CenterPoint Energy 2014 Annual Report Download - page 108

(c) Credit Risk Contingent Features
CenterPoint Energy enters into financial derivative contracts containing material adverse change provisions. These provisions could require
CenterPoint Energy to post additional collateral if the Standard & Poor’s Ratings Services or Moody’
s Investors Service, Inc. credit ratings of
CenterPoint Energy, Inc. or its subsidiaries are downgraded. The total fair value of the derivative instruments that contain credit risk contingent
features that are in a net liability position at December 31, 2014 and 2013 was $2 million and $1 million
, respectively. The aggregate fair value
of assets that are already posted as collateral was less than $1 million at both December 31, 2014 and 2013
. If all derivative contracts (in a net
liability position) containing credit risk contingent features were triggered at December 31, 2014 and 2013 , $2 million and $1 million
,
respectively, of additional assets would be required to be posted as collateral.
(d) Credit Quality of Counterparties
In addition to the risk associated with price movements, credit risk is also inherent in CenterPoint Energy’s non-
trading derivative activities.
Credit risk relates to the risk of loss resulting from non-
performance of contractual obligations by a counterparty. The following table shows the
composition of counterparties to the non-trading derivative assets of CenterPoint Energy as of December 31, 2014 and 2013 (in millions):
98
Income Statement Impact of Derivative Activity
Year Ended December 31,
Total derivatives not designated
as hedging instruments
Income Statement Location 2014 2013 2011
(in millions)
Natural gas derivatives Gains (Losses) in Revenue
$
35
$
11
$
43
Natural gas derivatives (1) (2) Gains (Losses) in Expense: Natural Gas
11
10
(63
)
Indexed debt securities derivative Gains (Losses) in Other Income (Expense)
(86
)
(193
)
(71
)
Total
$
(40
)
$
(172
)
$
(91
)
(1) The Gains (Losses) in Expense: Natural Gas includes $2 million and $(2) million during the years ended December 31, 2014 and 2013
,
respectively, related to physical forwards purchased from Enable.
(2) The Gains (Losses) in Expense: Natural Gas includes $-0- , $-0- and $(38) million of costs in 2014 , 2013
and 2012, respectively,
associated with price stabilization activities of the Natural Gas Distribution business segment that will be ultimately recovered through
purchased gas adjustments.
December 31, 2014
December 31, 2013
Investment
Grade(1)
Total
Investment
Grade(1)
Total
Energy marketers
$
2
$
4
$
1
$
4
Financial institutions
—
—
1
9
End users (2)
2
127
1
21
Total
$
4
$
131
$
3
$
34
(1) “Investment grade”
is primarily determined using publicly available credit ratings and considers credit support (including parent
company guarantees) and collateral (including cash and standby letters of credit). For unrated counterparties, CenterPoint Energy
determines a synthetic credit rating by performing financial statement analysis and considers contractual rights and restrictions and
collateral.
(2)
End users are comprised primarily of customers who have contracted to fix the price of a portion of their physical gas requirements for
future periods.