CenterPoint Energy 2009 Annual Report Download - page 115

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93
losses were substantially offset by increased revenues due to colder than normal weather. Weather hedge losses are
included in revenues in the Statements of Consolidated Income.
Interest Rate Swaps. During 2002, CenterPoint Energy settled forward-starting interest rate swaps having an
aggregate notional amount of $1.5 billion at a cost of $156 million, which was recorded in other comprehensive loss
and was amortized into interest expense over the five-year life of the designated fixed-rate debt. The settlement
amount was fully amortized at December 31, 2007. Amortization of amounts deferred in accumulated other
comprehensive loss for 2007 was $20 million.
Hedging of Future Debt Issuances. In December 2007 and January 2008, CenterPoint Energy entered into
treasury rate lock derivative instruments (treasury rate locks) having an aggregate notional amount of $300 million
and a weighted-average locked U.S. treasury rate on ten-year debt of 4.05%. These treasury rate locks were executed
to hedge the ten-year U.S. treasury rate expected to be used in pricing $300 million of fixed-rate debt CenterPoint
Energy planned to issue in 2008, because changes in the U.S treasury rate would cause variability in CenterPoint
Energy’s forecasted interest payments. These treasury rate lock derivatives were designated as cash flow hedges.
Accordingly, unrealized gains and losses associated with the treasury rate lock derivative instruments were recorded
as a component of accumulated other comprehensive income. In May 2008, CenterPoint Energy settled its treasury
rate locks for a payment of $7 million. The $7 million loss recognized upon settlement of the treasury rate locks was
recorded as a component of accumulated other comprehensive loss and will be recognized as a component of
interest expense over the ten-year life of the related $300 million senior notes issued in May 2008. Amortization of
amounts deferred in accumulated other comprehensive loss for the years ended December 31, 2008 and 2009 was
less than $1 million. During the years ended December 31, 2007 and 2008, CenterPoint Energy recognized a loss of
$2 million and $5 million, respectively, for these treasury rate locks in accumulated other comprehensive loss.
Ineffectiveness for the treasury rate locks was not material during the years ended December 31, 2007 and 2008.
(b) Derivative Fair Values and Income Statement Impacts
The following tables present information about CenterPoint Energy’s derivative instruments and hedging
activities. The first table provides a balance sheet overview of CenterPoint Energy’s Non-trading Derivative Assets
and Liabilities as of December 31, 2009, while the latter tables provide a breakdown of the related income statement
impact for the year ended December 31, 2009.
Fair Value of Derivative Instruments
December 31, 2009
Total derivatives not designated as hedging
instruments
Balance Sheet
Location
Derivative
Assets
Fair Value (2) (3)
Derivative
Liabilities
Fair Value (2) (3)
(in millions)
Commodity contracts (1) ......................
.
Current Assets $ 46 $ (7)
Commodit
y
contracts (1) .......................
.
Other Assets 16 (1)
Commodity contracts (1) ......................
.
Current Liabilities 20 (123)
Commodit
y
contracts (1) ......................
.
Other Liabilities 1 (86)
Indexed debt securities derivative .........
.
Current Liabilities
—
(201)
Total ..................................................................................... $ 83 $ (418)
_________
(1) Commodity contracts are subject to master netting arrangements and are presented on a net basis in the
Consolidated Balance Sheets. This netting can cause derivative assets to be ultimately presented in a
(liability) account on the Consolidated Balance Sheets. Likewise, derivative (liabilities) could be presented
in an asset account.
(2) The fair value shown for commodity contracts is comprised of derivative gross volumes totaling 674 billion
cubic feet (Bcf) or a net 152 Bcf long position. Of the net long position, basis swaps constitute 71 Bcf and
volumes associated with price stabilization activities of the Natural Gas Distribution business segment
comprise 51 Bcf.
(3) The net of total non-trading derivative assets and liabilities is a $39 million liability as shown on
CenterPoint Energy’s Consolidated Balance Sheets, and is comprised of the commodity contracts
derivative assets and liabilities separately shown above offset by collateral netting of $95 million.