CenterPoint Energy 2015 Annual Report Download - page 49

temperatures for the rest of the year, including the summer months, in the Houston area. In 2013, we experienced a colder than normal spring and very cold
weatherin NovemberandDecember inHoustonand allofthestatesin whichwehave gascustomers. Ourlong-term national trendsindicatecustomers have
reduced their energy consumption, and reduced consumption can adversely affect our results. However, due to more affordable energy prices and continued
economicimprovementintheareasweserve,thetrendtowardlowerusagehasslowedinsomeoftheareasweserve.Inaddition,inmanyofourserviceareas,
particularlyintheHoustonareaandinMinnesota,wehavebenefitedfromagrowthinthenumberofcustomersthatalsotendstomitigatetheeffectsofreduced
consumption.Weanticipatethatthistrendwillcontinueastheregions’economiescontinuetogrow.Theprofitabilityofourbusinessesisinfluencedsignificantly
bytheregulatorytreatmentwereceivefromthevariousstateandlocalregulatorswhosetourelectricandgasdistributionrates.
OurEnergy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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.  In 2015 and 2014, Energy Services exhibited strong commercial and industrial customer
resultswhilecapitalizingonassetoptimizationopportunitiescreatedbybasisvolatility.Extremecoldweatherin2014alsoincreasedthroughputandmarginfrom
ourweathersensitivecustomers.
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.
The regulation of natural gas pipelines and related facilities by federal and state regulatory agencies affects our business.In accordance with natural gas
pipelinesafetyandintegrityregulations,wearemaking,andwillcontinuetomake,significantcapitalinvestmentsinourserviceterritories,whicharenecessaryto
helpoperateandmaintainasafe,reliableandgrowingnaturalgassystem.Ourcomplianceexpensesmayalsoincreaseasaresultofpreventativemeasuresrequired
undertheseregulations.Consequently,newratesintheareasweservearenecessarytorecovertheseincreasingcosts.
Weexpecttomakecontributionstoourpensionplansaggregatingapproximately$8millionin2016but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NaturalGasDistributionbusinesssegment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,NGLsandcrudeoil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.Commoditypricechangesimpactthecommodity-basedportionofEnable’sgrossmargin,itsproducercustomers’decisionstodrillandcompletewells
and its transportation and storage customers decisions to contract capacity on Enable’s system. Prices of natural gas, crude oil, and NGLs have historically
experiencedperiodsofsignificantvolatility.Enable’sresultsarealsoimpactedbythepricedifferentialsbetweenreceiptanddeliverypointsonitssystems.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.Thepricesofcrudeoil,NGLsandnaturalgashavecontinuedtodeclinesignificantly.Overthecourse
of2015andcontinuinginto2016,naturalgasandcrudeoilpriceshavedroppedtotheirlowestlevelsinover10yearsfromahighof$13.31perMMBtuinJuly
2008to$1.63perMMBtuatDecember23,2015and$145.31perbarrelinJuly2008to$26.19perbarrelatFebruary11,2016,respectively.
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