CenterPoint Energy 2015 Annual Report Download - page 74

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.AsofDecember31,2015,wehadrecordedregulatoryassetsof$3.1billionandregulatoryliabilitiesof$1.3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.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. A loss in value of an equity method investment is recognized when the decline is deemed to be other than temporary. We recorded no goodwill
impairmentsduring2015,2014and2013.Wedidnotrecordmaterialimpairmentstolong-livedassets,includingintangiblesduring2015,2014,and2013.We
recordedimpairmentstotaling$1,225milliontoourequitymethodinvestmentsduring2015andnoimpairmentduring2014and2013.SeeNotes8and9toour
consolidatedfinancialstatementsforfurtherdiscussionoftheimpairmentsrecordedtoourequitymethodinvestmentin2015.
We performed our annual goodwill impairment test in the third quarter of 2015 and determined, based on the results of the first step, using the income
approach,noimpairmentchargewasrequiredforanyreportingunit.Ourreportingunitsapproximateourreportablesegments.
Fairvalueistheamountatwhichtheassetcouldbeboughtorsoldinacurrenttransactionbetweenwillingpartiesandmaybeestimatedusinganumberof
techniques,includingquotedmarketpricesorvaluationsbythirdparties,presentvaluetechniquesbasedonestimatesofcashflows,ormultiplesofearningsor
revenueperformancemeasures.Thefairvalueoftheassetcouldbedifferentusingdifferentestimatesandassumptionsinthesevaluationtechniques.
Thedeterminationoffairvaluerequiressignificantassumptionsbymanagementwhicharesubjectiveandforward-lookinginnature.Toassistinmakingthese
assumptions,weutilizedathird-partyvaluationspecialistinbothdeterminingandtestingkeyassumptionsusedinthevaluationofeachofourreportingunits.We
basedourassumptionsonprojectedfinancialinformationthatwebelieveisreasonable;however,actualresultsmaydiffermateriallyfromthoseprojections.These
projectedcashflowsfactorinplannedgrowthinitiatives,andforourNaturalGasDistributionreportingunit,theregulatoryenvironment.Thefair valueofour
NaturalGasDistributionreportingunitsignificantlyexceededthecarryingvalue.ThefairvalueofourEnergyServicesreportingunitexceededthecarryingvalue
byapproximately$150millionorapproximately50%excessfairvalueoverthecarryingvalue.
Akeyassumptionintheincomeapproachwastheweightedaveragecostofcapitalof5.6%and5.9%appliedinthevaluationforNaturalGasDistributions
andEnergyServices,respectively.Anincreaseinthediscountratetogreaterthan7.2%,adeclineinlong-termgrowthratefrom3%to1.7%,oradecreaseinthe
aggregatecashflowsofgreaterthan33%couldhaveindividuallytriggeredastep-twogoodwillimpairmentevaluationforourEnergyServicesreportingunitin
2015.
Althoughtherewasnotagoodwillassetimpairmentinour2015annualtest,aninterimimpairmenttestcouldbetriggeredbythefollowing:actualearnings
resultsthatarematerially lowerthan expected,significantadversechangesintheoperating environment,an increaseinthediscountrate,changesinotherkey
assumptionswhichrequirejudgmentandareforwardlookinginnature,orifourmarketcapitalizationfallsbelowbookvalueforanextendedperiodoftime.No
impairmenttriggerswereidentifiedsubsequenttoour2015annualtest.
We determined in connection with our preparation of financial statements for the three months ended September 30, 2015 and December 31, 2015,
respectively,thatanotherthantemporarydecreaseinthevalueofourinvestmentinEnablehadoccurred.Theimpairmentanalysiscomparedtheestimatedfair
valueofourinvestmentinEnabletoitscarryingvalue.Thefairvalueoftheinvestmentwasdeterminedusingmultiplevaluationmethodologiesunderboththe
marketandincomeapproaches.
Key assumptions in the market approach include recent market transactions of comparable companies and EBITDA to total enterprise multiples for
comparable companies. Due to volatility of the quoted price of Enable’s units, a volume weighted average price was used under the market approach to best
approximatefairvalueatthemeasurementdate.Keyassumptionsintheincome
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