CenterPoint Energy 2009 Annual Report Download - page 54

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32
• merchant energy, energy trading and REP businesses transferred to RRI or its subsidiaries in connection
with the organization and capitalization of RRI prior to its initial public offering in 2001; and
• Texas electric generating facilities transferred to Texas Genco Holdings, Inc. (Texas Genco) in 2004 and
early 2005.
In connection with the organization and capitalization of RRI, RRI and its subsidiaries assumed liabilities
associated with various assets and businesses Reliant Energy transferred to them. RRI also agreed to indemnify, and
cause the applicable transferee subsidiaries to indemnify, us and our subsidiaries, including CenterPoint Houston
and CERC, with respect to liabilities associated with the transferred assets and businesses. These indemnity
provisions were intended to place sole financial responsibility on RRI and its subsidiaries for all liabilities associated
with the current and historical businesses and operations of RRI, regardless of the time those liabilities arose. If RRI
were unable to satisfy a liability that has been so assumed in circumstances in which Reliant Energy and its
subsidiaries were not released from the liability in connection with the transfer, we, CenterPoint Houston or CERC
could be responsible for satisfying the liability.
Prior to the distribution of our ownership in RRI to our shareholders, CERC had guaranteed certain contractual
obligations of what became RRI’s trading subsidiary. When the companies separated, RRI agreed to secure CERC
against obligations under the guaranties RRI had been unable to extinguish by the time of separation. Pursuant to
such agreement, as amended in December 2007, RRI has agreed to provide to CERC cash or letters of credit
as security against CERC’s obligations under its remaining guaranties for demand charges under certain gas
transportation agreements if and to the extent changes in market conditions expose CERC to a risk of loss on those
guaranties. The present value of the demand charges under these transportation contracts, which will be effective
until 2018, was approximately $96 million as of December 31, 2009. As of December 31, 2009, RRI was not
required to provide security to CERC. If RRI should fail to perform the contractual obligations, CERC could have
to honor its guarantee and, in such event, collateral provided as security may be insufficient to satisfy CERC’s
obligations.
RRI’s unsecured debt ratings are currently below investment grade. If RRI were unable to meet its obligations, it
would need to consider, among various options, restructuring under the bankruptcy laws, in which event RRI might
not honor its indemnification obligations and claims by RRI’s creditors might be made against us as its former
owner.
On May 1, 2009, RRI completed the previously announced sale of its Texas retail business to NRG Retail LLC, a
subsidiary of NRG Energy, Inc. In connection with the sale, RRI changed its name to RRI Energy, Inc. and no
longer provides service as a REP in CenterPoint Houston’s service territory. The sale does not alter RRI’s
contractual obligations to indemnify us and our subsidiaries, including CenterPoint Houston, for certain liabilities,
including their indemnification regarding certain litigation, nor does it affect the terms of existing guaranty
arrangements for certain RRI gas transportation contracts.
Reliant Energy and RRI are named as defendants in a number of lawsuits arising out of sales of natural gas in
California and other markets. Although these matters relate to the business and operations of RRI, claims against
Reliant Energy have been made on grounds that include liability of Reliant Energy as a controlling shareholder of
RRI. We, CenterPoint Houston or CERC could incur liability if claims in one or more of these lawsuits were
successfully asserted against us, CenterPoint Houston or CERC and indemnification from RRI were determined to
be unavailable or if RRI were unable to satisfy indemnification obligations owed with respect to those claims.
In connection with the organization and capitalization of Texas Genco, Reliant Energy and Texas Genco entered
into a separation agreement in which Texas Genco assumed liabilities associated with the electric generation assets
Reliant Energy transferred to it. Texas Genco also agreed to indemnify, and cause the applicable transferee
subsidiaries to indemnify, us and our subsidiaries, including CenterPoint Houston, with respect to liabilities
associated with the transferred assets and businesses. In many cases the liabilities assumed were obligations of
CenterPoint Houston, and CenterPoint Houston was not released by third parties from these liabilities. The
indemnity provisions were intended generally to place sole financial responsibility on Texas Genco and its
subsidiaries for all liabilities associated with the current and historical businesses and operations of Texas Genco,
regardless of the time those liabilities arose. If Texas Genco were unable to satisfy a liability that had been so