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EX-32.1 - SECTION 1350 CERTIFICATION OF DAVID M. MCCLANAHAN - CENTERPOINT ENERGY HOUSTON ELECTRIC LLCcehe_exhibit321x03312012.htm
EX-32.2 - SECTION 1350 CERTIFICATION OF GARY L. WHITLOCK - CENTERPOINT ENERGY HOUSTON ELECTRIC LLCcehe_exhibit322x03312012.htm
EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF DAVID M. MCCLANAHAN - CENTERPOINT ENERGY HOUSTON ELECTRIC LLCcehe_exhibit311x03312012.htm
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF GARY L. WHITLOCK - CENTERPOINT ENERGY HOUSTON ELECTRIC LLCcehe_exhibit312x03312012.htm
EX-12 - COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES - CENTERPOINT ENERGY HOUSTON ELECTRIC LLCcehe_exhibit12x03312012.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
 
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
FOR THE TRANSITION PERIOD FROM                TO                             

Commission file number 1-3187
______________________________

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
(Exact name of registrant as specified in its charter)
Texas
22-3865106
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
1111 Louisiana
 
Houston, Texas 77002
(713) 207-1111
(Address and zip code of principal executive offices)
(Registrant’s telephone number, including area code)
______________________________

CenterPoint Energy Houston Electric, LLC meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No o

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 o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes o No þ
As of April 16, 2012, all 1,000 common shares of CenterPoint Energy Houston Electric, LLC were held by Utility Holding, LLC, a wholly owned subsidiary of CenterPoint Energy, Inc.

 




CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2012

TABLE OF CONTENTS
 
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
Condensed Statements of Consolidated Income
 
 
Three Months Ended March 31, 2011 and 2012 (unaudited)
 
 
 
 
Condensed Consolidated Balance Sheets
 
 
December 31, 2011 and March 31, 2012 (unaudited)
 
 
 
 
Condensed Statements of Consolidated Cash Flows
 
 
Three Months Ended March 31, 2011 and 2012 (unaudited)
 
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management’s Narrative Analysis of Results of Operations
 
 
 
Item 4.
Controls and Procedures
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 

i


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.

The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:

state and federal legislative and regulatory actions or developments affecting various aspects of our business, including, among others, energy deregulation or re-regulation, health care reform, financial reform and tax legislation;

state and federal legislative and regulatory actions or developments relating to the environment, including those related to global climate change;

timely and appropriate rate actions and increases, allowing recovery of costs and a reasonable return on investment;

the timing and outcome of any audits, disputes and other proceedings related to taxes;

industrial, commercial and residential growth in our service territory and changes in market demand, including the effects of energy efficiency measures and demographic patterns;

weather variations and other natural phenomena;

any direct or indirect effects on our facilities, operations and financial condition resulting from terrorism, cyber attacks, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other catastrophic events;

the impact of unplanned facility outages;

timely and appropriate regulatory actions allowing securitization or other recovery of costs associated with any future hurricanes or natural disasters;

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 credit rating agencies;

inability of various counterparties to meet their obligations to us;

non-payment for our services due to financial distress of our customers;

the ability of GenOn Energy, Inc. (formerly known as RRI Energy, Inc., Reliant Energy, Inc. and Reliant Resources, Inc.) and its subsidiaries to satisfy their obligations to us, including indemnity obligations;

the ability of retail electric providers (REPs), including REP affiliates of NRG Energy, Inc. and REP affiliates of Energy Future Holdings Corp., which are our two largest customers, to satisfy their obligations to us and our subsidiaries;


ii


the outcome of litigation brought by or against us;

our ability to control costs;

the investment performance of CenterPoint Energy, Inc.’s pension and postretirement benefit plans;

our potential business strategies, including restructurings, acquisitions or dispositions of assets or businesses, which we cannot assure you 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 in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011, which is incorporated herein by reference, and other reports we file from time to time with the Securities and Exchange Commission.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement.


iii


PART I. FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Millions of Dollars)
(Unaudited)
 
Three Months Ended March 31,
 
2011
 
2012
 
(in millions)
Revenues
$
489

 
$
531

 
 
 
 
Expenses:
 

 
 

Operation and maintenance
210

 
225

Depreciation and amortization
125

 
147

Taxes other than income taxes
53

 
52

Total
388

 
424

Operating Income
101

 
107

 
 
 
 
Other Income (Expense):
 

 
 

Interest and other finance charges
(37
)
 
(38
)
Interest on transition and system restoration bonds
(33
)
 
(37
)
Other, net
8

 
9

Total
(62
)
 
(66
)
Income Before Income Taxes
39

 
41

Income tax expense
15

 
5

Net Income
$
24

 
$
36


See Notes to the Interim Condensed Consolidated Financial Statements



1


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)

ASSETS
 
December 31,
 
March 31,
 
2011
 
2012
 
(in millions)
 
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents ($220 and $109 related to VIEs at December 31, 2011 and March 31, 2012, respectively)
$
220

 
$
995

Accounts and notes receivable, net ($52 and $64 related to VIEs at December 31, 2011 and March 31, 2012, respectively)
201

 
208

Accounts and notes receivable—affiliated companies
1,027

 
22

Accrued unbilled revenues
72

 
62

Inventory
80

 
83

Taxes receivable
2

 

Deferred tax asset
3

 
3

Other ($42 and $56 related to VIEs at December 31, 2011 and March 31, 2012, respectively)
65

 
76

Total current assets
1,670

 
1,449

 
 
 
 
Property, Plant and Equipment:
 
 
 
Property, plant and equipment
7,827

 
7,927

Less accumulated depreciation and amortization
2,784

 
2,812

Property, plant and equipment, net
5,043

 
5,115

 
 
 
 
Other Assets:
 

 
 

Regulatory assets ($2,289 and $3,899 related to VIEs at December 31, 2011 and March 31, 2012, respectively)
3,726

 
3,646

Notes receivable—affiliated companies
750

 
750

Other
35

 
44

Total other assets
4,511

 
4,440

 
 
 
 
Total Assets
$
11,224

 
$
11,004



See Notes to the Interim Condensed Consolidated Financial Statements


















2


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)

LIABILITIES AND MEMBERS EQUITY
 
December 31,
 
March 31,
 
2011
 
2012
 
(in millions)
 
 
 
 
Current Liabilities:
 

 
 

Current portion of VIE transition and system restoration bonds long-term debt
$
307

 
$
380

Current portion of other long-term debt
46

 
496

Accounts payable
113

 
85

Accounts and notes payable—affiliated companies
32

 
31

Taxes accrued
101

 
62

Interest accrued
96

 
47

Other
98

 
90

Total current liabilities
793

 
1,191

Other Liabilities:
 

 
 

Accumulated deferred income taxes, net
2,113

 
2,137

Benefit obligations
252

 
251

Regulatory liabilities
441

 
460

Notes payable—affiliated companies
151

 
151

Other
78

 
45

Total other liabilities
3,035

 
3,044

Long-term Debt:
 

 
 

VIE transition and system restoration bonds
2,215

 
3,686

Other
2,047

 
1,597

Total long-term debt
4,262

 
5,283

 
 
 
 
Commitments and Contingencies (Note 8)


 


 
 
 
 
Member’s Equity:
 
 
 
Common stock

 

Paid-in capital
1,230

 
1,231

Retained earnings
1,904

 
255

Total member’s equity
3,134

 
1,486

 
 
 
 
Total Liabilities and Member’s Equity
$
11,224

 
$
11,004



See Notes to the Interim Condensed Consolidated Financial Statements

3


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
(Unaudited)
 
Three Months Ended March 31,
 
2011
 
2012
 
(in millions)
Cash Flows from Operating Activities:
 
 
 
Net income
$
24

 
$
36

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
125

 
147

Amortization of deferred financing costs
3

 
3

Deferred income taxes
26

 
(11
)
Changes in other assets and liabilities:
 

 
 

Accounts and notes receivable, net
2

 
3

Accounts receivable/payable, affiliates
(14
)
 
(6
)
Inventory
1

 
(3
)
Accounts payable
(9
)
 
(21
)
Taxes receivable
29

 
2

Interest and taxes accrued
(106
)
 
(88
)
Net regulatory assets and liabilities
6

 
22

Other current assets
14

 
4

Other current liabilities
(3
)
 
(8
)
Other assets
(1
)
 
2

Other liabilities
(13
)
 
(1
)
Other, net
1

 

Net cash provided by operating activities
85

 
81

 
 
 
 
Cash Flows from Investing Activities:
 

 
 

Capital expenditures
(143
)
 
(143
)
Decrease in notes receivable from affiliates, net
53

 
1,010

Increase in restricted cash of transition and system restoration bond companies

 
(15
)
Cash received from U.S. Department of Energy grant
32

 

Other, net
(2
)
 
(10
)
Net cash provided by (used in) investing activities
(60
)
 
842

 
 
 
 
Cash Flows from Financing Activities:
 

 
 

Proceeds from long-term debt

 
1,695

Payments of long-term debt
(141
)
 
(151
)
Dividend to parent

 
(1,685
)
Debt issuance costs

 
(8
)
Other, net

 
1

Net cash used in financing activities
(141
)
 
(148
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
(116
)
 
775

Cash and Cash Equivalents at Beginning of Period
198

 
220

Cash and Cash Equivalents at End of Period
$
82

 
$
995

 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 

 
 

Cash Payments:
 

 
 

Interest, net of capitalized interest
$
130

 
$
123

Income tax refunds, net
(44
)
 
(1
)
Non-cash transactions:
 

 
 

Accounts payable related to capital expenditures
$
30

 
$
47


See Notes to the Interim Condensed Consolidated Financial Statements



4


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)
Background and Basis of Presentation

General. Included in this Quarterly Report on Form 10-Q (Form 10-Q) of CenterPoint Energy Houston Electric, LLC are the condensed consolidated interim financial statements and notes (Interim Condensed Financial Statements) of CenterPoint Energy Houston Electric, LLC and its subsidiaries (collectively, CenterPoint Houston). The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the Annual Report on Form 10-K of CenterPoint Houston for the year ended December 31, 2011.

Background. CenterPoint Houston engages in the electric transmission and distribution business in the Texas Gulf Coast area that includes the city of Houston.  CenterPoint Houston is an indirect wholly owned subsidiary of CenterPoint Energy, Inc. (CenterPoint Energy), a public utility holding company.  At March 31, 2012, CenterPoint Houston had five subsidiaries, CenterPoint Energy Transition Bond Company, LLC, CenterPoint Energy Transition Bond Company II, LLC, CenterPoint Energy Transition Bond Company III, LLC, CenterPoint Energy Restoration Bond Company, LLC and CenterPoint Energy Transition Bond Company IV, LLC (Bond Company IV).  The transition and system restoration bond companies, which are classified as variable interest entities, are wholly-owned bankruptcy remote special purpose entities that were formed specifically for the purpose of securitizing transition and system restoration related property. Creditors of CenterPoint Houston have no recourse to any assets or revenues of the transition and system restoration bond companies. The bonds issued by these companies are payable only from and secured by transition and system restoration property and the bondholders have no recourse to the general credit of CenterPoint Houston.

Basis of Presentation. The preparation of financial statements in conformity with generally accepted accounting principles (U.S. GAAP) 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.

CenterPoint Houston’s Interim Condensed Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the respective periods. Amounts reported in CenterPoint Houston’s Condensed Statements of Consolidated Income are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy, (b) timing of maintenance and other expenditures and (c) acquisitions and dispositions of businesses, assets and other interests.

(2)
New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board issued new accounting guidance to achieve common fair value measurements and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. Some of the provisions of the new accounting guidance include requiring (1) that only non-financial assets should be valued based on a determination of their best use, (2) disclosure of quantitative information about unobservable inputs used in Level 3 fair value measurements and (3) disclosure of the level within the fair value hierarchy for each class of assets or liabilities not measured at fair value in the statement of financial position but for which the fair value is disclosed. This new guidance was effective for interim and annual periods beginning after December 15, 2011.  CenterPoint Houston’s adoption of this new guidance did not have an impact on its financial position, results of operations or cash flows.

Management believes the impact of other recently issued standards, which are not yet effective, will not have a material impact on CenterPoint Houston’s consolidated financial position, results of operations or cash flows upon adoption.

5



(3)
Employee Benefit Plans

CenterPoint Houston’s employees participate in CenterPoint Energy’s postretirement benefit plan. CenterPoint Houston’s net periodic cost includes the following components relating to postretirement benefits:
 
 
Three Months Ended March 31,
 
 
2011
 
2012
 
 
(in millions)
Interest cost
 
$
4

 
$
4

Expected return on plan assets
 
(2
)
 
(2
)
Amortization of loss
 

 
1

Amortization of transition obligation
 
1

 
1

Net periodic cost
 
$
3

 
$
4


CenterPoint Houston expects to contribute approximately $7 million to its postretirement benefit plan in 2012, of which $2 million was contributed during the three months ended March 31, 2012.

(4)
Regulatory Accounting

As of March 31, 2012, CenterPoint Houston has not recognized an allowed equity return of $592 million because such return will be recognized as it is recovered in rates. During the three months ended March 31, 2011 and 2012, CenterPoint Houston recognized approximately $3 million and $8 million, respectively, of the allowed equity return not previously recognized.   

(5)
Fair Value Measurements

Assets and liabilities are recorded at fair value in the Condensed Consolidated Balance Sheets and are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined below 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 are investments listed in active markets.  At December 31, 2011 and March 31, 2012, CenterPoint Houston held Level 1 investments of $38 million and $52 million, respectively, which were primarily money market funds.

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. CenterPoint Houston had no Level 2 assets or liabilities at either December 31, 2011 or March 31, 2012.

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. These inputs reflect management’s best estimate of the assumptions market participants would use in determining fair value.  CenterPoint Houston had no Level 3 assets or liabilities at either December 31, 2011 or March 31, 2012.

CenterPoint Houston determines the appropriate level for each financial asset and liability on a quarterly basis and recognizes any transfers at the end of the reporting period. For the quarter ended March 31, 2012, there were no transfers between levels.


6


Estimated Fair Value of Financial Instruments

The fair values of cash and cash equivalents, short-term borrowings and the $750 million note receivable from CenterPoint Houston’s parent are estimated to be equivalent to carrying amounts and have been excluded from the table below.  The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by the market price. These assets and liabilities, which are not measured at fair value in the Condensed Consolidated Balance Sheets but for which the fair value is disclosed, would be classified as Level 1 in the fair value hierarchy.
 
December 31, 2011
 
March 31, 2012
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
(in millions)
Financial liabilities:
 
 
 
 
 
 
 
Long-term debt (including $151 million of long-term notes payable to parent)
$
4,765

 
$
5,345

 
$
6,310

 
$
6,889


(6)
Related Party Transactions and Major Customers

(a) Related Party Transactions

CenterPoint Houston participates in a money pool through which it 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 CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper.  CenterPoint Houston had investments in the money pool of $1.0 billion and $-0- at December 31, 2011 and March 31, 2012, respectively, which are included in accounts and notes receivable-affiliated companies in the Condensed Consolidated Balance Sheets.  

At December 31, 2011 and March 31, 2012, CenterPoint Houston had a $750 million note receivable from its parent.

For both the three months ended March 31, 2011 and 2012, CenterPoint Houston had net interest income related to affiliate borrowings of $5 million.

CenterPoint Energy provides some corporate services to CenterPoint Houston. The costs of services have been charged directly to CenterPoint Houston using methods that management believes are reasonable. These methods include negotiated usage rates, dedicated asset assignment and proportionate corporate formulas based on operating expenses, assets, gross margin, employees and a composite of assets, gross margin and employees. These charges are not necessarily indicative of what would have been incurred had CenterPoint Houston not been an affiliate. Amounts charged to CenterPoint Houston for these services were $34 million and $37 million for the three months ended March 31, 2011 and 2012, respectively, and are included primarily in operation and maintenance expenses.

(b) Major Customers

Sales to affiliates of NRG Energy, Inc. (NRG) in the three months ended March 31, 2011 and 2012 represented approximately$126 million and $140 million, respectively, of CenterPoint Houston’s transmission and distribution revenues.  Sales to affiliates of Energy Future Holdings Corp. in the three months ended March 31, 2011 and 2012 represented approximately $40 million and $36 million, respectively, of CenterPoint Houston's transmission and distribution revenues.

(7)
Long-term Debt

Transition Bonds. In January 2012, Bond Company IV issued $1.695 billion of transition bonds in three tranches with interest rates ranging from 0.9012% to 3.0282% and final maturity dates ranging from April 15, 2018 to October 15, 2025. The transition bonds will be repaid over time through a charge imposed on customers in CenterPoint Houston’s service territory.

Revolving Credit Facility. As of December 31, 2011 and March 31, 2012, CenterPoint Houston had the following revolving credit facility and utilization of such facility (in millions):
 
 
December 31, 2011
 
March 31, 2012
Size of
Facility
 
Loans
 
Letters
of Credit
 
Loans
 
Letters
of Credit
$
300

 
$

 
$
4

 
$

 
$
4


7



CenterPoint Houston’s $300 million credit facility, which is scheduled to terminate September 9, 2016, can be drawn at the London Interbank Offered Rate (LIBOR) plus 150 basis points based on CenterPoint Houston’s current credit ratings. The facility contains a debt (excluding transition and system restoration bonds) to total capitalization covenant, limiting debt to 65% of its capitalization.

Other. At both December 31, 2011 and March 31, 2012, CenterPoint Houston had issued $151 million of first mortgage bonds as collateral for long-term debt of CenterPoint Energy. As of December 31, 2011 and March 31, 2012, CenterPoint Houston had issued $508 million and $408 million of general mortgage bonds as collateral for long-term debt of CenterPoint Energy, respectively. These bonds are not reflected in the consolidated financial statements because of the contingent nature of the obligations.

(8)
Commitments and Contingencies

Legal Matters

Gas Market Manipulation Cases.  CenterPoint Energy, CenterPoint Houston or their predecessor, Reliant Energy, Incorporated (Reliant Energy), and certain of their former subsidiaries are named as defendants in certain lawsuits described below. Under a master separation agreement between CenterPoint Energy and a former subsidiary, RRI Energy, Inc. (RRI), CenterPoint Energy and its subsidiaries, including CenterPoint Houston, are entitled to be indemnified by RRI and its successors for any losses, including attorneys’ fees and other costs, arising out of these lawsuits.  In May 2009, RRI sold its Texas retail business to a subsidiary of NRG and changed its name to RRI Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly owned subsidiary of RRI, and RRI changed its name to GenOn Energy, Inc. (GenOn). Neither the sale of the retail business nor the merger with Mirant Corporation alters RRI’s (now GenOn’s) contractual obligations to indemnify CenterPoint Energy and its subsidiaries, including CenterPoint Houston, for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation.

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 2000-2002. CenterPoint Energy’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. CenterPoint Energy and/or Reliant Energy were named in approximately 30 of these lawsuits, which were instituted between 2003 and 2009. CenterPoint Energy and its affiliates have been released or dismissed from all but two of such cases. CenterPoint Energy Services, Inc. (CES), a subsidiary of CenterPoint Energy Resources Corp., is a defendant in a case now pending in federal court in Nevada alleging a conspiracy to inflate Wisconsin natural gas prices in 2000-2002. In July 2011, the court issued an order dismissing the plaintiffs’ claims against the other defendants in the case, each of whom had demonstrated Federal Energy Regulatory Commission jurisdictional sales for resale during the relevant period, based on federal preemption.  The plaintiffs have appealed this ruling to the United States Court of Appeals for the Ninth Circuit. Additionally, CenterPoint Energy was a defendant in a lawsuit filed in state court in Nevada that was dismissed in 2007, but in March 2010 the plaintiffs appealed the dismissal to the Nevada Supreme Court. CenterPoint Energy believes that neither it nor CES is a proper defendant in these remaining cases and will continue to pursue dismissal from those cases. CenterPoint Houston does not expect the ultimate outcome of these remaining matters to have a material impact on its financial condition, results of operations or cash flows.

Environmental Matters

Asbestos. Some facilities owned by CenterPoint Energy contain or have contained asbestos insulation and other asbestos-containing materials. CenterPoint Energy or its subsidiaries, including CenterPoint Houston, 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 CenterPoint Energy or CenterPoint Houston, but most existing claims relate to facilities previously owned by CenterPoint Energy’s other subsidiaries or CenterPoint Houston, but currently owned by NRG Texas LP. CenterPoint Energy anticipates that additional claims like those received may be asserted in the future. In 2004 and early 2005, CenterPoint Energy sold its generating business, to which most of these claims relate, to a company which is now an affiliate of NRG. Under the terms of the arrangements regarding separation of the generating business from CenterPoint Energy and its sale of that business, ultimate financial responsibility for uninsured losses from claims relating to the generating business has been assumed by the NRG affiliate, but CenterPoint Energy has agreed to continue to defend such claims to the extent they are covered by insurance maintained by CenterPoint Energy, subject to reimbursement of the costs of such defense by the NRG affiliate. Although their ultimate outcome cannot be predicted at this time, CenterPoint Houston or CenterPoint Energy, as appropriate, intends to continue vigorously contesting claims that are not considered to have merit and CenterPoint Houston does not expect, based on its experience to date, these matters,

8


either individually or in the aggregate, to have a material adverse effect on its financial condition, results of operations or cash flows.

Other Environmental.  From time to time CenterPoint Houston identifies the presence of environmental contaminants on property where it conducts or has conducted operations.  Other such sites involving contaminants may be identified in the future.  CenterPoint Houston has and expects to continue to remediate identified sites consistent with its legal obligations. From time to time CenterPoint Houston has received notices from regulatory authorities or others regarding its status as a potentially responsible party in connection with sites found to require remediation due to the presence of environmental contaminants. In addition, CenterPoint Houston 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, CenterPoint Houston does not expect, based on its experience to date, these matters, either individually or in the aggregate, to have a material adverse effect on its financial condition, results of operations or cash flows.

Other Proceedings

CenterPoint Houston 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. CenterPoint Houston regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. CenterPoint Houston does not expect the disposition of these matters to have a material adverse effect on its financial condition, results of operations or cash flows.

(9)       Income Taxes

CenterPoint Houston reported an effective tax rate of 12% for the three months ended March 31, 2012 compared to 38% for the same period in 2011. The decrease in the effective tax rate of 26% was primarily due to a $10 million reduction to the uncertain tax liability related to a settlement with the Internal Revenue Service (IRS) of CenterPoint Energy’s consolidated federal income tax returns for tax years 2006 and 2007 of which CenterPoint Houston is a member.

The following table summarizes CenterPoint Houston’s unrecognized tax benefits at December 31, 2011 and March 31, 2012:
 
 
December 31, 2011
 
March 31, 2012
 
 
(in millions)
Unrecognized tax benefits
 
$
44

 
$
12

Portion of unrecognized tax benefits that, if recognized,
would reduce the effective income tax rate
 
18

 
12

Interest accrued on unrecognized tax benefits
 
5

 
(1
)

CenterPoint Houston does not expect the amount of unrecognized tax benefits to change significantly over the 12 months ending March 31, 2013.

CenterPoint Energy’s consolidated federal income tax returns, of which CenterPoint Houston is a member, are currently under examination by the IRS for tax years 2008 and 2009 and are at various stages of the examination process.

9



ITEM 2.    MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

The following narrative analysis should be read in combination with our Interim Condensed Financial Statements contained in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K).

We meet the conditions specified in General Instruction H(1)(a) and (b) to Form 10-Q and are therefore permitted to use the reduced disclosure format for wholly owned subsidiaries of reporting companies. Accordingly, we have omitted from this report the information called for by Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I and the following Part II items of Form 10-Q: Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds), Item 3 (Defaults Upon Senior Securities) and Item 4 (Submission of Matters to a Vote of Security Holders). The following discussion explains material changes in our results of operations between the three months ended March 31, 2011 and the three months ended March 31, 2012. Reference is made to “Management’s Narrative Analysis of Results of Operations” in Item 7 of our 2011 Form 10-K.

EXECUTIVE SUMMARY

Recent Events

Debt Financing Transaction
 
In January 2012, CenterPoint Energy Transition Bond Company IV, LLC (Bond Company IV), our new special purpose subsidiary, issued $1.695 billion of transition bonds in three tranches with interest rates ranging from 0.9012% to 3.0282% and final maturity dates ranging from April 15, 2018 to October 15, 2025. Through the issuance of these transition bonds, we recovered an additional true-up balance of $1.695 billion (the Recoverable True-Up Balance), less approximately $10.4 million of offering expenses. The transition bonds will be repaid over time through a charge imposed on customers in our service territory.

CONSOLIDATED RESULTS OF OPERATIONS

Our results of operations are affected by seasonal fluctuations in the demand for electricity. Our results of operations are also affected by, among other things, the actions of various governmental authorities having jurisdiction over rates we charge, debt service costs, income tax expense, our ability to collect receivables from retail electric providers (REPs) and our ability to recover our stranded costs and regulatory assets. For more information regarding factors that may affect the future results of operations of our business, please read “Risk Factors” in Item 1A of Part I of the 2011 Form 10-K.


10


The following table sets forth our consolidated results of operations for the three months ended March 31, 2011 and 2012, followed by a discussion of our consolidated results of operations based on operating income.
 
Three Months Ended March 31,
 
2011
 
2012
 
(in millions, except throughput and customer data)
Revenues:
 
 
 
Electric transmission and distribution utility
$
400

 
$
415

Transition and system restoration bond companies
89

 
116

Total revenues
489

 
531

Expenses:
 

 
 

Operation and maintenance, excluding transition and system restoration bond companies
208

 
220

Depreciation and amortization, excluding transition and system restoration bond companies
71

 
73

Taxes other than income taxes
53

 
52

Transition and system restoration bond companies
56

 
79

Total expenses
388

 
424

Operating income
101

 
107

Interest and other finance charges
(37
)
 
(38
)
Interest on transition and system restoration bonds
(33
)
 
(37
)
Other income, net
8

 
9

Income before income taxes
39

 
41

Income tax expense
15

 
5

Net income
$
24

 
$
36

 
 
 
 
Operating Income:
 
 
 
Electric transmission and distribution utility
68

 
70

Transition and system restoration bond companies (1)
33

 
37

Total operating income
101

 
107

 
 
 
 
Throughput (in gigawatt-hours (GWh)):
 

 
 

Residential
4,871

 
4,525

Total
16,768

 
16,544

 
 
 
 
Number of metered customers at end of period:
 

 
 

Residential
1,879,796

 
1,914,906

Total
2,124,809

 
2,167,052

___________
(1) Represents the amount necessary to pay interest on the transition and system restoration bonds.

Three months ended March 31, 2012 compared to three months ended March 31, 2011

We reported operating income of $107 million for the three months ended March 31, 2012, consisting of $70 million from the regulated electric transmission and distribution utility (TDU) and $37 million related to transition and system restoration bond companies (Bond Companies). For the three months ended March 31, 2011, operating income totaled $101 million, consisting of $68 million from the TDU and $33 million related to Bond Companies. TDU operating income increased $2 million due to increased miscellaneous revenues ($11 million), primarily from right-of-way access and land grants, customer growth ($5 million) from the addition of over 42,000 new customers and higher equity return ($4 million) primarily due to the recovery of true-up proceeds, partially offset by the impact of the 2010 rate case implemented in September 2011 ($11 million) and decreased usage ($8 million), primarily due to milder winter weather.

Income Tax Expense. We reported an effective tax rate of 12% for the three months ended March 31, 2012 compared to 38% for the same period in 2011. The decrease in the effective tax rate of 26% was primarily due to a $10 million reduction to the uncertain tax liability related to a settlement with the Internal Revenue Service of CenterPoint Energy, Inc.’s (CenterPoint Energy) consolidated federal income tax returns for tax years 2006 and 2007 of which we are a member.


11




CERTAIN FACTORS AFFECTING FUTURE EARNINGS

For information on other developments, factors and trends that may have an impact on our future earnings, please read “Risk Factors” in Item 1A of Part I of our 2011 Form 10-K and “Management’s Narrative Analysis of Results of Operations - Certain Factors Affecting Future Earnings” in Item 7 of Part II of our 2011 Form 10-K and “Cautionary Statement Regarding Forward-Looking Information” in this Form 10-Q.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital requirements are affected primarily by our results of operations, capital expenditures, debt service requirements, tax payments and working capital needs. Substantially all of our capital expenditures are expected to be used for investment in infrastructure to maintain the reliability and safety of our operations. Our principal anticipated cash requirements for the remaining nine months of 2012 include approximately $439 million of capital expenditures, $219 million of scheduled principal payments on transition and system restoration bonds and the retirement of long-term debt aggregating $46 million that matured in April 2012.

We expect our external temporary investments and cash flows from operations will be sufficient to meet our anticipated cash needs in the remaining nine months of 2012. In March 2012, we distributed approximately $1.7 billion to our parent. Funds for the payment of the distribution were obtained from our January 2012 sale of transition property in connection with the issuance of transition bonds by Bond Company IV.

Longer term cash requirements or discretionary financing or refinancing may result in the issuance of debt securities in the capital markets, borrowing under our revolving credit facility or the arrangement of additional credit facilities. Issuances of debt in the capital markets and additional credit facilities may not, however, be available to us on acceptable terms.

Off-Balance Sheet Arrangements.  Other than first mortgage bonds and general mortgage bonds issued as collateral for long-term debt of CenterPoint Energy as discussed below and operating leases, we have no off-balance sheet arrangements.

Regulatory Matters. Regulatory developments that have occurred since our 2011 Form 10-K was filed with the Securities and Exchange Commission (SEC) are discussed below.

June 2010 Rate Case. The order on rehearing issued by the Public Utility Commission of Texas (Texas Utility Commission) in connection with our 2010 rate case was appealed to the Texas courts by various parties and we currently expect a trial will be scheduled for December 2012.

Other.  In May 2012, we filed an application with the Texas Utility Commission requesting approval to recover a total of approximately $48.6 million in 2013 consisting of: (1) estimated 2013 energy efficiency program costs of $42.9 million; (2) a credit of $1.8 million related to the over-recovery of 2011 program costs; (3) a performance incentive for 2011 program achievements of $6.3 million; (4) $1.1 million for anticipated 2013 evaluation measurement and verification expenses; and (5) certain rate case expenses.  The proposed adjustments are expected to take effect with the commencement of our January 2013 billing month.

Debt Financing Transaction. In January 2012, Bond Company IV issued $1.695 billion of transition bonds in three tranches with interest rates ranging from 0.9012% to 3.0282% and final maturity dates ranging from April 15, 2018 to October 15, 2025. Through the issuance of the transition bonds, we recovered the Recoverable True-Up Balance, less approximately $10.4 million of offering expenses. The transition bonds will be repaid over time through a charge imposed on customers in our service territory.

Credit Facility.  As of April 16, 2012, we had the following revolving credit facility and utilization of such facility (in millions):
Date Executed
 
Size of
Facility
 
Amount
Utilized at
April 16, 2012
 
 
Termination Date
September 9, 2011
 
$
300

 
$
4

(1)
 
September 9, 2016
_________
(1)
Represents outstanding letters of credit.

Our $300 million credit facility can be drawn at London Interbank Offered Rate (LIBOR) plus 150 basis points based on our

12


current credit ratings. The facility contains a debt (excluding transition and system restoration bonds) to total capitalization covenant which limits debt to 65% of our total capitalization.

Borrowings under our credit facility are subject to customary terms and conditions. However, there is no requirement that we 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 our credit facility are subject to acceleration upon the occurrence of events of default that we consider customary.  The facility also provides for customary fees, including commitment fees, administrative agent fees, fees in respect of letters of credit and other fees. In our credit facility, the LIBOR borrowing spread and the commitment fees fluctuate based on our credit rating. We are currently in compliance with the various business and financial covenants contained in our credit facility.

Securities Registered with the SEC. We have filed a shelf registration statement with the SEC registering an indeterminate principal amount of our general mortgage bonds.

Temporary Investments.  As of April 16, 2012, we had external temporary investments aggregating $865 million.

Money Pool.  We participate in a money pool through which we and certain of our affiliates 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 CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper. As of April 16, 2012, we had no investments in or borrowings from the money pool. The money pool may not provide sufficient funds to meet our cash needs.

Long-term Debt.  Our long-term debt consists of our obligations and the obligations of our subsidiaries, including transition and system restoration bonds issued by wholly owned subsidiaries.  The following table shows future maturity dates of long-term debt issued by us to third parties and affiliates and scheduled future payment dates of transition and system restoration bonds issued by our subsidiaries, CenterPoint Energy Transition Bond Company, LLC (Bond Company), CenterPoint Energy Transition Bond Company II, LLC (Bond Company II), CenterPoint Energy Transition Bond Company III, LLC (Bond Company III), CenterPoint Energy Restoration Bond Company, LLC (Restoration Bond Company) and Bond Company IV as of March 31, 2012. Amounts are expressed in millions.
Year
 
Third-Party
 
Affiliate
 
Sub-Total
 
Transition and System
Restoration Bonds
 
Total
2012
 
$
46

 
$

 
$
46

 
$
219

 
$
265

2013
 
450

 

 
450

 
447

 
897

2014
 
800

 

 
800

 
354

 
1,154

2015
 

 
151

 
151

 
372

 
523

2016
 

 

 

 
391

 
391

2017
 
127

 

 
127

 
411

 
538

2018
 

 

 

 
434

 
434

2019
 

 

 

 
459

 
459

2020
 

 

 

 
231

 
231

2021
 
102

 

 
102

 
211

 
313

2022
 

 

 

 
220

 
220

2023
 
200

 

 
200

 
156

 
356

2024
 

 

 

 
162

 
162

2027
 
56

 

 
56

 

 
56

2033
 
312

 

 
312

 

 
312

Total
 
$
2,093

 
$
151

 
$
2,244

 
$
4,067

 
$
6,311


As of March 31, 2012, outstanding first mortgage bonds and general mortgage bonds aggregated approximately $2.7 billion as shown in the following table.  Amounts are expressed in millions.
 
Issued Directly
to Third Parties
 
Issued as
Collateral for Our
Debt
 
Issued as Collateral
for CenterPoint
Energy’s Debt
 
Total
First Mortgage Bonds
$
102

 
$

 
$
151

 
$
253

General Mortgage Bonds
1,762

 
229

 
408

(1)
2,399

Total                                
$
1,864

 
$
229

 
$
559

 
$
2,652


13


 _________
(1)
Includes $290 million principal amount collateralizing bonds purchased by CenterPoint Energy in January 2010, which may be remarketed.

The lien of the general mortgage indenture is junior to that of the mortgage pursuant to which the first mortgage bonds are issued. We may issue additional general mortgage bonds on the basis of retired bonds, 70% of property additions or cash deposited with the trustee.  Approximately $2.6 billion of additional first mortgage bonds and general mortgage bonds could be issued on the basis of retired bonds and 70% of property additions as of March 31, 2012. However, we have contractually agreed that we will not issue additional first mortgage bonds, subject to certain exceptions.

The following table shows the maturity dates of the $559 million of first mortgage bonds and general mortgage bonds that we have issued as collateral for long-term debt of CenterPoint Energy. These bonds are not reflected in our consolidated financial statements because of the contingent nature of the obligations. Amounts are expressed in millions.
 
Year
 
First
Mortgage Bonds
 
General
Mortgage Bonds
 
Total
2015
 
151

 

 
151

2018
 

 
50

 
50

2019
 

 
200

(1) 
200

2020
 

 
90

(1) 
90

2028
 

 
68

 
68

Total               
 
$
151

 
$
408

 
$
559

____________
(1)
These mortgage bonds collateralize bonds purchased by CenterPoint Energy in January 2010, which may be remarketed by CenterPoint Energy.

At March 31, 2012, our subsidiaries had the following aggregate principal amount of transition and system restoration bonds outstanding. Amounts are expressed in millions.
Company
 
Aggregate Principal Amount Outstanding
 
 
 
Bond Company
 
$
174

Bond Company II
 
1,250

Bond Company III
 
372

Bond Company IV
 
1,695

Restoration Bond Company
 
576

Total
 
$
4,067


The transition bonds and system restoration bonds are paid through the imposition of “transition” or “system restoration” charges, as defined in the Texas Public Utility Regulatory Act, which are irrevocable, non-bypassable charges payable by most of our retail electric customers in order to provide recovery of authorized qualified costs. The transition and system restoration bonds are reported as our long-term debt, although the holders of these bonds have no recourse to any of our assets or revenues, and our creditors have no recourse to any assets or revenues (including, without limitation, the transition or system restoration charges) of the bond companies. We have no payment obligations with respect to the transition and system restoration bonds except to remit collections of transition and system restoration charges as set forth in servicing agreements between us and the bond companies and in an intercreditor agreement among us, the bond companies and other parties.

Impact on Liquidity of a Downgrade in Credit Ratings.  The interest on borrowings under our credit facility is based on our credit rating. As of April 16, 2012, Moody’s Investors Service, Inc. (Moody’s), Standard & Poor’s Ratings Services (S&P), a division of The McGraw Hill Companies, and Fitch, Inc. (Fitch) had assigned the following credit ratings to our senior debt.
 
 
Moody’s
 
S&P
 
Fitch
Instrument
 
Rating
 
Outlook(1)
 
Rating
 
Outlook (2)
 
Rating
 
Outlook (3)
Senior Secured Debt
 
A3
 
Stable
 
A-
 
Stable
 
A-
 
Positive

14


____________
(1)
A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’s rating over the medium term.

(2)
An S&P rating outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term.

(3)
A Fitch rating outlook encompasses a one- to two-year horizon as to the likely ratings direction.

We cannot assure you that the ratings set forth above 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 included for informational purposes and 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.

A decline in credit ratings could increase borrowing costs under our $300 million credit facility.  If our credit ratings had been downgraded one notch by each of the three principal credit rating agencies from the ratings that existed at March 31, 2012, the impact on the borrowing costs under our credit facility would have been immaterial.  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.

Cross Defaults. Under CenterPoint Energy’s $1.2 billion revolving credit facility, a payment default on, or a non-payment default that permits acceleration of, any indebtedness exceeding $75 million by us will cause a default. In addition, three outstanding series of CenterPoint Energy’s senior notes, aggregating $750 million in principal amount as of March 31, 2012, provide that a payment default by us 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 debt instruments or bank credit facility.

Other Factors that Could Affect Cash Requirements. In addition to the above factors, our liquidity and capital resources could be affected by:

increases in interest expense in connection with debt refinancings and borrowings under our credit facility;

various legislative or regulatory actions;

the ability of GenOn Energy, Inc. (GenOn) and its subsidiaries to satisfy their obligations in respect of GenOn’s indemnity obligations to us;

the ability of REPs, including REP affiliates of NRG Energy, Inc. and REP affiliates of Energy Future Holdings Corp., which are our two largest customers, to satisfy their obligations to us and our subsidiaries;

the outcome of litigation brought by and against us;

restoration costs and revenue losses resulting from future 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 Part I of our 2011 10-K.

Certain Contractual Limits on Our Ability to Issue Securities and Borrow Money. Our credit facility limits our debt (excluding transition and system restoration bonds) as a percentage of our total capitalization to 65%. Additionally, we have contractually agreed that we will not issue additional first mortgage bonds, subject to certain exceptions.

Relationship with CenterPoint Energy. We are an indirect wholly owned subsidiary of CenterPoint Energy. As a result of this relationship, the financial condition and liquidity of our parent company could affect our access to capital, our credit standing and our financial condition.

15



NEW ACCOUNTING PRONOUNCEMENTS
 
See Note 2 to our Interim Condensed Financial Statements, incorporated herein by reference, for a discussion of new accounting pronouncements that affect us.

Item 4.
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 March 31, 2012 to provide assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, 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 March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1.    LEGAL PROCEEDINGS

For a discussion of certain legal and regulatory proceedings affecting us, please read Note 8 to our Interim Condensed Financial Statements and “Management’s Narrative Analysis of Results of Operations - Liquidity and Capital Resources - Regulatory Matters”, each of which is incorporated herein by reference. See also “Business - Regulation” and “- Environmental Matters” in Item 1 and “Legal Proceedings” in Item 3 of our 2011 Form 10-K.

Item 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in our 2011 Form 10-K.

Item 5.    OTHER INFORMATION

Our ratio of earnings to fixed charges for the three months ended March 31, 2011 and 2012 was 1.54 and 1.53, respectively. We do not believe that the ratios for these three-month periods are necessarily indicative of the ratios for the twelve-month periods due to the seasonal nature of our business. The ratios were calculated pursuant to applicable rules of the Securities and Exchange Commission.

Item 6.    EXHIBITS

The following exhibits are filed herewith:

Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing of CenterPoint Houston or CenterPoint Energy as indicated.

Agreements included as exhibits are included only to provide information to investors regarding their terms. 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 no such agreement should be relied upon as constituting or providing any factual disclosures about CenterPoint Energy Houston Electric, LLC, any other persons, any state of affairs or other matters.


16


Exhibit
Number
 
Description
 
Report or Registration
Statement
 
SEC File or
Registration
Number
 
Exhibit
References
3.1
 
Restated Certificate of Formation of CenterPoint Houston
 
CenterPoint Houston’s Form 10-Q for the quarter ended June 30, 2011
 
1-3187
 
3.1
3.2
 
Amended and Restated Limited Liability Company Agreement of CenterPoint Houston
 
CenterPoint Houston’s Form 10-Q for the quarter ended June 30, 2011
 
1-3187
 
3.2
4.1
 
$300,000,000 Credit Agreement, dated as of September 9, 2011, among CenterPoint Houston, as Borrower, and the banks named therein
 
CenterPoint Houston’s Form 8-K dated September 9, 2011
 
1-3187
 
4.2
4.2
 
Indenture dated as of December 16, 2005
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated December 16, 2005
 
1-3187
 
4.1
4.3
 
First Supplemental Indenture relating to the Bonds dated as of December 16, 2005
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated December 16, 2005
 
1-3187
 
4.3
4.4
 
Form of Indenture, to be dated as of January 19, 2012
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated January 11, 2012
 
1-3187
 
4.1
4.5
 
Form of First Supplemental Indenture relating to the Bonds, to be dated as of January 19, 2012
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated January 11, 2012
 
1-3187
 
4.2
10.1
 
Form of Transition Property Sale Agreement, to be dated as of January 19, 2012
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated January 11, 2012
 
1-3187
 
10.1
+12
 
Computation of Ratios of Earnings to Fixed Charges
 
 
 
 
 
 
+31.1
 
Rule 13a-14(a)/15d-14(a) Certification of David M. McClanahan
 
 
 
 
 
 
+31.2
 
Rule 13a-14(a)/15d-14(a) Certification of Gary L. Whitlock
 
 
 
 
 
 
+32.1
 
Section 1350 Certification of David M. McClanahan
 
 
 
 
 
 
+32.2
 
Section 1350 Certification of Gary L. Whitlock
 
 
 
 
 
 
+101.INS
 
XBRL Instance Document (1)
 
 
 
 
 
 
+101.SCH
 
XBRL Taxonomy Extension Schema Document (1)
 
 
 
 
 
 
+101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document (1)
 
 
 
 
 
 
+101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document (1)
 
 
 
 
 
 
+101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document (1)
 
 
 
 
 
 
+101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document (1)
 
 
 
 
 
 
(1) Furnished, not filed.



17


SIGNATURES



Pursuant to the requirements 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.
 
 
 
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
 
 
 
 
By:
/s/ WALTER L. FITZGERALD

 
Walter L. Fitzgerald
 
Senior Vice President and Chief Accounting Officer

Date: May 9, 2012





18


Index to Exhibits

The following exhibits are filed herewith:

Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing of CenterPoint Houston or CenterPoint Energy as indicated.

Agreements included as exhibits are included only to provide information to investors regarding their terms. 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 no such agreement should be relied upon as constituting or providing any factual disclosures about CenterPoint Energy Houston Electric, LLC, any other persons, any state of affairs or other matters.


Exhibit
Number
 
Description
 
Report or Registration
Statement
 
SEC File or
Registration
Number
 
Exhibit
References
3.1
 
Restated Certificate of Formation of CenterPoint Houston
 
CenterPoint Houston’s Form 10-Q for the quarter ended June 30, 2011
 
1-3187
 
3.1
3.2
 
Amended and Restated Limited Liability Company Agreement of CenterPoint Houston
 
CenterPoint Houston’s Form 10-Q for the quarter ended June 30, 2011
 
1-3187
 
3.2
4.1
 
$300,000,000 Credit Agreement, dated as of September 9, 2011, among CenterPoint Houston, as Borrower, and the banks named therein
 
CenterPoint Houston’s Form 8-K dated September 9, 2011
 
1-3187
 
4.2
4.2
 
Indenture dated as of December 16, 2005
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated December 16, 2005
 
1-3187
 
4.1
4.3
 
First Supplemental Indenture relating to the Bonds dated as of December 16, 2005
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated December 16, 2005
 
1-3187
 
4.3
4.4
 
Form of Indenture, to be dated as of January 19, 2012
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated January 11, 2012
 
1-3187
 
4.1
4.5
 
Form of First Supplemental Indenture relating to the Bonds, to be dated as of January 19, 2012
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated January 11, 2012
 
1-3187
 
4.2
10.1
 
Form of Transition Property Sale Agreement, to be dated as of January 19, 2012
 
CenterPoint Energy Houston Electric LLC’s Form 8-K dated January 11, 2012
 
1-3187
 
10.1
+12
 
Computation of Ratios of Earnings to Fixed Charges
 
 
 
 
 
 
+31.1
 
Rule 13a-14(a)/15d-14(a) Certification of David M. McClanahan
 
 
 
 
 
 
+31.2
 
Rule 13a-14(a)/15d-14(a) Certification of Gary L. Whitlock
 
 
 
 
 
 
+32.1
 
Section 1350 Certification of David M. McClanahan
 
 
 
 
 
 
+32.2
 
Section 1350 Certification of Gary L. Whitlock
 
 
 
 
 
 
+101.INS
 
XBRL Instance Document (1)
 
 
 
 
 
 
+101.SCH
 
XBRL Taxonomy Extension Schema Document (1)
 
 
 
 
 
 
+101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document (1)
 
 
 
 
 
 
+101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document (1)
 
 
 
 
 
 
+101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document (1)
 
 
 
 
 
 
+101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document (1)
 
 
 
 
 
 

     (1) Furnished, not filed.

19