CenterPoint Energy 2014 Annual Report Download - page 73

Certain Contractual Limits on Our Ability to Issue Securities and Borrow Money
CenterPoint Houston’s revolving credit facility limits CenterPoint Houston’
s consolidated debt (excluding transition and system restoration
bonds) to an amount not to exceed 65% of its consolidated capitalization. CERC Corp.’s revolving credit facility limits CERC’
s consolidated
debt to an amount not to exceed 65% of its consolidated capitalization. Our revolving credit facility limits our consolidated debt (excluding
transition and system restoration bonds) to an amount not to exceed 65% of our consolidated capitalization. The financial covenant limit in our
revolving credit facility will temporarily increase from 65% to 70% 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 and our Natural Gas Distribution 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, 2014
, we had recorded regulatory assets of $3.5 billion and regulatory liabilities of
$1.2 billion.
Impairment of Long-Lived Assets, Including Identifiable Intangibles, Goodwill and Equity Method Investments
We review the carrying value of our long-
lived assets, including identifiable intangibles, goodwill and equity method investments whenever
events or changes in circumstances indicate that such carrying values may not be recoverable, and at least annually for goodwill as required by
accounting guidance for goodwill and other intangible assets. A loss in value of an equity method investment is recognized when the decline is
deemed to be other than temporary. Unforeseen events and changes in market conditions could have a material effect on the value of long-
lived
assets, including intangibles, goodwill and equity method investments due to changes in estimates of future cash flows, interest rate and
regulatory matters and could result in an impairment charge. We recorded goodwill impairment of $-0-
during 2014 and 2013, and $252 million
during 2012. We did not record material impairments to long-
lived assets, including intangibles, or equity method investments during 2014,
2013, and 2012.
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