CenterPoint Energy 2010 Annual Report Download

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CREATING
AN
INTELL GENT
FUTURE,
TODAY
2010 Annual Report

Table of contents

  • Page 1
    Creating an intell gent Future, today 2010 Annual Report

  • Page 2
    ELECTRIC TRANSMISSION & DISTRIBUTION NATURAL GAS DISTRIBUTION Together, smart meters and the intelligent grid in our electric transmission and distribution business will enable a new energy future. With leading-edge technology, we are making significant improvements to modernize our electric ...

  • Page 3
    ... about future earnings potential. Our competitive natural gas sales and services business helps producers and customers intelligently manage energy. We provide comprehensive energy solutions, including procurement, transportation and risk management. Continuing to build strong relationships, we...

  • Page 4
    ... million from the electric utility and $140 million related to transition and system restoration bonds. nasural gas dissribusion Our natural gas distribution business serves approximately 3.3 million customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. Operating income was...

  • Page 5
    ...We continue to select projects that build on a strong foundation of consistent, predictable earnings and also provide significant upside for our shareholders. Investments in smart electric meters, the intelligent grid and the expansion of our pipelines and field services operations all exemplify the...

  • Page 6
    ... placed near prolific shale plays in Arkansas, Louisiana, Oklahoma and Texas, and our Our electric transmission and distribution business had a very solid year. Core operating income increased to $427 million, compared to $414 million in 2009. Modest customer growth, together with favorable weather...

  • Page 7
    ..., Milton Carroll Chairman David M. McClanahan President and CEO We remain confident and optimistic about our company's future. Our investments in smart meter and intelligent grid technologies have positioned our electric distribution operations as an Dividends Paid per share 180,000 Hours...

  • Page 8
    ... all Texas retail market requirements. By automating routine transactions, these new meters eliminated more than 600,000 service visits since 2009. This advanced system will promote greater energy conservation and enable Houston-area electric consumers the ability to better monitor and manage their...

  • Page 9
    ... was insfalled in February 2011. 600,000 Through our advanced mefering sysfem, we eliminafed more fhan 600,000 service visifs and fhe associafed emissions. 650+ tours More fhan 650 fours of our Energy InSighf Cenfer have demonsfrafed fhe benefifs of infelligenf grid fechnology fo global ufilify...

  • Page 10
    ... new online and telephone customer self-service options to further improve the customer experience. We also see potential growth opportunities for our mobile energy solutions business. When pipelines are out of service for planned or unplanned outages, this business provides temporary natural gas...

  • Page 11
    ... and our customers. In Arkansas and Minnesota, CenterPoint Energy's rebate programs make it easier for customers to install higher efficiency equipment for greater energy savings. We are working to offer these programs in other parts of our service territory. Expanding the use of natural gas is our...

  • Page 12
    ... pipeline. We also received approval for new tariffs that allow us more flexibility to better support our power generation customer needs in the summer when local natural gas distribution companies demand less gas. We are making intelligent investments in new technology to enhance customer service...

  • Page 13
    ... near crolific shales. n Picelines n Shales 21% We increased our average confracf ferm by 21 cercenf on our largesf ciceline and 11 cercenf overall. 8,200 miles 91% We own and ocerafe more fhan 8,200 miles of ciceline near crolific shale areas. As of fhe end of 2010, more fhan 91 cercenf of high...

  • Page 14
    12

  • Page 15
    ... to $94 million plus $8 million in equity income the previous year. We continued our long-term strategy of making intelligent investments in this midstream business. Last year, we invested more than $650 million, our highest level ever, and placed substantial new facilities in service - ahead of...

  • Page 16
    ...in 2010, compared to $21 million in 2009. Our retail marketing operations increased the sales volume as well as its customer count by 9 percent, bringing our total customer base to more than 12,000 in 17 states. A portion of this increase occurred in our Gulf Coast territory where smaller businesses...

  • Page 17
    ... company President and Chief Executive Officer, CenterPoint Energy Robert T. O'Connell, 72 Former Executive Vice President and Chief Operating Officer, Health Care Service Corporation, a customer-owned health benefits company Former Chief Executive Officer, General Motors Acceptance Corporation...

  • Page 18
    ... Vice President and General Counsel Pipelines and Field Services Joseph B. McGoldrick, 57 Other Corporate Officers C.H. Albright, 61 Vice President Human Resources Division President Gas Operations Rick Zapalac, 57 Senior Vice President Policy and Government Relations Jeff W. Bonham, 48 Company...

  • Page 19
    ... TRANSITION PERIOD FROM TO  CenterPoint Energy, Inc. (Exact name of registrant as specified in its charter) Texas (State or other jurisdiction of incorporation or organization) 1111 Louisiana Houston, Texas 77002 (Address and zip code of principal executive offices) 74-0694415 (I.R.S. Employer...

  • Page 20
    THIS PAGE LEFT INTENTIONALLY BLANK

  • Page 21
    ... with Accountants on Accounting and Financial Disclosure ...116 Controls and Procedures ...116 Other Information ...117 PART III Directors, Executive Officers and Corporate Governance ...117 Executive Compensation ...117 Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 22
    ...generally ...management's beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections...Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 23
    .... From time to time, we consider the acquisition or the disposition of assets or businesses. Our principal executive offices are located at 1111 Louisiana, Houston, Texas 77002 (telephone number: 713207-1111). We make available free of charge on our Internet website our annual report on Form 10...

  • Page 24
    ... the transmission grid through power distribution substations and delivers electricity to end users through distribution feeders. CenterPoint Houston's operations include construction and maintenance of distribution facilities, metering services, outage response services and call center operations...

  • Page 25
    ... CenterPoint Houston to recover EMCs paid to its former affiliate Reliant Energy, Inc. (Reliant Energy, Inc., formerly known as Reliant Resources, Inc., changed its name in 2009 to ― RRI Energy, Inc.â€- in connection with the sale of its Texas retail electric business, and again in December 2010...

  • Page 26
    ...2010. In the True-Up Order, the Texas Utility Commission reduced CenterPoint Houston's stranded cost recovery by approximately $146 million, which was included in the extraordinary loss discussed above, to reflect the present value of certain deferred tax benefits associated with its former electric...

  • Page 27
    ...True-Up Order over 14 years plus interest at an annual rate of 11.075% (CTC Order). The CTC Order authorized CenterPoint Houston to impose a charge on REPs to recover the portion of the true-up balance not recovered through a financing order. The CTC Order also allowed CenterPoint Houston to collect...

  • Page 28
    ... Texas Utility Commission. Sales to REPs that are subsidiaries of NRG Retail LLC (NRG Retail) represented approximately 48%, 44% and 38% of CenterPoint Houston's transmission and distribution revenues in 2008, 2009 and 2010, respectively. Sales to subsidiaries of TXU Energy Retail Company LLC (TXU...

  • Page 29
    ... service territory over the next five years. CenterPoint Houston began installing advanced meters in March 2009. This innovative technology should encourage greater energy conservation by giving Houston-area electric consumers the ability to better monitor and manage their electric use and its cost...

  • Page 30
    ... of CenterPoint Houston's properties are located in Texas. Its properties consist primarily of high voltage electric transmission lines and poles, distribution lines, substations, service wires and meters. Most of CenterPoint Houston's transmission and distribution lines have been constructed over...

  • Page 31
    ... industrial customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. The largest metropolitan areas served in each state by Gas Operations are Houston, Texas; Minneapolis, Minnesota; Little Rock, Arkansas; Shreveport, Louisiana; Biloxi, Mississippi; and Lawton, Oklahoma. In 2010...

  • Page 32
    ... of natural gas distribution mains, varying in size from one-half inch to 24 inches in diameter. Generally, in each of the cities, towns and rural areas served by Gas Operations, it owns the underground gas mains and service lines, metering and regulating equipment located on customers' premises...

  • Page 33
    ... that minimizes its total cost of supply. In 2010, CES' VaR averaged $0.7 million with a high of $1.7 million. Assets CEIP owns and operates approximately 233 miles of intrastate pipeline in Louisiana and Texas and holds storage facilities of approximately 2.3 Bcf in Texas under long-term leases...

  • Page 34
    ... distribution companies: • CenterPoint Energy Gas Transmission Company, LLC (CEGT) is an interstate pipeline that provides natural gas transportation, natural gas storage and pipeline services to customers principally in Arkansas, Louisiana, Oklahoma and Texas; and CenterPoint Energy-Mississippi...

  • Page 35
    ... pipelines in the transportation and storage of natural gas. The principal elements of competition among pipelines are rates, terms of service, and flexibility and reliability of service. CERC's interstate pipelines business competes indirectly with other forms of energy, including electricity...

  • Page 36
    ... operates approximately 3,800 miles of gathering lines and processing plants that collect, treat and process natural gas primarily from three regions located in major producing fields in Arkansas, Louisiana, Oklahoma and Texas. Competition CERC's field services business competes with other companies...

  • Page 37
    ... of energy delivered, whereas distribution rates for a majority of commercial and industrial customers are primarily based on peak demand. All REPs in CenterPoint Houston's service area pay the same rates and other charges for transmission and distribution services. This regulated delivery charge...

  • Page 38
    ...sell electricity to end-use customers in CenterPoint Houston's service territory that was offset by a reduction of other utility revenues, resulting in a $92 million requested annual revenue increase. The rate filing package also supported an annual increase of $18 million for wholesale transmission...

  • Page 39
    ... permit lost revenue recovery. In October 2010, amended rules of the Texas Utility Commission relating to the Transmission Cost Recovery Factor (TCRF) became effective. The amended rules permit a distribution service provider (DSP) such as CenterPoint Houston to defer for future recovery increases...

  • Page 40
    ... Travis County, Texas. In December 2010, Gas Operations filed a request to change its rates with the Railroad Commission and the 66 cities in its South Texas service territory, consisting of approximately 137,000 customers. The request seeks an increase in base revenues of approximately $6.5 million...

  • Page 41
    ... the facilities. ENVIRONMENTAL MATTERS Our operations are subject to stringent and complex laws and regulations pertaining to health, safety and the environment. As an owner or operator of natural gas pipelines and distribution systems, gas gathering and processing systems, and electric transmission...

  • Page 42
    • • • acquire permits for facility operations; modify or replace existing and proposed equipment; and clean up or decommission waste disposal areas, fuel storage and management facilities and other locations and facilities. Failure to comply with these laws and regulations may trigger a ...

  • Page 43
    ... through lower gas sales, and our gas transmission and field services businesses could experience lower revenues. On the other hand, warmer temperatures in our electric service territory may increase our revenues from transmission and distribution through increased demand for electricity for cooling...

  • Page 44
    ... estimated costs in excess of insurance recovery. In January 2010, as part of its Minnesota rate case decision, the MPUC eliminated the environmental expense tracker mechanism and ordered amounts previously collected from ratepayers and related carrying costs refunded to customers in 2010. Such...

  • Page 45
    .... In 2004, we sold our generating business, to which most of these claims relate, to Texas Genco LLC, which is now known as NRG Texas LP. Under the terms of the arrangements regarding separation of the generating business from us and our sale to NRG Texas LP, ultimate financial responsibility for...

  • Page 46
    ... E. Rozzell ...61 Executive Vice President, General Counsel and Corporate Secretary Gary L. Whitlock ...61 Executive Vice President and Chief Financial Officer C. Gregory Harper ...46 Senior Vice President and Group President, CenterPoint Energy Pipelines and Field Services Thomas R. Standish ...61...

  • Page 47
    ... and as President and Chief Operating Officer of CenterPoint Houston from August 2002 to June 2004. He served as President and Chief Operating Officer for both electricity and natural gas for Reliant Energy's Houston area from 1999 to August 2002. Item 1A. Risk Factors We are a holding company that...

  • Page 48
    ...2010. In the True-Up Order, the Texas Utility Commission reduced CenterPoint Houston's stranded cost recovery by approximately $146 million, which was included in the extraordinary loss discussed above, to reflect the present value of certain deferred tax benefits associated with its former electric...

  • Page 49
    ...REP cannot make timely payments. Applicable Texas Utility Commission regulations significantly limit the extent to which CenterPoint Houston can apply normal commercial terms or otherwise seek credit protection from firms desiring to provide retail electric service in its service territory, and thus...

  • Page 50
    ... Affecting Our Natural Gas Distribution, Competitive Natural Gas Sales and Services, Interstate Pipelines and Field Services Businesses Rate regulation of CERC's business may delay or deny CERC's ability to earn a reasonable return and fully recover its costs. CERC's rates for Gas Operations are...

  • Page 51
    ... be adversely affected. The revenues and results of operations of CERC's interstate pipelines and field services businesses are subject to fluctuations in the supply and price of natural gas and natural gas liquids and regulatory and other issues impacting our customers' production decisions. CERC...

  • Page 52
    ...to affiliate transactions and reporting in the event of certain downgrading of the utility's bond rating. These regulatory frameworks could have adverse effects on CERC's ability to conduct its utility operations, to finance its business and to provide cost-effective utility service. In addition, if...

  • Page 53
    ... the basis of retired bonds and 70% of property additions as of December 31, 2010. However, CenterPoint Houston has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions. Our current credit ratings are discussed in ― Management's Discussion and...

  • Page 54
    ... gas in areas we serve in our interstate pipelines and field services businesses. In order to comply with these requirements, we may need to spend substantial amounts and devote other resources from time to time to: construct or acquire new equipment; acquire permits for facility operations...

  • Page 55
    ... released from the liability in connection with the transfer, we, CenterPoint Houston or CERC could be responsible for satisfying the liability. In May 2009, RRI sold its Texas retail business to NRG Retail, a subsidiary of NRG Energy, Inc. In December 2010, Mirant Corporation merged with and became...

  • Page 56
    ... sales of natural gas in California and other markets. Although these matters relate to the business and operations of GenOn, claims against Reliant Energy have been made on grounds that include liability of Reliant Energy as a controlling shareholder of GenOn's predecessor. We, CenterPoint Houston...

  • Page 57
    ... hurricanes or tornadoes can increase our costs to repair damaged facilities and restore service to our customers. When we cannot deliver electricity or natural gas to customers or our customers cannot receive our services, our financial results can be impacted by lost revenues, and we generally...

  • Page 58
    ...business segment, please read ― Business - Our Business - Electric Transmission & Distribution - Propertiesâ€- in Item 1 of this report, which information is incorporated herein by reference. Natural Gas Distribution For information regarding the properties of our Natural Gas Distribution business...

  • Page 59
    ...and low closing prices of the common stock of CenterPoint Energy on the New York Stock Exchange composite tape during the periods indicated, as reported by Bloomberg, and the cash dividends declared in these periods. Market Price Dividend Declared Per Share 2009 First Quarter ...February 6 ...March...

  • Page 60
    ... selected financial data with respect to our consolidated financial condition and consolidated results of operations and should be read in conjunction with our consolidated financial statements and the related notes in Item 8 of this report. 2006(1) Year Ended December 31, 2007(1) 2008(1) 2009 (in...

  • Page 61
    ...and operates our regulated natural gas distribution business (Gas Operations), which engages in intrastate natural gas sales to, and natural gas transportation for, approximately 3.3 million residential, commercial and industrial customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and...

  • Page 62
    ... CERC's field services business owns and operates approximately 3,800 miles of gathering pipelines and processing plants that collect, treat and process natural gas primarily from three regions located in major producing fields in Arkansas, Louisiana, Oklahoma and Texas. It also owns a 50% general...

  • Page 63
    ... to new natural gas producing regions in Texas, Arkansas, Oklahoma and Louisiana. Our Interstate Pipelines business segment benefited from new projects placed into service in 2009 on our Carthage to Perryville line, including a backhaul agreement due to expire in 2011. In our Field Services business...

  • Page 64
    ... IG project subject to funding by the DOE will cost approximately $115 million. CenterPoint Houston believes the IG has the potential to provide an improvement in grid planning, operations, maintenance and customer service for its distribution system. In March 2010, the Internal Revenue Service (IRS...

  • Page 65
    ...sell electricity to end-use customers in CenterPoint Houston's service territory that was offset by a reduction of other utility revenues, resulting in a $92 million requested annual revenue increase. The rate filing package also supported an annual increase of $18 million for wholesale transmission...

  • Page 66
    ... as the asset-backed securitizations CenterPoint Houston has sponsored for recovery of transition and storm restoration costs. DoddFrank also includes new whistleblower provisions. Dodd-Frank also makes substantial changes to the regulatory oversight of the credit rating agencies that are typically...

  • Page 67
    ... affecting various aspects of our business, including, among others, energy deregulation or re-regulation, pipeline safety, health care reform, financial reform and tax legislation; timely and appropriate rate actions and increases, allowing recovery of costs and a reasonable return on investment...

  • Page 68
    ...23 million of carrying costs related to Hurricane Ike restoration costs in 2009, a $15 million decrease in the gain on our marketable securities and a $9 million increase in interest expense on transition and system restoration bonds. Income Tax Expense. Our 2010 effective tax rate of 37.3% differed...

  • Page 69
    ... prices. Operating Income by Business Segment 2008 Year Ended December 31, 2009 2010 Electric Transmission & Distribution ...$ Natural Gas Distribution ...Competitive Natural Gas Sales and Services ...Interstate Pipelines ...Field Services ...Other Operations ...Total Consolidated Operating Income...

  • Page 70
    ... summary data of our Electric Transmission & Distribution business segment, CenterPoint Houston, for 2008, 2009 and 2010 (in millions, except throughput and customer data): 2008 Year Ended December 31, 2009 2010 Revenues: Electric transmission and distribution utility ...$ 1,593 Transition and...

  • Page 71
    ... Gas Distribution business segment reported operating income of $231 million for 2010 compared to $204 million for 2009. Operating income increased $27 million primarily as a result of revenue from base rate increases and annual rate adjustments ($24 million), lower pension and other benefits costs...

  • Page 72
    ... of our Competitive Natural Gas Sales and Services business segment for 2008, 2009 and 2010 (in millions, except throughput and customer data): Year Ended December 31, 2008 2009 2010 Revenues ...$ 4,528 $ 2,230 $ 2,651 Expenses: Natural gas ...4,423 2,165 2,591 Operation and maintenance ...39 39...

  • Page 73
    ... (in Bcf) ...1,538 1,592 19 1,693 2010 Compared to 2009. Our Interstate Pipeline business segment reported operating income of $270 million for 2010 compared to $256 million for 2009. Margins (revenues less natural gas costs) increased by $7 million primarily due to new contracts for the Phase IV...

  • Page 74
    ... Services business segment reported operating income of $151 million for 2010 compared to $94 million for 2009. Margins (revenues less natural gas costs) increased primarily due to new projects, including the Magnolia and Olympia Gathering Systems in the North Louisiana Haynesville Shale and core...

  • Page 75
    ... cash provided by net accounts receivable/payable ($41 million). Cash Used in Investing Activities Net cash used in investing activities increased $524 million in 2010 compared to 2009 due to increased capital expenditures ($349 million), primarily related to Field Services projects ($320 million...

  • Page 76
    ...): Electric Transmission & Distribution(1) ...$ 463 $ 605 $ 468 $ 469 $ 506 $ 372 Natural Gas Distribution ...202 263 274 285 285 285 Competitive Natural Gas Sales and Services ...2 10 12 12 6 6 Interstate Pipelines ...102 157 133 131 119 95 Field Services ...668 262 135 125 59 60 Other Operations...

  • Page 77
    ... May 2009, RRI sold its Texas retail business to NRG Retail, a subsidiary of NRG Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly owned subsidiary of RRI and RRI changed its name from RRI Energy, Inc. to GenOn Energy, Inc. Neither the sale of the retail business nor...

  • Page 78
    ... 2009 and 2010, there were no advances under the receivables facility. As of February 15, 2011, we had the following facilities (in millions): Amount Utilized at February 15, 2011 (1) $ 20 (2) June 29, 2007 CenterPoint Energy Revolver $ 1,156 June 29, 2012 June 29, 2007 CenterPoint Houston Revolver...

  • Page 79
    ... facility). In February 2010, we amended our credit facility to modify the covenant to allow for a temporary increase of the permitted ratio from 5 times to 5.5 times if CenterPoint Houston experiences damage from a natural disaster in its service territory and we certify to the administrative agent...

  • Page 80
    ... this BBB rating will increase and decrease the aggregate credit threshold accordingly. CenterPoint Energy Services, Inc. (CES), a wholly owned subsidiary of CERC Corp. operating in our Competitive Natural Gas Sales and Services business segment, provides comprehensive natural gas sales and services...

  • Page 81
    ... hedging arrangements, and gas purchases, gas price and gas storage activities of our Natural Gas Distribution and Competitive Natural Gas Sales and Services business segments; acceleration of payment dates on certain gas supply contracts under certain circumstances, as a result of increased gas...

  • Page 82
    ... customer payments and increased write-offs of receivables due to higher gas prices or changing economic conditions; the outcome of litigation brought by and against us; contributions to pension and postretirement benefit plans; restoration costs and revenue losses resulting from future natural...

  • Page 83
    ...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...

  • Page 84
    ...the current general rate case pursuant to Texas law. CenterPoint Houston deferred as a regulatory asset $32 million and $26 million in pension and other postemployment expenses during the years ended December 31, 2009 and 2010, respectively. The calculation of pension expense and related liabilities...

  • Page 85
    ...0.50% from 8.00% to 7.50%, 2011 pension cost would increase by approximately $7 million. As of December 31, 2010, the pension plan projected benefit obligation, including the unfunded benefit restoration plan, exceeded plan assets by $468 million. If the discount rate were lowered by 0.50% from 5.25...

  • Page 86
    ... activities of our Natural Gas Distribution business segment and a $10 million decrease to net liabilities related to our Competitive Natural Gas Sales and Services business segment. The above analysis of the non-trading energy derivatives utilized for commodity price risk management purposes does...

  • Page 87
    purchases and sales of natural gas to which the hedges relate. Furthermore, the non-trading energy derivative portfolio is managed to complement the physical transaction portfolio, reducing overall risks within limits. Therefore, the adverse impact to the fair value of the portfolio of non-trading ...

  • Page 88
    ... Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of CenterPoint Energy, Inc. Houston, Texas We have audited the accompanying consolidated balance sheets of CenterPoint Energy, Inc. and subsidiaries (the "Company") as of December 31, 2010...

  • Page 89
    ...Directors and Shareholders of CenterPoint Energy, Inc. Houston, Texas We have audited the internal control over financial reporting of CenterPoint Energy, Inc. and subsidiaries (the "Company") as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by...

  • Page 90
    ... attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2010 which is included herein on page 67. /s/ DAVID M. MCCLANAHAN President and Chief Executive Officer /s/ GARY L. WHITLOCK Executive Vice President and Chief Financial Officer March 1, 2011...

  • Page 91
    CENTERPOINT ENERGY, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME Year Ended December 31, 2008 2009 2010 (in millions, except per share amounts) $ 11,322 Revenues ...Expenses: Natural gas ...7,466 Operation and maintenance ...1,502 Depreciation and amortization ...708 Taxes other than ...

  • Page 92
    CENTERPOINT ENERGY, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME Year Ended December 31, 2008 2009 2010 (in millions) Net income ...$ 446 Other comprehensive income (loss): Adjustment to pension and other postretirement plans (net of tax of $32, $2 and $5) ...(79) Net ...

  • Page 93
    ... equivalents ($151 and $198 related to VIEs at December 31, 2009 and 2010, respectively) ...$ 740 Investment in marketable securities ...300 Accounts receivable, net ($44 and $49 related to VIEs at December 31, 2009 and 2010, respectively) ...790 Accrued unbilled revenues ...485 Inventory ...327 Non...

  • Page 94
    ...Write-down of natural gas inventory ...30 Equity in earnings of unconsolidated affiliates, net of distributions ...(51) Changes in other assets and liabilities: Accounts receivable and unbilled revenues, net...(82) Inventory ...(109) Taxes receivable ...- Accounts payable ...87 Fuel cost over (under...

  • Page 95
    ...Shares 2009 2010 Amount Preference Stock, none outstanding ...Cumulative Preferred Stock, $0.01 par value; authorized 20,000,000 shares, none outstanding ...Common Stock, $0.01 par value; authorized 1,000,000,000 shares Balance, beginning of year ...Issuances related to benefit and investment plans...

  • Page 96
    ..., processing and treating facilities. As of December 31, 2010, CenterPoint Energy's indirect wholly owned subsidiaries included: • • CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which engages in the electric transmission and distribution business in the Texas Gulf Coast area...

  • Page 97
    ...the guidance for accounting for regulated operations, to the Electric Transmission & Distribution business segment and the Natural Gas Distribution business segment and to portions of the Interstate Pipelines business segment. CenterPoint Energy's rate-regulated businesses recognize removal costs as...

  • Page 98
    ... Natural Gas Sales and Services business segment are also primarily valued at the lower of average cost or market. Natural gas inventories of CenterPoint Energy's Natural Gas Distribution business segment are primarily valued at weighted average cost. During both 2009 and 2010, CenterPoint Energy...

  • Page 99
    ... or revenues of the transition and system restoration bond companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property and the bond holders have no recourse to the general credit of CenterPoint Energy. In January 2010, the FASB issued new...

  • Page 100
    ... Average Useful Lives (Years) December 31, (in millions) 2009 2010 Electric Transmission & Distribution...27 $ Natural Gas Distribution ...31 Competitive Natural Gas Sales and Services ...26 Interstate Pipelines ...58 Field Services ...46 Other property ...25 Total ...Accumulated depreciation and...

  • Page 101
    ... Goodwill by reportable segment as of December 31, 2009 and 2010 is as follows (in millions): Natural Gas Distribution ...Interstate Pipelines ...Competitive Natural Gas Sales and Services ...Field Services ...Other Operations ...Total ...$ 746 579 335 25 11 $ 1,696 CenterPoint Energy performs its...

  • Page 102
    ... CenterPoint Houston to recover EMCs paid to its former affiliate Reliant Energy, Inc. (Reliant Energy, Inc., formerly known as Reliant Resources, Inc., changed its name in 2009 to ― RRI Energy, Inc.â€- in connection with the sale of its Texas retail electric business, and again in December 2010...

  • Page 103
    ... discussed above, to reflect the present value of certain deferred tax benefits associated with its former electric generation assets. CenterPoint Energy believes that the Texas Utility Commission based its order on proposed regulations issued by the Internal Revenue Service (IRS) in March 2003 that...

  • Page 104
    ...True-Up Order over 14 years plus interest at an annual rate of 11.075% (CTC Order). The CTC Order authorized CenterPoint Houston to impose a charge on REPs to recover the portion of the true-up balance not recovered through a financing order. The CTC Order also allowed CenterPoint Houston to collect...

  • Page 105
    ...sell electricity to end-use customers in CenterPoint Houston's service territory that was offset by a reduction of other utility revenues, resulting in a $92 million requested annual revenue increase. The rate filing package also supported an annual increase of $18 million for wholesale transmission...

  • Page 106
    ..., where the case remains pending. In April 2010, CenterPoint Houston filed an application with the Texas Utility Commission seeking approval of certain estimated 2011 energy efficiency programs, an energy efficiency performance bonus for 2009 programs, and recovery of revenue losses related to the...

  • Page 107
    ... Travis County, Texas. In December 2010, Gas Operations filed a request to change its rates with the Railroad Commission and the 66 cities in its South Texas service territory, consisting of approximately 137,000 customers. The request seeks an increase in base revenues of approximately $6.5 million...

  • Page 108
    ... April 2010, Gas Operations and CenterPoint Energy Gas Transmission Company, LLC (CEGT) began negotiations to renew the pipeline transportation and storage service agreements that were scheduled to expire on March 31, 2012 for Arkansas, Louisiana, Oklahoma and Texas. In May 2010, Gas Operations and...

  • Page 109
    ... 2010, respectively. Compensation costs for the performance and stock awards granted under LTIPs are measured using fair value and expected achievement levels on the grant date. The fair value of awards granted to employees after April 2009 are based on the closing stock price of CenterPoint Energy...

  • Page 110
    ... CenterPoint Energy's non-contributory pension plan except for federally mandated limits on qualified plan benefits or on the level of compensation on which qualified plan benefits may be calculated. CenterPoint Energy provides certain healthcare and life insurance benefits for retired employees...

  • Page 111
    ... cost relating to pension and postretirement benefits: 2008 Postretirement Benefits December 31, 2009 Pension Postretirement Benefits Benefits 2010 Postretirement Benefits Discount rate ...6.40% Expected return on plan assets ...8.50 Rate of increase in compensation levels ...4.60 Pension Benefits...

  • Page 112
    ...of CenterPoint Energy's plans against a hypothetical yield curve of high-quality corporate bonds represented by a series of annualized individual discount rates from one-half to thirty years. For measurement purposes, healthcare and prescription costs are assumed to increase 8.50% during 2011, after...

  • Page 113
    ...pension benefits related to CenterPoint Energy's pension plans that have accumulated benefit obligations in excess of plan assets: 2009 December 31, 2010 Pension Qualified Accumulated benefit obligation ...$ 1,770 $ 94 $1,860 $ 94 Projected benefit obligation...1,772 94 1,875 94 Fair value of plan...

  • Page 114
    ... tables set forth by level, within the fair value hierarchy, CenterPoint Energy's pension plan assets at fair value as of December 31, 2009 and 2010: Fair Value Measurements at December 31, 2009 (in millions) Quoted Prices in Significant Significant Active Markets for Observable Unobservable...

  • Page 115
    ...gains/losses settled in the cash accounts. The pension plan did not include any holdings of CenterPoint Energy common stock as of December 31, 2009 or 2010. The following tables present additional information about the changes in the fair value of the pension plan's level 3 investments for the years...

  • Page 116
    ... pension and postretirement benefits plans, respectively, in 2010. CenterPoint Energy expects to contribute approximately $35 million, $9 million and $18 million to its qualified pension, non-qualified pension and postretirement benefits plans, respectively, in 2011. The following benefit payments...

  • Page 117
    ... 2009 and 2010 was $79 million and $78 million, respectively, relating to deferred compensation plans. Effective January 1, 2008, CenterPoint Energy adopted new guidance on accounting for deferred compensation and postretirement benefit aspects of endorsement split-dollar life insurance arrangements...

  • Page 118
    ... and increased natural gas expense from unrealized net losses of $14 million, a net unrealized gain of $4 million. 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...

  • Page 119
    ... a balance sheet overview of CenterPoint Energy's Derivative Assets and Liabilities as of December 31, 2009 and 2010, while the last table provides a breakdown of the related income statement impacts for the years ending December 31, 2009 and 2010. Fair Value of Derivative Instruments December 31...

  • Page 120
    ... $(115) million of costs in 2009 and 2010, respectively, associated with price stabilization activities of the Natural Gas Distribution business segment that will be ultimately recovered through purchased gas adjustments. (c) Credit Risk Contingent Features CenterPoint Energy enters into financial...

  • Page 121
    ...derivatives that are presented net) measured at fair value on a recurring basis as of December 31, 2009 and 2010, and indicate the fair value hierarchy of the valuation techniques utilized by CenterPoint Energy to determine such fair value. Quoted Prices in Active Markets for Identical Assets (Level...

  • Page 122
    ...measured at fair value on a recurring basis for which CenterPoint Energy has utilized Level 3 inputs to determine fair value: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Derivative assets and liabilities, net Year Ended December 31, 2008 2009 2010 (in millions) Beginning...

  • Page 123
    ... corporate events. As of December 31, 2010, the reference shares for each ZENS note consisted of 0.5 share of TW Common, 0.125505 share of TWC Common and 0.045455 share of AOL Common. CenterPoint Energy pays interest on the ZENS at an annual rate of 2% plus the amount of any quarterly cash dividends...

  • Page 124
    ... to participants in CenterPoint Energy's enhanced dividend reinvestment plan. In January 2011, CenterPoint Energy suspended the issuance of common shares to its defined contribution plan and its enhanced dividend reinvestment plan. Common shares for the two plans are now being purchased on the open...

  • Page 125
    ... series of debt is secured by general mortgage bonds of CenterPoint Houston at December 31, 2009 and 2010, respectively. (5) These series of debt are secured by general mortgage bonds of CenterPoint Houston. (6) $550 million senior notes due February 2011 are not reflected in the current portion...

  • Page 126
    .... In October 2009, Gas Operations entered into asset management agreements associated with its utility distribution service in Arkansas, north Louisiana and Oklahoma that extend through March 31, 2012. Pursuant to the provisions of the agreements, Gas Operations sells natural gas and agrees to...

  • Page 127
    ...credit facility's first drawn cost is LIBOR plus 45 basis points based on CERC Corp.'s current credit ratings. The facility contains a debt to total capitalization covenant, limiting debt to 65% of its total capitalization. Under CenterPoint Energy's $1.2 billion credit facility, CenterPoint Houston...

  • Page 128
    ... $ 263 37.3% Effective tax rate ...38.4% 32.1% CenterPoint Energy recorded a non-cash, $21 million increase to income tax expense in 2010 as a result of a change in tax law upon the enactment in March 2010 of the Patient Protection and Affordable Care Act and the related Health Care and Education...

  • Page 129
    ... follows: December 31, 2009 2010 (in millions) Deferred tax assets: Current: Allowance for doubtful accounts ...$ 10 $ 11 Deferred gas costs ...7 32 Other ...- 21 Total current deferred tax assets ...17 64 Non-current: Loss and credit carryforwards ...42 49 Employee benefits ...366 346 Other ...51...

  • Page 130
    ... Gas Distribution and Competitive Natural Gas Sales and Services business segments, which have various quantity requirements and durations, that are not classified as non-trading derivative assets and liabilities in CenterPoint Energy's Consolidated Balance Sheets as of December 31, 2009 and 2010...

  • Page 131
    ... Management Agreements Gas Operations has entered into asset management agreements associated with its utility distribution service in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. Generally, these asset management agreements are contracts between Gas Operations and an asset manager that...

  • Page 132
    ... for any losses, including attorneys' fees and other costs, arising out of these lawsuits. In May 2009, RRI sold its Texas retail business to NRG Retail, a subsidiary of NRG Energy, Inc. and changed its name to RRI Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly...

  • Page 133
    ..., treble damages, interest, costs and fees. In September 2009, the district court in Stevens County, Kansas, denied plaintiffs' request for class certification of their case and, in March 2010, denied the plaintiffs' request for reconsideration of that order. The time for seeking further review of...

  • Page 134
    .... In 2004, CenterPoint Energy sold its generating business, to which most of these claims relate, to Texas Genco LLC, which is now known as NRG Texas LP. Under the terms of the arrangements regarding separation of the generating business from CenterPoint Energy and its sale to NRG Texas LP, ultimate...

  • Page 135
    ... certain gas transportation agreements if and to the extent changes in market conditions expose CERC to a risk of loss on those guaranties based on an annual calculation, with any required collateral to be posted each December. The undiscounted maximum potential payout of the demand charges under...

  • Page 136
    ... Pipelines, Field Services and Other Operations. The electric transmission and distribution function (CenterPoint Houston) is reported in the Electric Transmission & Distribution business segment. Natural Gas Distribution consists of intrastate natural gas sales to, and natural gas transportation...

  • Page 137
    ... Retail LLC, the successor to RRI's Texas retail business, in 2008, 2009 and 2010 represented approximately $635 million, $634 million and $583 million, respectively, of CenterPoint Houston's transmission and distribution revenues. Sales to subsidiaries of TXU Energy Retail Company LLC in 2008, 2009...

  • Page 138
    ... related to Hurricane Ike. Revenues by Products and Services: Year Ended December 31, 2008 2009 2010 (in millions) Electric delivery sales...$ 1,916 $ 2,013 $ 2,205 Retail gas sales ...6,216 4,540 4,412 Wholesale gas sales ...2,295 902 1,250 Gas transport ...756 691 785 Energy products and services...

  • Page 139
    ... are incorporated herein by reference pursuant to Instruction G to Form 10-K. Item 11. Executive Compensation The information called for by Item 11 will be set forth in the definitive proxy statement relating to CenterPoint Energy's 2011 annual meeting of shareholders pursuant to SEC Regulation 14A...

  • Page 140
    .... See Index of Exhibits in CenterPoint Energy's Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on March 1, 2011, which can be found on CenterPoint Energy's website at www.centerpointenergy.com/investors and at www.sec.gov. 118

  • Page 141
    .... Houston, Texas We have audited the consolidated financial statements of CenterPoint Energy, Inc. and subsidiaries (the "Company") as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010, and the Company's internal control over financial reporting as...

  • Page 142
    ..., INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF CENTERPOINT ENERGY, INC. (PARENT COMPANY) STATEMENTS OF INCOME For the Year Ended December 31, 2008 2009 2010 (in millions) Expenses: Operation and Maintenance Expenses ...$ (12) $ (17) Taxes Other than Income ...1 - Total ...(11) (17) Other...

  • Page 143
    ...INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF CENTERPOINT ENERGY, INC. (PARENT COMPANY) BALANCE SHEETS December 31, 2009 2010 (in millions) ASSETS Current Assets: Cash and cash equivalents ...$ - $ - Notes receivable - subsidiaries ...493 530 Accounts receivable - subsidiaries ...72 59 Other...

  • Page 144
    ... activities ...Financing Activities: Revolving credit facility, net ...Proceeds from long-term debt ...Payments on long-term debt ...Debt issuance costs ...Common stock dividends paid ...Proceeds from issuance of common stock, net ...Short-term notes payable to subsidiaries ...Net cash provided...

  • Page 145
    ... of CenterPoint Energy, Inc. (CenterPoint Energy) should be read in conjunction with the consolidated financial statements and notes of CenterPoint Energy, Inc. and subsidiaries appearing in the Annual Report on Form 10-K. Bank facilities at CenterPoint Energy Houston Electric, LLC and CenterPoint...

  • Page 146
    ... CenterPoint Energy, provides comprehensive natural gas sales and services to industrial and commercial customers. In order to hedge their exposure to natural gas prices, CES has entered standard purchase and sale agreements with various counterparties. CenterPoint Energy has guaranteed the payment...

  • Page 147
    ... - 5 _____ (1) The 2008 change to the deferred tax asset valuation allowance charged to other accounts represents a reduction equal to the related deferred tax asset reduction in 2008 for remeasurement of state tax attributes, net of federal tax benefit. A full valuation allowance for this deferred...

  • Page 148
    ... the City of Houston, the State of Texas, on the 1st day of March, 2011. CENTERPOINT ENERGY, INC. (Registrant) By: /s/ David M. McClanahan David M. McClanahan President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 149
    ... CENTERPOINT ENERGY, INC. AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Millions of Dollars) 2006 2007(1) 2008 (1) 2009 (1) 2010 (1) Net Income ...$ Equity in earnings of unconsolidated affiliates, net of distributions ...Income taxes ...Capitalized interest ...Fixed charges...

  • Page 150
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  • Page 151
    ... 1111 Louisiana Street, Houston, Texas. Shareholders who hold shares of CenterPoint Energy as of February 22, 2011, will receive notice of the meeting and will be eligible to vote. Information Requests Call (888) 468-3020 toll free for additional copies of: - 2010 Annual Report and Form 10-K - 2011...

  • Page 152
    1111 Louisiana Street Houston, TX 77002 CenterPointEnergy.com