CenterPoint Energy 2014 Annual Report Download - page 51

VaR, to avoid significant financial exposures. In 2014, basis volatility created asset optimization revenues not experienced in many years and
the extreme cold weather increased throughput and margin from our weather sensitive customers. Lower geographic and seasonal price
differentials during 2013 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. 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 plans aggregating approximately $66 million in 2015 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 NGD in
Texas.
Factors Influencing Our Midstream Investments Segment
The results of our Midstream Investments segment are primarily dependent upon the results of Enable, which are driven primarily by the
volume of natural gas that Enable gathers, processes and transports across its systems, which depends significantly on the level of production
from natural gas wells connected to its systems across a number of U.S. mid-
continent markets. Aggregate production volumes are affected by
the overall amount of oil and gas drilling and completion activities, as production must be maintained or increased by new drilling or other
activity, because the production rate of oil and gas wells declines over time.
Oil and gas producers’
willingness to engage in new drilling is determined by a number of factors, the most important of which are the
prevailing and projected prices of natural gas, NGLs and crude oil, the cost to drill and operate a well, the availability and cost of capital and
environmental and government regulations. Prices of natural gas, crude oil, and NGLs have historically experienced periods of significant
volatility. Enable’
s results are also impacted by commodity price differentials between receipt and delivery points on its systems across the
various markets that it serves. Enable has attempted to mitigate the impact of commodity prices on its business by entering into hedges, focusing
on contracting fee-based business, and converting existing commodity-based contracts to fee-
based contracts. Recently, the prices of crude oil,
NGLs and natural gas have declined significantly. Should lower commodity prices persist, Enable
’
s future volumes and cash flows may be
negatively impacted. The level of drilling is expected to positively correlate with long-
term trends in commodity prices. Similarly, production
levels nationally and regionally generally tend to positively correlate with drilling activity.
Over the past several years, there has been a fundamental shift in U.S. natural gas and crude oil production towards tight gas formations and
shale plays. The emergence of these plays and advancements in technology have been crucial factors that have allowed producers to efficiently
extract significant volumes of natural gas, NGLs and crude oil. Recently, declining crude oil and natural gas liquids prices have resulted in
current and anticipated decreases in crude oil and natural gas drilling activity. Should lower prices and producer activity persist for a sustained
period, Enable’
s future volumes and cash flows may be negatively impacted. To maintain and increase throughput volumes on its systems,
Enable must continue to contract its capacity to shippers, including producers and marketers. Enable’
s transportation and storage systems
compete for customers based on the type of service a customer needs, operating flexibility, receipt and delivery points and geographic flexibility
and available capacity and price. To maintain and increase Enable’
s transportation and storage volumes, it must continue to contract its capacity
to shippers, including producers, marketers, LDCs, power generators and industrial end-users.
Natural gas continues to be a critical component of energy supply and demand in the United States. Over the long term, Enable’
s
management believes that the prospects for continued natural gas demand are favorable and will be driven by population and economic growth,
as well as the continued displacement of coal-fired electricity generation by natural gas-
fired electricity generation due to the low prices of
natural gas and stricter government environmental regulations on the mining and burning of coal. According to the U.S. Energy Information
Administration (EIA), demand for natural gas in the electric power sector is projected to increase from approximately 9.3 Tcf in 2012 to
approximately 11.2 Tcf in 2040, with a portion of the growth attributable to the retirement of 50 gigawatts of coal-
fired capacity by 2020. The
EIA also projects that natural gas consumption in the industrial sector will be higher due to the rejuvenation of the industrial sector as it benefits
from low natural gas prices. However, the EIA expects growth in natural gas consumption for power generation and in the industrial sector to be
partially offset by decreased
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