CenterPoint Energy 2014 Annual Report Download - page 12

NGD has entered into various asset management agreements associated with its utility distribution service in Arkansas, Louisiana,
Mississippi, Oklahoma and Texas. Generally, these asset management agreements are contracts between NGD and an asset manager that are
intended to transfer the working capital obligation and maximize the utilization of the assets. In these agreements, NGD agreed to release
transportation and storage capacity to other parties to manage gas storage, supply and delivery arrangements for NGD and to use the released
capacity for other purposes when it is not needed for NGD. NGD is compensated by the asset manager through payments made over the life of
the agreements based in part on the results of the asset optimization. NGD has received approval from the state regulatory commissions in
Arkansas, Louisiana, Mississippi and Oklahoma to retain a share of the asset management agreement proceeds. The agreements have varying
terms, the longest of which expires in 2018.
Assets
As of December 31, 2014, NGD owned approximately 73,000 linear miles of natural gas distribution mains, varying in size from one-
half
inch to 24 inches in diameter. Generally, in each of the cities, towns and rural areas served by NGD, it owns the underground gas mains and
service lines, metering and regulating equipment located on customers’
premises and the district regulating equipment necessary for pressure
maintenance. With a few exceptions, the measuring stations at which NGD receives gas are owned, operated and maintained by others, and its
distribution facilities begin at the outlet of the measuring equipment. These facilities, including odorizing equipment, are usually located on land
owned by suppliers.
Competition
NGD competes primarily with alternate energy sources such as electricity and other fuel sources. In some areas, intrastate pipelines, other
gas distributors and marketers also compete directly for gas sales to end-
users. In addition, as a result of federal regulations affecting interstate
pipelines, natural gas marketers operating on these pipelines may be able to bypass NGD’
s facilities and market and sell and/or transport natural
gas directly to commercial and industrial customers.
Energy Services
CERC offers variable and fixed-
priced physical natural gas supplies primarily to commercial and industrial customers and electric and gas
utilities through CenterPoint Energy Services, Inc. (CES) and its subsidiary, CenterPoint Energy Intrastate Pipelines, LLC (CEIP).
In 2014, CES marketed approximately 631 Bcf of natural gas, related energy services and transportation to approximately 18,000 customers
(including approximately 18 Bcf to affiliates) in 23 states. CES customers vary in size from small commercial customers to large utility
companies.
CES offers a variety of natural gas management services to gas utilities, large industrial customers, electric generators, smaller commercial
and industrial customers, municipalities, educational institutions and hospitals. These services include load forecasting, supply acquisition, daily
swing volume management, invoice consolidation, storage asset management, firm and interruptible transportation administration and forward
price management. CES also offers a portfolio of physical delivery services designed to meet customers’
supply and price risk management
needs. These customers are served directly, through interconnects with various interstate and intrastate pipeline companies, and portably, through
our mobile energy solutions business.
In addition to offering natural gas management services, CES procures and optimizes transportation and storage assets. CES maintains a
portfolio of natural gas supply contracts and firm transportation and storage agreements to meet the natural gas requirements of its customers.
CES aggregates supply from various producing regions and offers contracts to buy natural gas with terms ranging from one month to over five
years. In addition, CES actively participates in the spot natural gas markets in an effort to balance daily and monthly purchases and sales
obligations. Natural gas supply and transportation capabilities are leveraged through contracts for ancillary services including physical storage
and other balancing arrangements.
As described above, CES offers its customers a variety of load following services. In providing these services, CES uses its customers’
purchase commitments to forecast and arrange its own supply purchases, storage and transportation services to serve customers’
natural gas
requirements. As a result of the variance between this forecast activity and the actual monthly activity, CES will either have too much supply or
too little supply relative to its customers’ purchase commitments. These supply imbalances arise each month as customers’
natural gas
requirements are scheduled and corresponding natural gas supplies are nominated by CES for delivery to those customers. CES’
processes and
risk control environment are designed to measure and value imbalances on a real-time basis to ensure that CES’
exposure to commodity price
risk is kept to a minimum. The value assigned to these imbalances is calculated daily and is known as the aggregate Value at Risk (VaR).
6