CenterPoint Energy 2009 Annual Report Download - page 33

11
Competitive Natural Gas Sales and Services
CERC offers variable and fixed-priced physical natural gas supplies primarily to commercial and industrial
customers and electric and gas utilities through CenterPoint Energy Services, Inc. (CES) and its subsidiary,
CenterPoint Energy Intrastate Pipelines, LLC (CEIP).
In 2009, CES marketed approximately 504 Bcf of natural gas, related energy services and transportation to
approximately 11,100 customers (including approximately 3 Bcf to affiliates). CES customers vary in size from
small commercial customers to large utility companies in the central and eastern regions of the United States. The
business has three operational divisions: wholesale, retail and intrastate pipelines, which are further described below.
Wholesale Division. CES offers a portfolio of physical delivery services and financial products designed to meet
wholesale customers’ supply and price risk management needs. These customers are served directly through
interconnects with various interstate and intrastate pipeline companies, and include gas utilities, large industrial
customers and electric generation customers. This division includes the supply function for the procurement of
natural gas and the management and optimization of transportation and storage assets for CES.
Retail Division. CES offers a variety of natural gas management services to smaller commercial and industrial
customers, municipalities, educational institutions and hospitals, whose facilities are typically located downstream
of natural gas distribution utility city gate stations. These services include load forecasting, supply acquisition, daily
swing volume management, invoice consolidation, storage asset management, firm and interruptible transportation
administration and forward price management. CES manages transportation contracts and energy supply for retail
customers in 18 states.
Intrastate Pipeline Division. CEIP provides transportation services to shippers and end-users and contracts out
approximately 2.3 Bcf of storage at its Pierce Junction facility in Texas.
CES currently transports natural gas on over 41 interstate and intrastate pipelines within states located throughout
the central and eastern United States. CES maintains a portfolio of natural gas supply contracts and firm
transportation and storage agreements to meet the natural gas requirements of its customers. CES aggregates supply
from various producing regions and offers contracts to buy natural gas with terms ranging from one month to over
five years. In addition, CES actively participates in the spot natural gas markets in an effort to balance daily and
monthly purchases and sales obligations. Natural gas supply and transportation capabilities are leveraged through
contracts for ancillary services including physical storage and other balancing arrangements.
As described above, CES offers its customers a variety of load following services. In providing these services,
CES uses its customers’ purchase commitments to forecast and arrange its own supply purchases, storage and
transportation services to serve customers’ natural gas requirements. As a result of the variance between this forecast
activity and the actual monthly activity, CES will either have too much supply or too little supply relative to its
customers’ purchase commitments. These supply imbalances arise each month as customers’ natural gas
requirements are scheduled and corresponding natural gas supplies are nominated by CES for delivery to those
customers. CES’ processes and risk control environment are designed to measure and value imbalances on a real-
time basis to ensure that CES’ exposure to commodity price risk is kept to a minimum. The value assigned to these
imbalances is calculated daily and is known as the aggregate Value at Risk (VaR). In 2009, CES’ VaR averaged
$0.6 million with a high of $1.6 million.
Our risk control policy, governed by our Risk Oversight Committee, defines authorized and prohibited trading
instruments and trading limits. CES is a physical marketer of natural gas and uses a variety of tools, including
pipeline and storage capacity, financial instruments and physical commodity purchase contracts to support its sales.
The CES business optimizes its use of these various tools to minimize its supply costs and does not engage in
proprietary or speculative commodity trading. The VaR limits, $4 million maximum, within which CES operates are
consistent with its operational objective of matching its aggregate sales obligations (including the swing associated
with load following services) with its supply portfolio in a manner that minimizes its total cost of supply.