CenterPoint Energy 2010 Annual Report Download - page 49

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that order by the court of appeals although the Texas Supreme Court has the authority to consider all aspects of the
rulings above, not just those challenged specifically by the appellants. We and CenterPoint Houston will continue to
pursue a favorable resolution of this issue through the appellate and administrative process. Although the Texas
Utility Commission has requested that this issue be remanded to it by the courts and has not previously required a
company subject to its jurisdiction to take action that would result in a normalization violation, no prediction can be
made as to the ultimate action the Texas Utility Commission may take on this issue on remand.
CenterPoint Houston’s receivables are concentrated in a small number of REPs, and any delay or default in
payment could adversely affect CenterPoint Houston’s cash flows, financial condition and results of operations.
CenterPoint Houston’s receivables from the distribution of electricity are collected from REPs that supply the
electricity CenterPoint Houston distributes to their customers. As of December 31, 2010, CenterPoint Houston did
business with 99 REPs. Adverse economic conditions, structural problems in the market served by ERCOT or
financial difficulties of one or more REPs could impair the ability of these REPs to pay for CenterPoint Houston’s
services or could cause them to delay such payments. CenterPoint Houston depends on these REPs to remit
payments on a timely basis. Applicable regulatory provisions require that customers be shifted to a provider of last
resort if a 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 remains at risk for payments not
made prior to the shift to the provider of last resort. The Texas Utility Commission revised its regulations in 2009 to
(i) increase the financial qualifications from REPs that began selling power after January 1, 2009, and (ii) authorize
utilities to defer bad debts resulting from defaults by REPs for recovery in a future rate case. A subsidiary of NRG
Energy, Inc., NRG Retail, (which acquired the Texas retail business of RRI) and its subsidiaries are together
considered the largest REP in CenterPoint Houston’s service territory. Approximately 33% of CenterPoint
Houston’s $138 million in billed receivables from REPs at December 31, 2010 was owed by subsidiaries of NRG
Retail and approximately 13% of the $138 million in billed receivables was owed by subsidiaries of TXU Energy
Retail. Any delay or default in payment by REPs could adversely affect CenterPoint Houston’s cash flows, financial
condition and results of operations. If a REP were unable to meet its obligations, it could consider, among various
options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its
obligations and claims might be made by creditors involving payments CenterPoint Houston had received from such
REP.
Rate regulation of CenterPoint Houston’s business may delay or deny CenterPoint Houston’s ability to earn a
reasonable return and fully recover its costs.
CenterPoint Houston’s rates are regulated by certain municipalities and the Texas Utility Commission based on
an analysis of its invested capital and its expenses in a test year. Thus, the rates that CenterPoint Houston is allowed
to charge may not match its expenses at any given time. The regulatory process by which rates are determined may
not always result in rates that will produce full recovery of CenterPoint Houston’s costs and enable CenterPoint
Houston to earn a reasonable return on its invested capital.
Disruptions at power generation facilities owned by third parties could interrupt CenterPoint Houston’s sales of
transmission and distribution services.
CenterPoint Houston transmits and distributes to customers of REPs electric power that the REPs obtain from
power generation facilities owned by third parties. CenterPoint Houston does not own or operate any power
generation facilities. If power generation is disrupted or if power generation capacity is inadequate, CenterPoint
Houston’s sales of transmission and distribution services may be diminished or interrupted, and its results of
operations, financial condition and cash flows could be adversely affected.
CenterPoint Houston’s revenues and results of operations are seasonal.
A significant portion of CenterPoint Houston’s revenues is derived from rates that it collects from each REP
based on the amount of electricity it delivers on behalf of such REP. Thus, CenterPoint Houston’s revenues and
results of operations are subject to seasonality, weather conditions and other changes in electricity usage, with
revenues being higher during the warmer months.