CenterPoint Energy 2014 Annual Report Download - page 27

Disruptions at power generation facilities owned by third parties could interrupt CenterPoint Houston’
s sales of transmission and
distribution services.
CenterPoint Houston transmits and distributes to customers of REPs electric power that the REPs obtain from power generation facilities
owned by third parties. CenterPoint Houston does not own or operate any power generation facilities. If power generation is disrupted or if
power generation capacity is inadequate, CenterPoint Houston’
s sales of transmission and distribution services may be diminished or interrupted,
and its results of operations, financial condition and cash flows could be adversely affected.
A substantial portion of CenterPoint Houston’
s receivables is concentrated in a small number of REPs, and any delay or default in
payment could adversely affect CenterPoint Houston
’s cash flows, financial condition and results of operations.
CenterPoint Houston’
s receivables from the distribution of electricity are collected from REPs that supply the electricity CenterPoint
Houston distributes to their customers. As of December 31, 2014, CenterPoint Houston did business with approximately 70 REPs. Adverse
economic conditions, structural problems in the market served by ERCOT or financial difficulties of one or more REPs could impair the ability
of these REPs to pay for CenterPoint Houston’
s services or could cause them to delay such payments. CenterPoint Houston depends on these
REPs to remit payments on a timely basis. Applicable regulatory provisions require that customers be shifted to another REP or a provider of last
resort if a REP cannot make timely payments. Applicable Texas Utility Commission regulations significantly limit the extent to which
CenterPoint Houston can apply normal commercial terms or otherwise seek credit protection from firms desiring to provide retail electric service
in its service territory, and CenterPoint Houston thus remains at risk for payments related to services provided prior to the shift to another REP
or the provider of last resort. The Texas Utility Commission revised its regulations in 2009 to (i) increase the financial qualifications required of
REPs that began selling power after January 1, 2009, and (ii) authorize utilities to defer bad debts resulting from defaults by REPs for recovery
in a future rate case. A significant portion of CenterPoint Houston’
s billed receivables from REPs are from affiliates of NRG and Energy Future
Holdings Corp. (Energy Future Holdings). CenterPoint Houston’
s aggregate billed receivables balance from REPs as of December 31, 2014 was
$195 million. Approximately 36% and 10% of this amount was owed by affiliates of NRG and Energy Future Holdings, respectively. In April
2014, Energy Future Holdings publicly disclosed that it and the substantial majority of its direct and indirect subsidiaries, excluding Oncor
Electric Delivery Company LLC and its subsidiaries, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware. Any delay or default in payment by REPs could adversely affect CenterPoint
Houston’
s cash flows, financial condition and results of operations. If a REP were unable to meet its obligations, it could consider, among
various options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its obligations, and claims
might be made by creditors involving payments CenterPoint Houston had received from such REP.
CenterPoint Houston could be subject to higher costs and fines or other sanctions as a result of mandatory reliability standards.
The FERC has jurisdiction with respect to ensuring the reliability of electric transmission service, including transmission facilities owned by
CenterPoint Houston and other utilities within ERCOT. The FERC has designated the NERC as the ERO to promulgate standards, under FERC
oversight, for all owners, operators and users of the bulk power system. The FERC has approved the delegation by the NERC of authority for
reliability in ERCOT to the TRE, a functionally independent division of ERCOT. Compliance with the mandatory reliability standards may
subject CenterPoint Houston to higher operating costs and may result in increased capital expenditures. In addition, if CenterPoint Houston were
to be found to be in noncompliance with applicable mandatory reliability standards, it could be subject to sanctions, including substantial
monetary penalties.
The AMS deployed throughout CenterPoint Houston’
s service territory may experience unexpected problems with respect to the timely
receipt of accurate metering data.
CenterPoint Houston has deployed an AMS throughout its service territory. The deployment consisted, among other elements, of replacing
existing meters with new electronic meters that record metering data at 15-
minute intervals and wirelessly communicate that information to
CenterPoint Houston over a bi-
directional communications system installed for that purpose. The AMS integrates equipment and computer
software from various vendors in order to eliminate the need for physical meter readings to be taken at consumers’
premises, such as monthly
readings for billing purposes and special readings associated with a customer’
s change in REPs or the connection or disconnection of electric
service. Unanticipated difficulties could be encountered during the operation of the AMS, including failures or inadequacy of equipment or
software, difficulties in integrating the various components of the AMS, changes in technology, cyber-
security issues and factors outside the
control of CenterPoint Houston, which could result in delayed or inaccurate metering data that might lead to delays or inaccuracies in the
calculation and imposition of delivery or other charges, which could have a material adverse effect on CenterPoint Houston’
s results of
operations, financial condition and cash flows.
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