CenterPoint Energy 2012 Annual Report Download - page 54

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reduction in drilling activity may result in lower throughput volumes on our systems as the wells decline over time. However, a
significant amount of the volumes gathered by systems we recently developed in shale basins such as the Haynesville and
Fayetteville shales are supported by contracts with annual volume commitments, or price adjustment mechanisms that provide
for minimum returns on capital deployed. In monitoring performance of the segments, we focus on throughput of the pipelines
and gathering systems, and in the case of Field Services, on the number of well-connects.
Our Competitive Natural Gas Sales and Services business segment contracts with customers for transportation, storage and
sales of natural gas on an unregulated basis. Its operations serve customers in the central and eastern regions of the United
States. The segment benefits from favorable price differentials, either on a geographic basis or on a seasonal basis. While this
business utilizes financial derivatives to hedge its exposure to price movements, it does not engage in speculative or proprietary
trading and maintains a low value at risk level, or VaR, to avoid significant financial exposures. Lower geographic and seasonal
price differentials during 2010, 2011 and 2012 adversely affected results for this business segment.
The nature of our businesses requires significant amounts of capital investment, and we rely on internally generated cash,
borrowings under our credit facilities, proceeds from commercial paper and issuances of debt and equity in the capital markets to
satisfy these capital needs. We strive to maintain investment grade ratings for our securities in order to access the capital markets
on terms we consider reasonable. Our goal is to continue to improve our credit ratings over time. A reduction in our ratings generally
would increase our borrowing costs for new issuances of debt, as well as borrowing costs under our existing revolving credit
facilities, and may prevent us from accessing the commercial paper markets. Disruptions in the financial markets can also affect
the availability of new capital on terms we consider attractive. In those circumstances, companies like us may not be able to obtain
certain types of external financing or may be required to accept terms less favorable than they would otherwise accept. For that
reason, we seek to maintain adequate liquidity for our businesses through existing credit facilities and prudent refinancing of
existing debt.
We expect to make contributions to our pension plan aggregating approximately $83 million in 2013 and may need to make
larger contributions in subsequent years. Consistent with the regulatory treatment of such costs, we can defer the amount of pension
expense that differs from the level of pension expense included in our base rates for our Electric Transmission & Distribution
business segment and our Gas Operations in Texas.
Significant Events
Acquisition
On July 31, 2012, we purchased the 50% interest that we did not already own in Waskom Gas Processing Company (Waskom),
a Texas general partnership, which owns and operates a natural gas processing plant and natural gas gathering assets, as well as
other gathering and related assets from a third-party for approximately $273 million. The amount of the purchase price allocated
to the acquisition of the 50% interest in Waskom was approximately $201 million, with the remaining purchase price allocated to
the other gathering assets, based on a discounted cash flow methodology. The purchase of the 50% interest in Waskom was
determined to be a business combination achieved in stages, and as such we recorded a pre-tax gain of approximately $136 million
on July 31, 2012, which is the result of remeasuring our original 50% interest in Waskom to fair value. As a result of the purchase,
we recorded goodwill of $24 million, which includes $17 million related to Waskom (including the re-measurement of our existing
50% interest) and $7 million related to the other gathering and related assets.
Goodwill Impairment
We performed our annual impairment test in the third quarter of 2012 and determined that a non-cash goodwill impairment
charge in the amount of $252 million was required for the Competitive Natural Gas Sales and Services reportable segment. We
also determined that no impairment charge was required for any other reportable segment. The adverse wholesale market conditions
facing our energy services business, specifically the prospects for continued low geographic and seasonal price differentials for
natural gas, led to a reduction in the estimate of the fair value of goodwill associated with this reporting unit.
Debt Financing Transactions
In January 2012, CenterPoint Energy Transition Bond Company IV, LLC (Bond Company IV) issued $1.695 billion of
transition bonds in three tranches with interest rates ranging from 0.9012% to 3.0282% and final maturity dates ranging from April
15, 2018 to October 15, 2025. Through the issuance of these transition bonds, CenterPoint Houston recovered the additional true-
up balance of $1.695 billion, less approximately $10.4 million of offering expenses. The transition bonds will be repaid through
a charge imposed on customers in CenterPoint Houston’s service territory.