CenterPoint Energy 2015 Annual Report Download - page 14

AllREPsinCenterPointHouston’sserviceareapaythesame ratesand otherchargesfortransmissionanddistributionservices.Thisregulateddeliverycharge
includes the transmission and distribution rate (which includes municipal franchise fees), a distribution recovery mechanism for recovery of incremental
distribution-investedcapitalabovethatwhichisalreadyreflectedinthebasedistributionrate,anucleardecommissioningchargeassociatedwithdecommissioning
theSouthTexasnucleargeneratingfacility,anenergyefficiencycostrecoverycharge,asurchargerelatedtotheimplementationofAMSandchargesassociated
withsecuritization of regulatoryassets,stranded costs andrestoration costs relating toHurricane Ike. Transmissionratescharged todistributioncompaniesare
basedonamountsofenergytransmittedunder“postagestamp”ratesthatdonotvarywiththedistancetheenergyisbeingtransmitted.Alldistributioncompanies
inERCOTpayCenterPointHoustonthesameratesandotherchargesfortransmissionservices.
ForadiscussionofcertainofCenterPointHouston’songoingregulatoryproceedings,see“Management’sDiscussionandAnalysisofFinancialConditionand
ResultsofOperations—LiquidityandCapitalResources—RegulatoryMatters—CenterPointHouston”inItem7ofPartIIofthisreport,whichdiscussionis
incorporatedhereinbyreference.
State and Local Regulation – Natural Gas Distribution
InalmostallcommunitiesinwhichNGDprovidesnaturalgasdistributionservices,itoperatesunderfranchises,certificatesorlicensesobtainedfromstate
andlocalauthorities.Theoriginaltermsofthefranchises,withvariousexpirationdates,typicallyrangefrom10to30years,althoughfranchisesinArkansasare
perpetual.NGDexpectstobeabletorenewexpiringfranchises.Inmostcases,franchisestoprovidenaturalgasutilityservicesarenotexclusive.
Substantially all of NGD is subject to cost-of-service rate regulation by the relevant state public utility commissions and, in Texas, by the Railroad
CommissionofTexas(RailroadCommission)andthosemunicipalitiesservedbyNGDthathaveretainedoriginaljurisdiction.Incertainofitsjurisdictions,NGD
hasineffectannualrateadjustmentmechanismsthatprovideforchangesinratesdependentuponcertainchangesininvestedcapital,earnedreturnsonequityor
actualmarginsrealized.

Foradiscussion of certain of NGD’s ongoing regulatory proceedings, see “Management’s Discussion andAnalysisofFinancialConditionand Results of
Operations—LiquidityandCapitalResources—RegulatoryMatters—CERC”inItem7ofPartIIofthisreport,whichdiscussionisincorporatedhereinby
reference.
Department of Transportation
InDecember2006,CongressenactedthePipelineInspection,Protection,EnforcementandSafetyActof2006(2006Act),whichreauthorizedtheprograms
adoptedunderthePipelineSafetyImprovementActof2002(2002Act).Theseprogramsincludedseveralrequirementsrelatedtoensuringpipelinesafety,anda
requirementtoassesstheintegrityofpipelinetransmissionfacilitiesinareasofhighpopulationconcentration.
Pursuant to the 2006 Act, the Pipeline and Hazardous Materials Safety Administration (PHMSA) at the Department of Transportation (DOT) issued
regulations, effective February 12, 2010, requiring operators of gas distribution pipelines to develop and implement integrity management programs similar to
thoserequiredfor gas transmission pipelines, but tailored to reflect thedifferencesindistributionpipelines.Operatorsof natural gas distribution systems were
requiredtowriteandimplementtheirintegritymanagementprogramsbyAugust2,2011.Ournaturalgasdistributionsystemsmetthisdeadline.
Pursuanttothe2002Actandthe2006Act,PHMSAhasadoptedanumberofrulesconcerning,amongotherthings,distinguishingbetweengatheringlines
and transmission facilities, requiring certain designand construction features in new andreplaced lines to reduce corrosion and requiringpipeline operators to
amendexistingwrittenoperationsandmaintenanceproceduresandoperatorqualificationprograms.PHMSAalsoupdateditsreportingrequirementsfornatural
gaspipelineseffectiveJanuary1,2011.
InDecember2011,CongresspassedthePipelineSafety,RegulatoryCertainty,andJobCreationActof2011(2011Act).Thisactincreasesthemaximumcivil
penaltiesforpipelinesafetyadministrativeenforcementactions;requirestheDOTtostudyandreportontheexpansionofintegritymanagementrequirementsand
thesufficiencyofexistinggatheringlineregulationstoensuresafety;requirespipelineoperatorstoverifytheirrecordsonmaximumallowableoperatingpressure;
andimposesnewemergencyresponseandincidentnotificationrequirements.
We anticipate that compliance with PHMSA’s regulations, performance of the remediation activities by CERC’s natural gas distribution companies and
intrastatepipelinesandverificationofrecordsonmaximumallowableoperatingpressurewillrequireincreasesinbothcapitalexpendituresandoperatingcosts.
Thelevelofexpenditureswilldependuponseveralfactors,includingage,locationandoperatingpressuresofthefacilities.Inparticular,thecostofcompliance
withDOT’sintegritymanagementrules
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