CenterPoint Energy 2010 Annual Report Download - page 31

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system and to use that system to conduct its electric delivery business and for other purposes that the franchises
permit. The terms of the franchises, with various expiration dates, typically range from 30 to 50 years.
Natural Gas Distribution
CERC Corp.’s natural gas distribution business (Gas Operations) engages in regulated 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 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, approximately 42% of Gas Operations’ total throughput was to
residential customers and approximately 58% was to commercial and industrial customers.
The table below reflects the number of natural gas distribution customers by state as of December 31, 2010:
Residential
Commercial/
Industrial
Total Customers
Arkansas
390,668
48,033
438,701
Louisiana
232,135
17,347
249,482
Minnesota
738,868
67,489
806,357
Mississippi
109,608
12,683
122,291
Oklahoma
93,388
10,620
104,008
Texas
1,451,666
90,719
1,542,385
Total Gas Operations
3,016,333
246,891
3,263,224
Gas Operations also provides unregulated services consisting of heating, ventilating and air conditioning (HVAC)
equipment and appliance repair, and sales of HVAC, hearth and water heating equipment in Minnesota.
The demand for intrastate natural gas sales to residential customers and natural gas sales and transportation for
commercial and industrial customers is seasonal. In 2010, approximately 71% of the total throughput of Gas
Operations’ business occurred in the first and fourth quarters. These patterns reflect the higher demand for natural
gas for heating purposes during those periods.
Supply and Transportation. In 2010, Gas Operations purchased virtually all of its natural gas supply pursuant to
contracts with remaining terms varying from a few months to four years. Major suppliers in 2010 included BP
Canada Energy Marketing Corp. (25.6% of supply volumes), ConocoPhillips Company (8.3%), Tenaska Marketing
Ventures (6.8%), Kinder Morgan (6.3%), Oneok Energy Marketing Company (4.7%), and Cargill, Inc. (4.6%).
Numerous other suppliers provided the remaining 43.7% of Gas Operations’ natural gas supply requirements. Gas
Operations transports its natural gas supplies through various intrastate and interstate pipelines, including those
owned by our other subsidiaries, under contracts with remaining terms, including extensions, varying from one to
twelve years. Gas Operations anticipates that these gas supply and transportation contracts will be renewed or
replaced prior to their expiration.
Gas Operations actively engages in commodity price stabilization pursuant to annual gas supply plans presented
to and/or filed with each of its state regulatory authorities. These price stabilization activities include use of storage
gas, contractually establishing fixed prices with our physical gas suppliers and utilizing financial derivative
instruments to achieve a variety of pricing structures (e.g., fixed price, costless collars and caps). Its gas supply plans
generally call for 25-50% of winter supplies to be hedged in some fashion.
Generally, the regulations of the states in which Gas Operations operates allow it to pass through changes in the
cost of natural gas, including gains and losses on financial derivatives associated with the index-priced physical
supply, to its customers under purchased gas adjustment provisions in its tariffs. Depending upon the jurisdiction,
the purchased gas adjustment factors are updated periodically, ranging from monthly to semi-annually, using
estimated gas costs. The changes in the cost of gas billed to customers are subject to review by the applicable
regulatory bodies.