CenterPoint Energy 2012 Annual Report Download - page 72

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• delays in cash collections attributable to billing delays;
• slower customer payments and increased write-offs of receivables due to higher gas prices or changing economic
conditions;
• the outcome of litigation brought by and against us;
• contributions to pension and postretirement benefit plans;
• restoration costs and revenue losses resulting from future natural disasters such as hurricanes and the timing of recovery
of such restoration costs; and
• various other risks identified in “Risk Factors” in Item 1A of this report.
Certain Contractual Limits on Our Ability to Issue Securities and Borrow Money. CenterPoint Houston’s credit facility limits
CenterPoint Houston’s debt (excluding transition and system restoration bonds) as a percentage of its total capitalization to 65%.
CERC Corp.’s credit facility limits CERC’s debt as a percentage of its total capitalization to 65%. Our $1.2 billion credit facility
contains a debt, excluding transition and system restoration bonds, to EBITDA covenant which will temporarily increase if
CenterPoint Houston experiences damage from a natural disaster in its service territory that meets certain criteria. Additionally,
CenterPoint Houston has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions.
CRITICAL ACCOUNTING POLICIES
A critical accounting policy is one that is both important to the presentation of our financial condition and results of operations
and requires management to make difficult, subjective or complex accounting estimates. An accounting estimate is an
approximation made by management of a financial statement element, item or account in the financial statements. Accounting
estimates in our historical consolidated financial statements measure the effects of past business transactions or events, or the
present status of an asset or liability. The accounting estimates described below require us to make assumptions about matters that
are highly uncertain at the time the estimate is made. Additionally, different estimates that we could have used or changes in an
accounting estimate that are reasonably likely to occur could have a material impact on the presentation of our financial condition,
results of operations or cash flows. The circumstances that make these judgments difficult, subjective and/or complex have to do
with the need to make estimates about the effect of matters that are inherently uncertain. Estimates and assumptions about future
events and their effects cannot be predicted with certainty. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments.
These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our
operating environment changes. Our significant accounting policies are discussed in Note 2 to our consolidated financial statements.
We believe the following accounting policies involve the application of critical accounting estimates. Accordingly, these accounting
estimates have been reviewed and discussed with the audit committee of the board of directors.
Accounting for Rate Regulation
Accounting guidance for regulated operations provides that rate-regulated entities account for and report assets and liabilities
consistent with the recovery of those incurred costs in rates if the rates established are designed to recover the costs of providing
the regulated service and if the competitive environment makes it probable that such rates can be charged and collected. Our
Electric Transmission & Distribution business segment, our Natural Gas Distribution business segment and portions of our
Interstate Pipelines business segment apply this accounting guidance. Certain expenses and revenues subject to utility regulation
or rate determination normally reflected in income are deferred on the balance sheet as regulatory assets or liabilities and are
recognized in income as the related amounts are included in service rates and recovered from or refunded to customers. Regulatory
assets and liabilities are recorded when it is probable that these items will be recovered or reflected in future rates. Determining
probability requires significant judgment on the part of management and includes, but is not limited to, consideration of testimony
presented in regulatory hearings, proposed regulatory decisions, final regulatory orders and the strength or status of applications
for rehearing or state court appeals. If events were to occur that would make the recovery of these assets and liabilities no longer
probable, we would be required to write off or write down these regulatory assets and liabilities. At December 31, 2012, we had
recorded regulatory assets of $4.3 billion and regulatory liabilities of $1.1 billion.
Impairment of Long-Lived Assets and Intangibles
We review the carrying value of our long-lived assets, including goodwill and identifiable intangibles, whenever events or
changes in circumstances indicate that such carrying values may not be recoverable, and at least annually for goodwill as required