CenterPoint Energy 2014 Annual Report Download - page 90

(j) Inventory
Inventory consists principally of materials and supplies and natural gas. Materials and supplies are valued at the lower of average cost or
market. Materials and supplies are recorded to inventory when purchased and subsequently charged to expense or capitalized to plant when
installed. Natural gas inventories of CenterPoint Energy’
s Energy Services business segment are valued at the lower of average cost or market.
Natural gas inventories of CenterPoint Energy
’
s Natural Gas Distribution business segment are primarily valued at weighted average cost.
During 2014 , 2013 and 2012 , CenterPoint Energy recorded $8 million , $4 million and $4 million , respectively, in write-
downs of natural gas
inventory to the lower of average cost or market.
(k) Derivative Instruments
CenterPoint Energy is exposed to various market risks. These risks arise from transactions entered into in the normal course of
business. CenterPoint Energy utilizes derivative instruments such as physical forward contracts, swaps and options to mitigate the impact of
changes in commodity prices and weather on its operating results and cash flows. Such derivatives are recognized in CenterPoint Energy’
s
Consolidated Balance Sheets at their fair value unless CenterPoint Energy elects the normal purchase and sales exemption for qualified physical
transactions. A derivative may be designated as a normal purchase or normal sale if the intent is to physically receive or deliver the product for
use or sale in the normal course of business.
CenterPoint Energy has a Risk Oversight Committee composed of corporate and business segment officers that oversees all commodity
price, weather and credit risk activities, including CenterPoint Energy’
s marketing, risk management services and hedging activities. The
committee’s duties are to establish CenterPoint Energy’s commodity risk policies, allocate board-
approved commercial risk limits, approve the
use of new products and commodities, monitor positions and ensure compliance with CenterPoint Energy’
s risk management policies and
procedures and limits established by CenterPoint Energy’s board of directors.
CenterPoint Energy’
s policies prohibit the use of leveraged financial instruments. A leveraged financial instrument, for this purpose, is a
transaction involving a derivative whose financial impact will be based on an amount other than the notional amount or volume of the
instrument.
(l) Investments in Other Debt and Equity Securities
CenterPoint Energy reports securities classified as trading at estimated fair value in its Consolidated Balance Sheets, and any unrealized
holding gains and losses are recorded as other income (expense) in its Statements of Consolidated Income.
(m) Environmental Costs
CenterPoint Energy expenses or capitalizes environmental expenditures, as appropriate, depending on their future economic benefit.
CenterPoint Energy expenses amounts that relate to an existing condition caused by past operations that do not have future economic benefit.
CenterPoint Energy records undiscounted liabilities related to these future costs when environmental assessments and/or remediation activities
are probable and the costs can be reasonably estimated.
(n) Statements of Consolidated Cash Flows
For purposes of reporting cash flows, CenterPoint Energy considers cash equivalents to be short-term, highly-
liquid investments with
maturities of three months or less from the date of purchase. In connection with the issuance of transition bonds and system restoration bonds,
CenterPoint Energy was required to establish restricted cash accounts to collateralize the bonds that were issued in these financing transactions.
These restricted cash accounts are not available for withdrawal until the maturity of the bonds and are not included in cash and cash equivalents.
These restricted cash accounts of $47 million and $41 million at December 31, 2014 and 2013
, respectively, are included in other current assets
in CenterPoint Energy’s Consolidated Balance Sheets. Cash and cash equivalents included $290 million and $207 million at
December 31, 2014
and 2013 , respectively, that
81
December 31,
2014
2013
Materials and supplies
$
168
$
140
Natural gas
211
145
Total inventory
$
379
$
285