CenterPoint Energy 2008 Annual Report Download - page 47

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CERC’s businesses must compete with alternate energy sources, which could result in CERC marketing less
natural gas, and its interstate pipelines and field services businesses must compete directly with others in the
transportation, storage, gathering, treating and processing of natural gas, which could lead to lower prices and
reduced volumes, either of 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.
CERC’s two interstate pipelines and its gathering systems compete with other interstate and intrastate pipelines
and gathering systems in the transportation and storage of natural gas. The principal elements of competition are
rates, terms of service, and flexibility and reliability of service. They also compete indirectly with other forms of
energy, including electricity, coal and fuel oils. The primary competitive factor is price. The actions of CERC’s
competitors could lead to lower prices, which may have an adverse impact on CERC’s results of operations,
financial condition and cash flows. Additionally, any reduction in the volume of natural gas transported or stored
may have an adverse impact on CERC’s results of operations, financial condition and cash flows.
CERC’s natural gas distribution and competitive natural gas sales and services businesses are subject to
fluctuations in natural gas prices, 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.
CERC is subject to risk associated with increases in the price of natural gas. Increases in natural gas prices might
affect CERC’s ability to collect balances due from its customers and, for Gas Operations, 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) apply downward demand pressure on natural gas consumption in
the areas in which CERC operates thereby resulting in decreased sales volumes and revenues and (ii) increase the
risk that CERC’s suppliers or customers fail or are unable to meet their obligations. Additionally, increasing natural
gas prices could create the need for CERC to provide collateral in order to purchase natural gas.
A decline in CERC’s credit rating could result in CERC’s having to provide collateral in order to purchase gas.
If CERC’s credit rating were to decline, it might be required to post cash collateral 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.
The revenues and results of operations of CERC’s interstate pipelines and field services businesses are subject
to fluctuations in the supply and price of natural gas.
CERC’s interstate pipelines and field services businesses largely rely on natural gas sourced in the various supply
basins located in the Mid-continent region of the United States. The level of drilling and production activity in these
regions is dependent on economic and business factors beyond our control. The primary factor affecting both the
level of drilling activity and production volumes is natural gas pricing. A sustained decline in natural gas prices
could result in a decrease in exploration and development activities in the regions served by our gathering and
pipeline transportation systems and our natural gas treating and processing activities. A sustained decline could also
lead producers to shut in production from their existing wells. Other factors that impact production decisions
include the level of production costs relative to other available production, producers’ access to needed capital and
the cost of that capital, the ability of producers to obtain necessary drilling and other governmental permits, access
to drilling rigs and regulatory changes. Because of these factors, even if new natural gas reserves are discovered in
areas served by our assets, producers may choose not to develop those reserves or to shut in production from