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<br />TERM SHEET FOR SETTLEl\1ENT OF <br />CENTERPOINT ENERGY HOUSTON ELECTRIC (CERE) RATE CASE <br /> <br />1) <br /> <br />Provide a system wide annual benefit of $70 million ($50 million plus $20 million for <br />renegotiated City of Houston franchise) for each of the years 2006-2009* - Y. 'i r.5 <br /> <br />Dollars in Millions <br />System <br />Wide <br /> <br />a. Conservation/Energy efficiency programs** <br />b. Public use to promote health, safety, <br />welfare of citizens and rate credits <br />c. F~phise paytnents to non-Houston cities <br />d. Ren'bgotiated franchise payment to City of Houston <br />e. Storm reserve <br /> <br />$15 <br /> <br />Totals in millions <br /> <br />$26 <br />$ 4 <br />$20 <br />$ 5 <br /> <br />$70 <br /> <br />2) Current CERE base rates will not change. <br /> <br />3) The Company will continue to be able to file for the following: <br /> <br />a. Updates to Transmission Cost Recovery Factors <br />b. Updates to Transmission Cost Of Service <br />c. Surcharges for advance metering as approved by the PUC (parties may intervene) <br />d. Tariffs/riders to comply with the retail market's new terms and conditions <br /> <br />4) Beginning with the reporting year 2006, CERE agrees to file an Annual Settlement <br />Report providing a calcul,ation based on the PUC's current annual Earnings <br />Monitoring Report. The expenditures associated with paragraph 1 above shall be <br />included in the report 8f1d considered reasonable and necessary expenses for purposes <br />of calculating CERE's earned returns on equity (ROE) and overall cost of capital. <br />There will be a ROE range of 10% to 11 %. In the event that the calculated ROE is <br />above the 11%, an additional amount equal to one-half of those excess revenues <br />above that point will be provided as an additional benefit prorated between <br />conservation/energy efficiency programs and public use in the calendar year <br />following the year monitored by the Annual Settlement Report. In the event that the <br />calculated ROE falls below the 10%, then one-half of the revenue shortfall will <br />reduce the annual benefit prorated between conservation/energy efficiency programs <br />and public use. In the event that the ROE exceeds 12%, the settlement agreement <br />may be reopened. See Appendix A <br /> <br />Confidential for settlement purposes only <br /> <br />1 <br />