CenterPoint Energy 2012 Annual Report Download - page 112

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Uncertain Income Tax Positions. The following table reconciles the beginning and ending balance of CenterPoint Energy’s
unrecognized tax benefits (expenses):
December 31,
2010 2011 2012
(in millions)
Balance, beginning of year.............................................................. $ 187 $ 252 $ 51
Tax Positions related to prior years:
Additions....................................................................................... 9 (1) —
Reductions..................................................................................... (4)(203)(75)
Tax Positions related to current year:
Additions....................................................................................... 60 5 —
Settlements ...................................................................................... — (1) 1
Lapse of statute of limitations ......................................................... — (1) —
Balance, end of year ........................................................................ $ 252 $ 51 $ (23)
The net decrease in the total amount of unrecognized tax benefits during 2012 is primarily related to the re-measurement of
certain unrecognized tax benefits related to an issuance of new IRS guidance with respect to repairs on tangible property and
CenterPoint Energy's IRS settlements for tax years 2006 through 2009. CenterPoint Energy has income tax refund claims pending
with the IRS, as discussed below, resulting in the receivable balance for uncertain income tax positions as of December 31, 2012.
CenterPoint Energy does not expect the change to the amount of unrecognized tax benefits over the twelve months ending December
31, 2013 to materially impact the financial position of CenterPoint Energy.
CenterPoint Energy has approximately $17 million, $21 million and $(3) million of unrecognized tax benefits (expenses) that,
if recognized, would affect the effective income tax rate for 2010, 2011 and 2012, respectively. CenterPoint Energy recognizes
interest and penalties as a component of income tax expense. CenterPoint Energy recognized approximately $8 million of income
tax expense, $13 million of income tax benefit and $7 million of income tax benefit related to interest on uncertain income tax
positions during 2010, 2011 and 2012, respectively. CenterPoint Energy had approximately $1 million and $8 million of interest
receivable on uncertain income tax positions accrued at December 31, 2011 and 2012, respectively.
Tax Audits and Settlements. CenterPoint Energy's consolidated federal income tax returns have been audited and settled
through the 2009 tax year. CenterPoint Energy has filed claims for income tax refunds that are pending review by the IRS for tax
years 2002, 2003 and 2004. CenterPoint Energy is currently under examination by the IRS for tax years 2010 and 2011 and is at
various stages of the examination process. CenterPoint Energy has considered the effects of these examinations in its accrual for
settled issues and liability for uncertain income tax positions as of December 31, 2012.
Under a tax allocation agreement, CenterPoint Energy and GenOn Energy, Inc. (GenOn) (as successor to the entity formerly
known as RRI Energy, Inc., Reliant Resources, Inc., and Reliant Energy, Inc. (RRI)) had agreed to indemnify each other for tax
liabilities arising out of IRS examinations. The IRS issued a closing agreement to RRI for tax year 1998. The tax deficiency
assessed by the IRS is entirely the liability of GenOn with CenterPoint Energy to be indemnified for both tax and interest.
Accordingly, during 2012 CenterPoint Energy paid a federal liability of approximately $32 million offset with a receipt from
GenOn of $26 million and a deferred tax asset of $5 million pertaining to the federal benefit on the deductibility of interest.
(13) Commitments and Contingencies
(a) Natural Gas Supply Commitments
Natural gas supply commitments include natural gas contracts related to CenterPoint Energy’s Natural Gas Distribution and
Competitive Natural Gas Sales and Services business segments, which have various quantity requirements and durations, that are
not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s Consolidated Balance Sheets as of
December 31, 2011 and 2012 as these contracts meet the exception to be classified as "normal purchases contracts" or do not meet
the definition of a derivative. Natural gas supply commitments also include natural gas transportation contracts that do not meet
the definition of a derivative. As of December 31, 2012, minimum payment obligations for natural gas supply commitments are
approximately $430 million in 2013, $344 million in 2014, $214 million in 2015, $149 million in 2016, $96 million in 2017 and
$156 million after 2017.