CenterPoint Energy 2009 Annual Report Download - page 114

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92
other party to the case filed such a request. CERC and CenterPoint Energy do not expect a final order to be issued
in this proceeding until spring 2010.
Mississippi. In July 2009, Gas Operations filed a request to increase its rates for utility distribution service with
the Mississippi Public Service Commission (MPSC). In November 2009, as part of a settlement agreement in which
the MPSC approved Gas Operations’ retention of the compensation paid under the terms of an asset management
agreement, Gas Operations withdrew its rate request.
(d) Regulatory Accounting
CenterPoint Energy has a 50% ownership interest in Southeast Supply Header, LLC (SESH) which owns and
operates a 270-mile interstate natural gas pipeline. In 2009, SESH discontinued the use of guidance for accounting
for regulated operations, which resulted in CenterPoint Energy recording its share of the effects of such write-offs of
SESH’s regulatory assets through non-cash pre-tax charges for the year ended December 31, 2009 of $16 million.
These non-cash charges are reflected in equity in earnings of unconsolidated affiliates in the Statements of
Consolidated Income. The related tax benefits of $6 million are reflected in the Income Tax Expense line in the
Statements of Consolidated Income.
(4) 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, weather and interest rates on its operating
results and cash flows.
(a) Non-Trading Activities
Derivative Instruments. CenterPoint Energy enters into certain derivative instruments to manage physical
commodity price risks and does not engage in proprietary or speculative commodity trading. These financial
instruments do not qualify or are not designated as cash flow or fair value hedges.
During the year ended December 31, 2007, CenterPoint Energy recorded increased natural gas expense from
unrealized net losses of $10 million. During the year ended December 31, 2008, CenterPoint Energy recorded
increased natural gas revenues from unrealized net gains of $101 million and increased natural gas expense from
unrealized net losses of $88 million, a net unrealized gain of $13 million. During the year ended December 31,
2009, CenterPoint Energy recorded decreased revenues from unrealized net losses of $80 million and decreased
natural gas expense from unrealized net gains of $57 million, a net unrealized loss of $23 million.
In prior years, CenterPoint Energy entered into certain derivative instruments that were designated as cash flow
hedges. The objective of these derivative instruments was to hedge the price risk associated with natural gas
purchases and sales to reduce cash flow variability related to meeting CenterPoint Energy’s wholesale and retail
customer obligations. In 2007, CenterPoint Energy discontinued designating these instruments as cash flow hedges.
As of December 31, 2009, there are no remaining amounts deferred in other comprehensive income related to these
instruments that had previously been designated as cash flow hedges.
Weather Hedges. CenterPoint Energy has weather normalization or other rate mechanisms that mitigate the
impact of weather on its gas operations in Arkansas, Louisiana, Oklahoma and a portion of Texas. The remaining
Gas Operations jurisdictions do not have such mechanisms. As a result, fluctuations from normal weather may have
a significant positive or negative effect on the results of the gas operations in the remaining jurisdictions and in
CenterPoint Houston’s service territory.
In 2007, 2008 and 2009, CenterPoint Energy entered into heating-degree day swaps to mitigate the effect of
fluctuations from normal weather on its financial position and cash flows for the respective winter heating seasons.
The swaps were based on ten-year normal weather. During the years ended December 31, 2007, 2008 and 2009,
CenterPoint Energy recognized losses of $-0-, $17 million and $7 million, respectively, related to these swaps. The