CenterPoint Energy 2008 Annual Report Download - page 117

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95
Uncertain Income Tax Positions. The Company adopted the provisions of FIN 48 on January 1, 2007. As a result
of the adoption of FIN 48, the Company recognized a decrease of approximately $2 million in the liability for
unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 accumulated deficit. A
reconciliation of the change in unrecognized tax benefits for 2007 and 2008 is as follows:
December 31,
2007
2008
(In millions)
Balance, beginning of year ................................
$ 72
$ 82
Tax positions related to prior years:
Additions ................................................................
28
20
Reductions ................................................................
(20)
(2)
Tax positions related to current year:
Additions ................................................................
4
17
Settlements ................................................................
(2)
—
Balance, end of year................................................................
$ 82
$ 117
The Company has approximately $10 million and $14 million of unrecognized tax benefits that, if recognized,
would reduce the effective income tax rate for 2007 and 2008, respectively. The Company recognizes interest and
penalties as a component of income tax expense. The Company recognized approximately $3 million and $6 million
of interest on uncertain income tax positions during 2007 and 2008, respectively. The Company had accrued
$4 million and $10 million of interest on uncertain income tax positions at December 31, 2007 and 2008,
respectively. The Company does not expect the amount of unrecognized tax benefits to change significantly over the
next 12 months.
Tax Audits and Settlements. The Company’s consolidated federal income tax returns have been audited and
settled through the 2003 tax year. The Company is currently under examination by the IRS for tax years 2004
through 2007 and is at various stages of the examination process. The Company has considered the effects of these
examinations in its accrual for settled issues and liability for uncertain income tax positions as of December 31,
2008.
In the fourth quarter of 2006, the Company reached a final settlement with the IRS on the ACES and ZENS issues
and executed a closing agreement on the ZENS resulting in a net reduction in income tax expense in 2006 of
approximately $92 million. The Company also reached a tentative settlement on other tax issues, including those
related to prior acquisitions and dispositions, resulting in a reduction in income tax expense for 2006 of
approximately $26 million.
(10) Commitments and Contingencies
(a) Natural Gas Supply Commitments
Natural gas supply commitments include natural gas contracts related to the Company’s Natural Gas Distribution
and Competitive Natural Gas Sales and Services business segments, which have various quantity requirements and
durations, that are not classified as non-trading derivative assets and liabilities in the Company’s Consolidated
Balance Sheets as of December 31, 2007 and December 31, 2008 as these contracts meet the SFAS No. 133
exception to be classified as ―normal purchases contracts‖ or do not meet the definition of a derivative. Natural gas
supply commitments also include natural gas transportation contracts that do not meet the definition of a derivative.
As of December 31, 2008, minimum payment obligations for natural gas supply commitments are approximately
$776 million in 2009, $474 million in 2010, $437 million in 2011, $430 million in 2012, $447 million in 2013 and
$956 million in 2014 and thereafter.