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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 or
 o
    
    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 LouisianaHouston, Texas 77002
    
    (713) 207-1111(Address and zip code of principal executive offices)
    
    (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the act:
 Title of each class
    
    Name of each exchange on which registered9.15% First Mortgage Bonds due 2021
    
    New York Stock Exchange6.95% General Mortgage Bonds due 2033
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the act:
None
 CenterPoint Energy Houston Electric, LLC meets the conditions set forth in general instruction
I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure
format.
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    11Item 1B.
    
    Unresolved Staff Comments
    
    
    17Item 2.
    
    Properties
    
    
    17Item 3.
    
    Legal Proceedings
    
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    17PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    17Item 6.
    
    Selected Financial Data
    
    
    18Item 7.
    
    Managements Narrative Analysis of Results of Operations
    
    
    18Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 8.
    
    Financial Statements and Supplementary Data
    
    
    29Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    51Item 9A(T).
    
    Controls and Procedures
    
    
    51Item 9B.
    
    Other Information
    
    
    52PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    52Item 11.
    
    Executive Compensation
    
    
    52Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    52Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    52Item 14.
    
    Principal Accounting Fees and Services
    
    
    52PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    53Computation of Ratios of Earnings to Fixed ChargesRule 13a-14(a)/15d-14(a) Certification of David M. McClanahanRule 13a-14(a)/15d-14(a) Certification of Gary L. WhitlockSection 1350 Certification of David M. McClanahanSection 1350 Certification of Gary L. Whitlock
  i




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
     ii




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PART I
 
 Item 1. Business
 OUR BUSINESS
 Overview
   www.centerpointenergy.com
 Electric Transmission & Distribution
   Electric Transmission
  Electric Distribution
  1




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ERCOT Market Framework
    Recovery of True-Up Balance
    2




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
    
    reversed the Texas Utility Commissions ruling that had denied recovery of a portion of
the capacity auction true-up amounts;
    
    reversed the Texas Utility Commissions ruling that precluded us from recovering the
interest component of the EMCs paid to REPs; and
    
    affirmed the True-Up Order in all other respects.
   
    
    reversed the district courts judgment to the extent it restored the capacity auction
true-up amounts;
    
    reversed the district courts judgment to the extent it upheld the Texas Utility
Commissions decision to allow us to recover EMCs paid to Reliant Energy, Inc. (RRI);
    
    ordered that the tax normalization issue described below be remanded to the Texas Utility
Commission; and
    
    affirmed the district courts judgment in all other respects.
    3




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4




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Refund of Environmental Retrofit Costs
  Final Fuel Reconciliation
  Customers
  5




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Advanced Metering System and Distribution Automation (Intelligent Grid)
  Competition
  Seasonality
  Properties
   
    
    the lien of a Mortgage and Deed of Trust (the Mortgage) dated November 1, 1944, as
supplemented; and
    
    the lien of a General Mortgage (the General Mortgage) dated October 10, 2002, as
supplemented, which is junior to the lien of the Mortgage.
  6




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Electric Lines  Overhead.
 Electric Lines  Underground.
 Substations.
 Service Centers.
 Franchises
  REGULATION
  Federal Energy Regulatory Commission
   7




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State and Local Regulation
   Recovery of True-Up Balance.
 Rate Agreement
 ENVIRONMENTAL MATTERS
  
    
    restricting the way we can handle or dispose of wastes;
    
    limiting or prohibiting construction activities in sensitive areas such as wetlands,
coastal regions, or areas inhabited by endangered species;
    
    requiring remedial action to mitigate pollution conditions caused by our operations, or
attributable to former operations; and
    
    enjoining the operations of facilities deemed in non-compliance with permits issued
pursuant to such environmental laws and regulations.
  
    
    construct or acquire new equipment;
 8




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
    
    acquire permits for facility operations;
    
    modify or replace existing and proposed equipment; and
    
    clean up or decommission waste disposal areas, fuel storage and management facilities
and other locations and facilities.
    Global Climate Change
  Air Emissions
  9




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Water Discharges
  Hazardous Waste
  Liability for Remediation
  Liability For Preexisting Conditions
  10




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Other Environmental.
 EMPLOYEES
  
 Item 1A. Risk Factors
  Risk Factors Affecting Our Business
 We may not be successful in ultimately recovering the full value of our true-up components, which
could result in the elimination of certain tax benefits and could have an adverse impact on our
results of operations, financial condition and cash flows.
   
    
    reversed the Texas Utility Commissions ruling that had denied recovery of a portion of
the capacity auction true-up amounts;
    
    reversed the Texas Utility Commissions ruling that precluded us from recovering the
interest component of the EMCs paid to REPs; and
    
    affirmed the True-Up Order in all other respects.
   
    
    reversed the district courts judgment to the extent it restored the capacity auction
true-up amounts;
    
    reversed the district courts judgment to the extent it upheld the Texas Utility
Commissions decision to allow us to recover EMCs paid to RRI;
    
    ordered that the tax normalization issue described below be remanded to the Texas Utility
Commission; and
 11




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
    
    affirmed the district courts judgment in all other respects.
     Our receivables are concentrated in a small number of REPs, and any delay or default in payment
could adversely affect our cash flows, financial condition and results of operations.
  12




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Rate regulation of our business may delay or deny our ability to earn a reasonable return and
fully recover our costs.
  Disruptions at power generation facilities owned by third parties could interrupt our sales of
transmission and distribution services.
  Our revenues and results of operations are seasonal.
  Risk Factors Associated with Our Consolidated Financial Condition
 If we are unable to arrange future financings on acceptable terms, our ability to refinance
existing indebtedness could be limited.
  
    
    the resolution of the true-up components, including, in particular, the results of
appeals to the courts regarding rulings obtained to date;
    
    general economic and capital market conditions;
    
    credit availability from financial institutions and other lenders;
    
    investor confidence in us and the markets in which we operate;
    
    maintenance of acceptable credit ratings by us and CenterPoint Energy;
    
    market expectations regarding our future earnings and cash flows;
    
    market perceptions of our and CenterPoint Energys ability to access capital markets on
reasonable terms;
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
    
    our exposure to RRI as our customer and in connection with its indemnification
obligations arising in connection with its separation from CenterPoint Energy; and
    
    provisions of relevant tax and securities laws.
   The financial condition and liquidity of our parent company could affect our access to capital,
our credit standing and our financial condition.
  We are an indirect wholly owned subsidiary of CenterPoint Energy. CenterPoint Energy can exercise
substantial control over our dividend policy and business and operations and could do so in a
manner that is adverse to our interests.
  
    
    our payment of dividends;
    
    decisions on our financings and our capital raising activities;
    
    mergers or other business combinations; and
    
    our acquisition or disposition of assets.
  14




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Other Risks
 We are subject to operational and financial risks and liabilities arising from environmental laws
and regulations .
  
    
    restricting the way we can handle or dispose of wastes;
    
    limiting or prohibiting construction activities in sensitive areas such as wetlands,
coastal regions, or areas inhabited by endangered species;
    
    requiring remedial action to mitigate pollution conditions caused by our operations, or
attributable to former operations; and
    
    enjoining the operations of facilities deemed in non-compliance with permits issued
pursuant to such environmental laws and regulations.
  
    
    construct or acquire new equipment;
    
    acquire permits for facility operations;
    
    modify or replace existing and proposed equipment; and
    
    clean up or decommission waste disposal areas, fuel storage and management facilities
and other locations and facilities.
  Our insurance coverage may not be sufficient. Insufficient insurance coverage and increased
insurance costs could adversely impact our results of operations, financial condition and cash
flows.
  15




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We and CenterPoint Energy could incur liabilities associated with businesses and assets that we
have transferred to others.
  
    
    those transferred to RRI or its subsidiaries in connection with the organization and
capitalization of RRI prior to its initial public offering in 2001; and
    
    those transferred to Texas Genco in connection with its organization and capitalization.
     16




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
 Character of Ownership
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to A Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    17




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Item 6. Selected Financial Data
  
 Item 7. Managements Narrative Analysis of Results of Operations
 The following narrative analysis should be read in combination with our consolidated financial
statements and notes contained in Item 8 of this report.
 OVERVIEW
   EXECUTIVE SUMMARY
 Significant Events in 2007 and 2008
 Debt Refinancing
  Transition Bonds
  Recovery of True-Up Balance
  
    
    reversed the district courts judgment to the extent it restored the capacity auction
true-up amounts;
    
    reversed the district courts judgment to the extent it upheld the Texas Utility
Commissions decision to allow us to recover excess mitigation credits (EMCs) paid to
Reliant Energy, Inc. (RRI);
 18




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
    
    ordered that the tax normalization issue be remanded to the Texas Utility Commission; and
    
    affirmed the district courts judgment in all other respects.
   CERTAIN FACTORS AFFECTING FUTURE EARNINGS
  
    
    the resolution of the true-up components, including, in particular, the results of
appeals to the courts regarding rulings obtained to date;
    
    state and federal legislative and regulatory actions or developments, including
deregulation, re-regulation, environmental regulations, including regulations related to
global climate change, and changes in or application of laws or regulations applicable to
the various aspects of our business;
    
    timely and appropriate rate actions and increases, allowing recovery of costs and a
reasonable return on investment;
    
    industrial, commercial and residential growth in our service territory and changes in
market demand and demographic patterns;
    
    weather variations and other natural phenomena;
    
    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 rating agencies;
    
    non-payment for our services due to financial distress of our customers, including RRI;
    
    the ability of RRI and its subsidiaries to satisfy their other obligations to us,
including indemnity obligations;
    
    the outcome of litigation brought by or against us;
 19




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
    
    our ability to control costs;
    
    the investment performance of CenterPoint Energys employee benefit plans;
    
    our potential business strategies, including acquisitions or dispositions of assets or
businesses, which we cannot assure will be completed or will have the anticipated benefits
to us; and
    
    other factors we discuss under Risk Factors in Item 1A of this report and in other
reports we file from time to time with the Securities and Exchange Commission.
 CONSOLIDATED RESULTS OF OPERATIONS
   Year Ended December 31,2005
    
    
    2006
    
    
    2007(In millions,except throughput and customer data)Revenues:Electric transmission and distribution utility
    
    $
    1,538
    
    
    $
    1,516
    
    
    $
    1,560Transition bond companies (1)
    
    
    106
    
    
    
    265
    
    
    
    277Total Revenues
    
    
    1,644
    
    
    
    1,781
    
    
    
    1,837Expenses:Operation and maintenance, excluding transition bond companies
    
    
    618
    
    
    
    611
    
    
    
    652Depreciation and amortization, excluding transition bond companies
    
    
    258
    
    
    
    243
    
    
    
    243Taxes other than income taxes
    
    
    214
    
    
    
    212
    
    
    
    223Transition bond companies (1)
    
    
    67
    
    
    
    139
    
    
    
    158Total Expenses
    
    
    1,157
    
    
    
    1,205
    
    
    
    1,276Operating Income
    
    
    487
    
    
    
    576
    
    
    
    561Interest and other finance charges
    
    
    (288
    )
    
    
    (110
    )
    
    
    (107
    )Interest on transition bonds (1)
    
    
    (40
    )
    
    
    (130
    )
    
    
    (123
    )Return on true-up balance
    
    
    121
    
    
    
    
    
    
    
    Other Income, net
    
    
    51
    
    
    
    67
    
    
    
    68Income Before Income Taxes and Extraordinary Item
    
    
    331
    
    
    
    403
    
    
    
    399Income Tax Expense
    
    
    108
    
    
    
    132
    
    
    
    126Income Before Extraordinary Item
    
    
    223
    
    
    
    271
    
    
    
    273Extraordinary Item, net of tax
    
    
    30
    
    
    
    
    
    
    
    Net Income
    
    $
    253
    
    
    $
    271
    
    
    $
    273Throughput (in gigawatt-hours (GWh)):Residential
    
    
    24,924
    
    
    
    23,955
    
    
    
    23,999Total
    
    
    74,189
    
    
    
    75,877
    
    
    
    76,291Average number of metered customers:Residential
    
    
    1,683,100
    
    
    
    1,732,656
    
    
    
    1,773,319Total
    
    
    1,912,346
    
    
    
    1,968,114
    
    
    
    2,012,636
 
 (1)
    
    We issued $748.9 million of transition bonds in October 2001 and $1.851 billion in
December 2005. Transition charges are designed to collect revenues in amounts necessary
to service principal and interest of the transition bonds and cover related operating
expenses of the transition bond companies. The net income of the transition bond companies
for all periods presented is $-0-. 20




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2007 Compared to 2006.
 2006 Compared to 2005.
     LIQUIDITY
  21




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Capital Requirements.
 2007
    
    $
    4012008
    
    
    3712009
    
    
    3582010
    
    
    4442011
    
    
    4152012
    
    
    392
  2013 andContractual Obligations
    
    Total
    
    
    2008
    
    
    2009-2010
    
    
    2011-2012
    
    
    thereafterTransition bond debt(1)
    
    $
    2,260
    
    
    $
    159
    
    
    $
    366
    
    
    $
    432
    
    
    $
    1,303Other long-term debt
    
    
    1,642
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    1,546Interest payments  transition bond debt (1) (2)
    
    
    745
    
    
    
    117
    
    
    
    207
    
    
    
    166
    
    
    
    255Interest payments  other long-term debt (2)
    
    
    1,245
    
    
    
    97
    
    
    
    196
    
    
    
    193
    
    
    
    759Capital leases
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Operating leases (3)
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Benefit obligations (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income taxes (5)
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    5,900
    
    
    $
    380
    
    
    $
    769
    
    
    $
    887
    
    
    $
    3,864
 
 (1)
    
    Transition charges are adjusted at least annually to cover debt service on transition bonds.(2)
    
    We calculated estimated interest payments for long-term debt as follows: for fixed-rate debt
and term debt, we calculated interest based on the applicable rates and payment dates; for
variable-rate debt and/or non-term debt, we used interest rates in place as of December 31,
2007; we typically expect to settle such interest payments with cash flows from operations and
short-term borrowings.(3)
    
    For a discussion of operating leases, please read Note 7(a) to our consolidated financial
statements.(4)
    
    We expect to contribute approximately $7 million to our postretirement benefits plan in 2008
to fund a portion of our obligations in accordance with rate orders or to fund pay-as-you-go
costs associated with the plan.(5)
    
    Represents estimated income tax liability for settled positions for tax years under
examination. In addition, as of December 31, 2007, the liability for uncertain income tax
positions was $92 million. However, due to the high degree of uncertainty regarding the timing
of potential future cash flows
associated with these liabilities, we are unable to predict the periods in which these
liabilities might be paid. Transition Bonds.
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Off-Balance Sheet Arrangements.
 Credit Facilities.
  Temporary Investments.
 Money Pool.
 Long-term Debt.
 TransitionYear
    
    Third-Party
    
    
    Affiliate
    
    
    Sub-Total
    
    
    Bonds
    
    
    Total2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    159
    
    
    $
    1592009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    1752010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    1912011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206
    
    
    
    2062012
    
    
    96
    
    
    
    
    
    
    
    96
    
    
    
    226
    
    
    
    3222013
    
    
    450
    
    
    
    
    
    
    
    450
    
    
    
    245
    
    
    
    6952014
    
    
    300
    
    
    
    
    
    
    
    300
    
    
    
    147
    
    
    
    4472015
    
    
    
    
    
    
    151
    
    
    
    151
    
    
    
    158
    
    
    
    3092016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169
    
    
    
    1692017
    
    
    127
    
    
    
    
    
    
    
    127
    
    
    
    182
    
    
    
    3092018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194
    
    
    
    1942019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208
    
    
    
    2082021
    
    
    102
    
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    1022023
    
    
    200
    
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    2002027
    
    
    56
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    562033
    
    
    312
    
    
    
    
    
    
    
    312
    
    
    
    
    
    
    
    312Total
    
    $
    1,643
    
    
    $
    151
    
    
    $
    1,794
    
    
    $
    2,260
    
    
    $
    4,054
 23




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Issued as
    
    
    Issued as CollateralIssued Directly
    
    
    Collateral for Our
    
    
    for CenterPointto Third Parties
    
    
    Debt
    
    
    Energys Debt
    
    
    TotalFirst Mortgage Bonds
    
    $
    102
    
    
    $
    
    
    
    $
    151
    
    
    $
    253General Mortgage Bonds
    
    
    1,262
    
    
    
    229
    
    
    
    527
    
    
    
    2,018Total
    
    $
    1,364
    
    
    $
    229
    
    
    $
    678
    
    
    $
    2,271
   First Mortgage
    
    
    GeneralYear
    
    Bonds
    
    
    Mortgage Bonds
    
    
    Total2011
    
    $
    
    
    
    $
    19
    
    
    $
    192015
    
    
    151
    
    
    
    
    
    
    
    1512018
    
    
    
    
    
    
    50
    
    
    
    502019
    
    
    
    
    
    
    200
    
    
    
    2002020
    
    
    
    
    
    
    90
    
    
    
    902026
    
    
    
    
    
    
    100
    
    
    
    1002028
    
    
    
    
    
    
    68
    
    
    
    68Total
    
    $
    151
    
    
    $
    527
    
    
    $
    678
  Impact on Liquidity of a Downgrade in Credit Ratings.
 Moodys
    
    
    S&P
    
    
    FitchInstrument
    
    Rating
    
    
    Outlook(1)
    
    
    Rating
    
    
    Outlook(2)
    
    
    Rating
    
    
    Outlook(3)Senior Secured Debt
(First Mortgage
Bonds)
    
    Baa2
    
    Stable
    
    BBB+
    
    Positive
    
    
    A-
    
    
    Stable
 24




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(1)
    
    A stable outlook from Moodys indicates that Moodys does not expect to put the rating on
review for an upgrade or downgrade within 18 months from when the outlook was assigned or last
affirmed.(2)
    
    An S&P rating outlook assesses the potential direction of a long-term credit rating over the
intermediate to longer term.(3)
    
    A stable outlook from Fitch encompasses a one-to-two year horizon as to the likely ratings
direction.   Cross Defaults.
 Other Factors that Could Affect Cash Requirements.
 
    
    increases in interest expense in connection with debt refinancings and borrowings under
our credit facility;
    
    various regulatory actions;
    
    the ability of RRI and its subsidiaries to satisfy their obligations as our principal
customers and in respect of RRIs indemnity obligations to us;
    
    the outcome of litigation brought by and against us;
    
    restoration costs and revenue losses resulting from natural disasters such as
hurricanes; and
    
    various other risks identified in Risk Factors in Item 1A of this report.
 Certain Contractual Limits on Ability to Issue Securities and Borrow Money.
 Relationship with CenterPoint Energy.
 CRITICAL ACCOUNTING POLICIES
  25




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Accounting for Rate Regulation
  
    
    reversed the district courts judgment to the extent it restored the capacity auction
true-up amounts;
    
    reversed the district courts judgment to the extent it upheld the Texas Utility
Commissions decision to allow us to recover EMCs paid to RRI;
    
    ordered that the tax normalization issue be remanded to the Texas Utility Commission;
and
    
    affirmed the district courts judgment in all other respects.
   26




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Impairment of Long-Lived Assets and Intangibles
   Asset Retirement Obligations
   
    
    Inflation adjustment- The estimated cash flows are adjusted for inflation estimates
for labor, equipment, materials, and other disposal costs;
    
    Discount rate- The estimated cash flows include contingency factors that were used as
a proxy for the market risk premium; and
    
    Third party markup adjustments- Internal labor costs included in the cash flow
calculation were adjusted for costs that a third party would incur in performing the tasks
necessary to retire the asset.
  Unbilled Energy Revenues
  27




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##### Table of Contents



NEW ACCOUNTING PRONOUNCEMENTS
  OTHER SIGNIFICANT MATTERS
 Pension Plans.
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    28




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     DELOITTE & TOUCHE LLP
 
 29




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##### Table of Contents



MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
  
    
    Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the company;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect on
the financial statements.
     /s/  DAVID M. MCCLANAHANChairman/s/  GARY L. WHITLOCKExecutive Vice President and ChiefFinancial Officer
  30




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##### Table of Contents



CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 STATEMENTS OF CONSOLIDATED INCOME
 Year Ended December 31,2005
    
    
    2006
    
    
    2007(In Millions)Revenues
    
    $
    1,644
    
    
    $
    1,781
    
    
    $
    1,837Expenses:Operation and maintenance
    
    
    621
    
    
    
    614
    
    
    
    655Depreciation and amortization
    
    
    322
    
    
    
    379
    
    
    
    398Taxes other than income taxes
    
    
    214
    
    
    
    212
    
    
    
    223Total
    
    
    1,157
    
    
    
    1,205
    
    
    
    1,276Operating Income
    
    
    487
    
    
    
    576
    
    
    
    561Other Income (Expense):Interest and other finance charges
    
    
    (288
    )
    
    
    (110
    )
    
    
    (107
    )Interest on transition bonds
    
    
    (40
    )
    
    
    (130
    )
    
    
    (123
    )Return on true-up balance
    
    
    121
    
    
    
    
    
    
    
    Other, net
    
    
    51
    
    
    
    67
    
    
    
    68Total
    
    
    (156
    )
    
    
    (173
    )
    
    
    (162
    )Income Before Income Taxes and Extraordinary Item
    
    
    331
    
    
    
    403
    
    
    
    399Income tax expense
    
    
    (108
    )
    
    
    (132
    )
    
    
    (126
    )Income Before Extraordinary Item
    
    
    223
    
    
    
    271
    
    
    
    273Extraordinary item, net of tax
    
    
    30
    
    
    
    
    
    
    
    Net Income
    
    $
    253
    
    
    $
    271
    
    
    $
    273
  31




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CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2006
    
    
    2007(In Millions)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    122
    
    
    $
    128Accounts and notes receivable, net
    
    
    165
    
    
    
    172Accounts and notes receivableaffiliated companies
    
    
    49
    
    
    
    25Accrued unbilled revenues
    
    
    95
    
    
    
    102Inventory
    
    
    63
    
    
    
    60Taxes receivable
    
    
    34
    
    
    
    3Other
    
    
    69
    
    
    
    70Total current assets
    
    
    597
    
    
    
    560Property, Plant and Equipment, net
    
    
    4,257
    
    
    
    4,391Other Assets:Regulatory assets
    
    
    2,820
    
    
    
    2,621Notes receivableaffiliated companies
    
    
    750
    
    
    
    750Other
    
    
    39
    
    
    
    36Total other assets
    
    
    3,609
    
    
    
    3,407Total Assets
    
    $
    8,463
    
    
    $
    8,358LIABILITIES AND MEMBERS EQUITYCurrent Liabilities:Current portion of long-term debt
    
    $
    147
    
    
    $
    159Accounts payable
    
    
    72
    
    
    
    47Accounts and notes payableaffiliated companies
    
    
    141
    
    
    
    75Taxes accrued
    
    
    105
    
    
    
    87Interest accrued
    
    
    85
    
    
    
    83Other
    
    
    67
    
    
    
    74Total current liabilities
    
    
    617
    
    
    
    525Other Liabilities:Accumulated deferred income taxes, net
    
    
    1,341
    
    
    
    1,189Unamortized investment tax credits
    
    
    35
    
    
    
    28Benefit obligations
    
    
    197
    
    
    
    176Regulatory liabilities
    
    
    336
    
    
    
    354Notes payableaffiliated companies
    
    
    151
    
    
    
    151Other
    
    
    53
    
    
    
    134Total other liabilities
    
    
    2,113
    
    
    
    2,032Long-Term Debt
    
    
    3,851
    
    
    
    3,743Commitments And Contingencies (Note 7)Members Equity
    
    
    1,882
    
    
    
    2,058Total Liabilities and Members Equity
    
    $
    8,463
    
    
    $
    8,358
  32




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CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 STATEMENTS OF CONSOLIDATED CASH FLOWS
 Year Ended December 31,2005
    
    
    2006
    
    
    2007(In Millions)Cash Flows from Operating Activities:Net income
    
    $
    253
    
    
    $
    271
    
    
    $
    273Extraordinary item, net of tax
    
    
    (30
    )
    
    
    
    
    
    
    Income before extraordinary item
    
    
    223
    
    
    
    271
    
    
    
    273Adjustments to reconcile income before extraordinary item to
net cash provided by operating activities:Depreciation and amortization
    
    
    322
    
    
    
    379
    
    
    
    398Deferred income taxes
    
    
    116
    
    
    
    (76
    )
    
    
    (73
    )Amortization of deferred financing costs
    
    
    31
    
    
    
    12
    
    
    
    11Changes in other assets and liabilities:Accounts and notes receivable, net
    
    
    (59
    )
    
    
    14
    
    
    
    (14
    )Accounts receivable/payable, affiliates
    
    
    61
    
    
    
    (36
    )
    
    
    23Taxes receivable
    
    
    (79
    )
    
    
    (6
    )
    
    
    31Inventory
    
    
    (7
    )
    
    
    (3
    )
    
    
    3Accounts payable
    
    
    6
    
    
    
    8
    
    
    
    (24
    )Interest and taxes accrued
    
    
    16
    
    
    
    1
    
    
    
    (20
    )Net regulatory assets and liabilities
    
    
    (181
    )
    
    
    56
    
    
    
    67Other current assets
    
    
    (10
    )
    
    
    (2
    )
    
    
    Other current liabilities
    
    
    (15
    )
    
    
    17
    
    
    
    7Other assets
    
    
    (3
    )
    
    
    9
    
    
    
    (1
    )Other liabilities
    
    
    (17
    )
    
    
    17
    
    
    
    (18
    )Other, net
    
    
    
    
    
    
    (6
    )
    
    
    1Net cash provided by operating activities
    
    
    404
    
    
    
    655
    
    
    
    664Cash Flows from Investing Activities:Capital expenditures
    
    
    (267
    )
    
    
    (381
    )
    
    
    (402
    )Decrease in notes receivable from affiliates
    
    
    73
    
    
    
    
    
    
    
    Increase in restricted cash of transition bond companies
    
    
    (12
    )
    
    
    (32
    )
    
    
    (1
    )Other, net
    
    
    
    
    
    
    1
    
    
    
    12Net cash used in investing activities
    
    
    (206
    )
    
    
    (412
    )
    
    
    (391
    )Cash Flows from Financing Activities:Long-term revolving credit facility, net
    
    
    
    
    
    
    
    
    
    
    50Proceeds from long-term debt
    
    
    3,161
    
    
    
    
    
    
    
    Payments of long-term debt
    
    
    (2,668
    )
    
    
    (74
    )
    
    
    (147
    )Increase (decrease) in short-term notes payable with affiliates
    
    
    68
    
    
    
    49
    
    
    
    (70
    )Decrease in long-term payable with affiliates
    
    
    (303
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (16
    )
    
    
    
    
    
    
    Contribution from (to) parent
    
    
    113
    
    
    
    (36
    )
    
    
    Dividend to parent
    
    
    (537
    )
    
    
    (100
    )
    
    
    (100
    )Other, net
    
    
    (1
    )
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (183
    )
    
    
    (161
    )
    
    
    (267
    )Net Increase in Cash and Cash Equivalents
    
    
    15
    
    
    
    82
    
    
    
    6Cash and Cash Equivalents at Beginning of the Year
    
    
    25
    
    
    
    40
    
    
    
    122Cash and Cash Equivalents at End of the Year
    
    $
    40
    
    
    $
    122
    
    
    $
    128Supplemental Disclosure of Cash Flow Information:Cash Payments:Interest, net of capitalized interest
    
    $
    319
    
    
    $
    198
    
    
    $
    221Income taxes
    
    
    155
    
    
    
    304
    
    
    
    180Non-cash transactions:Increase in accounts payable related to capital expenditures
    
    $
    10
    
    
    $
    7
    
    
    $
    
  33




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CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 STATEMENTS OF CONSOLIDATED MEMBERS EQUITY
 2005
    
    
    2006
    
    
    2007Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount(In millions, except share amounts)Preference Stock, none outstanding
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Cumulative Preferred Stock, $0.01
par value; authorized 20,000,000
shares, none outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, $0.01 par value;
Authorized 1,000,000,000 sharesBalance, beginning of year
    
    
    1,000
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000
    
    
    
    Balance, end of year
    
    
    1,000
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000
    
    
    
    Additional Paid-In-CapitalBalance, beginning of year
    
    
    
    
    
    
    2,278
    
    
    
    
    
    
    
    1,719
    
    
    
    
    
    
    
    1,712Contribution to parent
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    Dividend to parent
    
    
    
    
    
    
    (528
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Balance, end of year
    
    
    
    
    
    
    1,719
    
    
    
    
    
    
    
    1,712
    
    
    
    
    
    
    
    1,712Retained Earnings (Deficit)Balance, beginning of year
    
    
    
    
    
    
    (245
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    170Net income
    
    
    
    
    
    
    253
    
    
    
    
    
    
    
    271
    
    
    
    
    
    
    
    273Dividend to parent
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    (100
    )Cumulative effect of adopting FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Balance, end of year
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    346Total Members Equity
    
    
    
    
    
    $
    1,718
    
    
    
    
    
    
    $
    1,882
    
    
    
    
    
    
    $
    2,058
  34




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##### Table of Contents



CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Background
  (2) Summary of Significant Accounting Policies
 (a) Use of Estimates
  (b) Principles of Consolidation
  (c) Revenues
  (d) Long-Lived Assets and Intangibles
  WeightedAverage Useful
    
    
    December 31,Lives (Years)
    
    
    2006
    
    
    2007(In millions)Transmission
    
    
    39
    
    
    $
    1,427
    
    
    $
    1,456Distribution
    
    
    25
    
    
    
    4,643
    
    
    
    4,757Other
    
    
    17
    
    
    
    753
    
    
    
    780Total
    
    
    
    
    
    
    6,823
    
    
    
    6,993Accumulated depreciation
    
    
    
    
    
    
    2,566
    
    
    
    2,602Property, plant and equipment, net
    
    
    
    
    
    $
    4,257
    
    
    $
    4,391
  35




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##### Table of Contents



(e) Regulatory Assets and Liabilities
  December 31,2006
    
    
    2007(In millions)Electric generation-related regulatory assets(1)
    
    $
    343
    
    
    $
    325Securitized regulatory assets(2)
    
    
    2,285
    
    
    
    2,131Unamortized loss on reacquired debt
    
    
    85
    
    
    
    79Postretirement-related regulatory asset(3)
    
    
    60
    
    
    
    39Other long-term regulatory assets
    
    
    47
    
    
    
    47Total regulatory assets
    
    
    2,820
    
    
    
    2,621Electric generation-related regulatory liabilities
    
    
    39
    
    
    
    44Estimated removal costs
    
    
    273
    
    
    
    290Other long-term regulatory liabilities
    
    
    24
    
    
    
    20Total regulatory liabilities
    
    
    336
    
    
    
    354Total regulatory assets and liabilities, net
    
    $
    2,484
    
    
    $
    2,267
 
 (1)
    
    Excludes $234 million and $220 million of allowed equity return on the true-up balance
as of December 31, 2006 and 2007, respectively.(2)
    
    Represents the transition property of the transition bond companies.(3)
    
    The Company has recorded a regulatory asset for the unrecognized costs of its
postretirement plans because it has historically recovered and currently recovers
postretirement expenses in rates.   36




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##### Table of Contents



(f) Depreciation and Amortization Expense
   Year Ended December 31,2005
    
    
    2006
    
    
    2007(In millions)Depreciation expense
    
    $
    237
    
    
    $
    245
    
    
    $
    251Amortization of securitized regulatory assets
    
    
    65
    
    
    
    135
    
    
    
    155Other amortization
    
    
    20
    
    
    
    (1
    )
    
    
    (8
    )Total depreciation and amortization
    
    $
    322
    
    
    $
    379
    
    
    $
    398
 (g) Allowance for Funds Used During Construction
  (h) Income Taxes
    (i) Accounts Receivable and Allowance for Doubtful Accounts
  (j) Inventory
  37




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##### Table of Contents



(k) Statements of Consolidated Cash Flows
  (l) New Accounting Pronouncements
     .
 
 38




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##### Table of Contents



(m) Employee Benefit Plans
 Pension Plans
    Savings Plan
  Postretirement Benefits
    Year Ended December 31,2005
    
    
    2006
    
    
    2007(In millions)Service cost benefits earned during the period
    
    $
    1
    
    
    $
    1
    
    
    $
    1Interest cost on projected benefit obligation
    
    
    17
    
    
    
    16
    
    
    
    17Expected return on plan assets
    
    
    (11
    )
    
    
    (11
    )
    
    
    (11
    )Amortization of transition obligation
    
    
    6
    
    
    
    6
    
    
    
    6Net postretirement benefit cost
    
    $
    13
    
    
    $
    12
    
    
    $
    13
 39




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##### Table of Contents



Year Ended December 31,2005
    
    2006
    
    2007Discount rate
    
    
    5.75
    %
    
    
    5.70
    %
    
    
    5.85
    %Expected return on plan assets
    
    
    8.00
    %
    
    
    8.50
    %
    
    
    8.00
    %
   Year Ended December 31,2006
    
    
    2007(In millions)Change in Benefit ObligationAccumulated benefit obligation, beginning of year
    
    $
    296
    
    
    $
    294Service cost
    
    
    1
    
    
    
    1Interest cost
    
    
    16
    
    
    
    17Benefits paid
    
    
    (19
    )
    
    
    (17
    )Participant contributions
    
    
    1
    
    
    
    1Plan amendment
    
    
    1
    
    
    
    Actuarial gain
    
    
    (2
    )
    
    
    (15
    )Accumulated benefit obligation, end of year
    
    $
    294
    
    
    $
    281Change in Plan AssetsPlan assets, beginning of year
    
    $
    134
    
    
    $
    138Benefits paid
    
    
    (19
    )
    
    
    (17
    )Employer contributions
    
    
    9
    
    
    
    9Participant contributions
    
    
    1
    
    
    
    1Actual investment return
    
    
    13
    
    
    
    11Plan assets, end of year
    
    $
    138
    
    
    $
    142Amounts Recognized in Balance SheetsOther liabilities-benefit obligations
    
    $
    (156
    )
    
    $
    (139
    )Net liability, end of year
    
    $
    (156
    )
    
    $
    (139
    )Actuarial AssumptionsDiscount rate
    
    
    5.85
    %
    
    
    6.40
    %Expected long-term return on assets
    
    
    8.00
    %
    
    
    8.00
    %Healthcare cost trend rate assumed for the next year
    
    
    7.00
    %
    
    
    7.00
    %Prescription drug cost trend rate assumed for the next year
    
    
    13.00
    %
    
    
    13.00
    %Rate to
which the cost trend rate is assumed to decline (ultimate trend rate)
    
    
    5.50
    %
    
    
    5.50
    %Year that the healthcare rate reaches the ultimate trend rate
    
    
    2011
    
    
    
    2012Year that the prescription drug rate reaches the ultimate trend rate
    
    
    2014
    
    
    
    2015
    40




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1%
    
    1%Increase
    
    Decrease(In millions)Effect on the postretirement benefit obligation
    
    $
    13
    
    
    $
    (11
    )Effect on total of service and interest cost
    
    
    1
    
    
    
    (1
    )
  December 31,2006
    
    2007Domestic equity securities
    
    
    31
    %
    
    
    30
    %International equity securities
    
    
    12
    
    
    
    11Debt securities
    
    
    57
    
    
    
    59Total
    
    
    100
    %
    
    
    100
    %
   Domestic equity securities
    
    
    25-35
    %International equity securities
    
    
    5-15
    %Debt securities
    
    
    55-65
    %Cash
    
    
    0-2
    %
  Postretirement Benefit PlanMedicareBenefit
    
    SubsidyPayments
    
    Receipts2008
    
    $
    20
    
    
    $
    (3
    )2009
    
    
    21
    
    
    
    (3
    )2010
    
    
    22
    
    
    
    (3
    )2011
    
    
    23
    
    
    
    (3
    )2012
    
    
    23
    
    
    
    (3
    )2013-2017
    
    
    127
    
    
    
    (19
    )
 Postemployment Benefits
  41




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Other Non-Qualified Plans
  (n) Other Current Assets and Liabilities
  (3) Regulatory Matters
 (a) Recovery of True-Up Balance
   
    
    reversed the Texas Utility Commissions ruling that had denied recovery of a portion of
the capacity auction true-up amounts;
    
    reversed the Texas Utility Commissions ruling that precluded the Company from
recovering the interest component of the EMCs paid to retail electric providers; and
    
    affirmed the True-Up Order in all other respects.
   
    
    reversed the district courts judgment to the extent it restored the capacity auction
true-up amounts;
    
    reversed the district courts judgment to the extent it upheld the Texas Utility
Commissions decision to allow the Company to recover EMCs paid to Reliant Energy, Inc.
(RRI);
    
    ordered that the tax normalization issue described below be remanded to the Texas
Utility Commission; and
    
    affirmed the district courts judgment in all other respects.
 42




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43




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44




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(b) Final Fuel Reconciliation
  (c) Refund of Environmental Retrofit Costs
  (4) Related Party Transactions and Major Customers
 (a) Related Party Transactions
 .
 , t
   45




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##### Table of Contents



(b) Major Customers
  (5) Long-term Debt
 December 31, 2006
    
    
    December 31, 2007Long-Term
    
    
    Current(1)
    
    
    Long-Term
    
    
    Current(1)(In millions)Long-term debt:First mortgage bonds 9.15% due 2021(2)
    
    $
    102
    
    
    $
    
    
    
    $
    102
    
    
    $
    General mortgage bonds 5.60% to 6.95% due 2013
to 2033(2)
    
    
    1,262
    
    
    
    
    
    
    
    1,262
    
    
    
    Pollution control bonds 3.625% to 5.60% due
2012 to 2027(3)
    
    
    229
    
    
    
    
    
    
    
    229
    
    
    
    Transition Bonds 3.84% to 5.63% due 2006 to 2019
    
    
    2,260
    
    
    
    147
    
    
    
    2,101
    
    
    
    159Bank loans due 2012(4)
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    Other
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )
    
    
    Total long-term debt
    
    $
    3,851
    
    
    $
    147
    
    
    $
    3,743
    
    
    $
    159
 
 (1)
    
    Includes amounts due or scheduled to be paid within one year of the date noted.(2)
    
    Excludes $151 million of first mortgage bonds and $527 million of general mortgage
bonds that the Company had issued as collateral for long-term debt of CenterPoint Energy,
and general mortgage bonds that the Company had issued as collateral for its debt
aggregating $229 million at both December 31, 2006 and 2007. Debt issued as collateral is
excluded from the financial statements because of the contingent nature of the obligation.(3)
    
    These series of debt are secured by the Companys general mortgage bonds.(4)
    
    Classified as long-term debt because the termination date of the facility under which
the funds were borrowed is more than one year beyond the dates referenced in the table.   46




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##### Table of Contents



Transition Bonds.
 Maturities
 Liens.
 (6) Income Taxes
  Year Ended December 31,2005
    
    
    2006
    
    
    2007(In millions)Current federal
    
    $
    (8
    )
    
    $
    208
    
    
    $
    199Deferred federal
    
    
    116
    
    
    
    (76
    )
    
    
    (73
    )Income tax expense
    
    $
    108
    
    
    $
    132
    
    
    $
    126
  Year Ended December 31,2005
    
    
    2006
    
    
    2007(In millions)Income before income taxes and extraordinary item
    
    $
    331
    
    
    $
    403
    
    
    $
    399Federal statutory rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Income tax expense at statutory rate
    
    
    116
    
    
    
    141
    
    
    
    139Decrease in tax resulting from:Amortization of investment tax credit
    
    
    (7
    )
    
    
    (7
    )
    
    
    (7
    )Other, net
    
    
    (1
    )
    
    
    (2
    )
    
    
    (6
    )Total
    
    
    (8
    )
    
    
    (9
    )
    
    
    (13
    )Income tax expense
    
    $
    108
    
    
    $
    132
    
    
    $
    126Effective income tax rate
    
    
    32.8
    %
    
    
    32.7
    %
    
    
    31.6
    %
 47




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##### Table of Contents



December 31,2006
    
    
    2007(In millions)Deferred tax assets:Non-current:Employee benefits
    
    $
    75
    
    
    $
    74Other
    
    
    27
    
    
    
    35Total deferred tax assets
    
    
    102
    
    
    
    109Deferred tax liabilities:Non-current:Depreciation
    
    
    554
    
    
    
    463Regulatory assets, net
    
    
    877
    
    
    
    826Other
    
    
    12
    
    
    
    9Total deferred tax liabilities
    
    
    1,443
    
    
    
    1,298Accumulated deferred income taxes, net
    
    $
    1,341
    
    
    $
    1,189
  Uncertain Income Tax Positions
 Balance at January 1, 2007
    
    $
    70Tax positions related to prior years:Additions
    
    
    30Reductions
    
    
    (12
    )Tax positions related to current year:Additions
    
    
    4Balance at December 31, 2007
    
    $
    92
  Tax Audits.
 (7) Commitments and Contingencies
 (a) Lease Commitments
  48




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##### Table of Contents



(b) Legal and Environmental Matters
 Legal Matters
 RRI Indemnified Litigation
 Electricity and Gas Market Manipulation Cases Other Class Action
Lawsuits.
 Electricity and Gas Market Manipulation Cases.
    49




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##### Table of Contents



Other Class Action Lawsuits.
 Environmental Matters
 Asbestos.
 Other Environmental.
 Other Proceedings
  50




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##### Table of Contents



(8) Estimated Fair Value of Financial Instruments
  December 31, 2006
    
    December 31, 2007Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(In millions)Financial liabilities:Long-term debt
(including $151
million of long-term
notes payable to
parent)
    
    $
    4,148
    
    
    $
    4,250
    
    
    $
    4,052
    
    
    $
    4,083
 (9) Unaudited Quarterly Information
  Year Ended December 31, 2006First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(In millions)Revenues
    
    $
    385
    
    
    $
    456
    
    
    $
    533
    
    
    $
    407Operating income
    
    
    110
    
    
    
    151
    
    
    
    219
    
    
    
    96Net income
    
    
    43
    
    
    
    71
    
    
    
    119
    
    
    
    38
 Year Ended December 31, 2007First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(In millions)Revenues
    
    $
    406
    
    
    $
    465
    
    
    $
    528
    
    
    $
    438Operating income
    
    
    104
    
    
    
    157
    
    
    
    196
    
    
    
    104Net income
    
    
    41
    
    
    
    77
    
    
    
    105
    
    
    
    50
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A(T). Controls and Procedures
 Disclosure Controls And Procedures
   51




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##### Table of Contents



Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  Year Ended December 31,2006
    
    
    2007Audit fees
    
    $
    414,400
    
    
    $
    404,050Audit-related fees
    
    
    34,000
    
    
    
    48,000Total audit and audit-related fees
    
    
    448,400
    
    
    
    452,050Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    Total fees
    
    $
    448,400
    
    
    $
    452,050
  52




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)(1) Financial Statements.Report of Independent Registered Public Accounting Firm
    
    
    29Statements of Consolidated Income for the Three Years Ended December 31, 2007
    
    
    31Consolidated Balance Sheets at December 31, 2006 and 2007
    
    
    32Statements of Consolidated Cash Flows for the Three Years Ended December 31, 2007
    
    
    33Statements of Consolidated Members Equity for the Three Years Ended December 31, 2007
    
    
    34Notes to Consolidated Financial Statements
    
    
    35(a)(2) Financial Statement Schedules for the Three Years Ended December 31, 2007.Report of Independent Registered Public Accounting Firm
    
    
    54II Qualifying Valuation Accounts
    
    
    55
     53




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
   
 54




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##### Table of Contents



CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 SCHEDULE II  QUALIFYING VALUATION ACCOUNTS
For the Three Years Ended December 31, 2007
(In Millions)
 Column A
    
    Column B
    
    Column C
    
    Column D
    
    Column EAdditionsBalance At
    
    
    
    
    
    Deductions
    
    Balance AtBeginning
    
    Charged
    
    From
    
    End OfDescription
    
    of Period
    
    to Income
    
    Reserves(1)
    
    PeriodYear Ended December 31, 2007:Accumulated provisions:Uncollectible accounts receivable
    
    $
    1
    
    
    $
    1
    
    
    $
    1
    
    
    $
    1Year Ended December 31, 2006:Accumulated provisions:Uncollectible accounts receivable
    
    
    5
    
    
    
    (2
    )
    
    
    2
    
    
    
    1Year Ended December 31, 2005:Accumulated provisions:Uncollectible accounts receivable
    
    
    2
    
    
    
    3
    
    
    
    
    
    
    
    5
 
 (1)
    
    Deductions from reserves represent losses or expenses for which the respective reserves
were created. In the case of the uncollectible accounts reserve, such deductions are net of
recoveries of amounts previously written off. 55




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##### Table of Contents



SIGNATURES
  CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC

(Registrant)By:
    /s/ DAVID M. MCCLANAHANDavid M. McClanahanManager  Signature
    
    Title/s/ DAVID M. MCCLANAHAN

(David M. McClanahan)
    
    Manager and Chairman
(Principal Executive Officer)/s/ GARY L. WHITLOCK

(Gary L. Whitlock)
    
    Executive Vice President and Chief Financial Officer
(Principal Financial Officer)/s/ WALTER L. FITZGERALD

(Walter L. Fitzgerald)
    
    Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
 56




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##### Table of Contents



CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
 EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K
For Fiscal Year Ended December 31, 2007
 
 INDEX OF EXHIBITS
  SEC File orExhibit
    
    
    
    
    
    Registration
    
    ExhibitNumber
    
    Description
    
    Report or Registration Statement
    
    Number
    
    Reference3(a)
    
    Articles of Conversion of REI
    
    Form 8-K dated August 31, 2002 filed
with the SEC on September 3, 2002
    
    1-3187
    
    
    3
    (a)3(b)
    
    Articles of Organization of
CenterPoint Energy Houston
Electric, LLC (CenterPoint
Houston)
    
    Form 8-K dated August 31, 2002 filed
with the SEC on September 3, 2002
    
    1-3187
    
    
    3
    (b)3(c)
    
    Limited Liability Company
Regulations of CenterPoint
Houston
    
    Form 8-K dated August 31, 2002 Filed
with the SEC on September 3, 2002
    
    1-3187
    
    
    3
    (c)4(a)(1)
    
    Mortgage and Deed of Trust,
dated November 1, 1944
between Houston Lighting and
Power Company (HL&P) and
Chase Bank of Texas,
National Association
(formerly, South Texas
Commercial National Bank of
Houston), as Trustee, as
amended and supplemented by
20 Supplemental Indentures
thereto
    
    HL&Ps Form S-7 filed on August 25, 1977
    
    2-59748
    
    
    2
    (b)4(a)(2)
    
    Twenty-First through
Fiftieth Supplemental
Indentures to Exhibit
4(a)(1)
    
    HL&Ps Form 10-K for the year ended
December 31, 1989
    
    1-3187
    
    4(a)(2)4(a)(3)
    
    Fifty-First Supplemental
Indenture to Exhibit 4(a)(1)
dated as of March 25, 1991
    
    HL&Ps Form 10-Q for the quarter ended
June 30, 1991
    
    1-3187
    
    
    4
    (a)4(a)(4)
    
    Fifty-Second through Fifty-
Fifth Supplemental
Indentures to Exhibit
4(a)(1) each dated as of
March 1, 1992
    
    HL&Ps Form 10-Q for the quarter ended
March 31, 1992
    
    1-3187
    
    
    44(a)(5)
    
    Fifty-Sixth and
Fifty-Seventh Supplemental
Indentures to Exhibit
4(a)(1) each dated as of
October 1, 1992
    
    HL&Ps Form 10-Q for the quarter ended
September 30, 1992
    
    1-3187
    
    
    4
 57




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##### Table of Contents



SEC File orExhibit
    
    
    
    
    
    Registration
    
    ExhibitNumber
    
    Description
    
    Report or Registration Statement
    
    Number
    
    Reference4(a)(6)
    
    Fifty-Eighth and Fifty-Ninth
Supplemental Indentures to
Exhibit 4(a)(1) each dated
as of March 1, 1993
    
    HL&Ps Form 10-Q for the quarter ended
March 31, 1993
    
    1-3187
    
    
    44(a)(7)
    
    Sixtieth Supplemental
Indenture to Exhibit 4(a)(1)
dated as of July 1, 1993
    
    HL&Ps Form 10-Q for the quarter ended
June 30, 1993
    
    1-3187
    
    
    44(a)(8)
    
    Sixty-First through
Sixty-Third Supplemental
Indentures to Exhibit
4(a)(1) each dated as of
December 1, 1993
    
    HL&Ps Form 10-K for the year ended
December 31, 1993
    
    1-3187
    
    4(a)(8)4(a)(9)
    
    Sixty-Fourth and Sixty-Fifth
Supplemental Indentures to
Exhibit 4(a)(1) each dated
as of July 1, 1995
    
    HL&Ps Form 10-K for the year ended
December 31, 1995
    
    1-3187
    
    4(a)(9)4(b)(1)
    
    General Mortgage Indenture,
dated as of October 10,
2002, between CenterPoint
Energy Houston Electric, LLC
and JPMorgan Chase Bank, as
Trustee
    
    Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
2002
    
    1-3187
    
    4(j)(1)4(b)(2)
    
    Second Supplemental
Indenture to Exhibit
4(b)(1), dated as of October
10, 2002
    
    Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
2002
    
    1-3187
    
    4(j)(3)4(b)(3)
    
    Third Supplemental Indenture
to Exhibit 4(b)(1), dated as
of October 10, 2002
    
    Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
2002
    
    1-3187
    
    4(j)(4)4(b)(4)
    
    Fourth Supplemental
Indenture to Exhibit
4(b)(1), dated as of October
10, 2002
    
    Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
2002
    
    1-3187
    
    4(j)(5)4(b)(5)
    
    Fifth Supplemental Indenture
to Exhibit 4(b)(1), dated as
of October 10, 2002
    
    Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
2002
    
    1-3187
    
    4(j)(6)4(b)(6)
    
    Sixth Supplemental Indenture
to Exhibit 4(b)(1), dated as
of October 10, 2002
    
    Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
2002
    
    1-3187
    
    4(j)(7)4(b)(7)
    
    Seventh Supplemental
Indenture to Exhibit
4(b)(1), dated as of October
10, 2002
    
    Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
2002
    
    1-3187
    
    4(j)(8)4(b)(8)
    
    Eighth Supplemental
Indenture to Exhibit
4(b)(1), dated as of October
10, 2002
    
    Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
2002
    
    1-3187
    
    4(j)(9)4(b)(9)
    
    Officers Certificates dated
October 10, 2002, setting
forth the form, terms and
provisions of the First
through Eighth Series of
General Mortgage Bonds
    
    CNPs Form 10-K for the year ended
December 31, 2003
    
    1-31447
    
    4(c)(10)4(b)(10)
    
    Ninth Supplemental Indenture
to Exhibit 4(b)(1), dated as
of November 12, 2002
    
    CNPs Form 10-K for the year ended
December 31, 2002
    
    1-31447
    
    4(e)(10)4(b)(11)
    
    Officers Certificate dated
    
    CNPs Form 10-K for the year ended
    
    1-31447
    
    4(e)(12)
 58




---



##### Table of Contents



SEC File orExhibit
    
    
    
    
    
    Registration
    
    ExhibitNumber
    
    Description
    
    Report or Registration Statement
    
    Number
    
    ReferenceNovember 12, 2002 setting
forth the form, terms and
provisions of the Ninth
Series of General Mortgage
Bonds
    
    December 31, 20034(b)(12)
    
    Tenth Supplemental Indenture
to Exhibit 4(b)(1), dated as
of March 18, 2003
    
    Form 8-K dated March 13, 2003
    
    1-3187
    
    
    4.14(b)(13)
    
    Officers Certificate dated
March 18, 2003 setting forth
the form, terms and
provisions of the Tenth
Series and Eleventh Series
of General Mortgage Bonds
    
    Form 8-K dated March 13, 2003
    
    1-3187
    
    
    4.24(b)(14)
    
    Eleventh Supplemental
Indenture to Exhibit
4(b)(1), dated as of May 23,
2003
    
    Form 8-K dated May 16, 2003
    
    1-3187
    
    
    4.14(b)(15)
    
    Officers Certificate dated
May 23, 2003 setting forth
the form, terms and
provisions of the Twelfth
Series of General Mortgage
Bonds
    
    Form 8-K dated May 16, 2003
    
    1-3187
    
    
    4.24(b)(16)
    
    Twelfth Supplemental
Indenture to Exhibit
4(b)(1), dated as of
September 9, 2003
    
    Form 8-K dated September 9, 2003
    
    1-3187
    
    
    4.24(b)(17)
    
    Officers Certificate dated
September 9, 2003 setting
forth the form, terms and
provisions of the Thirteenth
Series of General Mortgage
Bonds
    
    Form 8-K dated September 9, 2003
    
    1-3187
    
    
    4.34(b)(18)
    
    Thirteenth Supplemental
Indenture to Exhibit
4(e)(1), dated as of
February 6, 2004
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(16)4(b)(19)
    
    Officers Certificate dated
February 6, 2004 setting
forth the form, terms and
provisions of the Fourteenth
Series of General Mortgage
Bonds
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(17)4(b)(20)
    
    Fourteenth Supplemental
Indenture to Exhibit
4(e)(1), dated as of
February 11, 2004
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(18)4(b)(21)
    
    Officers Certificate dated
February 11, 2004 setting
forth the form, terms and
provisions of the Fifteenth
Series of General Mortgage
Bonds
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(19)4(b)(22)
    
    Fifteenth Supplemental
Indenture to Exhibit
4(e)(1), dated as of March
31, 2004
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(20)4(b)(23)
    
    Officers Certificate dated
March 31, 2004 setting forth
the form, terms and
provisions of the Sixteenth
Series of General Mortgage
Bonds
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(21)
 59




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##### Table of Contents



SEC File orExhibit
    
    
    
    
    
    Registration
    
    ExhibitNumber
    
    Description
    
    Report or Registration Statement
    
    Number
    
    Reference4(b)(24)
    
    Sixteenth Supplemental
Indenture to Exhibit
4(e)(1), dated as of March
31, 2004
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(22)4(b)(25)
    
    Officers Certificate dated
March 31, 2004 setting forth
the form, terms and
provisions of the
Seventeenth Series of
General Mortgage Bonds
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(23)4(b)(26)
    
    Seventeenth Supplemental
Indenture to Exhibit
4(e)(1), dated as of March
31, 2004
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(24)4(b)(27)
    
    Officers Certificate dated
March 31, 2004 setting forth
the form, terms and
provisions of the Eighteenth
Series of General Mortgage
Bonds
    
    CNPs Form 10-K for the year ended
December 31, 2005
    
    1-31447
    
    4(e)(25)4(c)
    
    $300,000,000 Second Amended
and Restated Credit
Agreement dated as of June
29, 2007 among CenterPoint
Houston, as Borrower, and
the banks named therein
    
    CNPs Form 10-Q for the quarter ended
June 30, 2007
    
    1-31447
    
    
    4.4
  SEC File orExhibit
    
    
    
    
    
    Registration
    
    ExhibitNumber
    
    Description
    
    Report or Registration Statement
    
    Number
    
    Reference10
    
    City of Houston Franchise
    
    CNPs Form 10-Q for the quarter ended
    
    1-31447
    
    10.1Ordinance
    
    June 30, 2005+12
    
    Computation of Ratios ofEarnings 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 Certificationof David M. McClanahan+32.2
    
    Section 1350 Certificationof Gary L. Whitlock
 60