CenterPoint Energy 2009 Annual Report Download - page 49

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rates are determined may not always result in rates that will produce full recovery of CERC’s costs and enable
CERC to earn a reasonable return on its invested capital.
CERC’s businesses must compete with alternate energy sources, which could result in CERC marketing less
natural gas, and its interstate pipelines and field services businesses must compete directly with others in the
transportation, storage, gathering, treating and processing of natural gas, which could lead to lower prices and
reduced volumes, either of which could have an adverse impact on CERC’s results of operations, financial
condition and cash flows.
CERC competes primarily with alternate energy sources such as electricity and other fuel sources. In some areas,
intrastate pipelines, other natural gas distributors and marketers also compete directly with CERC for natural gas
sales to end-users. In addition, as a result of federal regulatory changes affecting interstate pipelines, natural gas
marketers operating on these pipelines may be able to bypass CERC’s facilities and market, sell and/or transport
natural gas directly to commercial and industrial customers. Any reduction in the amount of natural gas marketed,
sold or transported by CERC as a result of competition may have an adverse impact on CERC’s results of
operations, financial condition and cash flows.
CERC’s two interstate pipelines and its gathering systems compete with other interstate and intrastate pipelines
and gathering systems in the transportation and storage of natural gas. The principal elements of competition are
rates, terms of service, and flexibility and reliability of service. They also compete indirectly with other forms of
energy, including electricity, coal and fuel oils. The primary competitive factor is price. The actions of CERC’s
competitors could lead to lower prices, which may have an adverse impact on CERC’s results of operations,
financial condition and cash flows. Additionally, any reduction in the volume of natural gas transported or stored
may have an adverse impact on CERC’s results of operations, financial condition and cash flows.
CERC’s natural gas distribution and competitive natural gas sales and services businesses are subject to
fluctuations in natural gas prices, which could affect the ability of CERC’s suppliers and customers to meet
their obligations or otherwise adversely affect CERC’s liquidity and results of operations.
CERC is subject to risk associated with changes in the price of natural gas. Increases in natural gas prices might
affect CERC’s ability to collect balances due from its customers and, for Gas Operations, could create the potential
for uncollectible accounts expense to exceed the recoverable levels built into CERC’s tariff rates. In addition, a
sustained period of high natural gas prices could (i) apply downward demand pressure on natural gas consumption in
the areas in which CERC operates thereby resulting in decreased sales volumes and revenues and (ii) increase the
risk that CERC’s suppliers or customers fail or are unable to meet their obligations. An increase in natural gas prices
would also increase CERC’s working capital requirements by increasing the investment that must be made in order
to maintain natural gas inventory levels. Additionally, a decrease in natural gas prices could increase the amount of
collateral that CERC must provide under its hedging arrangements.
A decline in CERC’s credit rating could result in CERC’s having to provide collateral in order to purchase
natural gas or under its shipping or hedging arrangements.
If CERC’s credit rating were to decline, it might be required to post cash collateral in order to purchase natural
gas or under its shipping or hedging arrangements. If a credit rating downgrade and the resultant cash collateral
requirement were to occur at a time when CERC was experiencing significant working capital requirements or
otherwise lacked liquidity, CERC’s results of operations, financial condition and cash flows could be adversely
affected.
The revenues and results of operations of CERC’s interstate pipelines and field services businesses are subject
to fluctuations in the supply and price of natural gas and natural gas liquids.
CERC’s interstate pipelines and field services businesses largely rely on natural gas sourced in the various supply
basins located in the Mid-continent region of the United States. The level of drilling and production activity in these
regions is dependent on economic and business factors beyond our control. The primary factor affecting both the
level of drilling activity and production volumes is natural gas pricing. A sustained decline in natural gas prices
could result in a decrease in exploration and development activities in the regions served by our gathering and