CenterPoint Energy 2009 Annual Report Download - page 48

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last resort if a REP cannot make timely payments. Applicable Texas Utility Commission regulations significantly
limit the extent to which CenterPoint Houston can apply normal commercial terms or otherwise seek credit
protection from firms desiring to provide retail electric service in its service territory, and thus remains at risk for
payments not made prior to the shift to the provider of last resort. Although the Texas Utility Commission revised its
regulations in 2009 to (i) increase the financial qualifications from REPs that began selling power after January 1,
2009, and (ii) authorize utilities to defer bad debts resulting from defaults by REPs for recovery in a future rate case,
significant bad debts may be realized and unpaid amounts may not be timely recovered. A subsidiary of NRG
Energy, Inc., NRG Retail LLC, acquired the Texas retail business of RRI, and its subsidiaries are together
considered the largest REP in CenterPoint Houston’s service territory. Approximately 41% of CenterPoint
Houston’s $139 million in billed receivables from REPs at December 31, 2009 was owed by subsidiaries of NRG
Retail LLC. NRG Energy, Inc.’s credit ratings are currently below investment grade. Any delay or default in
payment by REPs could adversely affect CenterPoint Houston’s cash flows, financial condition and results of
operations. If any of these REPs were unable to meet its obligations, it could consider, among various options,
restructuring under the bankruptcy laws, in which event any such REP might seek to avoid honoring its obligations
and claims might be made by creditors involving payments CenterPoint Houston had received from such REP.
Rate regulation of CenterPoint Houston’s business may delay or deny CenterPoint Houston’s ability to earn a
reasonable return and fully recover its costs.
CenterPoint Houston’s rates are regulated by certain municipalities and the Texas Utility Commission based on
an analysis of its invested capital and its expenses in a test year. Thus, the rates that CenterPoint Houston is allowed
to charge may not match its expenses at any given time. The regulatory process by which rates are determined may
not always result in rates that will produce full recovery of CenterPoint Houston’s costs and enable CenterPoint
Houston to earn a reasonable return on its invested capital.
In this regard, pursuant to the Stipulation and Settlement Agreement approved by the Texas Utility Commission
in September 2006, until June 30, 2010 CenterPoint Houston is limited in its ability to request retail rate relief. For
more information on the Stipulation and Settlement Agreement, please read “Business — Regulation — State and
Local Regulation — Electric Transmission & Distribution — CenterPoint Houston Rate Agreement” in Item 1 of
this Form 10-K.
Disruptions at power generation facilities owned by third parties could interrupt CenterPoint Houston’s sales of
transmission and distribution services.
CenterPoint Houston transmits and distributes to customers of REPs electric power that the REPs obtain from
power generation facilities owned by third parties. CenterPoint Houston does not own or operate any power
generation facilities. If power generation is disrupted or if power generation capacity is inadequate, CenterPoint
Houston’s sales of transmission and distribution services may be diminished or interrupted, and its results of
operations, financial condition and cash flows could be adversely affected.
CenterPoint Houston’s revenues and results of operations are seasonal.
A significant portion of CenterPoint Houston’s revenues is derived from rates that it collects from each REP
based on the amount of electricity it delivers on behalf of such REP. Thus, CenterPoint Houston’s revenues and
results of operations are subject to seasonality, weather conditions and other changes in electricity usage, with
revenues being higher during the warmer months.
Risk Factors Affecting Our Natural Gas Distribution, Competitive Natural Gas Sales and Services, Interstate
Pipelines and Field Services Businesses
Rate regulation of CERC’s business may delay or deny CERC’s ability to earn a reasonable return and fully
recover its costs.
CERC’s rates for Gas Operations are regulated by certain municipalities and state commissions, and for its
interstate pipelines by the FERC, based on an analysis of its invested capital and its expenses in a test year. Thus, the
rates that CERC is allowed to charge may not match its expenses at any given time. The regulatory process in which