CenterPoint Energy 2014 Annual Report Download - page 74

We performed our annual goodwill impairment test in the third quarter of 2014 and determined, based on the results of the first step, using
the income approach, no impairment charge was required for any reporting unit. Our reporting units approximate our reportable segments.
Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties and may be estimated
using a number of techniques, including quoted market prices or valuations by third parties, present value techniques based on estimates of cash
flows, or multiples of earnings or revenue performance measures. The fair value of the asset could be different using different estimates and
assumptions in these valuation techniques.
The determination of fair value requires significant assumptions by management which are subjective and forward-
looking in nature. To
assist in making these assumptions, we utilized a third-
party valuation specialist in both determining and testing key assumptions used in the
valuation of each of our reporting units. We based our assumptions on projected financial information that we believe is reasonable; however,
actual results may differ materially from those projections. These projected cash flows factor in planned growth initiatives, and for our Natural
Gas Distribution reporting unit, the regulatory environment. The fair value of our Natural Gas Distribution reporting unit significantly exceeded
the carrying value. The fair value of our Energy Services reporting unit exceeded the carrying value by approximately $50 million or
approximately 14% excess fair value over the carrying value.
A key assumption in the income approach was the weighted average cost of capital of 5.5% and 5.9% applied in the valuation for Natural
Gas Distributions and Energy Services, respectively. An increase in the discount rate to greater than 6.5%, a decline in long-
term growth rate
from 3% to 2.3%, or a decrease in the aggregate cash flows of greater than 15% could have individually triggered a step-
two goodwill
impairment evaluation for our Energy Services reporting unit in 2014.
Although there was not a goodwill asset impairment in our 2014 annual test, an interim impairment test could be triggered by the following:
actual earnings results that are materially lower than expected, significant adverse changes in the operating environment, an increase in the
discount rate, changes in other key assumptions which require judgment and are forward looking in nature, or if our market capitalization falls
below book value for an extended period of time. No impairment triggers were identified subsequent to our 2014 annual test.
Unbilled Energy Revenues
Revenues related to electricity delivery and natural gas sales and services are generally recognized upon delivery to customers. However,
the determination of deliveries to individual customers is based on the reading of their meters, which is performed on a systematic basis
throughout the month either electronically through AMS meter communications or manual readings. At the end of each month, deliveries to non-
AMS customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is estimated. Information regarding
deliveries to AMS customers after the last billing is obtained from actual AMS meter usage data. Unbilled electricity delivery revenue is
estimated each month based on actual AMS meter data, daily supply volumes and applicable rates. Unbilled natural gas sales are estimated based
on estimated purchased gas volumes, estimated lost and unaccounted for gas and tariffed rates in effect. As additional information becomes
available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to
prior accounting estimates.
Pension and Other Retirement Plans
We sponsor pension and other retirement plans in various forms covering all employees who meet eligibility requirements. We use several
statistical and other factors that attempt to anticipate future events in calculating the expense and liability related to our plans. These factors
include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as estimated by
management, within certain guidelines. In addition, our actuarial consultants use subjective factors such as withdrawal and mortality rates. The
actuarial
assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower
withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension
expense recorded. Please read “— Other Significant Matters — Pension Plans” for further discussion.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2(o) to our consolidated financial statements for a discussion of new accounting pronouncements that affect us.
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