior
to January 1, 1992, the original effective date of the Plan, and (ii) service as
a member of the board of directors of NorAm Energy Corp., any predecessor
thereto, or any division or subsidiary of NorAm Energy Corp., or service as a
director of any “advisory board” of NorAm Energy Corp. or its subsidiaries or
divisions; and (2) the Current Outside Directors (as defined in Article IV)
shall be deemed to have a Full Year of Service for the period commencing with
the 2008 annual meeting of the shareholders and ending on December 31,
2008.
“Outside Director” means a
person who is a member of the Board and who is not a current employee of the
Company or a subsidiary.
“Plan” means the CenterPoint
Energy, Inc. Outside Director Benefits Plan set forth herein, as amended and
restated effective December 31, 2008, and as the same may hereafter be amended
from time to time.
“Termination Date” means the
date on which occurs the end of an Outsider Director’s service to the Company as
a Director by reason of his retirement, declination to stand for re-election,
resignation, disability, removal, death or other event that has the effect of
terminating his service to the Company; provided, however, that a
date shall not be a “Termination Date” until there has been a “Separation from
Service” within the meaning of Section 409A of the Code and the Treasury
regulations issued thereunder.
-2-
ARTICLE
III
ADMINISTRATION
3.1 Plan
Administrator: This Plan shall be administered by the
Board.
3.2 Powers and
Duties: Subject to the provisions hereof, the Board shall have
full and exclusive power and authority to administer this Plan and to take all
actions that are specifically contemplated hereby or are necessary or
appropriate in connection with the administration hereof. The Board
shall also have full and exclusive power to interpret this Plan and to adopt
such rules, regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this
Plan. The Board may correct any defect or supply any omission or
reconcile any inconsistency in this Plan in the manner and to the extent the
Board deems necessary or desirable. Any decision of the Board in the
interpretation and administration of this Plan shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. The Board may engage in or authorize the engagement of a
third party administrator to carry out administrative functions under the
Plan.
The Board
shall publish and file or cause to be published and filed or disclosed all
reports and disclosures required by federal or state law. The Board
shall keep all such books of accounts, records and other data as may be
necessary for the proper administration of the Plan.
3.3 Payment of Expenses:
Each member of the Board shall serve without compensation for his services as
Plan administrator, but all expenses incurred in administration of the Plan
shall be paid by the Company.
3.4 Indemnities: No
member of the Board or officer of the Company or a subsidiary of the Company to
whom the Board has delegated authority in accordance with the provisions of this
Article shall be liable for anything done or omitted to be done by him, by any
member of the Board or by any officer of the Company or Company subsidiary in
connection with the performance of any duties under this Plan, except for his
own willful misconduct or as expressly provided by statute.
ARTICLE
IV
PARTICIPATION
All
Outside Directors serving in such capacity on or after January 1, 1992 shall be
eligible to participate in the Plan, provided such service commenced prior to
January 1, 2004. Any Outside Director (i) whose service on the Board
terminated prior to January 1, 1992 and who was not re-elected to the Board
prior to January 1, 2004, or (ii) who was first elected to the Board on or after
January 1, 2004 shall not be eligible to participate in the Plan. As
of January 1, 2008, the Outside Directors who are active participants in the
Plan are Milton Carroll, Derrill Cody, O. Holcombe Crosswell, Thomas F.
Madison and Michael E. Shannon (with such active directors referred to as
the “Current Outside Directors”).
-3-
ARTICLE
V
BENEFITS
5.1 Retainer Continuation
Benefits: Each Current Outside Director shall receive a cash
benefit equal to the amount resulting from (i) the amount of the Annual Retainer
Fee payable to the Outside Director for 2008 (which is $50,000), multiplied by (ii) the
Outside Director’s Full Years of Service as of December 31, 2008 (“Plan
Benefit”). The Plan Benefit shall be payable to a Current Outside
Director, in accordance with his timely-filed election on the form prescribed by
the Board (“Election Form”), either in (1) a lump sum cash payment or (2) annual
installment payments for up to the maximum number of years set forth in the
Election Form, payable in substantially equal installments based on the number
of years elected by the Participant on his Election Form, with such Plan Benefit
actuarially adjusted as provided in the Election Form. A Current
Outside Director’s Plan Benefit shall be paid or commence, as applicable, in
February 2009 (with, in the case of installment payments, the remaining annual
installments paid in the same month as the initial payment month for each of the
remaining years elected). If a Current Outside Director fails to
timely make such election, his Plan Benefit shall be paid in the form of a lump
sum cash payment (actuarially adjusted as described on the Election Form not
timely executed by him).
5.2 Death of Outside
Director: Upon the death of a Current Outside Director before
commencement of, or receipt of all, payments payable under the Plan, the Outside
Director’s beneficiary or beneficiaries, designated under rules and procedures
established by the Board, or in the absence of such beneficiary, the Outside
Director’s surviving spouse, or if there is no surviving spouse, the personal
representative of such Outside Director’s estate, shall be entitled to receive
the cash payment or payments to which the Outside Director was entitled in
accordance with Section 5.1 of the Plan.
5.3 Withholding of
Taxes: Unless otherwise required by applicable federal or
state laws or regulations, the Company shall not withhold or otherwise pay on
behalf of any Outside Director any federal, state, local or other taxes arising
in connection with the payment of any benefits under this Plan. The
payment of any such taxes shall be the sole responsibility of each Outside
Director.
5.4 Prior Plan
Benefits. Benefits payable to Outside Directors who ceased to
be members of the Board prior to January 1, 2005, and thus their benefits under
the Plan were earned and vested as of December 31, 2004, are subject to the
terms and conditions of the Plan as in effect on October 3, 2004 (“Grandfathered
Benefits”). Such Grandfathered Benefits are not subject to Section
409A of the Code. The benefits payable to an Outside Director who
ceased to be a member of the Board after December 31, 2004, but prior to
December 31, 2007, are subject to the terms and conditions of the Plan as in
effect on the Termination Date of such Outside Director (subject to good faith
compliance with Section 409A of the Code in operation) and his election form,
which was made in accordance with the applicable transition guidance issued by
the Internal Revenue Service with respect to Section 409A of the
Code.
-4-
ARTICLE
VI
RIGHTS OF OUTSIDE
DIRECTORS
6.1 No Assignment or
Transfer: No right or benefit under this Plan shall be subject
to anticipation, alienation, sale, assignment, pledge, encumbrance or charge,
and any attempt to anticipate, alienate, sell, assign, pledge, encumber or
charge the same will be void. No right or benefit hereunder shall be
in any manner payable for or subject to any debts, contracts, liabilities or
torts of the person entitled to such benefits.
6.2 Prerequisites: No
Outside Director, or any person claiming through an Outside Director, shall have
any right or interest in the Plan or any benefits hereunder, unless and until
all terms, conditions and provisions of the Plan which affect such Outside
Director or such other person shall have been complied with as specified
herein.
ARTICLE
VII
MISCELLANEOUS
7.1 Amendment, Modification,
Suspension or Termination: The Board may amend, modify,
suspend or terminate this Plan in whole or in part at any time. Any such
amendment, modification, suspension or termination shall not, however, adversely
affect the rights of any Outside Director to any accrued benefits under the
Plan.
7.2 Code Section
409A. It is intended that the provisions of this Plan comply
with and satisfy the requirements of Code Section 409A. The Plan
shall be operated and the Plan provisions interpreted in a manner consistent
with such requirements to the extent applicable.
7.3 Applicable
Laws: This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the internal laws of the State of Texas,
except as federal law may apply.
7.4 Unfunded Status of
Plan: This Plan shall be an unfunded plan. The
annual benefit amount payable under this Plan shall be implemented by a credit
to a bookkeeping account maintained by the Company evidencing the unfunded and
unsecured right to receive the amount, which right shall be subject to the
terms, conditions and restrictions set forth in the Plan. Such
accounts shall be used merely as a bookkeeping convenience. The
Company shall not be required to establish any special or separate fund or
reserve or to make any other segregation of assets to assure the payment of the
annual benefit amount under this Plan. Neither the Company nor the
Board shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.
[Signature
Page To Follow]
-5-
IN WITNESS WHEREOF,
CenterPoint Energy, Inc. has executed these presents as evidenced by the
signature of its duly authorized officer, in a number of copies, all of which
shall constitute but one and the same instrument, which may be sufficiently
evidenced by any such executed copy hereof, this 12th day of December,
2008.
|
CENTERPOINT
ENERGY, INC.
|
||
|
By:
|
/s/
David M. McClanahan
|
|
|
David
M. McClanahan
|
||
|
President
and Chief Operating Officer
|
||
|
ATTEST:
|
||
|
/s/
Richard Dauphin
|
||
|
Richard
Dauphin
|
||
|
Assistant
Corporate Secretary
|
||
-6-
Exhibit
10(hh)(1)
EXECUTIVE
BENEFITS PLAN AGREEMENT
THIS
AGREEMENT, made this 20th day of August, 1993, by and between Houston Lighting & Power
Company, a Texas corporation (the “Company”), and Thomas R. Standish
(“Employee”);
W I T N E S S E T H
WHEREAS,
the Company has adopted the Houston Industries Incorporated Executive Benefits
Plan (“Plan”) to provide disability benefits, salary continuation benefits and
death benefits for certain of its officers pursuant to which individual
executive benefits agreements are to be entered into with such officers to whom
coverage under the Plan has been extended; and
WHEREAS,
Employee has performed his duties with ability and distinction and the Company
recognizes that the future growth and continued success of the Company’s
business may well reflect the competent services rendered by Employee;
and
WHEREAS,
the Company desires to reward and retain the services of the Employee and also
to assist him in providing for contingencies of disability or death during
employment or after retirement by extending to Employee coverage under the Plan
as long as he continues to be an officer of the Company; and
WHEREAS,
Employee is willing to continue to serve as an officer of the Company, provided
the Company will agree to provide additional executive benefits in the form of
certain payments in the event of Employee’s disability or death;
and
WHEREAS,
Employee is considered a highly compensated employee or member of a select
management group of the Company;
NOW,
THEREFORE, in consideration of the premises, and the agreements hereinafter
contained, the parties hereto agree as follows:
1. Reference to
Plan. This Agreement is being entered into in accordance with
and subject to all of the terms, conditions and provisions of the Plan and
administrative interpretations thereunder, if any, which have been adopted by
the Committee designated under the Plan (the “Committee”) and are still in
effect on the date hereof. Employee has received a copy of, and is
familiar with the terms of, the Plan and any such administrative
interpretations, which are hereby incorporated herein by reference.
2. Benefits. Subject
to the conditions set forth in Paragraph 3 hereof and all other terms and
conditions of the Plan and this Agreement, the Company agrees as
follows:
(a) Supplemental Disability
Benefits. If the Employee becomes disabled during his
employment as an officer of the Company, he will receive benefits under the Long
Term Disability Plan of Houston Industries Incorporated as if the term “total
disability” under said Plan was defined as an illness or injury which prevents
him from performing the duties of an officer of the Company.
(b) Salary Continuation
Benefits. If the Employee dies during the period of his
employment as an officer of the Company, or dies during a period of disability
as described in (a) above, which disability had commenced while Employee was
employed as an officer of the Company, then the Company shall pay to the
Employee’s Beneficiary the following:
(i) 100%
of the Employee’s monthly salary at the time of his death shall be paid each
month for 12 months; and then
(ii) 50%
of the Employee’s monthly salary at the time of his death shall be paid each
month for the next 108 months or until the first day of the month in which the
Employee would have attained age 65, whichever is later.
2
Such
monthly salary continuation payments shall be made by the Company to the
Employee’s Beneficiary, who shall be designated in writing or otherwise
determined as provided in Paragraph 10 below. These monthly salary
continuation benefits, however, shall not become payable if the Employee’s death
is by suicide, while sane or insane, within two years from the effective date of
the Prior Agreement.
(c) Supplemental Death
Benefits. If the Employee continues his employment as an
officer of the Company until his retirement on or after attaining age 65, then
upon the Employee’s subsequent death the Company shall pay to his designated
Beneficiary, determined in accordance with the provision of Paragraph 10 below,
50% of the Employee’s monthly salary at the time of his retirement for a period
of 72 months. These supplemental post-retirement death benefits,
however, shall not become payable if the Employee’s death is by suicide, while
sane or insane, within two years from the effective date of the Prior
Agreement.
(d) For
purposes of this Agreement, the Employee’s monthly salary shall include any
salary deferral under the Houston Industries Incorporated Deferred Compensation
Plan.
3. Conditions Applicable to
Payments of Benefits. The Company’s payment of benefits to the
Employee or his Beneficiary under this Agreement is in consideration of, and is
conditioned upon, the Employee’s performing or satisfying all of the following
agreements and conditions:
(a) The
Employee must continue to be employed as an officer of the Company until his
death, disability or retirement on or after attaining age 65, to receive any
benefits under this Agreement. If Employee is removed from office as
an officer of the Company but continues employment, this Agreement shall
terminate and shall have no further force and effect as of the first day that
Employee is no longer an officer of the Company.
3
(b) The
Employee agrees to continue his continuous employment as an officer of the
Company until the earlier of (i) the date he attains age 65, or (ii) the date of
his death; provided, however, that periods of disability and authorized leaves
of absence described in Paragraph 8 below shall be considered periods of
continued employment during which Employee’s latest salary for full-time
employment shall be deemed to have continued for purposes of this
Agreement.
(c) The
Employee agrees to render such reasonable consulting and advisory services as
the Company may call upon him to provide and as his health may permit from the
date of his disability or retirement on or after attaining age 65 to the date of
his death.
(i) The
Company agrees that such consulting and advisory services shall not require the
Employee to be active in the Company’s day-to-day activities, and that the
Employee shall perform such services as an independent contractor.
(ii) The
Company further agrees to compensate the Employee for such consulting and
advisory services in an amount to be then agreed upon and to reimburse the
Employee for all out-of-pocket expenses incurred in connection with the
performance of such services.
(d) The
Employee agrees that he will not compete with the Company in violation of
Employee’s agreement in Paragraph 9 hereof.
4. Status of
Agreement. The benefits payable under this Agreement shall be
independent of, and in addition to, any other agreement relating to Employee’s
employment which may exist from time to time between the parties hereto, or any
other compensation payable by the Company to Employee, whether salary, bonus or
otherwise. This Agreement shall not be deemed to constitute a
contract of employment between the parties hereto, nor shall
4
any
provision hereof, except as expressly stated, restrict the right of the Company
to discharge Employee or restrict the right of Employee to terminate his
employment.
5. Life Insurance and
Funding. The Company in its sole discretion may apply for and
procure, as owner and for its own benefit, insurance on the life of Employee in
such amounts and in such forms as the Company may choose. Employee
shall have no interest whatsoever in any such policy or policies, but at the
request of the Company he shall submit to medical examinations and supply such
information and execute such documents as may be required by the insurance
company or companies to which the Company has applied for
insurance.
6. Employee’s Rights To
Benefits. The rights of Employee or his Beneficiary to
benefits under this Agreement shall be solely those of an unsecured creditor of
the Company. Any insurance policy or other assets acquired or held by
the Company in connection with the liabilities assumed by it pursuant to this
Agreement shall not be deemed to be held under any trust for the benefit of
Employee or his Beneficiary or his estate or to be security for the performance
of the obligations of the Company but shall be and remain a general, unpledged,
and unrestricted asset of the Company.
7. Sale of the
Company. The sale of all or substantially all of the property
and assets of the Company otherwise than in the usual and regular course of its
business, or a merger of the Company wherein the Company is not the “surviving
corporation”, or any other transaction which in effect amounts to the sale of
the Company, shall not serve to terminate this Agreement.
8. Company and Employment
Defined. For purposes of this Agreement, the Company shall
also include any corporation which is an “Affiliate” as defined in Section
1.02(c) of the Plan. Neither the transfer of Employee from employment
by the Company to employment by an Affiliate nor the transfer of Employee
between Affiliates, or from employment by an
5
Affiliate
to employment by the Company shall be deemed a termination of employment of
Employee by the Company or by an Affiliate.
Further,
the employment of Employee shall not be deemed to have been terminated or
interrupted because of his absence from active employment on account of
temporary illness or during authorized vacation or during temporary leaves of
absence, granted by the Company for reasons of professional advancement,
education, health or government service, or during military leave for any period
if Employee returns to active employment within 90 days after the termination of
his military leave, or during any period required to be treated as a leave of
absence by virtue of any valid law or agreement.
9. Forfeitures Because of
Competition. Employee agrees that, as a condition to his
qualifying for the disability, salary continuation or death benefits as provided
in Paragraph 2 hereof, he will not without the consent of the Company enter into
competition with the Company. For purposes of this Paragraph,
Employee shall be deemed to be in competition if he directly or indirectly,
whether as consultant, agent, officer, director, employee or otherwise enters
into an association with another business enterprise which then is one of the
principal competitors of the Company or an Affiliate respecting one or more
business activities of the Company or an Affiliate. The parties agree
that one of the essential considerations for the disability, salary continuation
and death benefits provided Employee hereunder is to protect and preserve the
goodwill of the Company and its Affiliates and their respective enterprises, and
that said goodwill will be substantially diminished in value if Employee were to
enter into competition with the Company or an Affiliate while entitled to
receive benefits hereunder. In the event Employee is deemed to be in
competition contrary to the provisions of this Paragraph 9,
6
thereupon
he shall forfeit all rights to any payments of disability, salary continuation
and death benefits under this Agreement.
10. Beneficiary and Alternative
Beneficiary. Any salary continuation benefits or supplemental
death benefits payable under this Agreement shall be payable in accordance with
Paragraph 2 above in the manner and at the time specified therein to the
Employee’s Beneficiary, who shall be such person or persons, or the survivor
thereof, including corporations, unincorporated associations or trusts, as
Employee may have designated by written document referring to this Executive
Benefits Agreement delivered to and accepted by the
Committee. Employee may from time to time revoke or change any such
designation of his Beneficiary by written document delivered to the
Committee. Notwithstanding any provision hereof to the contrary, in
the event of the divorce of a designated beneficiary from the Employee or in the
event a designated beneficiary shall participate in any wrongful action
resulting in the death of Employee, the designation of such designated
beneficiary shall become null and void and such designated beneficiary shall
receive no benefits whatsoever under this Agreement. If there is no
valid Beneficiary designation on file with the Committee at the time of
Employee’s death, or if the person or persons designated therein shall have all
predeceased Employee or otherwise ceased to exist, the Employee’s Beneficiary
shall be, and any payment hereunder shall be made to, Employee’s spouse, if
living, or otherwise to his estate. If the person or persons
designated by Employee shall survive him but die before receiving all such
payments hereunder, the balance thereof payable to such deceased distributee
shall, unless Employee’s designation provided otherwise, be distributed to such
distributee’s estate.
7
11. Withholding of
Taxes. The Company shall deduct from the amount of any
benefits payable hereunder any taxes required to be withheld by the federal or
any state or local government.
12. Prohibition Against
Assignment. The right of the Employee to benefits under this
Agreement shall not be assigned, transferred, pledged or encumbered in any way,
and any attempted assignment, transfer, pledge, encumbrance or other disposition
of such benefits shall be null and void and without effect; provided, however,
that the Company may assign this entire Agreement to any successor to all or
substantially all of the Company’s capital stock or business and assets and this
Agreement shall be binding on any such successor.
13. Binding
Effect. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and the Employee, his heirs,
executors, administrators and legal representatives. As used in this
Agreement, the term “successor” shall include any person, firm, corporation or
other business entity which at any time, whether by merger, purchase or
otherwise, acquires all or substantially all of the assets or business of the
Company.
14. Entire
Agreement. This Agreement constitutes the entire understanding
between the parties hereto with respect to the subject matter hereof, and may be
modified only by a written instrument executed by both parties
hereto.
15. Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
16. Facility of
Payment. The Company may make any payments required by this
Agreement, when the recipient is incapacitated in the judgment of the Committee
by reason of physical or mental illness or infirmity: (a) to the
recipient directly; (b) to the guardian of the recipient’s personal estate; (c)
to the custodian of a minor recipient serving under the Uniform
8
Gift to
Minors Act of Texas or any other state; or (d) in the event an inter vivos or
testamentary trust is then
in existence for the benefit of any such recipient, the Company may make any
such payments to the trustee or trustees of any such trust. The
Company may make the payment specified by this Agreement without liability of
anyone other than the specified payee. Employee hereby agrees, on
behalf of himself, his heirs and assigns, to hold the Company harmless from any
liability for making payments as specified by this Agreement unless and until
the Company is served with citation or other process issuing out of a court of
competent jurisdiction in connection with a suit instituted by someone for the
purpose of recovering or establishing an interest in such
payments. Notwithstanding any provision of this paragraph or any
other paragraph of this Agreement, if the Employee’s spouse survives the
Employee and is the Employee’s Beneficiary under this Agreement, all payments of
benefits under this Agreement after the Employee’s death shall be paid directly
to the Employee’s spouse during her life and to her estate if she dies before
receiving all such payments.
17. Severability. The
invalidity or enforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
18. Consent of
Spouse. Employee’s spouse is fully aware, understands, and
fully consents and agrees to the provisions of this Agreement and its binding
effect upon any community property interest in payments hereunder, and such
awareness, understanding, consent and agreement is evidenced by signing this
Agreement.
9
IN WITNESS WHEREOF,
the parties have executed this Agreement (in multiple copies)
on the
day and year first above written, but effective as of July 1,
1993.
|
Houston Lighting & Power Company
|
||
|
By:
|
/s/
R. S. Letbetter
|
|
|
R.
S. Letbetter, President and
|
||
|
Chief
Operating Officer
|
||
|
ATTEST:
|
||
|
/s/
Rufus S. Scott
|
||
|
Secretary
|
||
|
(SEAL)
|
||
|
/s/
Thomas R. Standish
|
||
|
Thomas
R. Standish
|
||
|
/s/
Joyce A. Standish
|
||
|
Employee’s
Spouse
|
||
10
Exhibit
10(hh)(2)
FIRST
AMENDMENT TO
EXECUTIVE
BENEFITS PLAN AGREEMENT
THIS FIRST AMENDMENT TO EXECUTIVE
BENEFITS PLAN AGREEMENT (the “Amendment”) by and between CenterPoint Energy, Inc., a
Texas corporation (the “Company”), and Thomas R. Standish
(“Employee”);
W I T N E S S E T H:
WHEREAS, effective August 20,
1993, the Company (as successor to Houston Lighting & Power Company) and
Employee entered into an Executive Benefits Plan Agreement (the “Agreement”)
pursuant to which Employee is eligible for certain supplemental disability
benefits, salary continuation benefits and supplemental death benefits in
accordance with the terms and conditions of the CenterPoint Energy, Inc.
Executive Benefits Plan (the “Plan”); and
WHEREAS, the Company and
Employee desire to amend the Agreement to eliminate the supplemental disability
benefits provided thereunder; and
WHEREAS, Section 14 of the
Agreement provides that the Agreement may be amended only by the written
agreement of the Company and Employee;
NOW, THEREFORE, in
consideration of the premises and the agreements hereinafter contained,
effective as of December 31, 2008, the parties agree to amend the Agreement as
set forth below:
1. Paragraph
2 of the Agreement is hereby amended to read as follows:
“2. Benefits. Subject
to the conditions set forth in Paragraph 3 hereof and all other terms and
conditions of the Plan and this Agreement, the Company agrees as
follows:
(a) Salary Continuation
Benefits. If the Employee dies during the period of his
employment as an officer of the Company, then the Company shall pay to the
Employee’s Beneficiary the following:
(i) 100%
of the Employee’s monthly salary at the time of his death shall be paid each
month for 12 months; and then
(ii) 50%
of the Employee’s monthly salary at the time of his death shall be paid each
month for the next 108 months or until the first day of the month in which the
Employee would have attained age 65, whichever is later.
1
Such
monthly salary continuation payments shall commence in the month following the
month in which the Employee’s death occurs and shall be made by the Company to
the Employee’s Beneficiary, who shall be designated in writing or otherwise
determined as provided in Paragraph 10 below.
(b) Supplemental Death
Benefits. If the Employee continues his employment as an
officer of the Company until his retirement on or after attaining age 65, then,
commencing in the month following the month in which Employee’s death occurs the
Company shall pay to his designated Beneficiary, determined in accordance with
the provision of Paragraph 10 below, 50% of the Employee’s monthly salary at the
time of his retirement for a period of 72 months.
(c) For
purposes of this Agreement, the Employee’s monthly salary shall include any
salary deferral under the CenterPoint Energy 2005 Deferred Compensation
Plan (or successor deferred compensation plan).”
2. Paragraph
9 of the Agreement is hereby amended to delete each use of the term “disability”
therein.
3. Paragraph
16 of the Agreement is hereby amended to replace each use of the term
“recipient” with the term “Beneficiary” therein.
4. The
Agreement is hereby amended to add new Paragraph 19 to read as
follows:
“19. Death Benefit
Plan. This Agreement provides death benefits under a “death
benefit plan” for the benefit of Employee. Accordingly, any benefits
provided under this Agreement are not subject to Section 409A of the Internal
Revenue Code.”
[Signature
Page to Follow]
2
IN WITNESS WHEREOF, the
parties have executed this Amendment (in multiple copies) on the date indicated
below, but effective as set forth above.
|
CENTERPOINT ENERGY,
INC.
|
||
|
By:
|
/s/
David M. McClanahan
|
|
|
David
M. McClanahan
|
||
|
President
and Chief Operating Officer
|
||
|
Date:
|
December
8, 2008
|
|
|
ATTEST:
|
||
|
/s/
Richard Dauphin
|
||
|
Richard
Dauphin
|
||
|
Assistant
Corporate Secretary
|
||
|
EMPLOYEE
|
||
|
By:
|
/s/
Thomas R. Standish
|
|
|
Thomas
R. Standish
|
||
|
Date:
|
December
10, 2008
|
|
|
EMPLOYEE’S
SPOUSE
|
||
|
By:
|
/s/
Joyce A. Standish
|
|
|
Employee’s
Spouse
|
||
|
Date:
|
December
10, 2008
|
|
3
Exhibit
10(ii)(1)
EXECUTIVE
BENEFITS PLAN AGREEMENT
THIS
AGREEMENT, made this 24th day of August, 1993, by and between Houston Lighting & Power
Company, a Texas corporation (the “Company”), and David M. McClanahan
(“Employee”);
W I T N E S S E T H
WHEREAS,
the Company has adopted the Houston Industries Incorporated Executive Benefits
Plan (“Plan”) to provide disability benefits, salary continuation benefits and
death benefits for certain of its officers pursuant to which individual
executive benefits agreements are to be entered into with such officers to whom
coverage under the Plan has been extended; and
WHEREAS,
Employee has performed his duties with ability and distinction and the Company
recognizes that the future growth and continued success of the Company’s
business may well reflect the competent services rendered by Employee;
and
WHEREAS,
the Company desires to reward and retain the services of the Employee and also
to assist him in providing for contingencies of disability or death during
employment or after retirement by extending to Employee coverage under the Plan
as long as he continues to be an officer of the Company; and
WHEREAS,
Employee is willing to continue to serve as an officer of the Company, provided
the Company will agree to provide additional executive benefits in the form of
certain payments in the event of Employee’s disability or death;
and
WHEREAS,
Employee is considered a highly compensated employee or member of a select
management group of the Company;
NOW,
THEREFORE, in consideration of the premises, and the agreements hereinafter
contained, the parties hereto agree as follows:
1. Reference to
Plan. This Agreement is being entered into in accordance with
and subject to all of the terms, conditions and provisions of the Plan and
administrative interpretations thereunder, if any, which have been adopted by
the Committee designated under the Plan (the “Committee”) and are still in
effect on the date hereof. Employee has received a copy of, and is
familiar with the terms of, the Plan and any such administrative
interpretations, which are hereby incorporated herein by reference.
2. Benefits. Subject
to the conditions set forth in Paragraph 3 hereof and all other terms and
conditions of the Plan and this Agreement, the Company agrees as
follows:
(a) Supplemental Disability
Benefits. If the Employee becomes disabled during his
employment as an officer of the Company, he will receive benefits under the Long
Term Disability Plan of Houston Industries Incorporated as if the term “total
disability” under said Plan was defined as an illness or injury which prevents
him from performing the duties of an officer of the Company.
(b) Salary Continuation
Benefits. If the Employee dies during the period of his
employment as an officer of the Company, or dies during a period of disability
as described in (a) above, which disability had commenced while Employee was
employed as an officer of the Company, then the Company shall pay to the
Employee’s Beneficiary the following:
(i) 100%
of the Employee’s monthly salary at the time of his death shall be paid each
month for 12 months; and then
(ii) 50%
of the Employee’s monthly salary at the time of his death shall be paid each
month for the next 108 months or until the first day of the month in which the
Employee would have attained age 65, whichever is later.
2
Such
monthly salary continuation payments shall be made by the Company to the
Employee’s Beneficiary, who shall be designated in writing or otherwise
determined as provided in Paragraph 10 below. These monthly salary
continuation benefits, however, shall not become payable if the Employee’s death
is by suicide, while sane or insane, within two years from the effective date of
the Prior Agreement.
(c) Supplemental Death
Benefits. If the Employee continues his employment as an
officer of the Company until his retirement on or after attaining age 65, then
upon the Employee’s subsequent death the Company shall pay to his designated
Beneficiary, determined in accordance with the provision of Paragraph 10 below,
50% of the Employee’s monthly salary at the time of his retirement for a period
of 72 months. These supplemental post-retirement death benefits,
however, shall not become payable if the Employee’s death is by suicide, while
sane or insane, within two years from the effective date of the Prior
Agreement.
(d) For
purposes of this Agreement, the Employee’s monthly salary shall include any
salary deferral under the Houston Industries Incorporated Deferred Compensation
Plan.
3. Conditions Applicable to
Payments of Benefits. The Company’s payment of benefits to the
Employee or his Beneficiary under this Agreement is in consideration of, and is
conditioned upon, the Employee’s performing or satisfying all of the following
agreements and conditions:
(a) The
Employee must continue to be employed as an officer of the Company until his
death, disability or retirement on or after attaining age 65, to receive any
benefits under this Agreement. If Employee is removed from office as
an officer of the Company but continues employment, this Agreement shall
terminate and shall have no further force and effect as of the first day that
Employee is no longer an officer of the Company.
3
(b) The
Employee agrees to continue his continuous employment as an officer of the
Company until the earlier of (i) the date he attains age 65, or (ii) the date of
his death; provided, however, that periods of disability and authorized leaves
of absence described in Paragraph 8 below shall be considered periods of
continued employment during which Employee’s latest salary for full-time
employment shall be deemed to have continued for purposes of this
Agreement.
(c) The
Employee agrees to render such reasonable consulting and advisory services as
the Company may call upon him to provide and as his health may permit from the
date of his disability or retirement on or after attaining age 65 to the date of
his death.
(i) The
Company agrees that such consulting and advisory services shall not require the
Employee to be active in the Company’s day-to-day activities, and that the
Employee shall perform such services as an independent contractor.
(ii) The
Company further agrees to compensate the Employee for such consulting and
advisory services in an amount to be then agreed upon and to reimburse the
Employee for all out-of-pocket expenses incurred in connection with the
performance of such services.
(d) The
Employee agrees that he will not compete with the Company in violation of
Employee’s agreement in Paragraph 9 hereof.
4. Status of
Agreement. The benefits payable under this Agreement shall be
independent of, and in addition to, any other agreement relating to Employee’s
employment which may exist from time to time between the parties hereto, or any
other compensation payable by the Company to Employee, whether salary, bonus or
otherwise. This Agreement shall not be deemed to constitute a
contract of employment between the parties hereto, nor shall
4
any
provision hereof, except as expressly stated, restrict the right of the Company
to discharge Employee or restrict the right of Employee to terminate his
employment.
5. Life Insurance and
Funding. The Company in its sole discretion may apply for and
procure, as owner and for its own benefit, insurance on the life of Employee in
such amounts and in such forms as the Company may choose. Employee
shall have no interest whatsoever in any such policy or policies, but at the
request of the Company he shall submit to medical examinations and supply such
information and execute such documents as may be required by the insurance
company or companies to which the Company has applied for
insurance.
6. Employee’s Rights To
Benefits. The rights of Employee or his Beneficiary to
benefits under this Agreement shall be solely those of an unsecured creditor of
the Company. Any insurance policy or other assets acquired or held by
the Company in connection with the liabilities assumed by it pursuant to this
Agreement shall not be deemed to be held under any trust for the benefit of
Employee or his Beneficiary or his estate or to be security for the performance
of the obligations of the Company but shall be and remain a general, unpledged,
and unrestricted asset of the Company.
7. Sale of the
Company. The sale of all or substantially all of the property
and assets of the Company otherwise than in the usual and regular course of its
business, or a merger of the Company wherein the Company is not the “surviving
corporation”, or any other transaction which in effect amounts to the sale of
the Company, shall not serve to terminate this Agreement.
8. Company and Employment
Defined. For purposes of this Agreement, the Company shall
also include any corporation which is an “Affiliate” as defined in Section
1.02(c) of the Plan. Neither the transfer of Employee from employment
by the Company to employment by an Affiliate nor the transfer of Employee
between Affiliates, or from employment by an
5
Affiliate
to employment by the Company shall be deemed a termination of employment of
Employee by the Company or by an Affiliate.
Further,
the employment of Employee shall not be deemed to have been terminated or
interrupted because of his absence from active employment on account of
temporary illness or during authorized vacation or during temporary leaves of
absence, granted by the Company for reasons of professional advancement,
education, health or government service, or during military leave for any period
if Employee returns to active employment within 90 days after the termination of
his military leave, or during any period required to be treated as a leave of
absence by virtue of any valid law or agreement.
9. Forfeitures Because of
Competition. Employee agrees that, as a condition to his
qualifying for the disability, salary continuation or death benefits as provided
in Paragraph 2 hereof, he will not without the consent of the Company enter into
competition with the Company. For purposes of this Paragraph,
Employee shall be deemed to be in competition if he directly or indirectly,
whether as consultant, agent, officer, director, employee or otherwise enters
into an association with another business enterprise which then is one of the
principal competitors of the Company or an Affiliate respecting one or more
business activities of the Company or an Affiliate. The parties agree
that one of the essential considerations for the disability, salary continuation
and death benefits provided Employee hereunder is to protect and preserve the
goodwill of the Company and its Affiliates and their respective enterprises, and
that said goodwill will be substantially diminished in value if Employee were to
enter into competition with the Company or an Affiliate while entitled to
receive benefits hereunder. In the event Employee is deemed to be in
competition contrary to the provisions of this Paragraph 9,
6
thereupon
he shall forfeit all rights to any payments of disability, salary continuation
and death benefits under this Agreement.
10. Beneficiary and Alternative
Beneficiary. Any salary continuation benefits or supplemental
death benefits payable under this Agreement shall be payable in accordance with
Paragraph 2 above in the manner and at the time specified therein to the
Employee’s Beneficiary, who shall be such person or persons, or the survivor
thereof, including corporations, unincorporated associations or trusts, as
Employee may have designated by written document referring to this Executive
Benefits Agreement delivered to and accepted by the
Committee. Employee may from time to time revoke or change any such
designation of his Beneficiary by written document delivered to the
Committee. Notwithstanding any provision hereof to the contrary, in
the event of the divorce of a designated beneficiary from the Employee or in the
event a designated beneficiary shall participate in any wrongful action
resulting in the death of Employee, the designation of such designated
beneficiary shall become null and void and such designated beneficiary shall
receive no benefits whatsoever under this Agreement. If there is no
valid Beneficiary designation on file with the Committee at the time of
Employee’s death, or if the person or persons designated therein shall have all
predeceased Employee or otherwise ceased to exist, the Employee’s Beneficiary
shall be, and any payment hereunder shall be made to, Employee’s spouse, if
living, or otherwise to his estate. If the person or persons
designated by Employee shall survive him but die before receiving all such
payments hereunder, the balance thereof payable to such deceased distributee
shall, unless Employee’s designation provided otherwise, be distributed to such
distributee’s estate.
7
11. Withholding of Taxes. The
Company shall deduct from the amount of any benefits payable hereunder any taxes
required to be withheld by the federal or any state or local
government.
12. Prohibition Against
Assignment. The right of the Employee to benefits under this
Agreement shall not be assigned, transferred, pledged or encumbered in any way,
and any attempted assignment, transfer, pledge, encumbrance or other disposition
of such benefits shall be null and void and without effect; provided, however,
that the Company may assign this entire Agreement to any successor to all or
substantially all of the Company’s capital stock or business and assets and this
Agreement shall be binding on any such successor.
13. Binding
Effect. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and the Employee, his heirs,
executors, administrators and legal representatives. As used in this
Agreement, the term “successor” shall include any person, firm, corporation or
other business entity which at any time, whether by merger, purchase or
otherwise, acquires all or substantially all of the assets or business of the
Company.
14. Entire
Agreement. This Agreement constitutes the entire understanding
between the parties hereto with respect to the subject matter hereof, and may be
modified only by a written instrument executed by both parties
hereto.
15. Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
16. Facility of
Payment. The Company may make any payments required by this
Agreement, when the recipient is incapacitated in the judgment of the Committee
by reason of physical or mental illness or infirmity: (a) to the
recipient directly; (b) to the guardian of the recipient’s personal estate; (c)
to the custodian of a minor recipient serving under the Uniform
8
Gift to
Minors Act of Texas or any other state; or (d) in the event an inter vivos or
testamentary trust is then in existence for the benefit of any such recipient,
the Company may make any such payments to the trustee or trustees of any such
trust. The Company may make the payment specified by this Agreement
without liability of anyone other than the specified payee. Employee
hereby agrees, on behalf of himself, his heirs and assigns, to hold the Company
harmless from any liability for making payments as specified by this Agreement
unless and until the Company is served with citation or other process issuing
out of a court of competent jurisdiction in connection with a suit instituted by
someone for the purpose of recovering or establishing an interest in such
payments. Notwithstanding any provision of this paragraph or any
other paragraph of this Agreement, if the Employee’s spouse survives the
Employee and is the Employee’s Beneficiary under this Agreement, all payments of
benefits under this Agreement after the Employee’s death shall be paid directly
to the Employee’s spouse during her life and to her estate if she dies before
receiving all such payments.
17. Severability. The
invalidity or enforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
18. Consent of
Spouse. Employee’s spouse is fully aware, understands, and
fully consents and agrees to the provisions of this Agreement and its binding
effect upon any community property interest in payments hereunder, and such
awareness, understanding, consent and agreement is evidenced by signing this
Agreement.
9
IN WITNESS WHEREOF,
the parties have executed this Agreement (in multiple copies)
on the
day and year first above written, but effective as of July 1, 1993.
|
Houston Lighting & Power Company
|
||
|
By:
|
/s/
R. S. Letbetter
|
|
|
R.
S. Letbetter, President and
|
||
|
Chief
Operating Officer
|
||
|
ATTEST:
|
||
|
/s/
Rufus S. Scott
|
||
|
Secretary
|
||
|
(SEAL)
|
||
|
/s/
David M. McClanahan
|
||
|
David
M. McClanahan
|
||
|
/s/
Becky McClanahan
|
||
|
Employee’s
Spouse
|
||
10
Exhibit
10(ii)(2)
FIRST
AMENDMENT TO
EXECUTIVE
BENEFITS PLAN AGREEMENT
THIS FIRST AMENDMENT TO EXECUTIVE
BENEFITS PLAN AGREEMENT (the “Amendment”) by and between CenterPoint Energy, Inc., a
Texas corporation (the “Company”), and David M. McClanahan
(“Employee”);
W I T N E S S E T H:
WHEREAS, effective August 24,
1993, the Company (as successor to Houston Lighting & Power Company) and
Employee entered into an Executive Benefits Plan Agreement (the “Agreement”)
pursuant to which Employee is eligible for certain supplemental disability
benefits, salary continuation benefits and supplemental death benefits in
accordance with the terms and conditions of the CenterPoint Energy, Inc.
Executive Benefits Plan (the “Plan”); and
WHEREAS, the Company and
Employee desire to amend the Agreement to eliminate the supplemental disability
benefits provided thereunder; and
WHEREAS, Section 14 of the
Agreement provides that the Agreement may be amended only by the written
agreement of the Company and Employee;
NOW, THEREFORE, in
consideration of the premises and the agreements hereinafter contained,
effective as of December 31, 2008, the parties agree to amend the Agreement as
set forth below:
1. Paragraph
2 of the Agreement is hereby amended to read as follows:
“2. Benefits. Subject
to the conditions set forth in Paragraph 3 hereof and all other terms and
conditions of the Plan and this Agreement, the Company agrees as
follows:
(a) Salary Continuation
Benefits. If the Employee dies during the period of his
employment as an officer of the Company, then the Company shall pay to the
Employee’s Beneficiary the following:
(i) 100%
of the Employee’s monthly salary at the time of his death shall be paid each
month for 12 months; and then
(ii) 50%
of the Employee’s monthly salary at the time of his death shall be paid each
month for the next 108 months or until the first day of the month in which the
Employee would have attained age 65, whichever is later.
1
Such
monthly salary continuation payments shall commence in the month following the
month in which the Employee’s death occurs and shall be made by the Company to
the Employee’s Beneficiary, who shall be designated in writing or otherwise
determined as provided in Paragraph 10 below.
(b) Supplemental Death
Benefits. If the Employee continues his employment as an
officer of the Company until his retirement on or after attaining age 65, then,
commencing in the month following the month in which Employee’s death occurs the
Company shall pay to his designated Beneficiary, determined in accordance with
the provision of Paragraph 10 below, 50% of the Employee’s monthly salary at the
time of his retirement for a period of 72 months.
(c) For
purposes of this Agreement, the Employee’s monthly salary shall include any
salary deferral under the CenterPoint Energy 2005 Deferred Compensation
Plan (or successor deferred compensation plan).”
2. Paragraph
9 of the Agreement is hereby amended to delete each use of the term “disability”
therein.
3. Paragraph
16 of the Agreement is hereby amended to replace each use of the term
“recipient” with the term “Beneficiary” therein.
4. The
Agreement is hereby amended to add new Paragraph 19 to read as
follows:
“19. Death Benefit
Plan. This Agreement provides death benefits under a “death
benefit plan” for the benefit of Employee. Accordingly, any benefits
provided under this Agreement are not subject to Section 409A of the Internal
Revenue Code.”
[Signature
Page to Follow]
2
IN WITNESS WHEREOF, the
parties have executed this Amendment (in multiple copies) on the date indicated
below, but effective as set forth above.
|
CENTERPOINT ENERGY,
INC.
|
||
|
By:
|
/s/
Milton Carroll
|
|
|
Milton
Carroll
|
||
|
Chairman,
Board of Directors
|
||
|
Date:
|
December
3, 2008
|
|
|
ATTEST:
|
||
|
/s/
Richard Dauphin
|
||
|
Richard
Dauphin
|
||
|
Assistant
Corporate Secretary
|
||
|
EMPLOYEE
|
||
|
By:
|
/s/
David M. McClanahan
|
|
|
David
M. McClanahan
|
||
|
Date:
|
December
8, 2008
|
|
|
EMPLOYEE’S
SPOUSE
|
||
|
By:
|
/s/
Becky McClanahan
|
|
|
Employee’s
Spouse
|
||
|
Date:
|
December
8, 2008
|
|
3
Exhibit
10(jj)(1)
EXECUTIVE
BENEFITS PLAN AGREEMENT
THIS
AGREEMENT, made this 30th day of August, 1993, by and between Houston Lighting & Power
Company, a Texas corporation (the “Company”), and Joseph B. McGoldrick
(“Employee”);
W I T N E S S E T H
WHEREAS,
the Company has adopted the Houston Industries Incorporated Executive Benefits
Plan (“Plan”) to provide disability benefits, salary continuation benefits and
death benefits for certain of its officers pursuant to which individual
executive benefits agreements are to be entered into with such officers to whom
coverage under the Plan has been extended; and
WHEREAS,
Employee has performed his duties with ability and distinction and the Company
recognizes that the future growth and continued success of the Company’s
business may well reflect the competent services rendered by Employee;
and
WHEREAS,
the Company desires to reward and retain the services of the Employee and also
to assist him in providing for contingencies of disability or death during
employment or after retirement by extending to Employee coverage under the Plan
as long as he continues to be an officer of the Company; and
WHEREAS,
Employee is willing to continue to serve as an officer of the Company, provided
the Company will agree to provide additional executive benefits in the form of
certain payments in the event of Employee’s disability or death;
and
WHEREAS,
Employee is considered a highly compensated employee or member of a select
management group of the Company;
NOW,
THEREFORE, in consideration of the premises, and the agreements hereinafter
contained, the parties hereto agree as follows:
1. Reference to
Plan. This Agreement is being entered into in accordance with
and subject to all of the terms, conditions and provisions of the Plan and
administrative interpretations thereunder, if any, which have been adopted by
the Committee designated under the Plan (the “Committee”) and are still in
effect on the date hereof. Employee has received a copy of, and is
familiar with the terms of, the Plan and any such administrative
interpretations, which are hereby incorporated herein by reference.
2. Benefits. Subject
to the conditions set forth in Paragraph 3 hereof and all other terms and
conditions of the Plan and this Agreement, the Company agrees as
follows:
(a) Supplemental Disability
Benefits. If the Employee becomes disabled during his
employment as an officer of the Company, he will receive benefits under the Long
Term Disability Plan of Houston Industries Incorporated as if the term “total
disability” under said Plan was defined as an illness or injury which prevents
him from performing the duties of an officer of the Company.
(b) Salary Continuation
Benefits. If the Employee dies during the period of his
employment as an officer of the Company, or dies during a period of disability
as described in (a) above, which disability had commenced while Employee was
employed as an officer of the Company, then the Company shall pay to the
Employee’s Beneficiary the following:
(i) 100%
of the Employee’s monthly salary at the time of his death shall be paid each
month for 12 months; and then
(ii) 50%
of the Employee’s monthly salary at the time of his death shall be paid each
month for the next 108 months or until the first day of the month in which the
Employee would have attained age 65, whichever is later.
2
Such
monthly salary continuation payments shall be made by the Company to the
Employee’s Beneficiary, who shall be designated in writing or otherwise
determined as provided in Paragraph 10 below. These monthly salary
continuation benefits, however, shall not become payable if the Employee’s death
is by suicide, while sane or insane, within two years from the effective date of
the Prior Agreement.
(c) Supplemental Death
Benefits. If the Employee continues his employment as an
officer of the Company until his retirement on or after attaining age 65, then
upon the Employee’s subsequent death the Company shall pay to his designated
Beneficiary, determined in accordance with the provision of Paragraph 10 below,
50% of the Employee’s monthly salary at the time of his retirement for a period
of 72 months. These supplemental post-retirement death benefits,
however, shall not become payable if the Employee’s death is by suicide, while
sane or insane, within two years from the effective date of the Prior
Agreement.
(d) For
purposes of this Agreement, the Employee’s monthly salary shall include any
salary deferral under the Houston Industries Incorporated Deferred Compensation
Plan.
3. Conditions Applicable to
Payments of Benefits. The Company’s payment of benefits to the
Employee or his Beneficiary under this Agreement is in consideration of, and is
conditioned upon, the Employee’s performing or satisfying all of the following
agreements and conditions:
(a) The
Employee must continue to be employed as an officer of the Company until his
death, disability or retirement on or after attaining age 65, to receive any
benefits under this Agreement. If Employee is removed from office as
an officer of the Company but continues employment, this Agreement shall
terminate and shall have no further force and effect as of the first day that
Employee is no longer an officer of the Company.
3
(b) The
Employee agrees to continue his continuous employment as an officer of the
Company until the earlier of (i) the date he attains age 65, or (ii) the date of
his death; provided, however, that periods of disability and authorized leaves
of absence described in Paragraph 8 below shall be considered periods of
continued employment during which Employee’s latest salary for full-time
employment shall be deemed to have continued for purposes of this
Agreement.
(c) The
Employee agrees to render such reasonable consulting and advisory services as
the Company may call upon him to provide and as his health may permit from the
date of his disability or retirement on or after attaining age 65 to the date of
his death.
(i) The
Company agrees that such consulting and advisory services shall not require the
Employee to be active in the Company’s day-to-day activities, and that the
Employee shall perform such services as an independent contractor.
(ii) The
Company further agrees to compensate the Employee for such consulting and
advisory services in an amount to be then agreed upon and to reimburse the
Employee for all out-of-pocket expenses incurred in connection with the
performance of such services.
(d) The
Employee agrees that he will not compete with the Company in violation of
Employee’s agreement in Paragraph 9 hereof.
4. Status of
Agreement. The benefits payable under this Agreement shall be
independent of, and in addition to, any other agreement relating to Employee’s
employment which may exist from time to time between the parties hereto, or any
other compensation payable by the Company to Employee, whether salary, bonus or
otherwise. This Agreement shall not be deemed to constitute a
contract of employment between the parties hereto, nor shall
4
any
provision hereof, except as expressly stated, restrict the right of the Company
to discharge Employee or restrict the right of Employee to terminate his
employment.
5. Life Insurance and
Funding. The Company in its sole discretion may apply for and
procure, as owner and for its own benefit, insurance on the life of Employee in
such amounts and in such forms as the Company may choose. Employee
shall have no interest whatsoever in any such policy or policies, but at the
request of the Company he shall submit to medical examinations and supply such
information and execute such documents as may be required by the insurance
company or companies to which the Company has applied for
insurance.
6. Employee’s Rights To
Benefits. The rights of Employee or his Beneficiary to
benefits under this Agreement shall be solely those of an unsecured creditor of
the Company. Any insurance policy or other assets acquired or held by
the Company in connection with the liabilities assumed by it pursuant to this
Agreement shall not be deemed to be held under any trust for the benefit of
Employee or his Beneficiary or his estate or to be security for the performance
of the obligations of the Company but shall be and remain a general, unpledged,
and unrestricted asset of the Company.
7. Sale of the
Company. The sale of all or substantially all of the property
and assets of the Company otherwise than in the usual and regular course of its
business, or a merger of the Company wherein the Company is not the “surviving
corporation”, or any other transaction which in effect amounts to the sale of
the Company, shall not serve to terminate this Agreement.
8. Company and Employment
Defined. For purposes of this Agreement, the Company shall
also include any corporation which is an “Affiliate” as defined in Section
1.02(c) of the Plan. Neither the transfer of Employee from employment
by the Company to employment by an Affiliate nor the transfer of Employee
between Affiliates, or from employment by an
5
Affiliate
to employment by the Company shall be deemed a termination of employment of
Employee by the Company or by an Affiliate.
Further,
the employment of Employee shall not be deemed to have been terminated or
interrupted because of his absence from active employment on account of
temporary illness or during authorized vacation or during temporary leaves of
absence, granted by the Company for reasons of professional advancement,
education, health or government service, or during military leave for any period
if Employee returns to active employment within 90 days after the termination of
his military leave, or during any period required to be treated as a leave of
absence by virtue of any valid law or agreement.
9. Forfeitures Because of
Competition. Employee agrees that, as a condition to his
qualifying for the disability, salary continuation or death benefits as provided
in Paragraph 2 hereof, he will not without the consent of the Company enter into
competition with the Company. For purposes of this Paragraph,
Employee shall be deemed to be in competition if he directly or indirectly,
whether as consultant, agent, officer, director, employee or otherwise enters
into an association with another business enterprise which then is one of the
principal competitors of the Company or an Affiliate respecting one or more
business activities of the Company or an Affiliate. The parties agree
that one of the essential considerations for the disability, salary continuation
and death benefits provided Employee hereunder is to protect and preserve the
goodwill of the Company and its Affiliates and their respective enterprises, and
that said goodwill will be substantially diminished in value if Employee were to
enter into competition with the Company or an Affiliate while entitled to
receive benefits hereunder. In the event Employee is deemed to be in
competition contrary to the provisions of this Paragraph 9,
6
thereupon
he shall forfeit all rights to any payments of disability, salary continuation
and death benefits under this Agreement.
10. Beneficiary and Alternative
Beneficiary. Any salary continuation benefits or supplemental
death benefits payable under this Agreement shall be payable in accordance with
Paragraph 2 above in the manner and at the time specified therein to the
Employee’s Beneficiary, who shall be such person or persons, or the survivor
thereof, including corporations, unincorporated associations or trusts, as
Employee may have designated by written document referring to this Executive
Benefits Agreement delivered to and accepted by the
Committee. Employee may from time to time revoke or change any such
designation of his Beneficiary by written document delivered to the
Committee. Notwithstanding any provision hereof to the contrary, in
the event of the divorce of a designated beneficiary from the Employee or in the
event a designated beneficiary shall participate in any wrongful action
resulting in the death of Employee, the designation of such designated
beneficiary shall become null and void and such designated beneficiary shall
receive no benefits whatsoever under this Agreement. If there is no
valid Beneficiary designation on file with the Committee at the time of
Employee’s death, or if the person or persons designated therein shall have all
predeceased Employee or otherwise ceased to exist, the Employee’s Beneficiary
shall be, and any payment hereunder shall be made to, Employee’s spouse, if
living, or otherwise to his estate. If the person or persons
designated by Employee shall survive him but die before receiving all such
payments hereunder, the balance thereof payable to such deceased distributee
shall, unless Employee’s designation provided otherwise, be distributed to such
distributee’s estate.
7
11. Withholding of
Taxes. The Company shall deduct from the amount of any
benefits payable hereunder any taxes required to be withheld by the federal or
any state or local government.
12. Prohibition Against
Assignment. The right of the Employee to benefits under this
Agreement shall not be assigned, transferred, pledged or encumbered in any way,
and any attempted assignment, transfer, pledge, encumbrance or other disposition
of such benefits shall be null and void and without effect; provided, however,
that the Company may assign this entire Agreement to any successor to all or
substantially all of the Company’s capital stock or business and assets and this
Agreement shall be binding on any such successor.
13. Binding
Effect. This Agreement shall be binding upon and inure to the
benefit of the Company, its successors and assigns, and the Employee, his heirs,
executors, administrators and legal representatives. As used in this
Agreement, the term “successor” shall include any person, firm, corporation or
other business entity which at any time, whether by merger, purchase or
otherwise, acquires all or substantially all of the assets or business of the
Company.
14. Entire
Agreement. This Agreement constitutes the entire understanding
between the parties hereto with respect to the subject matter hereof, and may be
modified only by a written instrument executed by both parties
hereto.
15. Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
16. Facility of
Payment. The Company may make any payments required by this
Agreement, when the recipient is incapacitated in the judgment of the Committee
by reason of physical or mental illness or infirmity: (a) to the
recipient directly; (b) to the guardian of the recipient’s personal estate; (c)
to the custodian of a minor recipient serving under the Uniform
8
Gift to
Minors Act of Texas or any other state; or (d) in the event an inter vivos or
testamentary trust is then in existence for the benefit of any such recipient,
the Company may make any such payments to the trustee or trustees of any such
trust. The Company may make the payment specified by this Agreement
without liability of anyone other than the specified payee. Employee
hereby agrees, on behalf of himself, his heirs and assigns, to hold the Company
harmless from any liability for making payments as specified by this Agreement
unless and until the Company is served with citation or other process issuing
out of a court of competent jurisdiction in connection with a suit instituted by
someone for the purpose of recovering or establishing an interest in such
payments. Notwithstanding any provision of this paragraph or any
other paragraph of this Agreement, if the Employee’s spouse survives the
Employee and is the Employee’s Beneficiary under this Agreement, all payments of
benefits under this Agreement after the Employee’s death shall be paid directly
to the Employee’s spouse during her life and to her estate if she dies before
receiving all such payments.
17. Severability. The
invalidity or enforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
18. Consent of
Spouse. Employee’s spouse is fully aware, understands, and
fully consents and agrees to the provisions of this Agreement and its binding
effect upon any community property interest in payments hereunder, and such
awareness, understanding, consent and agreement is evidenced by signing this
Agreement.
9
IN WITNESS WHEREOF,
the parties have executed this Agreement (in multiple copies)
on the
day and year first above written, but effective as of July 1,
1993.
|
Houston Lighting & Power Company
|
||
|
By:
|
/s/
R. S. Letbetter
|
|
|
R.
S. Letbetter, President and
|
||
|
Chief
Operating Officer
|
||
|
ATTEST:
|
||
|
/s/
Rufus S. Scott
|
||
|
Secretary
|
||
|
(SEAL)
|
||
|
/s/
Joseph B. McGoldrick
|
||
|
Joseph
B. McGoldrick
|
||
|
/s/
Judy A. McGoldrick
|
||
|
Employee’s
Spouse
|
||
10
Exhibit
10(jj)(2)
FIRST
AMENDMENT TO
EXECUTIVE
BENEFITS PLAN AGREEMENT
THIS FIRST AMENDMENT TO EXECUTIVE
BENEFITS PLAN AGREEMENT (the “Amendment”) by and between CenterPoint Energy, Inc., a
Texas corporation (the “Company”), and Joseph B. McGoldrick
(“Employee”);
W I T N E S S E T H:
WHEREAS, effective August 30,
1993, the Company (as successor to Houston Lighting & Power Company) and
Employee entered into an Executive Benefits Plan Agreement (the “Agreement”)
pursuant to which Employee is eligible for certain supplemental disability
benefits, salary continuation benefits and supplemental death benefits in
accordance with the terms and conditions of the CenterPoint Energy, Inc.
Executive Benefits Plan (the “Plan”); and
WHEREAS, the Company and
Employee desire to amend the Agreement to eliminate the supplemental disability
benefits provided thereunder; and
WHEREAS, Section 14 of the
Agreement provides that the Agreement may be amended only by the written
agreement of the Company and Employee;
NOW, THEREFORE, in
consideration of the premises and the agreements hereinafter contained,
effective as of December 31, 2008, the parties agree to amend the Agreement as
set forth below:
1. Paragraph
2 of the Agreement is hereby amended to read as follows:
“2. Benefits. Subject
to the conditions set forth in Paragraph 3 hereof and all other terms and
conditions of the Plan and this Agreement, the Company agrees as
follows:
(a) Salary Continuation
Benefits. If the Employee dies during the period of his
employment as an officer of the Company, then the Company shall pay to the
Employee’s Beneficiary the following:
(i) 100% of
the Employee’s monthly salary at the time of his death shall be paid each month
for 12 months; and then
(ii) 50% of
the Employee’s monthly salary at the time of his death shall be paid each month
for the next 108 months or until the first day of the month in which the
Employee would have attained age 65, whichever is later.
1
Such
monthly salary continuation payments shall commence in the month following the
month in which the Employee’s death occurs and shall be made by the Company to
the Employee’s Beneficiary, who shall be designated in writing or otherwise
determined as provided in Paragraph 10 below.
(b) Supplemental Death
Benefits. If the Employee continues his employment as an
officer of the Company until his retirement on or after attaining age 65, then,
commencing in the month following the month in which Employee’s death occurs the
Company shall pay to his designated Beneficiary, determined in accordance with
the provision of Paragraph 10 below, 50% of the Employee’s monthly salary at the
time of his retirement for a period of 72 months.
(c) For
purposes of this Agreement, the Employee’s monthly salary shall include any
salary deferral under the CenterPoint Energy 2005 Deferred Compensation
Plan (or successor deferred compensation plan).”
2. Paragraph
9 of the Agreement is hereby amended to delete each use of the term “disability”
therein.
3. Paragraph
16 of the Agreement is hereby amended to replace each use of the term
“recipient” with the term “Beneficiary” therein.
4. The
Agreement is hereby amended to add new Paragraph 19 to read as
follows:
“19. Death Benefit
Plan. This Agreement provides death benefits under a “death
benefit plan” for the benefit of Employee. Accordingly, any benefits
provided under this Agreement are not subject to Section 409A of the Internal
Revenue Code.”
[Signature
Page to Follow]
2
IN WITNESS WHEREOF, the
parties have executed this Amendment (in multiple copies) on the date indicated
below, but effective as set forth above.
|
CENTERPOINT ENERGY,
INC.
|
||
|
By:
|
/s/
David M. McClanahan
|
|
|
David
M. McClanahan
|
||
|
President
and Chief Operating Officer
|
||
|
Date:
|
December
8, 2008
|
|
|
ATTEST:
|
||
|
/s/
Richard Dauphin
|
||
|
Richard
Dauphin
|
||
|
Assistant
Corporate Secretary
|
||
|
EMPLOYEE
|
||
|
By:
|
/s/
Joseph B. McGoldrick
|
|
|
Joseph
B. McGoldrick
|
||
|
Date:
|
December
9, 2008
|
|
|
EMPLOYEE’S
SPOUSE
|
||
|
By:
|
/s/
Judy McGoldrick
|
|
|
Employee’s
Spouse
|
||
|
Date:
|
December
9, 2008
|
|
3
Exhibit 10(kk)
CenterPoint
Energy, Inc.
Summary of Non-Employee Director
Compensation
The
following is a summary of compensation paid to the non-employee directors of
CenterPoint Energy, Inc. (the “Company”) effective April 24, 2008. For
additional information regarding the compensation of the non-employee directors,
please read the definitive proxy statement relating to the Company’s 2009 annual
meeting of shareholders to be filed pursuant to Regulation 14A.
|
•
|
Annual
retainer fee of $50,000 for Board membership;
|
||
|
•
|
Fee
of $2,000 for each Board or Committee meeting attended;
|
||
|
•
|
Supplemental
annual retainer of $15,000 for serving as a chairman of the Audit
Committee;
|
||
|
•
|
Supplemental
annual retainer of $10,000 for serving as a chairman of the Compensation
Committee; and
|
||
|
•
|
Supplemental
annual retainer of $5,000 for serving as a chairman of any other Board
committee.
|
The
Chairman receives the compensation payable to other non-employee directors plus
supplemental compensation pursuant to a letter agreement with the Company
incorporated by reference to Exhibit 10(p) to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2007.
Stock Grants. Each
non-employee director may also receive an annual grant of up to 5,000 shares of
CenterPoint Energy common stock which vest in one-third increments on the first,
second and third anniversaries of the grant date. Upon the initial nomination to
the Board, in addition to the annual grant, a non-employee director may be
granted a one-time grant of up to 5,000 shares of CenterPoint Energy common
stock.
Deferred Compensation Plan.
Directors may elect each year to defer all or part of their annual
retainer fees and meeting fees. Directors participating in these plans may elect
to receive distributions of their deferred compensation and interest in three
ways: (i) an early distribution of either 50% or 100% of their account balance
in any year that is at least four years from the year of deferral up to the year
in which they reach age 70, (ii) a lump sum distribution payable in the year
after they reach age 70 or upon leaving the Board of Directors, whichever is
later, or (iii) 15 annual installments beginning on the first of the month
coincident with or next following age 70 or upon leaving the Board of Directors,
whichever is later.
Director Benefits Plan.
Non-employee directors elected to the Board before 2004 participate in a
director benefits plan under which a director who serves at least one full year
will receive an annual cash amount equal to the annual retainer (excluding any
supplemental retainer) in effect when the director terminates service. Payments
under this plan begin the January following the later of the director’s
termination of service or attainment of age 65, and may be spread over a period
of time to be selected by each director.
Executive Life Insurance Plan.
Non-employee directors who were elected to the Board before 2001
participate in CenterPoint Energy’s executive life insurance plan. This plan
provides endorsement split-dollar life insurance with a death benefit of
$180,000 with coverage continuing after the director’s termination of service at
age 65 or later. Directors elected to the Board after 2000 may not participate
in this plan.
Exhibit 10(ll)
CenterPoint
Energy, Inc.
Summary
of Named Executive Officer Compensation
The following
is a summary of compensation paid to the named executive officers of CenterPoint
Energy, Inc. (the “Company”). For additional information regarding the
compensation of the named executive officers, please read the definitive proxy
statement relating to the Company’s 2009 annual meeting of shareholders to be
filed pursuant to Regulation 14A.
Base Salary.
The following table sets forth the annual base salary of the Company’s
named executive officers effective April 1, 2009:
|
Name
and Position
|
Base
Salary
|
|||
|
David
M. McClanahan
President
and Chief Executive Officer
|
$
|
1,060,000
|
||
|
Gary
L. Whitlock
Executive
Vice President
and
Chief Financial Officer
|
$
|
505,000
|
||
|
Scott
E. Rozzell
Executive
Vice President, General
Counsel
and Corporate Secretary
|
$
|
475,000
|
||
|
Thomas
R. Standish
Senior
Vice President and Group
President
— Regulated Operations
|
$
|
457,000
|
||
|
C.
Gregory Harper
Senior
Vice President and Group President,
Pipelines
and Field Services
|
$
|
340,000
|
||
|
|
||||
Short Term Incentive
Plan. Annual bonuses are paid to the Company’s named executive officers
pursuant to the Company’s short term incentive plan, which provides for cash
bonuses based on the achievement of certain performance objectives approved in
accordance with the terms of the plan at the commencement of the year.
Information regarding awards to the Company’s named executive officers under the
short term incentive plan is provided in definitive proxy statements relating to
the Company’s annual meeting of shareholders.
Long Term Incentive
Plan. Under the Company’s long term incentive plan, the Company’s named
executive officers may receive grants of (i) stock option awards,
(ii) performance share awards, (iii) performance unit awards and/or
(iv) stock awards. The current forms of the applicable award agreements
pursuant to the Company’s long term incentive plan are included as exhibits
hereto.
Exhibit
10(mm)
CHANGE
IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL
AGREEMENT (“Agreement”) is effective as of January 1, 2009, by and
between CENTERPOINT ENERGY, INC., a Texas corporation (the
“Company”), and [NAME]
(“Executive”).
1. Definitions:
All terms
defined in this Section 1 shall, throughout this Agreement, have the meanings
given herein:
“Affiliate” means any company
controlled by, controlling or under common control with the Company within the
meaning of Section 414 of the Code.
“Board” means the board of
directors of the Company.
“Cause” means Executive’s (a)
gross negligence in the performance of Executive’s duties, (b) intentional and
continued failure to perform Executive’s duties, (c) intentional engagement in
conduct which is materially injurious to the Company or its Affiliates
(monetarily or otherwise) or (d) conviction of a felony or a misdemeanor
involving moral turpitude. For this purpose, an act or failure to act
on the part of Executive will be deemed “intentional” only if done or omitted to
be done by Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company, and no act or
failure to act on the part of Executive will be deemed “intentional” if it was
due primarily to an error in judgment or negligence.
A “Change in Control” shall be
deemed to have occurred upon the occurrence of any of the following
events:
(a) 30% Ownership
Change: Any Person makes an acquisition of Beneficial
Ownership of Outstanding Voting Stock (including any acquisition of Beneficial
Ownership deemed to have occurred pursuant to Rule 13d-5 under the Exchange Act)
and is, immediately thereafter, the Beneficial Owner of 30% or more of the then
Outstanding Voting Stock, unless such acquisition is made by a Parent
Corporation resulting from a Business Combination (other than the Company) if,
following such Business Combination, the conditions specified in clauses (i),
(ii), (iii) and (iv) of subsection (c) of this definition are satisfied; or any
Group is formed that is the Beneficial Owner of 30% or more of the Outstanding
Voting Stock; or
(b) Board Majority
Change: Individuals who are Incumbent Directors cease for any
reason to constitute a majority of the members of the Board; or
(c) Major Mergers and
Acquisitions: Approval by the shareholders of the Company of a
Business Combination (or if there is no such approval by shareholders,
consummation of such Business Combination) unless, immediately following such
Business Combination, (i) all or substantially all of the individuals and
entities that were the Beneficial Owners of the Outstanding Voting Stock
immediately prior to such Business Combination will (or do) beneficially own,
directly or indirectly, more than 70% of the then outstanding shares of voting
stock of the Parent Corporation resulting from such Business Combination in
substantially the same relative proportions as their ownership, immediately
prior to such Business Combination, of the Outstanding Voting Stock,
(ii) if the Business Combination involves the issuance or payment by the
Company of consideration to another entity or its shareholders, the total fair
market value of such consideration plus the principal amount of the consolidated
long-term debt of the entity or business being acquired (in each case,
determined as of the date of consummation of such Business Combination by a
majority of the Incumbent Directors) will not (or does not) exceed 50% of the
sum of the fair market value of the Outstanding Voting Stock plus the principal
amount of the Company’s consolidated long-term debt (in each case, determined
immediately prior to such consummation by a majority of the Incumbent
Directors), (iii) no Person (other than any Parent Corporation resulting
from a Business Combination) will (or does) beneficially own, directly or
indirectly, 30% or more of the then outstanding shares of voting stock of the
Parent Corporation resulting from such Business Combination and (iv) a
majority of the members of the board of directors of the Parent Corporation
resulting from such Business Combination were Incumbent Directors immediately
prior to consummation of such Business Combination; or
(d) Major Asset
Dispositions: Approval by the shareholders of the Company of a
Major Asset Disposition (or if there is no such approval by shareholders
consummation of such Major Asset Disposition) unless, immediately following such
Major Asset Disposition, (i) individuals and entities that were Beneficial
Owners of the Outstanding Voting Stock immediately prior to such Major Asset
Disposition will (or do) beneficially own, directly or indirectly, more than 70%
of the then outstanding shares of voting stock of the Company (if it continues
to exist) and of the entity that acquires the largest portion of such assets (or
the entity, if any, that owns a majority of the outstanding voting stock of such
acquiring entity) and (ii) a majority of the members of the board of
directors of the Company (if it continues to exist) and of the entity that
acquires the largest portion of such assets (or the entity, if any, that owns a
majority of the outstanding voting stock of such acquiring entity) were
Incumbent Directors immediately prior to consummation of such Major Asset
Disposition.
For
purposes of the foregoing, the term:
(1) “Beneficial
Owner,” “Beneficial Ownership” and “Beneficially Own” are used as defined for
purposes of Section 13(d)(3) under the Exchange Act.
-2-
(2) “Business
Combination” means (x) a merger or consolidation involving the Company or
its stock or (y) an acquisition by the Company, directly or through one or
more subsidiaries, of another entity or its stock or assets.
(3) “Election
Contest” is used as it is defined for purposes of Rule 14a-11 under the
Exchange Act.
(4) “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
(5) “Group”
is used as it is defined for purposes of Section 13(d)(3) of the Exchange
Act.
(6) “Incumbent
Director” means a director of the Company (x) who was a director of the
Company on the date of this Agreement, or (y) who becomes a director
subsequent to such date and whose election, or nomination for election by the
Company’s shareholders, was approved by a vote of a majority of the Incumbent
Directors at the time of such election or nomination, except that any such
director shall not be deemed an Incumbent Director if his initial assumption of
office occurs as a result of an actual or threatened Election Contest or other
actual or threatened solicitation of proxies by or on behalf of a Person other
than the Board.
(7) “Major
Asset Disposition” means the sale or other disposition in one transaction or a
series of related transactions of 70% or more of the assets of the Company and
its subsidiaries on a consolidated basis; and any specified percentage or
portion of the assets of the Company shall be based on fair market value, as
determined by a majority of the Incumbent Directors.
(8) “Outstanding
Voting Stock” means outstanding voting securities of the Company entitled to
vote generally in the election of directors; and any specified percentage or
portion of the Outstanding Voting Stock (or of other voting stock) shall be
determined based on the combined voting power of such securities.
(9) “Parent
Corporation resulting from a Business Combination” means the Company if its
stock is not acquired or converted in the Business Combination and otherwise
means the entity which as a result of such Business Combination owns the Company
or all or substantially all of the Company’s assets either directly or through
one or more subsidiaries.
(10) “Person”
means an individual, entity or Group.
“Code” means the Internal
Revenue Code of 1986, as amended.
“Company” means CenterPoint
Energy, Inc., a Texas corporation, and any successor thereto.
-3-
“Compensation” means the
greater of (a) the sum of Executive’s annual base salary plus Target Bonus
determined immediately prior to the date on which a Change in Control occurs, or
(b) the sum of Executive’s annual base salary plus Target Bonus determined
immediately prior to the date of his Covered Termination.
“Covered Termination” means
any termination of Executive’s employment with the Company or any Affiliate that
is a “Separation from Service” (within the meaning of Code Section 409A and
Treasury Regulation § 1.409A-1(h)(3) (or any successor regulations or guidance
thereto)) thereof:
(a) that
does not result from any of the following:
(i) death;
(ii) disability
entitling Executive to benefits under the Company’s long-term disability
plan;
(iii) termination
on or after age 65;
(iv) involuntary
termination for Cause; or
(v) resignation
by Executive, unless such resignation is for Good Reason; and
(b) that
occurs:
(i) during
the three-month period ending immediately prior to the date a Change in Control
occurs, provided that a binding agreement to effect a Change in Control has been
executed as of Executive’s termination date (a “Pre-Change in Control Covered
Termination”); or
(ii) within
two years after the date upon which a Change in Control occurs.
“Good Reason” means any one or
more of the following events:
(a) a
failure to maintain Executive in the position, or a substantially equivalent
position, with the Company and/or an Affiliate, as the case may be, which
Executive held immediately prior to the Change in Control;
(b) a
significant adverse change in the authorities, powers, functions,
responsibilities or duties which Executive held immediately prior to the Change
in Control;
(c) a
reduction in Executive’s annual base salary as in effect immediately prior to
the date on which a Change in Control occurs;
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(d) a
significant reduction in Executive’s qualified retirement benefits, nonqualified
benefits and welfare benefits provided to Executive immediately prior to the
date on which a Change in Control occurs; provided, however, that a
contemporaneous diminution of or reduction in qualified retirement benefits
and/or welfare benefits which is of general application and which uniformly and
contemporaneously reduces or diminishes the benefits of all covered employees
shall be ignored and not be considered a reduction in remuneration for purposes
of this paragraph (d);
(e) a
reduction in Executive’s overall compensation opportunities (as contrasted with
overall compensation actually paid or awarded) under the STI Plan, a long-term
incentive plan or other equity plan (or in such substitute or alternative plans)
from that provided to Executive immediately prior to the date on which a Change
in Control occurs;
(f) a
change in the location of Executive’s principal place of employment with the
Company by more than 50 miles from the location where Executive was principally
employed immediately prior to the date on which a Change in Control occurs;
or
(g) a
failure by the Company to provide directors and officers liability insurance
covering Executive comparable to that provided to Executive immediately prior to
the date on which a Change in Control occurs;
provided, however, that no
later than 15 days after learning of the action (or inaction) described herein
as the basis for a termination of employment for Good Reason, Executive shall
advise the Company in writing that the action (or inaction) constitutes grounds
for a termination of his employment for Good Reason, in which event the Company
shall have 30 days to correct such action (or inaction) and if such action (or
inaction) is timely corrected, then Executive shall not be entitled to terminate
his employment for Good Reason as a result of such action (or
inaction).
“Retirement Plan” means the
CenterPoint Energy, Inc. Retirement Plan, as amended and restated effective
January 1, 1999, and as thereafter amended.
“STI Plan” means the
CenterPoint Energy, Inc. Short Term Incentive Plan or any successor plan or
program thereto.
“Target Bonus” means
Executive’s target incentive award opportunity under the STI Plan in effect for
the year with respect to which the target bonus amount is being determined or,
if no such plan is then in effect, for the last year in which such a plan was in
effect, expressed as a dollar amount based upon Executive’s annual base salary
for the year of such determination.
“Waiver and Release” means a
legal document, substantially in the form attached hereto as Attachment A, in which
Executive, in exchange for severance benefits described in Section 2, among
other things, releases the Company, the Affiliates, their directors, officers,
employees and agents, their employee benefit plans and the fiduciaries and
agents of
-5-
said
plans from liability and damages in any way related to Executive’s employment
with or separation from the Company or any of its Affiliates.
“Welfare Benefit Coverage”
means each of medical, dental and vision benefit coverage.
2. Severance
Benefits: If Executive experiences a Covered Termination,
then, subject to the Waiver and Release requirement in Section 2(h) below,
Executive shall be entitled to receive, as additional compensation for services
rendered to the Company (including its Affiliates), the following severance
benefits:
(a) Severance
Amount: A lump sum cash payment in an amount equal to
Executive’s Compensation multiplied by three, subject to applicable withholding
for income and employment taxes. Such severance payment shall be paid
on the second business day immediately following the end of the six-month period
commencing on the date of Executive’s Covered Termination, along with simple
interest on the severance amount at the short-term applicable Federal rate
provided for in Code Section 7872(f)(2)(A), based on the period commencing on
Executive’s Covered Termination date and ending on the payment
date.
(b) Vacation
Payment: A lump sum cash payment in an amount equal to his
earned, but not taken, vacation days through the date of Executive’s Covered
Termination, subject to applicable withholding for income and employment
taxes. Such vacation payment shall be paid as soon as practicable
following his Covered Termination date in accordance with the Company’s normal
payroll policies and practices.
(c) Pro-Rated
Bonus: A lump sum cash payment in an amount equal to the
Target Bonus in effect at the time of Executive’s Covered Termination based on
Executive’s eligible earnings under the STI Plan as of the date of his Covered
Termination, but reduced by any amount payable under the terms of the STI Plan
for the performance year in which the Change in Control is consummated, subject
to applicable withholding for income and employment taxes. Such
pro-rated bonus shall be paid on the second business day immediately following
the end of the six-month period commencing on the date of Executive’s Covered
Termination, along with simple interest on the bonus amount at the short-term
applicable Federal rate provided for in Code Section 7872(f)(2)(A), based on the
period commencing on Executive’s Covered Termination date and ending on the
payment date.
(d) Welfare Benefit
Coverage: Subject to Executive’s payment of applicable
premiums on the same basis as similarly situated active executives of the
Company, continued Welfare Benefit Coverage for Executive and his eligible
dependents for a period of two years following (i) the date of Executive’s
Covered Termination or (ii) in the case of a Pre-Change in Control Covered
Termination, the date of the Change in Control.
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(e) Outplacement: Outplacement
services for a 9-month period after (i) the date of Executive’s Covered
Termination or (ii) in the case of a Pre-Change in Control Covered Termination,
the date of the Change in Control, in connection with Executive’s efforts to
obtain new employment under the outplacement program adopted by the
Company. Executive shall not be entitled to a cash payment in lieu of
such services.
(f) Enhanced
Retirement Plan Benefit: Executive shall be entitled to an
amount not less than the amount that Executive would have been entitled to
receive under the cash balance formula of the Retirement Plan as if Executive
(i) was fully vested in his Retirement Plan benefit and (ii) remained an
employee of the Company or its Affiliates throughout the three-year period
following (A) the date of Executive’s Covered Termination or (B) in the case of
a Pre-Change in Control Covered Termination, the date of the Change in Control
based on his Compensation, with such enhanced benefit paid under the Company’s
Benefit Restoration Plan in accordance with its terms and
conditions.
(g) All Other Benefit
Plans or Programs: Executive’s participation in all other
employee benefit plans and/or programs at the Company and the Affiliates shall
cease as of Executive’s Covered Termination date, subject to the terms and
conditions of the governing documents of those employee benefit plans and/or
programs.
(h) Waiver and
Release Requirement: The foregoing notwithstanding, payment of
the benefits under this Section 2 is subject to Executive’s timely execution and
return of the Waiver and Release to the Company, without subsequent revocation
during the seven-day period following such execution date (the “Waiver and
Release Revocation Period”), as provided in this Section
2(h). Executive shall have 50 days following (i) his Covered
Termination date, or (ii) in the case of a Pre-Change in Control Covered
Termination, the date of the Change in Control, to consider, execute and return
the Waiver and Release to the Company and shall then have the right to revoke
the Waiver and Release during the Waiver and Release Revocation
Period. If Executive fails to timely execute and return the Waiver
and Release to the Company or revokes such Waiver and Release during the Waiver
and Release Revocation Period, then Executive shall forfeit, and shall not be
entitled to, any of the benefits described in this Section 2.
3. Certain
Additional Payments: Anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution in the nature of
compensation (within the meaning of Section 280G(b)(2) of the Code) to or for
the benefit of Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 3 (the “Payment”), would be subject to the excise tax imposed by
Section 4999 of the Code, together with any interest or penalties imposed
with respect to such excise tax (“Excise Tax”), then Executive shall be entitled
to receive an additional payment (a “Gross-Up Payment”) in an amount such
that, after payment
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(whether
through withholding at the source or otherwise) by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto), employment taxes and Excise Tax imposed upon the
Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payment. Notwithstanding the
foregoing provision of this Section 3, if the Company determines that by
reducing the Payment by an amount not to exceed 10% of the Payment (“Reduced
Amount”) the receipt of the Payment will not give rise to any Excise Tax, and
thus no Gross-Up Payment would be required to be made to Executive, then,
provided the total of the amounts due to Executive under this Agreement equal or
exceed the Reduced Amount, the amount of the Payment shall be reduced, to the
extent provided herein, by the minimum Reduced Amount necessary to avoid any
Excise Tax (and no Gross-Up Payment shall be required under this Section 3 or
the Agreement). Any such reduction shall be made first from the
amount payable under Section 2(a) and second, to the extent necessary, from
the amount payable under Section 2(c).
Subject
to the provisions of this Section 3, all determinations required to be made
under this Section 3, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by a nationally
recognized certified public accounting firm that is selected by the Company (the
“Accounting Firm”) which shall provide detailed supporting calculations both to
the Company and Executive within 15 business days after the receipt of notice
from Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control or the Accounting Firm declines or is unable to serve,
Executive shall appoint another nationally recognized certified public
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
Section 3, shall be paid by the Company to Executive within 15 days after
the receipt of the Accounting Firm’s determination. If the Accounting
Firm determines that no Excise Tax is payable by Executive, it shall furnish
Executive with a written opinion that failure to report the Excise Tax on
Executive’s applicable federal income tax return would not result in the
imposition of negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (“Underpayment”), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts
its remedies pursuant to the following provisions of this Section 3 and
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Executive.
Executive
shall notify the Company in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as practicable but
no later than 10 business days after Executive is informed in writing of such
claim and shall apprise the Company of the
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nature of
such claim and the date on which such claim is requested to be
paid. Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies Executive
in writing prior to the expiration of such period that it desires to contest
such claim, Executive shall:
(a) give
the Company any information reasonably requested by the Company relating to such
claim;
(b) take
such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company;
(c) cooperate
with the Company in good faith in order to effectively contest such claim;
and
(d) permit
the Company to participate in any proceedings relating to such
claim;
provided, however, that the
Company shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for any Excise
Tax, employment tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limitation of the foregoing provisions of this
Section 3, the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided,
however, that if the Company directs Executive to pay such claim and sue
for a refund, the Company shall provide the amount of such payment to Executive
as an additional payment (“Supplemental Payment”) (subject to possible repayment
as provided in the next paragraph) and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax, employment tax or income
tax (including interest or penalties with respect thereto) imposed with respect
to such payment or with respect to any imputed income with respect thereto; and
further provided that any extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of the contest shall be
limited to issues with respect to which a Gross-Up Payment or Supplemental
Payment would be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
If, after
the receipt by Executive of an amount provided by the Company pursuant to the
foregoing provisions of this Section 3, Executive becomes entitled to
receive any refund
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with
respect to such claim, Executive shall (subject to the Company complying with
the requirements of this Section 3) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after taxes
applicable thereto).
If the
Company is obligated to provide Executive with one or more Welfare Benefit
Coverages pursuant to Section 2(d), and the amount of such benefits or the
value of such benefit coverage (including, without limitation, any insurance
premiums paid by the Company to provide such benefits) is subject to any income,
employment or similar tax imposed by federal, state or local law, or any
interest or penalties with respect to such tax (such tax or taxes, together with
any such interest and penalties, being hereafter collectively referred to as the
“Income Tax”) because such benefits cannot be provided under a nondiscriminatory
health plan described in Section 105 of the Code or for any other reason,
the Company will pay to Executive an additional payment or payments
(collectively, an “Income Tax Payment”). The Income Tax Payment will
be in an amount such that, after payment by Executive of all taxes (including
any interest or penalties imposed with respect to such taxes), Executive retains
an amount of the Income Tax Payment equal to the Income Tax imposed with respect
to such welfare benefits or such welfare benefit coverage.
Notwithstanding
anything in this Section 3 to the contrary, in accordance with Treasury
Regulation § 1.409A-3(i)(1)(v), in no event shall the Company pay Executive (or
pay on Executive’s behalf) any amount to which Executive is entitled under this
Section later than the end of Executive’s taxable year next following
Executive’s taxable year in which Executive remits the Excise Tax or tax (as
applicable) to the Internal Revenue Service (or in the case of costs and
expenses payable under this Section, no later than the end of Executive’s
taxable year next following Executive’s taxable year in which the taxes that are
the subject of the audit or litigation are remitted to the Internal Revenue
Service, or where as a result of such audit or litigation no taxes are remitted,
the end of Executive’s taxable year next following Executive’s taxable year in
which the audit is completed or there is a final and nonappealable settlement or
other resolution of the litigation).
4. Legal
Fees And Expenses: It is the intent
of the Company that Executive not be required to incur legal fees and the
related expenses associated with the interpretation, enforcement or defense of
Executive’s rights under this Agreement by litigation or otherwise because the
cost and expense thereof would detract from the benefits intended to be extended
to Executive hereunder. Accordingly, if it should appear to Executive
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, Executive the benefits provided or intended to be provided to
Executive hereunder, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive’s choice, at the expense of the Company as
hereafter provided, to advise and represent Executive in connection with any
such interpretation, enforcement or defense, including, without limitation, the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Company and such
counsel, the Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection the
Company and
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Executive
agree that a confidential relationship will exist between Executive and such
counsel. Without regard to whether Executive prevails, in whole or in
part, in connection with any of the foregoing, the Company will pay and be
solely financially responsible for any and all attorneys’ fees and related
expenses incurred by Executive in connection with any of the foregoing except to
the extent that a final judgment no longer subject to appeal finds that a claim
or defense asserted by Executive was frivolous. In such a case, the
portion of such fees and expenses incurred by Executive as a result of such
frivolous claim or defense shall become Executive’s sole responsibility and any
funds advanced by the Company shall be repaid to the Company.
With
respect to the Company’s obligations under this Section 4, the fees and expenses
of counsel selected by Executive pursuant to this Section 4 will be paid,
or reimbursed to Executive if paid by Executive, on a regular, periodic basis
upon presentation by Executive to the Company of a statement or statements
prepared by such counsel in accordance with its customary practices, with such
payment to be made no later than March 15th of the year following the year in
which the expenses are incurred. The pendency of a claim by the
Company that a claim or defense of Executive is frivolous or otherwise lacking
merit shall not excuse the Company from making periodic payments of legal fees
and expenses until a final judgment is rendered as hereinabove
provided. Any failure by the Company to satisfy any of its
obligations under this Section 4 will not limit the rights of Executive
hereunder. Subject to the foregoing, Executive will have the status
of a general unsecured creditor of the Company and will have no right to, or
security interest in, any assets of the Company or any Affiliate.
5. Confidentiality: Executive
acknowledges that pursuant to this Agreement, the Company agrees to provide to
him Confidential Information regarding the Company and the Company’s business
and has previously provided him other such Confidential
Information. In return for this and other consideration, provided
under this Agreement, Executive agrees that he will not, while employed by the
Company and thereafter, disclose or make available to any other person or
entity, or use for his own personal gain, any Confidential Information, except
for such disclosures as required in the performance of his duties hereunder as
may otherwise be required by law or legal process (in which case Executive shall
notify the Company of such legal or judicial proceeding as soon as practicable
following his receipt of notice of such a proceeding, and permit the Company to
seek to protect its interests and information). For purposes of this
Agreement, “Confidential Information” shall mean any and all information, data
and knowledge that has been created, discovered, developed or otherwise become
known to the Company or any of its Affiliates or ventures or in which property
rights have been assigned or otherwise conveyed to the Company or any of its
Affiliates or ventures, which information, data or knowledge has commercial
value in the business in which the Company is engaged, except such information,
data or knowledge as is or becomes known to the public without violation of the
terms of this Agreement. By way of illustration, but not limitation,
Confidential Information includes business trade secrets, secrets concerning the
Company’s plans and strategies, nonpublic information concerning material market
opportunities, technical trade secrets, processes, formulas, know-how,
improvements, discoveries, developments, designs, inventions, techniques,
marketing plans, manuals, records of research, reports, memoranda, computer
software, strategies, forecasts, new products, unpublished financial
information, projections, licenses, prices, costs, and employee, customer and
supplier lists or parts thereof.
-11-
6. Return
Of Property: Executive agrees
that at the time of leaving the Company’s employ, he will deliver to the Company
(and will not keep in his possession, recreate or deliver to anyone else) all
Confidential Information as well as all other devices, records, data, notes,
reports, proposals, lists, correspondence, specifications, drawings, blueprints,
sketches, materials, equipment, customer or client lists or information, or any
other documents or property (including all reproductions of the aforementioned
items) belonging to the Company or any of its Affiliates or ventures, regardless
of whether such items were prepared by Executive.
7. Non-Solicitation
And Non-Competition:
(a) For
consideration provided under this Agreement, including, but not limited to the
Company’s agreement to provide Executive with Confidential Information (as
defined in Section 5) regarding the Company and the Company’s business,
Executive agrees that while employed by the Company and for one year following a
Covered Termination he shall not, without the prior written consent of the
Company, directly or indirectly, (i) hire or induce, entice or solicit (or
attempt to induce, entice or solicit) any employee of the Company or any of its
Affiliates or ventures to leave the employment of the Company or any of its
Affiliates or ventures or (ii) solicit or attempt to solicit the business of any
customer or acquisition prospect of the Company or any of its Affiliates or
ventures with whom Executive had any actual contact while employed at the
Company.
(b) Additionally,
for consideration provided under this Agreement, including, but not limited to
the Company’s agreement to provide Executive with Confidential Information
regarding the Company and the Company’s business, Executive agrees that while
employed by the Company and for one year following a Covered Termination he will
not, without the prior written consent of the Company, acting alone or in
conjunction with others, either directly or indirectly, engage in any business
that is in competition with the Company or accept employment with or render
services to such a business as an officer, agent, employee, independent
contractor or consultant, or otherwise engage in activities that are in
competition with the Company.
(c) The
restrictions contained in this Section 7 are limited to a 50-mile radius around
any geographical area in which the Company engages (or has definite plans to
engage) in operations or the marketing of its products or services at the time
of a Covered Termination.
(d) Executive
acknowledges that these restrictive covenants under this Agreement, for which
Executive received valuable consideration from the Company as provided in this
Agreement, including, but not limited to the Company’s agreement to provide
Executive with Confidential Information regarding the Company and the Company’s
business are ancillary to otherwise enforceable provisions of this Agreement
that the consideration provided by the Company gives rise to the Company’s
interest in restraining Executive from competing and that the restrictive
covenants are designed to enforce Executive’s consideration or return promises
under this Agreement. Additionally, Executive
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acknowledges
that these restrictive covenants contain limitations as to time, geographical
area, and scope of activity to be restrained that are reasonable and do not
impose a greater restraint than is necessary to protect the goodwill or other
legitimate business interests of the Company, including, but not limited to, the
Company’s need to protect its Confidential Information.
8. Conflicts
With Other Agreements: In the event that
Executive becomes entitled to benefits under a prior or subsequent agreement
pertaining to Executive’s employment by the Company or any Affiliate thereof
(other than this Agreement) or the benefits to which Executive is entitled as a
result of such employment and such benefits conflict with the terms of this
Agreement, Executive will receive the greater and more favorable of each of the
benefits provided under either this Agreement or such other agreement or
benefits, on an individual benefit basis, provided, however, that any
such other conflicting payment is payable under its terms in the same calendar
year and in the same form as the corresponding benefit payable under this
Agreement.
9. Notices: For purposes of
this Agreement, notices and all other communications provided for herein shall
be in writing and shall be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to
Company: CenterPoint Energy,
Inc.
1111
Louisiana
Houston, Texas 77002
Attention: President and Chief Executive Officer
If to Executive: [NAME]
[ADDRESS]
[CITY, STATE, ZIP]
or to
such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
10. Litigation
Assistance: Executive agrees
to assist the Company with any litigation matters related to the Company or any
of its subsidiaries or affiliates as may be reasonably requested by the
Company’s General Counsel following the date of Executive’s Covered
Termination. The Company shall reimburse Executive for any reasonable
travel or other business expenses incurred in connection with providing such
assistance and cooperation. Executive shall provide such services as
an independent contractor and such services shall be limited solely to those
matters with which Executive is suitably experienced and knowledgeable by reason
of Executive’s education, training, background and prior employment with the
Company. The Company and Executive agree to work out reasonable
accommodations for the provision of such assistance so that it does not
unreasonably interfere with any of Executive’s personal affairs, business
endeavors or future employment. The foregoing notwithstanding, the
Company and Executive agree that the services provided by Executive under this
Section, if any, shall not exceed twenty percent (20%) of the average level of
bona fide services performed by Executive (whether as an employee or an
independent contractor of the Company) over the 36-
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month
period (or the full period of services to the Company if Executive has been
providing services to the Company for less than 36 months) immediately preceding
his Covered Termination date.
11. Prior
Agreements/Modification: This Agreement
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings, whether
written or oral, between the parties with respect thereto. This
Agreement may be amended only by an agreement in writing signed by the parties
hereto; provided,
however, that Executive’s compensation may be increased at any time by
the Company without in any way affecting any of the other terms and conditions
of this Agreement which in all other respects shall remain in full force and
effect. The provisions of this Agreement will be binding upon, and
will inure to the benefit of, the respective heirs, legal representatives and
successors of the parties hereto. Executive represents to the Company
that he is not a party to any agreement or subject to any legal restriction that
would prevent him from fulfilling his duties hereunder.
12. Section 409A: It is the
intent of the parties that the provisions of this Agreement comply with Code
Section 409A and the Treasury regulations and guidance issued
thereunder. Accordingly, the parties intend that this Agreement be
interpreted and operated consistent with such requirements of Code Section 409A
in order to avoid the application of penalty taxes under Code Section 409A to
the extent reasonably practicable. The Company shall neither cause
nor permit: (a) any payment, benefit or consideration to be
substituted for a benefit that is payable under this Agreement if such action
would result in the failure of any amount that is subject to Code Section 409A
to comply with the applicable requirements of Code Section 409A; or (b) any
adjustments to any equity interest to be made in a manner that would result in
the equity interest becoming subject to Code Section 409A unless, after such
adjustment, the equity interest is in compliance with the requirements of Code
Section 409A to the extent applicable.
Notwithstanding
any provision of this Agreement to the contrary, if Executive is a “Specified
Employee” (as that term is defined in Code Section 409A) as of Executive’s
Covered Termination date, then any amounts or benefits which are payable under
this Agreement upon Executive’s “Separation from Service” (within the
meaning of Code Section 409A), other than due to death, which are subject to the
provisions of Code Section 409A and not otherwise excluded under Code Section
409A, and would otherwise be payable during the first six-month period following
such Separation from Service, shall be paid on the second business day that (a)
is at least six months after the date after Executive’s Covered Termination date
or (b) follows Executive’s date of death, if earlier. The benefits in
Sections 2(a) and (c) and the welfare benefits in Section 2(d) provided after
the COBRA period are subject to Section 409A; the vacation pay in Sections 2(b),
the outplacement in Section 2(e) and the welfare benefits in Section 2(d)
provided during the COBRA period under Section 2(d) are excluded from Section
409A; and the benefits in Sections 2(f) and 2(g) are subject to Section 409A as
provided under the applicable plans and programs.
All
reimbursements and in-kind benefits provided pursuant to this Agreement shall be
made in accordance with Treasury Regulation § 1.409A-3(i)(1)(iv) such that any
reimbursements or in-kind benefits will be deemed payable at a specified time or
on a fixed
-14-
schedule
relative to a permissible payment event. Specifically, (i) the
amounts reimbursed and in-kind benefits provided under this Agreement, other
than total reimbursements that are limited by a lifetime maximum under a group
health plan, during Executive’s taxable year may not affect the amounts
reimbursed or in-kind benefits provided in any other taxable year, (ii) the
reimbursement of an eligible expense shall be made on or before the last day of
Executive’s taxable year following the taxable year in which the expense was
incurred, and (iii) the right to reimbursement or an in-kind benefit is not
subject to liquidation or exchange for another benefit.
13. Applicable
Law: The validity,
interpretation, construction and performance of this Agreement will be governed
by and construed in accordance with the substantive laws of the State of Texas,
including the Texas statute of limitations, but without giving effect to the
principles of conflict of laws of such State.
14. Severability: If a court of competent
jurisdiction determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that provision shall
not affect the validity or enforceability of any other provision of this
Agreement and all other provisions shall remain in full force and
effect.
15. Withholding
of Taxes: The Company may
withhold from any benefits payable under this Agreement all federal, state, city
or other taxes as may be required pursuant to any law or governmental regulation
or ruling.
16. No
Employment Agreement: Nothing in this
Agreement shall give Executive any rights to (or impose any obligations for)
continued employment by the Company or any Affiliate thereof or successor
thereto, nor shall it give the Company any rights (or impose any obligations)
with respect to continued performance of duties by Executive for the Company or
any Affiliate thereof or successor thereto.
17. No
Assignment; Successors: Executive’s right
to receive payments or benefits hereunder shall not be assignable or
transferable, whether by pledge, creation or a security interest or otherwise,
whether voluntary, involuntary, by operation of law or otherwise, other than a
transfer by will or by the laws of descent or distribution, and in the event of
any attempted assignment or transfer contrary to this Section 17, the
Company shall have no liability to pay any amount so attempted to be assigned or
transferred. This Agreement shall inure to the benefit of and be
enforceable by Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
This
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns (including, without limitation, any company into or with
which the Company may merge or consolidate). The Company agrees that
it will not effect the sale or other disposition of all or substantially all of
its assets unless either (a) the person or entity acquiring such assets or
a substantial portion thereof shall expressly assume by an instrument in writing
all duties and obligations of the Company hereunder or (b) the Company
shall provide, through the establishment of a separate reserve therefor, for the
payment in full of all amounts which are or may reasonably be expected to become
payable to Executive hereunder.
-15-
18. Payment
Obligations Absolute: Except for the
requirement of Executive to execute and return to the Company a Waiver and
Release in accordance with Section 2, the Company’s obligation to pay (or
cause one of its Affiliates to pay) Executive the amounts and to make the
arrangements provided herein shall be absolute and unconditional and shall not
be affected by any circumstances, including, without limitation, any set-off,
counter-claim, recoupment, defense or other right which the Company (including
its Affiliates) may have against him or anyone else. All amounts
payable by the Company (including its Affiliates hereunder) shall be paid
without notice or demand. Executive shall not be obligated to seek
other employment in mitigation of the amounts payable or arrangements made under
any provision of this Agreement, and, subject to the restrictions in Section 7,
the obtaining of any other employment shall in no event affect any reduction of
the Company’s obligations to make (or cause to be made) the payments and
arrangements required to be made under this Agreement.
The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used
in this Agreement, “Company” shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or
otherwise. If a Business Combination is consummated that would have
resulted in a Change in Control but for the satisfaction of the conditions
specified in clauses (i), (ii), (iii) and (iv) of subsection (c) of the
definition of “Change in Control” in Section 1 and if the Parent Corporation
resulting from the Business Combination is other than the Company (hereinafter a
“New Parent”), then, as a condition to consummation of this Business
Combination, the New Parent shall be considered a successor for purposes of this
paragraph.
19. Number and
Gender: Wherever
appropriate herein, words used in the singular shall include the plural and the
plural shall include the singular. The masculine gender where
appearing herein shall be deemed to include the feminine gender.
20. Term: The effective
date of the Agreement is January 1, 2009 (“Effective Date”). The term
of this Agreement shall commence on the Effective Date and shall end on December
31, 2009; provided,
however, that on each January 1st thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, prior to any
such January 1st, the Board decides (as evidenced by its resolutions) not to
extend the term of this Agreement, in which event the term shall, without
further action, expire, and this Agreement shall terminate, on the December 31st
of the year in which the Board makes such decision. The foregoing to
the contrary notwithstanding, (a) if, prior to a Change in Control, Executive
ceases for any reason other than due to a Covered Termination to be an employee
of the Company, then the term shall, without further action, expire, and this
Agreement shall terminate, as of such termination date; and (b) upon the Company
entering into a binding agreement to effect a Change in Control, if the
Agreement has not expired prior to such date, the term of this Agreement shall
automatically be extended until the end of the two-year period commencing as of
the date of the Change in Control; provided, however, that, the
foregoing clause (b) notwithstanding, if the board of directors of the parties
to such binding agreement agree, as evidenced by the board’s resolutions, not to
consummate the Change in Control, the term of this
-16-
Agreement
shall be determined as otherwise provided in this Section 20 without regard to
clause (b).
IN WITNESS WHEREOF, the
parties have caused this Agreement to be executed effective as of the Effective
Date.
|
CENTERPOINT
ENERGY, INC.
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||
|
By:
|
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David
M. McClanahan
|
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|
President
and Chief Operating Officer
|
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|
Date:
|
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EXECUTIVE
|
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[NAME]
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|
Date:
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-17-
Attachment
A
Waiver
And Release
In
exchange for the payment to me of the Severance Benefits described in
Section 2 of the Change in Control Agreement between CenterPoint Energy,
Inc., and me effective as of January 1, 2009 (the “Agreement”), which I
understand is incorporated herein by reference, and of other remuneration and
consideration provided for in the Agreement (the “Severance Benefits”), which is
in addition to any remuneration or benefits to which I am already entitled, I
agree to waive all of my claims against and release (i) CenterPoint Energy,
Inc. and its predecessors, successors and assigns (collectively referred to as
the ”Company”), (ii) all of the affiliates (including, but not limited
to, CenterPoint Energy Services Company, CenterPoint Energy Southern Gas
Operations, CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Texas
Gas Operations, CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy
Arkansas Gas, CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy
Oklahoma Gas, CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy
Minnesota Gas, CenterPoint Energy Houston Gas, CenterPoint Energy Pipeline
Services, Inc., CenterPoint Energy Services, Inc., CenterPoint Energy Field
Services, Inc., CenterPoint Energy Gas Transmission Company, CenterPoint Energy
Mississippi River Transmission Corporation, and all wholly or partially owned
subsidiaries) of the Company and their predecessors, successors and assigns
(collectively referred to as the “Company Affiliates”) and (iii) the
Company’s and Company Affiliates’ directors and officers, employees and agents,
insurers, employee benefit plans and the fiduciaries and agents of the foregoing
(collectively, with the Company and Company Affiliates, referred to as
the “Corporate Group”) from any and all claims, demands, actions,
liabilities and damages arising out of or relating in any way to my employment
with or separation from the Company or the Company Affiliates. All
payments under the Agreement are voluntary and are not required by any legal
obligation other than the Agreement itself.
I
understand that signing this Waiver and Release is an important legal
act. I acknowledge that I have been advised in writing to consult an
attorney before signing this Waiver and Release. I understand that,
in order to be eligible for Severance Benefits under the Agreement, I must sign
and return (to Carol Helliker, Vice President, Corporate Compliance Officer and
Associate General Counsel, Legal Department, at CenterPoint Energy Tower, 46th
Floor, 1111 Louisiana, Houston, Texas 77002) this Waiver and Release within 50
days following the date of my termination of employment (or the date of the
Change in Control if my termination of employment date preceded such
date). I acknowledge that I have been given at least 45 days to
consider whether to execute this Waiver and Release.
In
exchange for the payment to me of Severance Benefits pursuant to the Agreement,
which is in addition to any remuneration or benefits to which I am already
entitled, (1) I agree not to sue in any local, state and/or federal court
or to file a grievance regarding or relating in any way to my employment with or
separation from the Company or the Company Affiliates, and (2) I knowingly
and voluntarily waive all claims and release the Corporate Group from any and
all claims, demands, actions, liabilities, and damages, whether known or
unknown, arising out of or relating in any way to my employment with or
separation from the Company or the Company Affiliates, except to the extent that
my rights are vested under the terms of employee benefit plans sponsored by the
Company or the Company Affiliates and except with
-1-
respect
to such rights or claims as may arise after the date this Waiver and Release is
executed. This Waiver and Release includes, but is not limited to,
claims and causes of action under: Title VII of the Civil Rights Act
of 1964, as amended (“Title VII”); the Age Discrimination in Employment Act
of 1967, as amended, including the Older Workers Benefit Protection Act of 1990
(“ADEA”); the Civil Rights Act of 1866, as amended; the Civil Rights Act of
1991; the Americans with Disabilities Act of 1990 (“ADA”); the Energy
Reorganization Act, as amended, 42 U.S.C. § 5851; the Workers Adjustment
and Retraining Notification Act of 1988; the Pregnancy Discrimination Act of
1978; the Employee Retirement Income Security Act of 1974, as amended; the
Family and Medical Leave Act of 1993; the Fair Labor Standards Act; the
Occupational Safety and Health Act; claims in connection with workers’
compensation or “whistle blower” statutes; and/or contract, tort, defamation,
slander, wrongful termination or any other state or federal regulatory,
statutory or common law. Further, I expressly represent that no
promise or agreement which is not expressed in the Agreement or this Waiver and
Release has been made to me in executing this Waiver and Release, and that I am
relying on my own judgment in executing this Waiver and Release, and that I am
not relying on any statement or representation of any member of the Corporate
Group or any of their agents. I agree that this Waiver
and Release is valid, fair, adequate and reasonable, is with my full knowledge
and consent, was not procured through fraud, duress or mistake and has not had
the effect of misleading, misinforming or failing to inform
me. I acknowledge and agree that the Company will withhold any
taxes required by federal or state law from the Severance Benefits otherwise
payable to me and that the Severance Benefits otherwise payable to me shall be
reduced by any monies owed by me to the Company (or a Company Affiliate),
including, but not limited to, any overpayments made to me by the Company (or a
Company Affiliate) and the balance of any loan by the Company (or a Company
Affiliate) to me that is outstanding at the time that the Severance Benefits are
paid.
I
acknowledge that payment of Severance Benefits pursuant to the Agreement is not
an admission by any member of the Corporate Group that they engaged in any
wrongful or unlawful act or that any member of the Corporate Group violated any
federal or state law or regulation. I understand that nothing in this
Waiver and Release is intended to prohibit, restrict or otherwise discourage any
individual from engaging in activity protected under 42 U.S.C. § 5851, 10
C.F.R. § 50.7 or the Sarbanes-Oxley Act of 2002, including, but not limited
to, providing information to the Nuclear Regulatory Commission (“NRC”) or to any
member of the Corporate Group regarding nuclear safety or quality concerns,
potential violations or other matters within the NRC’s
jurisdiction. I acknowledge that no member of the Corporate Group has
promised me continued employment or represented to me that I will be rehired in
the future. I acknowledge that my employer and I contemplate an
unequivocal, complete and final dissolution of my employment
relationship. I acknowledge that this Waiver and Release does not
create any right on my part to be rehired by any member of the Corporate Group
and I hereby waive any right to future employment by any member of the Corporate
Group.
I have
returned or I agree that I will return immediately, and maintain in strictest
confidence and will not use in any way, any confidential and proprietary
business information or other nonpublic information or documents relating to the
business and affairs of the Corporate Group. For the purposes of this
Waiver and Release, “confidential and proprietary business information” shall
mean any information concerning any member of the Corporate Group or their
business which I learn or develop during my employment and which is not
generally known
-2-
or
available outside of the Corporate Group. Such information, without
limitation, includes information, written or otherwise, regarding any member of
the Corporate Group’s earnings, expenses, material sources, equipment sources,
customers and prospective customers, business plans, strategies, practices and
procedures, prospective and executed contracts and other business
arrangements. I acknowledge and agree that all records, papers,
reports, computer programs, strategies, documents (including, without
limitation, memoranda, notes, files and correspondence), opinions, evaluations,
inventions, ideas, technical data, products, services, processes, procedures,
and interpretations that are or have been produced by me or any employee,
officer, director, agent, contractor, or representative of any member of the
Corporate Group, whether provided in written or printed form, or orally, all
comprise confidential and proprietary business information. I agree
that for a period of one year following my termination with the Corporate Group
that I will not: (a) solicit, encourage or take any action that
is intended, directly or indirectly, to induce any other employee of the
Corporate Group to terminate employment with the Corporate Group;
(b) interfere in any manner with the contractual or employment relationship
between the Corporate Group and any other employee of the Corporate Group; and
(c) use any confidential information to directly, or indirectly, solicit
any customer of the Corporate Group. I understand and agree that in
the event of any breach of the provisions of this paragraph, or threatened
breach, by me, any member of the Corporate Group may, in their discretion,
discontinue any or all payments provided for in the Agreement and recover any
and all payments already made and any member of the Corporate Group shall be
entitled to apply to a court of competent jurisdiction for such relief by way of
specific performance, restraining order, injunction or otherwise as may be
appropriate to ensure compliance with these provisions. Should I be
contacted or served with legal process seeking to compel me to disclose any such
information, I agree to notify the General Counsel of the Company immediately,
in order that the Corporate Group may seek to resist such process if they so
choose. If I am called upon to serve as a witness or consultant in or
with respect to any potential litigation, litigation, arbitration, or regulatory
proceeding, I agree to cooperate with the Corporate Group to the full extent
permitted by law, and the Corporate Group agrees that any such call shall be
with reasonable notice, shall not unnecessarily interfere with my later
employment, and shall provide for payment for my time and costs expended in such
matters.
Should
any of the provisions set forth in this Waiver and Release be determined to be
invalid by a court, agency or other tribunal of competent jurisdiction, it is
agreed that such determination shall not affect the enforceability of other
provisions of this Waiver and Release. I acknowledge that this Waiver
and Release and the Agreement set forth the entire understanding and agreement
between me and the Company or any other member of the Corporate Group concerning
the subject matter of this Waiver and Release and supersede any prior or
contemporaneous oral and/or written agreements or representations, if any,
between me and the Company or any other member of the Corporate
Group. I understand that for a period of 7 calendar days following
the date I sign this Waiver and Release (which date must be within 50 days
following the date of my termination of employment or the date of the Change in
Control if my termination of employment date preceded such date), I may revoke
my acceptance of the offer by delivering a written statement to the Vice
President, Corporate Compliance Officer and Associate General Counsel (or the
person designated by the Vice President, Corporate Compliance Officer and
Associate General Counsel) by hand or by registered-mail, in which case the
Waiver and Release will not become effective. In the event I revoke
my acceptance of this offer, I shall not be entitled to any Severance Benefits
under the Agreement. I understand
-3-
that
failure to revoke my acceptance of the offer within 7 calendar days following
the date I sign this Waiver and Release will result in this Waiver and Release
being permanent and irrevocable.
I
acknowledge that I have read this Waiver and Release, have had an opportunity to
ask questions and have it explained to me and that I understand that this Waiver
and Release will have the effect of knowingly and voluntarily waiving any action
I might pursue, including breach of contract, personal injury, retaliation,
discrimination on the basis of race, age, sex, national origin, religion,
veterans status, or disability and any other claims arising prior to the date of
this Waiver and Release. By execution of this document, I do not
waive or release or otherwise relinquish any legal rights I may have which are
attributable to or arise out of acts, omissions, or events of any member of the
Corporate Group which occur after the date of the execution of this Waiver and
Release.
|
Executive’s
Printed Name
|
Corporate
Group’s Representative
|
|
|
Executive’s
Signature
|
Corporate
Group’s Execution Date
|
|
|
Executive’s
Signature Date
|
||
|
Executive’s
Social Security Number
|
||
-4-
Exhibit
10(nn)
CHANGE
IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL
AGREEMENT (“Agreement”) is effective as of January 1, 2009, by and
between CENTERPOINT ENERGY, INC., a Texas corporation (the
“Company”), and [NAME]
(“Executive”).
1. Definitions:
All terms
defined in this Section 1 shall, throughout this Agreement, have the meanings
given herein:
“Affiliate” means any company
controlled by, controlling or under common control with the Company within the
meaning of Section 414 of the Code.
“Board” means the board of
directors of the Company.
“Cause” means Executive’s (a)
gross negligence in the performance of Executive’s duties, (b) intentional and
continued failure to perform Executive’s duties, (c) intentional engagement in
conduct which is materially injurious to the Company or its Affiliates
(monetarily or otherwise) or (d) conviction of a felony or a misdemeanor
involving moral turpitude. For this purpose, an act or failure to act
on the part of Executive will be deemed “intentional” only if done or omitted to
be done by Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company, and no act or
failure to act on the part of Executive will be deemed “intentional” if it was
due primarily to an error in judgment or negligence.
A “Change in Control” shall be
deemed to have occurred upon the occurrence of any of the following
events:
(a) 30% Ownership
Change: Any Person makes an acquisition of Beneficial
Ownership of Outstanding Voting Stock (including any acquisition of Beneficial
Ownership deemed to have occurred pursuant to Rule 13d-5 under the Exchange Act)
and is, immediately thereafter, the Beneficial Owner of 30% or more of the then
Outstanding Voting Stock, unless such acquisition is made by a Parent
Corporation resulting from a Business Combination (other than the Company) if,
following such Business Combination, the conditions specified in clauses (i),
(ii), (iii) and (iv) of subsection (c) of this definition are satisfied; or any
Group is formed that is the Beneficial Owner of 30% or more of the Outstanding
Voting Stock; or
(b) Board Majority
Change: Individuals who are Incumbent Directors cease for any
reason to constitute a majority of the members of the Board; or
(c) Major Mergers and
Acquisitions: Approval by the shareholders of the Company of a
Business Combination (or if there is no such approval by shareholders,
consummation of such Business Combination) unless, immediately following such
Business Combination, (i) all or substantially all of the individuals and
entities that were the Beneficial Owners of the Outstanding Voting Stock
immediately prior to such Business Combination will (or do) beneficially own,
directly or indirectly, more than 70% of the then outstanding shares of voting
stock of the Parent Corporation resulting from such Business Combination in
substantially the same relative proportions as their ownership, immediately
prior to such Business Combination, of the Outstanding Voting Stock,
(ii) if the Business Combination involves the issuance or payment by the
Company of consideration to another entity or its shareholders, the total fair
market value of such consideration plus the principal amount of the consolidated
long-term debt of the entity or business being acquired (in each case,
determined as of the date of consummation of such Business Combination by a
majority of the Incumbent Directors) will not (or does not) exceed 50% of the
sum of the fair market value of the Outstanding Voting Stock plus the principal
amount of the Company’s consolidated long-term debt (in each case, determined
immediately prior to such consummation by a majority of the Incumbent
Directors), (iii) no Person (other than any Parent Corporation resulting
from a Business Combination) will (or does) beneficially own, directly or
indirectly, 30% or more of the then outstanding shares of voting stock of the
Parent Corporation resulting from such Business Combination and (iv) a
majority of the members of the board of directors of the Parent Corporation
resulting from such Business Combination were Incumbent Directors immediately
prior to consummation of such Business Combination; or
(d) Major Asset
Dispositions: Approval by the shareholders of the Company of a
Major Asset Disposition (or if there is no such approval by shareholders
consummation of such Major Asset Disposition) unless, immediately following such
Major Asset Disposition, (i) individuals and entities that were Beneficial
Owners of the Outstanding Voting Stock immediately prior to such Major Asset
Disposition will (or do) beneficially own, directly or indirectly, more than 70%
of the then outstanding shares of voting stock of the Company (if it continues
to exist) and of the entity that acquires the largest portion of such assets (or
the entity, if any, that owns a majority of the outstanding voting stock of such
acquiring entity) and (ii) a majority of the members of the board of
directors of the Company (if it continues to exist) and of the entity that
acquires the largest portion of such assets (or the entity, if any, that owns a
majority of the outstanding voting stock of such acquiring entity) were
Incumbent Directors immediately prior to consummation of such Major Asset
Disposition.
For
purposes of the foregoing, the term:
(1) “Beneficial
Owner,” “Beneficial Ownership” and “Beneficially Own” are used as defined for
purposes of Section 13(d)(3) under the Exchange Act.
-2-
(2) “Business
Combination” means (x) a merger or consolidation involving the Company or
its stock or (y) an acquisition by the Company, directly or through one or
more subsidiaries, of another entity or its stock or assets.
(3) “Election
Contest” is used as it is defined for purposes of Rule 14a-11 under the
Exchange Act.
(4) “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
(5) “Group”
is used as it is defined for purposes of Section 13(d)(3) of the Exchange
Act.
(6) “Incumbent
Director” means a director of the Company (x) who was a director of the
Company on the date of this Agreement, or (y) who becomes a director
subsequent to such date and whose election, or nomination for election by the
Company’s shareholders, was approved by a vote of a majority of the Incumbent
Directors at the time of such election or nomination, except that any such
director shall not be deemed an Incumbent Director if his initial assumption of
office occurs as a result of an actual or threatened Election Contest or other
actual or threatened solicitation of proxies by or on behalf of a Person other
than the Board.
(7) “Major
Asset Disposition” means the sale or other disposition in one transaction or a
series of related transactions of 70% or more of the assets of the Company and
its subsidiaries on a consolidated basis; and any specified percentage or
portion of the assets of the Company shall be based on fair market value, as
determined by a majority of the Incumbent Directors.
(8) “Outstanding
Voting Stock” means outstanding voting securities of the Company entitled to
vote generally in the election of directors; and any specified percentage or
portion of the Outstanding Voting Stock (or of other voting stock) shall be
determined based on the combined voting power of such securities.
(9) “Parent
Corporation resulting from a Business Combination” means the Company if its
stock is not acquired or converted in the Business Combination and otherwise
means the entity which as a result of such Business Combination owns the Company
or all or substantially all of the Company’s assets either directly or through
one or more subsidiaries.
(10) “Person”
means an individual, entity or Group.
“Code” means the Internal
Revenue Code of 1986, as amended.
“Company” means CenterPoint
Energy, Inc., a Texas corporation, and any successor thereto.
-3-
“Compensation” means the
greater of (a) the sum of Executive’s annual base salary plus Target Bonus
determined immediately prior to the date on which a Change in Control occurs, or
(b) the sum of Executive’s annual base salary plus Target Bonus determined
immediately prior to the date of his Covered Termination.
“Covered Termination” means
any termination of Executive’s employment with the Company or any Affiliate that
is a “Separation from Service” (within the meaning of Code Section 409A and
Treasury Regulation § 1.409A-1(h)(3) (or any successor regulations or guidance
thereto)) thereof:
(a) that
does not result from any of the following:
(i) death;
(ii) disability
entitling Executive to benefits under the Company’s long-term disability
plan;
(iii) termination
on or after age 65;
(iv) involuntary
termination for Cause; or
(v) resignation
by Executive, unless such resignation is for Good Reason; and
(b) that
occurs:
(i) during
the three-month period ending immediately prior to the date a Change in Control
occurs, provided that a binding agreement to effect a Change in Control has been
executed as of Executive’s termination date (a “Pre-Change in Control Covered
Termination”); or
(ii) within
two years after the date upon which a Change in Control occurs.
“Good Reason” means any one or
more of the following events:
(a) a
failure to maintain Executive in the position, or a substantially equivalent
position, with the Company and/or an Affiliate, as the case may be, which
Executive held immediately prior to the Change in Control;
(b) a
significant adverse change in the authorities, powers, functions,
responsibilities or duties which Executive held immediately prior to the Change
in Control;
(c) a
reduction in Executive’s annual base salary as in effect immediately prior to
the date on which a Change in Control occurs;
-4-
(d) a
significant reduction in Executive’s qualified retirement benefits, nonqualified
benefits and welfare benefits provided to Executive immediately prior to the
date on which a Change in Control occurs; provided, however, that a
contemporaneous diminution of or reduction in qualified retirement benefits
and/or welfare benefits which is of general application and which uniformly and
contemporaneously reduces or diminishes the benefits of all covered employees
shall be ignored and not be considered a reduction in remuneration for purposes
of this paragraph (d);
(e) a
reduction in Executive’s overall compensation opportunities (as contrasted with
overall compensation actually paid or awarded) under the STI Plan, a long-term
incentive plan or other equity plan (or in such substitute or alternative plans)
from that provided to Executive immediately prior to the date on which a Change
in Control occurs;
(f) a
change in the location of Executive’s principal place of employment with the
Company by more than 50 miles from the location where Executive was principally
employed immediately prior to the date on which a Change in Control occurs;
or
(g) a
failure by the Company to provide directors and officers liability insurance
covering Executive comparable to that provided to Executive immediately prior to
the date on which a Change in Control occurs;
provided, however, that no
later than 15 days after learning of the action (or inaction) described herein
as the basis for a termination of employment for Good Reason, Executive shall
advise the Company in writing that the action (or inaction) constitutes grounds
for a termination of his employment for Good Reason, in which event the Company
shall have 30 days to correct such action (or inaction) and if such action (or
inaction) is timely corrected, then Executive shall not be entitled to terminate
his employment for Good Reason as a result of such action (or
inaction).
“Retirement Plan” means the
CenterPoint Energy, Inc. Retirement Plan, as amended and restated effective
January 1, 1999, and as thereafter amended.
“STI Plan” means the
CenterPoint Energy, Inc. Short Term Incentive Plan or any successor plan or
program thereto.
“Target Bonus” means
Executive’s target incentive award opportunity under the STI Plan in effect for
the year with respect to which the target bonus amount is being determined or,
if no such plan is then in effect, for the last year in which such a plan was in
effect, expressed as a dollar amount based upon Executive’s annual base salary
for the year of such determination.
“Waiver and Release” means a
legal document, substantially in the form attached hereto as Attachment A, in which
Executive, in exchange for severance benefits described in Section 2, among
other things, releases the Company, the Affiliates, their directors, officers,
employees and agents, their employee benefit plans and the fiduciaries and
agents of
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said
plans from liability and damages in any way related to Executive’s employment
with or separation from the Company or any of its Affiliates.
“Welfare Benefit Coverage”
means each of medical, dental and vision benefit coverage.
2. Severance
Benefits: If Executive experiences a Covered Termination,
then, subject to the Waiver and Release requirement in Section 2(h) below,
Executive shall be entitled to receive, as additional compensation for services
rendered to the Company (including its Affiliates), the following severance
benefits:
(a) Severance
Amount: A lump sum cash payment in an amount equal to
Executive’s Compensation multiplied by two, subject to applicable withholding
for income and employment taxes. Such severance payment shall be paid
on the second business day immediately following the end of the six-month period
commencing on the date of Executive’s Covered Termination, along with simple
interest on the severance amount at the short-term applicable Federal rate
provided for in Code Section 7872(f)(2)(A), based on the period commencing on
Executive’s Covered Termination date and ending on the payment
date.
(b) Vacation
Payment: A lump sum cash payment in an amount equal to his
earned, but not taken, vacation days through the date of Executive’s Covered
Termination, subject to applicable withholding for income and employment
taxes. Such vacation payment shall be paid as soon as practicable
following his Covered Termination date in accordance with the Company’s normal
payroll policies and practices.
(c) Pro-Rated
Bonus: A lump sum cash payment in an amount equal to the
Target Bonus in effect at the time of Executive’s Covered Termination based on
Executive’s eligible earnings under the STI Plan as of the date of his Covered
Termination, but reduced by any amount payable under the terms of the STI Plan
for the performance year in which the Change in Control is consummated, subject
to applicable withholding for income and employment taxes. Such
pro-rated bonus shall be paid on the second business day immediately following
the end of the six-month period commencing on the date of Executive’s Covered
Termination, along with simple interest on the bonus amount at the short-term
applicable Federal rate provided for in Code Section 7872(f)(2)(A), based on the
period commencing on Executive’s Covered Termination date and ending on the
payment date.
(d) Welfare Benefit
Coverage: Subject to Executive’s payment of applicable
premiums on the same basis as similarly situated active executives of the
Company, continued Welfare Benefit Coverage for Executive and his eligible
dependents for a period of two years following (i) the date of Executive’s
Covered Termination or (ii) in the case of a Pre-Change in Control Covered
Termination, the date of the Change in Control.
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(e) Outplacement: Outplacement
services for a 9-month period after (i) the date of Executive’s Covered
Termination or (ii) in the case of a Pre-Change in Control Covered Termination,
the date of the Change in Control, in connection with Executive’s efforts to
obtain new employment under the outplacement program adopted by the
Company. Executive shall not be entitled to a cash payment in lieu of
such services.
(f) Enhanced
Retirement Plan Benefit: Executive shall be entitled to an
amount not less than the amount that Executive would have been entitled to
receive under the cash balance formula of the Retirement Plan as if Executive
(i) was fully vested in his Retirement Plan benefit and (ii) remained an
employee of the Company or its Affiliates throughout the two-year period
following (A) the date of Executive’s Covered Termination or (B) in the case of
a Pre-Change in Control Covered Termination, the date of the Change in Control
based on his Compensation, with such enhanced benefit paid under the Company’s
Benefit Restoration Plan in accordance with its terms and
conditions.
(g) All Other Benefit
Plans or Programs: Executive’s participation in all other
employee benefit plans and/or programs at the Company and the Affiliates shall
cease as of Executive’s Covered Termination date, subject to the terms and
conditions of the governing documents of those employee benefit plans and/or
programs.
(h) Waiver and
Release Requirement: The foregoing notwithstanding, payment of
the benefits under this Section 2 is subject to Executive’s timely execution and
return of the Waiver and Release to the Company, without subsequent revocation
during the seven-day period following such execution date (the “Waiver and
Release Revocation Period”), as provided in this Section
2(h). Executive shall have 50 days following (i) his Covered
Termination date, or (ii) in the case of a Pre-Change in Control Covered
Termination, the date of the Change in Control, to consider, execute and return
the Waiver and Release to the Company and shall then have the right to revoke
the Waiver and Release during the Waiver and Release Revocation
Period. If Executive fails to timely execute and return the Waiver
and Release to the Company or revokes such Waiver and Release during the Waiver
and Release Revocation Period, then Executive shall forfeit, and shall not be
entitled to, any of the benefits described in this Section 2.
3. Certain
Additional Payments: Anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution in the nature of
compensation (within the meaning of Section 280G(b)(2) of the Code) to or for
the benefit of Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 3 (the “Payment”), would be subject to the excise tax imposed by
Section 4999 of the Code, together with any interest or penalties imposed
with respect to such excise tax (“Excise Tax”), then Executive shall be entitled
to receive an additional payment (a “Gross-Up Payment”) in an amount such
that, after payment
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(whether
through withholding at the source or otherwise) by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto), employment taxes and Excise Tax imposed upon the
Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payment. Notwithstanding the
foregoing provision of this Section 3, if the Company determines that by
reducing the Payment by an amount not to exceed 10% of the Payment (“Reduced
Amount”) the receipt of the Payment will not give rise to any Excise Tax, and
thus no Gross-Up Payment would be required to be made to Executive, then,
provided the total of the amounts due to Executive under this Agreement equal or
exceed the Reduced Amount, the amount of the Payment shall be reduced, to the
extent provided herein, by the minimum Reduced Amount necessary to avoid any
Excise Tax (and no Gross-Up Payment shall be required under this Section 3 or
the Agreement). Any such reduction shall be made first from the
amount payable under Section 2(a) and second, to the extent necessary, from
the amount payable under Section 2(c).
Subject
to the provisions of this Section 3, all determinations required to be made
under this Section 3, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by a nationally
recognized certified public accounting firm that is selected by the Company (the
“Accounting Firm”) which shall provide detailed supporting calculations both to
the Company and Executive within 15 business days after the receipt of notice
from Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control or the Accounting Firm declines or is unable to serve,
Executive shall appoint another nationally recognized certified public
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
Section 3, shall be paid by the Company to Executive within 15 days after
the receipt of the Accounting Firm’s determination. If the Accounting
Firm determines that no Excise Tax is payable by Executive, it shall furnish
Executive with a written opinion that failure to report the Excise Tax on
Executive’s applicable federal income tax return would not result in the
imposition of negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (“Underpayment”), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts
its remedies pursuant to the following provisions of this Section 3 and
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Executive.
Executive
shall notify the Company in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as practicable but
no later than 10 business days after Executive is informed in writing of such
claim and shall apprise the Company of the
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nature of
such claim and the date on which such claim is requested to be
paid. Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies Executive
in writing prior to the expiration of such period that it desires to contest
such claim, Executive shall:
(a) give
the Company any information reasonably requested by the Company relating to such
claim;
(b) take
such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company;
(c) cooperate
with the Company in good faith in order to effectively contest such claim;
and
(d) permit
the Company to participate in any proceedings relating to such
claim;
provided, however, that the
Company shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for any Excise
Tax, employment tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limitation of the foregoing provisions of this
Section 3, the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided,
however, that if the Company directs Executive to pay such claim and sue
for a refund, the Company shall provide the amount of such payment to Executive
as an additional payment (“Supplemental Payment”) (subject to possible repayment
as provided in the next paragraph) and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax, employment tax or income
tax (including interest or penalties with respect thereto) imposed with respect
to such payment or with respect to any imputed income with respect thereto; and
further provided that any extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of the contest shall be
limited to issues with respect to which a Gross-Up Payment or Supplemental
Payment would be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
If, after
the receipt by Executive of an amount provided by the Company pursuant to the
foregoing provisions of this Section 3, Executive becomes entitled to
receive any refund
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with
respect to such claim, Executive shall (subject to the Company complying with
the requirements of this Section 3) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after taxes
applicable thereto).
If the
Company is obligated to provide Executive with one or more Welfare Benefit
Coverages pursuant to Section 2(d), and the amount of such benefits or the
value of such benefit coverage (including, without limitation, any insurance
premiums paid by the Company to provide such benefits) is subject to any income,
employment or similar tax imposed by federal, state or local law, or any
interest or penalties with respect to such tax (such tax or taxes, together with
any such interest and penalties, being hereafter collectively referred to as the
“Income Tax”) because such benefits cannot be provided under a nondiscriminatory
health plan described in Section 105 of the Code or for any other reason,
the Company will pay to Executive an additional payment or payments
(collectively, an “Income Tax Payment”). The Income Tax Payment will
be in an amount such that, after payment by Executive of all taxes (including
any interest or penalties imposed with respect to such taxes), Executive retains
an amount of the Income Tax Payment equal to the Income Tax imposed with respect
to such welfare benefits or such welfare benefit coverage.
Notwithstanding
anything in this Section 3 to the contrary, in accordance with Treasury
Regulation § 1.409A-3(i)(1)(v), in no event shall the Company pay Executive (or
pay on Executive’s behalf) any amount to which Executive is entitled under this
Section later than the end of Executive’s taxable year next following
Executive’s taxable year in which Executive remits the Excise Tax or tax (as
applicable) to the Internal Revenue Service (or in the case of costs and
expenses payable under this Section, no later than the end of Executive’s
taxable year next following Executive’s taxable year in which the taxes that are
the subject of the audit or litigation are remitted to the Internal Revenue
Service, or where as a result of such audit or litigation no taxes are remitted,
the end of Executive’s taxable year next following Executive’s taxable year in
which the audit is completed or there is a final and nonappealable settlement or
other resolution of the litigation).
4. Legal
Fees And Expenses: It is the intent
of the Company that Executive not be required to incur legal fees and the
related expenses associated with the interpretation, enforcement or defense of
Executive’s rights under this Agreement by litigation or otherwise because the
cost and expense thereof would detract from the benefits intended to be extended
to Executive hereunder. Accordingly, if it should appear to Executive
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, Executive the benefits provided or intended to be provided to
Executive hereunder, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive’s choice, at the expense of the Company as
hereafter provided, to advise and represent Executive in connection with any
such interpretation, enforcement or defense, including, without limitation, the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Company and such
counsel, the Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection the
Company and
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Executive
agree that a confidential relationship will exist between Executive and such
counsel. Without regard to whether Executive prevails, in whole or in
part, in connection with any of the foregoing, the Company will pay and be
solely financially responsible for any and all attorneys’ fees and related
expenses incurred by Executive in connection with any of the foregoing except to
the extent that a final judgment no longer subject to appeal finds that a claim
or defense asserted by Executive was frivolous. In such a case, the
portion of such fees and expenses incurred by Executive as a result of such
frivolous claim or defense shall become Executive’s sole responsibility and any
funds advanced by the Company shall be repaid to the Company.
With
respect to the Company’s obligations under this Section 4, the fees and expenses
of counsel selected by Executive pursuant to this Section 4 will be paid,
or reimbursed to Executive if paid by Executive, on a regular, periodic basis
upon presentation by Executive to the Company of a statement or statements
prepared by such counsel in accordance with its customary practices, with such
payment to be made no later than March 15th of the year following the year in
which the expenses are incurred. The pendency of a claim by the
Company that a claim or defense of Executive is frivolous or otherwise lacking
merit shall not excuse the Company from making periodic payments of legal fees
and expenses until a final judgment is rendered as hereinabove
provided. Any failure by the Company to satisfy any of its
obligations under this Section 4 will not limit the rights of Executive
hereunder. Subject to the foregoing, Executive will have the status
of a general unsecured creditor of the Company and will have no right to, or
security interest in, any assets of the Company or any Affiliate.
5. Confidentiality: Executive
acknowledges that pursuant to this Agreement, the Company agrees to provide to
him Confidential Information regarding the Company and the Company’s business
and has previously provided him other such Confidential
Information. In return for this and other consideration, provided
under this Agreement, Executive agrees that he will not, while employed by the
Company and thereafter, disclose or make available to any other person or
entity, or use for his own personal gain, any Confidential Information, except
for such disclosures as required in the performance of his duties hereunder as
may otherwise be required by law or legal process (in which case Executive shall
notify the Company of such legal or judicial proceeding as soon as practicable
following his receipt of notice of such a proceeding, and permit the Company to
seek to protect its interests and information). For purposes of this
Agreement, “Confidential Information” shall mean any and all information, data
and knowledge that has been created, discovered, developed or otherwise become
known to the Company or any of its Affiliates or ventures or in which property
rights have been assigned or otherwise conveyed to the Company or any of its
Affiliates or ventures, which information, data or knowledge has commercial
value in the business in which the Company is engaged, except such information,
data or knowledge as is or becomes known to the public without violation of the
terms of this Agreement. By way of illustration, but not limitation,
Confidential Information includes business trade secrets, secrets concerning the
Company’s plans and strategies, nonpublic information concerning material market
opportunities, technical trade secrets, processes, formulas, know-how,
improvements, discoveries, developments, designs, inventions, techniques,
marketing plans, manuals, records of research, reports, memoranda, computer
software, strategies, forecasts, new products, unpublished financial
information, projections, licenses, prices, costs, and employee, customer and
supplier lists or parts thereof.
-11-
6. Return
Of Property: Executive agrees
that at the time of leaving the Company’s employ, he will deliver to the Company
(and will not keep in his possession, recreate or deliver to anyone else) all
Confidential Information as well as all other devices, records, data, notes,
reports, proposals, lists, correspondence, specifications, drawings, blueprints,
sketches, materials, equipment, customer or client lists or information, or any
other documents or property (including all reproductions of the aforementioned
items) belonging to the Company or any of its Affiliates or ventures, regardless
of whether such items were prepared by Executive.
7. Non-Solicitation
And Non-Competition:
(a) For
consideration provided under this Agreement, including, but not limited to the
Company’s agreement to provide Executive with Confidential Information (as
defined in Section 5) regarding the Company and the Company’s business,
Executive agrees that while employed by the Company and for one year following a
Covered Termination he shall not, without the prior written consent of the
Company, directly or indirectly, (i) hire or induce, entice or solicit (or
attempt to induce, entice or solicit) any employee of the Company or any of its
Affiliates or ventures to leave the employment of the Company or any of its
Affiliates or ventures or (ii) solicit or attempt to solicit the business of any
customer or acquisition prospect of the Company or any of its Affiliates or
ventures with whom Executive had any actual contact while employed at the
Company.
(b) Additionally,
for consideration provided under this Agreement, including, but not limited to
the Company’s agreement to provide Executive with Confidential Information
regarding the Company and the Company’s business, Executive agrees that while
employed by the Company and for one year following a Covered Termination he will
not, without the prior written consent of the Company, acting alone or in
conjunction with others, either directly or indirectly, engage in any business
that is in competition with the Company or accept employment with or render
services to such a business as an officer, agent, employee, independent
contractor or consultant, or otherwise engage in activities that are in
competition with the Company.
(c) The
restrictions contained in this Section 7 are limited to a 50-mile radius around
any geographical area in which the Company engages (or has definite plans to
engage) in operations or the marketing of its products or services at the time
of a Covered Termination.
(d) Executive
acknowledges that these restrictive covenants under this Agreement, for which
Executive received valuable consideration from the Company as provided in this
Agreement, including, but not limited to the Company’s agreement to provide
Executive with Confidential Information regarding the Company and the Company’s
business are ancillary to otherwise enforceable provisions of this Agreement
that the consideration provided by the Company gives rise to the Company’s
interest in restraining Executive from competing and that the restrictive
covenants are designed to enforce Executive’s consideration or return promises
under this Agreement. Additionally, Executive
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acknowledges
that these restrictive covenants contain limitations as to time, geographical
area, and scope of activity to be restrained that are reasonable and do not
impose a greater restraint than is necessary to protect the goodwill or other
legitimate business interests of the Company, including, but not limited to, the
Company’s need to protect its Confidential Information.
8. Conflicts
With Other Agreements: In the event that
Executive becomes entitled to benefits under a prior or subsequent agreement
pertaining to Executive’s employment by the Company or any Affiliate thereof
(other than this Agreement) or the benefits to which Executive is entitled as a
result of such employment and such benefits conflict with the terms of this
Agreement, Executive will receive the greater and more favorable of each of the
benefits provided under either this Agreement or such other agreement or
benefits, on an individual benefit basis, provided, however, that any
such other conflicting payment is payable under its terms in the same calendar
year and in the same form as the corresponding benefit payable under this
Agreement.
9. Notices: For purposes of
this Agreement, notices and all other communications provided for herein shall
be in writing and shall be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to Company:
CenterPoint Energy, Inc.
1111
Louisiana
Houston,
Texas 77002
Attention: President
and Chief Executive Officer
If to
Executive: [NAME]
[ADDRESS]
[CITY,
STATE, ZIP]
or to
such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
10. Litigation
Assistance: Executive agrees
to assist the Company with any litigation matters related to the Company or any
of its subsidiaries or affiliates as may be reasonably requested by the
Company’s General Counsel following the date of Executive’s Covered
Termination. The Company shall reimburse Executive for any reasonable
travel or other business expenses incurred in connection with providing such
assistance and cooperation. Executive shall provide such services as
an independent contractor and such services shall be limited solely to those
matters with which Executive is suitably experienced and knowledgeable by reason
of Executive’s education, training, background and prior employment with the
Company. The Company and Executive agree to work out reasonable
accommodations for the provision of such assistance so that it does not
unreasonably interfere with any of Executive’s personal affairs, business
endeavors or future employment. The foregoing notwithstanding, the
Company and Executive agree that the services provided by Executive under this
Section, if any, shall not exceed twenty percent (20%) of the average level of
bona fide services performed by Executive (whether as an employee or an
independent contractor of the Company) over the 36-
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month
period (or the full period of services to the Company if Executive has been
providing services to the Company for less than 36 months) immediately preceding
his Covered Termination date.
11. Prior
Agreements/Modification: This Agreement
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings, whether
written or oral, between the parties with respect thereto. This
Agreement may be amended only by an agreement in writing signed by the parties
hereto; provided,
however, that Executive’s compensation may be increased at any time by
the Company without in any way affecting any of the other terms and conditions
of this Agreement which in all other respects shall remain in full force and
effect. The provisions of this Agreement will be binding upon, and
will inure to the benefit of, the respective heirs, legal representatives and
successors of the parties hereto. Executive represents to the Company
that he is not a party to any agreement or subject to any legal restriction that
would prevent him from fulfilling his duties hereunder.
12. Section 409A: It is the
intent of the parties that the provisions of this Agreement comply with Code
Section 409A and the Treasury regulations and guidance issued
thereunder. Accordingly, the parties intend that this Agreement be
interpreted and operated consistent with such requirements of Code Section 409A
in order to avoid the application of penalty taxes under Code Section 409A to
the extent reasonably practicable. The Company shall neither cause
nor permit: (a) any payment, benefit or consideration to be
substituted for a benefit that is payable under this Agreement if such action
would result in the failure of any amount that is subject to Code Section 409A
to comply with the applicable requirements of Code Section 409A; or (b) any
adjustments to any equity interest to be made in a manner that would result in
the equity interest becoming subject to Code Section 409A unless, after such
adjustment, the equity interest is in compliance with the requirements of Code
Section 409A to the extent applicable.
Notwithstanding
any provision of this Agreement to the contrary, if Executive is a “Specified
Employee” (as that term is defined in Code Section 409A) as of Executive’s
Covered Termination date, then any amounts or benefits which are payable under
this Agreement upon Executive’s “Separation from Service” (within the
meaning of Code Section 409A), other than due to death, which are subject to the
provisions of Code Section 409A and not otherwise excluded under Code Section
409A, and would otherwise be payable during the first six-month period following
such Separation from Service, shall be paid on the second business day that (a)
is at least six months after the date after Executive’s Covered Termination date
or (b) follows Executive’s date of death, if earlier. The benefits in
Sections 2(a) and (c) and the welfare benefits in Section 2(d) provided after
the COBRA period are subject to Section 409A; the vacation pay in Sections 2(b),
the outplacement in Section 2(e) and the welfare benefits in Section 2(d)
provided during the COBRA period under Section 2(d) are excluded from Section
409A; and the benefits in Sections 2(f) and 2(g) are subject to Section 409A as
provided under the applicable plans and programs.
All
reimbursements and in-kind benefits provided pursuant to this Agreement shall be
made in accordance with Treasury Regulation § 1.409A-3(i)(1)(iv) such that any
reimbursements or in-kind benefits will be deemed payable at a specified time or
on a fixed
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schedule
relative to a permissible payment event. Specifically, (i) the
amounts reimbursed and in-kind benefits provided under this Agreement, other
than total reimbursements that are limited by a lifetime maximum under a group
health plan, during Executive’s taxable year may not affect the amounts
reimbursed or in-kind benefits provided in any other taxable year, (ii) the
reimbursement of an eligible expense shall be made on or before the last day of
Executive’s taxable year following the taxable year in which the expense was
incurred, and (iii) the right to reimbursement or an in-kind benefit is not
subject to liquidation or exchange for another benefit.
13. Applicable
Law: The validity,
interpretation, construction and performance of this Agreement will be governed
by and construed in accordance with the substantive laws of the State of Texas,
including the Texas statute of limitations, but without giving effect to the
principles of conflict of laws of such State.
14. Severability: If a court of competent
jurisdiction determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that provision shall
not affect the validity or enforceability of any other provision of this
Agreement and all other provisions shall remain in full force and
effect.
15. Withholding
of Taxes: The Company may
withhold from any benefits payable under this Agreement all federal, state, city
or other taxes as may be required pursuant to any law or governmental regulation
or ruling.
16. No
Employment Agreement: Nothing in this
Agreement shall give Executive any rights to (or impose any obligations for)
continued employment by the Company or any Affiliate thereof or successor
thereto, nor shall it give the Company any rights (or impose any obligations)
with respect to continued performance of duties by Executive for the Company or
any Affiliate thereof or successor thereto.
17. No
Assignment; Successors: Executive’s right
to receive payments or benefits hereunder shall not be assignable or
transferable, whether by pledge, creation or a security interest or otherwise,
whether voluntary, involuntary, by operation of law or otherwise, other than a
transfer by will or by the laws of descent or distribution, and in the event of
any attempted assignment or transfer contrary to this Section 17, the
Company shall have no liability to pay any amount so attempted to be assigned or
transferred. This Agreement shall inure to the benefit of and be
enforceable by Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
This
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns (including, without limitation, any company into or with
which the Company may merge or consolidate). The Company agrees that
it will not effect the sale or other disposition of all or substantially all of
its assets unless either (a) the person or entity acquiring such assets or
a substantial portion thereof shall expressly assume by an instrument in writing
all duties and obligations of the Company hereunder or (b) the Company
shall provide, through the establishment of a separate reserve therefor, for the
payment in full of all amounts which are or may reasonably be expected to become
payable to Executive hereunder.
-15-
18. Payment
Obligations Absolute: Except for the
requirement of Executive to execute and return to the Company a Waiver and
Release in accordance with Section 2, the Company’s obligation to pay (or
cause one of its Affiliates to pay) Executive the amounts and to make the
arrangements provided herein shall be absolute and unconditional and shall not
be affected by any circumstances, including, without limitation, any set-off,
counter-claim, recoupment, defense or other right which the Company (including
its Affiliates) may have against him or anyone else. All amounts
payable by the Company (including its Affiliates hereunder) shall be paid
without notice or demand. Executive shall not be obligated to seek
other employment in mitigation of the amounts payable or arrangements made under
any provision of this Agreement, and, subject to the restrictions in Section 7,
the obtaining of any other employment shall in no event affect any reduction of
the Company’s obligations to make (or cause to be made) the payments and
arrangements required to be made under this Agreement.
The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used
in this Agreement, “Company” shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or
otherwise. If a Business Combination is consummated that would have
resulted in a Change in Control but for the satisfaction of the conditions
specified in clauses (i), (ii), (iii) and (iv) of subsection (c) of the
definition of “Change in Control” in Section 1 and if the Parent Corporation
resulting from the Business Combination is other than the Company (hereinafter a
“New Parent”), then, as a condition to consummation of this Business
Combination, the New Parent shall be considered a successor for purposes of this
paragraph.
19. Number and
Gender: Wherever
appropriate herein, words used in the singular shall include the plural and the
plural shall include the singular. The masculine gender where
appearing herein shall be deemed to include the feminine gender.
20. Term: The effective
date of the Agreement is January 1, 2009 (“Effective Date”). The term
of this Agreement shall commence on the Effective Date and shall end on December
31, 2009; provided,
however, that on each January 1st thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, prior to any
such January 1st, the Board decides (as evidenced by its resolutions) not to
extend the term of this Agreement, in which event the term shall, without
further action, expire, and this Agreement shall terminate, on the December 31st
of the year in which the Board makes such decision. The foregoing to
the contrary notwithstanding, (a) if, prior to a Change in Control, Executive
ceases for any reason other than due to a Covered Termination to be an employee
of the Company, then the term shall, without further action, expire, and this
Agreement shall terminate, as of such termination date; and (b) upon the Company
entering into a binding agreement to effect a Change in Control, if the
Agreement has not expired prior to such date, the term of this Agreement shall
automatically be extended until the end of the two-year period commencing as of
the date of the Change in Control; provided, however, that, the
foregoing clause (b) notwithstanding, if the board of directors of the parties
to such binding agreement agree, as evidenced by the board’s resolutions, not to
consummate the Change in Control, the term of this
-16-
Agreement
shall be determined as otherwise provided in this Section 20 without regard to
clause (b).
IN WITNESS WHEREOF, the
parties have caused this Agreement to be executed effective as of the Effective
Date.
|
CENTERPOINT
ENERGY, INC.
|
||
|
By:
|
||
|
David
M. McClanahan
|
||
|
President
and Chief Operating Officer
|
||
|
Date:
|
||
|
EXECUTIVE
|
||
|
[NAME]
|
||
|
Date:
|
||
-17-
Attachment
A
Waiver
And Release
In
exchange for the payment to me of the Severance Benefits described in
Section 2 of the Change in Control Agreement between CenterPoint Energy,
Inc., and me effective as of January 1, 2009 (the “Agreement”), which I
understand is incorporated herein by reference, and of other remuneration and
consideration provided for in the Agreement (the “Severance Benefits”), which is
in addition to any remuneration or benefits to which I am already entitled, I
agree to waive all of my claims against and release (i) CenterPoint Energy,
Inc. and its predecessors, successors and assigns (collectively referred to as
the ”Company”), (ii) all of the affiliates (including, but not limited
to, CenterPoint Energy Services Company, CenterPoint Energy Southern Gas
Operations, CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Texas
Gas Operations, CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy
Arkansas Gas, CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy
Oklahoma Gas, CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy
Minnesota Gas, CenterPoint Energy Houston Gas, CenterPoint Energy Pipeline
Services, Inc., CenterPoint Energy Services, Inc., CenterPoint Energy Field
Services, Inc., CenterPoint Energy Gas Transmission Company, CenterPoint Energy
Mississippi River Transmission Corporation, and all wholly or partially owned
subsidiaries) of the Company and their predecessors, successors and assigns
(collectively referred to as the “Company Affiliates”) and (iii) the
Company’s and Company Affiliates’ directors and officers, employees and agents,
insurers, employee benefit plans and the fiduciaries and agents of the foregoing
(collectively, with the Company and Company Affiliates, referred to as
the “Corporate Group”) from any and all claims, demands, actions,
liabilities and damages arising out of or relating in any way to my employment
with or separation from the Company or the Company Affiliates. All
payments under the Agreement are voluntary and are not required by any legal
obligation other than the Agreement itself.
I
understand that signing this Waiver and Release is an important legal
act. I acknowledge that I have been advised in writing to consult an
attorney before signing this Waiver and Release. I understand that,
in order to be eligible for Severance Benefits under the Agreement, I must sign
and return (to Carol Helliker, Vice President, Corporate Compliance Officer and
Associate General Counsel, Legal Department, at CenterPoint Energy Tower, 46th
Floor, 1111 Louisiana, Houston, Texas 77002) this Waiver and Release within 50
days following the date of my termination of employment (or the date of the
Change in Control if my termination of employment date preceded such
date). I acknowledge that I have been given at least 45 days to
consider whether to execute this Waiver and Release.
In
exchange for the payment to me of Severance Benefits pursuant to the Agreement,
which is in addition to any remuneration or benefits to which I am already
entitled, (1) I agree not to sue in any local, state and/or federal court
or to file a grievance regarding or relating in any way to my employment with or
separation from the Company or the Company Affiliates, and (2) I knowingly
and voluntarily waive all claims and release the Corporate Group from any and
all claims, demands, actions, liabilities, and damages, whether known or
unknown, arising out of or relating in any way to my employment with or
separation from the Company or the Company Affiliates, except to the extent that
my rights are vested under the terms of employee benefit plans sponsored by the
Company or the Company Affiliates and except with
-1-
respect
to such rights or claims as may arise after the date this Waiver and Release is
executed. This Waiver and Release includes, but is not limited to,
claims and causes of action under: Title VII of the Civil Rights Act
of 1964, as amended (“Title VII”); the Age Discrimination in Employment Act
of 1967, as amended, including the Older Workers Benefit Protection Act of 1990
(“ADEA”); the Civil Rights Act of 1866, as amended; the Civil Rights Act of
1991; the Americans with Disabilities Act of 1990 (“ADA”); the Energy
Reorganization Act, as amended, 42 U.S.C. § 5851; the Workers Adjustment
and Retraining Notification Act of 1988; the Pregnancy Discrimination Act of
1978; the Employee Retirement Income Security Act of 1974, as amended; the
Family and Medical Leave Act of 1993; the Fair Labor Standards Act; the
Occupational Safety and Health Act; claims in connection with workers’
compensation or “whistle blower” statutes; and/or contract, tort, defamation,
slander, wrongful termination or any other state or federal regulatory,
statutory or common law. Further, I expressly represent that no
promise or agreement which is not expressed in the Agreement or this Waiver and
Release has been made to me in executing this Waiver and Release, and that I am
relying on my own judgment in executing this Waiver and Release, and that I am
not relying on any statement or representation of any member of the Corporate
Group or any of their agents. I agree that this Waiver
and Release is valid, fair, adequate and reasonable, is with my full knowledge
and consent, was not procured through fraud, duress or mistake and has not had
the effect of misleading, misinforming or failing to inform
me. I acknowledge and agree that the Company will withhold any
taxes required by federal or state law from the Severance Benefits otherwise
payable to me and that the Severance Benefits otherwise payable to me shall be
reduced by any monies owed by me to the Company (or a Company Affiliate),
including, but not limited to, any overpayments made to me by the Company (or a
Company Affiliate) and the balance of any loan by the Company (or a Company
Affiliate) to me that is outstanding at the time that the Severance Benefits are
paid.
I
acknowledge that payment of Severance Benefits pursuant to the Agreement is not
an admission by any member of the Corporate Group that they engaged in any
wrongful or unlawful act or that any member of the Corporate Group violated any
federal or state law or regulation. I understand that nothing in this
Waiver and Release is intended to prohibit, restrict or otherwise discourage any
individual from engaging in activity protected under 42 U.S.C. § 5851, 10
C.F.R. § 50.7 or the Sarbanes-Oxley Act of 2002, including, but not limited
to, providing information to the Nuclear Regulatory Commission (“NRC”) or to any
member of the Corporate Group regarding nuclear safety or quality concerns,
potential violations or other matters within the NRC’s
jurisdiction. I acknowledge that no member of the Corporate Group has
promised me continued employment or represented to me that I will be rehired in
the future. I acknowledge that my employer and I contemplate an
unequivocal, complete and final dissolution of my employment
relationship. I acknowledge that this Waiver and Release does not
create any right on my part to be rehired by any member of the Corporate Group
and I hereby waive any right to future employment by any member of the Corporate
Group.
I have
returned or I agree that I will return immediately, and maintain in strictest
confidence and will not use in any way, any confidential and proprietary
business information or other nonpublic information or documents relating to the
business and affairs of the Corporate Group. For the purposes of this
Waiver and Release, “confidential and proprietary business information” shall
mean any information concerning any member of the Corporate Group or their
business which I learn or develop during my employment and which is not
generally known
-2-
or
available outside of the Corporate Group. Such information, without
limitation, includes information, written or otherwise, regarding any member of
the Corporate Group’s earnings, expenses, material sources, equipment sources,
customers and prospective customers, business plans, strategies, practices and
procedures, prospective and executed contracts and other business
arrangements. I acknowledge and agree that all records, papers,
reports, computer programs, strategies, documents (including, without
limitation, memoranda, notes, files and correspondence), opinions, evaluations,
inventions, ideas, technical data, products, services, processes, procedures,
and interpretations that are or have been produced by me or any employee,
officer, director, agent, contractor, or representative of any member of the
Corporate Group, whether provided in written or printed form, or orally, all
comprise confidential and proprietary business information. I agree
that for a period of one year following my termination with the Corporate Group
that I will not: (a) solicit, encourage or take any action that
is intended, directly or indirectly, to induce any other employee of the
Corporate Group to terminate employment with the Corporate Group;
(b) interfere in any manner with the contractual or employment relationship
between the Corporate Group and any other employee of the Corporate Group; and
(c) use any confidential information to directly, or indirectly, solicit
any customer of the Corporate Group. I understand and agree that in
the event of any breach of the provisions of this paragraph, or threatened
breach, by me, any member of the Corporate Group may, in their discretion,
discontinue any or all payments provided for in the Agreement and recover any
and all payments already made and any member of the Corporate Group shall be
entitled to apply to a court of competent jurisdiction for such relief by way of
specific performance, restraining order, injunction or otherwise as may be
appropriate to ensure compliance with these provisions. Should I be
contacted or served with legal process seeking to compel me to disclose any such
information, I agree to notify the General Counsel of the Company immediately,
in order that the Corporate Group may seek to resist such process if they so
choose. If I am called upon to serve as a witness or consultant in or
with respect to any potential litigation, litigation, arbitration, or regulatory
proceeding, I agree to cooperate with the Corporate Group to the full extent
permitted by law, and the Corporate Group agrees that any such call shall be
with reasonable notice, shall not unnecessarily interfere with my later
employment, and shall provide for payment for my time and costs expended in such
matters.
Should
any of the provisions set forth in this Waiver and Release be determined to be
invalid by a court, agency or other tribunal of competent jurisdiction, it is
agreed that such determination shall not affect the enforceability of other
provisions of this Waiver and Release. I acknowledge that this Waiver
and Release and the Agreement set forth the entire understanding and agreement
between me and the Company or any other member of the Corporate Group concerning
the subject matter of this Waiver and Release and supersede any prior or
contemporaneous oral and/or written agreements or representations, if any,
between me and the Company or any other member of the Corporate
Group. I understand that for a period of 7 calendar days following
the date I sign this Waiver and Release (which date must be within 50 days
following the date of my termination of employment or the date of the Change in
Control if my termination of employment date preceded such date), I may revoke
my acceptance of the offer by delivering a written statement to the Vice
President, Corporate Compliance Officer and Associate General Counsel (or the
person designated by the Vice President, Corporate Compliance Officer and
Associate General Counsel) by hand or by registered-mail, in which case the
Waiver and Release will not become effective. In the event I revoke
my acceptance of this offer, I shall not be entitled to any Severance Benefits
under the Agreement. I understand
-3-
that
failure to revoke my acceptance of the offer within 7 calendar days following
the date I sign this Waiver and Release will result in this Waiver and Release
being permanent and irrevocable.
I
acknowledge that I have read this Waiver and Release, have had an opportunity to
ask questions and have it explained to me and that I understand that this Waiver
and Release will have the effect of knowingly and voluntarily waiving any action
I might pursue, including breach of contract, personal injury, retaliation,
discrimination on the basis of race, age, sex, national origin, religion,
veterans status, or disability and any other claims arising prior to the date of
this Waiver and Release. By execution of this document, I do not
waive or release or otherwise relinquish any legal rights I may have which are
attributable to or arise out of acts, omissions, or events of any member of the
Corporate Group which occur after the date of the execution of this Waiver and
Release.
|
Executive’s
Printed Name
|
Corporate
Group’s Representative
|
|
|
Executive’s
Signature
|
Corporate
Group’s Execution Date
|
|
|
Executive’s
Signature Date
|
||
|
Executive’s
Social Security Number
|
||
-4-
Exhibit
12
CENTERPOINT ENERGY, INC.
AND SUBSIDIARIES
COMPUTATION
OF RATIOS OF EARNINGS TO FIXED CHARGES
(Millions
of Dollars)
|
2004
|
2005
|
2006
|
2007 (1)
|
2008
(1)
|
||||||||||||||||
|
Income
from continuing operations
|
$ | 205 | $ | 225 | $ | 432 | $ | 399 | $ | 447 | ||||||||||
|
Income
taxes for continuing operations
|
139 | 153 | 62 | 195 | 278 | |||||||||||||||
|
Capitalized
interest
|
(4 | ) | (4 | ) | (10 | ) | (22 | ) | (20 | ) | ||||||||||
| 340 | 374 | 484 | 572 | 705 | ||||||||||||||||
|
Fixed
charges, as defined:
|
||||||||||||||||||||
|
Interest
|
777 | 710 | 600 | 626 | 609 | |||||||||||||||
|
Capitalized
interest
|
4 | 4 | 10 | 22 | 20 | |||||||||||||||
|
Interest component of rentals
charged to operating expense
|
11 | 12 | 19 | 16 | 15 | |||||||||||||||
|
Total fixed
charges
|
792 | 726 | 629 | 664 | 644 | |||||||||||||||
|
Earnings,
as defined
|
$ | 1,132 | $ | 1,100 | $ | 1,113 | $ | 1,236 | $ | 1,349 | ||||||||||
|
Ratio
of earnings to fixed charges
|
1.43 | 1.51 | 1.77 | 1.86 | 2.09 | |||||||||||||||
|
|
(1)
|
Excluded
from the computation of fixed charges for the years ended December 31,
2007 and 2008 is interest income of $4 million and interest expense
of $9 million, respectively, which is included in income tax
expense.
|
Exhibit
21
SIGNIFICANT
SUBSIDIARIES OF CENTERPOINT ENERGY,
INC.
The
following subsidiaries are deemed “significant subsidiaries” pursuant to Item
601(b) (21) of Regulation S-K:
Utility
Holding, LLC, a Delaware limited liability company and a direct wholly owned
subsidiary of CenterPoint Energy, Inc.
CenterPoint
Energy Investment Management, Inc., a Delaware corporation and an indirect
wholly owned subsidiary of CenterPoint Energy, Inc.
CenterPoint
Energy Resources Corp., a Delaware corporation and an indirect wholly owned
subsidiary of CenterPoint Energy, Inc.
CenterPoint
Energy Houston Electric, LLC, a Texas limited liability company and an indirect
wholly owned subsidiary of CenterPoint Energy, Inc.
CenterPoint
Energy Services, Inc., a Delaware corporation and an indirect wholly owned
subsidiary of CenterPoint Energy, Inc.
CenterPoint
Energy Gas Transmission Company, a Delaware corporation and an indirect wholly
owned subsidiary of CenterPoint Energy, Inc.
CenterPoint
Energy Field Services, Inc., a Delaware corporation and an indirect wholly owned
subsidiary of CenterPoint Energy, Inc.
(1)
Pursuant to Item 601(b) (21) of Regulation S-K, registrant has omitted the names
of subsidiaries, which considered in the aggregate as a single subsidiary, would
not constitute a “significant subsidiary” (as defined under Rule 1-02(w) of
Regulation S-X) as of December 31, 2008.
Exhibit
23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We
consent to the incorporation by reference in Registration Statement Nos.
333-155475, 333-153916 and 333-114543 on Form S-3; Registration Statement No.
333-149757 and 333-105773 on Form S-8; Post-Effective Amendment No. 1 to
Registration Statement No. 333-33303-99 on Form S-3; Post Effective Amendment
No. 1 to Registration Statement Nos. 333-32413-99, 333-49333-99, 333-38188-99,
333-60260-99 and 333-98271-99 on Form S-8; and Post-Effective Amendment No. 5 to
Registration Statement No. 333-11329-99 on Form S-8 of our reports dated
February 25, 2009, relating to the consolidated financial
statements and consolidated financial statement schedules of CenterPoint Energy,
Inc. and subsidiaries (the “Company"), and the effectiveness of the
Company’s internal control over financial reporting, appearing in this Annual
Report on Form 10-K of CenterPoint Energy, Inc. for the year ended December 31,
2008.
DELOITTE
& TOUCHE LLP
Houston,
Texas
February
25, 2009
Exhibit
31.1
CERTIFICATIONS
I, David
M. McClanahan, certify that:
1. I
have reviewed this annual report on Form 10-K of CenterPoint
Energy, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5. The
registrant’s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: February
25, 2009
|
/s/
David M. McClanahan
|
|
|
David
M. McClanahan
|
|
|
President
and Chief Executive Officer
|
Exhibit
31.2
CERTIFICATIONS
I, Gary
L. Whitlock, certify that:
1. I
have reviewed this annual report on Form 10-K of CenterPoint
Energy, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5. The
registrant’s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: February
25, 2009
|
/s/
Gary L. Whitlock
|
|
|
Gary
L. Whitlock
|
|
|
Executive
Vice President and Chief Financial
Officer
|
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of
CenterPoint Energy, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2008 (the “Report”), as filed with the Securities and Exchange
Commission on the date hereof, I, David M. McClanahan, Chief Executive Officer,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, to the best of my knowledge,
that:
1. The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
2. The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
|
/s/
David M. McClanahan
|
|
|
David
M. McClanahan
|
|
|
President
and Chief Executive Officer
|
|
|
February 25,
2009
|
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of
CenterPoint Energy, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2008 (the “Report”), as filed with the Securities and Exchange
Commission on the date hereof, I, Gary L. Whitlock, Chief Financial Officer,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, to the best of my knowledge,
that:
1. The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
2. The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
|
/s/
Gary L. Whitlock
|
|
|
Gary
L. Whitlock
|
|
|
Executive
Vice President and Chief Financial Officer
|
|
|
February 25,
2009
|