CenterPoint Energy 2014 Annual Report Download - page 28

Risk Factors Affecting Our Natural Gas Distribution and Energy Services Businesses
Rate regulation of CERC’s business may delay or deny CERC’s ability to earn a reasonable return and fully recover its costs.
CERC’
s rates for NGD are regulated by certain municipalities and state commissions based on an analysis of its invested capital and its
expenses in a test year. Thus, the rates that CERC is allowed to charge may not match its expenses at any given time. The regulatory process in
which rates are determined may not always result in rates that will produce full recovery of CERC’
s costs and enable CERC to earn a reasonable
return on its invested capital.
CERC’
s natural gas distribution and energy services businesses are subject to fluctuations in notional natural gas prices as well as
geographic and seasonal natural gas price differentials, which could affect the ability of CERC
’
s suppliers and customers to meet their
obligations or otherwise adversely affect CERC’s liquidity and results of operations and financial condition.
CERC is subject to risk associated with changes in the notional price of natural gas as well as geographic and seasonal natural gas price
differentials. Increases in natural gas prices might affect CERC’
s ability to collect balances due from its customers and, for NGD, could create
the potential for uncollectible accounts expense to exceed the recoverable levels built into CERC’
s tariff rates. In addition, a sustained period of
high natural gas prices could (i) decrease demand for natural gas in the areas in which CERC operates, thereby resulting in decreased sales and
revenues and (ii) increase the risk that CERC’
s suppliers or customers fail or are unable to meet their obligations. An increase in natural gas
prices would also increase CERC’
s working capital requirements by increasing the investment that must be made in order to maintain natural gas
inventory levels. Additionally, a decrease in natural gas prices could increase the amount of collateral that CERC must provide under its hedging
arrangements.
CERC’
s businesses must compete with alternate energy sources, which could result in CERC marketing less natural gas, which could have
an adverse impact on CERC’s results of operations, financial condition and cash flows.
CERC competes primarily with alternate energy sources such as electricity and other fuel sources. In some areas, intrastate pipelines, other
natural gas distributors and marketers also compete directly with CERC for natural gas sales to end-
users. In addition, as a result of federal
regulatory changes affecting interstate pipelines, natural gas marketers operating on these pipelines may be able to bypass CERC’
s facilities and
market, sell and/or transport natural gas directly to commercial and industrial customers. Any reduction in the amount of natural gas marketed,
sold or transported by CERC as a result of competition may have an adverse impact on CERC’
s results of operations, financial condition and
cash flows.
A decline in CERC’s credit rating could result in CERC’
s having to provide collateral under its shipping or hedging arrangements or in
order to purchase natural gas.
If CERC’
s credit rating were to decline, it might be required to post cash collateral under its shipping or hedging arrangements or in order to
purchase natural gas. If a credit rating downgrade and the resultant cash collateral requirement were to occur at a time when CERC was
experiencing significant working capital requirements or otherwise lacked liquidity, CERC’
s results of operations, financial condition and cash
flows could be adversely affected.
CERC’s revenues and results of operations are seasonal.
A substantial portion of CERC’s revenues is derived from natural gas sales. Thus, CERC’
s revenues and results of operations are subject to
seasonality, weather conditions and other changes in natural gas usage, with revenues being higher during the winter months. Unusually mild
weather in the winter months could diminish our results of operations and harm our financial condition. Conversely, extreme cold weather
conditions could increase our results of operations in a manner that would not likely be annually recurring.
The states in which CERC provides regulated local gas distribution may, either through legislation or rules, adopt restrictions regarding
organization, financing and affiliate transactions that could have significant adverse impacts on CERC’s ability to operate.
Proposals have been put forth in some of the states in which CERC does business to give state regulatory authorities increased jurisdiction
and scrutiny over organization, capital structure, intracompany relationships and lines of business that could be pursued by registered holding
companies and their affiliates that operate in those states. Some of these frameworks attempt to regulate financing activities, acquisitions and
divestitures, and arrangements between the utilities and their affiliates, and to restrict the level of non-
utility business that can be conducted
within the holding company structure. Additionally, they may impose record-
22