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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-13265
 CenterPoint Energy Resources Corp.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    76-0511406(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)1111 Louisiana 
Houston, Texas 77002(Address and zip code of principal 
executive offices)
    
    (713) 207-1111(Registrants telephone number,
including area code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange On Which Registered6% Convertible Subordinated Debentures due 2012
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
None
 CenterPoint Energy Resources Corp. meets the conditions set forth in General Instruction
I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure
format.
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
  
 PagePART IItem 1.  Business
    
    
    1Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    19Item 2.  Properties
    
    
    19Item 3.  Legal Proceedings
    
    
    19Item 4.  Submission of Matters to a Vote of Security Holders
    
    
    20PART IIItem 5.  Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    20Item 6.  Selected Financial Data
    
    
    20Item 7.  Managements Narrative Analysis of Results of Operations
    
    
    20Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 8.  Financial Statements and Supplementary Data
    
    
    36Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    65Item 9A. Controls and Procedures
    
    
    65Item 9B. Other Information
    
    
    65PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    65Item 11. Executive Compensation
    
    
    65Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    65Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    65Item 14. Principal Accountant Fees and Services
    
    
    66PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    66
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
     ii




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PART I
 
 Item 1. Business
 OUR BUSINESS
 General
    www.centerpointenergy.com
 Natural Gas Distribution
    Supply and Transportation.
 1




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Assets
  Competition
  Competitive Natural Gas Sales and Services
   2




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Wholesale Operations.
 Retail Operations.
 Intrastate Pipeline Operations.
    Assets
  3




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Competition
  Interstate Pipelines
  
    
    two interstate natural gas pipelines; and
    
    gas transmission lines primarily located in Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas.
  
    
    CenterPoint Energy Gas Transmission Company (CEGT) is an interstate pipeline that
provides natural gas transportation, natural gas storage and pipeline services to customers
principally in Arkansas, Louisiana, Oklahoma and Texas; and
    
    CenterPoint Energy-Mississippi River Transmission Corporation (MRT) is an interstate
pipeline that provides natural gas transportation, natural gas storage and pipeline services
to customers principally in Arkansas and Missouri.
   Carthage to Perryville.
   4




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Southeast Supply Header.
 Proposed Mid-continent Crossing.
 Assets
  Competition
  5




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Field Services
    Assets
  Competition
  Other Operations
  Financial Information About Segments
  REGULATION
  6




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Federal Energy Regulatory Commission
     State and Local Regulation
   Arkansas.
 7




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Texas.
 Minnesota.
  8




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Department of Transportation
    ENVIRONMENTAL MATTERS
  
    
    restricting the way we can handle or dispose of wastes;
 9




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
    
    limiting or prohibiting construction activities in sensitive areas such as wetlands,
coastal regions, or areas inhabited by endangered species;
    
    requiring remedial action to mitigate pollution conditions caused by our operations, or
attributable to former operations; and
    
    enjoining the operations of facilities deemed in non-compliance with permits issued
pursuant to such environmental laws and regulations.
  
    
    construct or acquire new equipment;
    
    acquire permits for facility operations;
    
    modify or replace existing and proposed equipment; and
    
    clean up or decommission waste disposal areas, fuel storage and management facilities and
other locations and facilities.
    Air Emissions
  10




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Water Discharges
  Hazardous Waste
  Liability for Remediation
  Liability for Preexisting Conditions
 Hydrocarbon Contamination.
  11




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Manufactured Gas Plant Sites.
   Mercury Contamination.
 Asbestos.
 12




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Other Environmental.
 EMPLOYEES
  Number Represented byUnions or OtherCollectiveBusiness Segment
    
    Number
    
    Bargaining GroupsNatural Gas Distribution
    
    
    4,147
    
    
    
    1,466Competitive Natural Gas Sales and Services
    
    
    103
    
    
    
    Interstate Pipelines
    
    
    555
    
    
    
    Field Services
    
    
    185
    
    
    
    Total
    
    
    4,990
    
    
    
    1,466
  
 Item 1A. Risk Factors
  Risk Factors Affecting Our Businesses
 Rate regulation of our business may delay or deny our ability to earn a reasonable return and
fully recover our costs.
  Our businesses must compete with alternative energy sources, which could result in us marketing
less natural gas, and our interstate pipelines and field services businesses must compete directly
with others in the transportation, storage, gathering, treating and processing of natural gas,
which could lead to lower prices, either of which could have an adverse impact on our results of
operations, financial condition and cash flows.
  13




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Our natural gas distribution and competitive natural gas sales and services businesses are subject
to fluctuations in natural gas pricing levels, which could affect the ability of our suppliers and
customers to meet their obligations or otherwise adversely affect our liquidity.
  If we were to fail to renegotiate a contract with one of our significant pipeline customers or if
we renegotiate the contract on less favorable terms, there could be an adverse impact on our
operations.
  A decline in our credit rating could result in us having to provide collateral in order to
purchase gas.
  The revenues and results of operations of our interstate pipelines and field services businesses
are subject to fluctuations in the supply of natural gas.
  Our revenues and results of operations are seasonal.
  The actual construction costs of proposed pipelines and related compression facilities may be
significantly higher than our current estimates.
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The states in which we provide regulated local gas distribution may, either through legislation
or rules, adopt restrictions similar to those under the 1935 Act regarding organization, financing
and affiliate transactions that could have significant adverse effects on our ability to operate.
     Risk Factors Associated with Our Consolidated Financial Condition
 If we are unable to arrange future financings on acceptable terms, our ability to refinance
existing indebtedness could be limited.
  15




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
    
    general economic and capital market conditions;
    
    credit availability from financial institutions and other lenders;
    
    investor confidence in us and the market in which we operate;
    
    maintenance of acceptable credit ratings;
    
    market expectations regarding our future earnings and probable cash flows;
    
    market perceptions of our and CenterPoint Energys ability to access capital
markets on reasonable terms; and
    
    provisions of relevant tax and securities laws.
  The financial condition and liquidity of our parent company could affect our access to capital,
our credit standing and our financial condition.
  We are an indirect wholly owned subsidiary of CenterPoint Energy. CenterPoint Energy can exercise
substantial control over our dividend policy and business and operations and could do so in a
manner that is adverse to our interests.
  
    
    our payment of dividends;
    
    decisions on our financings and our capital raising activities;
    
    mergers or other business combinations; and
    
    our acquisition or disposition of assets.
  16




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The use of derivative contracts by us and our subsidiaries in the normal course of business could
result in financial losses that negatively impact our results of operations and those of our
subsidiaries.
  We derive a substantial portion of our operating income from subsidiaries through which we hold a
substantial portion of our assets.
   Risks Common to Our Businesses and Other Risks
 We are subject to operational and financial risks and liabilities arising from environmental laws
and regulations .
  
    
    restricting the way we can handle or dispose of wastes;
    
    limiting or prohibiting construction activities in sensitive areas such as
wetlands, coastal regions, or areas inhabited by endangered species;
    
    requiring remedial action to mitigate pollution conditions caused by our
operations, or attributable to former operations; and
    
    enjoining the operations of facilities deemed in non-compliance with permits
issued pursuant to such environmental laws and regulations.
 In order to comply with these requirements, we may need to spend substantial amounts and
devote other resources from time to time to:
    
    construct or acquire new equipment;
    
    acquire permits for facility operations;
    
    modify or replace existing and proposed equipment; and
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
    
    clean up or decommission waste disposal areas, fuel storage and management
facilities and other locations and facilities.
  Our insurance coverage may not be sufficient. Insufficient insurance coverage and increased
insurance costs could adversely impact our results of operations, financial condition and cash
flows.
  We and CenterPoint Energy could incur liabilities associated with businesses and assets that we
have transferred to others.
   18




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
 Character of Ownership
  Natural Gas Distribution
  Competitive Natural Gas Sales and Services
  Interstate Pipelines
  Field Services
  
 Item 3. Legal Proceedings
  19




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Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
 Item 6. Selected Financial Data
  
 Item 7. Managements Narrative Analysis of Results of Operations
 The following narrative analysis should be read in combination with our consolidated financial
statements and notes contained in Item 8 of this report.
 Background
  Business Segments
  20




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Natural Gas Distribution
  Competitive Natural Gas Sales and Services
  Interstate Pipelines
  Field Services
  Other Operations
  EXECUTIVE SUMMARY
 Significant Events in 2006 and 2007
 Debt Financing Transactions
    21




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Interstate Pipeline Expansion
 Carthage to Perryville.
    Southeast Supply Header.
 CERTAIN FACTORS AFFECTING FUTURE EARNINGS
  
    
    state and federal legislative and regulatory actions or developments, including
deregulation, re-regulation, changes in or application of laws or regulations applicable to
other aspects of our business;
 22




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
    
    timely and appropriate rate actions and increases, allowing recovery of costs
and a reasonable return on investment;
    
    industrial, commercial and residential growth in our service territory and
changes in market demand and demographic patterns;
    
    the timing and extent of changes in commodity prices, particularly natural gas;
    
    the timing and extent of changes in natural gas basis differentials;
    
    changes in interest rates or rates of inflation;
    
    weather variations and other natural phenomena;
    
    the timing and extent of changes in the supply of natural gas;
    
    commercial bank and financial market conditions, our access to capital, the
cost of such capital, and the results of our financing and refinancing efforts, including
availability of funds in the debt capital markets;
    
    actions by rating agencies;
    
    effectiveness of our risk management activities;
    
    inability of various counterparties to meet their obligations to us;
    
    the ability of Reliant Energy, Inc. (RRI) to satisfy its obligations to us;
    
    the outcome of litigation brought for or against us;
    
    our ability to control costs;
    
    the investment performance of CenterPoint Energys employee benefit plans;
    
    our potential business strategies, including acquisitions or dispositions of
assets or businesses, which we cannot assure will provide the anticipated benefits to us;
and
    
    other factors we discuss under Risk Factors in Item 1A of this report.
 23




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CONSOLIDATED RESULTS OF OPERATIONS
   Year Ended December 31,2004
    
    
    2005
    
    
    2006Revenues
    
    $
    6,472
    
    
    $
    8,070
    
    
    $
    7,528Expenses:Natural gas
    
    
    5,013
    
    
    
    6,509
    
    
    
    5,909Operation and maintenance
    
    
    732
    
    
    
    743
    
    
    
    798Depreciation and amortization
    
    
    187
    
    
    
    198
    
    
    
    200Taxes other than income taxes
    
    
    147
    
    
    
    156
    
    
    
    149Total
    
    
    6,079
    
    
    
    7,606
    
    
    
    7,056Operating Income
    
    
    393
    
    
    
    464
    
    
    
    472Interest and other finance charges
    
    
    (178
    )
    
    
    (176
    )
    
    
    (167
    )Other income, net
    
    
    16
    
    
    
    21
    
    
    
    18Income Before Income Taxes
    
    
    231
    
    
    
    309
    
    
    
    323Income Tax Expense
    
    
    87
    
    
    
    116
    
    
    
    116Net Income
    
    $
    144
    
    
    $
    193
    
    
    $
    207
 2006 Compared to 2005.
  2005 Compared to 2004.
  24




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RESULTS OF OPERATIONS BY BUSINESS SEGMENT
  Operating Income (Loss) by Business Segment
 Year Ended December 31,2004
    
    
    2005
    
    
    2006Natural Gas Distribution
    
    $
    178
    
    
    $
    175
    
    
    $
    124Competitive Natural Gas Sales and Services
    
    
    44
    
    
    
    60
    
    
    
    77Interstate Pipelines
    
    
    129
    
    
    
    165
    
    
    
    181Field Services
    
    
    51
    
    
    
    70
    
    
    
    89Other Operations
    
    
    (9
    )
    
    
    (6
    )
    
    
    1Total Consolidated Operating Income
    
    $
    393
    
    
    $
    464
    
    
    $
    472
 Natural Gas Distribution
  Year Ended December 31,2004
    
    
    2005
    
    
    2006Revenues
    
    $
    3,579
    
    
    $
    3,846
    
    
    $
    3,593Expenses:Natural gas
    
    
    2,596
    
    
    
    2,841
    
    
    
    2,598Operation and maintenance
    
    
    544
    
    
    
    551
    
    
    
    594Depreciation and amortization
    
    
    141
    
    
    
    152
    
    
    
    152Taxes other than income taxes
    
    
    120
    
    
    
    127
    
    
    
    125Total expenses
    
    
    3,401
    
    
    
    3,671
    
    
    
    3,469Operating Income
    
    $
    178
    
    
    $
    175
    
    
    $
    124Throughput (in billion cubic feet (Bcf)):Residential
    
    
    175
    
    
    
    160
    
    
    
    152Commercial and industrial
    
    
    237
    
    
    
    215
    
    
    
    224Total Throughput
    
    
    412
    
    
    
    375
    
    
    
    376Average number of customers:Residential
    
    
    2,798,352
    
    
    
    2,839,947
    
    
    
    2,883,927Commercial and industrial
    
    
    245,926
    
    
    
    244,782
    
    
    
    243,265Total
    
    
    3,044,278
    
    
    
    3,084,729
    
    
    
    3,127,192
 2006 Compared to 2005.
 25




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2005 Compared to 2004.
  Competitive Natural Gas Sales and Services
  Year Ended December 31,2004
    
    
    2005
    
    
    2006Revenues
    
    $
    2,848
    
    
    $
    4,129
    
    
    $
    3,651Expenses:Natural gas
    
    
    2,778
    
    
    
    4,033
    
    
    
    3,540Operation and maintenance
    
    
    22
    
    
    
    30
    
    
    
    30Depreciation and amortization
    
    
    2
    
    
    
    2
    
    
    
    1Taxes other than income taxes
    
    
    2
    
    
    
    4
    
    
    
    3Total expenses
    
    
    2,804
    
    
    
    4,069
    
    
    
    3,574Operating Income
    
    $
    44
    
    
    $
    60
    
    
    $
    77Throughput (in Bcf):Wholesale  third parties
    
    
    228
    
    
    
    304
    
    
    
    335Wholesale  affiliates
    
    
    35
    
    
    
    27
    
    
    
    36Retail
    
    
    141
    
    
    
    156
    
    
    
    149Pipeline
    
    
    76
    
    
    
    51
    
    
    
    35Total Throughput
    
    
    480
    
    
    
    538
    
    
    
    555Average number of customers:Wholesale
    
    
    97
    
    
    
    138
    
    
    
    140Retail
    
    
    5,976
    
    
    
    6,328
    
    
    
    6,452Pipeline
    
    
    172
    
    
    
    142
    
    
    
    138Total
    
    
    6,245
    
    
    
    6,608
    
    
    
    6,730
 2006 Compared to 2005.
 2005 Compared to 2004.
 26




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Interstate Pipelines
  Year Ended December 31,2004
    
    
    2005
    
    
    2006Revenues
    
    $
    368
    
    
    $
    386
    
    
    $
    388Expenses:Natural gas
    
    
    58
    
    
    
    47
    
    
    
    31Operation and maintenance
    
    
    131
    
    
    
    121
    
    
    
    120Depreciation and amortization
    
    
    36
    
    
    
    36
    
    
    
    37Taxes other than income taxes
    
    
    14
    
    
    
    17
    
    
    
    19Total expenses
    
    
    239
    
    
    
    221
    
    
    
    207Operating Income
    
    $
    129
    
    
    $
    165
    
    
    $
    181Throughput (in Bcf):Transportation
    
    
    859
    
    
    
    914
    
    
    
    939Other
    
    
    4
    
    
    
    2
    
    
    
    1Total Throughput
    
    
    863
    
    
    
    916
    
    
    
    940
 2006 Compared to 2005.
 2005 Compared to 2004.
 Field Services
  Year Ended December 31,2004
    
    
    2005
    
    
    2006Revenues
    
    $
    92
    
    
    $
    120
    
    
    $
    150Expenses:Natural gas
    
    
    (9
    )
    
    
    (10
    )
    
    
    (10
    )Operation and maintenance
    
    
    40
    
    
    
    49
    
    
    
    59Depreciation and amortization
    
    
    8
    
    
    
    9
    
    
    
    10Taxes other than income taxes
    
    
    2
    
    
    
    2
    
    
    
    2Total expenses
    
    
    41
    
    
    
    50
    
    
    
    61Operating Income
    
    $
    51
    
    
    $
    70
    
    
    $
    89Throughput (in Bcf):Gathering
    
    
    321
    
    
    
    353
    
    
    
    375
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2006 Compared to 2005.
  2005 Compared to 2004.
  Fluctuations in Commodity Prices and Derivative Instruments
  LIQUIDITY
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011Natural Gas Distribution
    
    $
    187
    
    
    $
    208
    
    
    $
    217
    
    
    $
    202
    
    
    $
    207
    
    
    $
    212Competitive Natural Gas
Sales and Services
    
    
    18
    
    
    
    18
    
    
    
    12
    
    
    
    12
    
    
    
    12
    
    
    
    12Interstate Pipelines
    
    
    437
    
    
    
    272
    
    
    
    269
    
    
    
    45
    
    
    
    54
    
    
    
    62Field Services
    
    
    65
    
    
    
    116
    
    
    
    86
    
    
    
    85
    
    
    
    85
    
    
    
    85Total
    
    $
    707
    
    
    $
    614
    
    
    $
    584
    
    
    $
    344
    
    
    $
    358
    
    
    $
    371
  2012 andContractual Obligations
    
    Total
    
    
    2007
    
    
    2008-2009
    
    
    2010-2011
    
    
    thereafterLong-term debt, including current portion
    
    $
    2,162
    
    
    $
    7
    
    
    $
    313
    
    
    $
    563
    
    
    $
    1,279Interest payments  other long-term debt (1)
    
    
    1,168
    
    
    
    160
    
    
    
    299
    
    
    
    266
    
    
    
    443Operating leases(2)
    
    
    69
    
    
    
    16
    
    
    
    25
    
    
    
    14
    
    
    
    14Benefit obligations(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations(4)
    
    
    181
    
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    Non-trading derivative liabilities
    
    
    221
    
    
    
    141
    
    
    
    44
    
    
    
    36
    
    
    
    Other commodity commitments(5)
    
    
    3,044
    
    
    
    922
    
    
    
    504
    
    
    
    412
    
    
    
    1,206Total contractual cash obligations
    
    $
    6,845
    
    
    $
    1,427
    
    
    $
    1,185
    
    
    $
    1,291
    
    
    $
    2,942
 28




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(1)
    
    We calculated estimated interest payments for long-term debt as follows: for fixed-rate debt
and term debt, we calculated interest based on the applicable rates and payment dates; for
variable-rate debt and/or non-term debt, we used interest rates in place as of December 31,
2006. We typically expect to settle such interest payments with cash flows from operations
and short-term borrowings.(2)
    
    For a discussion of operating leases, please read Note 8(b) to our consolidated financial
statements.(3)
    
    We expect to contribute approximately $19 million to our postretirement benefits plan in 2007
to fund a portion of our obligations in accordance with rate orders or to fund pay-as-you-go
costs associated with the plan.(4)
    
    Represents capital commitments for material in connection with the construction of a new
pipeline by our Interstate Pipelines business segment. This project has been included in the
table of capital expenditures presented above.(5)
    
    For a discussion of other commodity commitments, please read Note 8(a) to our consolidated
financial statements. Arkansas Public Service Commissions, Affiliate Transaction Rulemaking Proceeding.
   Off-Balance Sheet Arrangements.
  29




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Senior Notes.
  Credit Facilities.
    Securities Registered with the SEC.
 30




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Temporary Investments.
 Money Pool.
 Impact on Liquidity of a Downgrade in Credit Ratings.
 Moodys
    
    S&P
    
    FitchRating
    
    Outlook(1)
    
    Rating
    
    Outlook(2)
    
    Rating
    
    Outlook(3)Baa3
    
    Stable
    
    BBB
    
    Stable
    
    BBB
    
    Stable
 
 (1)
    
    A stable outlook from Moodys indicates that Moodys does not expect to put the
rating on review for an upgrade or downgrade within 18 months from when the outlook was
assigned or last affirmed.(2)
    
    An S&P rating outlook assesses the potential direction of a long-term credit rating
over the intermediate to longer term.(3)
    
    A stable outlook from Fitch encompasses a one-to-two year horizon as to the likely
ratings direction.    31




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Cross Defaults.
 Other Factors that Could Affect Cash Requirements.
 
    
    cash collateral requirements that could exist in connection with certain
contracts, including gas purchases, gas price hedging and gas storage activities of our
Natural Gas Distribution and Competitive Natural Gas Sales and Services business segments,
particularly given gas price levels and volatility;
    
    acceleration of payment dates on certain gas supply contracts under certain
circumstances, as a result of increased gas prices and concentration of natural gas
suppliers;
    
    increased costs related to the acquisition of natural gas;
    
    increases in interest expense in connection with debt refinancings and borrowings under credit facilities;
    
    various regulatory actions;
    
    the ability of RRI and its subsidiaries to satisfy their obligations to us or
in connection with the contractual arrangement pursuant to which we are a guarantor;
    
    slower customer payments and increased write-offs of receivables due to higher gas prices;
    
    the outcome of litigation brought by and against us;
    
    contributions to benefit plans;
    
    restoration costs and revenue losses resulting from natural disasters such as hurricanes; and
    
    various other risks identified in Risk Factors in Item 1A of this report.
 Certain Contractual Limits on Ability to Issue Securities and Borrow Money.
 Relationship with CenterPoint Energy.
 32




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Impairment of Long-Lived Assets and Intangibles
   Asset Retirement Obligations
   
    
    Inflation adjustment- The estimated cash flows are adjusted for inflation
estimates for labor, equipment, materials, and other disposal costs;
    
    Discount rate- The estimated cash flows include contingency factors that were
used as a proxy for the market risk premium; and
 33




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##### Table of Contents




    
    Third party markup adjustments- Internal labor costs included in the cash flow
calculation were adjusted for costs that a third party would incur in performing the tasks
necessary to retire the asset.
  Unbilled Revenues
  NEW ACCOUNTING PRONOUNCEMENTS
  OTHER SIGNIFICANT MATTERS
 Pension Plan.
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Impact of Changes in Interest Rates and Energy Commodity Prices
  
    
    Commodity price risk results from exposures to changes in spot prices, forward
prices and price volatilities of commodities, such as natural gas and other energy
commodities risk.
    
    Interest rate risk primarily results from exposures to changes in the level of
borrowings and changes in interest rates.
    
    Equity price risk results from exposures to changes in prices of individual
equity securities.
  34




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##### Table of Contents



Interest Rate Risk
    Commodity Price Risk From Non-Trading Activities
    35




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 36




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##### Table of Contents



CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 STATEMENTS OF CONSOLIDATED INCOME
 Year Ended December 31,2004
    
    
    2005
    
    
    2006(In Millions)Revenues
    
    $
    6,472
    
    
    $
    8,070
    
    
    $
    7,528Expenses:Natural gas
    
    
    5,013
    
    
    
    6,509
    
    
    
    5,909Operation and maintenance
    
    
    732
    
    
    
    743
    
    
    
    798Depreciation and amortization
    
    
    187
    
    
    
    198
    
    
    
    200Taxes other than income taxes
    
    
    147
    
    
    
    156
    
    
    
    149Total
    
    
    6,079
    
    
    
    7,606
    
    
    
    7,056Operating Income
    
    
    393
    
    
    
    464
    
    
    
    472Other Income (Expense):Interest and other finance charges
    
    
    (178
    )
    
    
    (176
    )
    
    
    (167
    )Other, net
    
    
    16
    
    
    
    21
    
    
    
    18Total
    
    
    (162
    )
    
    
    (155
    )
    
    
    (149
    )Income Before Income Taxes
    
    
    231
    
    
    
    309
    
    
    
    323Income Tax Expense
    
    
    87
    
    
    
    116
    
    
    
    116Net Income
    
    $
    144
    
    
    $
    193
    
    
    $
    207
  37




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##### Table of Contents



CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
 Year Ended December 31,2004
    
    
    2005
    
    
    2006(In Millions)Net income
    
    $
    144
    
    
    $
    193
    
    
    $
    207Other comprehensive income (loss), net of tax:Net deferred gain from cash flow hedges (net
of tax of $31, $9 and $11)
    
    
    59
    
    
    
    17
    
    
    
    22Reclassification of net deferred gain from
cash flow hedges realized in net income (net
of tax of ($12), ($5) and ($3))
    
    
    (24
    )
    
    
    (8
    )
    
    
    (7
    )Reclassification of deferred gain from
de-designation of cash flow hedges to
over/under recovery of gas costs (net of tax
of ($37))
    
    
    (68
    )
    
    
    
    
    
    
    Other comprehensive income (loss)
    
    
    (33
    )
    
    
    9
    
    
    
    15Comprehensive income
    
    $
    111
    
    
    $
    202
    
    
    $
    222
  38




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##### Table of Contents



CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2006(In Millions)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    31
    
    
    $
    5Accounts receivable, net
    
    
    942
    
    
    
    846Accrued unbilled revenue
    
    
    500
    
    
    
    356Accounts and notes receivable  affiliated companies
    
    
    
    
    
    
    198Inventory
    
    
    323
    
    
    
    336Non-trading derivative assets
    
    
    131
    
    
    
    98Taxes receivable
    
    
    117
    
    
    
    Deferred tax asset
    
    
    17
    
    
    
    2Prepaid expenses
    
    
    11
    
    
    
    14Other
    
    
    119
    
    
    
    346Total current assets
    
    
    2,191
    
    
    
    2,201Property, Plant and Equipment, Net
    
    
    4,105
    
    
    
    4,639Other Assets:Goodwill
    
    
    1,709
    
    
    
    1,709Non-trading derivative assets
    
    
    104
    
    
    
    21Accounts and notes receivable  affiliated companies, net
    
    
    9
    
    
    
    Other
    
    
    183
    
    
    
    245Total other assets
    
    
    2,005
    
    
    
    1,975Total Assets
    
    $
    8,301
    
    
    $
    8,815LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Short-term borrowings
    
    $
    
    
    
    $
    187Current portion of long-term debt
    
    
    154
    
    
    
    7Accounts payable
    
    
    1,077
    
    
    
    928Accounts and notes payable  affiliated companies
    
    
    319
    
    
    
    386Taxes accrued
    
    
    67
    
    
    
    115Interest accrued
    
    
    46
    
    
    
    48Customer deposits
    
    
    62
    
    
    
    62Non-trading derivative liabilities
    
    
    43
    
    
    
    141Other
    
    
    341
    
    
    
    305Total current liabilities
    
    
    2,109
    
    
    
    2,179Other Liabilities:Accumulated deferred income taxes, net
    
    
    663
    
    
    
    662Non-trading derivative liabilities
    
    
    35
    
    
    
    80Benefit obligations
    
    
    127
    
    
    
    138Other
    
    
    716
    
    
    
    669Total other liabilities
    
    
    1,541
    
    
    
    1,549Long-Term Debt
    
    
    1,838
    
    
    
    2,155Commitments and Contingencies (Note 8)Stockholders Equity
    
    
    2,813
    
    
    
    2,932Total Liabilities And Stockholders Equity
    
    $
    8,301
    
    
    $
    8,815
  39




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CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 STATEMENTS OF CONSOLIDATED CASH FLOWS
 Year Ended December 31,2004
    
    
    2005
    
    
    2006(In Millions)Cash Flows from Operating Activities:Net income
    
    $
    144
    
    
    $
    193
    
    
    $
    207Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    187
    
    
    
    198
    
    
    
    200Deferred income taxes
    
    
    (8
    )
    
    
    32
    
    
    
    16Amortization of deferred financing costs
    
    
    10
    
    
    
    9
    
    
    
    8Write-down of natural gas inventory
    
    
    
    
    
    
    
    
    
    
    66Changes in other assets and liabilities:Accounts receivable and unbilled revenues, net
    
    
    (163
    )
    
    
    (393
    )
    
    
    248Accounts receivable/payable, affiliates
    
    
    7
    
    
    
    10
    
    
    
    (19
    )Inventory
    
    
    (14
    )
    
    
    (109
    )
    
    
    (78
    )Taxes receivable
    
    
    118
    
    
    
    39
    
    
    
    Accounts payable
    
    
    208
    
    
    
    326
    
    
    
    (262
    )Fuel cost recovery
    
    
    25
    
    
    
    (129
    )
    
    
    111Interest and taxes accrued
    
    
    11
    
    
    
    (23
    )
    
    
    (4
    )Net non-trading derivative assets and liabilities
    
    
    (39
    )
    
    
    (12
    )
    
    
    (18
    )Margin deposits, net
    
    
    12
    
    
    
    51
    
    
    
    (156
    )Other current assets
    
    
    (34
    )
    
    
    (5
    )
    
    
    (80
    )Other current liabilities
    
    
    (16
    )
    
    
    54
    
    
    
    29Other assets
    
    
    47
    
    
    
    8
    
    
    
    1Other liabilities
    
    
    (6
    )
    
    
    30
    
    
    
    19Other, net
    
    
    (3
    )
    
    
    (3
    )
    
    
    (15
    )Net cash provided by operating activities
    
    
    486
    
    
    
    276
    
    
    
    273Cash Flows from Investing Activities:Capital expenditures
    
    
    (269
    )
    
    
    (403
    )
    
    
    (599
    )Decrease (increase) in affiliate notes receivable
    
    
    (30
    )
    
    
    42
    
    
    
    Other, net
    
    
    (3
    )
    
    
    (11
    )
    
    
    (22
    )Net cash used in investing activities
    
    
    (302
    )
    
    
    (372
    )
    
    
    (621
    )Cash Flows from Financing Activities:Payments of long-term debt
    
    
    
    
    
    
    (372
    )
    
    
    (152
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    324Increase (decrease) in short-term borrowings, net
    
    
    (63
    )
    
    
    
    
    
    
    187Increase (decrease) in notes with affiliates, net
    
    
    
    
    
    
    288
    
    
    
    (103
    )Contribution from parent
    
    
    
    
    
    
    171
    
    
    
    168Dividends to parent
    
    
    (13
    )
    
    
    (100
    )
    
    
    (100
    )Debt issuance costs
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )Other, net
    
    
    
    
    
    
    
    
    
    
    (1
    )Net cash provided by (used in) financing activities
    
    
    (77
    )
    
    
    (14
    )
    
    
    322Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    107
    
    
    
    (110
    )
    
    
    (26
    )Cash and Cash Equivalents at Beginning of the Year
    
    
    34
    
    
    
    141
    
    
    
    31Cash and Cash Equivalents at End of the Year
    
    $
    141
    
    
    $
    31
    
    
    $
    5Supplemental Disclosure of Cash Flow Information:Cash Payments:Interest, net of capitalized interest
    
    $
    176
    
    
    $
    181
    
    
    $
    162Income taxes (refunds)
    
    
    42
    
    
    
    87
    
    
    
    (25
    )Non-cash transactions:Increase in accounts payable related to capital expenditures
    
    $
    
    
    
    $
    14
    
    
    $
    108
  40




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##### Table of Contents



CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 STATEMENTS OF CONSOLIDATED STOCKHOLDERS EQUITY
 2004
    
    
    2005
    
    
    2006Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount(In millions, except share amounts)Common StockBalance, beginning of year
    
    
    1,000
    
    
    $
    
    
    
    
    1,000
    
    
    $
    
    
    
    
    1,000
    
    
    $
    Balance, end of year
    
    
    1,000
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000
    
    
    
    Additional Paid-in-CapitalBalance, beginning of year
    
    
    
    
    
    
    1,985
    
    
    
    
    
    
    
    2,232
    
    
    
    
    
    
    
    2,404Contribution from (to) parent
    
    
    
    
    
    
    247
    
    
    
    
    
    
    
    171
    
    
    
    
    
    
    
    (3
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2Balance, end of year
    
    
    
    
    
    
    2,232
    
    
    
    
    
    
    
    2,404
    
    
    
    
    
    
    
    2,403Retained EarningsBalance, beginning of year
    
    
    
    
    
    
    174
    
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    398Net income
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    207Dividend to parent
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    (100
    )Balance, end of year
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    398
    
    
    
    
    
    
    
    505Accumulated Other Comprehensive IncomeBalance, end of year:Net deferred gain from cash flow hedges
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    26SFAS No. 158 incremental effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Total accumulated other comprehensive
income, end of year
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    24Total Stockholders Equity
    
    
    
    
    
    $
    2,539
    
    
    
    
    
    
    $
    2,813
    
    
    
    
    
    
    $
    2,932
  41




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##### Table of Contents



CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Background and Basis of Presentation
   Basis of Presentation
  2. Summary of Significant Accounting Policies
 (a) Reclassifications and Use of Estimates
   (b) Principles of Consolidation
  (c) Revenues
  42




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##### Table of Contents



(d) Long-Lived Assets and Intangibles
  WeightedAverage UsefulLives
    
    
    December 31,(Years)
    
    
    2005
    
    
    2006(In millions)Natural gas distribution
    
    
    30
    
    
    $
    2,740
    
    
    $
    2,875Competitive natural gas sales and services
    
    
    25
    
    
    
    27
    
    
    
    53Interstate pipelines
    
    
    53
    
    
    
    1,520
    
    
    
    1,943Field services
    
    
    52
    
    
    
    367
    
    
    
    429Other property
    
    
    13
    
    
    
    20
    
    
    
    36Total
    
    
    
    
    
    
    4,674
    
    
    
    5,336Accumulated depreciation and amortization:Natural gas distribution
    
    
    
    
    
    
    (391
    )
    
    
    (462
    )Competitive natural gas sales and services
    
    
    
    
    
    
    (5
    )
    
    
    (9
    )Interstate pipelines
    
    
    
    
    
    
    (144
    )
    
    
    (176
    )Field services
    
    
    
    
    
    
    (23
    )
    
    
    (31
    )Other property
    
    
    
    
    
    
    (6
    )
    
    
    (19
    )Total accumulated depreciation and amortization
    
    
    
    
    
    
    (569
    )
    
    
    (697
    )Property, plant and equipment, net
    
    
    
    
    
    $
    4,105
    
    
    $
    4,639
  Natural Gas Distribution
    
    $
    746Interstate Pipelines
    
    
    579Competitive Natural Gas Sales and Services
    
    
    339Field Services
    
    
    25Other Operations
    
    
    20Total
    
    $
    1,709
    43




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##### Table of Contents



(e) Regulatory Assets and Liabilities
   December 31,2005
    
    
    2006(In millions)Regulatory assets in other long-term assets
    
    $
    53
    
    
    $
    50Regulatory liabilities in other long-term liabilities
    
    
    (434
    )
    
    
    (456
    )Total
    
    $
    (381
    )
    
    $
    (406
    )
   (f) Depreciation and Amortization Expense
   Year Ended December 31,2004
    
    
    2005
    
    
    2006(In millions)Depreciation expense
    
    $
    171
    
    
    $
    180
    
    
    $
    181Amortization expense
    
    
    16
    
    
    
    18
    
    
    
    19Total depreciation and amortization expense
    
    $
    187
    
    
    $
    198
    
    
    $
    200
 (g) Capitalization of Interest and Allowance for Funds Used During Construction
  44




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##### Table of Contents



(h) Income Taxes
  (i) Accounts Receivable and Allowance for Doubtful Accounts
     (j) Inventory
  December 31,2005
    
    
    2006(In millions)Materials and supplies
    
    $
    29
    
    
    $
    31Natural gas
    
    
    294
    
    
    
    305Total inventory
    
    $
    323
    
    
    $
    336
 45




---



##### Table of Contents



(k) Derivative Instruments
    (l) Environmental Costs
  (m) Statements of Consolidated Cash Flows
  (n) New Accounting Pronouncements
   46




---



##### Table of Contents



Before
    
    Change due
    
    AfterAdoption of
    
    to
    
    Adoption ofSFAS No. 158
    
    SFAS No. 158
    
    SFAS No. 158Other Assets:Regulatory asset
    
    $
    
    
    
    $
    3
    
    
    $
    3Current Liabilities:Other
    
    
    
    
    
    
    7
    
    
    
    7Other Liabilities:Accumulated deferred income taxes, net
    
    
    
    
    
    
    (20
    )
    
    
    (20
    )Benefit obligations
    
    
    89
    
    
    
    18
    
    
    
    107Shareholders Equity:Accumulated other comprehensive loss
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
   (o) Employee Benefit Plans
 Pension Plans
   47




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##### Table of Contents



Savings Plan
   Postretirement Benefits
      Year Ended December 31,2004
    
    
    2005
    
    
    2006(In millions)Service cost  benefits earned during the period
    
    $
    2
    
    
    $
    1
    
    
    $
    1Interest cost on projected benefit obligation
    
    
    10
    
    
    
    8
    
    
    
    7Expected return on plan assets
    
    
    (2
    )
    
    
    (2
    )
    
    
    (1
    )Amortization of prior service cost
    
    
    2
    
    
    
    2
    
    
    
    2Other
    
    
    1
    
    
    
    1
    
    
    
    1Net postretirement benefit cost
    
    $
    13
    
    
    $
    10
    
    
    $
    10
 48




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##### Table of Contents



Year EndedDecember 31,2004
    
    2005
    
    2006Discount rate
    
    
    6.25
    %
    
    
    5.75
    %
    
    
    5.70
    %Expected return on plan assets
    
    
    8.5
    %
    
    
    8.0
    %
    
    
    4.8
    %
   Year EndedDecember 31,2005
    
    
    2006(In millions)Change in Benefit ObligationAccumulated benefit obligation, beginning of year
    
    $
    174
    
    
    $
    132Service cost
    
    
    1
    
    
    
    1Interest cost
    
    
    8
    
    
    
    7Benefit enhancement
    
    
    1
    
    
    
    1Benefits paid
    
    
    (17
    )
    
    
    (22
    )Plan amendment
    
    
    
    
    
    
    8Medicare reimbursement
    
    
    
    
    
    
    3Participant contributions
    
    
    3
    
    
    
    4Actuarial loss
    
    
    (38
    )
    
    
    Accumulated benefit obligation, end of year
    
    $
    132
    
    
    $
    134Change in Plan AssetsPlan assets, beginning of year
    
    $
    21
    
    
    $
    20Benefits paid
    
    
    (17
    )
    
    
    (22
    )Employer contributions
    
    
    12
    
    
    
    16Participant contributions
    
    
    3
    
    
    
    4Actual investment return
    
    
    1
    
    
    
    2Plan assets, end of year
    
    $
    20
    
    
    $
    20Reconciliation of Funded StatusFunded status
    
    $
    (112
    )
    
    $
    (114
    )Unrecognized prior service cost
    
    
    11
    
    
    
    Unrecognized actuarial loss
    
    
    9
    
    
    
    Net amount recognized in balance sheets
    
    $
    (92
    )
    
    $
    (114
    )Actuarial AssumptionsDiscount rate
    
    
    5.70
    %
    
    
    5.85
    %Expected long-term return on assets
    
    
    4.80
    %
    
    
    4.50
    %Healthcare cost trend rate assumed for the next year
    
    
    9.00
    %
    
    
    7.00
    %Prescription cost trend rate assumed for the next year
    
    
    
    
    
    
    13.00
    %Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
    
    
    5.50
    %
    
    
    5.50
    %Year that the rate reaches the ultimate trend rate
    
    
    2011
    
    
    
    2014
  Year Ended December 31,2005
    
    
    2006(In millions)Unrecognized actuarial loss
    
    $
    
    
    
    $
    8Unrecognized prior service cost
    
    
    
    
    
    
    14Net amount recognized in other
comprehensive income
    
    $
    
    
    
    $
    22
 49




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##### Table of Contents



PostretirementBenefits(In millions)Unrecognized prior service cost
    
    $
    2Amounts in comprehensive income to be recognized as net
periodic cost in 2007
    
    $
    2
  1%
    
    1%Increase
    
    Decrease(In millions)Effect on the postretirement benefit obligation
    
    $
    7
    
    
    $
    6Effect on the total of service and interest cost
    
    
    
    
    
    
    
  December 31,2005
    
    
    2006Domestic equity securities
    
    
    8
    %
    
    
    6
    %Debt securities
    
    
    90
    
    
    
    93Cash
    
    
    2
    
    
    
    1Total
    
    
    100
    %
    
    
    100
    %
   Domestic equity securities
    
    
    0-10
    %Debt securities
    
    
    90-100
    %Cash
    
    
    0-2
    %
   50




---



##### Table of Contents



Postretirement Benefit PlanMedicareBenefit
    
    SubsidyPayments
    
    Receipts2007
    
    $
    11
    
    
    $
    (2
    )2008
    
    
    11
    
    
    
    (1
    )2009
    
    
    11
    
    
    
    (1
    )2010
    
    
    12
    
    
    
    (2
    )2011
    
    
    13
    
    
    
    (2
    )2012-2016
    
    
    66
    
    
    
    (9
    )
 Postemployment Benefits
   Other Non-Qualified Plans
  (p) Other Current Assets and Liabilities
  3. Regulatory Matters
 (a) Rate Cases
 Arkansas.
  51




---



##### Table of Contents



Texas.
 Minnesota.
  52




---



##### Table of Contents



(b) City of Tyler, Texas Dispute
  4. Related Party Transactions
     53




---



##### Table of Contents



5. Derivative Instruments
  (a) Non-Trading Activities
 Cash Flow Hedges.
  Other Derivative Instruments.
 ( b) Credit Risks
  December 31, 2005
    
    
    December 31, 2006Investment
    
    
    
    
    
    
    InvestmentGrade(1)
    
    
    Total
    
    
    Grade(1)
    
    
    TotalEnergy marketers
    
    $
    24
    
    
    $
    25
    
    
    $
    22
    
    
    $
    27Financial institutions
    
    
    208
    
    
    
    208
    
    
    
    51
    
    
    
    51Other
    
    
    
    
    
    
    2
    
    
    
    41
    
    
    
    41Total
    
    $
    232
    
    
    $
    235
    
    
    $
    114
    
    
    $
    119
 
 (1)
    
    Investment grade is primarily determined using publicly available credit ratings along with
the consideration of credit support (such as parent company guaranties) and collateral, which
encompass cash and standby letters 54




---



##### Table of Contents



of credit. For unrated counterparties, the Company performs financial statement analysis,
considering contractual rights and restrictions and collateral, to create a synthetic credit
rating. 6. Short-term Borrowings and Long-term Debt
 December 31, 2005
    
    
    December 31, 2006Long-Term
    
    
    Current(1)
    
    
    Long-Term
    
    
    Current(1)(In millions)Short-term borrowings:CERC Corp. receivables facility
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    187Long-term debt:Convertible subordinated debentures 6.00% due 2012
    
    
    63
    
    
    
    6
    
    
    
    56
    
    
    
    7Senior notes 5.95% to 7.875% due 2007 to 2016
    
    
    1,772
    
    
    
    148
    
    
    
    2,097
    
    
    
    Unamortized discount and premium(2)
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    Total long-term debt
    
    
    1,838
    
    
    
    154
    
    
    
    2,155
    
    
    
    7Total debt
    
    $
    1,838
    
    
    $
    154
    
    
    $
    2,155
    
    
    $
    194
 
 (1)
    
    Includes amounts due or exchangeable within one year of the date noted.(2)
    
    Debt acquired in business acquisitions is adjusted to fair market value as of the acquisition
date. Included in long-term debt is additional unamortized premium related to fair value
adjustments of long-term debt of $5 million and $4 million at December 31, 2005 and 2006,
respectively, which is being amortized over the respective remaining term of the related
long-term debt. (a) Short-term Borrowings
  (b) Long-term Debt
 Senior Notes.
 Revolving Credit Facilities.
  55




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##### Table of Contents



Maturities.
 7. Income Taxes
  Year Ended December 31,2004
    
    
    2005
    
    
    2006(In millions)CurrentFederal
    
    $
    86
    
    
    $
    82
    
    
    $
    97State
    
    
    10
    
    
    
    2
    
    
    
    36Total current
    
    
    96
    
    
    
    84
    
    
    
    133DeferredFederal
    
    
    (3
    )
    
    
    1
    
    
    
    (22
    )State
    
    
    (6
    )
    
    
    31
    
    
    
    5Total deferred
    
    
    (9
    )
    
    
    32
    
    
    
    (17
    )Income tax expense
    
    $
    87
    
    
    $
    116
    
    
    $
    116
  Year Ended December 31,2004
    
    
    2005
    
    
    2006(In millions)Income before income taxes
    
    $
    231
    
    
    $
    309
    
    
    $
    323Federal statutory rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Income tax expense at statutory rate
    
    
    81
    
    
    
    108
    
    
    
    113Increase (decrease) in tax resulting from:State income taxes, net of valuation
allowances and federal income tax
benefit
    
    
    2
    
    
    
    22
    
    
    
    27Tax reserves
    
    
    
    
    
    
    (13
    )
    
    
    (20
    )Deferred tax asset write-off
    
    
    4
    
    
    
    
    
    
    
    Other, net
    
    
    
    
    
    
    (1
    )
    
    
    (4
    )Total
    
    
    6
    
    
    
    8
    
    
    
    3Income tax expense
    
    $
    87
    
    
    $
    116
    
    
    $
    116Effective Rate
    
    
    37.5
    %
    
    
    37.4
    %
    
    
    36.1
    %
 56




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##### Table of Contents



December 31,2005
    
    
    2006(In millions)Deferred tax assets:Current:Allowance for doubtful accounts
    
    $
    19
    
    
    $
    16Total current deferred tax assets
    
    
    19
    
    
    
    16Non-current:Employee benefits
    
    
    73
    
    
    
    78Operating and capital loss carryforwards
    
    
    26
    
    
    
    27Deferred gas costs
    
    
    59
    
    
    
    58Other
    
    
    80
    
    
    
    48Total non-current deferred tax assets before valuation allowance
    
    
    238
    
    
    
    211Valuation allowance
    
    
    (21
    )
    
    
    (22
    )Total non-current deferred tax assets
    
    
    217
    
    
    
    189Total deferred tax assets
    
    
    236
    
    
    
    205Deferred tax liabilities:Current:Non-trading derivative liabilities, net
    
    
    2
    
    
    
    14Total current deferred tax liabilities
    
    
    2
    
    
    
    14Non-current:Depreciation
    
    
    821
    
    
    
    822Regulatory liability
    
    
    36
    
    
    
    13Other
    
    
    23
    
    
    
    16Total non-current deferred tax liabilities
    
    
    880
    
    
    
    851Total deferred tax liabilities
    
    
    882
    
    
    
    865Accumulated deferred income taxes, net
    
    $
    646
    
    
    $
    660
  Tax Attribute Carryforwards.
 Tax
Contingencies.
 8. Commitments and Contingencies
 (a) Natural Gas Supply Commitments  57




---



##### Table of Contents



(b) Lease Commitments
  2007
    
    $
    162008
    
    
    142009
    
    
    112010
    
    
    82011
    
    
    62012 and beyond
    
    
    14Total
    
    $
    69
  (c) Capital Commitments
 Carthage to Perryville.
    Southeast Supply Header.
 58




---



##### Table of Contents



(d) Legal, Environmental and Other Matters
 Legal Matters
 Natural Gas Measurement Lawsuits.
  Gas Cost Recovery Litigation.
 59




---



##### Table of Contents



Storage Facility Litigation.
 Pipeline Safety Compliance.
 Minnesota Cold Weather Rule.
 Environmental Matters
 Hydrocarbon Contamination.
 60




---



##### Table of Contents



Manufactured Gas Plant Sites.
   Mercury Contamination.
 61




---



##### Table of Contents



Asbestos.
 Other Environmental.
 Other Proceedings
  Guaranties
  62




---



##### Table of Contents



9. Estimated Fair Value of Financial Instruments
  December 31, 2005
    
    December 31, 2006Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(In millions)Financial liabilities:Long-term debt
    
    $
    1,992
    
    
    $
    2,182
    
    
    $
    2,162
    
    
    $
    2,311
 10. Unaudited Quarterly Information
  Year Ended December 31, 2005First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth Quarter(In millions)Revenues
    
    $
    2,248
    
    
    $
    1,426
    
    
    $
    1,587
    
    
    $
    2,809Operating income
    
    
    202
    
    
    
    69
    
    
    
    40
    
    
    
    153Net income
    
    
    96
    
    
    
    27
    
    
    
    4
    
    
    
    66
 Year Ended December 31, 2006First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth Quarter(In millions)Revenues
    
    $
    2,690
    
    
    $
    1,384
    
    
    $
    1,400
    
    
    $
    2,054Operating income
    
    
    200
    
    
    
    65
    
    
    
    69
    
    
    
    138Net income
    
    
    97
    
    
    
    23
    
    
    
    13
    
    
    
    74
 11. Reportable Business Segments
   63




---



##### Table of Contents



Revenues
    
    
    
    
    
    Depreciation
    
    Operating
    
    
    
    
    
    Expendituresfrom External
    
    Intersegment
    
    and
    
    Income
    
    
    
    
    
    for Long-Customers
    
    Revenues
    
    Amortization
    
    (Loss)
    
    Total Assets
    
    Lived AssetsAs of and for the year
ended December 31, 2004:Natural Gas Distribution
    
    $
    3,577
    
    
    $
    2
    
    
    $
    141
    
    
    $
    178
    
    
    $
    4,083
    
    
    $
    196Competitive Natural Gas
Sales and Services
    
    
    2,593
    
    
    
    255
    
    
    
    2
    
    
    
    44
    
    
    
    964
    
    
    
    1Interstate Pipelines
    
    
    239
    
    
    
    129
    
    
    
    36
    
    
    
    129
    
    
    
    2,164
    
    
    
    39Field Services
    
    
    67
    
    
    
    25
    
    
    
    8
    
    
    
    51
    
    
    
    451
    
    
    
    34Other
    
    
    (4
    )
    
    
    5
    
    
    
    
    
    
    
    (9
    )
    
    
    792
    
    
    
    (1
    )Reconciling Eliminations
    
    
    
    
    
    
    (416
    )
    
    
    
    
    
    
    
    
    
    
    (987
    )
    
    
    Consolidated
    
    $
    6,472
    
    
    $
    
    
    
    $
    187
    
    
    $
    393
    
    
    $
    7,467
    
    
    $
    269As of and for the year
ended December 31, 2005:Natural Gas Distribution
    
    $
    3,837
    
    
    $
    9
    
    
    $
    152
    
    
    $
    175
    
    
    $
    4,612
    
    
    $
    249Competitive Natural Gas
Sales and Services
    
    
    3,884
    
    
    
    245
    
    
    
    2
    
    
    
    60
    
    
    
    1,849
    
    
    
    12Interstate Pipelines
    
    
    255
    
    
    
    131
    
    
    
    36
    
    
    
    165
    
    
    
    2,400
    
    
    
    118Field Services
    
    
    91
    
    
    
    29
    
    
    
    9
    
    
    
    70
    
    
    
    529
    
    
    
    38Other
    
    
    3
    
    
    
    7
    
    
    
    (1
    )
    
    
    (6
    )
    
    
    743
    
    
    
    Reconciling Eliminations
    
    
    
    
    
    
    (421
    )
    
    
    
    
    
    
    
    
    
    
    (1,832
    )
    
    
    Consolidated
    
    $
    8,070
    
    
    $
    
    
    
    $
    198
    
    
    $
    464
    
    
    $
    8,301
    
    
    $
    417As of and for the year
ended December 31, 2006:Natural Gas Distribution
    
    $
    3,582
    
    
    $
    11
    
    
    $
    152
    
    
    $
    124
    
    
    $
    4,463
    
    
    $
    187Competitive Natural Gas
Sales and Services
    
    
    3,572
    
    
    
    79
    
    
    
    1
    
    
    
    77
    
    
    
    1,501
    
    
    
    18Interstate Pipelines
    
    
    255
    
    
    
    133
    
    
    
    37
    
    
    
    181
    
    
    
    2,738
    
    
    
    437Field Services
    
    
    119
    
    
    
    31
    
    
    
    10
    
    
    
    89
    
    
    
    608
    
    
    
    65Other
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    1
    
    
    
    1,086
    
    
    
    Reconciling Eliminations
    
    
    
    
    
    
    (259
    )
    
    
    
    
    
    
    
    
    
    
    (1,581
    )
    
    
    Consolidated
    
    $
    7,528
    
    
    $
    
    
    
    $
    200
    
    
    $
    472
    
    
    $
    8,815
    
    
    $
    707
 Year Ended December 31,2004
    
    
    2005
    
    
    2006(In millions)Revenues by Products and Services:Retail gas sales
    
    $
    4,239
    
    
    $
    4,871
    
    
    $
    4,546Wholesale gas sales
    
    
    1,526
    
    
    
    2,410
    
    
    
    2,331Gas transport
    
    
    613
    
    
    
    684
    
    
    
    550Energy products and services
    
    
    94
    
    
    
    105
    
    
    
    101Total
    
    $
    6,472
    
    
    $
    8,070
    
    
    $
    7,528
 64




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##### Table of Contents



12. Subsequent Event
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Disclosure Controls and Procedures
   
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  65




---



##### Table of Contents



Item 14. Principal Accountant Fees and Services
  Year Ended December 31,2005
    
    
    2006Audit fees
    
    $
    967,192
    
    
    $
    1,108,600Audit-related fees
    
    
    107,050
    
    
    
    178,500Total audit and audit-related fees
    
    
    1,074,242
    
    
    
    1,287,100Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    Total fees
    
    $
    1,074,242
    
    
    $
    1,287,100
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)(1) Financial Statements.Report of Independent Registered Public Accounting Firm
    
    
    36Statements of Consolidated Income for the Three Years Ended December 31, 2006
    
    
    37Statements of Consolidated Comprehensive Income for the Three Years Ended December 31, 2006
    
    
    38Consolidated Balance Sheets at December 31, 2005 and 2006
    
    
    39Statements of Consolidated Cash Flows for the Three Years Ended December 31, 2006
    
    
    40Statements of Consolidated Stockholders Equity for the Three Years Ended December 31, 2006
    
    
    41Notes to Consolidated Financial Statements
    
    
    42(a)(2) Financial Statement Schedules for the Three Years Ended December 31, 2006.Report of Independent Registered Public Accounting Firm
    
    
    67II Qualifying Valuation Accounts
    
    
    68
     66




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  
  67




---



##### Table of Contents



CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of CenterPoint Energy, Inc.)
 
 SCHEDULE II  QUALIFYING VALUATION ACCOUNTS
For the Three Years Ended December 31, 2006
 Column A
    
    Column B
    
    Column C
    
    Column D
    
    Column EAdditionsBalance at
    
    
    
    
    
    Charged to
    
    Deductions
    
    Balance atBeginning
    
    Charged
    
    Other
    
    From
    
    End OfDescription
    
    of Period
    
    to Income
    
    Accounts(1)
    
    Reserves(2)
    
    Period(In millions)Year Ended December 31, 2006:Accumulated provisions:Uncollectible accounts receivable
    
    $
    38
    
    
    $
    37
    
    
    $
    
    
    
    $
    43
    
    
    $
    32Deferred tax asset valuation allowance
    
    
    21
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    22Year Ended December 31, 2005:Accumulated provisions:Uncollectible accounts receivable
    
    
    28
    
    
    
    37
    
    
    
    
    
    
    
    27
    
    
    
    38Deferred tax asset valuation allowance
    
    
    20
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    21Year Ended December 31, 2004:Accumulated provisions:Uncollectible accounts receivable
    
    
    28
    
    
    
    26
    
    
    
    
    
    
    
    26
    
    
    
    28Deferred tax asset valuation allowance
    
    
    73
    
    
    
    (67
    )
    
    
    14
    
    
    
    
    
    
    
    20
 
 (1)
    
    Charges to other accounts represent changes in presentation to reflect state tax attributes
net of federal tax benefit as well as to reflect amounts that were netted against related
attribute balances in prior years.(2)
    
    Deductions from reserves represent losses or expenses for which the respective reserves were
created. In the case of the uncollectible accounts reserve, such deductions are net of
recoveries of amounts previously written off. 68




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##### Table of Contents



SIGNATURES
  CENTERPOINT ENERGY RESOURCES CORP.(Registrant)By:
    
    /s/ DAVID M. MCCLANAHANDavid M. McClanahanPresident and Chief Executive Officer
  Signature
    
    Title/s/ DAVID M. MCCLANAHAN

(David M. McClanahan)
    
    Chairman, President and Chief Executive Officer
(Principal Executive Officer and Director)/s/ GARY L. WHITLOCK

(Gary L. Whitlock)
    
    Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)/s/ JAMES S. BRIAN

(James S. Brian)
    
    Senior Vice President and Chief Accounting
Officer
(Principal Accounting Officer)
 69




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##### Table of Contents



CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
 EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K
For Fiscal Year Ended December 31, 2005
 
 INDEX OF EXHIBITS
  SEC File orExhibit
    
    
    
    
    
    Registration
    
    ExhibitNumber
    
    Description
    

Report or Registration Statement
    
    Number
    
    Reference2(a)(1)
    
     Agreement and Plan of Merger
among the Company, HL&P, HI
Merger, Inc. and NorAm dated
August 11, 1996
    
    HIs Form 8-K dated August 11,
1996
    
    1-7629
    
    
    22(a)(2)
    
     Amendment to Agreement and
Plan of Merger among the
Company, HL&P, HI Merger,
Inc. and NorAm dated August
11, 1996
    
    Registration Statement on Form
S-4
    
    333-11329
    
    
    2(c)2(b)
    
     Agreement and Plan of Merger
dated December 29, 2000
merging Reliant Resources
Merger Sub, Inc. with and
into Reliant Energy Services,
Inc.
    
    Registration Statement on Form
S-3
    
    333-54526
    
    
    23(a)(1)
    
     Certificate of Incorporation
of RERC Corp.
    
    Form 10-K for the year ended
December 31, 1997
    
    1-3187
    
    
    3(a)(1)3(a)(2)
    
     Certificate of Merger merging
former NorAm Energy Corp.
with and into HI Merger, Inc.
dated August 6, 1997
    
    Form 10-K for the year ended
December 31, 1997
    
    1-3187
    
    
    3(a)(2)3(a)(3)
    
     Certificate of Amendment
changing the name to Reliant
Energy Resources Corp.
    
    Form 10-K for the year ended
December 31, 1998
    
    1-3187
    
    
    3(a)(3)3(a)(4)
    
     Certificate of Amendment
changing the name to
CenterPoint Energy Resources
Corp.
    
    Form 10-Q for the quarter
ended
June 30, 2003
    
    1-13265
    
    
    3(a)(4)3(b)
    
     Bylaws of RERC Corp.
    
    Form 10-K for the year ended
December 31, 1997
    
    1-3187
    
    
    3(b)4(a)(1)
    
     Indenture, dated as of March 31,
1987, between NorAm and
Chase Manhattan Bank, N.A.,
as Trustee, authorizing 6%
Convertible Subordinated
Debentures due 2012
    
    NorAms Registration Statement
on Form S-3
    
    33-14586
    
    
    4.204(a)(2)
    
     Supplemental Indenture to
Exhibit 4(a)(1) dated as of
August 6, 1997
    
    Form 10-K for the year ended
December 31, 1997
    
    1-3187
    
    
    4(b)(2)
 70




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##### Table of Contents



SEC File orExhibit
    
    
    
    
    
    Registration
    
    ExhibitNumber
    
    Description
    
    Report or Registration Statement
    
    Number
    
    Reference4(b)(1)
    
     Indenture, dated as of
February 1, 1998, between
RERC Corp. and Chase Bank of
Texas, National Association,
as Trustee
    
    Form 8-K dated February 5, 1998
    
    1-13265
    
    
    4.14(b)(2)
    
     Supplemental Indenture No. 1,
dated as of February 1, 1998,
providing for the issuance of
RERC Corp.s 6 1/2%
Debentures due February 1,
2008
    
    Form 8-K dated February 5, 1998
    
    1-13265
    
    
    4.24(b)(3)
    
     Supplemental Indenture No. 2,
dated as of November 1, 1998,
providing for the issuance of
RERC Corp.s 6 3/8% Term
Enhanced ReMarketable
Securities
    
    Form 8-K dated November 9, 1998
    
    1-13265
    
    
    4.14(b)(4)
    
     Supplemental Indenture No. 3,
dated as of July 1, 2000,
providing for the issuance of
RERC Corp.s 8.125% Notes due
2005
    
    Registration Statement on Form
S-4
    
    333-49162
    
    
    4.24(b)(5)
    
     Supplemental Indenture No. 4,
dated as of February 15,
2001, providing for the
issuance of RERC Corp.s
7.75% Notes due 2011
    
    Form 8-K dated February 21, 2001
    
    1-13265
    
    
    4.14(b)(6)
    
     Supplemental Indenture No. 5,
dated as of March 25,
2003, providing for the
issuance of CERC Corp.s
7.875% Senior Notes due 2013
    
    Form 8-K dated March 18, 2003
    
    1-13265
    
    
    4.14(b)(7)
    
     Supplemental Indenture No. 6,
dated as of April 14,
2003, providing for the
issuance of CERC Corp.s
7.875% Senior Notes due 2013
    
    Form 8-K dated April 7, 2003
    
    1-13265
    
    
    4.24(b)(8)
    
     Supplemental Indenture No. 7,
dated as of November 3,
2003, providing for the
issuance of CERC Corp.s
5.95% Senior Notes due 2014
    
    Form 8-K dated October 29, 2003
    
    1-13265
    
    
    4.24(b)(9)
    
     Supplemental Indenture No. 8,
dated as of December 28,
2005, providing for the
issuance of CERC Corp.s
6 1/2% Debentures due 2008
    
    CNPs Form 10-K for the year
ended December 31, 2005
    
    1-31447
    
    
    4(f)(9)4(b)(10)
    
     Supplemental Indenture No. 9,
dated as of May 18,
2006, providing for the
issuance of CERC Corp.s
6.15% Senior Notes due 2016
    
    CNPs Form 10-Q for the quarter
ended June 30, 2006
    
    1-31447
    
    
    4.74(b)(11)
    
     Supplemental Indenture No. 10,
dated as of February 6,
2007, providing for the
issuance of CERC Corp.s
6.25% Senior Notes due 2037
    
    CNPs Form 10-K for the year
ended December 31, 2006
    
    1-31447
    
    
    4(f)(11)4(c)
    
     $550,000,000 Amended and
Restated Credit Agreement,
dated as of March 31, 2006,
among CERC Corp., as
Borrower, and the banks named
therein
    
    CNPs Form 8-K dated March 31,
2006
    
    1-31447
    
    
    4.3
 71




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##### Table of Contents



SEC File orExhibit
    
    
    
    
    
    Registration
    
    ExhibitNumber
    
    Description
    
    Report or Registration Statement
    
    Number
    
    Reference10(a)
    
     Service Agreement by and
between Mississippi River
Transmission Corporation
and
Laclede Gas Company dated
August 22, 1989
    
    NorAms Form 10-K for the year
ended December 31, 1989
    
    1-13265
    
    
    10.20+12
    
     Computation of Ratios of
Earnings
to Fixed Charges+23
    
     Consent of Deloitte &
Touche
LLP+31.1
    
     Rule 13a-14(a)/15d-14(a)
Certification of 
David M.
McClanahan+31.2
    
     Rule 13a-14(a)/15d-14(a)
Certification of 
Gary L.
Whitlock+32.1
    
     Section 1350 Certification
of 
David
M. McClanahan+32.2
    
     Section 1350 Certification
of Gary
L. Whitlock
 72