CenterPoint Energy 2010 Annual Report Download - page 97

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(d) Long-lived Assets and Intangibles
CenterPoint Energy records property, plant and equipment at historical cost. CenterPoint Energy expenses repair
and maintenance costs as incurred.
CenterPoint Energy periodically evaluates long-lived assets, including property, plant and equipment, and
specifically identifiable intangibles, when events or changes in circumstances indicate that the carrying value of
these assets may not be recoverable. The determination of whether an impairment has occurred is based on an
estimate of undiscounted cash flows attributable to the assets compared to the carrying value of the assets.
(e) Regulatory Assets and Liabilities
CenterPoint Energy applies 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 a component of depreciation expense
in accordance with regulatory treatment. As of December 31, 2009 and 2010, these removal costs of $818 million
and $868 million, respectively, are classified as regulatory liabilities in CenterPoint Energy’s Consolidated Balance
Sheets. A portion of the amount of removal costs that relate to asset retirement obligations has been reclassified
from a regulatory liability to an asset retirement liability in accordance with accounting guidance for conditional
asset retirement obligations.
(f) Depreciation and Amortization Expense
Depreciation and amortization is computed using the straight-line method based on economic lives or regulatory-
mandated recovery periods. Amortization expense includes amortization of regulatory assets and other intangibles.
(g) Capitalization of Interest and Allowance for Funds Used During Construction
Interest and allowance for funds used during construction (AFUDC) are capitalized as a component of projects
under construction and are amortized over the assets’ estimated useful lives once the assets are placed in service.
AFUDC represents the composite interest cost of borrowed funds and a reasonable return on the equity funds used
for construction for subsidiaries that apply the guidance for accounting for regulated operations. During 2008, 2009
and 2010, CenterPoint Energy capitalized interest and AFUDC of $12 million, $5 million and $9 million,
respectively.
(h) Income Taxes
CenterPoint Energy files a consolidated federal income tax return and follows a policy of comprehensive
interperiod tax allocation. CenterPoint Energy uses the asset and liability method of accounting for deferred income
taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Investment tax credits that were deferred are being amortized over the estimated lives of the related
property. A valuation allowance is established against deferred tax assets for which management believes realization
is not considered more likely than not. CenterPoint Energy recognizes interest and penalties as a component of
income tax expense.
(i) Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are net of an allowance for doubtful accounts of $24 million and $25 million at
December 31, 2009 and 2010, respectively. The provision for doubtful accounts in CenterPoint Energy’s Statements
of Consolidated Income for 2008, 2009 and 2010 was $54 million, $36 million and $30 million, respectively.