CenterPoint Energy 2008 Annual Report Download - page 46

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24
the Texas Utility Commission is currently considering proposed revisions to those regulations that, as currently
proposed, would (i) increase the credit protections that could be required from REPs, and (ii) allow utilities to defer
the loss of payments for recovery in a future rate case. Whether such revised regulations will ultimately be adopted
and their terms cannot now be determined. RRI, through its subsidiaries, is CenterPoint Houston’s largest customer.
Approximately 46% of CenterPoint Houston’s $141 million in billed receivables from REPs at December 31, 2008
was owed by subsidiaries of RRI. Any delay or default in payment by REPs such as RRI could adversely affect
CenterPoint Houston’s cash flows, financial condition and results of operations. RRI’s unsecured debt ratings are
currently below investment grade. If RRI were unable to meet its obligations, it could consider, among various
options, restructuring under the bankruptcy laws, in which event RRI’s subsidiaries might seek to avoid honoring
their obligations and claims might be made by creditors involving payments CenterPoint Houston has received from
RRI’s subsidiaries.
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.
In this regard, pursuant to the Stipulation and Settlement Agreement approved by the Texas Utility Commission
in September 2006, until June 30, 2010 CenterPoint Houston is limited in its ability to request retail rate relief. For
more information on the Stipulation and Settlement Agreement, please read ―Business — Regulation — State and
Local Regulation — Electric Transmission & Distribution — CenterPoint Houston Rate Agreement‖ in Item 1 of
this report.
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.
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 being higher during the warmer months.
Risk Factors Affecting Our Natural Gas Distribution, Competitive Natural Gas Sales and Services, Interstate
Pipelines and Field 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 Gas Operations are regulated by certain municipalities and state commissions, and for its
interstate pipelines by the FERC, 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.