CenterPoint Energy 2009 Annual Report Download - page 81

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costs following Hurricane Ike. That modification was terminated with CenterPoint Houston’s issuance of bonds to
securitize such costs in November 2009. In February 2010, we amended our $1.2 billion credit facility to modify
this covenant to allow for a temporary increase in debt capacity if CenterPoint Houston experiences damage from a
natural disaster in its service territory that meets certain criteria. Additionally, CenterPoint Houston has
contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions.
CRITICAL ACCOUNTING POLICIES
A critical accounting policy is one that is both important to the presentation of our financial condition and results
of operations and requires management to make difficult, subjective or complex accounting estimates. An
accounting estimate is an approximation made by management of a financial statement element, item or account in
the financial statements. Accounting estimates in our historical consolidated financial statements measure the effects
of past business transactions or events, or the present status of an asset or liability. The accounting estimates
described below require us to make assumptions about matters that are highly uncertain at the time the estimate is
made. Additionally, different estimates that we could have used or changes in an accounting estimate that are
reasonably likely to occur could have a material impact on the presentation of our financial condition or results of
operations. The circumstances that make these judgments difficult, subjective and/or complex have to do with the
need to make estimates about the effect of matters that are inherently uncertain. Estimates and assumptions about
future events and their effects cannot be predicted with certainty. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the
basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as
additional information is obtained and as our operating environment changes. Our significant accounting policies are
discussed in Note 2 to our consolidated financial statements. We believe the following accounting policies involve
the application of critical accounting estimates. Accordingly, these accounting estimates have been reviewed and
discussed with the audit committee of the board of directors.
Accounting for Rate Regulation
Accounting guidance for regulated operations provides that rate-regulated entities account for and report assets
and liabilities consistent with the recovery of those incurred costs in rates if the rates established are designed to
recover the costs of providing the regulated service and if the competitive environment makes it probable that such
rates can be charged and collected. Our Electric Transmission & Distribution business segment, our Natural Gas
Distribution business segment and portions of our Interstate Pipelines business segment apply this accounting
guidance. Certain expenses and revenues subject to utility regulation or rate determination normally reflected in
income are deferred on the balance sheet as regulatory assets or liabilities and are recognized in income as the
related amounts are included in service rates and recovered from or refunded to customers. Regulatory assets and
liabilities are recorded when it is probable that these items will be recovered or reflected in future rates.
Determining probability requires significant judgment on the part of management and includes, but is not limited to,
consideration of testimony presented in regulatory hearings, proposed regulatory decisions, final regulatory orders
and the strength or status of applications for rehearing or state court appeals. If events were to occur that would
make the recovery of these assets and liabilities no longer probable, we would be required to write off or write down
these regulatory assets and liabilities. At December 31, 2009, we had recorded regulatory assets of $3.7 billion and
regulatory liabilities of $921 million.
Impairment of Long-Lived Assets and Intangibles
We review the carrying value of our long-lived assets, including goodwill and identifiable intangibles, whenever
events or changes in circumstances indicate that such carrying values may not be recoverable, and at least annually
for goodwill as required by accounting guidance for goodwill and other intangible assets. No impairment of
goodwill was indicated based on our annual analysis at July 1, 2009. Unforeseen events and changes in
circumstances and market conditions and material differences in the value of long-lived assets and intangibles due to
changes in estimates of future cash flows, interest rates, regulatory matters and operating costs could negatively
affect the fair value of our assets and result in an impairment charge.
Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties
and may be estimated using a number of techniques, including quoted market prices or valuations by third parties,