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<br />ALLOCATION OF BENEFITS <br /> <br />Recommendation for the proposed allocation of the annual benefit of $50 million is as <br />follows: <br /> <br />1. Franchise agreements for cities other than Houston will be extended for 30 years or <br />until 2046, which ever is sooner, contingent on an approved settlement agreement. <br />The franchise payments for these cities will be based on the average of the two <br />highest years from 1998-2005, but in no case will it be less than the highest annual <br />payment received since deregulation. 1bis is consistent with the mechanism used in <br />the City of Houston's new franchise agreement. Re-negotiated franchises are not <br />reflected in current base rates and will be taken into account under paragraph 4 of the <br />term sheet The City of Houston annual franchise payment increased by <br />approximately $20 million. <br />2. Storm reserve in the amount of $5 million is an estimated annual amount to build the <br />reserve to handle costs associated with a catastrophic event and will be applied on a <br />system-wide basis only. <br />3. Additional ConservationJEnergy Efficiency measures above those included in current <br />base rates are projected to be approximately $15 millIon a year. The projected <br />funding will be allocated between the City of Houston (40%) and all remaining areas <br />(60%). The 40% allocation approximates the revenues received from meters located <br />within the City of Houston. <br />4. Any remaining dollars that have not been used to achieve the $50 million annual <br />benefit will be allocated to Public use to promote health, safety & welfare of citizens <br />and provide rate credits. These amounts will be allocated based on a ratio of kwh <br />delivered in each city to the kwh delivered on the total system. <br /> <br />Based on above, the following allocations were determined: <br /> <br />Total system wide annual benefit $50 million <br /> <br />1) Houston total * <br />Conservation/Energy Efficiency <br />Public Use <br /> <br />$16 million <br />$ 6 million <br />$10 million <br /> <br />2) Non Houston total <br />Franchise <br />Conservation/Energy Efficiency <br />Public Use <br /> <br />$29 million <br />$ 4 million <br />$ 9 million <br />$16 million <br /> <br />3) Storm Reserve <br /> <br />$ 5 million <br /> <br />* Increases to $36 million when renegotiated Franchise payment of $20 million is added. <br /> <br />Confidential for settlement purposes only <br /> <br />4 <br />