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Il11Il I 1I I IIIIII IControl Number: 30485111l Ill llllllll 1IItem Number: 253Addendum StartPage: 0

PUC DOCKET NO. 30485. ( IAPPLICATION OF CENTERPOINTENERGY HOUSTON ELECTRIC, LLCFOR A FINANCING ORDER60§BEFORE THEPUBLIC UTILITY COMMISSIONOF TEXASContact: James N. Purdue(713) 207-7245Fax: (713) 207-9819Email: j im.purdue@CenterPointEnerm.comJanuary 24,2005TABLE OF CONTENTSDescriptionPageRebuttal Testimony of James S. Brian. .2-60ELECTRONIC FILES:Rebuttal Testimony James S. Brian.pdfWorkpapers. .Certificate of Service. .61-9091

PUC DOCKET NO. 30485APP KATION OF CENTERPOINTENERGY HOUSTON ELECTIRIC, U CFOR A FINANCING ORDERBEFORE THEPUBLIC UTILITY COMMISSIONOF TEXAS§50R E B m A L TESTIMONY OFJAMES S. BRIANFORCENTERPOINT ENERGY HOUSTON ELECTRIC, LLCJANUARY 24,2005. .-. .2

1TABLE OF CONTENTSTABLE OF FIGURES .EXECUTIVE SUMMARY . .ES-1I.IN'RODUCTION .-. . . . .1II.ADFIT ISSUES .1A. ADFIT ASSOCIATED WITH GENERATION ASSETS AND THE PORTION OFADFIT ALLOCABLE TO STRANDED COSTS AND REGULATORY ASSETSBEING SECURITIZED.5B.ADFIT BENEFIT ON ADFIT NOT RELATED TO STRANDED COSTS OR SFAS 109REGULATORY ASSETS . 17c.PROPER PERIOD OVER WHICH TO CALCULATE ADFIT BENEFITS .2 1D. PROPER DISCOUNT RATE TO COMPUTE ADFIT BENEFITS .m.ii.24INTEREST AND EMC ISSUES .30.Rebuttal Testimony of James S. BrianApplicationof Centerpoint Energy Houston Electric, LLC for a Financing Order3

.11TABLE OF FIGURES--.FIGUREDESCRIPTIONJSB- 1RExcerpts fiom Testimony and Workpapers in Docket No. 29526JSB-2RSchedule IX from Docket No. 29526. JSB-3RCorrectionof Exhibit EB-2 of Ms. Blumenthal’sDirect TestimonyJSB-LCRCorrection of Exhibit DT-4 of Mr. Tietjen’s Direct TestimonyJSB-5RADFIT Benefit at 7.2%JSBdRBenefit of SecuritizingPost-December 17,2004 Interest and EMCJSB-7RSecuritizationAmount as of June 1,2005Rebuttal Testimony of James S. BrianApplication ofCenterpointEnergy Houston Electric, UX: for a Fmancing Order4

ES-1EXECUTIVE SUMMARYJames S. Brian is the Senior Vice President and Chief Accounting Officer of CenterpointEnergy, Inc. and Centerpoint Energy Houston Electric, LLC (“Centerpoint Houston”). Mr.Brian’s rebuttal testimony focuses on issues relating to accumulated deferred federal incometaxes (“ADFIT”), interest on stranded costs, and excess mitigation credits (“EMCs”).ADFIT balances represent amounts that will be paid in taxes at a later time. TheCommission decided in the true-up proceeding, Docket No. 29526, that reducing stqnded costsby ADFIT was inappropriate but that benefits Centerpoint Houston receives fiom the cost-fieecapital it believed was associated with ADFIT should be accounted for in the securitizationproceeding. This benefit is calculated by first determining the amount of ADFIT allocable to thestranded costs and SFAS 109 regulatory assets being securitized; then determining the amount ofbenefit Centerpoint Houston receives during the securitization period; and then determining thepresent value of such benefit. The calculation should be made using the interest rate from thetransition bonds issued in this proceeding but in any event should be an after-tax rate. In hisrebuttal testimony, Mr. Brian identifies four overarching errors Intervenor witnesses make intheir ADFIT-related calculations.1.Intervenor witnesses incorrectly determine the amount of ADFIT associated withgeneration assets and the amount allocable to stranded costs and SFAS 109 regulatory assets.Overly simplistic methods of calculating ADFIT associated with generation assets that fail toallocate actual ADFIT amounts result in double counting of ADFIT. Time value benefits alreadysettled in Docket No. 21665 must be accounted for, and recoverable stranded costs should not bereduced by benefit amounts calculated on ADFIT not provided by ratepayers. ADFIT amountSthat accrued after generation assets became deregulated on December 31, 2001, do not affectRebuttal Testimony of James S.BrianApplication ofCenterPoint Energy Houston Electric, LLC for a Financing Order

ES-2ADFIT benefits being determined in this proceeding because post-deregulation amounts are notprovided by ratepayers2.Intervenor witnesses overstate the amount of the ADFfl benefit CenterpointHouston has received by including an ADFIT benefit not related to Centerpoint Houston’sstranded costs and SFAS 109 regulatory assets recovery. After December 3 1,200 1, generation. assets were no longer included in rate base and were no longer subject to Commission regulatoryrate regulation. The market value of those assets is to be recovered through unregulated markettransactions and not fiom ratepayers; therefore, ADFIT related to market value is not relevant.Only ADFIT allocable to stranded costs and SFAS 109 regulatory assets is relevant.3.Intervenor witnesses double-dip by calculating benefts for 2002 and 2003, whichthe Commission already used to calculate the return included in the capacity auction h e - u pamounts in Docket No. 29526. The ADFIT benefit allocable to stranded cost recovery should becomputed over the securitization period, as directed by the Commission in its final order inDocket No. 29526. Even if ADFIT benefits were to be measured from January 1, 2002,ratepayers have already received the cost-free capital benefit of ADFIT for 2002 and 2003, andincluding it again in this proceeding would pay the ratepayer twice for the same benefit.4.Intervenor witnesses use an inappropriate discount rate to calculate the beneJisof cost-j?ee capital and the present value of the ADFIT beneflt. One of the basic principles ofconventional ratemaking that also applies to the securitization proceeding is that ADFIT benefitis shared with ratepayers at the same rate of return ratepayers pay on the asset to which suchADFIT relates. If there is a change in a utility’s rate of return, then the rate of return theratepayers pay on the asset and the ADFIT associated with such asset both change. In thesecuritization proceeding, the rate will change fiom Centerpoint Houston’s weighted averageRebuttal Testimony of James S. BrianApplication of CenterPoint Energv Houston Electric,for a FinancingOrder6

ES-3cost of capital to the transition bond interest rate. Therefore, the bond rate set forth in Mr.Brian’s direct testimony is the correct rate to use to determine the ADFIT benefit. If theCommission determines the bond rate is not the correct rate, then the correct rate cannot exceedCenterpoint Houston’s after-tax average weighted cost of capital of 7.2%.Although thewitnesses purport to be calculating benefits Centerpoint Houston would receive throughinvestment of allegedly cost-free capital, they ignore the effect of federal income taxes on thereturn Centerpoint Houston earns. By using a pre-tax, instead of an after-tax return to computebenefits, they significantly overstate the benefits Centerpoint Houston can actually receive andeffectively preclude it from recovering its stranded costs. Regardless of the rate chosen, the ratemust be the same for the rate of return and for the discount rate to ensure comparison ofequivalent sums. .Some Intervenors suggest that the entire ADFIT benefit should be considered in thecompetition transition charge (“CTC”) proceeding, which will occur subsequent to thissecuritization proceeding. The ADFIT associated with securitized stranded costs and SFAS 109regulatory assets will convert to a current tax obligation as the transition charges are received.Consequently, any benefit derived from ADFIT related to those costs and assets ties directly tothe transition charge payment stream. As long as the amount and present value of the benefit arecorrectly determined by reference to the transition charge payment stream, Centerpoint Houstondoes not object to using that present value to reduce the CTC instead of reducing the amountsecuritized.Centerpoint Houston is entitled to carrying costs on stranded costs and to recover allEMCs paid out through the date of issuance of the transition bonds. There is no longer anydispute that Centerpoint Houston is entitled to recover carrying costs on stranded costs fromRebuttal Testimony of James S. BrianApplicationof CmterPointlFmrgyHouston Electric, UC for a Financing Order7.

December 3 1,200 1. Despite Intervenor claims, no authority suggests that there is a gap (fromthe date of the final order in Docket No. 29526 until the transition bonds are issued) duringwhich no carrying costs accrue.R e b W Testimony of James S.BrianApplication of Centexpoint Energy Houston Hectric, Lu:for a Financing OrderI.8

Page 1 of 37I.1. .INTRODUCTION2Q-PLEASE STATE YOUR NAME AND OCCUPATION.3A.My name is James S. Brian. I am the Senior Vice President and Chief Accounting4Officer of.Centerpoint Energy, Inc. (“Centerpoint Energy”) and of Centerpoint Energy5Houston Electric, LLC (“Centerpoint Houston”).Q.ARE YOU THE S A M E J W S S. BRIAN WHO OFFlERED DIRECTTESTIMONY IN THIS CASE?*.A.Yes.9Q.PLEASE STATE THE PURPOSE OF YOUR REBUTTAL TESTIMONY.10A.The purpose of my testimony is to: (1) respond to the Intervenor testimony concerning11 * . ’accumulated deferred federal income taxes (“ADFIT”) and (2) address issues related to12interest and excess mitigation credits (“EMCs”).II.13ADFITISSUES14Q.WHAT IS THE ADJ!IT ISSUE?15A.Put simply, the ADFIT issue for this proceeding is: What is the present value of the16benefit Centerpoint Houston derives from cost-free capital reflected in the ADFIT17balance that relates to the stranded costs and SFAS 109 regulatory assets to be18securitized? (For purposes of this proceeding, it is assumed that such ADFIT are a source19of cost-fiee capital.) One of the xnany issues in Docket No. 29526 was whether and how. 20.the ADFIT balance associated with generation assets affected the amount of stranded,ADFIT balances generally21costs Centerpoint Houston was permitted to recover.22represent tax amounts that under book accounting must be accrued but under federal taxRebuttal Testimony of James S.BrianApplication of CenterpointEn Houston Electric, LLC for a Financing &&I9

Page 2 of 37.1law do not have to be paid in taxes until a later date. They arise primarily fiom2differences between the time at which income or expenses are recognized for book3accounting purposes and the time at which the same income or expenses are recognized4for tax purposes. In Docket No, 29526, the Commission concluded that, because the5ADFIT balance eventually would be paid to the IRS, it was inappropriate to reduce6Centerpoint Houston’s recovery in the true-up proceeding by the ADFIT balance, but that7the “benefit enjoyed by Centerpoint due to the cost-fiee capital provided by its ADFIT8reserve should be accounted for in the subsequent proceeding.” Conclusion of Law 1479at 202 (emphasis added).10The Commission’s decision that ratepayers should receive the benefit associated with the11deferred tax balance reflected its understanding that “the funds represented by the ADFIT12balance were receivedfiom ratepayers over the depreciable lives of the assets, and the13joint applicants will have use of those funds through the recovery period in a declining14amount as the account is reversed upon the company incurring current tax liability on its15stranded-wsts recovery.” Order at 80 (emphasis added).16Q*WHAT STEPS ARE INVOLVED IN CALCULATING THE ADFIT BENEFIT?17A.The first step in CalcuIating the ADFIT benefit is to determine the amount of ADFIT that.18is properly allocable to stranded costs and SFAS 109 regulatory assets that are being19securitized in this proceeding. After the appropriate ADFIT balance is determined, it is20then necessary to determine how much benefit, if any, Centerpoint Houston receives over21the securitization period h m having the cost-free capital provided by the ADFIT in a22declining amount. The amount declines as Centerpoint Houston pays tax liability on itsRebuttal Testimony of James S. BrianApplication ofCenterPoint Energy Houston Eiedric,UC for a Financing Order‘10

Page 3 of 371recovery of stranded costs. The final step is to determine the present value of those2future benefits.3Q.PROPER CALCULATION OF ADFIT BENEFITS?45WHAT IS CENTERPOINT HOUSTON’S POSITION REGARDING THEA.The proper method for calculating the ADFIT benefits is as follows:6The only ADFIT benefits to be determined in this proceeding are those related to7the stranded costs and SFAS 109 regulatory assets being securitized.8The ADFIT benefits should be computed on the basis of actual ADFIT balances,9with total ADFIT balances related to the net book value of generation assets10allocated between stranded costs and market value on the basis of the ratio of11stranded costs to the net book value of generation assets. To provide ratepayers12ADFIT benefits related to market value is inconsistent with the statutory13framework which unbundled and deregulated electric generation assets effective14January 1,2002.15Ratepayers are entitled to an ADFIT benefit only with respect to ADFIT that was016derived fiom amounts paid by ratepayers through the federal income tax17component of Centerpoint Houston’s rates.-18as if it were providing “cost-free capital.”1920ADFIT that does not provide any capital to Centerpoint Houston cannot be treated0The amortization schedule for the ADFIT balance must match the amortization21schedule of the transition bonds, because Centerpoint Houston will pay the22current tax liability associated with the stranded costs and SFAS 109 redatoryRebuttal Testimony of James S. BrianApplication of CmterPaintEnergy Houston Electric, UC for a Financing OrderI1

Page 4 of 371assets that are being secw ized as the principal amount of the transition charges2are collected.304computed using the interest rate fiom the transition bonds to be issued under the5financing order in this proceeding. In no event should the interest rate be higher6than Centerpoint Houston’s after-tax weighted average cost of capital, because7the value to Centerpoint Houston can be measured only on an after-tax basis.8ethemselves, must be computed on an after-tax basis.1011Q.WHAT TYPES OF ERRORS DID THE INTERVENOR AND STAFFWITNESSES MAKE?1213The discount rate used to determine the present value of the benefits should beidentical to the interest rate used to calculate the benefits, and, like the benefits9’‘Consistent with historical regulatory treatment, the ADFIT benefit should beA.The witnesses’ errors essentially fall into four broad categories. First, they erroneously14compute the amount of ADFIT associated with generation assets (as of December 3 1,152001) and the portion of such ADFIT that is allocable to the stranded costs and SFAS 10916regulatory assets to be recovered through securitization in this docket. In many cases,17’they calculate benefits on amounts that have never been paid by ratepayers. Second, their18calculations overreach, because they are not limited to computing the benefit of ADFIT19associated with the stranded costs and SFAS 109 regulatory assets to be recovered20through securitization, but also include a benefit for ADFIT unrelated to Centerpoint21Houston’s stranded costs and SFAS 109 regulatory assets recovery.22witnesses (but not Staff) double dip by calculating benefits for periods (2002 and 2003)23for which the ADFIT balance was used by the Commission in computing the returnThird, someRebuthi TestimOny ofJames S. BrianApplication of CmterF‘oint EnergyHoustonElectric, Lu for a Financing Order12

Page 5 of 37included in the capacity auction true-up amounts in Docket No. 29526 and the related1,2.interest computation; ratepayers have already received the full benefit of ADFIT for those3years. Fourth, the witnesses use an inappropriate interest rate to compute the benefits of4cost-free capital and an inappropriate discount rate to determine the present value of that5benefit. I discuss each of these items sequentially.678A.1.910'Mr.Tietjen and Mr. EffronDO STAFF WITNESS DARYL TIETJEN AND OPCITIEC WITNESS DAVIDEFFRON USE SIMILAR METHODS TO COMPUTE THE ADFIT BENEFIT?A.Yes, they both use essentidly the same incorrect method. The ADFIT amount associated13with the generation assets is a fixed dollar amount. The task is to determine how much of14the total ADFIT balance (that was built up through the tax allowance embedded in the15regulated rates paid by ratepayers) is properly allocable to the stranded costs and SFAS16109 regulatory assets that will be securitized and how much of the balance is properly17allocable to market value. Mr. Tietjen and Mr. Efion do not attempt to allocate the18actuaZ ADFIT amounts. Instead, they compute a new ADFIT value that is not related to19the existing ADFIT balances through the simple process of (i) multiplying the stranded20costs amount by 35% then (ii) adding to that product the actual ADFIT amount related to21SFAS 109 regulatory assets. Their method is simple, but wrong.22.Q.1112ADFIT ASSOCIATED WITH GENERATION ASSETS AND THE PORTION OFADFIT ALLOCABLE TO STRANDED COSTS AND REGULATORY ASSETSBEING SECURITIZED23.Q.DOES THE METHODOLOGY USED BY MESSRS. TIETJEN AND EFIFRONCAUSE THEM TO DOUBLE COUNT ADFIT?Rebuttal Testimony of James S.BrianApplication ofCentd'omt Energy Houston Elcetric, Lu:for a Financing Order13

Page 6 of 371Yes. By taking the s u m of (i) 35% of the difference between net book value and fair2market value of the generation assets and (ii) the actual ADFIT balance attributable to3SFAS 109 regulatory assets also being securitized in this proceeding, both Mr. Tietjen4and Mr. E&on overstate total ADFIT. Their error relates primarily to double counting5ADFIT on the stranded portion of the Equity and Debt allowance for funds used during6construction (“AFUDC”) amounts which are included in the net book value of generation7assets. When they compute stranded cost ADFIT as 35% of stranded costs, a portion of8that ADFIT is attributable to Equity and Debt AFUDC that is included in net book value.9As I will explain in more detail below, ADFIT time value benefits related to EQuity and10Debt AFUDC were either already considered in Docket No. 21665 or are included in the.11 141,162,927 amount of ADFIT associated with SFAS 109 regulatory assets. Mr. E&on12and Mr. Tietjen ignore these facts. Their methodology of adding (i) 35% of the value of13stranded costs to (ii) actual ADFIT associated with SFAS 109 regulatory assets causes14both Mr. EfEon and Mr. Tietjen to double-count ADFIT. In order to appreciate their15double counting, it is necessary to understand the nature of the ADFIT associated with16the SFAS 109 assets that are being securitized. I provide this explanation below.17*A.Q.BOTH MR. EFFRON AND MR. TIETJEN CHARACTERIZE THE 141,16292718’AS ADFIT RELATED TO RJEGULATORY ASSETS. WOULD YOU DESCRIBE19WHAT THIS AMOUNT REPRESENTS A N D HOW IT IS CALCULATED?20A.The ADFIT described as associated with “regulatory assets” is more precisely described21as ADFIT associated with SFAS 109 regulatory assets. In Docket No. 29526, Mr.22Hriszko provided workpapers supporting the 141,162,927, which demonstrate that it is23computed as ADFIT at 35% on the remaining regulatory asset of 150,473,181, plusRebuttal Testimony of James S. BrianApplicationof CmteaPointEnergy Houston Electric, LLC for a Financing Order14

Page 7 of 371ADFIT at 35% on the Equity and Debt AFUDC balances, which were not “covered” in2Docket No. 21665. Figure JSB-1R (Hiiszko Dir. Test. at 14, lines 26-31; Hriszko’s3workpaper IX-l/l and IX-1/2 (Docket No. 29526)), demonstrates that 141,162,927 is4the sum of (I) ADFIT of 52,665,613 on the regulatory asset, (2) 62,574,994 on the .5undepreciated Equity AFUDC as of December 31, 2001, and (3) 25,922,320 of6undepreciated Debt AFUDC as of December 31,2001 not previously securitized.7Q.TO EQUITY AND DEBT AJRJDC?8910.1112131415‘1617HOW DID DOCKET 21665 AF%ECT THE ADFIT BALANCES APPLICABLEA.The parties to Docket No. 21665 stipulated in the Settlement Agreement at p. 3 asfollows:The specific generation related regulatory assets which comprisethe 1,070,530,866 and the associated accumulated deferredincome taxes as of December 3 1, 1998 are listed on Exhibit B andare referred to as “Covered Regulatory Assets” and “CoveredADIT,” respectively. The 740 million is a final resolution of allpotential issues regarding recovery of the Covered RegulatoryAssets and Covered ADIT.18This means that the benefits associated with most of the SFAS 109 regulatory assets and19related ADFIT (a portion of which was related to Equity and Debt AFUDC) were20resolved in Docket No. 21665. Because the time value benefits of the ADFIT on the21Equity and Debt AFUDC were already given to customers in Docket No. 21665, it is22inappropriate for Mr. Tietjen and Mr. Efion to give them back again in this proceeding.23That is precisely what they do when they simply subtract market value of the generation24assets fiom net book value of the generation assets and multiply such amount by 35%25because net book value of the generation assets contains undepreciated Equity and Debt26AFUDC mounts.Rebuttal Testimony of fames S.BrianApplication of centerpointEnergy Houston Electric, L E for a FinancingOrder15

Page 8 of 3713.DEBT AF’UDC AS OF DECEMBER 31,2001?23WaAT ARE THE NET BOOK VALUE AMOUNTS RELATED TO EQUITY A N D4.As shown in Workpaper IX-1/2 of Mr. Robert Hriszko in Docket No. 29526, the4temporary difference for Equity AFUDC is 440.6 million, and the temporary difference5for Debt AFUDC is 179.7 million, for a total of 620.3 million. Each of these items has6book basis with no tax basis, and each is a component of net book value as of December731, 2001. (These amounts were also provided in response to RFI COH 4-1 in this8proceeding.)9Q.HOW SHOULD THE NET BOOK VALUE OF 620.3 MILLION RELATED TO10EQUITY AND DEBT AFUDC BE TRlEATED BY MR. TIETJEN AND M R11EFFRON IN THEIR CALCULATIONS?124.Because both Mr. Efion and Mr. Tietjen separately add the 141,162,927 of ADFIT13related to the SFAS 109 regulatory asset and the Equity and Debt AFUDC,they should14k t reduce net book value by the 620.3 million before multiplying it by 35% to15recognize that the ADFIT benefit of the 620.3 million of the net book value has already16been reflected either in Docket No. 21665 or in the 141,162,927.17Q-MR. EFF‘RON’S NET BOOK VALUE AMOUNTS?1819SHOULD ANY OTHER REDUCTIONS BE MADE TO MR. TIETJEN’S AND4.Yes. Both fail to reduce the net book value of the generation assets by reductions the20Commission made in Docket No. 29526 to such net book value for (i) investment tax21credits (“ITCs”) of 115,574,965; (ii) excess accumulated deferred income taxes22(“EADI”) of 30,531,574, and (iii) excess interest on the capacity auction ofRebuttal TcStimonyoflames S. BrianApplicationof CenterPointEnergyHoustonElectric, Lu3 for a FinancingOrder16

Page 9 of 37.1 17,871,366, for a cumulative total of 163,997,895. Because the Commission reduced2the generation assets net book value by these amounts, Centerpoint Houston will recover3less stranded costs; therefore, the starting net book value from which ADFIT on stranded4.costs is determined must be similarly reduced. Further, given that Mr. Efion and5Tietjen are attempting to determine ADFIT allocable to stranded costs as determined by6the Commission in Docket No. 29526, the stranded costs and market value numbers in7their analysis should be, but ire not, identical to those in the Commission’s Order.8HOW WOULD THEIR ADFIT CALCULATIONS BE REDUCED AFTER9CORRECTING THEIR ERRORS?Mr.10The following table illustrates how Mr. Tietjen’s and Mr. Efion’s calculations would11change by correcting the (i) double counting of ADFIT related to Equity and Debt12AFUDC and (ii) the erroneously high sbrting point of net book value of the generation13assets:.Rebuttal Testimony ofJames S. BrianApplicationofCenterpointh&gyHouston Electric, UC for a Financing Order17

Page 10 of 371(Amounts in Dollars)TietjenEfion Starting Net BookValue of Generation Assets4,803,652,497Equity and Debt AFUDC ComponentContained Within Net Book Value(620,291,410)Commission Ordered Reductions toNet Book Value for ITCs, EADIT,and Excess Capacity Auction Interest(163,977,895)Adjusted Net Book,Value4,019,383,192Market Value3,417,428,222Stranded Cost for ADFIT Calculation(601,954,970)Tax RateADFIT on Stranded CostSFAS 109 ADFIT210,484,239TOTAL ADFIT35 1,647,16635%141,162,92723Thus, as corrected Mr. Tietjen’s and Mr. EEron’s computations would compute the total4ADFIT allocable to stranded costs and SFAS 109 regulatory assets as the sum of5approximately (i) 21 1 million ADFIT allocable to stranded costs and (ii) 141 million6ADFIT allocable to SFAS 109 regulatory assets, for a total of approximately 3527million of ADFIT. This total is very close to the computation in my direct testimony of8approximately 336 million of ADFIT allocable to stranded costs and SFAS 1099regulatory assets.10Q-1112DO THE ALLOCATIONS RESULTING FROM MR. TIETJEN AND M REFFRON’S CALCULATIONS kWl3 SENSE?A.No. Another way to illustrate the errors in Mr. Eflion’s and Mr. Tietjen’s computations13is to observe the clearly incorrect allocations that would result if their computations were14not corrected.Rebuttal Testimony of James S. BrianA p p l i e n of Centerpoint Energy Houston Electric, L W for a Financing Order18

Page 11 of 371The total ADFIT related to generation assets is 741 million (Figure JSB-1, Schedule 3,2line 5). The 741 million of ADFIT relates to the total book value of the generating3assets and must be divided between the stranded costs and market components of that. 4total value. .'Under their computations, 485 million of the total ADFIT would be deemed5related to stranded costs. Thus, Messrs. Tietjen and EBon assign approximately 65%6( 485 mm7only 26% of total net book value of the generation assets. Conversely they assign8approximately 35% ( 256 mm f 741 mm) of the ADFIT to market value even though9market value constitutes 74% of total book value.' These allocations defy reality. .,.'Q.1012A.i4*.Q-.,.MR. EFFRON CRITICIZES YOUR FAILURE TO INCMASE THE ADmBALANCE BY ADFIT RELATED TO ENVIRONMENTAL EXPENDITURES16INCURRED AFTER DECEMBER 31,2001. IS H S CRITICISM JUSTIFIED?A.No.The environmental expenditures at issue relate to environmental expenditures18incurred after December 31, 2001.19expenditures were never included in rate base, and ratepayers never paid a tax allowance.20that funded either current or deferred taxes associated with these amounts. The fact thatI-No. The concept of giving benefit ratepayers the benefit of cost-free capital necessady1517.IS IT APPROPRIATE TO REDUCE RECOVERABLE STRANDED COSTS BYimplies that cost-f?ee capital has been provided by the ratepayers.13., 741 mm) of the ADFIT to stranded costs even though stranded costs areADFIT BENEFITS THAT WERE NOT PROVIDED BY RATEPAYERS?11.f-ADFIT related to post-December 31, 2001The Commission's final order in Docket No. 29526 found that the net book value of the generation assetswas 4,639,674,602; the total market value was 3,417,428,222; and the stranded costs were 1,m,246,380.Rebuttal Testimony of James S.BrianApplication of CenterpointEne.rgyHouston Electric, Lu for a Financing Order19

Page 12 of 371ratepayers will pay for the environmental costs in the future cannot be construed as the2provision of cost-free capital because nothing that could be construed as constituting3capital has been received by CenterPoint Houston. Thus, it would be completely4improper to treat post-December 3 1, 2001 ADFIT as if it were a source of cost-fiee5capital provided by ratepayers?M R EFFRON ALSO CRITICIZES YOU FOR BEING INCONSISTENT BYQ.67INCLUDING 2002 AM) 2003 BOOK DEPRECIATION BUT NOT 2002 AND 20038TAX DEPRECIATION IN YOUR ADFIT CALCULATIONS. IS HTS CRITICISM. .JUSTIFZED?9.1011by 378 million of book depreciation on generation assets in 2002 and 2003. The ADFIT12balance was also reduced due to such book depreciation. The ratepayers did not provide13any tax expense associated with post-2001 tax depreciation; so such depreciation cannot14.No. In Docket No. 29526, the Commission decided that stranded costs should be reducedA.,be construed as providing cost-fiee capital.Moreover, even if ratepayers were15determined to be entitled to tax depreciation benefits, it would not be necessary to or16appropriate to adjust ADFIT balances for tax depreciation during those years because any17theoretical benefit of the tax depreciation was fully reflected in calculation of the return18included in the capacity auction true-up and related interest computation made by the. 19.Commission in Docket No. 29526.2Mr. Effbn further argues I must take into account the tax depreciationassociated with such environmentalexpenditures. Even if I were incorrect in excluding ADmT related to post-2001 environmentalexpenditures, Mr. Ef1G;on’sestimate of the alleged tax depreciationbenefit that should be taken into accountis grossly overstated. Mr. Efiou, in his Exhibit DE-3, assumes that all environmental expendituresthrough August 2

EXECUTIVE SUMMARY James S. Brian is the Senior Vice President and Chief Accounting Officer of Centerpoint Energy, Inc. and Centerpoint Energy Houston Electric, LLC (“Centerpoint Houston”). Mr. Brian’s rebuttal testimony focuses

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Topographical Anatomy A working knowledge of human anatomy is important for you as an EMT. By using the proper medical terms, you will be able to communicate correct information to medical professionals with the least possible confusion. At the same time, you need to be able to communicate with others who may or may not understand medical terms. Balancing these two facets is one of the most .