CenterPoint Energy 2014 Annual Report Download - page 26

Poor investment performance of the pension plan and factors adversely affecting the calculation of pension liabilities could unfavorably
impact our liquidity and results of operations.
We maintain a qualified defined benefit pension plan covering all employees. Our costs of providing this plan are dependent upon a number
of factors including the investment returns on plan assets, the level of interest rates used to calculate the funded status of the plan, our
contributions to the plan and government regulations with respect to funding requirements and the calculation of plan liabilities. Funding
requirements may increase as a result of a decline in the market value of plan assets, a decline in the interest rates used to calculate the present
value of future plan obligations or government regulations that increase minimum funding requirements or the pension liability. In addition to
affecting our funding requirements, each of these factors could adversely affect our results of operations and financial position.
The use of derivative contracts in the normal course of business by us, our subsidiaries or Enable could result in financial losses that could
negatively impact our results of operations and those of our subsidiaries or Enable.
We and our subsidiaries use derivative instruments, such as swaps, options, futures and forwards, to manage our commodity, weather and
financial market risks. Enable may also use such instruments from time to time to manage its commodity and financial market risk. We, our
subsidiaries or Enable could recognize financial losses as a result of volatility in the market values of these contracts or should a counterparty fail
to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these financial
instruments can involve management’
s judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative
valuation methods could affect the reported fair value of these contracts.
An impairment of goodwill, long-lived assets, including intangible assets, and equity-method investments could reduce our earnings.
Goodwill is recorded when the purchase price of a business exceeds the fair market value of the tangible and separately measurable
intangible net assets. Accounting principles generally accepted in the United States of America require us to test goodwill for impairment on an
annual basis or when events or circumstances occur indicating that goodwill might be impaired. Long-
lived assets, including intangible assets
with finite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable.
For investments we account for under the equity method, the impairment test considers whether the fair value of the equity investment as a
whole, not the underlying net assets, has declined and whether that decline is other than temporary. For example, if Enable’
s unit price,
distributions or earnings decline for reasons including, but not limited to, continued declines in commodity prices and producer activity, and that
decline is deemed to be other than temporary, we could determine that we are unable to recover the carrying value of our equity investment in
Enable. The carrying value of CenterPoint Energy’s investment in Enable is $19.33 per unit. As of December 31, 2014, Enable’
s common unit
price closed at $19.39 (approximately $14 million above carrying value). The lowest close price for Enable’
s common units in January 2015 was
$17.34 (approximately $465 million
below carrying value). If we determine that an impairment is indicated, we would be required to take an
immediate noncash charge to earnings with a correlative effect on equity and balance sheet leverage as measured by debt to total capitalization.
Risk Factors Affecting Our Electric Transmission & Distribution Business
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.
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 generally being higher during the warmer months. Unusually mild weather in
the warmer months could diminish our results of operations and harm our financial condition. Conversely, extreme warm weather conditions
could increase our results of operations in a manner that would not likely be annually recurring.
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