Business Context and Reporting Period
This Form 8-K, dated September 23, 2008, reports on the impact of Hurricane Ike on CenterPoint Energy, Inc. and its subsidiaries, CenterPoint Houston Electric, LLC (CEHE) and CenterPoint Energy Resources Corp. (CERC). The storm struck the upper Texas coast on September 13, 2008, causing substantial damage to CEHE's electric delivery system serving over 2 million customers in the Houston metropolitan area and Galveston Island.
Key Financial Metrics and Liquidity
Restoration Costs: Preliminary estimates for storm restoration costs range from $350 million to $500 million. These costs are expected to be deferred and recovered through regulatory mechanisms or securitization.
Liquidity and Credit Facilities (as of August 31, 2008):
| Company | Facility Size ($ millions) | Amount Utilized ($ millions) | Amount Remaining ($ millions) |
|---|---|---|---|
| CenterPoint Energy | 1,200 | 378 | 822 |
| CEHE | 300 | 23 | 277 |
| CERC | 950 | 435 | 515 |
Restoration efforts are being funded via cash on hand and bank credit facilities. CERC's facility is not intended for CEHE's hurricane restoration costs.
Material Changes and Operational Impact
- Outage Scale: The storm initially left over 90% of CEHE's metered customers without power, the largest outage in the company's 130-year history.
- Restoration Progress: Within eight days, power was restored to approximately two-thirds of customers. Substantially all transmission circuits and industrial service have been restored.
- Gas Operations: CERC has addressed substantially all reported natural gas leaks in Texas and Louisiana, with expected restoration costs being minimal.
- Insurance Coverage: Transmission and distribution facilities (poles, towers, wires) are not covered by property insurance. Insurance covers buildings, substations, and compressor stations subject to deductibles.
Outlook, Risks, and Management Commentary
Financial Impact: Temporary outages are expected to negatively impact earnings for the third quarter and full year 2008, primarily due to reduced revenues. The exact financial impact cannot be determined at this time.
Cost Recovery Strategy: CEHE plans to defer uninsured costs and seeks to recover prudently incurred storm costs. Management anticipates seeking special legislation in the January 2009 Texas legislative session to allow securitization of these costs, similar to legislation enacted for Hurricane Rita. Alternatively, recovery may be sought under traditional rate-making principles.
Risks: Final restoration costs may vary from the preliminary $350 million to $500 million estimate. The timing and success of legislative approval for securitization remain uncertain.
Key Facts for Investor Verification
- Verify the final approved restoration cost against the preliminary $350 million to $500 million estimate.
- Monitor the January 2009 Texas legislative session for the passage of securitization legislation.
- Track the actual earnings impact on Q3 and full-year 2008 results once the quarter closes.
- Confirm the extent of uninsured losses given the exclusion of transmission and distribution assets from property insurance.