CenterPoint Energy 2010 Annual Report Download - page 35

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Competition
CERC's interstate pipelines business competes with other interstate and intrastate 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, coal and fuel oils. The primary competitive factor is price, but environmental
considerations have grown in importance when consumers consider alternative forms of energy. Changes in the
availability of energy and pipeline capacity, the level of business activity, conservation and governmental
regulations, the capability to convert to alternative fuels, and other factors, including weather, affect the demand for
natural gas in areas we serve and the level of competition for transportation and storage services.
Field Services
CERC’s field services business operates gas gathering, treating and processing facilities and also provides
operating and technical services and remote data monitoring and communication services.
CERC’s field services operations are conducted by a wholly owned subsidiary, CenterPoint Energy Field
Services, LLC. (CEFS). CEFS provides natural gas gathering and processing services for certain natural gas fields in
the Mid-continent region of the United States that interconnect with CEGT’s and MRT’s pipelines, as well as other
interstate and intrastate pipelines. CEFS gathers approximately 2.0 Bcf per day of natural gas and, either directly or
through its 50% interest in a joint venture, processes in excess of 260 MMcf per day of natural gas along its
gathering system. CEFS, through its ServiceStar operating division, provides remote data monitoring and
communications services to affiliates and third parties.
CERC's field services business operations may be affected by changes in the demand for natural gas and natural
gas liquids (NGLs), the available supply and relative price of natural gas and NGLs in the Mid-continent and Gulf
Coast natural gas supply regions and general economic conditions.
Magnolia Gathering System. In September 2009, CEFS entered into long-term agreements with an indirect
wholly-owned subsidiary of Encana Corporation (Encana) and an indirect wholly-owned subsidiary of Royal Dutch
Shell plc (Shell) to provide gathering and treating services for their natural gas production from certain Haynesville
Shale and Bossier Shale formations in Louisiana. Pursuant to these agreements, CEFS acquired jointly-owned
gathering facilities (the Magnolia Gathering System) from Encana and Shell in northwest Louisiana. Each of the
agreements includes acreage dedication and volume commitments for which CEFS has exclusive rights to gather
Shell’s and Encana’s natural gas production.
During the year ended December 31, 2010, CEFS substantially completed the construction and initial expansion
of the Magnolia Gathering System in order to permit the system to gather and treat up to 700 MMcf per day of
natural gas, with only well connects remaining. As of December 31, 2010, CEFS had spent approximately
$310 million on the original project scope, including the purchase of the original facilities and is in the second year
of the 10-year 700 MMcf per day volume commitment made by Shell and Encana.
Pursuant to an expansion election made by Encana and Shell in March 2010, CEFS expanded the Magnolia
Gathering System to increase its gathering and treating capacity by an additional 200 MMcf per day, increasing the
aggregate capacity of the system to 900 MMcf per day. As of December 31, 2010, CEFS had spent approximately
$47 million on the expansion. The expansion was completed and placed into service in February, 2011 at a total cost
of approximately $52 million. The 200 MMcf per day incremental volume commitment made by Shell and Encana
began contemporaneously with the completion of the expansion.
Under the long-term agreements, Encana or Shell may elect to require CEFS to expand the capacity of the
Magnolia Gathering System by up to an additional 800 MMcf per day, bringing the total system capacity to 1.7 Bcf
per day. CEFS estimates that the cost to expand the capacity of the Magnolia Gathering System by an additional
800 MMcf per day would be as much as $240 million. Encana and Shell would provide incremental volume
commitments in connection with an election to expand the system’s capacity.