CenterPoint TDU Reports Key Terms Of Settlement In Texas Rate Case; Transmission Cost Recovery, DCRF

January 22, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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CenterPoint Energy Houston Electric, LLC (CEHE, or Houston Electric) has announced "key terms" of a to-be filed settlement agreement in its electric rate case which is pending before the Public Utility Commission of Texas

The TDU said that all parties to the case either support the Agreement or are unopposed to it. CEHE will file the final settlement documentation with the PUCT once finalized and executed by the parties, and the settlement will be subject to PUCT approval.

Notable terms made public thus far relating to the retail electric market include:

• Recovery of all transmission-related costs through Houston Electric’s transmission cost recovery factor.

• A refund of certain excess deferred income taxes ('EDIT') of $105 million plus carrying costs over approximately 30-36 months; and

Additionally, Houston Electric would not file a DCRF (Distribution Cost recovery Factor) in 2020, nor would a subsequent separate proceeding with the PUCT be instituted regarding EDIT on Houston Electric’s securitized assets.

A base rate application would be required to be filed for Houston Electric no later than four years from the date of the PUCT’s final order. The Company currently anticipates a final order from the PUCT regarding the Agreement during mid-first quarter 2020.

Under the terms of the Agreement, Houston Electric would agree to adopt certain ring-fencing measures including provisions related to its credit agreement, maintaining a standalone credit rating, prohibitions on transferring material assets or facilities to affiliates, commingling assets or lending or borrowing money, subject to certain exceptions, among other provisions. However, with respect to any dividend restrictions, the PUCT would determine the application of any such restrictions. The dividend restrictions at issue include the following: (1) a limit on the payment of dividends by Houston Electric to an amount not to exceed its net income (determined in accordance with GAAP), (2) the suspension of dividends to the Company if Houston Electric’s credit rating at any one of the three major rating agencies falls below an established threshold for its senior secured debt and (3) a restriction on the payment of dividends by Houston Electric, except for contractual tax payments, where such dividends would cause Houston Electric to be out of compliance with the PUCT-approved debt-to-equity ratio.

Under the settlement, no write offs of rate base are expected to be required. The Agreement does require certain rate case expenses estimated at approximately $12 million to be written off in 2019. Also, Houston Electric would not be required to make a one-time refund of capital recovery from its transmission cost of service (TCOS) and distribution cost recovery factor (DCRF) mechanisms. Future TCOS filings would take into account both accumulated deferred federal income taxes and EDIT until the final order from Houston Electric’s next base rate proceeding.

Docket 49421

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