CenterPoint Energy 2009 Annual Report Download - page 98

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76
CenterPoint Energy has a Risk Oversight Committee composed of corporate and business segment officers that
oversees all commodity price, weather and credit risk activities, including CenterPoint Energy’s marketing, risk
management services and hedging activities. The committee’s duties are to establish CenterPoint Energy’s
commodity risk policies, allocate board-approved commercial risk limits, approve use of new products and
commodities, monitor positions and ensure compliance with CenterPoint Energy’s risk management policies and
procedures and limits established by CenterPoint Energy’s board of directors.
CenterPoint Energy’s policies prohibit the use of leveraged financial instruments. A leveraged financial
instrument, for this purpose, is a transaction involving a derivative whose financial impact will be based on an
amount other than the notional amount or volume of the instrument.
(l) Investments in Other Debt and Equity Securities
CenterPoint Energy reports “trading” securities at estimated fair value in its Consolidated Balance Sheets, and
any unrealized holding gains and losses are recorded as other income (expense) in its Statements of Consolidated
Income.
As of December 31, 2008 and 2009, CenterPoint Energy held investments in Time Warner Inc. (TW) related
securities, which were classified as “trading” securities. For information regarding these investments, see Note 6.
(m) Environmental Costs
CenterPoint Energy expenses or capitalizes environmental expenditures, as appropriate, depending on their future
economic benefit. CenterPoint Energy expenses amounts that relate to an existing condition caused by past
operations that do not have future economic benefit. CenterPoint Energy records undiscounted liabilities related to
these future costs when environmental assessments and/or remediation activities are probable and the costs can be
reasonably estimated.
(n) Statements of Consolidated Cash Flows
For purposes of reporting cash flows, CenterPoint Energy considers cash equivalents to be short-term, highly
liquid investments with maturities of three months or less from the date of purchase. In connection with the issuance
of transition bonds in October 2001, December 2005 and February 2008 and system restoration bonds in November
2009, CenterPoint Energy was required to establish restricted cash accounts to collateralize the bonds that were
issued in these financing transactions. These restricted cash accounts are not available for withdrawal until the
maturity of the bonds and are not included in cash and cash equivalents. These restricted cash accounts of
$60 million and $34 million at December 31, 2008 and 2009, respectively, are included in other current assets in
CenterPoint Energy's Consolidated Balance Sheets. For additional information regarding transition and system
restoration bonds, see Notes 3(a), 3(b) and 8(b). Cash and cash equivalents includes $166 million and $151 million
at December 31, 2008 and 2009, respectively, that is held by CenterPoint Energy’s transition and system restoration
bond subsidiaries solely to support servicing the transition and system restoration bonds.
(o) New Accounting Pronouncements
Effective January 1, 2009, CenterPoint Energy adopted new accounting guidance which requires enhanced
disclosures of derivative instruments and hedging activities such as the fair value of derivative instruments and
presentation of their gains or losses in tabular format, as well as disclosures regarding credit risks and strategies and
objectives for using derivative instruments. These disclosures are included as part of CenterPoint Energy’s
Derivatives Instruments footnote (see Note 4).
Effective January 1, 2009, CenterPoint Energy adopted new accounting guidance for convertible debt instruments
that may be settled in cash upon conversion (including partial cash settlement) which changed the accounting
treatment for convertible securities that the issuer may settle fully or partially in cash and which required
retrospective application to all periods presented. Under this new guidance, cash settled convertible securities are
separated into their debt and equity components. The value assigned to the debt component is the estimated fair
value, as of the issuance date, of a similar debt instrument without the conversion feature, and the difference