CenterPoint Energy 2010 Annual Report Download - page 50

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Risk Factors 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 regulated by certain municipalities and state commissions, and for its
interstate pipelines by the FERC, based on an analysis of its invested capital and its expenses in a test year. Thus, the
rates that CERC is allowed to charge may not match its expenses at any given time. The regulatory process in which
rates are determined may not always result in rates that will produce full recovery of CERC’s costs and enable
CERC to earn a reasonable return on its invested capital.
CERC’s businesses must compete with alternate energy sources, which could result in CERC marketing less
natural gas, and its interstate pipelines and field services businesses must compete directly with others in the
transportation, storage, gathering, treating and processing of natural gas, which could lead to lower prices and
reduced volumes, either of which could have an adverse impact on CERC’s results of operations, financial
condition and cash flows.
CERC competes primarily with alternate energy sources such as electricity and other fuel sources. In some areas,
intrastate pipelines, other natural gas distributors and marketers also compete directly with CERC for natural gas
sales to end-users. In addition, as a result of federal regulatory changes affecting interstate pipelines, natural gas
marketers operating on these pipelines may be able to bypass CERC’s facilities and market, sell and/or transport
natural gas directly to commercial and industrial customers. Any reduction in the amount of natural gas marketed,
sold or transported by CERC as a result of competition may have an adverse impact on CERC’s results of
operations, financial condition and cash flows.
CERC’s two interstate pipelines and its gathering systems compete with other interstate and intrastate pipelines
and gathering systems in the transportation and storage of natural gas. The principal elements of competition are
rates, terms of service, and flexibility and reliability of service. They also compete indirectly with other forms of
energy, including electricity, coal and fuel oils. The primary competitive factor is price, but recently, environmental
considerations have grown in importance when consumers consider alternative forms of energy. The actions of
CERC’s competitors could lead to lower prices, which may have an adverse impact on CERC’s results of
operations, financial condition and cash flows. Additionally, any reduction in the volume of natural gas transported
or stored may have an adverse impact on CERC’s results of operations, financial condition and cash flows.
CERC’s natural gas distribution and competitive natural gas sales and services businesses are subject to
fluctuations in natural gas prices, which could affect the ability of CERC’s suppliers and customers to meet
their obligations or otherwise adversely affect CERC’s liquidity and results of operations.
CERC is subject to risk associated with changes in the price of natural gas. Increases in natural gas prices might
affect CERC’s ability to collect balances due from its customers and, for Gas Operations, could create the potential
for uncollectible accounts expense to exceed the recoverable levels built into CERC’s tariff rates. In addition, a
sustained period of high natural gas prices could (i) apply downward demand pressure on natural gas consumption in
the areas in which CERC operates thereby resulting in decreased sales and transportation volumes and revenues and
(ii) increase the risk that CERC’s suppliers or customers fail or are unable to meet their obligations. An increase in
natural gas prices would also increase CERC’s working capital requirements by increasing the investment that must
be made in order to maintain natural gas inventory levels. Additionally, a decrease in natural gas prices could
increase the amount of collateral that CERC must provide under its hedging arrangements.
A decline in CERC’s credit rating could result in CERC’s having to provide collateral under its shipping or
hedging arrangements or in order to purchase natural gas.
If CERC’s credit rating were to decline, it might be required to post cash collateral under its shipping or hedging
arrangements or in order to purchase natural gas. If a credit rating downgrade and the resultant cash collateral
requirement were to occur at a time when CERC was experiencing significant working capital requirements or