UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Form 10-K
(Mark One)
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 20142017
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 
FOR THE TRANSITION PERIOD FROM                TO              

Commission File Number 1-31447
______________________
CenterPoint Energy, Inc.
(Exact name of registrant as specified in its charter)
Texas74-0694415
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
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 className of each exchange on which registered
Common Stock, $0.01 par value
New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. oþ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
      Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
  (Do not check if a smaller reporting company) 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No þ

The aggregate market value of the voting stock held by non-affiliates of CenterPoint Energy, Inc. (CenterPoint Energy) was $10,907,234,07311,722,467,012 as of June 30, 20142017, using the definition of beneficial ownership contained in Rule 13d-3 promulgated pursuant to the Securities Exchange Act of 1934 and excluding shares held by directors and executive officers. As of February 17, 20159, 2018, CenterPoint Energy had 429,802,703431,048,125 shares of Common Stock outstanding. Excluded from the number of shares of Common Stock outstanding are 166 shares held by CenterPoint Energy as treasury stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement relating to the 20152018 Annual Meeting of Shareholders of CenterPoint Energy, which will be filed with the Securities and Exchange Commission within 120 days of December 31, 20142017, are incorporated by reference in Item 10, Item 11, Item 12, Item 13 and Item 14 of Part III of this Form 10-K.
 





TABLE OF CONTENTS
PART I
  Page
Item 1. Business 
Item 1A. Risk Factors 
Item 1B. Unresolved Staff Comments 
Item 2. Properties 
Item 3. Legal Proceedings 
Item 4. Mine Safety Disclosures 
PART II
Item 5. Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
Item 6. Selected Financial Data 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 
Item 8. Financial Statements and Supplementary Data 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
Item 9A. 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 
Item 14. Principal Accounting Fees and Services 
PART IV
Item 15. Exhibits and Financial Statement Schedules 
Item 16.Form 10-K Summary
 

i



GLOSSARY
ADFITAccumulated deferred federal income taxes
ADMSAdvanced Distribution Management System
AEMAtmos Energy Marketing, LLC, previously a wholly-owned subsidiary of Atmos Energy Holdings, Inc., a wholly-owned subsidiary of Atmos Energy Corporation
AFUDCAllowance for funds used during construction
AMAsAsset Management Agreements
AMSAdvanced Metering System
AOLAOL Inc.
APSCArkansas Public Service Commission
ArcLightArcLight Capital Partners, LLC
AROAsset retirement obligation
ASCAccounting Standards Codification
ASUAccounting Standards Update
AT&TAT&T Inc.
AT&T CommonAT&T common stock
BcfBillion cubic feet
BtuBritish thermal units
BDABilling Determinant Adjustment, which is a revenue stabilization mechanism used to adjust revenues impacted by declines in natural gas consumption which occurred after the most recent rate case
Bond CompaniesWholly-owned, bankruptcy remote entities formed solely for the purpose of purchasing and owning transition or system restoration property through the issuance of Securitization Bonds
Brazos Valley ConnectionA portion of the Houston region transmission project between Houston Electric’s Zenith substation and the Gibbons Creek substation owned by the Texas Municipal Power Agency
CEACommodities Exchange Act of 1936
CEIPCenterPoint Energy Intrastate Pipelines, LLC
CenterPoint EnergyCenterPoint Energy, Inc., and its subsidiaries
CERC Corp.CenterPoint Energy Resources Corp.
CERCCERC Corp., together with its subsidiaries
CERCLAComprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
CESCenterPoint Energy Services, Inc., a wholly-owned subsidiary of CERC Corp.
CFTCCommodity Futures Trading Commission
Charter CommonCharter Communications, Inc. common stock
Charter mergerMerger of Charter Communications, Inc. and Time Warner Cable Inc.
CIPConservation Improvement Program
COLICorporate-owned life insurance
ContinuumThe retail energy services business of Continuum Retail Energy Services, LLC, including its wholly-owned subsidiary Lakeshore Energy Services, LLC and the natural gas wholesale assets of Continuum Energy Services, LLC
DCRFDistribution Cost Recovery Factor
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOEU.S. Department of Energy
DOTU.S. Department of Transportation
DthDekatherms
EBITDAEarnings before interest, taxes, depreciation and amortization
EDITExcess deferred income taxes

ii



GLOSSARY (cont.)
EECREnergy Efficiency Cost Recovery
EECRFEnergy Efficiency Cost Recovery Factor
EGTEnable Gas Transmission, LLC
EIAU.S. Energy Information Administration
EnableEnable Midstream Partners, LP
EPAEnvironmental Protection Agency
EPAct of 2005Energy Policy Act of 2005
ERCOTElectric Reliability Council of Texas
ERCOT ISOERCOT Independent System Operator
ERISAEmployee Retirement Income Security Act of 1974
EROElectric Reliability Organization
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
FitchFitch, Inc.
FRPFormula Rate Plan
Gas DailyPlatts gas daily indices
GenOnGenOn Energy, Inc.
GHGGreenhouse gases
GRIPGas Reliability Infrastructure Program
GWhGigawatt-hours
Houston ElectricCenterPoint Energy Houston Electric, LLC and its subsidiaries
HVACHeating, ventilation and air conditioning
IBEWInternational Brotherhood of Electrical Workers
ICAInterstate Commerce Act of 1887
IGIntelligent Grid
IRSInternal Revenue Service
kVKilovolt
LIBORLondon Interbank Offered Rate
LNGLiquefied natural gas
LPSCLouisiana Public Service Commission
LTIPsLong-term incentive plans
MeredithMeredith Corporation
MGPsManufactured gas plants
MLPMaster Limited Partnership
MMBtuOne million British thermal units
MMcfMillion cubic feet
Moody’sMoody’s Investors Service, Inc.
MPSCMississippi Public Service Commission
MPUCMinnesota Public Utilities Commission
MRTEnable-Mississippi River Transmission, LLC
NAVNet asset value
NECANational Electrical Contractors Association
NERCNorth American Electric Reliability Corporation
NESHAPSNational Emission Standards for Hazardous Air Pollutants
NGANatural Gas Act of 1938
NGDNatural gas distribution business
NGLsNatural gas liquids
NGPANatural Gas Policy Act of 1978

iii



GLOSSARY (cont.)
NGPSANatural Gas Pipeline Safety Act of 1968
NRGNRG Energy, Inc.
NYMEXNew York Mercantile Exchange
NYSENew York Stock Exchange
OCCOklahoma Corporation Commission
OGEOGE Energy Corp.
PBRCPerformance Based Rate Change
PHMSAPipeline and Hazardous Materials Safety Administration
PRPsPotentially responsible parties
PUCTPublic Utility Commission of Texas
Railroad CommissionRailroad Commission of Texas
RCRAResource Conservation and Recovery Act of 1976
Reliant EnergyReliant Energy, Incorporated
REPRetail electric provider
RICE MACTReciprocating Internal Combustion Engines Maximum Achievable Control Technology
ROEReturn on equity
RRARate Regulation Adjustment
RRIReliant Resources, Inc.
RSPRate Stabilization Plan
SECSecurities and Exchange Commission
SESHSoutheast Supply Header, LLC
Securitization BondsTransition and system restoration bonds
Series A Preferred UnitsEnable’s 10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units, representing limited partner interests in Enable
S&PStandard & Poor’s Ratings Services, a division of The McGraw-Hill Companies
TBDTo be determined
TCEH Corp.Formerly Texas Competitive Electric Holdings Company LLC, predecessor to Vistra Energy Corp. whose major subsidiaries include Luminant and TXU Energy
TCJATax reform legislation informally called the Tax Cuts and Jobs Act of 2017
TCOSTransmission Cost of Service
TDUTransmission and distribution utility
TimeTime Inc.
Time CommonTime common stock
Transition AgreementsServices Agreement, Employee Transition Agreement, Transitional Seconding Agreement and other agreements entered into in connection with the formation of Enable
Texas RETexas Reliability Entity
TWTime Warner Inc.
TW CommonTW common stock
TWCTime Warner Cable Inc.
TWC CommonTWC common stock
TW SecuritiesCharter Common, Time Common and TW Common
VaRValue at Risk

iv



GLOSSARY (cont.)
VerizonVerizon Communications, Inc.
VIEVariable interest entity
Vistra Energy Corp.Texas-based energy company focused on the competitive energy and power generation markets
ZENS2.0% Zero-Premium Exchangeable Subordinated Notes due 2029
2002 ActPipeline Safety Improvement Act of 2002
2006 ActPipeline Inspection, Protection, Enforcement and Safety Act of 2006
2011 ActPipeline Safety, Regulatory Certainty, and Job Creation Act of 2011
2016 Act
Protecting our Infrastructure of Pipelines and Enhancing Safety Act
of 2016

v



 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “target,” “will” or other similar words.

We have based our forward-looking statements on our management’s beliefs and assumptions based on information reasonably available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.

Some of the factors that could cause actual results to differ from those expressed or implied by our forward-looking statements are described under “Risk Factors” in Item 1A and “Management’s Discussion and Analysis of Financial Condition and Results of Operations Certain Factors Affecting Future Earnings” and “ Liquidity and Capital Resources Other Matters Other Factors That Could Affect Cash Requirements” in Item 7 of this report, which discussions are incorporated herein by reference.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statements.
 

iivi



PART I

Item 1.Business

OUR BUSINESS

Overview

We are a public utility holding company. Our operating subsidiaries own and operate electric transmission and distribution facilities and natural gas distribution facilities, and own interests in Enable Midstream Partners, LP (Enable) as described below. Our indirect wholly owned subsidiaries include:

CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which engages in the electric transmission and distribution business in a 5,000-square mile area of the Texas Gulf Coast that includes the city of Houston; and

CenterPoint Energy Resources Corp. (CERC Corp. and, together with its subsidiaries, CERC), which owns and operatessupply natural gas distribution systems (NGD). A wholly owned subsidiary of CERC Corp. offers variable and fixed-price physical natural gas supplies primarily to commercial and industrial customers and electric and natural gas utilities. As of December 31, 2014, CERC Corp. also owned approximately 55.4% of the limited partnerutilities and own interests in Enable which owns, operates and develops natural gas and crude oil infrastructure assets.as described below. Our simplified corporate structure is shown below:

(1)Houston Electric engages in the electric transmission and distribution business in the Texas Gulf Coast area that includes the city of Houston.

(2)Bond Companies are wholly-owned, bankruptcy remote entities formed solely for the purpose of purchasing and owning transition or system restoration property through the issuance of Securitization Bonds.

(3)NGD operates natural gas distribution systems in six states.

(4)CES obtains and offers competitive variable and fixed-price physical natural gas supplies and services primarily to commercial and industrial customers and electric and natural gas utilities in 33 states.
(5)Represents limited partner interests in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets. For additional information regarding our interest in Enable, see Note 10 to our consolidated financial statements.



Our reportable business segments are Electric Transmission & Distribution, Natural Gas Distribution, Energy Services, Midstream Investments and Other Operations. Substantially allFor a discussion of operating income by segment, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations by Business Segment” in Item 7 of Part II of this report. For additional information about the segments, see Note 18 to our former Interstate Pipelines business segment and Field Services business segment were contributed to Enable in May 2013. As a result, these business segments did not report operating results during 2014.consolidated financial statements. From time to time, we consider the acquisition or the disposition of assets or businesses.

Our principal executive offices are located at 1111 Louisiana, Houston, Texas 77002 (telephone number: 713-207-1111).

We make available free of charge on our Internetinternet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the Securities and Exchange Commission (SEC).SEC. Additionally, we make available free of charge on our Internet website:

our Code of Ethics for our Chief Executive Officer and Senior Financial Officers;

our Ethics and Compliance Code;

our Corporate Governance Guidelines; and

the charters of the audit, compensation, finance and governance committees of our Board of Directors.

Any shareholder who so requests may obtain a printed copy of any of these documents from us. Changes in or waivers of our Code of Ethics for our Chief Executive Officer and Senior Financial Officers and waivers of our Ethics and Compliance Code for directors or executive officers will be posted on our Internet website within five business days of such change or waiver and maintained for at least 12 months or timely reported on Item 5.05 of Form 8-K.

Our website address is www.centerpointenergy.com. Investors should also note that we announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, we may use the investor relations section of our website to communicate with our investors. It is possible that the financial and other information posted there could be deemed to be material information. Except to the extent explicitly stated herein, documents and information on our website are not incorporated by reference herein.

Electric Transmission & Distribution
 
CenterPoint Houston Electric is a transmission and distribution electric utility that operates wholly within the state of Texas. Neither CenterPoint Houston nor any other subsidiary of CenterPoint Energy makes direct retail or wholesale sales of electric energy or owns or operates any electric generating facilities.
Electric Transmission
On behalf of retail electric providers (REPs), CenterPoint Houston delivers electricity from power plants to substations, from one substation to anotherTexas and to retail electric customers taking power at or above 69 kilovolts (kV) in locations throughout CenterPoint Houston’s certificated service territory. CenterPoint Houston constructs and maintains transmission facilities and provides transmission services under tariffs approved by the Public Utility Commission of Texas (Texas Utility Commission).

1



Electric Distribution
In the Electric Reliability Council of Texas, Inc. (ERCOT), end users purchase their electricity directly from certificated REPs. CenterPoint Houston delivers electricity for REPs in its certificated service area by carrying lower-voltage power from the substation to the retail electric customer. CenterPoint Houston’s distribution network receives electricity from the transmission grid through power distribution substations and delivers electricity to end users through distribution feeders. CenterPoint Houston’s operations include construction and maintenance of distribution facilities, metering services, outage response services and call center operations. CenterPoint Houston provides distribution services under tariffs approved by the Texas Utility Commission. Texas Utility Commission rules and market protocols govern the commercial operations of distribution companies and other market participants. Rates for these existing services are established pursuant to rate proceedings conducted before municipalities that have original jurisdiction and the Texas Utility Commission.
ERCOT Market Framework
CenterPoint Houston is a member of ERCOT. Within ERCOT, prices for wholesale generation and retail electric sales are unregulated, but services provided by transmission and distribution companies, such as CenterPoint Houston, are regulated by the Texas Utility Commission. ERCOT serves as the independent system operator and regional reliability coordinating councilcoordinator for member electric power systems in most of Texas. ERCOT membership is open to consumer groups, investor and municipally-owned electric utilities, rural electric cooperatives, independent generators, power marketers, river authorities and REPs. The ERCOT market includes most of the State of Texas, other than a portion of the panhandle, portions of the eastern part of the state bordering Arkansas and Louisiana and the area in and around El Paso. The ERCOT market represents approximately 90% of the demand for power in Texas and is one of the nation’s largest power markets. The ERCOT market included available generating capacity of over 77,000 megawatts (MW) at December 31, 2014. Currently, there are only limited direct current interconnections between the ERCOT market and other power markets in the United States and Mexico.
The ERCOT market operates under the reliability standards setdeveloped by the North American Electric Reliability Corporation (NERC) andNERC, approved by the Federal Energy Regulatory Commission (FERC). These reliability standards are administeredFERC and monitored and enforced by the Texas Regional Entity (TRE), a functionally independent division of ERCOT.RE. The Texas Utility CommissionPUCT has primary jurisdiction over the ERCOT market to ensure the adequacy and reliability of electricity supply across the state’s main interconnected power transmission grid. Neither


Houston Electric nor any other subsidiary of CenterPoint Energy makes direct retail or wholesale sales of electric energy or owns or operates any electric generating facilities. Houston Electric’s service territory is depicted below:
Electric Transmission
On behalf of REPs, Houston Electric delivers electricity from power plants to substations, from one substation to another and to retail electric customers taking power at or above 69 kV in locations throughout Houston Electric’s certificated service territory. Houston Electric constructs and maintains transmission facilities and provides transmission services under tariffs approved by the PUCT.

The ERCOT independent system operator (ERCOT ISO)ISO is responsible for operating the bulk electric power supply system in the ERCOT market. Its responsibilities include ensuring that electricity production and delivery are accurately accounted for among the generation resources and wholesale buyers and sellers. Unlike certain other regional power markets, the ERCOT market is not a centrally dispatched power pool, and the ERCOT ISO does not procure energy on behalf of its members other than to maintain the reliable operations of the transmission system. Members who sell and purchase power are responsible for contracting sales and purchases of power bilaterally. The ERCOT ISO also serves as agent for procuring ancillary services for those members who elect not to provide their own ancillary services.
CenterPoint Houston’s electricHouston Electric’s transmission business, along with those of other owners of transmission facilities in Texas, supports the operation of the ERCOT ISO. The transmission business has planning, design, construction, operation and maintenance responsibility for the portion of the transmission grid and for the load-serving substations it owns, primarily within its certificated area. CenterPoint Houston Electric participates with the ERCOT ISO and other ERCOT utilities to plan, design, obtain regulatory approval for and construct new transmission lines necessary to increase bulk power transfer capability and to remove existing constraints on the ERCOT transmission grid.
 
Restructuring of the Texas Electric MarketDistribution
 
In 1999,ERCOT, end users purchase their electricity directly from certificated REPs. Houston Electric delivers electricity for REPs in its certificated service area by carrying lower-voltage power from the Texas legislature adopted the Texas Electric Choice Plan (Texas electric restructuring law). Pursuant to that legislation, integrated electric utilities operating within ERCOT were required to unbundle their integrated operations into separate retail sales, power generation and transmission and distribution companies. The legislation provided for a transition period to movesubstation to the newretail electric customer. Houston Electric’s distribution network receives electricity from the transmission grid through power distribution substations and delivers electricity to end users through distribution feeders. Houston Electric’s operations include construction and maintenance of distribution facilities, metering services, outage response services and call center operations. Houston Electric provides distribution services under tariffs approved by the PUCT. PUCT rules and market structureprotocols govern the commercial operations of distribution companies and provided a mechanismother market participants. Rates for these existing services are established pursuant to rate proceedings conducted before municipalities that have original jurisdiction and the PUCT.
Bond Companies

Houston Electric has special purpose subsidiaries consisting of the Bond Companies, which it consolidates. The consolidated special purpose subsidiaries are wholly-owned, bankruptcy remote entities that were formed solely for the formerly integrated electric utilities to recover strandedpurpose of purchasing and certain other costs resulting from theowning transition to competition. Those costs were recoverable after approval by the Texas Utility Commission eitheror system restoration property through the issuance of securitization bonds or through the implementation of a competition transition charge as a rider to the utility’s tariff. CenterPoint Houston’s integrated utility business was restructured in accordance with the Texas electric restructuring lawSecuritization Bonds, and its generating stations were sold to third parties. Ultimately CenterPoint Houston was authorized to recover a total of approximately $5 billion in stranded costs, other charges and related interest.  Most of that amount was recovered through the issuance of transition bonds by special purpose subsidiaries of CenterPoint Houston.conducting activities incidental thereto. The transition bondsSecuritization Bonds are repaid through charges imposed on customers in CenterPoint Houston’sHouston Electric’s service territory.  AsFor further discussion of the Securitization Bonds and the outstanding balances as of December 31, 2014, approximately $2.6 billion aggregate principal amount of transition bonds were outstanding.2017 and 2016, see Note 13 to our consolidated financial statements.

2




Customers
 
CenterPoint Houston Electric serves nearly all of the Houston/Galveston metropolitan area. At December 31, 2014, CenterPoint Houston’s2017, Houston Electric’s customers consisted of approximately 7068 REPs, which sell electricity to over twomore than 2.4 million metered customers in CenterPoint Houston’sHouston Electric’s certificated service area, and municipalities, electric cooperatives and other distribution companies located outside CenterPoint Houston’sHouston Electric’s certificated service area. Each REP is licensed by, and must meet minimum creditworthiness criteria established


by, the Texas Utility Commission.
Sales to REPs that are affiliates of NRG Energy, Inc. (NRG) represented approximately 37%, 38% and 39% of CenterPoint Houston’s transmission and distribution revenues in 2014, 2013 and 2012, respectively.  Sales to REPs that are affiliates of Energy Future Holdings Corp. (Energy Future Holdings) represented approximately 10% of CenterPoint Houston’s transmission and distribution revenues in each of 2014, 2013 and 2012.  CenterPoint Houston’s aggregate billed receivables balance from REPs as of December 31, 2014 was $195 million.  Approximately 36% and 10% of this amount was owed by affiliates of NRG and Energy Future Holdings, respectively. CenterPointPUCT. Houston Electric does not have long-term contracts with any of its customers. It operates using a continuous billing cycle, with meter readings being conducted and invoices being distributed to REPs each business day. For information regarding Houston Electric’s major customers, see Note 18 to our consolidated financial statements.
 
Advanced Metering System and DistributionUtility Technology

Houston Electric’s Smart Grid Automation (Intelligent Grid)
In May 2012, CenterPoint Houston substantially completed the deployment of an advanced metering system (AMS), having installed approximately 2.2 million smart meters. To recover the costis comprised of the AMS, the Texas Utility Commission approved a monthly surcharge payable by REPs, initially over 12 yearsIG, ADMS and later reduced to six years as a result of U.S. Department of Energy (DOE) grant funds. The surcharge is currently set to expire in 2015 for residential customers and in 2016 to 2017 for non-residential customers. The surcharge amounts and duration are subject to adjustment in future proceedings to reflect actual costs incurred and to address required changes in scope. 
CenterPointprivate telecommunications network. Since 2009, Houston is also pursuing deployment of an electric distribution grid automation strategy that involves the implementation of an “Intelligent Grid” (IG) which would provide on-demand data and information about the status of facilities on its system. We expect to include the costs of the deployment in future rate proceedings before the Texas Utility Commission.
In October 2009, the DOE selected CenterPoint Houston for a $200 million grant to help fund its AMS and IG projects.  CenterPoint Houston received substantially all of the $200 million of grant funding from the DOE by 2011 and used $150 million of it to accelerate completion of its deployment ofElectric has deployed fully operational advanced meters to 2012. CenterPoint Houston is using the other $50 million from the grant for an initial deployment of an IG that covers approximately 12%virtually all of its 2.4 million metered customers, automated 31 substations, installed 872 IG Switching Devices on more than 200 circuits, built a wireless radio frequency mesh telecommunications network across Houston Electric’s 5,000-square mile footprint, and enabled real-time grid monitoring and control, which leverages information from smart meters and field sensors to manage system events through the ADMS. We believe that the Smart Grid is already improving electric distribution service territory. The DOE-funded portionreliability and restoration, enhancing the consumer experience, supporting the growth of renewable energy and helping the IG project is expected to be completed in 2015, and the capital portion of the IG project subject to partial fundingenvironment by the DOE will cost approximately $140 million.reducing carbon emissions.

Competition
 
There are no other electric transmission and distribution utilities in CenterPoint Houston’sHouston Electric’s service area. In order forFor another provider of transmission and distribution services to provide such services in CenterPoint Houston’sHouston Electric’s territory, it would be required to obtain a certificate of convenience and necessity from the Texas Utility CommissionPUCT and, depending on the location of the facilities, may also be required to obtain franchises from one or more municipalities. We know of no other party intending to enter this business in CenterPoint Houston’sHouston Electric’s service area at this time. Distributed generation (i.e., power generation located at or near the point of consumption) could result in a reduction of demand for CenterPoint Houston’s electricHouston Electric’s distribution services but has not been a significant factor to date.
 
Seasonality
 
A significant portion of CenterPoint Houston’sHouston Electric’s revenues is derived from rates that it collects from each REP based on the amount of electricity it delivers on behalf of suchthat REP. Thus, CenterPoint Houston’sHouston Electric’s revenues and results of operations are subject to seasonality, weather conditions and other changes in electricity usage, with revenues generally being higher during the warmer months.
 
Properties
 
All of CenterPoint Houston’sHouston Electric’s properties are located in Texas. Its properties consist primarily of high-voltage electric transmission lines and poles, distribution lines, substations, service centers, service wires, telecommunications network and meters. Most of CenterPoint Houston’s

3



Houston Electric’s transmission and distribution lines have been constructed over lands of others pursuant to easements or along public highways and streets under franchise agreements and as permitted by law.
 
All real and tangible properties of CenterPoint Houston Electric, subject to certain exclusions, are currently subject to:
 
the lien of a Mortgage and Deed of Trust (the Mortgage) dated November 1, 1944, as supplemented; and
 
the lien of a General Mortgage (the General Mortgage) dated October 10, 2002, as supplemented, which is junior to the lien of the Mortgage.

For information related to debt outstanding under the Mortgage and General Mortgage, see Note 13 to our consolidated financial statements.
Electric Lines - Transmission. As of December 31, 2014, CenterPoint2017, Houston had approximately $2.4 billion aggregate principal amount of general mortgage bonds outstanding underElectric owned and operated the General Mortgage, including (a) $290 million held in trust to secure pollution control bonds that are not reflected in our consolidated financial statements because we are both the obligor on the bonds and the current owner of the bonds, (b) approximately $56 million held in trust to secure pollution control bonds that are not reflected on our financial statements because CenterPoint Houston is both the obligor on the bonds and the current owner of the bonds, and (c) approximately $118 million held in trust to secure pollution control bonds for which we are obligated. Additionally, as of December 31, 2014, CenterPoint Houston had approximately $102 million aggregate principal amount of first mortgage bonds outstanding under the Mortgage. CenterPoint Houston may issue additional general mortgage bonds on the basis of retired bonds, 70% of property additions or cash deposited with the trustee. Approximately $3.9 billion of additional first mortgage bonds and general mortgage bonds in the aggregate could be issued on the basis of retired bonds and 70% of property additions as of December 31, 2014. However, CenterPoint Houston has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions.following electric transmission lines:
  Circuit Miles
Operating Voltage Overhead Lines Underground Lines
69 kV 271
 2
138 kV 2,198
 24
345 kV 1,219
 
  3,688
 26



Electric Lines - Overhead.Distribution.  As of December 31, 2014, CenterPoint2017, Houston Electric owned 28,28228,883 pole miles of overhead distribution lines and 3,719 circuit miles of overhead transmission lines, including 342 circuit miles operated at 69,000 volts, 2,161 circuit miles operated at 138,000 volts and 1,216 circuit miles operated at 345,000 volts.
Electric Lines - Underground.  As of December 31, 2014, CenterPoint Houston owned 22,43524,662 circuit miles of underground distribution lines and 26 circuit miles of underground transmission lines, including 2 circuit miles operated at 69,000 volts and 24 circuit miles operated at 138,000 volts.lines.

Substations.  As of December 31, 2014, CenterPoint2017, Houston Electric owned 236235 major substation sites having a total installed rated transformer capacity of 57,47764,924 megavolt amperes.
 
Service Centers.  CenterPointAs of December 31, 2017, Houston operatesElectric operated 14 regional service centers located on a total of 291292 acres of land. These service centers consist of office buildings, warehouses and repair facilities that are used in the business of transmitting and distributing electricity.
 
Franchises
 
CenterPoint Houston Electric holds non-exclusive franchises from thecertain incorporated municipalities in its service territory. In exchange for the payment of fees, these franchises give CenterPoint Houston Electric the right to use the streets and public rights-of-way of these municipalities to construct, operate and maintain its transmission and distribution system and to use that system to conduct its electric delivery business and for other purposes that the franchises permit. The terms of the franchises, with various expiration dates, typically range from 20 to 40 years.
 
Natural Gas Distribution

CERC Corp.’s natural gas distribution business (NGD)NGD engages in regulated intrastate natural gas sales to, and natural gas transportation and storage for, approximately 3.43.5 million residential, commercial, industrial and transportation customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. The largest metropolitan areas served in each state by NGD are Houston, Texas; Minneapolis, Minnesota; Little Rock, Arkansas; Shreveport, Louisiana; Biloxi, Mississippi; and Lawton, Oklahoma. In 2014, approximately 42% of NGD’s total throughput was to residential customers and approximately 58% was to commercial and industrial and transportation customers.

4



The table below reflects the number of natural gas distribution customers by state as of December 31, 2014:
 Residential 
Commercial/
Industrial
 Total Customers
Arkansas381,800
 48,521
 430,321
Louisiana230,990
 17,076
 248,066
Minnesota762,736
 69,089
 831,825
Mississippi111,638
 12,618
 124,256
Oklahoma90,974
 10,827
 101,801
Texas1,546,404
 91,141
 1,637,545
Total NGD3,124,542
 249,272
 3,373,814
NGD also provides unregulated services in Minnesota consisting of residential appliance repair and maintenance services along with heating, ventilatingHVAC equipment sales. NGD’s service territory is depicted below:

In 2017, approximately 37% of NGD’s total throughput was to residential customers and air conditioning (HVAC) equipment sales.approximately 63% was to commercial and industrial and transportation customers. The table below reflects the number of NGD customers by state as of December 31, 2017:
 Residential 
Commercial/
Industrial
 Total Customers
Arkansas378,429
 47,965
 426,394
Louisiana230,084
 16,711
 246,795
Minnesota788,832
 70,178
 859,010
Mississippi113,752
 12,567
 126,319
Oklahoma89,074
 10,758
 99,832
Texas1,612,969
 98,472
 1,711,441
Total NGD3,213,140
 256,651
 3,469,791


Seasonality

The demand for intrastate natural gas sales to residential customers and natural gas sales and transportation for commercial and industrial customers is seasonal. In 2014,2017, approximately 71% of the total throughput66% of NGD’s businesstotal throughput occurred in the first and fourth quarters. These patterns reflect the higher demand for natural gas for heating purposes during the colder months.
 
Supply and Transportation.  In 2014,2017, NGD purchased virtually all of its natural gas supply pursuant to contracts with remaining terms varying from a few months to four years. Major suppliers in 20142017 included BP Energy Company/BP Canada Energy Marketing (15.8% of supply volumes), Tenaska Marketing Ventures (13.9%), Sequent Energy Management (9.0%), Cargill (7.4%), Macquarie Energy (6.4%), Kinder Morgan Tejas Pipeline/Kinder Morgan Texas Pipeline (6.3%), Conoco Phillips (5.2%), Centerpoint Energy Services (4.9%), Mieco (3.5%), and Munich Re Weather & Commodity Risk Holding (2.5%).the following:
SupplierPercent of Supply Volumes
Tenaska Marketing Ventures18.0%
Macquarie Energy, LLC12.5%
BP Energy Company/BP Canada Energy Marketing12.1%
Kinder Morgan Tejas Pipeline/Kinder Morgan Texas Pipeline7.4%
CES5.4%
Mieco, Inc.5.0%
Spire Marketing, Inc.4.9%
United Energy Trading, LLC4.7%
Koch Energy Services, LLC4.0%
Cargill2.8%

Numerous other suppliers provided the remaining 25%23.2% of NGD’s natural gas supply requirements. NGD transports its natural gas supplies through various intrastate and interstate pipelines including those owned by our other subsidiaries and affiliates, under contracts with remaining terms, including extensions, varying from one to tenfifteen years. NGD anticipates that these gas supply and transportation contracts will be renewed or replaced prior to their expiration.
 
NGD actively engages in commodity price stabilization pursuant to annual gas supply plans presented to and/or filed with each of its state regulatory authorities. These price stabilization activities include use of storage gas and contractually establishing structured prices (e.g., fixed price, costless collars and caps) with our physical gas suppliers. Its gas supply plans generally call for 50-75%50–75% of winter supplies to be stabilized in some fashion.
 
The regulations of the states in which NGD operates allow it to pass through changes in the cost of natural gas, including savings and costs of financial derivatives associated with the index-priced physical supply, to its customers under purchased gas adjustment provisions in its tariffs. Depending upon the jurisdiction, the purchased gas adjustment factors are updated periodically, ranging from monthly to semi-annually. The changes in the cost of gas billed to customers are subject to review by the applicable regulatory bodies.
 
NGD uses various third-party storage services or owned natural gas storage facilities to meet peak-day requirements and to manage the daily changes in demand due to changes in weather andweather. NGD may also supplement contracted supplies and storage from time to time with stored liquefied natural gasLNG and propane-air plant production.
 
NGD owns and operates an underground natural gas storage facility with a capacity of 7.0 billion cubic feet (Bcf).Bcf. It has a working capacity of 2.0 Bcf available for use during the heating season and a maximum daily withdrawal rate of 50 million cubic feet (MMcf).MMcf. It also owns eight propane-air plants with a total production rate of 180,000 Dekatherms (DTH)Dth per day and on-site storage facilities for 12 million gallons of propane (1.0 Bcf natural gas equivalent). It owns a liquefied natural gasLNG plant facility with a 12 million-gallon liquefied natural gasLNG storage tank (1.0 Bcf natural gas equivalent) and a production rate of 72,000 DTHDth per day.
 
On an ongoing basis, NGD enters into contracts to provide sufficient supplies and pipeline capacity to meet its customer requirements. However, it is possible for limited service disruptions to occur from time to time due to weather conditions, transportation constraints and other events. As a result of these factors, supplies of natural gas may become unavailable from time to time, or prices may increase rapidly in response to temporary supply constraints or other factors.
 

5



NGD currently has entered into various asset management agreementsAMAs associated with its utility distribution service in Arkansas, Louisiana, Mississippi, Oklahoma and Texas.  The AMAs have varying terms, the longest of which expires in 2020. Generally, these asset management agreementsAMAs are contracts between NGD and an asset manager that are intended to transfer the working capital obligation and maximize the utilization of the assets. In these


agreements, NGD agreedagrees to release transportation and storage capacity to other parties to manage natural gas storage, supply and delivery arrangements for NGD and to use the released capacity for other purposes when it is not needed for NGD. NGD is compensated by the asset manager through payments made over the life of the agreements based in part on the results of the asset optimization.  NGD has an obligation to purchase its winter storage requirements that have been released to the asset manager under these AMAs. NGD has received approval from the state regulatory commissions in Arkansas, Louisiana, Mississippi and Oklahoma to retain a share of the asset management agreementAMA proceeds. The agreements have varying terms, the longest of which expires in 2018.

Assets
 
As of December 31, 2014,2017, NGD owned approximately 73,00075,000 linear miles of natural gas distribution mains, varying in size from one-half inch to 24 inches in diameter. Generally, in each of the cities, towns and rural areas served by NGD, it owns the underground gas mains and service lines, metering and regulating equipment located on customers’ premises and the district regulating equipment necessary for pressure maintenance. With a few exceptions, the measuring stations at which NGD receives gas are owned, operated and maintained by others, and its distribution facilities begin at the outlet of the measuring equipment. These facilities, including odorizing equipment, are usually located on land owned by suppliers.

Competition
 
NGD competes primarily with alternate energy sources such as electricity and other fuel sources. In some areas, intrastate pipelines, other gas distributors and marketers also compete directly for gas sales to end-users.end users. In addition, as a result of federal regulations affecting interstate pipelines, natural gas marketers operating on these pipelines may be able to bypass NGD’s facilities and market and sell and/or transport natural gas directly to commercial and industrial customers.

Energy Services

CERC offers competitive variable and fixed-priced physical natural gas supplies primarily to commercial and industrial customers and electric and natural gas utilities through CenterPoint Energy Services, Inc. (CES)CES and its subsidiary, CenterPointCEIP. Energy Intrastate Pipelines, LLC (CEIP).Services’ service territory is depicted below:
In 2014,2017, CES marketed approximately 6311,200 Bcf of natural gas, related energy services and transportation to approximately 18,00031,000 customers (including approximately 1821 Bcf to affiliates) in 2333 states. CES customers vary in size from small commercial customers to large utility companies. Not included in the 2017 customer count are approximately 72,000 natural gas customers that are served under residential and small commercial choice programs invoiced by their host utility.  These customers are not included in customer count so as not to distort the significant margin impact from the remaining customer base.


In January 2017, CES completed the acquisition of AEM, providing CES with a portfolio of industrial and large commercial customers complementary to CES’s existing customer base and strategically aligned storage and transportation assets. For further information related to this acquisition, see Note 4 to our consolidated financial statements.
CES offers a variety of natural gas management services to gas utilities, large industrial customers, electric generators, smaller commercial and industrial customers, municipalities, educational institutions, government facilities and hospitals. These services include load forecasting, supply acquisition, daily swing volume management, invoice consolidation, storage asset management, firm and interruptible transportation administration and forward price management. CES also offers a portfolio of physical delivery services designed to meet customers’ supply and price risk management needs. These customers are served directly, through interconnects with various interstate and intrastate pipeline companies, and portably, through our mobile energy solutions business.

In addition to offering natural gas management services, CES procures and optimizes transportation and storage assets. CES maintains a portfolio of natural gas supply contracts and firm transportation and storage agreements to meet the natural gas requirements of its customers. CES aggregates supply from various producing regions and offers contracts to buy natural gas with terms ranging from one month to over five years. In addition, CES actively participates in the spot natural gas markets in an effort to balance daily and monthly purchases and sales obligations. Natural gas supply and transportation capabilities are leveraged through contracts for ancillary services including physical storage and other balancing arrangements.

As described above, CES offers its customers a variety of load following services. In providing these services, CES uses its customers’ purchase commitments to forecast and arrange its own supply purchases, storage and transportation services to serve customers’ natural gas requirements. As a result of the variance between this forecast activity and the actual monthly activity, CES will either have too much supply or too little supply relative to its customers’ purchase commitments. These supply imbalances arise each month as customers’ natural gas requirements are scheduled and corresponding natural gas supplies are nominated by CES for delivery to those customers. CES’CES’s processes and risk control environment are designed to measure and value imbalances on a real-time basis to ensure that CES’CES’s exposure to commodity price risk is kept to a minimum. The value assigned to these imbalances is calculated daily and is known as the aggregate Value at Risk (VaR).VaR.
 

6



Our risk control policy, which is overseen by our Risk Oversight Committee, defines authorized and prohibited trading instruments and trading limits. CES is a physical marketer of natural gas and uses a variety of tools, including pipeline and storage capacity, financial instruments and physical commodity purchase contracts, to support its sales. The CES business optimizes its use of these various tools to minimize its supply costs and does not engage in proprietary or speculative commodity trading. The VaR limit within which CES currently operates, a $4 million maximum set by the Board of Directors, is consistent with CES’CES’s operational objective of matching its aggregate sales obligations (including the swing associated with load following services) with its supply portfolio in a manner that minimizes its total cost of supply. In 2014, CES’2017, CES’s VaR averaged $0.3$0.7 million with a high of $1.7$1.8 million.

Assets
 
As of December 31, 2017, CEIP ownsowned and operatesoperated over 200 miles of intrastate pipeline in Louisiana and Texas. In addition, CES leases transportation capacity on various interstate and intrastate pipelines and storage to service its shippers and end-users.end users.
 
Competition

CES competes with regional and national wholesale and retail gas marketers, including the marketing divisions of natural gas producers and utilities. In addition, CES competes with intrastate pipelines for customers and services in its market areas.

Midstream Investments

On March 14, 2013, we entered into a Master Formation Agreement (MFA) with OGE Energy Corp. (OGE) and affiliatesOur Midstream Investments business segment consists of ArcLight Capital Partners, LLC (ArcLight), pursuant to which we, OGE and ArcLight agreed to form Enable, initially a private limited partnership. On May 1, 2013, the parties closed on the formation of Enable pursuant to which Enable became the owner of substantially all of (i) CERC Corp.’s former Interstate Pipelines and Field Services businesses and (ii) Enogex LLC’s midstream assets, which were contributed by OGE and ArcLight.

On April 16, 2014, Enable completed its initial public offering (IPO) of 28,750,000 common units at a price of $20.00 per unit, which included 3,750,000 common units sold by ArcLight pursuant to an over-allotment option that was fully exercised by the underwriters. Enable received $464 millionequity method investment in net proceeds from the sale of the units, after deducting underwriting fees, structuring fees and other offering costs. In connection with Enable’s IPO, a portion of our common units were converted into subordinated units. As of December 31, 2014, CERC Corp. held an approximate 55.4% limited partner interest in Enable (consisting of 94,126,366 common units and 139,704,916 subordinated units) and OGE held an approximate 26.3% limited partner interest in Enable (consisting of 42,832,291 common units and 68,150,514 subordinated units). Sales of more than 5% of our limited partner interest in Enable or sales by OGE of more than 5% of its limited partner interest in Enable are subject to mutual rights of first offer and first refusal.

Enable. Enable is a publicly traded MLP, jointly controlled jointly by CERC Corp. and OGE as each own 50% of the management rights in the general partner of Enable. Sale of our ownership interests in Enable’s general partner to anyone other than an affiliate prior to May 1, 2016 is prohibited by Enable’s general partner’s limited liability company agreement.  Sale of our or OGE’s ownership interests in Enable’s general partner to a third party is subject to mutual rights of first offer and first refusal, and we are not permitted to dispose of less than all of our interest in Enable’s general partner.

As of December 31, 2014, CERC Corp. and OGE also own a 40% and 60% interest, respectively, in the incentive distribution rights held by the general partner of Enable. Enable is expected to pay a minimum quarterly distribution of $0.2875 per unit on its outstanding units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates, within 45 days after the end of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per unit in any quarter, the general partner will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances the general partner of Enable will have the right to reset the minimum quarterly distribution and the target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable’s cash distributions at the time of the exercise of this reset election.

Our investment in Enable and our 0.1% interest in Southeast Supply Header, LLC (SESH) are accounted for on an equity basis. Equity earnings associated with our interest in Enable and SESH are reported under the Midstream Investments segment.OGE. 

Enable. Enable was formed to own, operate and develop midstream energy infrastructure assets strategically located natural gas and crude oil infrastructure assets. Enable serves current and emerging production areas in the United States, including several unconventional shale resource plays and local and regional end-user markets in the United States.to serve its customers. Enable’s assets and operations are organized into two reportable segments: (i) gathering and processing whichand (ii) transportation and storage. Enable’s gathering and processing segment primarily provides natural gas gathering, processing and fractionation services and

7



crude oil gathering forand natural gas processing services to its producer customers, and (ii)customers. Enable’s transportation and storage whichsegment provides interstate and intrastate natural gas pipeline transportation and storage serviceservices primarily to natural gas producers, utilitiesits producer, power plant, local distribution company and industrial end-user customers.

Enable’s natural gas gathering and processing assets are located in four states and serve natural gas production from shale developments in the Anadarko, Arkoma and Ark-La-Tex basins. Enable also owns a crude oil gathering business in the Bakken Shale formation of the Williston Basin that commenced initial operations in November 2013. Enable’s natural gas transportation and storage assets extend from western Oklahoma and the Texas Panhandle to Alabama and from Louisiana to Illinois.

As of December 31, 2014, Enable’s portfolio of energy infrastructure assets included approximately 11,900 miles of gathering pipelines, 12 major processing plants with approximately 2.1 billion cubic feet (Bcf) per day of processing capacity, approximately 7,900 miles of interstate pipelines (including SESH), approximately 2,300 miles of intrastate pipelines and eight storage facilities providing approximately 87.5 Bcf of storage capacity.

Enable’s Gathering and Processing segment.Enable providesowns and operates substantial natural gas and crude oil gathering compression, treating, dehydration, processing and natural gas liquids (NGL) fractionation for producers who are activeprocessing assets in the areas in which Enable operates. Seven offive states. Enable’s gathering and processing plants in the Anadarko basin are interconnected through its super-header system. Enable has configured this system to facilitate the flowoperations consist primarily of natural gas from western Oklahoma gathering


and processing assets serving the Wheeler County areaAnadarko, Arkoma and Ark-La-Tex Basins and crude oil gathering assets serving the Williston Basin. Enable provides a variety of services to the active producers in its operating areas, including gathering, compressing, treating, and processing natural gas, fractionating NGLs, and gathering crude oil and produced water. Enable serves shale and other unconventional plays in the Texas Panhandle to the Cox City, Thomas, McClure, Calumet, Clinton, South Canadian and Wheeler processing plants. Enable is currently constructing two cryogenic processing facilities thatbasins in which it plans to connect to the super-header system in Grady County, Oklahoma, which are expected to add 400 MMcf per day of natural gas processing capacity. The first of the two new plants (the Bradley Plant) is a 200 MMcf per day plant that is expected to be completed in the first quarter of 2015. The second plant (the Grady County Plant) is a 200 MMcf per day plant that is expected to be completed in the first quarter of 2016.operates.

Enable’s gathering and processing systems compete with gatherers and processors of all types and sizes, including those affiliated with various producers, other major pipeline companies and various independent midstream entities. In the process of selling natural gas liquids (NGLs),NGLs, Enable competes against other natural gas processors extracting and selling NGLs. Enable’s primary competitors are master limited partnershipsother midstream companies who are active in the regions where it operates. Competition to gather crude oil and produced water is primarily a function of rates, terms of service, system reliability and construction cycle time. The rates and terms of service of Enable’s crude oil gathering, but not its produced water gathering, are FERC regulated. Enable’s Williston Basin gathering systems compete with other gatherers, including those affiliated with producers and other midstream companies.

Enable’s Transportation and Storage segment. Enable provides fee-basedowns and operates interstate and intrastate transportation and storage servicessystems across nine states. Enable’s transportation and storage systems consist primarily of its interstate systems, its intrastate system and its investment in SESH. Enable’s transportation and storage assets were designed and built to serve largetransport natural gas and electric utility companies in itsfrom areas of operation. Enable ownsproduction and operates approximately 7,900 miles (including SESH) of interstateinterconnected pipelines to power plants, local distribution companies and industrial end users as well as interconnected pipelines for delivery to additional markets. Enable’s transportation pipelines. In addition, Enable owns and operates approximately 2,300 miles of intrastate transportation pipelines. Itsstorage assets also provide facilities where natural gas assets extend from western Oklahoma and the Texas Panhandle to Alabama and from Louisiana to Illinois. Enable also owns eight natural gas storage facilities in Oklahoma, Louisiana and Illinois with approximately 87.5 Bcf of aggregate storage capacity.can be stored by customers.

Enable’s interstate pipelines compete with a variety of other interstate and intrastate pipelines.pipelines across its operating areas. Enable’s intrastate pipeline system competes with numerousa variety of interstate and intrastate pipelines in providing transportation and storage services, including several ofpipelines with which it interconnects. Enable’s management views the interconnected pipelines discussed above, as well as other natural gas storage facilities. The principal elements of competition among pipelines areas rates and terms, of service, and flexibility and reliability of service.

SESH. CenterPoint Southeastern Pipelines Holding, LLC, a wholly owned subsidiary ofFor information related to CERC owned a 0.1% interest in SESH as of December 31, 2014. SESH owns a 1.0 Bcf per day, 286-mile interstate pipeline that runs from the Perryville Hub in Louisiana to Coden, Alabama. The pipeline was placed into service in the third quarter of 2008. The rates charged by SESH for interstate transportation services are regulated by the FERC.

On each of May 1, 2013 and May 30, 2014, we contributed a 24.95% interest in SESH to Enable. CERC has certain put rights, and Enable has certain call rights, exercisable with respect to the 0.1% interest in SESH retained by CERC, under which CERC would contribute its retained interest in SESH, in exchange for a specified number of limited partner unitsCorp.’s equity method investment in Enable, see Notes 2(c), 10 and a cash payment, payable either from CERC19 to Enable or from Enable to CERC, for changes in the value of SESH. Affiliates of Spectra Energy Corp own the remaining 50% interest in SESH.our consolidated financial statements.

Other Operations

Our Other Operations business segment includes office buildings and other real estate used in our business operations and other corporate operations that support all of our business operations.


8




Financial Information About Segments

For financial information about our segments, see Note 17 to our consolidated financial statements, which note is incorporated herein by reference.

REGULATION

We are subject to regulation by various federal, state and local governmental agencies, including the regulations described below.

Federal Energy Regulatory Commission

The FERC has jurisdiction under the Natural Gas ActNGA and the Natural Gas Policy Act of 1978,NGPA, as amended, to regulate the transportation of natural gas in interstate commerce and natural gas sales for resale in interstate commerce that are not first sales. The FERC regulates, among other things, the construction of pipeline and related facilities used in the transportation and storage of natural gas in interstate commerce, including the extension, expansion or abandonment of these facilities. The FERC has authority to prohibit market manipulation in connection with FERC-regulated transactions and to impose significant civil and criminal penalties for statutory violations and violations of the FERC’s rules or orders. Our Energy Services business segment markets natural gas in interstate commerce pursuant to blanket authority granted by the FERC.

CenterPoint Houston Electric is not a “public utility” under the Federal Power Act and, therefore, is not generally regulated by the FERC, although certain of its transactions are subject to limited FERC jurisdiction. The FERC has certain responsibilities with respect to ensuring the reliability of electric transmission service, including transmission facilities owned by CenterPoint Houston Electric and other utilities within ERCOT. The FERC has designated the NERC as the Electric Reliability Organization (ERO)ERO to promulgate standards, under FERC oversight, for all owners, operators and users of the bulk power system (Electric Entities). The ERO and the FERC have authority to (a) impose fines and other sanctions on Electric Entities that fail to comply with approved standards and (b) audit compliance with approved standards. The FERC has approved the delegation by the NERC of authority for reliability in ERCOT to the TRE. CenterPointTexas RE. Houston Electric does not anticipate that the reliability standards proposed by the NERC and approved by the FERC will have a material adverse impact on its operations. To the extent that CenterPoint Houston Electric is required to make additional expenditures to comply with these standards, it is anticipated that CenterPoint Houston Electric will seek to recover those costs through the transmission charges that are imposed on all distribution service providers within ERCOT for electric transmission provided.



As a public utility holding company, under the Public Utility Holding Company Act of 2005, we and our consolidated subsidiaries are subject to reporting and accounting requirements and are required to maintain certain books and records and make them available for review by the FERC and state regulatory authorities in certain circumstances.

State and Local Regulation – Electric Transmission & Distribution

CenterPoint Houston Electric conducts its operations pursuant to a certificate of convenience and necessity issued by the Texas Utility CommissionPUCT that covers its present service area and facilities. The Texas Utility CommissionPUCT and certain municipalities have the authority to set the rates and terms of service provided by CenterPoint Houston Electric under cost-of-service rate regulation. CenterPoint Houston Electric holds non-exclusive franchises from thecertain incorporated municipalities in its service territory. In exchange for payment of fees, these franchises give CenterPoint Houston Electric the right to use the streets and public rights-of-way of these municipalities to construct, operate and maintain its transmission and distribution system and to use that system to conduct its electric delivery business and for other purposes that the franchises permit. The terms of the franchises, with various expiration dates, typically range from 20 to 40 years.

CenterPoint Houston’sHouston Electric’s distribution rates charged to REPs for residential customers are primarily based on amounts of energy delivered, whereas distribution rates for a majority of commercial and industrial customers are primarily based on peak demand. All REPs in CenterPoint Houston’sHouston Electric’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 recoveryEECR 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 Electric the same rates and other charges for transmission services.


9



For a discussion of certain of CenterPoint Houston’sHouston Electric’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”Matters” 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”Matters” 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 Safety2006 Act, of 2006 (2006 Act), which reauthorized the programs adopted under the Pipeline Safety Improvement Act of 2002 (2002 Act).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, PHMSA, an agency of the Pipeline and Hazardous Materials Safety Administration (PHMSA) at the Department of Transportation (DOT)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).Act. This act increasesincreased the maximum civil penalties for pipeline safety administrative enforcement actions; requiresrequired the DOT to study and report on the expansion of integrity management requirements and the sufficiency of existing gathering line regulations to ensure safety; requiresrequired pipeline operators to verify their records on maximum allowable operating pressure; and imposesimposed new emergency response and incident notification requirements. In 2016, the 2016 Act reauthorized PHMSA’s pipeline safety programs through 2019 and provided limited new authority, including the ability to issue emergency orders, to set inspection requirements for certain underwater pipelines and to promulgate minimum safety standards for natural gas storage facilities, as well as to provide increased transparency into the status of as-yet-incomplete PHMSA actions required by the 2011 Act.

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 continue to 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 the DOT’s integrity management rules will depend on integrity testing and the repairs found to be necessary by such testing. Changes to the amount of pipe subject to integrity management, whether by expansion of the definition of the type of areas subject to integrity management procedures or of the applicability of such procedures outside of those defined areas, may also affect the costs we incur. Implementation of the 2011 Actand 2016 Acts by PHMSA may result in other regulations or the reinterpretation of existing regulations that could impact our compliance costs. In addition, we may be subject to the DOT’s enforcement actions and penalties if we fail to comply with pipeline regulations. Please also see the discussion under “— Midstream Investments — Safety and Health Regulation” below.


10



Midstream Investments - Rate and Other Regulation
 
Federal, state, and local regulation of pipeline gathering and transportation services may affect certain aspects of Enable’s business and the market for its products and services.business.

Interstate Natural Gas Pipeline Regulation

Enable’s interstate pipeline systems — Enable Gas Transmission, LLC (EGT), Enable-Mississippi River Transmission, LLC (MRT)systems—EGT, MRT and SESH — SESH—are subject to regulation by FERC under the Natural Gas Act of 1938 (NGA)FERC and are considered natural“natural gas companies. Natural gas companies may not charge rates that have been determined to be unjust or unreasonable bycompanies” under the FERC. In addition, the FERC prohibits natural gas companies from unduly preferring or unreasonably discriminating against any person with respect to pipeline rates or terms and conditions of service.NGA. Under the NGA, the rates for service on Enable’s interstate facilities must be just and reasonable and not unduly discriminatory. Generally,Rate and tariff changes for these facilities can only be implemented upon approval by the maximum filed recourse rates for interstate pipelines are based on the pipeline’s cost of service including recovery of and a return on the pipeline’s actual prudent investment cost. Key determinants in the ratemaking process are costs of providing service, allowed rate of return, volume throughput and contractual capacity commitment assumptions.FERC. Enable’s interstate pipelines business operations may be affected by changes in the demand for natural gas, the available supply and relative price of natural gas in the Mid-continent and Gulf Coast natural gas supply regions and general economic conditions. Tariff changes can only be implemented upon approval by the FERC.

Market Behavior Rules; Posting and Reporting Requirements

On August 8, 2005, Congress enacted the Energy Policy Act of 2005 (EPAct of 2005). Among other matters, theThe EPAct of 2005 amended the NGA to add an anti-manipulation provision that makes it unlawful for any entity to engage in prohibited behavior as prescribed in contravention ofFERC rules, and regulation to be prescribed by thewhich were subsequently issued in FERC and, furthermore, provides the FERC with additional civil penalty authority. On January 19, 2006, the FERC issued Order No. 670, a rule implementing the anti-manipulation provisions of the EPAct of 2005. The rules make it unlawful for any entity, directly or indirectly in connection with the purchase or sale of natural gas subject to the jurisdiction of the FERC or the purchase or sale of transportation services subject to the jurisdiction of the FERC, to (1) use or employ any device, scheme or artifice to defraud; (2) to make any untrue statement of material fact or omit to make any such statement necessary to make the statements not misleading; or (3) to engage in any act or practice that operates as a fraud or deceit upon any person.670. The EPAct of 2005 also amends the NGA and the Natural Gas Policy Act of 1978 (NGPA)NGPA to give the FERC authority to impose civil penalties for violations of these statutes and FERC’s regulations, rules, and orders, of up to $1$1.2 million per day per violation, subject to periodic adjustment to account for violations occurring after August 8, 2005.inflation. Should Enable fail to comply with all applicable FERC-administered statutes, rules, regulations and orders, it could be subject to substantial penalties and fines. In addition, the Commodity Futures Trading Commission (CFTC)CFTC is directed under the Commodities Exchange Act (CEA)CEA to prevent price manipulations for the commodity and futures markets, including the energy futures markets. Pursuant to the Dodd-Frank Act and other authority, the CFTC has adopted anti-market manipulation regulations that prohibit fraud and price manipulation in the commodity and futures markets. The CFTC also has statutory authority to seek civil penalties of up to the greater of $1$1.1 million or triple the monetary gain to the violator for violations of the anti-market manipulation sections of the CEA. These maximum penalty levels are also subject to periodic adjustment to account for inflation.

Intrastate Natural Gas Pipeline and Storage Regulation
Enable’s transmission lines are subject to state regulation of rates and terms of service. In Oklahoma, its intrastate pipeline system is subject to regulation by the Oklahoma Corporation Commission. Oklahoma has a non-discriminatory access requirement, which is subject to a complaint-based review. In Illinois, Enable’s intrastate pipeline system is subject to regulation by the Illinois Commerce Commission.

Intrastate natural gas transportation is largely regulated by the state in which the transportation takes place. AnHowever, an intrastate natural gas pipeline system may transport natural gas in interstate commerce provided that the rates, terms, and conditions of such transportation service comply with FERC regulation and Section 311 of the NGPA and Part 284 of the FERC’s regulations. The NGPA regulates, among other things, the provision of transportation and storage services by an intrastate natural gas pipeline on behalf of an interstate natural gas pipeline or a LDC served by an interstate natural gas pipeline. Under Section 311, rates charged for transportation must be fair and equitable, and amounts collected in excess of fair and equitable rates are subject to refund with interest. The rates under Section 311 are maximum rates and Enable may negotiate contractual rates at or below such maximum rates. Rates for service pursuant to Section 311 of the NGPA are generally subject to review and approval by the FERC at least once every five years. Should the FERC determine not to authorize rates equal to or greater than Enable’s currently approved Section 311 rates, its business may be adversely affected.


Failure to observe the service limitations applicable to transportation services provided under Section 311, failure to comply with the rates approved by the FERC for Section 311 service, or failure to comply with the terms and conditions of service established in the pipeline’s FERC-approved Statement of Operating Conditions could result in the assertion of federal NGA jurisdiction by

11



the FERC and/or the imposition of administrative, civil and criminal penalties, as described under “—Interstate Natural Gas Pipeline Regulation” above.

Natural Gas Gathering Pipelineand Processing Regulation

Section 1(b) of the NGA exempts natural gas gathering facilities from the jurisdiction of the FERC. Although the FERC has not made formal determinations with respect to all of the facilities Enable considers to be gathering facilities, itEnable believes that its natural gas pipelines meet the traditional tests that the FERC has used to determine that a pipeline is a gathering pipeline and is therefore not subject to FERC jurisdiction. The distinction, between FERC-regulated transmission services and federally unregulated gathering services, however, has been the subject of substantial litigation, and the FERC determines whether facilities are gathering facilities on a case-by-case basis, so the classification and regulation of Enable’s gathering facilities is subject to change based on future determinations by the FERC, the courts or Congress. If the FERC were to consider the status of an individual facility and determine that the facility and/or services provided by it are not exempt from FERC regulation under the NGA and that the facility provides interstate service, the rates for, and terms and conditions of, services provided by such facility would be subject to regulation by the FERC under the NGA or the NGPA. Such regulation could decrease revenue, increase operating costs, and, depending upon the facility in question, could adversely affect Enable’s results of operations and cash flows. In addition, if any of Enable’s facilities were found to have provided services or otherwise operated in violation of the NGA or NGPA, this could result in the imposition of civil penalties as well as a requirement to disgorge charges collected for such service in excess of the rate established by the FERC.determinations.

States may regulate gathering pipelines. State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances, anti-discrimination requirements, prohibiting undue discrimination, and in some instances complaint-based rate regulation. Enable’s gathering operations may be subject to ratable take and common purchaser statutes in the states in which they operate. These statutes are designed to prohibit discrimination in favor of one producer over another producer or one source of supply over another source of supply and have the effect of restricting Enable’s right as an owner of gathering facilities to decide with whom it contracts to purchase or transport natural gas.

Enable’s gathering operations could be adversely affected should they be subject in the future to the application of state or federal regulation of rates and services. Enable’s gathering operations could also be subject to additional safety and operational regulations relating to the design, construction, testing, operation, replacement and maintenance of gathering facilities. Additional rules and legislation pertaining to these matters are considered or adopted from time to time. We cannot predict what effect, if any, such changes might have on Enable’s operations, but the industry could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes.

Crude Oil Gathering Regulation

Enable provides interstate transportation on its crude oil gathering system in North Dakota pursuant to a public tariff in accordance with FERC regulatory requirements. Crude oil gathering pipelines that provide interstate transportation service may be regulated as a common carrier by the FERC under the Interstate Commerce Act (ICA),ICA, the Energy Policy Act of 1992, and the rules and regulations promulgated under those laws. The ICA and FERC regulations require that rates for interstate service pipelines that transport crude oil and refined petroleum products (collectively referred to as “petroleum pipelines”) and certain other liquids, be just and reasonable and are to be non-discriminatory or not conferconferring any undue preference upon any shipper. FERC regulations also require interstate common carrier petroleum pipelines to file with the FERC and publicly post tariffs stating their interstate transportation rates and terms and conditions of service. Under the ICA, the FERC or interested persons may challenge existing or changed rates or services. The FERC is authorized to investigate such charges and may suspend the effectiveness of a new rate for up to seven months. A successful rate challenge could result in a common carrier paying refunds together with interest for the period that the rate was in effect. The FERC may also order a pipeline to change its rates, and may require a common carrier to pay shippers reparations for damages sustained for a period up to two years prior to the filing of a complaint.  
For some time now, the FERC has been issuing regulatory assurances that necessarily balance the anti-discrimination and undue preference requirements of common carriage with the expectations of investors in new and expanding petroleum pipelines. There is an inherent tension between the requirements imposed upon a common carrier and the need for owners of petroleum pipelines to be able to enter into long-term, firm contracts with shippers willing to make the commitments which underpin such large capital investments. The FERC’s solution has been to allow carriers to hold an “open season” prior to the in-service date of pipeline, during which time interested shippers can make commitments to the proposed pipeline project. Throughput commitments from interested shippers during an open season can be for firm service or for non-firm service. Typically, such an open season is for a 30-day period, must be publicly announced, and culminates in interested parties entering into transportation agreements with the carrier. Under FERC precedent, a carrier typically may reserve up to 90% of available capacity for the provision of firm service to shippers making a commitment. At least 10% of capacity ordinarily is reserved for “walk-up” shippers.

12



Midstream Investments - Safety and Health Regulation

Certain of Enable’s facilities are subject to pipeline safety regulations. PHMSA regulates safety requirements in the design, construction, operation and maintenance of jurisdictional natural gas and hazardous liquid pipeline facilities. All natural gas transmission facilities, such as Enable’s interstate natural gas pipelines, are subject to PHMSA’s pipeline safety regulations, but natural gas gathering pipelines are subject to the pipeline safety regulations only to the extent they are classified as regulated gathering pipelines. In addition, several NGL pipeline facilities and crude oil pipeline facilities are regulated as hazardous liquids pipelines.

Pursuant to various federal statutes, including the Natural Gas Pipeline Safety Act of 1968 (NGPSA)NGPSA, the DOT, through PHMSA, regulates pipeline safety and integrity. NGL and crude oil pipelines are subject to regulation by PHMSA under the Hazardous Liquid Pipeline Safety Act which requires PHMSA to develop, prescribe, and enforce minimum federal safety standards for the transportation of hazardous liquids by pipeline, and comparable state statutes with respect to design, installation, testing, construction, operation, replacement and management of pipeline facilities. PHMSA has developed regulations that require natural gas pipeline operators to implement integrity management programs, including more frequent inspections and other measures to ensure pipeline safety in high consequence areas (HCAs). Although many of Enable’s pipeline facilities fall within a class that is currently not subject to these integrity management requirements, Enable may incur significant costs and liabilities associated with repair, remediation, preventive or mitigating measures associated with its non-exempt pipelines. Additionally, shouldShould Enable fail to comply with DOT or comparable state regulations, it could be subject to penalties and fines. If future DOT pipeline integrity management regulations were to require that Enable expand its integrity managementsmanagement program to currently unregulated pipelines, including gathering lines, its costs associated with compliance may have a material effect on its operations.

ENVIRONMENTAL MATTERS

Our operations and the operations of Enable are subject to stringent and complex laws and regulations pertaining to the environment. As an owner or operator of natural gas pipelines, distribution systems and storage, electric transmission and distribution systems, and the facilities that support these systems, we must comply with these laws and regulations at the federal, state and local levels. These laws and regulations can restrict or impact our business activities in many ways, such as:including, but not limited to:



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 environmental conditions caused by our operations or attributable to former operations;

enjoining the operations of facilities with permits issued pursuant to such environmental laws and regulations; and

impacting the demand for our services by directly or indirectly affecting the use or price of natural gas.

In order toTo comply with these requirements, we may need to spend substantial amounts and devote other resources from time to time to, among other activities:

construct or acquire new facilities and equipment;

acquire permits for facility operations;

modify, upgrade or replace existing and proposed equipment; and

clean or decommission waste disposalmanagement areas, fuel storage and management facilities and other locations and facilities.locations.

Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial actions and the issuance of orders enjoining future operations. Certain environmental statutes impose strict, joint and several liability for costs required to assess, clean up and restore sites where hazardous substances have been stored, disposed or released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury andand/or property damage allegedly caused by the release of hazardous substances or other waste products into the environment.


13



The recent trend in environmental regulation has been to place more restrictions and limitations on activities that may affectimpact the environment, and thus thereenvironment. There can be no assurance as to the amount or timing of future expenditures for environmental compliance or remediation, and actual future expenditures may be different from the amounts we currently anticipate. We try to anticipate future regulatory requirements that might be imposed and plan accordingly to remain inmaintain compliance with changing environmental laws and regulations and to ensure the costs of such compliance are reasonable.

Based on current regulatory requirements and interpretations, we do not believe that compliance with federal, state or local environmental laws and regulations will have a material adverse effect on our business, financial position, results of operations or cash flows. In addition, we believe that our current environmental remediation activities will not materially interrupt or diminish our operational ability. We cannot assure you that future events, such as changes in existing laws, the promulgation of new laws, or the development or discovery of new facts or conditions will not cause us to incur significant costs. The following is a discussion of material current environmental and safety issues, laws and regulations that relate to our operations. We believe that we are in substantial compliance with these environmental laws and regulations.

Global Climate Change

In recent years, there has beenThere is increasing public debate regardingattention being paid in the potential impact on global climate change by various “greenhouse gases” (GHGs) such as carbon dioxide, a byproduct of burning fossil fuels, and methane, the principal component of the natural gas that we transport and deliver to customers. The United States Congress has,and worldwide to the issue of climate change. As a result, from time to time, regulatory agencies have considered adopting legislation to reducethe modification of existing laws or regulations or the adoption of new laws or regulations addressing the emissions of GHGs, and there has been a wide-ranging policy debate, both nationally and internationally, regardingGHG on the impact of these gases and possible means for their regulation.state, federal, or international level. Some of the proposals would require industrial sources to meet stringent new standards that would require substantial reductions in carbonGHG emissions.  In addition, efforts have been made and continue to be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues.  Following a finding by the U.S. Environmental Protection Agency (EPA) that certain GHGs represent an endangerment to human health, the EPA adopted two sets of rules regulating GHG emissions under the Clean Air Act. One requires a reduction in emissions of GHGs from motor vehicles beginning January 2, 2011.  The other regulates emissions of GHGs from certain large stationary sources under the Clean Air Act’s Prevention of Significant Deterioration and Title V programs, commencing when the motor vehicle standards took effect on January 2, 2011. Also, the EPA adopted its “Mandatory Reporting of Greenhouse Gases Rule” that requires the annual calculation and reporting of GHG emissions from natural gas transmission, gathering, processing and distribution systems and electric distribution systems that emit 25,000 metric tons or more of CO2 equivalent per year.  These additional reporting requirements began in 2012 and we are currently in compliance. These permitting and reporting requirements could lead to further regulation of GHGs by the EPA.

Although the adoption of new legislation is uncertain, action by the EPA to impose new standards and reporting requirements regarding GHG emissions continues.  On January 14, 2015, the EPA announced that it will issue a proposed rule in the summer of 2015 and a final rule in 2016 setting standards for methane and volatile organic compound (VOC) emissions from new and modified oil and gas production sources and natural gas processing and transmission sources. As part of the same announcement, PHMSA stated that it will propose natural gas pipeline safety standards in 2015 that are expected to reduce methane emissions. Furthermore, in December 2014, the EPA proposed changes to its GHG reporting rule that would require additional reporting from natural gas transmission pipelines. In addition, many states and regions of the United States have begun to regulate GHGs. CERC’s revenues, operating costs and capital requirements could be adversely affected as a result of any regulatory action that would require installation of new control technologies or a modification of its operations or would have the effect of reducing the consumption of natural gas. Our electric transmission and distribution business, in contrast to some electric utilities, does not generate electricity and thus is not directly exposed to the risk of high capital costs and regulatory uncertainties that face electric utilities that burn fossil fuels to generate electricity.  Nevertheless, CenterPoint Houston’sHouston Electric’s revenues could be adversely affected to the extent any resulting regulatory action has the effect of reducing consumption of electricity by ultimate consumers within its service territory. Likewise, incentives to conserve energy or to use energy sources other than natural gas could result in a decrease in demand for our services.  Conversely, regulatory actions that effectively promote the consumption of natural gas because of its lower emissions


characteristics would be expected to beneficially affect CERC and its natural gas-related businesses.  At this point in time, however, it would be speculative to try to quantify the magnitude of the impacts from possible new regulatory actions related to GHG emissions, either positive or negative, on our businesses.

To the extent climate changes may occur our businesses may be adversely impacted, though we believe anyand such impacts are likely to occur very gradually and hence would be difficult to quantify.  To the extent global climate change resultschanges result in warmer temperatures in our service territories, financial results from our natural gas distributionand Enable’s businesses could be adversely impacted. For example, CERC’s NGD could be adversely affected through lower natural gas sales and Enable’s natural gas gathering, processing and transportation and crude oil gathering businesses could experience lower revenues. On the other hand, warmer temperatures in our electric service territory may increase our revenues from transmission and distribution through increased demand for electricity for cooling. Another possible effectresult of climate change is more frequent and more severe weather events, such as hurricanes or tornadoes.  Since many of our facilities are located along or near the Gulf Coast, increased or more severe hurricanes or tornadoes

14



could increase our costs to repair damaged facilities and restore service to our customers. When we cannot deliver electricity or natural gas to customers, or our customers cannot receive our services, our financial results can be impacted by lost revenues, and we generally must seek approval from regulators to recover restoration costs.  To the extent we are unable to recover those costs, or if higher rates resulting from our recovery of such costs result in reduced demand for our services, our future financial results may be adversely impacted.

Air Emissions

Our operations and the operations of Enable are subject to the federal Clean Air Act and comparable state laws and regulations. These laws and regulations regulate emissions of air pollutants from various industrial sources, including processing plants and compressor stations, and also impose various monitoring and reporting requirements. Such laws and regulations may require pre-approval for the construction or modification of certain projects or facilities expected to produce air emissions or result in the increase of existing air emissions. We may be required to obtain and strictly comply with air permits containing various emissions and operational limitations, or utilize specific emission control technologies to limit emissions. Failure to comply with these requirements could result in monetary penalties, injunctions, conditions or restrictions on operations, and potentially criminal enforcement actions. We may be required to incur certain capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions.

The EPA continues to adopt amendments to its regulations regarding maximum achievablehas established new air emission control technologyrequirements for stationary internal combustion engines (sometimes referred to asnatural gas and NGLs production, processing and transportation activities. Under the NESHAPS, the EPA established the RICE MACT rule), the most recent being January 14, 2013.  On August 29, 2013, the EPA announced that it was reconsidering three issues related to the RICE MACT rule, but on August 15, 2014, the EPA determined that it would not propose any changes to the regulations at this time.rule. Compressors and back up electrical generators used by our Natural Gas Distribution business segment, and back up electrical generators used by our Electric Transmission & Distribution business segment, are generallysubstantially compliant with existingthese laws and regulations.

In addition, on August 16, 2012, the EPA published final rules that establish new air emission control requirements for natural gas and NGL production, processing and transportation activities, including New Source Performance Standards to address emissions of sulfur dioxide and volatile organic compounds, and National Emission Standards for Hazardous Air Pollutants (NESHAPS) to address hazardous air pollutants frequently associated with gas production and processing activities. The finalized regulations establish specific new requirements for emissions from compressors, controllers, dehydrators, storage tanks, gas processing plants and certain other equipment. The final rules under NESHAPS include maximum achievable control technology standards for “small” glycol dehydrators that are located at major sources of hazardous air pollutants and modifications to the leak detection standards for valves. Compliance with such rules is not expected to result in significant costs that would adversely impact our results of operations.

Water Discharges

Our operations and the operations of Enable are subject to the Federal Water Pollution Control Act of 1972, as amended, also known as the Clean Water Act, and analogous state laws and regulations. These laws and regulations impose detailed requirements and strict controls regarding the discharge of pollutants into waters of the United States. The unpermitted discharge of pollutants, including discharges resulting from a spill or leak incident, is prohibited. The Clean Water Act and regulations implemented thereunder also prohibit discharges of dredged and fill material ininto wetlands and other waters of the United States unless authorized by an appropriately issued permit. Any unpermitted release of petroleum or other pollutants from our pipelines or facilities could result in fines or penalties as well as significant remedial obligations.

Under the Obama administration, the EPA promulgated a set of rules that included a comprehensive regulatory overhaul of defining “waters of the United States” for the purposes of determining federal jurisdiction. These regulations have the potential to affect many aspects of our water-related regulatory compliance obligations. However, the new rules were challenged in court, and the U.S. Supreme Court has recently held that any challenge to the rules must be brought in the U.S. district courts rather than directly before the U.S. courts of appeals. As a result, the new definition of the “waters of the United States” is likely to be disputed in litigation for years to come. Additionally, the Trump administration has signaled its intent to repeal and replace the Obama-era rules. Thus, the fate and content of the new regulations is currently uncertain, and it is not clear when, and even if, they will be enacted. The potential impact of any new “waters of the United States” regulations on our business, liabilities, compliance obligations or profits and revenues is uncertain at this time.

Hazardous Waste

Our operations and the operations of Enable generate wastes, including some hazardous wastes, that are subject to the federal Resource Conservation and Recovery Act (RCRA),RCRA, and comparable state laws, which impose detailed requirements for the handling, storage, treatment, transport and disposal of hazardous and solid waste. RCRA currently exempts many natural gas gathering and field processing wastes from classification as hazardous waste. Specifically, RCRA excludes from the definition of hazardous waste waters produced and other wastes associated with the


exploration, development or production of crude oil and natural gas. However, these oil and gas exploration and production wastes are still regulated under state law and the less stringent non-hazardous waste requirements of RCRA. Moreover, ordinary industrial wastes such as paint wastes, waste solvents, laboratory wastes and waste compressor oils may be regulated as hazardous waste. The transportation of natural gas in pipelines may also generate some hazardous wastes that would be subject to RCRA or comparable state law requirements.


15



Liability for Remediation

The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA),CERCLA, also known as “Superfund,” and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons responsible for the release of hazardous substances“hazardous substances” into the environment. Such classesClasses of personsPRPs include the current and past owners or operators of sites where a hazardous substance was released and companies that disposed or arranged for the disposal of hazardous substances at offsite locations such as landfills. Although petroleum, as well as natural gas, is expressly excluded from CERCLA’s definition of a “hazardous substance,” in the course of our ordinary operations we do, from time to time, generate wastes that may fall within the definition of a “hazardous substance.” CERCLA authorizes the EPA and, in some cases, third parties to take action in response to threats to the public health or the environment and to seek to recover the costs they incur from the responsible classes of persons the costs they incur.persons. Under CERCLA, we could potentially be subject to joint and several liability for the costs of cleaning up and restoring sites where hazardous substances have been released, for damages to natural resources, and for associated response and assessment costs, including for the costs of certain health studies.

Liability for Preexisting Conditions

Manufactured Gas Plant Sites. CERC and its predecessors operated manufactured gas plants (MGPs) in the past.  There are seven MGP sites in CERC’s Minnesota service territory.  CERC believes it never owned or operated, and therefore has no liability with respect to, two of these sites.  With respect to two other sites, CERC has completed state ordered remediation, other than ongoing monitoring and water treatment.For information about preexisting environmental matters, please see Note 15(d).

As of December 31, 2014, CERC had recorded a liability of $7 million for remediation of these Minnesota sites. The estimated range of possible remediation costs for the sites CERC believes it has responsibility for was $5 million to $29 million based on remediation continuing for 30 to 50 years. The cost estimates are based on studies of a site or industry average costs for remediation of sites of similar size. The actual remediation costs will be dependent upon the number of sites to be remediated, the participation of other potentially responsible parties (PRPs), if any, and the remediation methods used. As of December 31, 2014, CERC had collected $4 million from insurance companies to be used for future environmental remediation.

In addition to the Minnesota sites, the EPA and other regulators have investigated MGP sites that were owned or operated by CERC or may have been owned by one of its former affiliates. We and CERC do not expect the ultimate outcome of these investigations to have a material adverse effect on the financial condition, results of operations or cash flows of either us or CERC.

Asbestos. Some facilities owned by us contain or have contained asbestos insulation and other asbestos-containing materials. We or our subsidiaries have been named, along with numerous others, as defendants in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos. Some of the claimants have worked at locations owned by us, but most existing claims relate to facilities previously owned by our subsidiaries. In 2004, we sold our generating business, to which most of these claims relate, to a company which is now an affiliate of NRG. Under the terms of the arrangements regarding separation of the generating business from us and our sale of that business, ultimate financial responsibility for uninsured losses from claims relating to the generating business has been assumed by the NRG affiliate, but we have agreed to continue to defend such claims to the extent they are covered by insurance maintained by us, subject to reimbursement of the costs of such defense by the NRG affiliate. We anticipate that additional claims like those received may be asserted in the future. Although their ultimate outcome cannot be predicted at this time, we intend to continue vigorously contesting claims that we do not consider to have merit and do not expect, based on our experience to date, these matters, either individually or in the aggregate, to have a material adverse effect on our financial condition, results of operations or cash flows.

Other Environmental. From time to time we identify the presence of environmental contaminants on property where we conduct or have conducted operations.  Other such sites involving contaminants may be identified in the future.  We have remediated and expect to continue to remediate identified sites consistent with our legal obligations. From time to time we have received notices from regulatory authorities or others regarding our status as a PRP in connection with sites found to require remediation due to the presence of environmental contaminants. In addition, we have been named from time to time as a defendant in litigation related to such sites. Although the ultimate outcome of such matters cannot be predicted at this time, we do not expect, based on our experience to date, these matters, either individually or in the aggregate, to have a material adverse effect on our financial condition, results of operations or cash flows.

16




EMPLOYEES

As of December 31, 2014,2017, we had 8,5407,977 full-time employees, 1,113 of which were seconded to Enable and included below under the Midstream Investments business segment. As of January 1, 2015, following the transfer of substantially all of the previously seconded employees to Enable, we had 7,427 full-time employees, none of which were seconded to Enable.employees. The following table sets forth the number of our employees by business segment as of December 31, 2014:2017:
Business Segment Number 
Number
Represented
by Collective
Bargaining Groups
 Number 
Number
Represented
by Collective
Bargaining Groups
Electric Transmission & Distribution 2,650
 1,308
 2,816
 1,452
Natural Gas Distribution 3,343
 1,185
 3,316
 1,200
Energy Services 125
 
 297
 
Midstream Investments 1,113
 
Other Operations 1,309
 127
 1,548
 127
Total 8,540
 2,620
 7,977
 2,779

AsFor information about the status ofDecember 31, 2014, approximately 31% of our employees were covered by collective bargaining agreements. The collective bargaining agreements, with the Gas Workers Local Union 340 and International Brotherhood of Electrical Workers Local 949 in Minnesota, which collectively cover approximately 8% ofsee Note 7(f) to our employees, are scheduled to expire in April and December 2015, respectively. We believe we have good relationships with these bargaining units and expect to negotiate new agreements in 2015.consolidated financial statements.

EXECUTIVE OFFICERS
(as of February 20, 2015)9, 2018)
Name Age Title
Milton Carroll 6467 Executive Chairman
Scott M. Prochazka 4951 President and Chief Executive Officer and Director
Gary L. WhitlockWilliam D. Rogers 6557 Executive Vice President and Chief Financial Officer
Tracy B. Bridge 5659 Executive Vice President and President, Electric Division
Joseph B. McGoldrickScott E. Doyle 6146 ExecutiveSenior Vice President, and President,Natural Gas DivisionDistribution
William D. RogersJoseph J. Vortherms 5457 ExecutiveSenior Vice President, Finance and AccountingEnergy Services
Dana C. O’Brien 4750 Senior Vice President and General Counsel and Corporate Secretary
Sue B. Ortenstone 5761 Senior Vice President and Chief Human Resources Officer

Milton Carroll has served on the Board of Directors of CenterPoint Energy or its predecessors since 1992. He has served as Executive Chairman of CenterPoint Energy since June 2013 and as Chairman from September 2002 until May 2013. Mr. Carroll has served as a director of Halliburton Company since 2006 and Western Gas Holdings, LLC, the general partner of Western Gas Partners, LP, since 2008 and LyondellBasell Industries N.V. since July 2010.2008. He has served as a director of HealthcareHealth Care Service Corporation since 1998 and as its chairman since


2002. He previously served as a director of LyondellBasell Industries N.V. from July 2010 to July 2016 as well as LRE GP, LLC, the general partner of LRR Energy, L.P., from November 2011 to January 2014.

Scott M. Prochazka has served as a Director and President and Chief Executive Officer (CEO) of CenterPoint Energy since January 1, 2014. He previously served as Executive Vice President and Chief Operating Officer from July 2012 to December 2013; as Senior Vice President and Division President, Electric Operations from May 2011 tothrough July 2012; as Division Senior Vice President, Electric Operations of CenterPoint Houston Electric from February 2009 to May 2011; as Division Senior Vice President, Regional Operations of CERC from February 2008 to February 2009; and as Division Vice President, Customer Service Operations, from October 2006 to February 2008. He currently serves on the Boards of Directors of Enable GP, LLC, the general partner of Enable Midstream Partners, LP, Gridwise Alliance as its Chairman, Edison Electric Institute, Electric Power Research Institute, American Gas Association, and Greater Houston Partnership.Partnership, United Way of Houston, Junior Achievement of South Texas and the Kinder Institute Advisory Board.

Gary L. WhitlockWilliam D. Rogers has served as Executive Vice President and Chief Financial Officer of CenterPoint Energy since September 2002. Effective March 3, 2015, Mr. Whitlock will step down from this role and will continue to serve as a special adviser to the CEO.2015. He previously served as Executive Vice President, Finance and Accounting from February 2015 to March 2015. Prior to joining CenterPoint Energy, Mr. Rogers was Vice President and Treasurer of American Water Works Company, Inc., the largest publicly traded U.S. water and wastewater utility company, from October 2010 to January 2015. Mr. Rogers was also the Chief Financial Officer of the Delivery GroupNV Energy, Inc., an investor-owned utility headquartered in Las Vegas serving approximately 1.5 million electric and gas customers in Nevada and with annual revenues of Reliant Energyapproximately $3 billion, from July 2001

17



February 2007 to September 2002. Mr. WhitlockFebruary 2010. He has previously served as the Vice President, FinanceNV Energy’s vice president of finance, risk and Chief Financial Officer of Dow AgroSciences,tax, as well as corporate treasurer. Before joining NV Energy in June 2005, Mr. Rogers was a subsidiary of The Dow Chemical Company, from 1998managing director in capital markets at Merrill Lynch and prior to 2001.that in a similar role at JPMorgan Chase in New York. He currently serves on the BoardBoards of Directors of Enable GP, LLC, the general partner of Enable Midstream Partners, LP.LP, the West Point Association of Graduates and Sheltering Arms of New York.

Tracy B. Bridge has served as Executive Vice President and President, Electric Division since February 2014. He previously served as Senior Vice President and Division President, Electric Operations from September 2012 to February 2014; as Senior Vice President and Division President, Gas Distribution Operations from May 2011 to September 2012; as Division Senior Vice President - Support Operations from February 2008 to May 2011; and as Division Vice President Regional Operations of CERC from January 2007 to February 2008. Mr. Bridge has more than 35 years of utility experience. He currently serves on the Board of Directorsas President of the Greater Houston ChapterExecutive Committee of the American Red Cross and on the Board of Directors of Rebuilding Together Houston.

Joseph B. McGoldrick Scott E. Doylehas served as ExecutiveSenior Vice President, and President,Natural Gas DivisionDistribution since February 2014. HeMarch 2017. With more than 20 years of utility experience, he previously served as Senior Vice President, Regulatory and Public Affairs from February 2014 to March 2017; as Division Vice President, Gas OperationsRates and Regulatory from SeptemberApril 2012 to February 2014; as Senior Vice President and Division President, Energy Services from May 2011 to September 2012, and as Division Vice President, GasRegional Operations from February 2007March 2010 to May 2011.April 2012. Mr. Doyle currently serves on the board of Goodwill Industries of Houston, and he previously served on the boards of the Texas Gas Association and the Association of Electric Companies of Texas.

William D. RogersJoseph J. Vortherms has served as ExecutiveSenior Vice President, Finance and AccountingEnergy Services since February 2015. Effective March 3, 2015, he will serve as Executive Vice President and Chief Financial Officer. Prior to joining CenterPoint Energy, Mr. Rogers was Vice President and Treasurer of American Water Works Company, Inc., the largest publicly traded U.S. water and wastewater utility company, from October 2010 to January 2015. Mr. Rogers was also the Chief Financial Officer of NV Energy, Inc., an investor-owned utility headquartered in Las Vegas serving approximately 1.5 million electric and gas customers in Nevada and with annual revenues of approximately $3.0 billion, from February 2007 to February 2010.2017. He has previously served as NV Energy’s vice president of finance, riskVice President, Energy Services from November 2015 to March 2017; as Vice President, Regional Operations in Minnesota from October 2014 to November 2015; as Division Vice President, Regional Operations from April 2012 to October 2014; and tax,as Director, Home Service Plus from January 2007 to April 2012. Mr. Vortherms currently serves on the Southern Gas Association Executive Council as well as corporate treasurer. Before joining NV Energy in June 2005, Mr. Rogers was a managing director in capital markets at Merrill Lynchthe American Gas Association Scenario Planning Council. He previously served on the boards of the Minnesota Region American Red Cross and prior to that in a similar role at JPMorgan Chase in New York.the Minnesota Business Partnership.

Dana C. O’Brien has served as Senior Vice President and General Counsel and Corporate Secretary of CenterPoint Energy since May 2014. Additionally, she served as Corporate Secretary of the Company until October 2017. Before joining CenterPoint Energy, Ms. O’Brien was Chief Legal Officer and Chief Compliance Officer and a member of the executive board at CEVA Logistics, a Dutch-based logistics company, from August 2007 to April 2014.  She previously served as the general counsel at EGL, Inc. from October 2005 to July 2007 and Quanta Services, Inc. from January 2001 to October 2005. Ms. O’Brien serves as a directortrustee for the Association of Women Attorneys Foundation.Foundation, as a member of the Board of Directors of Ronald McDonald House Houston and as a member of the Board of Directors of Child Advocates, Inc.

Sue B. Ortenstone has served as Senior Vice President and Chief Human Resources Officer of CenterPoint Energy since February 2014. Prior to joining CenterPoint Energy, Ms. Ortenstone was Senior Vice President and Chief Administrative Officer at Copano Energy from July 2012 to May 2013. Before joining Copano, she spent more than 30 years at El Paso Corporation and served most recently as Senior Vice President and then Executive Vice President and Chief Administrative Officer from November 2003 to May 2012. Ms. Ortenstone serves on the Advisory Board for Civil and Environmental Engineering, as well as the Industrial Advisory Board in the College of Engineering at the University of Wisconsin. SheWisconsin, and until October 2017, she served on the Advisory Board for Civil, Environmental and Geologic Engineering as well. Ms. Ortenstone also serves on the Board of Trustees for Northwest Assistance Ministries of Houston.




Item 1A.Risk Factors

We are a holding company that conducts all of our business operations through subsidiaries, primarily CenterPoint Houston Electric and CERC. We also own interests in Enable, a publicly traded midstream master limited partnership jointly controlled by CERC Corp. and OGE.Enable. The following, along with any additional legal proceedings identified or incorporated by reference in Item 3 of this report, summarizes the principal risk factors associated with our holding company, the businesses conducted by our subsidiaries and our interests in Enable:Enable. However, additional risks and uncertainties either not presently known or not currently believed by management to be material may also adversely affect our businesses.

Risk Factors Associated with Our Consolidated Financial Condition

AsWe are a holding company with no operations or operating assets of our own,own. As a result, we will depend on distributions from our subsidiaries and from Enable to meet our payment obligations and to pay dividends on our common stock, and provisions of applicable law or contractual restrictions could limit the amount of those distributions.

We derive all of our operating income from, and hold all of our assets through, our subsidiaries, including our interests in Enable. As a result, we depend on distributions from our subsidiaries includingand Enable in order to meet our payment obligations.obligations and to pay dividends on our common stock. In general, our subsidiaries are separate and distinct legal entities and have no obligation to provide us with funds for our payment obligations, whether by dividends, distributions, loans or otherwise. In addition, provisions of applicable law, such as those limiting the legal sources of dividends, limit our subsidiaries’ and Enable’s ability to make payments or other distributions to us, and our subsidiaries or Enable could agree to contractual restrictions on their ability to make distributions. For a discussion of risks that may impact the amount

18



of cash distributions we receive with respect to our interests in Enable, please read “-“ — Additional Risk Factors Affecting Our Interests in Enable Midstream Partners, LP - Our cash flows will be adversely impacted if we receive less cash distributions from Enable than we currently expect.expect” and “ — Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP — Our or Enable’s potential business strategies and strategic initiatives, including merger and acquisition activities and the disposition of assets or businesses, may not be completed or perform as expected.

Our right to receive any assets of any subsidiary, and therefore the right of our creditors to participate in those assets, will be effectively subordinated to the claims of that subsidiary’s creditors, including trade creditors. In addition, even if we were a creditor of any subsidiary, our rights as a creditor would be subordinated to any security interest in the assets of that subsidiary and any indebtedness of the subsidiary senior to that held by us.

If we are unable to arrange future financings on acceptable terms, our ability to refinance existing indebtedness could be limited.

Our businesses are capital intensive. We depend (i) on long-term debt to finance a portion of our capital expenditures and refinance our existing debt, (ii) on short-term borrowings through our revolving credit facilities and commercial paper programs and (iii) on distributions from our interests in Enable to satisfy liquidity needs to the extent not satisfied by cash flow from our business operations; we may also depend on the net proceeds from a potential sale of common units we own in Enable. As of December 31, 2014,2017, we had $8.9$8.8 billion of outstanding indebtedness on a consolidated basis, which includes $3.0$1.9 billion of non-recourse transition and system restoration bonds.Securitization Bonds. As of December 31, 2014,2017, approximately $1.1 billion$50 million principal amount of this debt is required to be paid through 2017.2020. This amount excludes principal repayments of approximately $1.2$1.1 billion on transition and system restoration bonds,Securitization Bonds, for which dedicated revenue streams exist. Our future financing activities may be significantly affected by, among other things:

general economic and capital market conditions;

credit availability from financial institutions and other lenders;

volatility or fluctuations in distributions from Enable’s units or volatility in Enable’s unit price;

investor confidence in us and the markets in which we operate;

maintenance of acceptable credit ratings;

market expectations regarding our future earnings and cash flows;

market perceptions of our ability to access capital markets on reasonable terms;



our exposure to GenOn Energy, Inc. (GenOn) (formerly known as RRI Energy, Inc., Reliant Energy Inc. and Reliant Resources, Inc. (RRI))RRI), a wholly ownedwholly-owned subsidiary of NRG and currently the subject of bankruptcy proceedings, in connection with certain indemnification obligations;

incremental collateral that may be required due to regulation of derivatives; and

provisions of relevant tax and securities laws.

As of December 31, 2014, CenterPoint2017, Houston Electric had approximately $2.4$2.9 billion aggregate principal amount of general mortgage bonds outstanding under the General Mortgage, including (a) $290 million held in trust to secure pollution control bonds that are not reflected in our consolidated financial statements because we are both the obligor on the bonds and the current owner of the bonds, (b) approximately $56 million held in trust to secure pollution control bonds that are not reflected on our financial statements because CenterPoint Houston is both the obligor on the bonds and the current owner of the bonds, and (c) approximately $118 million held in trust to secure pollution control bonds for which we are obligated. Additionally, as of December 31, 2014, CenterPoint2017, Houston Electric had approximately $102 million aggregate principal amount of first mortgage bonds outstanding under the Mortgage. CenterPoint Houston Electric may issue additional general mortgage bonds on the basis of retired bonds, 70% of property additions or cash deposited with the trustee. Approximately $3.9$4.2 billion of additional first mortgage bonds and general mortgage bonds in the aggregate could be issued on the basis of retired bonds and 70% of property additions as of December 31, 2014.2017. However, CenterPoint Houston Electric has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions.

Our current credit ratings are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Other Matters - Impact on Liquidity of a Downgrade in Credit Ratings” in Item 7 of Part II of this report. These credit ratings may not remain in effect for any given period of time and one or more of these ratings may be lowered or withdrawn entirely by a rating agency. We note that these credit ratings are not recommendations to buy, sell or hold our securities. Each rating should be evaluated independently of any other rating. Any future reduction or withdrawal of one or more of our credit ratings could have a material adverse impact on our ability to access capital on acceptable terms.


19



Poor investment performance of the pension plan and factors adversely affecting the calculation of pension liabilities could unfavorably impact our liquidity and results of operations.

We maintain a qualified defined benefit pension plan covering all employees. Our costs of providing this plan are dependent upon a number of factors including the investment returns on plan assets, the level of interest rates used to calculate the funded status of the plan, our contributions to the plan and government regulations with respect to funding requirements and the calculation of plan liabilities. Funding requirements may increase as a result of a decline in the market value of plan assets, a decline in the interest rates used to calculate the present value of future plan obligations or government regulations that increase minimum funding requirements or the pension liability. In addition to affecting our funding requirements, each of these factors could adversely affect our results of operations and financial position.

The use of derivative contracts in the normal course of business by us, our subsidiaries or Enable could result in financial losses that could negatively impact our results of operations and those of our subsidiaries or Enable.

We and our subsidiaries use derivative instruments, such as swaps, options, futures and forwards, to manage our commodity, weather and financial market risks. Enable may also use such instruments from time to time to manage its commodity and financial market risk. We, our subsidiaries or Enable could recognize financial losses as a result of volatility in the market values of these contracts or should a counterparty fail to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these financial instruments can involve management’s judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts.

An impairment of goodwill, long-lived assets, including intangible assets, and equity-methodequity and cost method investments could reduce our earnings.

Goodwill is recorded when the purchase price of a business exceeds the fair market value of the tangible and separately measurable intangible net assets. Accounting principles generally accepted in the United States of America require us to test goodwill for impairment on an annual basis or when events or circumstances occur indicating that goodwill might be impaired. Long-lived assets, including intangible assets with finite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

For investments we account for under the equity or cost method, the impairment test considers whether the fair value of the equitysuch investment as a whole, not the underlying net assets, has declined and whether that decline is other than temporary. For example, if Enable’s unit price, distributions or earnings decline for reasons including, but not limitedwere to continued declines in commodity prices and producer activity,decline, and that decline is deemed to be other than temporary, we could determine that we are unable to recover the carrying value of our equity investment in Enable. The carrying valueConsiderable judgment is used in determining if an impairment loss is other than temporary and the amount of CenterPoint Energy’s investment inany impairment. A sustained low Enable is $19.33 per unit. As of December 31, 2014, Enable’s common unit price closed at $19.39 (approximately $14 millioncould result in our recording impairment charges in the future.

Should our annual impairment test or another periodic impairment test, as described above, indicate the fair value of our assets is less than the carrying value). The lowest close price for Enable’s common units in January 2015 was $17.34 (approximately $465 million below carrying value). If we determine that an impairment is indicated,value, we would be required to take an immediate noncasha non-cash charge to earnings with a correlative effect on equity and balance sheet leverage as measured by debt to total capitalization. A non-cash impairment charge could materially adversely impact our results of operations and financial condition.

Increased utilization due to changing demographics, poor investment performance of the pension plan and other factors adversely affecting the calculation of pension liabilities could unfavorably impact our results of operations, liquidity and financial position.

We maintain a qualified defined benefit pension plan covering substantially all employees. Our costs of providing this plan are dependent upon a number of factors including the investment returns on plan assets, the level of interest rates used to calculate the funded status of the plan, our contributions to the plan and government regulations with respect to funding requirements and the calculation of plan liabilities. Funding requirements may increase and we may be required to make unplanned contributions in the event of a decline in the market value of plan assets, a decline in the interest rates used to calculate the present value of future plan obligations or government regulations that increase minimum funding requirements or the pension liability. In addition to affecting our funding requirements, each of these factors could adversely affect our results of operations, liquidity and financial position.


The costs of providing health care benefits to our employees and retirees may increase substantially and adversely affect our results of operations and financial condition.

We provide health care benefits to eligible employees and retirees through self-insured plans. In recent years, the costs of providing these benefits have risen due to increasing health care costs and increased levels of large individual health care claims and overall health care claims, and we anticipate that such costs will continue to rise. Further, the effects of health care reform or any future legislative changes could also materially affect our health care benefit programs and costs. Any potential changes and resulting cost impacts, which are likely to be passed on to us, cannot be determined with certainty at this time. Our costs of providing these benefits could also increase materially in the future should there be a material reduction in the amount of the recovery of these costs through our rates or should significant delays develop in the timing of the recovery of such costs, which could adversely affect our results of operations and liquidity.

The use of derivative contracts in the normal course of business by us, our subsidiaries or Enable could result in financial losses that could negatively impact our results of operations and those of our subsidiaries or Enable.

We and our subsidiaries use derivative instruments, such as swaps, options, futures and forwards, to manage our commodity, weather and financial market risks. Enable may also use such instruments from time to time to manage its commodity and financial market risks. We, including our subsidiaries, or Enable could recognize financial losses as a result of volatility in the market values or ineffectiveness of these contracts or should a counterparty fail to perform. Additionally, in the absence of actively quoted market prices and pricing information from external sources, the valuation of these financial instruments can involve management’s judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts.

If we redeem the ZENS prior to their maturity in 2029, our ultimate tax liability and redemption payments would result in significant cash payments, which would adversely impact our cash flows. Similarly, a significant amount of exchanges of ZENS by ZENS holders could adversely impact our cash flows.

We have approximately $828 million principal amount of ZENS outstanding as of December 31, 2017. We own shares of TW Securities equal to approximately 100% of the reference shares used to calculate our obligation to the holders of the ZENS. We may redeem all of the ZENS at any time at a redemption amount per ZENS equal to the higher of the contingent principal amount per ZENS ($505 million in the aggregate, or $35.54 per ZENS, as of December 31, 2017) or the sum of the current market value of the reference shares attributable to one ZENS at the time of redemption. In the event we redeem the ZENS, in addition to the redemption amount, we would be required to pay deferred taxes related to the ZENS. Our ultimate tax liability related to the ZENS continues to increase by the amount of the tax benefit realized each year. If the ZENS had been redeemed on December 31, 2017, deferred taxes of approximately $521 million would have been payable by us in 2017, based on 2017 tax rates in effect. In addition, if all the shares of TW Securities had been sold on December 31, 2017 in order to fund the aggregate redemption amount, capital gains taxes of approximately $297 million would have been payable by us in 2017, based on 2017 tax rates in effect. Similarly, a significant amount of exchanges of ZENS by ZENS holders could adversely impact our cash flows. This could happen if our creditworthiness were to drop or the market for the ZENS were to become illiquid, or for some other reason. While funds for the payment of cash upon exchange of ZENS could be obtained from the sale of the shares of TW Securities that we own or from other sources, ZENS exchanges result in a cash outflow because tax deferrals related to the ZENS and TW Securities shares would typically cease when ZENS are exchanged and TW Securities shares are sold.

Risk Factors Affecting Our Electric Transmission & Distribution Business

Rate regulation of CenterPoint Houston’sHouston Electric’s business may delay or deny CenterPoint Houston’sHouston Electric’s ability to earn a reasonablean expected return and fully recover its costs.

CenterPoint Houston’sHouston Electric’s rates are regulated by certain municipalities and the Texas Utility CommissionPUCT based on an analysis of its invested capital, and its expenses and other factors in a test year. Thus,year in comprehensive base rate proceedings (i.e., general rate cases) subject to periodic review and adjustment. Each of these rate proceedings is subject to third-party intervention and appeal, and the timing of a general base rate proceeding may be out of Houston Electric’s control. The rates that CenterPoint Houston Electric is allowed to charge may not match its expensescosts at any given time.time, which is referred to as “regulatory lag.”

Though several interim rate adjustment mechanisms have been implemented to reduce the effects of regulatory lag, these adjustment mechanisms are subject to the applicable regulatory body’s approval and are subject to limitations that may reduce Houston Electric’s ability to adjust rates. For example, the DCRF mechanism adjusts an electric utility’s rates for increases in net distribution-invested capital (e.g., distribution plant and intangible plant and communication equipment) since its last comprehensive base rate proceeding, but Houston Electric may only make a DCRF filing once per calendar year. The TCOS


mechanism allows a transmission service provider to update its wholesale transmission rates to reflect changes in transmission-related invested capital, but is only available twice per calendar year.

Houston Electric can make no assurance that filings for such mechanisms will result in favorable adjustments to rates. Notwithstanding the application of the rate mechanisms discussed above, the regulatory process by which rates are determined is subject to change as a result of the legislative process or rulemaking, as the case may be, and may not always be available or result in rates that will produce full recovery of CenterPoint Houston’sHouston Electric’s costs andor enable CenterPoint Houston Electric to earn an expected return. In addition, changes to the interim adjustment mechanisms could result in an increase in regulatory lag or otherwise impact Houston Electric’s ability to recover its costs in a reasonable return ontimely manner. To the extent the regulatory process does not allow Houston Electric to make a full and timely recovery of appropriate costs, its invested capital.results of operations, financial condition and cash flows could be adversely affected.

CenterPoint Houston’sDisruptions at power generation facilities owned by third parties could interrupt Houston Electric’s sales of transmission and distribution services.

Houston Electric transmits and distributes to customers of REPs electric power that the REPs obtain from power generation facilities owned by third parties. Houston Electric does not own or operate any power generation facilities. If power generation is disrupted or if power generation capacity is inadequate, Houston Electric’s sales of transmission and distribution services may be diminished or interrupted, and its results of operations, financial condition and cash flows could be adversely affected.

Houston Electric’s revenues and results of operations are seasonal.

A significant portion of CenterPoint Houston’sHouston Electric’s revenues is derived from rates that it collects from each REP based on the amount of electricity it delivers on behalf of such REP. Thus, CenterPoint Houston’sHouston Electric’s revenues and results of operations are subject to seasonality, weather conditions and other changes in electricity usage, with revenues generally being higher during the warmer months. Unusually mild weather in the warmer months could diminish our results of operations and harm our financial condition. Conversely, extreme warm weather conditions could increase our results of operations in a manner that would not likely be annually recurring.

20




Disruptions at power generationHouston Electric could be subject to higher costs and fines or other sanctions as a result of mandatory reliability standards.

The FERC has jurisdiction with respect to ensuring the reliability of electric transmission service, including transmission facilities owned by third parties could interrupt CenterPoint Houston’s salesHouston Electric and other utilities within ERCOT. The FERC has designated the NERC as the ERO to promulgate standards, under FERC oversight, for all owners, operators and users of transmissionthe bulk power system. The FERC has approved the delegation by the NERC of authority for reliability in ERCOT to the Texas RE, a Texas non-profit corporation. Compliance with the mandatory reliability standards may subject Houston Electric to higher operating costs and distribution services.

CenterPointmay result in increased capital expenditures. In addition, if Houston transmits and distributesElectric were to customers of REPs electric power that the REPs obtain from power generation facilities owned by third parties. CenterPoint Houston does not own or operate any power generation facilities. If power generation is disrupted or if power generation capacity is inadequate, CenterPoint Houston’s sales of transmission and distribution services may be diminished or interrupted, and its results of operations, financial condition and cash flowsfound to be in noncompliance with applicable mandatory reliability standards, it could be adversely affected.subject to sanctions, including substantial monetary penalties.

A substantial portion of CenterPoint Houston’sHouston Electric’s receivables is concentrated in a small number of REPs, and any delay or default in paymentsuch payments could adversely affect CenterPoint Houston’sHouston Electric’s cash flows, financial condition and results of operations.

CenterPoint Houston’sHouston Electric’s receivables from the distribution of electricity are collected from REPs that supply the electricity CenterPoint Houston Electric distributes to their customers. As of December 31, 2014, CenterPoint2017, Houston Electric did business with approximately 7068 REPs. Adverse economic conditions, structural problems in the market served by ERCOT or financial difficulties of one or more REPs could impair the ability of these REPs to pay for CenterPoint Houston’sHouston Electric’s services or could cause them to delay such payments. CenterPoint Houston Electric depends on these REPs to remit payments on a timely basis. Applicable regulatory provisions require that customers be shifted to another REP or a provider of last resort if a REP cannot make timely payments. Applicable Texas Utility CommissionPUCT regulations significantly limit the extent to which CenterPoint Houston Electric can apply normal commercial terms or otherwise seek credit protection from firms desiring to provide retail electric service in its service territory, and CenterPoint Houston Electric thus remains at risk for payments related to services provided prior to the shift to another REP or the provider of last resort. The Texas Utility Commission revised its regulations in 2009 to (i) increase the financial qualifications required of REPs that began selling power after January 1, 2009, and (ii) authorize utilities to defer bad debts resulting from defaults by REPs for recovery in a future rate case. A significant portion of CenterPoint Houston’sHouston Electric’s billed receivables from REPs are from affiliates of NRG and Vistra Energy Future HoldingsCorp., formerly known as TCEH Corp. (Energy Future Holdings). CenterPoint Houston’sHouston Electric’s aggregate billed receivables balance from REPs as of December 31, 20142017 was $195 million.$215 million Approximately 36%34% and 10%12% of this amount was owed by affiliates of NRG and Vistra Energy Future Holdings,Corp., respectively. In April 2014, Energy Future Holdings publicly disclosed that it and the substantial majority of its direct and indirect subsidiaries, excluding Oncor Electric Delivery Company LLC and its subsidiaries, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Any delay or default in payment by REPs could adversely affect CenterPoint Houston’sHouston Electric’s cash flows, financial condition and results of operations. If a REP were unable to meet its obligations, it could consider, among various options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its obligations, and claims might be made by creditors involving payments CenterPoint Houston Electric had received from such REP.

CenterPoint Houston could be subject to higher costs and fines or other sanctions as a result of mandatory reliability standards.

The FERC has jurisdiction with respect to ensuring the reliability of electric transmission service, including transmission facilities owned by CenterPoint Houston and other utilities within ERCOT. The FERC has designated the NERC as the ERO to promulgate standards, under FERC oversight, for all owners, operators and users of the bulk power system. The FERC has approved the delegation by the NERC of authority for reliability in ERCOT to the TRE, a functionally independent division of ERCOT. Compliance with the mandatory reliability standards may subject CenterPoint Houston to higher operating costs and may result in increased capital expenditures. In addition, if CenterPoint Houston were to be found to be in noncompliance with applicable mandatory reliability standards, it could be subject to sanctions, including substantial monetary penalties.

The AMS deployed throughout CenterPoint Houston’sHouston Electric’s service territory may experience unexpected problems with respect to the timely receipt of accurate metering data.

CenterPoint Houston Electric has deployed an AMS throughout its service territory. The deployment consisted, among other elements, of replacing existing meters with new electronic meters that record metering data at 15-minute intervals and wirelessly communicate that information to CenterPoint Houston over a bi-directional communications system installed for that purpose. The AMSterritory, which integrates equipment and computer software from various vendors in order to eliminate the need for physical meter readings to be taken at consumers’ premises, such as monthly readings for billing purposes and special readings associated with a customer’s change in REPs or the connection or disconnection of electric service. Unanticipated difficulties could be encountered during the operation of the AMS, including failures or inadequacy of equipment or software, difficulties in integrating the various components of the AMS, changes in technology, cyber-security issues and factors outside the control of CenterPoint Houston Electric, which could result in delayed or inaccurate metering data that might lead to delays or inaccuracies in the calculation and imposition of delivery or other charges, which could have a material adverse effect on CenterPoint Houston’sHouston Electric’s results of operations, financial condition and cash flows.

21




Risk Factors Affecting Our Natural Gas Distribution and Energy Services Businesses

Rate regulation of CERC’s business may delay or deny CERC’s ability to earn a reasonablean expected return and fully recover its costs.

CERC’s rates for NGD are regulated by certain municipalities (in Texas only) and state commissions based on an analysis of itsNGD’s invested capital, expenses and its expensesother factors in a test year.year (often either fully or partially historic) in comprehensive base rate proceedings, subject to periodic review and adjustment. Each of these proceedings is subject to third-party intervention and appeal, and the timing of a general base rate proceeding may be out of CERC’s control. Thus, the rates that CERC is allowed to charge may not match its expensescosts at any given time.time, resulting in what is referred to as “regulatory lag.”

Though several interim rate adjustment mechanisms have been approved by jurisdictional regulatory authorities and implemented by NGD to reduce the effects of regulatory lag, such adjustment mechanisms are subject to the applicable regulatory body’s approval and are subject to certain limitations that may reduce NGD’s ability to adjust its rates.

Arkansas allows public utilities to elect to have their rates regulated pursuant to a FRP, providing for a utility’s base rates to be adjusted once a year. In each of Louisiana, Mississippi and Oklahoma, NGD makes annual filings utilizing various formula rate mechanisms that adjust rates based on a comparison of authorized return to actual return to achieve the allowed return rates in those jurisdictions. Additionally, in Minnesota, the MPUC implemented a full revenue decoupling pilot program, which separates approved revenues from the amount of natural gas used by its customers. The effectiveness of these filings and programs depends on the approval of the applicable state regulatory body.

In Texas, NGD’s Houston, South Texas, Beaumont/East Texas and Texas Coast divisions each submit annual GRIP filings to recover the incremental capital investments made in the preceding year. NGD must file a general rate case no later than five years after the initial GRIP implementation date.

NGD can make no assurance that filings for such mechanisms will result in favorable adjustments to rates. Notwithstanding the application of the rate mechanisms discussed above, the regulatory process inby which rates are determined is subject to change as a result of the legislative process or rulemaking, as the case may be, and may not always be available or result in rates that will produce recovery of NGD’s costs or enable NGD to earn an expected return. In addition, changes to the interim adjustment mechanisms could result in an increase in regulatory lag or otherwise impact NGD’s ability to recover its costs in a timely manner. Additionally, inherent in the regulatory process is some level of risk that jurisdictional regulatory authorities may initiate investigations of the prudence of operating expenses incurred or capital investments made by NGD and deny the full recovery of NGD’s cost of service or the full recovery of incurred natural gas costs in rates. To the extent the regulatory process does not allow NGD to make a full and timely recovery of appropriate costs, its results of operations, financial condition and cash flows could be adversely affected.

Access to natural gas supplies and pipeline transmission and storage capacity are essential components of reliable service for CERC’s costscustomers.

CERC depends on third-party service providers to maintain an adequate supply of natural gas and enablefor available storage and intrastate and interstate pipeline capacity to satisfy NGD’s customers’ needs, all of which are critical to system reliability. CERC purchases substantially all of NGD’s natural gas supply from intrastate and interstate pipelines. If CERC is unable to earnsecure an independent natural gas supply of its own or through its affiliates or if third-party service providers fail to timely deliver natural gas to meet NGD’s requirements, the resulting decrease in CERC’s natural gas supply in its service territories could have a reasonable returnmaterial adverse effect on its invested capital.results of operations, cash flows and financial condition. Additionally, a significant disruption, whether through reduced intrastate and interstate pipeline transmission or storage capacity or other events affecting natural gas supply, including, but not limited to, operational failures, hurricanes, tornadoes, floods, acts of terrorism or cyber-attacks or changes in legislative


or regulatory requirements, could also adversely affect CERC’s business. Further, to the extent that CERC’s natural gas requirements cannot be met through access to or continued use of existing natural gas infrastructure or if additional infrastructure, including onshore and offshore exploration and production facilities, gathering and processing systems and pipeline and storage capacity is not constructed at a rate that satisfies demand, then CERC’s NGD growth could be negatively affected.

CERC’s natural gas distributionNGD and energy services businessesEnergy Services business, including transportation and storage, whether through the use of AMAs or other arrangements, are subject to fluctuations in notional natural gas prices as well as geographic and seasonal natural gas price differentials, which could affect the ability of CERC’s suppliers and customers to meet their obligations or otherwise adversely affect CERC’s liquidity, and results of operations and financial condition.

CERC is subject to risk associated with changes in the notional price of natural gas as well as geographic and seasonal natural gas price differentials.differentials that impact our business, including transportation and storage, whether through the use of AMAs or other arrangements. Increases in natural gas prices might affect CERC’s ability to collect balances due from its customers and, for NGD, could create the potential for uncollectible accounts expense to exceed the recoverable levels built into CERC’s tariff rates. In addition, a sustained period of high natural gas prices could (i) decrease demand for natural gas in the areas in which CERC operates, thereby resulting in decreased sales and revenues and (ii) increase the risk that CERC’s suppliers or customers fail or are unable to meet their obligations. An increase in natural gas prices would also increase CERC’s working capital requirements by increasing the investment that must be made in order to maintain natural gas inventory levels. Additionally, a decrease in natural gas prices could increase the amount of collateral that CERC must provide under its hedging arrangements.

CERC’s businesses must compete with alternate energy sources, which could result in CERC marketing less natural gas, which could have an adverse impact on CERC’s results of operations, financial condition and cash flows.

CERC competes primarily with alternate energy sources such as electricity and other fuel sources. In some areas, intrastate pipelines, other natural gas distributors and marketers also compete directly with CERC for natural gas sales to end-users. In addition, as a result of federal regulatory changes affecting interstate pipelines, natural gas marketers operating on these pipelines AMAs may be ablesubject to bypass CERC’s facilitiesregulatory approval, and market, sell and/such agreements may not be renewed or transport natural gas directly to commercial and industrial customers. Any reduction in the amount of natural gas marketed, sold or transported by CERC as a result of competition may have an adverse impact on CERC’s results of operations, financial condition and cash flows.be renewed with less favorable terms.

A decline in CERC’s credit rating could result in CERC’sCERC having to provide collateral under its shipping or hedging arrangements or in order to purchase natural gas.gas, which consequently would increase its cash requirements and adversely affect its financial condition.

If CERC’s credit rating were to decline, it might be required to post cash collateral under its shipping or hedging arrangements or in order to purchase natural gas. If a credit rating downgrade and the resultant cash collateral requirement were to occur at a time when CERC was experiencing significant working capital requirements or otherwise lacked liquidity, CERC’s results of operations, financial condition and cash flows could be adversely affected.

CERC’s revenues and results of operations are seasonal.

A substantial portion of CERC’s revenues is derived from natural gas sales. Thus, CERC’s revenues and results of operations are subject to seasonality, weather conditions and other changes in natural gas usage, with revenues being higher during the winter months. Unusually mild weather in the winter months could diminish our results of operations and harm our financial condition. Conversely, extreme cold weather conditions could increase our results of operations in a manner that would not likely be annually recurring.

The states in which CERC provides regulated local natural gas distribution may, either through legislation or rules, adopt restrictions regarding organization, financing and affiliate transactions that could have significant adverse impacts on CERC’s ability to operate.

ProposalsFrom time to time, proposals have been put forth in some of the states in which CERC does business to give state regulatory authorities increased jurisdiction and scrutiny over organization, capital structure, intracompany relationships and lines of business that could be pursued by registered holding companies and their affiliates that operate in those states. Some of these frameworks attempt to regulate financing activities, acquisitions and divestitures, and arrangements between the utilities and their affiliates, and to restrict the level of non-utility business that can be conducted within the holding company structure. Additionally, they may impose record-

22



keeping,record-keeping, record access, employee training and reporting requirements related to affiliate transactions and reporting in the event of certain downgrading of the utility’s credit rating.

These regulatory frameworks could have adverse effects on CERC’s ability to conduct its utility operations, to finance its business and to provide cost-effective utility service. In addition, if more than one state adopts restrictions on similar activities, it may be difficult for CERC and us to comply with competing regulatory requirements.

CERC’s businesses must compete with alternate energy sources, which could result in CERC marketing less natural gas and have an adverse impact on CERC’s results of operations, financial condition and cash flows.

CERC competes primarily with alternate energy sources such as electricity and other fuel sources. In some areas, intrastate pipelines, other natural gas distributors and marketers also compete directly with CERC for natural gas sales to end users. In


addition, as a result of federal regulatory changes affecting interstate pipelines, natural gas marketers operating on these pipelines may be able to bypass CERC’s facilities and market, sell and/or transport natural gas directly to commercial and industrial customers. Any reduction in the amount of natural gas marketed, sold or transported by CERC as a result of competition may have an adverse impact on CERC’s results of operations, financial condition and cash flows.

Risk Factors Affecting Our Interests in Enable Midstream Partners, LP

We hold a substantial limited partnershippartner interest in Enable (55.4%(54.1% of Enable’sthe outstanding common units representing limited partnershippartner interests in Enable as of December 31, 2014)2017), as well as 50% of the management rights in Enable’s general partner and a 40% interest in the incentive distribution rights held by Enable’s general partner. As of December 31, 2017, we owned an aggregate of 14,520,000 Series A Preferred Units representing limited partner interests in Enable. Accordingly, our future earnings, results of operations, cash flows and financial condition will be affected by the performance of Enable, the amount of cash distributions we receive from Enable and the value of our interests in Enable. Factors that may have a material impact on Enable’s performance and cash distributions, and, hence, the value of our interests in Enable, include the risk factors outlined below, as well as the risks described elsewhere under “Risk Factors” that are applicable to Enable.

Our cash flows will be adversely impacted if we receive less cash distributions from Enable than we currently expect.

Both CERC Corp. and OGE hold their limited partnershippartner interests in Enable in the form of both common unitsunits. We also hold Series A Preferred Units in Enable. For its Series A Preferred Units, Enable is expected to pay $0.625 per Series A Preferred Unit, or $2.50 per Series A Preferred Unit on an annualized basis. However, distributions on each Series A Preferred Unit are not mandatory and subordinated units.are non-cumulative in the event distributions are not declared on the Series A Preferred Units. Enable is expected to pay a minimum quarterly distribution of $0.2875 per unit, or $1.15 per unit on an annualized basis, on its outstanding common units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates (referred to as “available cash”). The principal difference between Enable’s common units and subordinated units is that in any quarter during the applicable subordination period, holders of the subordinated units are not entitled to receive any distribution of available cash until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution on common units from prior quarters. If Enable does not pay distributions on its subordinated units, its subordinated units will not accrue arrearages for those unpaid distributions. Accordingly, if Enable is unable to pay its minimum quarterly distribution, the amount of cash distributions we receive from Enable may be adversely affected. Enable may not have sufficient available cash each quarter to enable it (i) to pay distributions on the minimum quarterly distribution.Series A Preferred Units or (ii) maintain or increase the distributions on its common units. Additionally, distributions on the Series A Preferred Units reduce the amount of available cash Enable has to pay distributions on its common units. The amount of cash Enable can distribute on its common units and Series A Preferred Units will principally depend upon the amount of cash it generates from its operations, which will fluctuate from quarter to quarter based on, among other things:

the fees and gross margins it realizes with respect to the volume of natural gas, NGLs and crude oil that it handles;

the prices of, levels of production of, and demand for natural gas, NGLs and crude oil;

the volume of natural gas, NGLs and crude oil it gathers, compresses, treats, dehydrates, processes, fractionates, transports and stores;

the relationship among prices for natural gas, NGLs and crude oil;

cash calls and settlements of hedging positions;

margin requirements on open price risk management assets and liabilities;

the level of competition from other companies offering midstream energy companies;services;

adverse effects of governmental and environmental regulation;

the level of its operation and maintenance expenses and general and administrative costs; and

prevailing economic conditions.

In addition, the actual amount of cash Enable will have available for distribution will depend on other factors, including:

the level and timing of its capital expenditures;

the cost of acquisitions;


23



its debt service requirements and other liabilities;



fluctuations in its working capital needs;

its ability to borrow funds and access capital markets;

restrictions contained in its debt agreements;

the amount of cash reserves established by its general partner;

distributions paid on its Series A Preferred Units;

any impact on cash levels should any sale of our investment in Enable occur; and

other business risks affecting its cash levels.

The amount of cash Enable has available for distribution to us on its common units and Series A Preferred Units depends primarily on its cash flow rather than on its profitability, which may prevent Enable from making distributions, even during periods in which Enable records net income.

The amount of cash Enable has available for distribution on its common units and Series A Preferred Units, depends primarily upon its cash flows and not solely on profitability, which will be affected by non-cash items. As a result, Enable may make cash distributions during periods when it records losses for financial accounting purposes and may not make cash distributions during periods when it records net earnings for financial accounting purposes.

Enable’s Series A Preferred Units are required to be redeemed in certain circumstances if they are not eligible for trading on the NYSE, and Enable may not have sufficient funds to redeem its Series A Preferred Units if required to do so.

As a holder of Enable’s Series A Preferred Units, we may request that Enable list those units for trading on the NYSE. If Enable is unable to list the Series A Preferred Units in certain circumstances, it will be required to redeem the Series A Preferred Units. There can be no assurance that Enable would have sufficient financial resources available to satisfy its obligation to redeem the Series A Preferred Units. In addition, mandatory redemption of the Series A Preferred Units could have a material adverse effect on Enable’s business, financial position, results of operations and ability to make quarterly cash distributions to its unitholders.

We are not able to exercise control over Enable, which entails certain risks.

Enable is controlled jointly by CERC Corp. and OGE, who each own 50% of the management rights in the general partner of Enable. The board of directors of Enable’s general partner is composed of an equal number of directors appointed by OGE and by us, the president and chief executive officer of Enable’s general partner and three directors who are independent as defined under the independence standards established by the New York Stock Exchange.NYSE. Accordingly, we are not able to exercise control over Enable.Enable.

Although we jointly control Enable with OGE, we may have conflicts of interest with Enable that could subject us to claims that we have breached our fiduciary duty to Enable and its unitholders.

CERC Corp. and OGE each own 50% of the management rights in Enable’s general partner, as well as limited partnershippartner interests in Enable, and interests in the incentive distribution rights held by Enable’s general partner. We also hold Series A Preferred Units in Enable. Conflicts of interest may arise between us and Enable and its unitholders. Our joint control of the general partner of Enable may increase the possibility of claims of breach of fiduciary or contractual duties including claims of conflicts of interest related to Enable. In resolving these conflicts, we may favor our own interests and the interests of our affiliates over the interests of Enable and its unitholders as long as the resolution does not conflict with Enable’s partnership agreement. These circumstances could subject us to claims that, in favoring our own interests and those of our affiliates, we breached a fiduciary or contractual duty to Enable or its unitholders.

Enable’s contracts are subject to renewal risks.

Enable generates a substantial portion of its gross margins under long-term, fee-based agreements. For the year ended December 31, 2014, approximately 72% of Enable’s gross margin was generated from contracts that are fee-based and approximately 50% of its gross margin was attributable to fees associated with firm contracts orAs contracts with minimum volume commitment features. As theseits existing suppliers and other contractscustomers expire, Enable may have to negotiatenegotiates extensions or renewals with existing suppliers and customersof those contracts or enter into new contracts with other suppliers and customers. Enable may be unable to obtainextend or renew existing contracts or enter into new contracts on favorable commercial terms, if at all. It also may be unable to maintain the economic structure of a particular contract with an existing customer or the overall mix of its contract portfolio. For example, dependingDepending on prevailing market conditions at the time of a contractan extension or renewal, gathering and processing customers with fixed-fee or fixed-marginfee based contracts may desire to enter into contracts under different fee arrangements.arrangements and gathering and processing customers with contracts that contain minimum volume commitments may desire to


enter into contracts without minimum volume commitments. Likewise, Enable’s transportation and storage customers may choose not to extend or renew expiring contracts based on the economics of the related areas of production. To the extent Enable is unable to renew or replace its existingexpiring contracts on terms that are favorable, to it, if at all, or successfully manage its overall contract mix over time, its revenue,financial position, results of operations and distributableability to make cash flowdistributions could be adversely affected.


24



Enable depends on a small number of customers for a significant portion of its firmgathering and processing revenues and its transportation and storage services revenues. The loss of, or reduction in volumes from, these customers could result in a decline in sales of its gathering and processing or transportation and storage services and adversely affect its consolidated financial position, results of operations and its ability to make cash distributions.

Enable provides firmFor the year ended December 31, 2017, 57% of Enable’s gathered natural gas volumes were attributable to the affiliates of Continental, Vine, GeoSouthern, XTO Energy and Tapstone Energy and 51% of its transportation and storage servicesservice revenues were attributable to certain key customers on its system. Its major transportation customers areour affiliates or affiliates of CenterPoint Energy, Laclede Group (Laclede), OGE,Spire, American Electric Power Company, Inc. (AEP)OGE and XTO Energy Inc., an affiliate of Exxon Mobil Corporation.

Continental. The loss of all or even a portion of the interstategathering and processing or intrastate transportation and storage services for any of these customers, the failure to extend or replace these contracts or the extension or replacement of these contracts on less favorable terms, as a result of competition or otherwise, could adversely affect Enable’s combined and consolidated financial position, results of operations and its ability to make cash distributions.

Enable’s businesses are dependent, in part, on the drilling and production decisions of others.

Enable’s businesses are dependent on the continued availabilitydrilling and production of natural gas and crude oil production.oil. Enable has no control over the level of drilling activity in its areas of operation, or the amount of natural gas, NGL or crude oil reserves associated with wells connected to its systems orsystems. In addition, as the rate at which production from a well declines. In addition, Enable’s cash flows associated with wells currently connected to its systems naturally declines over time, Enable’s gross margin associated with those wells will decline over time.also decline. To maintain or increase throughput levels on its gathering and transportation systems and the asset utilization rates at its natural gas processing plants, Enable’s customers must continually obtain new natural gas, NGL and crude oil supplies. The primary factors affecting Enable’s ability to obtain new supplies of natural gas, NGLs and crude oil and attract new customers to its assets are the level of successful drilling activity near theseits systems, its ability to compete for volumes from successful new wells and its ability to expand its capacity as needed. If Enable is not able to obtain new supplies of natural gas, NGLs and crude oil to replace the natural decline in volumes from existing wells, throughput on its gathering, processing, transportation and storage facilities willwould decline, which could have a material adverse effect onadversely affect its financial position, results of operations and distributableability to make cash flow.distributions. Enable has no control over producers or their drilling and production decisions, which are affected by, among other things:

the availability and cost of capital;

prevailing and projected commodity prices, including the prices of natural gas, NGLs and crude oil;

demand for natural gas, NGLs and crude oil;

levels of reserves;

geological considerations;

environmental or other governmental regulations, including the availability of drilling permits and the regulation of hydraulic fracturing; and

the availability of drilling rigs and other costs of production and equipment.

Fluctuations in energy prices can also greatly affect the development of new natural gas, NGL and crude oil reserves. Drilling and production activity generally decreases as commodity prices decrease. In general terms, the prices of natural gas, NGLs, crude oil and other hydrocarbon products fluctuate in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond Enable’s control. Because of these and other factors, even if new natural gas or crude oil reserves are known to exist in areas served by Enable’s assets, producers may choose not to develop those reserves. Declines in natural gas, NGL or crude oil prices can have a negative impact on exploration, development and production activity and, if sustained, could lead to decreases in such activity. A sustained declineSustained low natural gas, NGL or crude oil prices could also lead producers to shut in production from their existing wells. Sustained reductions in exploration or production activity in Enable’s areas of operation could lead to further reductions in the utilization of its systems, which could have a material adverse effect on its business,adversely affect Enable’s financial condition,position, results of operations and ability to make cash distributions.



In addition, it may be more difficult to maintain or increase the current volumes on Enable’s gathering systems and in its processing plants, as several of the formations in the unconventional resource plays in which it operates generally have higher initial production rates and steeper production decline curves than wells in more conventional basins. Should Enable determine that the economics of its gathering assets do not justify the capital expenditures needed to grow or maintain volumes associated therewith, Enable may reduce such capital expenditures, which could cause revenues associated with these assets to decline over time. In addition to capital expenditures

25



to support growth, the steeper production decline curves associated with unconventional resource plays may require Enable to incur higher maintenance capital expenditures relative to throughput over time, which will reduce its distributable cash flow.

Because of these and other factors, even if new reserves are known to exist in areas served by Enable’s assets, producers may choose not to develop those reserves. Reductions in drilling activity would result in Enable’s inability to maintain the current levels of throughput on its systems and could have a material adverse effect on its results of operations and distributable cash flow.

Enable’s industry is highly competitive, and increased competitive pressure could adversely affect its financial position, results of operations and distributableability to make cash flow.distributions.

Enable competes with similar enterprises in its respective areas of operation. The principal elements of competition are rates, terms of service and flexibility and reliability of service. Enable’s competitors include large crude oil, natural gas and petrochemicalenergy companies that have greater financial resources and access to supplies of natural gas, NGLs and crude oil than Enable. Some of these competitors may expand or construct gathering, processing, transportation and storage systems that would create additional competition for the services Enable provides to its customers. Excess pipeline capacity in the regions served by Enable’s interstate pipelines could also increase competition and adversely impact Enable’s ability to renew or enter into new contracts with respect to its available capacity when existing contracts expire. In addition, Enable’s customers that are significant producers of natural gas or crude oil may develop their own gathering, processing, transportation and storage systems in lieu of using Enable’s systems. Enable’s ability to renew or replace existing contracts with its customers at rates sufficient to maintain current revenues and cash flows could be adversely affected by the activities of its competitors and customers. Further, natural gas utilized as a fuel competes with other forms of energy available to end-users,end users, including electricity, coal and liquid fuels. Increased demand for such forms of energy at the expense of natural gas could lead to a reduction in demand for natural gas gathering, processing, transportation and transportationstorage services. All of these competitive pressures could adversely affect Enable’s financial position, results of operations and distributableability to make cash flow.distributions.

Enable may not be able to recover the costs of its substantial planned investment in capital improvements and additions, and the actual cost of such improvements and additions may be significantly higher than it anticipates.

Enable’s business plan calls for extensive investment in capital improvements and additions. In Enable’s Form 10-K for the year ended December 31, 2014,2017, Enable stated that it expects that its expansion capital expenditures could range from approximately $450 million to $600 million and its maintenance capital could range from approximately $95 million to $800$125 million for the year ending December 31, 2015, not including opportunities currently under evaluation which could add up to an additional $300 million of expansion capital expenditures. For example, Enable is currently constructing two cryogenic processing facilities that it plans to connect to its super-header system in Grady County, Oklahoma, which Enable expects will add 400 MMcf/d of natural gas processing capacity. Enable expects that the first of the two new plants (the Bradley Plant) will be completed in the first quarter of 2015. Enable expects that the second plant (the Grady County Plant), a 200 MMcf/d plant, will be completed in the first quarter of 2016. Enable also plans to construct significant natural gas gathering and compression infrastructure to support producer activity in its growth areas, and Enable anticipates that in 2015 it will complete the construction of two crude gathering systems in North Dakota’s Bakken Shale formation with a combined capacity of 49,500 Bbl/d.2018.

The construction of additions or modifications to Enable’s existing systems, and the construction of new midstream assets, involves numerous regulatory, environmental, political and legal uncertainties, many of which are beyond Enable’s control and may require the expenditure of significant amounts of capital, which may exceed its estimates. These projects may not be completed at the planned cost, on schedule or at all. The construction of new pipeline, gathering, treating, processing, compression or other facilities is subject to construction cost overruns due to labor costs, costs and availability of equipment and materials such as steel, labor shortages or weather or other delays, inflation or other factors, which could be material. In addition, the construction of these facilities is typically subject to the receipt of approvals and permits from various regulatory agencies. Those agencies may not approve the projects in a timely manner, if at all, or may impose restrictions or conditions on the projects that could potentially prevent a project from proceeding, lengthen its expected completion schedule and/or increase its anticipated cost. Moreover, Enable’s revenues and cash flows may not increase immediately upon the expenditure of funds on a particular project. For instance, if Enable expands an existing pipeline or constructs a new pipeline, the construction may occur over an extended period of time, and Enable may not receive any material increases in revenues or cash flows until the project is completed. In addition, Enable may construct facilities to capture anticipated future growth in production in a region in which such growth does not materialize. As a result, the new facilities may not be able to achieve Enable’s expected investment return, which could adversely affect its financial position, results of operations and its ability to make cash distributions.

In connection with Enable’s capital investments, Enable may estimate, or engage a third party to estimate, potential reserves in areas to be developed prior to constructing facilities in those areas. To the extent Enable relies on estimates of future production in deciding to construct additions to its systems, those estimates may prove to be inaccurate either in volume or timing due to numerous uncertainties inherent in estimating future production. As a result,To the extent estimates of the volume of new production are inaccurate, new facilities may not be able to attract sufficient throughput to achieve expected investment return,

26



which could adversely affect Enable’s financial position, results of operations and itsability to make cash distributions. To the extent estimates in the timing of new production are inaccurate, new facilities may be constructed in advance of the actual need for capacity or may not be constructed in time to accommodate volume flows, which could adversely affect Enable’s financial position, results of operations and ability to make cash distributions. In addition, the construction of additions to existing gathering and transportation assets may require new rights-of-way prior to construction. Those rights-of-way to connect new natural gas supplies to existing


gathering lines may be unavailable and Enable may not be able to capitalize on attractive expansion opportunities. Additionally, it may become more expensive to obtain new rights-of-way or to renew existing rights-of-way. If the cost of renewing or obtaining new rights-of-way increases, Enable’s financial position, results of operations and its ability to make cash distributions could be adversely affected.

Natural gas, NGL and crude oil prices are volatile, and changes in these prices could adversely affect Enable’s financial position, results of operations and its ability to make cash distributions.

Enable’s financial position, results of operations and its ability to make cash distributions could be negatively affected by adverse movementschanges in the prices of natural gas, NGLs and crude oil depending on factors that are beyond itsEnable’s control. These factors include demand for these commodities, which fluctuates with changes in market and economic conditions and other factors, including the impact of seasonality and weather, general economic conditions, the level of domestic and offshore natural gas production and consumption, the availability of imported natural gas, LNG, NGLs and crude oil, actions taken by foreign natural gas and oil producing nations, the availability of local, intrastate and interstate transportation systems, the availability and marketing of competitive fuels, the impact of energy conservation efforts, technological advances affecting energy consumption and the extent of governmental regulation and taxation.

Enable’s keep-whole natural gas processing arrangements which accounted for 7% of its natural gas processed volumes in 2014, expose it to fluctuations incommodity price fluctuations. In 2017, 7%, 35% and 58% of Enable’s processing plant inlet volumes consisted of keep-whole arrangements, percent-of-proceeds or percent-of-liquids and fee-based, respectively. If the pricing spreads between NGL prices and natural gas prices. Under these arrangements, the processor processes raw natural gas to extract NGLs and pays to the producer the natural gas equivalent Btu value of raw natural gas received from the producer in the form of either processedprice at which Enable sells natural gas or its cash equivalent. The processorNGLs is generally entitled to retain the processed NGLs and to sell them for its own account. Accordingly, the processor’s margin is a function of the difference between the value of the NGLs produced andless than the cost of the processedat which Enable purchases natural gas used to replace the natural gas equivalent Btu value of those NGLs. Therefore, if natural gas prices increase and NGL prices do not increase by a corresponding amount, the processor has to replace the Btu of natural gas at higher prices and processing margins are negatively affected.

Enable’s percent-of-proceeds and percent-of-liquids natural gas processing agreements accounted for 44% of its natural gas processed volumes in 2014. Underor NGLs under these arrangements, the processor generally gathers raw natural gas from producers at the wellhead, transports the natural gas through its gathering system, processes the natural gasthen Enable’s financial position, results of operations and sells the processed natural gas and/or NGLs at prices based on published index prices. The price paidability to producers is based on an agreed percentage of the actual proceeds of the sale of processed natural gas, NGLs or both, or the expected proceeds based on an index price. Enable refers to contracts in which the processor shares in specified percentages of the proceeds from the sale of natural gas and NGLs as “percent-of-proceeds” arrangements, and contracts in which the processor receives proceeds from the sale of a percentage of the NGLs or the NGLs themselves as compensation for processing services as “percent-of-liquids” arrangements. These arrangements expose Enable to risks associated with the price of natural gas and NGLs.make cash distributions could be adversely affected.

At any given time, Enable’s overall portfolio of processing contracts may reflect a net short position in natural gas (meaning that itEnable is a net buyer of natural gas) and a net long position in NGLs (meaning that itEnable is a net seller of NGLs). As a result, Enable’s gross marginfinancial position, results of operations and ability to make cash distributions could be adversely impactedaffected to the extent the price of NGLs decreases in relation to the price of natural gas.

Enable has limited experience in the crude oil gathering business.

In November 2013, Enable commenced operations onis exposed to credit risks of its initial crude oil gathering pipeline system, located in Dunncustomers, and McKenzie Counties in North Dakota within the Bakken Shale formation. Additionally in February 2014, Enable executed a crude oil gathering agreement to gather crude oil production through a new system in Williams and Mountrail Counties in North Dakota that is expected to commence operations in the first quarter of 2015. These facilities, with a combined capacity of 49,500 barrels per day, are the first crude oil gathering systems that Enable has built and operated. Other operators of gathering systems in the Bakken Shale formation may have more experience in the construction, operation and maintenance of crude oil gathering systems than Enable. This relative lack of experience may hinder Enable’s ability to fully implementany material nonpayment or nonperformance by its business plan in a timely and cost efficient manner, which, in turn, maycustomers could adversely affect its financial position, results of operations and its ability to make cash distributions to unitholders.distributions.


27Some of Enable’s customers may experience financial problems that could have a significant effect on their creditworthiness. Severe financial problems encountered by its customers could limit Enable’s ability to collect amounts owed to it, or to enforce performance of obligations under contractual arrangements. In addition, many of Enable’s customers finance their activities through cash flow from operations, the incurrence of debt or the issuance of equity. The combination of reduction of cash flow resulting from declines in commodity prices, a reduction in borrowing bases under reserve-based credit facility and the lack of availability of debt or equity financing may result in a significant reduction of its customers’ liquidity and limit their ability to make payment or perform on their obligations to Enable. Furthermore, some of Enable’s customers may be highly leveraged and subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to Enable. Financial problems experienced by Enable’s customers could result in the impairment of its assets, reduction of its operating cash flows and may also reduce or curtail their future use of its products and services, which could reduce Enable’s revenues.



Enable provides certain transportation and storage services under long-term, fixed-price “negotiated rate” contracts that are not subject to adjustment, even if its cost to perform such services exceeds the revenues received from such contracts, and, as a result, Enable’s costs could exceed its revenues received under such contracts.

Enable has been authorized by the FERC to provide transportation and storage services at its facilities at negotiated rates. Generally, negotiated rates are in excess of the maximum recourse rates allowed by the FERC, but it is possible that costs to perform services under “negotiated rate” contracts will exceed the revenues obtained under these agreements. If this occurs, it could decrease the cash flow realized by Enable’s systems and, therefore, decrease the cash it has available for distribution.

As of December 31, 2014,2017, approximately 56%44% of Enable’s aggregate contracted firm transportation firm capacity on EGT and MRT and 44% of its aggregate contracted firm storage firm capacity on EGT and MRT, was subscribed under such “negotiated rate” contracts. These contracts generally do not include provisions allowing for adjustment for increased costs due to inflation, pipeline safety activities or other factors that are not tied to an applicable tracking mechanism authorized by the FERC. Successful recovery of any shortfall of revenue, representing the difference between “recourse rates” (if higher) and negotiated rates, is not assured under current FERC policies. If Enable’s costs increase and it is not able to recover any shortfall of revenue associated with its negotiated rate contracts, the cash flow realized by Enable’s systems could decrease and, therefore, the cash Enable has available for distribution could also decrease.



If third-party pipelines and other facilities interconnected to Enable’s gathering, processing or transportation facilities become partially or fully unavailable for any reason, Enable’s financial position, results of operations and its ability to make cash distributions could be adversely affected.

Enable depends upon third-party natural gas pipelines to deliver natural gas to, and take natural gas from, its natural gas transportation systems and upon third-party pipelines to take crude oil from its crude oil gathering systems. Enable also depends on third-party facilities to transport and fractionate NGLs that are delivered to the third party at the tailgates of theEnable’s processing plants. Fractionation is the separation of the heterogeneous mixture of extracted NGLs into individual components for end-use sale. For example, an outage or disruption on certain pipelines or fractionators operated by a third party could result in the shutdown of certain of Enable’s processing plants and gathering systems, and a prolonged outage or disruption could ultimately result in a reduction in the volume of natural gas Enable gathers and NGLs Enableit is able to produce. Additionally, Enable depends on third parties to provide electricity for compression at many of its facilities. Since Enable does not own or operate any of these third-party pipelines or other facilities, their continuing operation is not within its control. If any of these third-party pipelines or other facilities become partially or fully unavailable for any reason, Enable’s financial position, results of operations and its ability to make cash distributions to unitholders could be adversely affected.

Enable does not own all of the land on which its pipelines and facilities are located, which could disrupt its operations.

Enable does not own all of the land on which its pipelines and facilities have been constructed, and it is therefore subject to the possibility of more onerous terms and/or increased costs to retain necessary land use if it does not have valid rights-of-way or if such rights-of-way lapse or terminate. Enable may obtain the rights to construct and operate its pipelines on land owned by third parties and governmental agencies for a specific period of time.time on lands owned by governmental agencies, American Indian tribes, or other third parties, including on American Indian allotments, title to which is held in trust by the United States. A loss of these rights, through Enable’s inability to renew right-of-way contracts or otherwise, could cause it to cease operations temporarily or permanently on the affected land, increase costs related to the construction and continuing operations elsewhere and adversely affect its financial position, results of operations and ability to make cash distributions.

Enable conducts a portion of its operations through joint ventures, which subject it to additional risks that could have a material adverse effect onadversely affect the success of these operations and Enable’s financial position, and results of operations.operations and ability to make cash distributions.

Enable conducts a portion of its operations through joint ventures with third parties, including affiliates of Spectra Energy Corp,Partners, LP, DCP Midstream, Partners, LP, Trans Louisiana Gas Pipeline, Inc. and Pablo Gathering LLC. Enable may also enter into other joint venture arrangements in the future. These third parties may have obligations that are important to the success of the joint venture, such as the obligation to pay their share of capital and other costs of the joint venture. The performance of these third-party obligations, including the ability of the third parties to satisfy their obligations under these arrangements, is outside Enable’s control. If these parties do not satisfy their obligations under these arrangements, Enable’s business may be adversely affected.

Enable’s joint venture arrangements may involve risks not otherwise present when operating assets directly, including, for example:

Enable’s joint venture partners may share certain approval rights over major decisions;

Enable’s joint venture partners may not pay their share of the joint venture’s obligations, leaving Enable liable for their shares of joint venture liabilities;


28



Enable may be unable to control the amount of cash weit will receive from the joint venture;

Enable may incur liabilities as a result of an action taken by its joint venture partners;

Enable may be required to devote significant management time to the requirements of and matters relating to the joint ventures;

Enable’s insurance policies may not fully cover loss or damage incurred by both Enable and its joint venture partners in certain circumstances;

Enable’s joint venture partners may be in a position to take actions contrary to its instructions or requests or contrary to its policies or objectives; and

disputes between Enable and its joint venture partners may result in delays, litigation or operational impasses.



The risks described above or the failure to continue Enable’s joint ventures or to resolve disagreements with its joint venture partners could adversely affect its ability to transact the business that is the subject of such joint venture, which would in turn negativelyadversely affect Enable’s financial condition andposition, results of operations.operations and ability to make cash distributions. The agreements under which Enable formed certain joint ventures may subject it to various risks, limit the actions it may take with respect to the assets subject to the joint venture and require Enable to grant rights to its joint venture partners that could limit its ability to benefit fully from future positive developments. Some joint ventures require Enable to make significant capital expenditures. If Enable does not timely meet its financial commitments or otherwise does not comply with its joint venture agreements, its rights to participate, exercise operator rights or otherwise influence or benefit from the joint venture may be adversely affected. Certain of Enable’s joint venture partners may have substantially greater financial resources than Enable has and Enable may not be able to secure the funding necessary to participate in operations its joint venture partners propose, thereby reducing its ability to benefit from the joint venture.

Under certain circumstances, Spectra Energy Partners, LP could have the right to purchase Enable’s ownership interest in SESH at fair market value.

Enable owns a 50% ownership interest in SESH. The remaining 50% ownership interest is held by Spectra Energy Partners, LP. We own 54.1% of Enable’s common units, 100% of its Series A Preferred Units and a 40% economic interest in Enable’s general partner. Pursuant to the terms of the limited liability company agreement of SESH, as amended, if, at any time, we have a right to receive less than 50% of Enable’s distributions through our interests in Enable and its general partner, or do not have the ability to exercise certain control rights, Spectra Energy Partners, LP could have the right to purchase Enable’s interest in SESH at fair market value, subject to certain exceptions.

Enable’s ability to grow is dependent on its ability to access external financing sources.

Enable expects that it will distribute all of its “available cash” to its unitholders. As a result, Enable is expected to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion capital expenditures. As a result, to the extent Enable is unable to finance growth externally, Enable’s cash distribution policy will significantly impair its ability to grow. In addition, because Enable is expected to distribute all of its available cash, its growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations.

To the extent Enable issues additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that Enable will be unable to maintain or increase its per unit distribution level, which in turn may impact the available cash that it has to distribute on each unit. There are no limitations in Enable’s partnership agreement on its ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt by Enable to finance its growth strategy would result in increased interest expense, which in turn may negatively impact the available cash that Enable has to distribute to its unitholders.

If Enable does not make acquisitions or isdepends on access to the capital markets to fund its expansion capital expenditures. Historically, unit prices of midstream master limited partnerships have experienced periods of volatility. In addition, because Enable’s common units are yield-based securities, rising market interest rates could impact the relative attractiveness of its common units to investors. As a result of capital market volatility, Enable may be unable to make acquisitionsissue equity or debt on economically acceptablesatisfactory terms, or at all, which may limit its future growth will be adversely affected.

Enable’s growth strategy includes, in part, the ability to expand its operations or make acquisitions that result in an increase in its cash generated from operations. If Enable is unable to make these accretive acquisitions either because: (i) it is unable to identify attractive acquisition targets or it is unable to negotiate purchase contracts on acceptable terms, (ii) it is unable to obtain acquisition financing on economically acceptable terms, or (iii) it is outbid by competitors, then our future growth and ability to increase distributions will be adversely affected.acquisitions.

Enable’s debt levels may limit its flexibility in obtaining additional financing and in pursuing other business opportunities.

As of December 31, 2014,2017, Enable had approximately $1.9$2.6 billion of long-term debt outstanding, excluding the premiums on their senior notes. Enable has $363notes, $405 million of long-term notes payable-affiliated companies due to CERC Corp.outstanding under its commercial paper program and $450 million outstanding under its unsecured term loan agreement dated July 31, 2015. Enable has a $1.4$1.75 billion revolving credit facility for working capital, capital expenditures and other partnership purposes, including acquisitions, of which $1.1$1.3 billion was available as of December 31, 2014. As of January 31, 2015,February 1, 2018. Enable had the ability to issue up to $1.2 billion in commercial paper, subject to available borrowing capacity under its revolving credit facility and market conditions, to manage the timing of cash flows and fund short-term working capital deficits. As of January 31, 2015, $224 million was outstanding

29



under Enable’s commercial paper program. Enable will continue to havehas the ability to incur additional debt, subject to limitations in its credit facilities. The levels of Enable’s debt could have important consequences, including the following:

the ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or the financing may not be available on favorable terms, if at all;

a portion of cash flows will be required to make interest payments on the debt, reducing the funds that would otherwise be available for operations, future business opportunities and distributions;



Enable’s debt level will make it more vulnerable to competitive pressures or a downturn in its business or the economy generally; and

Enable’s debt level may limit its flexibility in responding to changing business and economic conditions.

Enable’s ability to service its debt will depend upon, among other things, its future financial and operating performance, which will be affected by prevailing economic conditions, commodity prices and financial, business, regulatory and other factors, some of which are beyond Enable’s control. If operating results are not sufficient to service current or future indebtedness, Enable may be forced to take actions such as reducing distributions, reducing or delaying business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing debt, or seeking additional equity capital. These actions may not be effected on satisfactory terms, or at all.

Enable’s credit facilities contain operating and financial restrictions, including covenants and restrictions that may be affected by events beyond Enable’s control, which could adversely affect its business, financial condition, results of operations and ability to make quarterly distributions.

Enable’s credit facilities contain customary covenants that, among other things, limit its ability to:

permit its subsidiaries to incur or guarantee additional debt;

incur or permit to exist certain liens on assets;

dispose of assets;

merge or consolidate with another company or engage in a change of control;

enter into transactions with affiliates on non-arm’s length terms; and

change the nature of its business.

Enable’s credit facilities also require it to maintain certain financial ratios. Enable’s ability to meet those financial ratios can be affected by events beyond its control, and we cannot assure you that it will meet those ratios. In addition, Enable’s credit facilities contain events of default customary for agreements of this nature.

Enable’s ability to comply with the covenants and restrictions contained in its credit facilities may be affected by events beyond its control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, Enable’s ability to comply with these covenants may be impaired. If Enable violates any of the restrictions, covenants, ratios or tests in its credit facilities, a significant portion of its indebtedness may become immediately due and payable. In addition, Enable’s lenders’ commitments to make further loans to it under the revolving credit facility may be suspended or terminated. Enable might not have, or be able to obtain, sufficient funds to make these accelerated payments.

Enable may be unable to obtain or renew permits necessary for its operations, which could inhibit its ability to do business.

Performance of Enable’s operations requires that Enable obtain and maintain a number of federal and state permits, licenses and approvals with terms and conditions containing a significant number of prescriptive limits and performance standards in order to operate. All of these permits, licenses, approval limits and standards require a significant amount of monitoring, record keeping and reporting in order to demonstrate compliance with the underlying permit, license, approval limit or standard. Noncompliance or incomplete documentation of Enable’s compliance status may result in the imposition of fines, penalties and injunctive relief. A decision by a government agency to deny or delay the issuance of a new or existing material permit or other approval, or to revoke or substantially modify an existing permit or other approval, could adversely affect Enable’s ability to initiate or continue operations at the affected location or facility and on its financial condition, results of operations and ability to make cash distributions.

Additionally, in order to obtain permits and renewals of permits and other approvals in the future, Enable may be required to prepare and present data to governmental authorities pertaining to the potential adverse impact that any proposed pipeline or processing-related activities may have on the environment, individually or in the aggregate, including on public and Indian lands. Certain approval procedures may require preparation of archaeological surveys, endangered species studies and other studies to assess the environmental impact of new sites or the expansion of existing sites. Compliance with these regulatory requirements is expensive and significantly lengthens the time required to prepare applications and to receive authorizations.



Costs of compliance with existing environmental laws and regulations are significant, and the cost of compliance with future environmental laws and regulations may adversely affect Enable’s financial position, results of operations and its ability to make cash distributions.

Enable is subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, wildlife conservation, natural resources and health and safety that could, among other things, delay or increase its costs of construction, restrict or limit the output of certain facilities and/or require additional pollution control equipment and otherwise increase costs. For instance, in May 2016, the EPA issued final New Source Performance Standards governing methane emissions imposing more stringent controls on methane and volatile organic compounds emissions at new and modified oil and natural gas production, processing, storage, and transmission facilities. These rules have required changes to Enable’s operations, including the installation of new equipment to control emissions. Additionally, several states are pursuing similar measures to regulate emissions of methane from new and existing sources. There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations. Future federal and state regulations relating to Enable’s gathering and thoseprocessing, transmission, and storage operations remain a possibility and could result in increased compliance costs may be evenon its operations. Furthermore, if new or more stringent federal, state or local legal restrictions are adopted in areas where its oil and natural gas exploration and production customers operate, they could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in the future.pursuit of exploration, development, or production activities, and perhaps even be precluded from drilling wells, some or all of which could adversely affect demand for Enable’s services to those customers.


30



There is inherent risk of the incurrence of environmental costs and liabilities in Enable’s operations due to its handling of natural gas, NGLs, and crude oil and produced water, as well as air emissions related to its operations and historical industry operations and waste disposal practices. These activitiesmatters are subject to stringent and complex federal, state and local laws and regulations governing environmental protection, including the discharge of materials into the environment and the protection of plants, wildlife, and natural and cultural resources. These laws and regulations can restrict or impact Enable’s business activities in many ways, such as restricting the way it can handle or dispose of wastes or requiring remedial action to mitigate pollution conditions that may be caused by its operations or that are attributable to former operators. Joint and several strict liability may be incurred, without regard to fault, under certain of these environmental laws and regulations in connection with discharges or releases of wastes on, under or from Enable’s properties and facilities, many of which have been used for midstream activities for a number of years, oftentimes by third parties not under its control. Private parties, including the owners of the properties through which Enable’s gathering and transportation systems pass and facilities where its wastes are taken for reclamation or disposal, may also have the right to pursue legal actions to enforce compliance, as well as to seek damages for non-compliance, with environmental laws and regulations or for personal injury or property damage. For example, an accidental release from one of Enable’s pipelines could subject it to substantial liabilities arising from environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage and fines or penalties for related violations of environmental laws or regulations. Enable may be unable to recover these costs from insurance. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly increase compliance costs and the cost of any remediation that may become necessary. Further, stricter requirements could negatively impact Enable’s customers’ production and operations, resulting in less demand for its services.

Increased regulation of hydraulic fracturing and waste water injection wells could result in reductions or delays in natural gas production by Enable’s customers, which could adversely affect its financial position, results of operations and ability to make cash distributions.

Hydraulic fracturing is an important and common practice that is used by many of Enable’s customers to stimulate production of natural gas and/orand crude oil from dense subsurface rock formations. The hydraulic fracturing process involves the injection of water, sand, and chemicals under pressure into targeted subsurface formations to fracture the surrounding rock and stimulate production. Many of Enable’s customers commonly use hydraulic fracturing techniques in their drilling and completion programs. Hydraulic fracturing typically is regulated by state oil and natural gas commissions. In addition, certain federal agencies have proposed additional laws and regulations to more closely regulate the hydraulic fracturing process. For example, in January 2015, the EPA indicated its intention to propose more stringent rules regulating methane and VOC emissions from hydraulic fracturing and other well completion activity.In past sessions, Congress from time to time has considered, the adoption ofbut not passed, legislation to provide for federal regulation of hydraulic fracturing under the Safe Drinking Water Act (SDWA) and to require disclosure of the chemicals used in the hydraulic fracturing process. The EPA has issued the Safe Water Drinking Act permitting guidance for hydraulic fracturing operations involving the use of diesel fuel in fracturing fluids in those states where the EPA is the permitting authority.

Some states have adopted, and other states are consideringhave considered adopting, legal requirements that could impose more stringent permitting, public disclosure or well construction requirements on hydraulic fracturing activities. Local government also may seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular, in some cases banning hydraulic fracturing entirely. Other governmental agencies, including the U.S. Department of Energy and the EPA, have evaluated or are evaluating various other aspects of hydraulic fracturing such as the potential environmental effects of hydraulic fracturing on drinking water and groundwater.

If new or more stringent federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where Enable’s oil and natural gas exploration


and production customers operate, they could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in the pursuit of exploration, development, or production activities, and perhaps even be precluded from drilling wells, some or all of which activities could adversely affect demand for Enable’s services to those customers.

State and federal regulatory agencies recently have focused on a possible connection between the operation of injection wells used for oil and gas waste disposal and seismic activity. Similar concerns have been raised that hydraulic fracturing may also contribute to seismic activity. When caused by human activity, such events are called induced seismicity. In March 2016, the United States Geological Survey identified six states with the most significant hazards from induced seismicity, including Oklahoma, Kansas, Texas, Colorado, New Mexico, and Arkansas. In March 2017, the United States Geological Survey produced an updated seismic hazard survey that forecasted lower earthquake rates in regions of induced activity, but still showed significantly elevated hazards in the central and eastern United States. In light of these concerns, some state regulatory agencies have modified their regulations or issued orders to address induced seismicity. For example, the OCC has implemented volume reduction plans, and at times required shut-ins, for disposal wells injecting wastewater from oil and gas operations into the Arbuckle formation. In December 2016, the OCC also released well completion seismicity guidelines for operators in the South Central Oklahoma Oil Province and the Sooner Trend Anadarko Basin Canadian and Kingfisher Counties that call for hydraulic fracturing operations to be suspended following earthquakes of certain magnitudes in the vicinity. Certain environmental and other groups have also suggested that additional federal, state and local laws and regulations may be needed to more closely regulate the hydraulic fracturing process. Enable cannot predict whether additional federal, state or local laws or regulations applicable to hydraulic fracturing will be enacted in the future and, if so, what actions any such laws or regulations would require or prohibit. Increased regulation and attention given to induced seismicity could lead to greater opposition to, and litigation concerning, oil and gas activities utilizing hydraulic fracturing or injection wells for waste disposal. Additional legislation or regulation could also lead to operational delays or increased operating costs for Enable’s customers, which in turn could reduce the demand for Enable’s services.

Other governmental agencies, including the DOE, have evaluated or are evaluating various other aspects of hydraulic fracturing. These ongoing or proposed studies, depending on their degree of pursuit and any meaningful results obtained, could spur initiatives to further regulate hydraulic fracturing under the Safe Drinking Water Act or other regulatory mechanisms.

Enable’s operations are subject to extensive regulation by federal, state and local regulatory authorities. Changes or additional regulatory measures adopted by such authorities could have a material adverse effect onadversely affect Enable’s financial position, results of operations and ability to make cash distributions.

The rates charged by several of Enable’s pipeline systems, including for interstate gas transportation service provided by its intrastate pipelines, are regulated by the FERC. Enable’s pipeline operations that are not regulated by the FERC may be subject to state and local regulation applicable to intrastate natural gas transportation services and transportationcrude oil gathering services. The relevant states in which Enable operates include North Dakota, Oklahoma, Arkansas, Louisiana, Texas, Missouri, Kansas, Mississippi, Tennessee and Illinois.

The FERC and state regulatory agencies also regulate other terms and conditions of the services Enable may offer. If one of these regulatory agencies, on its own initiative or due to challenges by third parties, were to lower its tariff rates or deny any rate increase or other material changes to the types, or terms and conditions, of service Enable might propose or offer, the profitability of Enable’s pipeline businesses could suffer. If Enable were permitted to raise its tariff rates for a particular pipeline, there might be significant delay between the time the tariff rate increase is approved and the time that the rate increase actually goes into effect, which could also limit its profitability. Furthermore, competition from other pipeline systems may prevent Enable from raising

31



its tariff rates even if regulatory agencies permit it to do so. The regulatory agencies that regulate Enable’s systems periodically implement new rules, regulations and terms and conditions of services subject to their jurisdiction. New initiatives or orders may adversely affect the rates charged for Enable’s services or otherwise adversely affect its financial condition,position, results of operations and cash flows and its ability to make cash distributions. Further, should Enable fail to comply with all applicable FERC-administered statutes, rules, regulations and orders, it could be subject to substantial penalties and fines.

A change in the jurisdictional characterization of some of Enable’s assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of its assets, which may cause its revenues to decline and operating expenses to increase.

Enable’s natural gas gathering and intrastate transportation operations are generally exempt from the jurisdiction of the FERC under the NGA, but FERC regulation may indirectly impact these businesses and the markets for products derived from these businesses. The FERC’s policies and practices across the range of its oil and natural gas regulatory activities, including, for example, its policies on interstate open access transportation, ratemaking, capacity release, and market center promotion may indirectly affect intrastate markets. In recent years, the FERC has pursued pro-competitive policies in its regulation of interstate oil and


natural gas pipelines. However, we cannot assure you that the FERC will continue to pursue this approach as it considers matters such as pipeline rates and rules and policies that may indirectly affect the intrastate natural gas transportation business. Although the FERC has not made a formal determination with respect to all of Enable’s facilities it considers to be gathering facilities, Enable believes that its natural gas gathering pipelines meet the traditional tests that the FERC has used to determine that a pipeline is a gathering pipeline and are therefore not subject to FERC jurisdiction. The distinction between FERC-regulated transmission services and federally unregulated gathering services, however, has been the subject of substantial litigation, and the FERC determines whether facilities are gathering facilities on a case-by-case basis, so the classification and regulation of Enable’s gathering facilities is subject to change based on future determinations by the FERC, the courts or Congress. If the FERC were to consider the status of an individual facility and determine that the facility and/or services provided by it are not exempt from FERC regulation under the NGA and that the facility provides interstate service, the rates for, and terms and conditions of, services provided by such facility would be subject to regulation by the FERC under the NGA or the NGPA. Such regulation could decrease revenue, increase operating costs, and, depending upon the facility in question, could adversely affect Enable’s financial condition, results of operations and cash flows and its ability to make cash distributions. In addition, if any of Enable’s facilities were found to have provided services or otherwise operated in violation of the NGA or the NGPA, this could result in the imposition of substantial civil penalties, as well as a requirement to disgorge revenues collected for such services in excess of the maximum rates established by the FERC.

Natural gas gathering may receive greater regulatory scrutiny at the state level; therefore, Enable’s natural gas gathering operations could be adversely affected should they become subject to the application of state regulation of rates and services. Enable’s gathering operations could also be subject to safety and operational regulations relating to the design, construction, testing, operation, replacement and maintenance of gathering facilities. We cannot predict what effect, if any, such changes might have on Enable’s operations, but Enable could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes.

Enable may incur significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs.

The DOT has adopted regulations requiring pipeline operators to develop integrity management programs for transportation pipelines located in “high consequence areas,” which are those areas where a leak or rupture could do the most harm. The regulations require operators, including Enable, to, among other things:

develop a baseline plan to prioritize the assessment of a covered pipeline segment;

identify and characterize applicable threats that could impact a high consequence area;

improve data collection, integration, and analysis;

repair and remediate pipelines as necessary; and

implement preventive and mitigating action.

Although many of Enable’s pipelines fall within a class that is currently not subject to these requirements, it may incur significant cost and liabilities associated with repair, remediation, preventive or mitigation measures associated with its non-exempt pipelines. Should Enable fail to comply with DOT or comparable state regulations, it could be subject to penalties and

32



fines. Also, the scope of the integrity management program and other related pipeline safety programs could be expanded in the future.

Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP

We are subject to operational and financial risks and liabilities arising from environmental laws and regulations.

Our operations and the operations of Enable are subject to stringent and complex laws and regulations pertaining to the environment. As an owner or operator of natural gas pipelines, and distribution systems and storage, electric transmission and distribution systems, and the facilities that support these systems, we must comply with these laws and regulations at the federal, state and local levels. These laws and regulations can restrict or impact our business activities in many ways, such as:

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 environmental conditions caused by our operations, or attributable to former operations;

enjoining the operations of facilities with permits issued pursuant to such environmental laws and regulations; and

impacting the demand for our services by directly or indirectly affecting the use or price of natural gas.

In order toTo comply with these requirements, we may need to spend substantial amounts and devote other resources from time to time to:

construct or acquire new facilities and equipment;

acquire permits for facility operations;

modify or replace existing and proposed equipment; and

clean or decommission waste disposalmanagement areas, fuel storage and management facilities and other locations and facilities.locations.

Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial actions, and the issuance of orders enjoining future operations. Certain environmental statutes impose strict joint and several liability for costs required to clean and restore sites where hazardous substances have been stored, disposed or released. Moreover, it is not uncommon for neighboring landowners


and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other waste products into the environment.

The recent trend in environmental regulation has been to place more restrictions and limitations on activities that may affectimpact the environment, and thus there can be no assurance as to the amount or timing of future expenditures for environmental compliance or remediation, and actual future expenditures may be greater than the amounts we currently anticipate.

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 currently have general liability and property insurance in place to cover certain of our facilities in amounts that we consider appropriate. Such policies are subject to certain limits and deductibles and do not include business interruption coverage. Insurance coverage may not be available in the future at current costs or on commercially reasonable terms, and the insurance proceeds received for any loss of, or any damage to, any of our facilities may not be sufficient to restore the loss or damage without negative impact on our results of operations, financial condition and cash flows.

In common with other companies in its line of business that serve coastal regions, CenterPoint Houston Electric does not have insurance covering its transmission and distribution system, other than substations, because CenterPoint Houston Electric believes it to be cost prohibitive.prohibitive and believes insurance capacity to be limited. In the future, CenterPoint Houston Electric may not be able to recover the costs incurred in restoring its transmission and distribution properties following hurricanes or other disasters through issuance of storm restoration bonds or a change in its

33



regulated rates or otherwise, or any such recovery may not be timely granted. Therefore, CenterPoint Houston Electric may not be able to restore any loss of, or damage to, any of its transmission and distribution properties without negative impact on its results of operations, financial condition and cash flows.

Our operations and Enable’s operations are subject to all of the risks and hazards inherent in the gathering, processing, transportation and storage of natural gas and crude oil, including:

damage to pipelines and plants, related equipment and surrounding properties caused by hurricanes, tornadoes, floods, fires, earthquakes and other natural disasters, acts of terrorism and actions by third parties;

inadvertent damage from construction, vehicles, farm and utility equipment;

leaks of natural gas, NGLs, crude oil and other hydrocarbons or losses of natural gas, NGLs and crude oil as a result of the malfunction of equipment or facilities;

ruptures, fires and explosions; and

other hazards that could also result in personal injury and loss of life, pollution and suspension of operations.

We and OGE currently have general liability and property insurance in place to cover certain of Enable’s facilities in amounts that we consider appropriate. Such policies are subject to certain limits and deductibles. These risks could result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property, plant and equipment and pollution or other environmental damage. These risks may also result in curtailment or suspension of our or Enable’s operations. A natural disaster or other hazard affecting the areas in which we or Enable operatesoperate could have a material adverse effect on our or Enable’s operations.

Enable is not fully insured against all risks inherent in its business. Enable currently has general liability and property insurance in place to cover certain of its facilities in amounts that Enable considers appropriate. Such policies are subject to certain limits and deductibles. Enable does not have business interruption insurance coverage for all of its operations. Insurance coverage may not be available in the future at current costs or on commercially reasonable terms, and the insurance proceeds received for any loss of, or any damage to, any of Enable’s facilities may not be sufficient to restore the loss or damage without negative impact on its results of operations and its ability to make cash distributions.

We, CenterPoint Houston Electric and CERC could incur liabilities associated with businesses and assets that we have transferred to others.

Under some circumstances, we, CenterPoint Houston Electric and CERC could incur liabilities associated with assets and businesses we, CenterPoint Houston Electric and CERC no longer own. These assets and businesses were previously owned by Reliant Energy, Incorporated (Reliant Energy), a predecessor of CenterPoint Houston Electric, directly or through subsidiaries and include:



merchant energy, energy trading and REP businesses transferred to RRI or its subsidiaries in connection with the organization and capitalization of RRI prior to its initial public offering in 2001 and now owned by affiliates of NRG; and

Texas electric generating facilities transferred to a subsidiary of Texas Genco Holdings, Inc. (Texas Genco) in 2002, later sold to a third party and now owned by an affiliate of NRG.

In connection with the organization and capitalization of RRI (now GenOn) and Texas Genco (now an affiliate of NRG), that company and itsthose companies and/or their subsidiaries assumed liabilities associated with various assets and businesses Reliant Energy transferred to them. RRI alsothem and agreed to indemnify, and causecertain indemnity agreements of CenterPoint Energy entities. Such indemnities have applied in cases such as the applicable transferee subsidiaries to indemnify, us and our subsidiaries, including CenterPoint Houston and CERC, with respect to liabilities associated with the transferred assets and businesses. These indemnity provisions were intended to place sole financial responsibility on RRI and its subsidiaries for all liabilities associated with the current and historical businesses and operations of RRI, regardless of the time those liabilities arose. If RRI (now GenOn) were unable to satisfy a liability that has been so assumed in circumstances in which Reliant Energy and its subsidiaries were not released from the liability in connection with the transfer, we, CenterPoint Houston or CERC could be responsible for satisfying the liability.

Prior to the distribution of our ownership in RRI to our shareholders, CERC had guaranteed certain contractual obligations of what became RRI’s trading subsidiary.  When the companies separated, RRI agreed to secure CERC against obligations under the guarantees RRI had been unable to extinguish by the time of separation.  Pursuant to such agreement, as amended in December 2007, RRI (now GenOn) agreed to provide to CERC cash or letters of credit as security against CERC’s obligations under its

34



remaining guarantees for demand charges under certain gas transportation agreements if and to the extent changes in market conditions expose CERC to a risk of loss on those guarantees based on an annual calculation, with any required collateral to be posted each December.  The undiscounted maximum potential payout of the demand charges under these transportation contracts, which will be in effect until 2018, was approximately $42 million as of December 31, 2014.  Based on market conditions in the fourth quarter of 2014 at the time the most recent annual calculation was made under the agreement, GenOn was not obligated to post any security. If GenOn should fail to perform the contractual obligations, CERC could have to honor its guarantee and, in such event, any collateral then provided as security may be insufficient to satisfy CERC’s obligations.

If GenOn were unable to meet its obligations, it could consider, among various options, restructuring under the bankruptcy laws, in which event GenOn might not honor its indemnification obligations and claims by GenOn’s creditors might be made against us as its former owner.

Reliant Energy and RRI (GenOn’s predecessor) are named as defendants in a number of lawsuitslitigation arising out of sales of natural gas in California and other markets. Although thesemarkets (the last remaining case involving us is now on appeal, following the district court’s summary judgment in favor of CES, a subsidiary of CERC Corp.) and various asbestos and other environmental matters relatethat arise from time to time. In June 2017, GenOn and various affiliates filed for protection under Chapter 11 of the businessU.S. Bankruptcy Code. In December 2017, GenOn received court approval of a restructuring plan and operationsis expected to emerge from Chapter 11 in mid-2018. We, CERC and CES submitted proofs of GenOn, claims against Reliant Energy haveclaim in the bankruptcy proceedings to protect our indemnity rights. If any of the indemnifying entities were unable to meet their indemnity obligations or satisfy a liability that has been made on grounds that include liability of Reliant Energy as a controlling shareholder of GenOn’s predecessor. We, CenterPointassumed in the gas market manipulation litigation, we, Houston Electric or CERC could incur liability if claims in one or more of these lawsuits were successfully asserted against us, CenterPoint Houston or CERC and indemnification from GenOn were determined to be unavailable or if GenOn were unable to satisfy indemnification obligations owed with respect to those claims.

In connection with the organization and capitalization of Texas Genco (now an affiliate of NRG), Reliant Energy and Texas Genco entered into a separation agreement in which Texas Genco assumed liabilities associated with the electric generation assets Reliant Energy transferred to it. Texas Genco also agreed to indemnify, and cause the applicable transferee subsidiaries to indemnify, us and our subsidiaries, including CenterPoint Houston, with respect to liabilities associated with the transferred assets and businesses. In many cases the liabilities assumed were obligations of CenterPoint Houston, and CenterPoint Houston was not released by third parties from these liabilities. The indemnity provisions were intended generally to place sole financial responsibility on Texas Genco and its subsidiaries for all liabilities associated with the current and historical businesses and operations of Texas Genco, regardless of the time those liabilities arose. If Texas Genco (now an affiliate of NRG) were unable to satisfy a liability that had been so assumed or indemnified against, and provided we or Reliant Energy had not been released from the liability in connection with the transfer, CenterPoint Houston could be responsible for satisfying the liability.

In connection with our sale of Texas Genco, the separation agreement was amended to provide that Texas Genco would no longer be liable for, and we would assume and agree to indemnify Texas Genco against, liabilities that Texas Genco originally assumed in connection with its organization to the extent, and only to the extent, that such liabilities are covered by certain insurance policies held by us.

We or our subsidiaries have been named, along with numerous others, as a defendantus, and in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos. Somecertain of the claimants have worked at locations owned by us, but most existing claims relate to facilities previously owned by our subsidiaries. We anticipate that additional claims like those received may be asserted in the future. Under the terms of the arrangements regarding separation of the generating business from us and our sale of that business to an affiliate of NRG, ultimate financial responsibility for uninsured losses from claims relating to the generating business has been assumed by the NRG affiliate, butasbestos lawsuits we have agreed to continue to defend such claims to the extent they are covered by insurance maintained by us, subject to reimbursement of the costs of such defense by thean NRG affiliate.

Cyber-attacks, physical security breaches, acts of terrorism or other disruptions could adversely impact our or Enable’s reputation, results of operations, financial condition andand/or cash flows or the results of operations, financial condition and cash flows of Enable.flows.

We and Enable are subject to cyber-cyber and physical security risks related to breaches in theadversaries attacking information technology systems, network infrastructure, technology and technologyfacilities used to conduct almost all of our and Enable’s business which includes (i) to managemanaging operations and other business processes and (ii) to protectprotecting sensitive information maintained in the normal course of business. TheFor example, the operation of our electric transmission and distribution system is dependent on not only physical interconnection of our facilities but also on communications among the various components of our system. As we deploy smart meters and the intelligent grid,This reliance on information and communication between and among those components increases.has increased since deployment of smart meters and the intelligent grid.  Similarly, theour and Enable’s business operations are interconnected with external networks and facilities. The distribution of natural gas to our customers requires communications with Enable’s pipeline facilities and thethird-party systems. The gathering, processing and transportation of natural gas or other commodities from Enable’s gathering, processing and pipeline facilities are dependentand crude oil gathering pipeline systems also rely on communications among Enable’sits facilities and with third-party systems that may be delivering natural gas or other commoditiescrude oil into or receiving natural gas or crude oil and other products from Enable’s facilities. Disruption of those communications, whether caused by physical disruption such as storms or other natural phenomena,disasters, by failure of equipment or technology or by manmade events, such as cyber-attacks or acts of terrorism, may disrupt our ability or Enable’s ability to conduct operations and control assets.

Cyber-attacks and unauthorized access could also result in the loss, or unauthorized use, of confidential, proprietary or proprietarycritical infrastructure data or security breaches of other information technology systems that could disrupt operations and critical business functions, adversely affect reputation, increase costs and subject us or Enable to possible legal claims and liability. Further, third parties, including vendors, suppliers and contractors, who perform certain services for us or administer and maintain our sensitive information, could also be targets of cyber-attacks and unauthorized access. Neither we nor Enable is fully insured

35



against all cyber-security risks, any of which could adversely affect our reputation and could have a material adverse effect on either our or Enable’s results of operations, financial condition and/or cash flows.

In addition, our and Enable’s critical energy infrastructure may be targets of terrorist activities that could disrupt our respective business operations. In January 2017, the DOE’s Quadrennial Energy Review reported that cyber threats to the electricity system are increasing in sophistication, magnitude and frequency. Any such disruptions could result in significant costs to repair damaged facilities and implement increased security measures, which could have a material adverse effect on either our or Enable’s results of operations, financial condition andand/or cash flows. In addition, electrical distribution and transmission facilities and gas distribution and pipeline systems may be targets of terrorist activities that could disrupt either our or Enable’s ability to conduct our respective businesses and have a material adverse effect on either our or Enable’s results of operations, financial condition and cash flows.



Failure to maintain the security of personally identifiable information could adversely affect us.

In connection with our business we collect and retain personally identifiable information (e.g., information of our customers, shareholders, suppliers and employees. Our customers, shareholdersemployees), and employees expectthere is an expectation that we will adequately protect their personal information, and the United Statesthat information. The U.S. regulatory environment surrounding information security and privacy is increasingly demanding. A significant theft, loss or fraudulent use of customer, shareholder, employeethe personally identifiable information we maintain, or CenterPoint Energyof our data, by cyber-crime or otherwise could adversely impact our reputation and could result in significant costs, fines and litigation.

Our results of operations, financial condition and cash flows may be adversely affected if we are unable to successfully operate our facilities or perform certain corporate functions.

Our performance depends on the successful operation of our facilities. Operating these facilities involves many risks, including:

operator error or failure of equipment or processes;processes, including failure to follow appropriate safety protocols;

the handling of hazardous equipment or materials that could result in serious personal injury, loss of life and environmental and property damage;

operating limitations that may be imposed by environmental or other regulatory requirements;

labor disputes;

information technology or financial system failures, including those due to the implementation and integration of new technology, that impair our information technology infrastructure, reporting systems or disrupt normal business operations;

information technology failure that affects our ability to access customer information or causes us to lose confidential or proprietary data that materially and adversely affects our reputation or exposes us to legal claims; and

catastrophic events such as fires, earthquakes, explosions, leaks, floods, droughts, hurricanes, terrorism, pandemic health events or other similar occurrences.occurrences, which may require participation in mutual assistance efforts by us or other utilities to assist in power restoration efforts.

Such events may result in a decrease or elimination of revenue from our facilities, an increase in the cost of operating our facilities or delays in cash collections, any of which could have a material adverse effect on our results of operations, financial condition and/or cash flows.

Our success depends upon our ability to attract, effectively transition, motivate and retain key employees and identify and develop talent to succeed senior management.

We depend on our senior executive officers and other key personnel. Our success depends on our ability to attract, effectively transition and retain key personnel. The inability to recruit and retain or effectively transition key personnel or the unexpected loss of key personnel may adversely affect our operations. In addition, because of the reliance on our management team, our future success depends in part on our ability to identify and develop talent to succeed senior management. The retention of key personnel and appropriate senior management succession planning will continue to be critically important to the successful implementation of our strategies.

Failure to attract and retain an appropriately qualified workforce could adversely impact our results of operations.

Our business is dependent on our ability to recruit, retain, and motivate employees. Certain circumstances, such as an aging workforce without appropriate replacements, a mismatch of existing skillsets to future needs, or the unavailability of contract resources may lead to operating challenges such as a lack of resources, loss of knowledge or a lengthy time period associated with skill development. Our costs, including costs for contractors to replace employees, productivity costs and safety costs, may rise. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to the new employees, or the future availability and cost of contract labor may adversely affect the ability to manage and operate our business. If we are unable to successfully attract and retain an appropriately qualified workforce, our results of operations could be negatively affected.


36




Climate change legislation and regulatory initiatives could result in increased operating costs and reduced demand for our services or Enable’s services.

The United States Congress hasRegulatory agencies have from time to time considered adopting legislation, including modification of existing laws and regulations, to reduce emissions of GHGs, and there has beencontinues to be a wide-ranging policy and regulatory debate, both nationally and internationally, regarding the potential impact of these gasesGHGs and possible means for their regulation.  In addition, effortsEfforts have been made and continue to be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues, such as the most recent United Nations Climate Change Conference in Lima, Peru, in 2014. issues.

Following a finding by the EPA that certain GHGs represent an endangerment to human health, the EPA adopted two sets of rules regulating GHG emissions under the Clean Air Act, one that requires a reduction in emissions of GHGs from motor vehicles and another that regulates emissions of GHGs from certain large stationary sources. In addition, theThe EPA has also expanded its existing GHG emissions reporting requirements to include upstream petroleum and natural gas systems that emit 25,000 metric tons or more of CO2 equivalent per year.requirements. These permitting and reporting requirements could lead to further regulation of GHGs by the EPA. As a distributor and transporter of natural gas, or a consumer of natural gas in its pipeline and gathering businesses, CERC’s or Enable’s revenues, operating costs and capital requirements, as applicable, could be adversely affected as a result of any regulatory action that would require installation of new control technologies or a modification of its operations or would have the effect of reducing the consumption of natural gas.  Our electric transmission and distribution business, in contrast to some electric utilities, does not generate electricity and thus is not directly exposed to the risk of high capital costs and regulatory uncertainties that face electric utilities that burn fossil fuels to generate electricity.  Nevertheless, CenterPoint Houston’sHouston Electric’s revenues could be adversely affected to the extent any resulting regulatory action has the effect of reducing consumption of electricity by ultimate consumers within its service territory. Likewise, incentives to conserve energy or use energy sources other than natural gas could result in a decrease in demand for our services.

Climate changes could adversely impact financial results from our and Enable’s businesses and result in more frequent and more severe weather events which could adversely affect the results of operations of our businesses.

To the extentIf climate changes occur our businesses may be adversely impacted, though we believe any such impacts are likely to occur very gradually and hence would be difficult to quantify with specificity.  To the extent global climate change resultsthat result in warmer temperatures in our service territories, financial results from our natural gas distributionand Enable’s businesses could be adversely impacted. For example, CERC’s NGD could be adversely affected through lower natural gas sales and ourEnable’s natural gas transmissiongathering, processing and field servicestransportation and crude oil gathering businesses could experience lower revenues. Another possible result of climate change is more frequent and more severe weather events, such as hurricanes or tornadoes.  Since many of our facilities are located along or near the Gulf Coast, increased or more severe hurricanes or tornadoes could increase our costs to repair damaged facilities and restore service to our customers.  When we cannot deliver electricity or natural gas to customers or our customers cannot receive our services, our financial results can be impacted by lost revenues, and we generally must seek approval from regulators to recover restoration costs.  To the extent we are unable to recover those costs, or if higher rates resulting from our recovery of such costs result in reduced demand for our services, our future financial results may be adversely impacted.

We are uncertain how state commissions and local municipalities may require us to respond to the effects of the recent comprehensive tax reform legislation, and these regulatory requirements may adversely affect our results of operations, financial condition and cash flows.

On December 22, 2017, President Trump signed into law comprehensive tax reform legislation informally called the Tax Cuts and Jobs Act, or TCJA, which resulted in significant changes to federal tax laws effective January 1, 2018, including, but not limited to, a reduction in the corporate income tax rate.

For Houston Electric and NGD, federal income tax expense is included in the rates approved by state commissions and local municipalities and charged by those utilities to consumers. When Houston Electric and NGD have general rate cases and other periodic rate adjustments, we expect the lower corporate tax expense resulting from the TCJA (which includes determining the treatment of EDIT), along with other increases and decreases in our revenue requirements, to be incorporated into Houston Electric’s and NGD’s future rates. Nevertheless, regulators may require us to respond to the TCJA in other ways, including through faster recoveries of reductions in federal income tax expense, accounting orders to reflect a liability to return to customers in future rate proceedings, accelerated returns to consumers of previously collected deferred federal income taxes, increased funding of infrastructure upgrades, or offsets of future rate increases. The effect on us of any potential return of tax savings resulting from the TCJA to consumers may differ depending on how each regulatory body requires us to return such savings.

On January 25, 2018, the PUCT issued an accounting order in Project No. 47945 directing electric utilities, including Houston Electric, to record as a regulatory liability (1) the difference between revenues collected under existing rates and revenues that would have been collected had the existing rates been set using the recently approved federal income tax rates and (2) the balance of EDIT that now exists because of the reduction in federal income tax rates. On February 13, 2018, Houston Electric and other


likely parties to a future rate case announced a settlement that requires Houston Electric to make (i) a TCOS filing by February 20, 2018 to reflect the change in the federal income tax rate for Houston Electric’s transmission rate base through July 31, 2017 and account for certain EDIT (and such filing was timely submitted), (ii) a DCRF filing in April 2018 to reflect the change in the federal income tax rate for Houston Electric’s distribution rate base through December 31, 2017 and (iii) a full rate case filing by April 30, 2019. The settlement was presented to the PUCT during its open meeting on February 15, 2018. In response to the settlement, the PUCT did not proceed with a prior proposal to require Houston Electric to file a rate case in the summer of 2018. The PUCT also amended its prior accounting order to remove the requirement that utilities include carrying costs in the new regulatory liability. 

We can provide no assurances on how any regulatory body will ultimately require us to act. As such, we are currently unable to determine the impact of these potential regulatory actions in response to the enactment of the TCJA, which may adversely affect our results of operations, financial condition and cash flows.

In addition, the TCJA also includes a variety of other changes, such as a limitation on the tax deductibility of interest expense and acceleration of business asset expensing, among others. Several provisions of the TCJA are not generally applicable to the public utility industry, including the limitation on the tax deductibility of interest expense and the acceleration of business asset expensing. We continue to assess the impact that the TCJA may have on our future results of operations, financial condition and cash flows, which impact may adversely affect our future results of operations, financial condition and cash flows.

CERC and Enable may incur significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs.

Certain of CERC’s and Enable’s pipeline operations are subject to pipeline safety laws and regulations. The DOT’s PHMSA has adopted regulations requiring pipeline operators to develop integrity management programs, including more frequent inspections and other measures, for transportation pipelines located in “high consequence areas,” which are those areas where a leak or rupture could do the most harm. The regulations require pipeline operators, including CERC and Enable, to, among other things:

perform ongoing assessments of pipeline integrity;

develop a baseline plan to prioritize the assessment of a covered pipeline segment;

identify and characterize applicable threats that could impact a high consequence area;

improve data collection, integration, and analysis;

develop processes for performance management, record keeping, management of change and communication;

repair and remediate pipelines as necessary; and

implement preventive and mitigating action.

Failure to comply with PHMSA or comparable state pipeline safety regulations could result in a number of consequences that may have an adverse effect on CERC’s and Enable’s operations. Both CERC and Enable incur significant costs associated with their compliance with existing PHMSA and comparable state regulations, which may not be recoverable in rates.

Changes to pipeline safety laws and regulations that result in more stringent or costly safety standards could have a significant adverse effect on CERC and Enable. For example, in January 2017, PHMSA announced the issuance of the Pipeline Safety: Safety of Hazardous Liquids Pipelines final rule.  The final rule extends regulatory reporting requirements to additional liquid gathering lines, requires additional event-driven and periodic inspections, requires use of leak detection systems on additional hazardous liquid pipelines, modifies repair criteria, and requires certain pipelines to eventually accommodate inline inspection tools. It is unclear when or if this rule will go into effect as, on January 20, 2017, the Trump Administration requested that all regulations that had been sent to the Office of the Federal Register, but not yet published, be immediately withdrawn for further review, which is currently in progress. These proposals, if finalized, would impose additional costs on CERC and Enable.

In March 2016, PHMSA issued a notice of proposed rulemaking detailing proposed revisions to the safety standards applicable to natural gas transmission and gathering pipelines. The proposed rules include significant modifications which, if adopted, will result in significant operational and integrity management changes. These include requiring reconfirmation of the Maximum Allowable Operating Pressures in pipelines without reliable records, creating new material verification procedures, adding a new


moderate consequence area, and tightening repair criteria for pipelines in both high and moderate consequence areas. Other modifications include adding record-keeping and data collection obligations, and new requirements for monitoring gas quality and managing corrosion. The proposed rules also would expand the scope of gas gathering lines subject to PHMSA regulation, including imposing minimum safety standards on certain larger, currently exempt, gathering lines, while subjecting all gathering-line operators to recordkeeping and annual reporting requirements from which they are currently exempt. Other proposed changes, such as the modification to the definition of a transmission line, some record-keeping requirements, and some material verification obligations also may impact distribution pipelines although PHMSA states that such far-reaching applicability is not its intent. This rule is also currently under evaluation, and PHMSA is expected to issue a final rule in the third quarter of 2018 at the earliest. Because the impact of these proposed rules remains uncertain, we are still monitoring and evaluating the effect of these proposed requirements on operations.

On December 14, 2016, PHMSA announced an interim final rule to impose industry-developed recommendations as enforceable safety standards for downhole (underground) equipment, including wells, wellbore tubing, and casing, at both interstate and intrastate underground natural gas storage facilities. States may also impose more stringent standards on intrastate storage facilities. Both CERC and Enable own and operate underground storage facilities that will be subject to this rule’s provisions, which include procedures and practices for operations, maintenance, threat identification, monitoring, assessment, site security, emergency response and preparedness, training and recordkeeping. Although not yet finalized, the interim rule went into effect on January 18, 2017, with a compliance deadline of January 18, 2018. PHMSA determined, however, that it will not issue enforcement citations to any operators for violations of those provisions of the interim final rule that had previously been non-mandatory provisions of American Petroleum Institute Recommended Practices 1170 and 1171 until one year after PHMSA issues a final rule, which has not yet been issued. This matter remains ongoing and subject to future PHMSA determinations. CERC and Enable will continue to monitor developments and assess the potential impact of any modifications to this rule.

Proposed rulemakings such as those discussed above could expand the scope of natural gas and hazardous liquids integrity management programs and other pipeline safety regulations to include additional requirements or previously exempt pipelines. CERC and Enable have not estimated the cost of complying with any proposed changes to the regulations administered by PHMSA or state pipeline safety regulators.

Aging infrastructure may lead to increased costs and disruptions in operations that could negatively impact our financial results.

CenterPoint Energy hasWe have risks associated with aging infrastructure assets.  The age of certain of our assets may result in a need for replacement, or higher level of maintenance costs as a result of our risk based federal and state compliant integrity management programs.  Failure to achieve timely recovery of these expenses could adversely impact revenues and could result in increased capital expenditures or expenses.

The operation of our facilities depends on good labor relations with our employees.

Several of our businesses have entered into and have in place collective bargaining agreements with different labor unions. There are seven separate bargaining units in CenterPoint Energy, each with a unique collective bargaining agreement. These contracts will beIn 2017, CERC entered into renegotiated overcollective bargaining agreements with United Steelworkers Local 227 and United Steelworkers Local 13-1, which are scheduled to expire in June and July of 2022, respectively. The collective bargaining agreements with Gas Workers Union Local 340, IBEW Local 66 and Local 949 are each scheduled to expire in 2020, and the next two years.collective bargaining agreements with Professional Employees International Union Local 12 are scheduled to expire in 2021. Any failure to reach an agreement on new labor contracts or to negotiate these labor contracts might result in strikes, boycotts or other labor disruptions. These potential labor disruptions could have a material adverse effect on our businesses, results of operations and/or cash flows. Labor disruptions, strikes or significant negotiated wage and benefit increases, whether due to union activities, employee turnover or otherwise, could have a material adverse effect on our businesses, results of operations and/or cash flows.


37



Our businesses will continue to have to adapt to technological change and may not be successful or may have to incur significant expenditures to adapt to technological change.

We operate in businesses that require sophisticated data collection, processing systems, software and other technology. Some of the technologies supporting the industries we serve are changing rapidly. We expect that newrapidly and increasing in complexity. New technologies will emerge or grow that may be superior to, or may not be compatible with, some of our existing technologies, and may require us to make significant expenditures so that we can continue to provide cost-effective and reliable methods of energy delivery. Among such technological advances are distributed generation resources (e.g., private solar), energy storage devices and more energy-efficient buildings and products designed to reduce consumption. As these technologies become a more cost-competitive option


over time, whether through cost effectiveness or government incentives and subsidies, certain customers may choose to meet their own energy needs and subsequently decrease usage of our systems and services.

Our future success will depend, in part, on our ability to anticipate and adapt to these technological changes in a cost-effective manner and to offer, on a timely basis, reliable services that meet customer demands and evolving industry standards. If we fail to adapt successfully to any technological change or obsolescence, or fail to obtain access to important technologies or incur significant expenditures in adapting to technological change, or if implemented technology does not operate as anticipated, our businesses, operating results, and financial condition and cash flows could be materially and adversely affected.

Our or Enable’s potential business strategies and strategic initiatives, including merger and acquisition activities and the disposition of assets or businesses, may not be successfulcompleted or may result in completed acquisitions that do not perform as anticipated.expected.

From time to time, we and Enable have made and may continue to make acquisitions or divestitures of businesses and assets.assets, form joint ventures or undertake restructurings. However, suitable acquisition candidates or potential buyers may not continue to be available on terms and conditions we or Enable, as the case may be, find acceptable. In addition, anyacceptable, or the expected benefits of completed acquisitions may not be realized fully or at all, or may not be realized in the anticipated timeframe. If we or Enable are unable to make acquisitions or if those acquisitions do not perform as anticipated, our and Enable’s future growth may be adversely affected.

Any completed or future acquisitions involve substantial risks, including the following:

acquired businesses or assets may not produce revenues, earnings or cash flow at anticipated levels;

acquired businesses or assets could have environmental, permitting or other problems for which contractual protections prove inadequate;

we or Enable may assume liabilities that were not disclosed to us, that exceed our estimates, or for which our rights to indemnification from the seller are limited;

we or Enable may be unable to integrate acquired businesses successfully and realize anticipated economic, operational and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical or financial problems; and

acquisitions, or the pursuit of acquisitions, could disrupt ongoing businesses, distract management, divert resources and make it difficult to maintain current business standards, controls and procedures.    

In February 2016, we announced that we were evaluating strategic alternatives for our investment in Enable, including a sale or spin-off qualifying under Section 355 of the U.S. Internal Revenue Code. We have determined that we will no longer pursue a spin option at this time. More recently, we announced that late-stage discussions with a third party regarding a transaction involving our investment in Enable had terminated because an agreement on mutually acceptable terms could not be reached. We may reduce our ownership in Enable over time through sales in the public equity markets, or otherwise, of the common units we hold, subject to market conditions. Although a transaction for all our interests in Enable is not viable at this time, we may pursue such a transaction if it is viable in the future. Our ability to execute any sale of common units is subject to a number of uncertainties, including the timing, pricing and terms of any such sale. Any sales of our common units could have an adverse impact on the price of Enable common units or on any trading market for Enable common units. Further, our sales of Enable common units may have an adverse impact on Enable’s ability to issue equity on satisfactory terms, or at all, which may limit its ability to expand operations or make future acquisitions. Any reduction in our interest in Enable would result in decreased distributions from Enable, which may reduce our operating income and adversely impact our ability to meet our payment obligations and pay dividends on our common stock. For a further discussion, please read “— Risk Factors Affecting Our Interests in Enable Midstream Partners, LP — Enable’s ability to grow is dependent on its ability to access external financing sources.”

There can be no assurances that we will engage in any specific action or that any sale transaction or any sale of common units in the public equity markets or otherwise will be completed, and we do not intend to disclose further developments unless and until our board of directors approves a specific action or as otherwise required by applicable law or NYSE regulations. Any sale transaction or sale of common units in the public equity markets or otherwise may involve significant costs and expenses, including, in connection with any public offering, a significant underwriting discount. We may not realize any or all of the anticipated strategic, financial, operational or other benefits from any completed sale or reduction in our investment in Enable.



We are involved in numerous legal proceedings, the outcome of which are uncertain, and resolutions adverse to us could negatively affect our financial results.

We are subject to numerous legal proceedings, the most significant of which are summarized in Footnote 14Note 15 of the Notes to the Consolidated Financial Statements.our consolidated financial statements. Litigation is subject to many uncertainties, and we cannot predict the outcome of individualall matters with assurance. Final resolution of these matters may require additional expenditures over an extended period of time that may be in excess of established insurance or reserves and may have a material adverse effect on our financial results.

We are exposed to risks related to reduction in energy consumption due to factors including unfavorable economic conditions in our service territories, energy efficiency initiatives and use of alternative technologies.

Our businesses are affected by reduction in energy consumption due to factors including economic climate in our service territories, energy efficiency initiatives and use of alternative technologies, which could impact our ability to grow our customer base and our rate of growth. Declines in demand for electricity as a result of economic downturns in our regulated electric service territory will reduce overall sales and lessen cash flows, especially as industrial customers reduce production and, therefore, consumption of electricity. Although Houston Electric is subject to regulated allowable rates of return and recovery of certain costs under periodic adjustment clauses, overall declines in electricity sold as a result of economic downturn or recession could reduce revenues and cash flows, thereby diminishing results of operations. Additionally, prolonged economic downturns that negatively impact our results of operations and cash flows could result in future material impairment charges to write-down the carrying value of certain assets, including goodwill, to their respective fair values.

For example, our electric business is largely concentrated in Houston, Texas, where a higher percentage of employment is tied to the energy sector relative to other regions of the country. During 2015 and 2016, the rate of growth in employment in Houston declined in connection with the significant decline in energy and commodity prices over that period. Relatively low commodity prices compared to pre-2015 levels continued in 2017, and we expect such relatively low prices to continue or slightly improve in 2018. In the event economic conditions further decline, the rate of growth in Houston and the other areas in which we operate may also deteriorate. Increases in customer defaults or delays in payment due to liquidity constraints could negatively impact our cash flows and financial condition.

Growth in customer accounts and growth of customer usage each directly influence demand for electricity and the need for additional delivery facilities. Customer growth and customer usage are affected by a number of factors outside our control, such as mandated energy efficiency measures, demand-side management goals, distributed generation resources and economic and demographic conditions, such as population changes, job and income growth, housing starts, new business formation and the overall level of economic activity.

Certain regulatory and legislative bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain dates. Additionally, technological advances driven by federal laws mandating new levels of energy efficiency in end-use electric devices or other improvements in or applications of technology could lead to declines in per capita energy consumption.

Some or all of these factors, could result in a lack of growth or decline in customer demand for electricity or number of customers, and may result in our failure to fully realize anticipated benefits from significant capital investments and expenditures which could have a material adverse effect on their financial position, results of operations and cash flows.

Furthermore, we currently have energy efficiency riders in place to recover the cost of energy efficiency programs. Should we be required to invest in conservation measures that result in reduced sales from effective conservation, regulatory lag in adjusting rates for the impact of these measures could have a negative financial impact.

If we fail to maintain an effective system of internal controls, our ability to accurately report our financial condition, results of operations or cash flows or prevent fraud may be adversely affected. As a result, investors could lose confidence in our financial reporting, which could impact our businesses and the trading price of our securities. 

Effective internal controls are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully as a public company. If our efforts to maintain an effective system of internal controls are not successful, we are unable to maintain adequate controls over our financial reporting and processes in the future or we are unable to comply with our obligations under Section 404 of the Sarbanes-Oxley Act of 2002, our operating results could be harmed or we may fail to meet our reporting obligations. Ineffective internal controls also could cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our securities.



Our businesses may be adversely affected by the intentional misconduct of our employees.

We are committed to living our core values of safety, integrity, accountability, initiative and respect and complying with all applicable laws and regulations. Despite that commitment and our efforts to prevent misconduct, it is possible for employees to engage in intentional misconduct, fail to uphold our core values, and violate laws and regulations for individual gain through contract or procurement fraud, misappropriation, bribery or corruption, fraudulent related-party transactions and serious breaches of our Ethics and Compliance Code and Standards of Conduct/Business Ethics policy, among other policies. If such intentional misconduct by employees should occur, it could result in substantial liability, higher costs, increased regulatory scrutiny and negative public perceptions, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

Character of Ownership

We lease or own our principal properties in fee, including our corporate office space and various real property. Most of our electric lines and natural gas mains are located, pursuant to easements and other rights, on public roads or on land owned by others.


38



Electric Transmission & Distribution

For information regarding the properties of our Electric Transmission & Distribution business segment, please read “Business — Our Business — Electric Transmission & Distribution — Properties” in Item 1 of this report, which information is incorporated herein by reference.

Natural Gas Distribution

For information regarding the properties of our Natural Gas Distribution business segment, please read “Business — Our Business — Natural Gas Distribution — Assets” in Item 1 of this report, which information is incorporated herein by reference.

Energy Services

For information regarding the properties of our Energy Services business segment, please read “Business — Our Business — Energy Services — Assets” in Item 1 of this report, which information is incorporated herein by reference.
 
Midstream Investments

For information regarding the properties of our Midstream Investments business segment, please read “Business — Our Business — Midstream Investments” in Item 1 of this report, which information is incorporated herein by reference.

Other Operations

For information regarding the properties of our Other Operations business segment, please read “Business — Our Business — Other Operations” in Item 1 of this report, which information is incorporated herein by reference.

Item 3.Legal Proceedings

For a discussion of material legal and regulatory proceedings affecting us, please read “Business — Regulation” and “Business — Environmental Matters” in Item 1 of this report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Regulatory Matters” in Item 7 of this report and Note 14(d)15(d) to our consolidated financial statements, which information is incorporated herein by reference.

Item 4.Mine Safety Disclosures

Not applicable.


39




PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of February 17, 20159, 2018, our common stock was held by approximately 35,32730,493 shareholders of record. Our common stock is listed on the New YorkNYSE and Chicago Stock ExchangesExchange and is traded under the symbol “CNP.”

The following table sets forth the high and low closing prices of the common stock of CenterPoint Energy on the New York Stock ExchangeNYSE composite tape during the periods indicated, as reported by Bloomberg, and the cash dividends declared in these periods.
 
 Market Price
 
Dividend
Declared
 High Low Per Share
2014     
First Quarter    $0.2375
January 3  $22.81
  
February 21$24.48
    
Second Quarter    $0.2375
April 7  $23.39
  
June 30$25.54
    
Third Quarter    $0.2375
July 1$25.38
    
August 6  $23.56
  
Fourth Quarter    $0.2375
November 10$25.38
    
December 15  $21.54
  
      
2013     
First Quarter    $0.2075
January 8  $19.47
  
March 28$23.96
    
Second Quarter    $0.2075
April 30$24.68
    
June 20  $22.49
  
Third Quarter    $0.2075
August 1$25.16
    
September 5  $22.76
  
Fourth Quarter    $0.2075
November 15$25.07
    
December 13  $22.68
  
 
 Market Price
 
Dividend
Declared
 High Low Per Share
2017     
First Quarter    $0.2675
January 3  $24.59
  
March 15$28.09
    
Second Quarter    $0.2675
May 17  $27.17
  
June 1$28.93
    
Third Quarter    $0.2675
July 11  $27.16
  
September 11$30.45
    
Fourth Quarter (1)
    $0.5450
November 30$30.01
    
December 21  $27.77
  
      
2016     
First Quarter    $0.2575
January 20  $16.90
  
March 29$21.25
    
Second Quarter    $0.2575
April 5  $20.51
  
June 29$24.00
    
Third Quarter    $0.2575
July 22$24.69
    
August 16  $22.13
 ��
Fourth Quarter    $0.2575
October 11  $21.84
  
December 22$24.84
    

(1)On October 25, 2017, our Board of Directors declared a regular quarterly cash dividend of $0.2675 per share of common stock payable on December 8, 2017, to shareholders of record as of the close of business on November 16, 2017. On December 13, 2017, our Board of Directors declared a regular quarterly cash dividend of $0.2775 per share, payable on March 8, 2018 to shareholders of record at the close of business on February 15, 2018.

The closing market price of our common stock on December 31, 20142017 was $23.43$28.36 per share.

The amount of future cash dividends will be subject to determination based upon our results of operations and financial condition, our future business prospects, any applicable contractual restrictions and other factors that our boardBoard of directorsDirectors considers relevant and will be declared at the discretion of the boardBoard of directors.Directors.

On January 22, 2015, our board of directors declared a regular quarterly cash dividend of $0.2475 per share, payable on March 10, 2015 to shareholders of record on February 13, 2015.


40




Repurchases of Equity Securities

During the quarter ended December 31, 20142017, none of our equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 were purchased by or on behalf of us or any of our “affiliated purchasers,” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934.

Item 6.        Selected Financial Data

The following table presents selected financial data with respect to our consolidated financial condition and consolidated results of operations and should be read in conjunction with our consolidated financial statements and the related notes in Item 8 of this report.
 Year Ended December 31,
 2014 2013 2012 2011 (3) 2010
 (in millions, except per share amounts)
Revenues$9,226
 $8,106
 $7,452
 $8,450
 $8,785
Equity in Earnings of Unconsolidated Affiliates308
(1)188
(2)31
 30
 29
Income before Extraordinary Item611
 311
 417
 770
 442
Extraordinary Item, net of tax
 
 
 587
 
Net income$611
 $311
 $417
 $1,357

$442
Basic earnings per common share:         
Income before Extraordinary Item$1.42
 $0.73
 $0.98
 $1.81
 $1.08
Extraordinary Item, net of tax
 
 
 1.38
 
Basic earnings per common share$1.42
 $0.73
 $0.98
 $3.19

$1.08
Diluted earnings per common share:         
Income before Extraordinary Item$1.42
 $0.72
 $0.97
 $1.80
 $1.07
Extraordinary Item, net of tax
 
 
 1.37
 
Diluted earnings per common share$1.42
 $0.72
 $0.97
 $3.17

$1.07
          
Cash dividends declared per common share$0.95
 $0.83
 $0.81
 $0.79
 $0.78
Dividend payout ratio67% 114% 83%
44%(4)72%
Return on average common equity14% 7% 10% 21%(4)15%
Ratio of earnings to fixed charges2.79
 2.42
 2.29
 2.96
(4)2.08
At year-end:   
  
  
  
Book value per common share$10.58
 $10.09
 $10.09
 $9.91
 $7.53
Market price per common share23.43
 23.18
 19.25
 20.09
 15.72
Market price as a percent of book value221% 230% 191% 203% 209%
Total assets$23,200
 $21,870
 $22,871
 $21,703
 $20,111
Short-term borrowings53
 43
 38
 62
 53
Transition and system restoration bonds, including current maturities3,046
 3,400
 3,847
 2,522
 2,805
Other long-term debt, including current maturities5,758
 4,914
 5,910
 6,603
 6,624
Capitalization:   
  
  
  
Common stock equity34% 34% 31% 32% 25%
Long-term debt, including current maturities66% 66% 69% 68% 75%
Capitalization, excluding transition and system restoration bonds:   
  
  
  
Common stock equity44% 47% 42% 39% 33%
Long-term debt, excluding transition and system restoration bonds, and including current maturities56% 53% 58% 61% 67%
Capital expenditures$1,402
 $1,272
 $1,188
 $1,191
 $1,462
 Year Ended December 31,
 2017 2016 2015 2014 2013
 (in millions, except per share amounts)
Revenues$9,614
 $7,528
 $7,386
 $9,226
 $8,106
Equity in earnings (losses) of unconsolidated affiliates265
 208
 (1,663)(2)308
 188
Net income (loss)1,792
(1)432
 (692) 611

311
Basic earnings (loss) per common share4.16
 1.00
 (1.61) 1.42

0.73
Diluted earnings (loss) per common share4.13
 1.00
 (1.61) 1.42

$0.72
          
Cash dividends paid per common share$1.07
 $1.03
 $0.99
 $0.95
 $0.83
Dividend payout ratio26% 103% n/a

67%
114%
Return on average common equity44% 12% (17)% 14% 7%
Ratio of earnings to fixed charges3.70
 2.74
 2.67
 2.79
 2.42
At year-end:         
Book value per common share$10.88
 $8.04
 $8.05
 $10.58
 $10.09
Market price per common share28.36
 24.64
 18.36
 23.43
 23.18
Market price as a percent of book value261% 306% 228 % 221% 230%
Percentage of common units owned representing limited partner interests in Enable54.1% 54.1% 55.4 % 55.4% 58.3%
Total assets (4)
$22,736
 $21,829
 $21,290
 $23,150
 $21,816
Short-term borrowings39
 35
 40
 53
 43
Securitization Bonds, including current maturities (3)
1,868
 2,278
 2,667
 3,037
 3,388
Other long-term debt, including current maturities (3)
6,933
 6,279
 6,063
 5,717
 4,873
Capitalization:         
Common stock equity35% 29% 28 % 34% 34%
Long-term debt, including current maturities65% 71% 72 % 66% 66%
Capitalization, excluding Securitization Bonds:         
Common stock equity40% 36% 36 % 44% 47%
Long-term debt, excluding Securitization Bonds, and including current maturities60% 64% 64 % 56% 53%
Capital expenditures$1,494
 $1,406
 $1,575
 $1,402
 $1,272
___________________
(1)As ofNet income for the year ended December 31, 2014, we owned approximately 55.4%2017 includes a reduction in income taxes of $1,113 million due to tax reform. See Note 14 to our consolidated financial statements for further discussion of the limited partner interest in Enable Midstream Partners, LP (Enable) and 0.1%impacts of Southeast Supply Header, LLC (SESH), each an unconsolidated subsidiary, that we account for on an equity basis.tax reform implementation.

(2)Following the formationThis amount includes $1,846 million of Enable on May 1, 2013, Enable owned substantially all of our former Interstate Pipelines and Field Services business segments, except for our retained 25.05% interest in SESH. As of December 31, 2013, we owned approximately 58.3% of the limited partner interest in Enable.


41



(3)2011 Income before Extraordinary Item includes a $224 million after-tax ($0.53 and $0.52 per basic and diluted share, respectively) return on true-up balancenon-cash impairment charges related to a portion of interest on the appealed true-up amount.Enable.

(4)(3)Calculated using Income before Extraordinary Item.Amounts for 2013 to 2015 have been restated to reflect adoption of ASU 2015-03.




Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in combination with our consolidated financial statements included in Item 8 herein.

OVERVIEW

Background

We are a public utility holding company. Our operating subsidiaries own and operate electric transmission and distribution facilities and natural gas distribution facilities, supply natural gas to commercial and industrial customers and electric and natural gas utilities and own interests in Enable Midstream Partners, LP (Enable) as described below. Our indirect, wholly ownedwholly-owned subsidiaries include:

CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which engages in the electric transmission and distribution business in a 5,000-square mile area of the Texas Gulf Coast area that includes the city of Houston; and

CenterPoint Energy ResourcesCERC Corp. (CERC Corp. and, together with its subsidiaries, CERC), which owns and operates natural gas distribution systems. A wholly owned subsidiary of CERC Corp.systems in six states; and

CES, which obtains and offers competitive variable and fixed-price physical natural gas supplies and services primarily to commercial and industrial customers and electric and natural gas utilities. utilities in 33 states.

As of December 31, 2014, CERC Corp.2017, we also owned approximately 55.4%an aggregate of the limited partner interests14,520,000 Series A Preferred Units in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets.assets, and CERC Corp. owned approximately 54.1% of the common units representing limited partner interests in Enable.

Business Segments

In this Management’s Discussion and Analysis, we discuss our results from continuing operations on a consolidated basis and individually for each of our business segments. We also discuss our liquidity, capital resources and certain critical accounting policies. We are first and foremost an energy delivery company and it is our intention to remain focused on these segments of the energy business. The results of our business operations are significantly impacted by weather, customer growth, economic conditions, cost management, competition, rate proceedings before regulatory agencies and other actions of the various regulatory agencies to whose jurisdiction we are subject. Our electric transmission and distribution services are subject to rate regulation and are reported in the Electric Transmission & Distribution business segment, as are impacts of generation-related stranded costs and other true-up balances recoverable by the regulated electric utility. For further information about our Electric Transmission & Distribution business segment, see “Business — Our Business — Electric Transmission & Distribution” in Item 1 of Part I of this report. Our natural gas distribution services are also subject to rate regulation and are reported in the Natural Gas Distribution business segment. For further information about our Natural Gas Distribution business segment, see “Business — Our Business — Natural Gas Distribution” in Item 1 of Part I of this report. Our Energy Services business segment includes non-rate regulated natural gas sales to, and transportation and storage services, for commercial and industrial customers. For further information about our Energy Services business segment, see “Business — Our Business — Energy Services” in Item 1 of Part I of this report.The results of our Midstream Investments business segment are 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 and other factors as discussed below under “-“— Factors Influencing Our Midstream Investments Segment.” A summary of our reportable business segments as of December 31, 2014 is set forth below:

Electric Transmission & Distribution

Our electric transmission and distribution operations provide electric transmission and distribution services to retail electric providers (REPs) serving over two million metered customers in a 5,000-square-mile area of the Texas Gulf Coast that has a population of approximately six million people and includes the city of Houston.

On behalf of REPs, CenterPoint Houston delivers electricity from power plants to substations, from one substation to another and to retail electric customers in locations throughout CenterPoint Houston’s certificated service territory. The Electric Reliability Council of Texas, Inc. (ERCOT) serves as the regional reliability coordinating council for member electric power systems in Texas. ERCOT membership is open to consumer groups, investor and municipally-owned electric utilities, rural electric cooperatives, independent generators, power marketers, river authorities and REPs. The ERCOT market represents approximately 85% of the demand for power in Texas and is one of the nation’s largest power markets. Transmission and distribution services are provided under tariffs approved by the Public Utility Commission of Texas (Texas Utility Commission).


42



Natural Gas Distribution

CERC owns and operates our regulated natural gas distribution business (NGD), which engages in intrastate natural gas sales to, and natural gas transportation for, approximately 3.4 million residential, commercial and industrial customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas.

Energy Services

CERC’s operations also include non-rate regulated natural gas sales to, and transportation services for, commercial and industrial customers in 23 states in the central United States.

Midstream Investments

We have a significant equity investment in Enable, an unconsolidated subsidiary that owns, operates and develops natural gas and crude oil assets. Our Midstream Investments segment includes equity earnings associated with the operations of Enable and a 0.1% interest in Southeast Supply Header, LLC (SESH) owned by CERC.

Other Operations

Our other operations business segment includes office buildings and other real estate used in our business operations and other corporate operations which support all of our business operations.

EXECUTIVE SUMMARY

Factors Influencing Our Businesses and Industry Trends
 
We expect our and Enable’s businesses to continue to be affected by the key factors and trends discussed below. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results.

We are an energy delivery company. The majority of our revenues are generated from the sale of natural gas and the transmission and delivery of electricity by our subsidiaries. We do not own or operate electric generating facilities or make retail sales to end-use electric customers. To assess our financial performance, our management primarily monitors operating income and cash flows from our business segments. Within these broader financial measures, we monitor margins, operation and maintenance expense,


interest expense, capital spending and working capital requirements. In addition to these financial measures, we also monitor a number of variables that management considers important to the operation of our business segments, including the number of customers, throughput, use per customer, commodity prices and heating and cooling degree days. We also monitor system reliability, safety factors and customer satisfaction to gauge our performance.

To the extent adverse economic conditions affect our suppliers and customers, results from our energy delivery businesses may suffer. Reduced demand and lower energy prices could leadFor example, our electric business is largely concentrated in Houston, Texas, where a higher percentage of employment is tied to financial pressure on some of our customers who operate within the energy industry. sector relative to other regions of the country. Although Houston, Texas has a diverse economy, employment in the energy industry remains important. During 2015 and 2016, the rate of growth in employment in Houston declined in connection with the significant decline in energy and commodity prices over that period. Relatively low commodity prices compared to pre-2015 levels continued in 2017, and we expect such relatively low prices to continue or slightly improve in 2018.

Also, adverse economic conditions, coupled with concerns for protecting the environment and increased availability of alternate energy sources, may cause consumers to use less energy or avoid expansions of their facilities, resulting in less demand for our services. To the extent population growth is affected by lower energy prices and there is financial pressure on some of our customers who operate within the energy industry, there may be an impact on the growth rate of our customer base and overall demand. Due to a slowdown in multi-family residential construction, meter growth in 2017 has declined. We saw year-over-year residential meter growth decline from 2.3% in 2016 to 1.6% in 2017. As the recent stability in the energy sector gains momentum in 2018, we anticipate this growth will continue at roughly 2%, in line with long-term trends.

Performance of our Electric Transmission & Distribution and Natural Gas Distribution business segments is significantly influenced by the number of customers and energy usage per customer. Weather conditions can have a significant impact on energy usage, and we compare our results on a weather adjustedweather-adjusted basis. 

Overall, in 2017 the Houston area experienced a number of record-breaking high and low temperatures, primarily in January-April and in October-November, resulting in a year that was warmer by a tenth of a degree than the previous warmest year, 2012. In 2012, we generallyterms of heating degree days, Texas recorded its warmest year and for most other jurisdictions the second warmest year since 1970. In 2017, our Houston service area experienced above normal weather inwarmth with record rainfall during Hurricane Harvey. In 2016, our Houston service area experienced above normal warmth with episodes of flooding. In 2015, our Houston service area experienced some of the summer months. However, everymildest temperatures on record during November and December. Every state in which we distribute natural gas had the warmest winter on record. In 2013, we experienced a colderwarmer than normal springwinter in 2017, 2016 and very cold2015.

Historically, both the TDU and NGD have utilized weather in November and December in Houston and allhedges to help reduce the impact of the states in which we have gas customers.mild weather on their financial results. The coolerTDU entered into a weather continued into 2014 and throughout the year, resulting in a colder than normal January and February and milder temperatureshedge for the rest2015-2016, 2016-2017 and 2017-2018 winter heating seasons. However, although NGD did not enter into a weather hedge for the winter of 2015-2016 or 2016-2017, it has entered into a hedge for the year, including the summer months,2017-2018 winter season in Texas where no weather normalization mechanisms exist. In our non-Texas jurisdictions, weather normalization mechanisms or decoupling in the Houston area. Long termMinnesota division help to mitigate the impact of abnormal weather on our financial results. Long-term national trends indicate customers have reduced their energy consumption, and reduced consumption canwhich could 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 someslowed. 

In Minnesota and Arkansas, there are rate adjustment mechanisms to counter the impact of the areas we serve.declining usage from energy efficiency improvements. 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 towhich could 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 inthroughout 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 tomitigate the effects of price movements, it does not engage inenter into risk management contracts for speculative or proprietary tradingpurposes and maintains a low value at risk level, or

43



monitors VaR daily to avoid significant financial exposures.  exposures to realized income.  At the end of 2017, a weather-driven spike in natural gas prices caused the accrual of unusually high unrealized mark-to-market income, expected to be substantially reversed in the first quarter of 2018 as natural gas prices normalize.

In 2014, basis volatility created asset optimization revenues not experiencedJanuary 2017, CES acquired AEM, which included approximately 1,000 customers and 362 Bcf of natural gas sales. The customer base included more industrial customers, which was complementary to our existing commercial-heavy customer base. This acquisition helped drive the overall operating income increase for Energy Services in many years and the extreme cold weather increased throughput and margin from2017 as compared to 2016. For more information regarding this acquisition, see Note 4 to our weather sensitive customers. Lower geographic and seasonal price differentials during 2013 and 2012 adversely affected results for this business segment.consolidated financial statements.



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 contributionscontribute a minimum of approximately $67 million to our pension plans aggregating approximately $66 million in 2015 and may need to make larger contributions in subsequent years.2018. 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 NGDNatural 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 dependssystems. These volumes depend significantly on the level of production from natural gas wells connected to itsEnable’s 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 productionactivities. Production must be maintained or increased by new drilling or other activity, because the production rate of oil and gas wells declines over time.

OilEnable expects its business to continue to be impacted by the trends affecting the midstream industry, discussed below. Enable’s outlook is based on its management’s assumptions regarding the impact of these trends that it has developed by interpreting the information currently available to them. If Enable management’s assumptions or interpretation of available information prove to be incorrect, Enable’s future financial condition and gas producers’ willingness to engageresults of operations may differ materially from its expectations.

Enable’s business is impacted by commodity prices, which have declined and otherwise experienced significant volatility in newrecent years. Commodity prices impact the drilling is determined by a number of factors, the most important of which are the prevailing and projected pricesproduction of natural gas NGLs and crude oil in the cost to drillareas served by Enable’s systems, and operate a well, the availabilityvolumes on Enable’s systems are negatively impacted if producers decrease drilling and cost of capitalproduction in those areas served. Both Enable’s gathering and environmentalprocessing segment and government regulations. Prices of natural gas, crude oil,its transportation and NGLs have historically experienced periods of significant volatility. Enable’s results are alsostorage segment can be impacted by drilling and production. Enable’s gathering and processing segment primarily serves producers, and many producers utilize the services provided by its transportation and storage segment. A decrease in volumes will decrease cash flows from Enable’s systems. In addition, Enable’s processing arrangements expose it to commodity price differentials between receipt and delivery points on its systems across the various markets that it serves.fluctuations. 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. Recently, the prices of

Enable’s long-term view is that natural gas and crude oil NGLs and natural gas have declined significantly. Should lower commodity prices persist, Enable’s future volumes and cash flows may be negatively impacted. The level of drilling is expected to positively correlate with long-term trendsproduction in commodity prices. Similarly, production levels nationally and regionally generally tend to positively correlate with drilling activity.

the U.S. will increase. Over the past several years, there has been a fundamental shift in U.S. natural gas and crude oil production towards tight gas formations and shale plays. The emergence of these plays and advancementsAdvancements in technology have been crucial factors that have allowed producers to efficiently extract significant volumesnatural gas and crude oil from these formations and plays. As a result, the proven reserves of natural gas NGLs and crude oil. Recently, declining crude oil and natural gas liquids pricesin the U.S. have resulted in current and anticipated decreases in crude oil and natural gas drilling activity. Should lower prices and producer activity persist for a sustained period, Enable’s future volumes and cash flows may be negatively impacted. To maintain and increase throughput volumes on its systems, Enable must continue to contract its capacity to shippers, including producers and marketers. Enable’s transportation and storage systems compete for customers based on the type of service a customer needs, operating flexibility, receipt and delivery points and geographic flexibility and available capacity and price. To maintain and increase Enable’s transportation and storage volumes, it must continue to contract its capacity to shippers, including producers, marketers, LDCs, power generators and industrial end-users.significantly increased.

Natural gas continues to be a critical component of energy supply and demand in the United States.U.S. Over the long term, Enable’s management believes that the prospects for continued natural gas demand are favorable and will be driven by population and economic growth, as well as the continued displacement of coal-fired electricity generationpower plants by natural gas-fired electricity generationpower plants due to the low pricesprice of natural gas and stricter government environmental regulations on the mining and burning of coal. According to the U.S. Energy Information Administration (EIA), demand for natural gas in the electric power sector is projected to increase from approximately 9.3 Tcf in 2012 to approximately 11.2 Tcf in 2040, with a portion of the growth attributable to the retirement of 50 gigawatts of coal-fired capacity by 2020. The EIA also projects that natural gas consumption in the industrial sector will be higher due to the rejuvenation of the industrial sector as it benefits from low natural gas prices. However, the EIA expects growth in natural gas consumption for power generation and in the industrial sector to be partially offset by decreased

44



usage in the residential sector. Enable’s management believes that increasing consumption of natural gas over the long term in these sectors will continue to drive demand for Enable’s natural gas gathering, processing, transportation and storage services.

Enable depends onmay access to the capital markets to fund its expansion capital expenditures. Historically, unit prices of publicly traded midstream master limited partnerships have experienced periods of volatility. In addition, because Enable’s common units are yield-based securities,


rising market interest rates could impact the relative attractiveness of Enable’s common units to investors. CapitalFurther, fluctuations in energy and commodity prices can create volatility in Enable’s common unit prices, which could impact investor appetite for its common units. Volatility in energy and commodity prices, as well as other macro-economic factors could impact the relative attractiveness of Enable’s debt securities to investors. As a result of capital market volatility, could limit Enable’s abilityEnable may be unable to timely issue unitsequity securities or debt on satisfactory terms, or at all, which may limit its ability to expand its operations or make future acquisitions. Our Midstream Investments segment currently

The regulation of gathering and transmission pipelines, storage and related facilities by FERC and other federal and state regulatory agencies, including the DOT, has a significant impact on Enable’s business. For example, the DOT’s PHMSA has established pipeline integrity management programs that require more frequent inspections of pipeline facilities and other preventative measures, which may increase Enable’s compliance costs and increase the time it takes to obtain required permits. Additionally, increased regulation of oil and natural gas producers, including regulation associated with hydraulic fracturing, could reduce regional supply of oil and natural gas and therefore throughput on Enable’s gathering systems.

Enable relies on certain key natural gas producer customers for a significant portion of its natural gas and NGLs supply. For the year ended December 31, 2017, Enable’s top ten natural gas producer customers accounted for approximately 70% of its gathered volumes. These customers include affiliates of Continental, Vine, GeoSouthern, XTO Energy, Tapstone Energy, Apache, BP Energy Company, Chesapeake, Covey Park and Four Point Energy. Further, Enable relies on certain key utilities and producers for a significant portion of its transportation and storage demand. For the year ended December 31, 2017, Enable’s top transportation and storage customers by revenue were our affiliates and affiliates of Spire, American Electric Power Company, OGE, Continental, XTO Energy, Chesapeake, Midcontinent Express Pipeline, Entergy and Shell.

Enable is exposed to certain credit risks relating to its ongoing business operations. Credit risk includes a 0.1% interest in SESH owned by CERCthe risk that counterparties that owe Enable money or commodities will breach their obligations. If the counterparties to these arrangements fail to perform, Enable may be contributed by CERCforced to enter into alternative arrangements. In that event, Enable’s financial results could be adversely affected, and Enable incould incur losses. Enable examines the future, upon exercisecreditworthiness of third-party customers to whom it extends credit and manages its exposure to credit risk through credit analysis, credit approval, credit limits and monitoring procedures, and for certain puttransactions, Enable may request letters of credit, prepayments or call rights under which CERC would contributeguarantees or seek to Enable CERC’s retained interest in SESH.renegotiate its contract to reduce credit exposure.

Significant Events

Enable Initial Public Offering.Tax Reform. On April 16, 2014, Enable Midstream Partners, LP (Enable) completed its initial public offering (IPO) of 28,750,000 common units at a price of $20.00 per unit,December 22, 2017, President Trump signed into law comprehensive tax reform legislation informally called The Tax Cuts and Jobs Acts, or TCJA, which included 3,750,000 common units sold by ArcLight Capital Partners, LLC (ArcLight) pursuantresulted in significant changes to an over-allotment option that was fully exercised byfederal tax laws effective January 1, 2018.  For the underwriters. Enable received $464 million in net proceeds from the saleimpacts of the units, after deducting underwriting fees, structuring fees and other offering costs.tax reform legislation, see Note 14 to our consolidated financial statements.
In connection with its IPO, on March 25, 2014, Enable effected a 1 for 1.279082616 reverse unit split. Immediately following the unit split, CenterPoint Energy Resources Corp. (CERC Corp.) owned 227,508,825 common units, representing a 58.3% limited partner interest in Enable. Also in connection with Enable’s IPO, 139,704,916 of
Hurricane Harvey. Houston Electric’s electric delivery system and CERC Corp.’s common units were converted into subordinated units. The principal difference between Enable common units and subordinated units is that in any quarter during the subordination period, holders of the subordinated units are not entitled to receive any distribution of available cash until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. If Enable does not pay distributions on its subordinated units, the subordinated units will not accrue arrearages for those unpaid distributions. At the end of the subordination period, CenterPoint Energy’s subordinated units in Enable will be converted to common units in Enable on a one-for-one basis.
Subsequent to the IPO, Enable continues to be controlled jointly by CenterPoint Energy and OGE; each own 50% of the management rights in the general partner of Enable. CenterPoint Energy and OGE also own a 40% and 60% economic interest, respectively, in the incentive distribution rights held by the general partner of Enable.
As a result of Enable’s IPO, CenterPoint Energy’s limited partner interest in Enable was reduced from approximately 58.3% to approximately 54.7%. CenterPoint Energy accounted for the dilution of its investment in EnableNGD suffered damage as a result of Enable’s IPO as a failed partial sale of in-substance real estate. CenterPoint Energy did not receive any cash from Enable’s IPO and, as such, CenterPoint Energy did not recognize a gain or loss. CenterPoint Energy’s basis difference in Enable was reduced forHurricane Harvey, which struck the Texas coast on Friday, August 25, 2017. For further information regarding the impact of Hurricane Harvey, see Note 6 to our consolidated financial statements.

Brazos Valley Connection Project. Houston Electric began construction on the Enable IPO.Brazos Valley Connection in February 2017. For further details, see “—Liquidity and Capital Resources —Regulatory Matters —Brazos Valley Connection Project” below.

Bailey-Jones Creek Project.In accordance with the Enable formation agreements, CenterPoint Energy had certain put rights, and Enable had certain call rights, exercisable with respectApril 2017, Houston Electric submitted a proposal to the 25.05% interest in SESH retained by CenterPoint Energy on May 1, 2013 (Closing Date), under which CenterPoint Energy would contribute its retained interest in SESH, in exchangeERCOT for a specified number of limited partner units in Enable and a cash payment, payable either from CenterPoint Energy to Enable or from Enable to CenterPoint Energy, to the extent of changesan approximately $250 million transmission project in the value of SESH subjectgreater Freeport, Texas area. For further details, see “—Liquidity and Capital Resources —Regulatory Matters — Bailey-Jones Creek Project” below.

Regulatory Proceedings. For details related to certain restrictions. Specifically, the rights wereour pending and are exercisable with respect to (1) a 24.95% interest in SESH (24.95% Put), which closed on May 30, 2014 as discussed belowcompleted regulatory proceedings during 2017, see “—Liquidity and (2) a 0.1% interest in SESH, which may be exercised no earlier than June 2015 for 25,341 common units in Enable.Capital Resources —Regulatory Matters” below.
On May 30, 2014, CenterPoint Energy closed its 24.95% Put and contributed to Enable its 24.95% interest in SESH in exchange for 6,322,457 common units of Enable, which increased CenterPoint Energy’s limited partner interest in Enable from approximately 54.7% to approximately 55.4%. No cash payment was required to be made pursuant to the Enable formation agreements in connection with CenterPoint Energy’s exercise of the 24.95% Put. CenterPoint Energy accounted for the contribution of its 24.95% interest in SESH to Enable in exchange for common units of Enable as a non-monetary transaction of in-substance real estate equity method investments. As such, CenterPoint Energy recorded the 6,322,457 common units at the historical cost of the contributed 24.95% interest in SESH of $196 million and recorded no gain or loss in connection with its exercise of the 24.95% Put. As a result, CenterPoint Energy’s basis difference in Enable was reduced for the impact of its exercise of the 24.95% Put.
CenterPoint Energy incurred natural gas expenses, including transportation and storage costs, of $130 million and $123 million, during the year ended December 31, 2014 and 2013, respectively, for transactions with Enable occurring on or after the Closing Date.

45



As of December 31, 2014, CenterPoint Energy held an approximate 55.4% limited partner interest in Enable consisting of 94,126,366 common units and 139,704,916 subordinated units and a 0.1% interest in SESH. On December 31, 2014, Enable’s common units closed at $19.39 per unit on the New York Stock Exchange.
Debt Matters.Transactions.  Approximately $44In 2017, we and CERC Corp. retired or redeemed a combined $800 million aggregate principal amount of pollution control bondssenior notes. Additionally, we issued on behalf of CenterPoint Energy Houston Electric, LLC (CenterPoint Houston) were redeemed on March 3, 2014 at 101% of their principal amount plus accrued interest. The bonds had an interest rate of 4.25%, were scheduled to mature in 2017 and were collateralized by general mortgage bonds of CenterPoint Houston.
Approximately $56$500 million aggregate principal amount of pollution control bondsunsecured senior notes, CERC Corp. issued on behalf of CenterPoint Houston were purchased by CenterPoint Houston on March 3, 2014 at 101% of their principal amount plus accrued interest pursuant to the mandatory tender provisions of the bonds. The bonds had an interest rate of 5.60% prior to CenterPoint Houston’s purchase and have a variable rate thereafter. The bonds mature in 2027 and are collateralized by general mortgage bonds of CenterPoint Houston. The purchased pollution control bonds may be remarketed.
On March 17, 2014, CenterPoint Houston issued $600 million principal amount of 4.50% General Mortgage Bonds due 2044. The proceeds from the sale of the bonds were used for general limited liability company purposes, including the repayment of short-term notes payable to affiliated companies.
Approximately $84$300 million aggregate principal amount of pollution control bondsunsecured senior notes and Houston Electric issued on behalf$300 million aggregate principal amount of general mortgage bonds. For further information about our 2017 debt transactions, see Note 13 to our consolidated financial statements.

Credit Facilities. In June 2017, CenterPoint Energy, Houston Electric LLC (CenterPoint Houston) were redeemed on June 2, 2014 at 100% ofand CERC Corp. each entered into amendments to their principal amount plus accrued interest. The bonds had an interest rate of 4.25%, were scheduled to mature in 2017 and were collateralized by general mortgage bonds of CenterPoint Houston.
On September 9, 2014, our revolving credit facility and therespective revolving credit facilities ofto (a) extend the termination date and terminate the swingline loan subfacility under each facility, and (b) for the CenterPoint HoustonEnergy and CERC Corp. were amended to, among other things, extendfacilities, increase the maturity date of theaggregate commitments under the credit facilities from September 9, 2018 to September 9, 2019. The amendments also reduced the swingline and letter of credit sub-facilities under eachsuch facilities. For further information about our 2017 credit facility with total commitments under each credit facility remaining unchanged.amendments, see Note 13 to our consolidated financial statements.



AEM Acquisition. In January 2017, CES acquired AEM. For more information regarding this acquisition, see Note 4 to our consolidated financial statements.

CERTAIN FACTORS AFFECTING FUTURE EARNINGS

Our past earnings and results of operations are not necessarily indicative of our future earnings and results of operations. The magnitude of our and Enable’s future earnings and results of our and Enable’s operations will depend on or be affected by numerous factors including:

state and federal legislative and regulatory actions or developments affecting various aspects of our businesses (including the businesses of Enable, including, among others, energy deregulation or re-regulation, pipeline integrity and safety, health care reform, financial reform, tax legislation and actions regarding the rates charged by our regulated businesses;

local, state and federal legislative and regulatory actions or developments relating to the environment, including those related to global climate change;

timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment;

the timing and outcome of any audits, disputes and other proceedings related to taxes;

problems with regulatory approval, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or in cost overruns that cannot be recouped in rates;

industrial, commercial and residential growth in our service territories and changes in market demand, including the effects of energy efficiency measures and demographic patterns;

changes in technology, particularly with respect to efficient battery storage or emergence or growth of new, developing or alternative sources of generation;

the timing and extent of changes in commodity prices, particularly natural gas, and the effects of geographic and seasonal commodity price differentials;

weather variations and other natural phenomena, including the impact of severe weather events on operations and capital;

any direct or indirect effects on our facilities, operations and financial condition resulting from terrorism, cyber-attacks, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other catastrophic events;

the impact of unplanned facility outages;

46




timely and appropriate regulatory actions allowing securitization or other recovery of costs associated with any future hurricanes or natural disasters;

changes in interest rates or rates of inflation;

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 credit rating agencies;

effectiveness of our risk management activities;

inability of various counterparties to meet their obligations to us;

non-payment for our services due to financial distress of our customers;

the ability of GenOn Energy, Inc. (formerly known as RRI Energy, Inc., Reliant Energy, Inc. and Reliant Resources, Inc.), a wholly owned subsidiary of NRG Energy, Inc. (NRG), and its subsidiaries to satisfy their obligations to us, including indemnity obligations, or obligations in connection with the contractual arrangements pursuant to which we are their guarantor;

the ability of retail electric providers (REPs), including REP affiliates of NRG and Energy Future Holdings Corp., to satisfy their obligations to us and our subsidiaries;

our ability to recruit, effectively transition and retain management and key employees;

the outcome of litigation brought by or against us;

our ability to control costs;

our ability to invest planned capital;

the investment performance of our pension and postretirement benefit plans;

our potential business strategies, including restructurings, joint ventures and acquisitions or dispositions of assets or businesses, which we cannot assure you will be completed or will have the anticipated benefits to us;

acquisition and merger activities involving us or our competitors;

future economic conditions in regional and national markets and their effect on sales, prices and costs;

the performance of Enable, the amount of cash distributions we receive from Enable, Enable’s ability to redeem the Series A Preferred Units in certain circumstances and the value of our interest in Enable, and factors that may have a material impact on such performance, cash distributions and value, including certain of the factors specified above and:such as:

the achievement of anticipated operational and commercial synergies and expected growth opportunities, and the successful implementation of its business plan;

competitive conditions in the midstream industry, and actions taken by Enable’s customers and competitors, including the extent and timing of the entry of additional competition in the markets served by Enable;

the timing and extent of changes in the supply of natural gas and associated commodity prices, particularly prices of natural gas and natural gas liquids (NGLs),NGLs, the competitive effects of the available pipeline capacity in the regions served by Enable, and the effects of geographic and seasonal commodity price differentials, including the effects of these circumstances on re-contracting available capacity on Enable’s interstate pipelines;

the demand for crude oil, natural gas, NGLs and transportation and storage services;

environmental and other governmental regulations, including the availability of drilling permits and the regulation of hydraulic fracturing;

recording of non-cash goodwill, long-lived asset or other than temporary impairment charges by or related to Enable;

changes in tax status;

access to growthdebt and equity capital; and

the availability and prices of raw materials and services for current and future construction projects; and

industrial, commercial and residential growth in our service territories and changes in market demand, including the effects of energy efficiency measures and demographic patterns;

timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment;

future economic conditions in regional and national markets and their effect on sales, prices and costs;

weather variations and other natural phenomena, including the impact of severe weather events on operations and capital;

state and federal legislative and regulatory actions or developments affecting various aspects of our businesses (including the businesses of Enable), including, among others, energy deregulation or re-regulation, pipeline integrity and safety and changes in regulation and legislation pertaining to trade, health care, finance and actions regarding the rates charged by our regulated businesses;

tax reform and legislation, including the effects of the TCJA and uncertainties involving state commissions’ and local municipalities’ regulatory requirements and determinations regarding the treatment of EDIT and our rates;

our ability to mitigate weather impacts through normalization or rate mechanisms, and the effectiveness of such mechanisms;

the timing and extent of changes in commodity prices, particularly natural gas, and the effects of geographic and seasonal commodity price differentials;

problems with regulatory approval, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or in cost overruns that cannot be recouped in rates;

local, state and federal legislative and regulatory actions or developments relating to the environment, including those related to global climate change;

the impact of unplanned facility outages;

any direct or indirect effects on our or Enable’s facilities, operations and financial condition resulting from terrorism, cyber-attacks, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other


catastrophic events such as fires, earthquakes, explosions, leaks, floods, droughts, hurricanes, pandemic health events or other occurrences;

our ability to invest planned capital and the timely recovery of our investment in capital;

our ability to control operation and maintenance costs;

actions by credit rating agencies;

the sufficiency of our insurance coverage, including availability, cost, coverage and terms;

the investment performance of our pension and postretirement benefit plans;

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;

changes in interest rates and their impact on our costs of borrowing and the valuation of our pension benefit obligation;

changes in rates of inflation;

inability of various counterparties to meet their obligations to us;

non-payment for our services due to financial distress of our customers;

the extent and effectiveness of our risk management and hedging activities, including, but not limited to our financial and weather hedges;

timely and appropriate regulatory actions allowing securitization for any future hurricanes or natural disasters or other recovery of costs, including costs associated with Hurricane Harvey;

our or Enable’s potential business strategies and strategic initiatives, including restructurings, joint ventures and acquisitions or dispositions of assets or businesses (including a reduction of our interests in Enable, if any; whether through our decision to sell all or a portion of the Enable common units we own in the public equity markets or otherwise, subject to certain limitations), which we cannot assure you will be completed or will have the anticipated benefits to us or Enable;

acquisition and merger activities involving us or our competitors;

our or Enable’s ability to recruit, effectively transition and retain management and key employees and maintain good labor relations;

the ability of GenOn (formerly known as RRI Energy, Inc., Reliant Energy and RRI), a wholly-owned subsidiary of NRG, and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations to us, including indemnity obligations;

the outcome of litigation;

the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to us and our subsidiaries;

changes in technology, particularly with respect to efficient battery storage or the emergence or growth of new, developing or alternative sources of generation;

the timing and outcome of any audits, disputes and other proceedings related to taxes;

the effective tax rates;

the effect of changes in and application of accounting standards and pronouncements; and

other factors we discuss under “Risk Factors” in Item 1A of this report and in other reports we file from time to time with the SEC.

47






CONSOLIDATED RESULTS OF OPERATIONS

All dollar amounts in the tables that follow are in millions, except for per share amounts.
 Year Ended December 31,
 2017 2016 2015
 (in millions, except per share amounts)
Revenues$9,614
 $7,528
 $7,386
Expenses8,542
 6,569
 6,453
Operating Income1,072
 959
 933
Gain (Loss) on Marketable Securities7
 326
 (93)
Gain (Loss) on Indexed Debt Securities49
 (413) 74
Interest and Other Finance Charges(313) (338) (352)
Interest on Securitization Bonds(77) (91) (105)
Equity in Earnings (Losses) of Unconsolidated Affiliates265
 208
 (1,633)
Other Income, net60
 35
 46
Income (Loss) Before Income Taxes1,063
 686
 (1,130)
Income Tax Expense (Benefit)(729) 254
 (438)
Net Income (Loss)$1,792
 $432
 $(692)
      
Basic Earnings (Loss) Per Share$4.16
 $1.00
 $(1.61)
      
Diluted Earnings (Loss) Per Share$4.13
 $1.00
 $(1.61)

 Year Ended December 31,
 2014 2013 2012
Revenues$9,226
 $8,106
 $7,452
Expenses8,291
 7,096
 6,414
Operating Income935
 1,010
 1,038
Gain on Marketable Securities163
 236
 154
Loss on Indexed Debt Securities(86) (193) (71)
Interest and Other Finance Charges(353) (351) (422)
Interest on Transition and System Restoration Bonds(118) (133) (147)
Equity in Earnings of Unconsolidated Affiliates308
 188
 31
Step acquisition gain
 
 136
Other Income, net36
 24
 38
Income Before Income Taxes885
 781
 757
Income Tax Expense274
 470
 340
Net Income$611
 $311
 $417
      
Basic Earnings Per Share$1.42
 $0.73
 $0.98
      
Diluted Earnings Per Share$1.42
 $0.72
 $0.97

20142017 Compared to 20132016

Net Income.  We reported net income of $6111,792 million ($1.424.13 per diluted share) for 20142017 compared to $311net income of $432 million ($0.721.00 per diluted share) for the same period in 2013. 2016.

The increase in net income of $300$1,360 million was primarily due to the following key factors:

a $196$983 million decrease in income tax expense, resulting from a reduction in income tax expense of $1,113 million due to tax reform, discussed further in Note 14 to our consolidated financial statements, offset by a $130 million increase in income tax expense primarily due to higher net income year over year;

a $462 million increase in gains on indexed debt securities related to the ZENS, resulting from increased gains of $345 million in the underlying value of the indexed debt securities and a loss of $117 million from the Charter merger in 2016;

a $113 million increase in operating income discussed below by segment;

a $120$57 million increase in equity earnings of unconsolidated affiliates, from our investment in Enable, discussed further in Note 10 to our consolidated financial statements;

a $107 million decrease in the loss on our indexed debt securities, a $13$25 million decrease in interest expense and due to lower weighted average interest rates on outstanding debt;

a $12$17 million decrease in losses on early debt redemption;

a $14 million increase in other income, whichcash distributions on Series A Preferred Units included in Other Income, net shown above; and

a $14 million decrease in interest expense related to lower outstanding balances of our Securitization Bonds.

These increases were partially offset byby:

a $75$319 million decrease in operating income (discussed below by segment)gains on marketable securities; and

a $73$6 million decrease in the gain on our marketable securities.miscellaneous other non-operating income included in Other Income, net shown above.



Income Tax Expense. We reported an effective tax rate of 31.0%(69%) and 60.2%37% for the years ended December 31, 20142017 and 2013,2016, respectively. The effective tax rate of 31.0% for 2014(69%) is primarily due to a $29 million tax benefit recognized upon completionthe remeasurement of a tax basis balance sheet review and a $13 million reversal of previously accrued taxesour ADFIT liability as a result of final positions taken in the 2013 tax returns.  We determined the impactenactment of the $29 million adjustment was not material to any prior period orTCJA on December 22, 2017, which reduced the year ended December 31, 2014.  The effectiveU.S. corporate income tax rate of 60.2% for 2013 is primarily attributablefrom 35% to a net $196 million charge to deferred tax expense due to the formation of Enable. For more information, see21%. See Note 1314 to our consolidated financial statements. statements for a more in depth discussion of the 2017 impacts of the TCJA.

20132016 Compared to 20122015

Net Income.  We reported net income of $311$432 million ($0.721.00 per diluted share) for 20132016 compared to $417a net loss of $692 million ($0.97(1.61) per diluted share) for the same period in 2012. 2015.

The decreaseincrease in net income of $106$1,124 million was primarily due to the following key factors:

a $136 million non-cash step acquisition gain related to the acquisition of an additional 50% interest in Waskom in 2012, a $130 million increase in income tax expense discussed below, a $122 million increase in the loss on our indexed debt securities and a $28 million decrease in operating income (discussed below by segment). Operating income in 2012 included a $252 million non-cash goodwill impairment charge. These decreases were partially offset by a $157$1,841 million increase in equity earnings from our investment in Enable, as 2015 results included impairment charges of unconsolidated affiliates, $1,846 million, discussed further in Note 10 to our consolidated financial statements;

a $85 million decrease in interest expense and a $82$419 million increase in the gain on our marketable securities.securities;

a $26 million increase in operating income discussed below by segment;

a $22 million increase in cash distributions on Series A Preferred Units included in Other Income, net shown above;

a $14 million decrease in interest expense due to lower weighted average interest rates on outstanding debt; and

a $14 million decrease in interest expense related to lower outstanding balances of our Securitization Bonds.

These increases were partially offset by:

a $692 million increase in income tax expense due to higher income before tax;

a $487 million increase in the loss on indexed debt securities related to the ZENS resulting from a loss of $117 million from the Charter merger in 2016 compared to a loss of $7 million from Verizon’s acquisition of AOL in 2015 and increased losses of $377 million in the underlying value of the indexed debt securities;

a $22 million loss on early redemption of our $300 million 6.5% senior notes otherwise due 2018 included in Other Income, net shown above;

a $6 million decrease in interest income due primarily to Enable’s repayment of $363 million note payable to us included in Other Income, net shown above; and

a $5 million decrease in miscellaneous other non-operating income include in Other Income, net shown above.

Income Tax Expense.  We reported an effective tax rate of 60.2% for 2013 compared to 44.9%37% and 39% for the same period in 2012. Ouryears ended December 31, 2016 and 2015, respectively. The effective tax rate for 2013 increased by 15.3%of 39% is primarily as a resultdue to lower earnings from the impairment of our investment in Enable. The impairment loss reduced the formation of Enable with deferred tax expense of $225 million related to the book-to-tax basis difference for contributed non-tax deductible goodwill and a tax benefit of $29 million

48



associated with the remeasurement of state deferred taxes at formation. In addition, we recognized a tax benefit of $8 million basedliability on the settlement with the Internal Revenue Service (IRS) of outstanding tax claims for the 2002 and 2003 audit cycles. Our effective tax rate for 2013 was approximately 36.2% excluding the tax effects from the adjustments described above.

Our effective tax rate for 2012 of 44.9% was primarily impacted by an increaseour investment in tax expense of $88 million related to the non-tax deductible impairment of goodwill of $252 million and a reduction in tax expense of $28 million for the release of tax reserves settled with the IRS. Our effective tax rate for 2012 was approximately 37% excluding the tax effects from the adjustments described above.Enable.



RESULTS OF OPERATIONS BY BUSINESS SEGMENT

The following table presents operating income (loss) (in millions) for each of our business segments for 20142017, 20132016 and 20122015. Included in revenues are intersegment sales. We account for intersegment sales as if the sales were to third parties that is, at current market prices.

Operating Income (Loss) by Business Segment

Year Ended December 31,
Year Ended December 31,2017 2016 2015
2014 2013 2012(in millions)
Electric Transmission & Distribution$595
 $607
 $639
$610
 $628
 $607
Natural Gas Distribution287
 263
 226
328
 303
 273
Energy Services52
 13
 (250)125
 20
 42
Interstate Pipelines
 72
 207
Field Services
 73
 214
Other Operations1
 (18) 2
9
 8
 11
Total Consolidated Operating Income$935
 $1,010
 $1,038
$1,072
 $959
 $933


49



Electric Transmission & Distribution

The following tables provide summary data of our Electric Transmission & Distribution business segment CenterPoint Houston, for 20142017, 20132016 and 20122015 (in millions, except throughput and customer data):

Year Ended December 31,Year Ended December 31,
2014 2013 20122017 2016 2015
Revenues:     (in millions, except throughput and customer data)
Electric transmission and distribution utility$2,279
 $2,063
 $1,949
Transition and system restoration bond companies566
 507
 591
TDU$2,588
 $2,507
 $2,364
Bond Companies409
 553
 481
Total revenues2,845
 2,570
 2,540
2,997
 3,060
 2,845
Expenses: 
  
  
 
  
  
Operation and maintenance, excluding transition and system restoration bond companies1,251
 1,045
 942
Depreciation and amortization, excluding transition and system restoration bond companies327
 319
 301
Operation and maintenance, excluding Bond Companies1,423
 1,355
 1,300
Depreciation and amortization, excluding Bond Companies395
 384
 340
Taxes other than income taxes224
 225
 214
235
 231
 222
Transition and system restoration bond companies448
 374
 444
Bond Companies334
 462
 376
Total expenses2,250
 1,963
 1,901
2,387
 2,432
 2,238
Operating Income$595
 $607
 $639
$610
 $628
 $607
     
Operating Income:   
     
  
Electric transmission and distribution operations$477
 $474
 $492
Transition and system restoration bond companies (1) 118
 133
 147
TDU$535
 $537
 $502
Bond Companies (1)
75
 91
 105
Total segment operating income$595
 $607
 $639
$610
 $628
 $607
Throughput (in gigawatt-hours (GWh)): 
  
  
Throughput (in GWh): 
  
  
Residential27,498
 27,485
 27,315
29,703
 29,586
 28,995
Total81,839
 79,985
 78,593
88,636
 86,829
 84,191
Number of metered customers at end of period: 
  
  
 
  
  
Residential2,033,027
 1,982,699
 1,943,423
2,164,073
 2,129,773
 2,079,899
Total2,299,247
 2,244,289
 2,199,764
2,444,299
 2,403,340
 2,348,517
___________________
(1)Represents the amount necessary to pay interest on the transition and system restoration bonds.Securitization Bonds.

20142017 Compared to 2013.2016.  Our Electric Transmission & Distribution business segment reported operating income of $595610 million for 2014,2017, consisting of $477535 million from our regulated electric transmission and distribution utility operations (TDU)the TDU and $11875 million related to transition and system restoration bond companies.the Bond Companies. For 2013,2016, operating income totaled $607$628 million, consisting of $474$537 million from the TDU and $133$91 million related to transition and system restoration bond companies. the Bond Companies.



TDU operating income increased $3decreased $2 million primarily due to the following key factors:

lower equity return of $22 million, primarily related to the annual true-up of transition charges correcting for over-collections that occurred during the preceding 12 months;

higher depreciation, primarily because of ongoing additions to plant in service, and other taxes of $20 million;

higher operation and maintenance expenses of $19 million, primarily due to higher labor and benefits costs of $10 million and corporate support services expenses of $8 million;

lower usage of $15 million; and

lower miscellaneous revenues, including right-of-way, of $10 million.

These decreases to operating income were partially offset by the following:

rate increases of $47 million related to distribution capital investments;

customer growth ($33 million)of $32 million from the addition of almost 55,000 new customers, 41,000 customers; and

higher equity return ($23 million), primarily related to true-up proceeds and higher energy efficiency performance bonus ($15 million),transmission-related revenues of $61 million, partially offset by increased labor and support services costs ($21 million), increased contracts and services ($19 million), lower right of way revenues ($8 million), increased depreciation ($8 million), an adjustment to our claims liability reserve ($6 million) and decreased usage ($5 million), primarily due to milder weather. Increased transmission costs billed by transmission providers of $168 million were largely offset by increased transmission revenue.$56 million.
 
20132016 Compared to 2012.2015.  Our Electric Transmission & Distribution business segment reported operating income of $607$628 million for 2013,2016, consisting of $474$537 million from the TDU and $133$91 million related to transition and system restoration bond companies.the Bond Companies. For 2012,2015, operating income totaled $639$607 million, consisting of $492$502 million from the TDU and $147$105 million related to transition and system restoration bond companies. the Bond Companies.

TDU operating income decreased $18increased $35 million due to decreased usage ($13 million), primarily due to unfavorable weather, increased taxes other than income taxes ($11 million), increased depreciation ($10 million, excluding $8 million from increased investment in AMS offset by the related revenues), increased labor and benefits costs ($7 million), increased contracts and services ($4 million), increased support services ($4 million) and increased insurance costsfollowing key factors:

50



($3 million), partially offset by customer growth ($26 million)of $31 million from the addition of over 44,000 new customers and 54,000 customers;

higher transmission-related revenues net of the$82 million, partially offset by transmission costs billed by transmission providers ($9 million).of $55 million;

higher equity return of $17 million, primarily due to the annual true-up of transition charges correcting for under-collections that occurred during the preceding 12 months; and

rate increases of $13 million related to distribution capital investments.

These increases to operating income were partially offset by the following:

higher depreciation, primarily because of ongoing additions to plant in service, and other taxes of $45 million;

higher operation and maintenance expenses of $3 million; and

lower right-of-way revenues of $3 million.




Natural Gas Distribution

The following table provides summary data of our Natural Gas Distribution business segment for 2014, 20132017, 2016 and 2012 (in millions, except throughput and customer data):
2015: 
Year Ended December 31,
Year Ended December 31,2017 2016 2015
2014 2013 2012(in millions, except throughput and customer data)
Revenues$3,301
 $2,863
 $2,342
$2,639
 $2,409
 $2,632
Expenses: 
  
  
 
  
  
Natural gas1,961
 1,607
 1,196
1,164
 1,008
 1,297
Operation and maintenance700
 667
 637
742
 714
 697
Depreciation and amortization201
 185
 173
260
 242
 222
Taxes other than income taxes152
 141
 110
145
 142
 143
Total expenses3,014
 2,600
 2,116
2,311
 2,106
 2,359
Operating Income$287
 $263
 $226
$328
 $303
 $273
Throughput (in Bcf):   
     
  
Residential197
 182
 140
151
 152
 171
Commercial and industrial270
 265
 243
261
 259
 262
Total Throughput467
 447
 383
412
 411
 433
Number of customers at end of period:   
  
   
  
Residential3,124,542
 3,090,966
 3,058,695
3,213,140
 3,183,538
 3,149,845
Commercial and industrial249,272
 247,100
 246,413
256,651
 255,806
 253,921
Total3,373,814
 3,338,066
 3,305,108
3,469,791
 3,439,344
 3,403,766
 
20142017 Compared to 2013.2016.  Our Natural Gas Distribution business segment reported operating income of $287$328 million for 20142017 compared to $263$303 million for 2013. 2016.

Operating income increased $24$25 million primarily as a result of the following key factors:

rate increases of $38 million, primarily from Texas rate filings of $14 million, Arkansas rate case and formula rate plan filings of $9 million, Minnesota interim rates of $7 million and Mississippi RRA of $4 million;

higher other revenues of $8 million, primarily driven by transportation revenues;

customer growth of $7 million from the addition of over 30,000 new customers;

labor and benefits were favorable by $5 million, resulting primarily from the recording of a regulatory asset (and a corresponding reduction in expense) to recover $16 million of prior postretirement expenses in future rates established in the Texas Gulf rate order; and

an increase of $7 million from weather normalization adjustments, partially offset by $4 million of milder weather effects.

These increases were partially offset by:

higher operation and maintenance expenses of $20 million, primarily due to increased usage as a resultbad debt expenses of colder weather compared to the prior year, partially mitigated by weather hedges and weather normalization adjustments ($16 million), rate increases ($37 million)$7 million, increased contract services of $7 million, increased insurance costs of $3 million and increased economic activity across our footprint including the additioncorporate support services expenses of approximately 36,000 customers ($10 million). These increases were partially offset by $2 million; and

increased contractor expense, including pipeline integrity work ($10 million), higher depreciation and amortization ($16 million), an increase inexpense, primarily due to ongoing additions to plant-in-service, and other taxes ($7 million),of $16 million.

Increased operation and increased other operating expenses ($6 million). Increasedmaintenance expense related to energy efficiency programs ($8 million)of $13 million and increaseddecreased other taxes expense related to higher gross receipt taxes ($4 million)of $5 million were offset by a corresponding increase or decrease in the related revenues.



20132016 Compared to 2012.2015.  Our Natural Gas Distribution business segment reported operating income of $263$303 million for 20132016 compared to $226$273 million for 2012. 2015.

Operating income increased $37$30 million primarily due to increased usage as a result of colderthe following key factors:

rate increases of $55 million, primarily from the 2015 Minnesota rate case, including the decoupling rider, and the Texas GRIP filing;

lower bad debt expense of $12 million resulting from lower customer bills due to warmerthan normal weather compared to the prior year, partially mitigated by weather hedgesas well as credit and collections process improvements that have reduced write-offs;

an increase of $26 million from weather normalization adjustments, ($29 million), rate increases ($29 million),including weather-related decoupling and increased economic activity across our footprint includinghedging activities, partially offset by $19 million of milder weather effects; and

customer growth of $5 million from the addition of approximately 33,000 residential customers ($7 million). over 35,000 new customers.

These increases were partially offset by by:

increased operating expenses ($6 million), higher bad debt expense ($5 million), higher depreciation and amortization expense ($12 million)of $20 million, primarily due to ongoing additions to plant in service;

higher labor and an increase in taxes ($5 million),benefits expenses of $11 million, primarily attributabledriven by increased pension costs;

higher contract services expenses of $10 million, primarily for increased pipeline integrity, leak surveying and repair activities; and

increased operation and maintenance expenses of $8 million related to property taxes. higher support services costs and other miscellaneous expenses.

Increased operation and maintenance expense related to energy efficiency programs ($17 million)of $1 million and increaseddecreased other taxes expense related to higher gross receipt taxes ($26 million)of $3 million were offset by a corresponding increase or decrease in the related revenues.


51



Energy Services

The following table provides summary data of our Energy Services business segment for 2014, 20132017, 2016 and 2012 (in millions, except throughput and customer data):

2015:
Year Ended December 31,
Year Ended December 31,2017 2016 2015
2014 2013 2012(in millions, except throughput and customer data)
Revenues$3,179
 $2,401
 $1,784
$4,049
 $2,099
 $1,957
Expenses: 
  
  
 
  
  
Natural gas3,073
 2,336
 1,730
3,816
 2,011
 1,867
Operation and maintenance47
 46
 45
87
 59
 42
Depreciation and amortization5
 5
 6
19
 7
 5
Taxes other than income taxes2
 1
 1
2
 2
 1
Goodwill impairment
 
 252
Total expenses3,127
 2,388
 2,034
3,924
 2,079
 1,915
Operating Income (Loss)$52
 $13
 $(250)
Operating Income$125
 $20
 $42
     
Timing impacts related to mark-to-market gain (loss) (1)
$79
 $(21) $4
          
Throughput (in Bcf)631
 600
 562
1,200
 777
 618
          
Number of customers at end of period (1)17,964
 17,510
 16,330
Number of customers at end of period (2)
31,000
 30,000
 18,000
___________________
(1)Includes the change in unrealized mark-to-market value and the impact from derivative assets and liabilities acquired through the purchase of Continuum and AEM.


(2)These numbers do not include approximately 9,700, 8,80072,000 and 12,70060,100 natural gas customers as of December 31, 2014, 20132017 and 2012,2016, respectively, that are under residential and small commercialcustomer choice programs invoiced by their host utility.

20142017 Compared to 2013.2016. Our Energy Services business segment reported operating income of $52$125 million for 2017 compared to $13$20 million for 2013.2016. The increase in operating income of $39$105 million was primarily due to a $31$100 million increase from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. A $29weather-driven spike in natural gas prices at the end of 2017 caused the accrual of an unusually high mark-to-market asset, expected to be substantially reversed in the first quarter of 2018 as natural gas prices normalize. Operating income in 2017 also included approximately $5 million mark-to-market gain was incurred in 2014 comparedof expenses related to a chargethe acquisition and integration of $2 million in 2013.AEM. The remaining increase in operating income was primarily due to improved margins resulting from weather-related optimization of existing gas transportation assets, reduced fixed costs and increased throughput and price volatility.related to the acquisition of AEM in 2017.

20132016 Compared to 2012.2015. Our Energy Services business segment reported operating income of $13$20 million for 2016 compared to $2$42 million for 2012, excluding the goodwill impairment charge discussed below.2015. The increasedecrease in operating income of $11$22 million was primarily due to a $14$25 million increasedecrease from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. A $2 million mark-to-market chargePartially offsetting this decrease was incurredan increase in 2013operating income for 2016 as compared to a charge2015 attributable to increased throughput and number of $16 million for 2012.  Energy Services grew both volume and customers in 2013 offsetting the impact of the lower unit margin environment.

Goodwill Impairment

A non-cash goodwill impairment charge of $252 million for our Energy Services business segment was recorded in 2012. The adverse wholesale market conditions facing our energy services business, specifically the prospects for continued low geographic and seasonal price differentials for natural gas, led to a reduction in our estimate of the fair value of goodwill associated with this reporting unit.

52



Interstate Pipelines

Substantially all of our Interstate Pipelines business segment was contributed to Enable on May 1, 2013. As a result, this segment did not report operating results for 2014. The following table provides summary data of our Interstate Pipelines business segment for 2013 and 2012 (in millions, except throughput data):

 Year Ended December 31,
      2013 (1) 2012
Revenues$186
 $502
Expenses: 
  
Natural gas35
 57
Operation and maintenance51
 153
Depreciation and amortization20
 56
Taxes other than income taxes8
 29
Total expenses114
 295
Operating Income$72
 $207
    
Equity in earnings of unconsolidated affiliates$7
 $26
    
Transportation throughput (in Bcf)482
 1,367
_____________
(1)     Represents January 2013 through April 2013 results only.

2013 Compared to 2012.  Our Interstate Pipeline business segment reported operating income of $72 million for 2013 compared to $207 million for 2012. Substantially all of this segment was contributed to Enable on May 1, 2013. As a result, 2013 is not comparable to the prior year. Effective May 1, 2013, our equity method investment and related equity income in Enable are included in our Midstream Investments segment.

Equity Earnings. This business segment recorded equity income of $7 million and $26 million for the years ended December 31, 2013 and 2012, respectively, from its interest in Southeast Supply Header, LLC (SESH), a jointly-owned pipeline. The decrease in equity income was primarily due to the contributionContinuum acquisition. Operating income in 2016 also included $3 million of a 24.95% interest in SESH to Enable on May 1, 2013. Beginning May 1, 2013, equity earningsoperation and maintenance expenses and $3 million of amortization expenses specifically related to our interest in SESHthe acquisition and Enable are reported as componentsintegration of equity income in our Midstream Investments segment.


53



Field Services

Substantially all of our Field Services business segment was contributed to Enable on May 1, 2013. As a result, this segment did not report operating results for 2014.The following table provides summary data of our Field Services business segment for 2013 and 2012 (in millions, except throughput data):

 Year Ended December 31,
      2013 (1) 2012
Revenues$196
 $506
Expenses: 
  
Natural gas54
 122
Operation and maintenance45
 115
Depreciation and amortization20
 50
Taxes other than income taxes4
 5
Total expenses123
 292
Operating Income$73
 $214
    
Equity in earnings of unconsolidated affiliates$
 $5
    
Gathering throughput (in Bcf)252
 896
_____________
(1)     Represents January 2013 through April 2013 results only.

2013 Compared to 2012.  Our Field Services business segment reported operating income of $73 million for 2013 compared to $214 million for 2012. Substantially all of this segment was contributed to Enable on May 1, 2013. As a result, 2013 is not comparable to the prior year. Effective May 1, 2013, our equity method investment and related equity income in Enable are included in our Midstream Investments segment.

Equity Earnings. This business segment recorded equity income of $-0- and $5 million for the years ended December 31, 2013 and 2012, respectively, from its interest in Waskom. These amounts are included in Equity in earnings of unconsolidated affiliates under the Other Income (Expense) caption in the Statements of Consolidated Income. From August 1, 2012 through April 30, 2013, financial results for Waskom are included in operating income. On May 1, 2013, our 100% investment in Waskom was contributed to Enable.Continuum. 

Midstream Investments

The following table summarizes the equity earnings (losses) of our Midstream Investments business segment for 20142017, 2016 and 2013 (in millions):

2015:
 Year Ended December 31,
 2014 (1)      2013 (2)
Enable$303
 $173
SESH5
 8
Total$308
 $181
 Year Ended December 31,
 2017 2016 
     2015 (1)
 (in millions)
Enable$265
 $208
 $(1,633)
_____________
(1)On April 16, 2014, Enable completed its initial public offering and, as a result, CenterPoint Energy’s limited partner interestThese amounts include impairment charges totaling $1,846 million composed of the impairment of our investment in Enable was reduced from approximately 58.3% to approximately 54.7%. On May 30, 2014, CenterPoint Energy contributed to Enable its 24.95% interest in SESH, which increased CenterPoint Energy’s limited partner interest in Enable from approximately 54.7% to approximately 55.4% and reduced its interest in SESH to 0.1%.

(2)Represents our 58.3% limited partner interest in Enableof $1,225 million and our 25.05% interest in SESHshare, $621 million, of impairment charges Enable recorded for goodwill and long-lived assets for the eight monthsyear ended December 31, 2013.2015. This impairment is offset by $213 million of earnings for the year ended December 31, 2015.

54



Other Operations

The following table provides summary data for our Other Operations business segment for 20142017, 20132016 and 20122015 (in millions):

Year Ended December 31,
Year Ended December 31,2017 2016 2015
2014 2013 2012(in millions)
Revenues$15
 $14
 $11
$14
 $15
 $14
Expenses14
 32
 9
5
 7
 3
Operating Income (Loss)$1
 $(18) $2
Operating Income$9
 $8
 $11

20142017 Compared to 2013.2016. Our Other Operations business segment reported operating income of $1$9 million for 20142017 compared to an operating loss of $18$8 million for 2013.2016. The increase in operating income of $19$1 million is primarily related to the costs associated with the formation of Enable in 2013 ($13 million)decreased depreciation and decreased benefits costs ($8 million), which wereamortization, partially offset by higher property taxes ($2 million).increased operating expenses.

20132016 Compared to 2012.2015. Our Other Operations business segment reported an operating loss of $18 million for 2013 compared to operating income of $2$8 million for 2012.2016 compared to $11 million for 2015. The decrease in operating income of $20$3 million is primarily related to the costs associated with the formation of Enable ($13 million), higherincreased depreciation expense ($3 million) and higher property taxes ($2 million).amortization.



LIQUIDITY AND CAPITAL RESOURCES

Historical Cash Flows

The net cash provided by (used in) operating, investing and financing activities for 20142017, 20132016 and 20122015 is as follows (in millions):follows:

Year Ended December 31,
Year Ended December 31,2017 2016 2015
2014 2013 2012(in millions)
Cash provided by (used in):          
Operating activities$1,397
 $1,613
 $1,860
$1,421
 $1,931
 $1,870
Investing activities(1,384) (1,300) (1,603)(1,257) (1,046) (1,387)
Financing activities77
 (751) 169
(245) (808) (517)

Cash Provided by Operating Activities

Net cash provided by operating activities decreased $216510 million in 20142017 compared to 20132016 primarily due to increaseddecreased cash from working capital ($549 million) and other non-current items ($6 million), partially offset by higher net tax payments ($157 million),income after adjusting for non-cash and non-operating items ($45 million). The changes in working capital items in 2017 primarily related to decreased cash provided by fuel cost recovery ($149 million), increased net margin deposits, ($95 million), decreased cash related to gas storage inventory ($69 million), decreased cash fromnet; non-trading derivatives, ($38 million) and decreased cash provided bynet; taxes receivable; net accounts receivable/payable; net regulatory assets and liabilities ($39 million), which wasliabilities; inventory; and fuel cost under recovery; partially offset by increased distributions from equity method investments ($176 million)net current assets and increased cash provided by net accounts receivable/payable ($140 million).liabilities; and other assets and liabilities.

Net cash provided by operating activities decreased $247increased $61 million in 20132016 compared to 20122015 primarily due to decreased operatinghigher net income ($280 million), excluding theafter adjusting for non-cash goodwill impairment charge of $252 million, decreased cash provided by net accounts receivable/payableand non-operating items ($10840 million), cash related to gas storage inventory ($43 million), decreased net margin deposits ($37 million), decreased and increased cash from non-trading derivativesother non-current items ($1632 million), increased pension contributionspartially offset by changes in working capital ($911 million) and. The changes in working capital items in 2016 primarily related to decreased cash provided by net regulatory assets and liabilities ($5 million), which wasliabilities; fuel cost under recovery; and net accounts receivable/payable; partially offset by increased cash provided by fuel cost recovery ($160 million), increased distributions from equity method investments ($91 million)taxes receivable; margin deposits, net; non-trading derivatives, net; and decreased net tax payments ($11 million).current assets and liabilities.



55



Cash Used in Investing Activities

Net cash used in investing activities increased $84$211 million in 20142017 compared to 20132016 primarily due to increased capital expendituresdecreased cash received for the repayment of notes receivable from Enable ($86363 million), increased restricted cash ($24 million) and decreased proceeds from the sale of marketable securities associated with the Charter merger ($9178 million), increased cash used for acquisitions ($30 million) and increased capital expenditures ($12 million), which were partially offset by decreased cash contributed to Enableused for the purchase of Series A Preferred Units ($38363 million) and increased restricted cash ($10 million). In 2017, we acquired AEM for $132 million in cash and, in 2016, we acquired Continuum for $102 million in cash.

Net cash used in investing activities decreased $303$341 million in 20132016 compared to 20122015 primarily due to decreasedincreased cash paidreceived for acquisitionsthe repayment of notes receivable from Enable ($360363 million) and decreased restricted cash, increased return of capital from Enable ($30149 million) and increased, proceeds from the sale of marketable securities associated with the Charter merger ($9146 million) and decreased capital expenditures ($170 million), which were partially offset by increased capital expenditurescash used for the purchase of Series A Preferred Units ($74363 million), cash used for the Continuum acquisition ($102 million) and increased restricted cash contributed to Enable ($3817 million).

Cash Provided by (Used in)Used in Financing Activities

Net cash provided byused in financing activities increased $828decreased $563 million in 20142017 compared to 20132016 primarily due to increased proceeds from issuances of long-term debt ($496 million), decreased distributions to ZENS holders ($178 million), decreased losses on reacquired debt ($17 million), increased short-term borrowings ($9 million) and decreased payments of long-term debt ($1,036 million) and increased proceeds from commercial paper ($296 million)($7 million), which were partially offset by decreased proceeds from long-term debt ($450 million) andcommercial paper ($120 million), increased payments of common stock dividends ($53 million)($18 million) and increased debt issuance costs ($4 million).

Net cash used in financing activities increased $920$291 million in 20132016 compared to 20122015 primarily due to decreased proceeds fromincreased payments of long-term debt ($1,445574 million) and, increased distributions to ZENS holders ($146 million), loss on reacquired debt ($22 million), increased payments of common stock dividends ($17 million) and debt issuance costs ($9 million), which were partially offset by increased proceeds from long-term debt ($400 million), increased proceeds from commercial paper ($40366 million), decreased cash paid for debt retirement ($62 million), and increased short-term borrowings ($298 million), decreased payments of long-term debt ($17 million) and decreased debt issuance costs ($13 million).


Future Sources and Uses of Cash

Our liquidity and capital requirements are affected primarily by our results of operations, capital expenditures, debt service requirements, tax payments, working capital needs and various regulatory actions. Our principal anticipated cash requirements for 20152018 include the following:

capital expenditures of approximately $1.5$1.7 billion;

scheduled principal payments on transition and system restoration bondsSecuritization Bonds of $372 million;

maturing senior notes and pollution control bonds aggregating $269$434 million;

contributions aggregating approximately $66of a minimum of $60 million to our qualified and non-qualified pension plans;plan;

maturing collateralized pollution control bonds of $50 million; and

dividend payments on CenterPoint Energyour common stock and interest payments on debt.

We expect that anticipated 20152018 cash needs will be met with borrowings under our credit facilities, proceeds from commercial paper, proceeds from the issuance of general mortgage bonds and senior unsecured notes,long-term debt, anticipated cash flows from operations a tax refund relating to 2014 bonus depreciation and distributions from Enable. In addition, should we choose to sell Enable common units in 2018 (reducing the amount of future distributions we receive from Enable), any net proceeds we receive from such sale could provide a source for our 2018 cash needs. Discretionary financing or refinancing may result in the issuance of equity or debt securities in the capital markets or the arrangement of additional credit facilities. Issuances of equity or debt in the capital markets, andfunds raised in the commercial paper markets, additional credit facilities and any sales of our Enable common units may not, however, be available to us on acceptable terms.

The following table sets forth our actual capital expenditures for 20142017 and estimates of our capital expenditures for currently identified or planned projects for 20152018 through 2019 (in millions):2022: 
2017 2018 2019 2020 2021 2022
2014 2015 2016 2017 2018 2019(in millions)
Electric Transmission & Distribution$818
 $913
 $874
 $879
 $881
 $831
$924
 $949
 $958
 $1,004
 $959
 $900
Natural Gas Distribution525
 559
 544
 545
 550
 546
523
 635
 612
 637
 664
 687
Energy Services3
 10
 32
 9
 9
 19
11
 20
 15
 15
 15
 15
Other Operations56
 40
 41
 44
 54
 53
36
 60
 38
 33
 32
 32
Total $1,402
 $1,522
 $1,491
 $1,477
 $1,494
 $1,449
$1,494
 $1,664
 $1,623
 $1,689
 $1,670
 $1,634


56



Our capital expenditures are expected to be used for investment in infrastructure for our electric transmission and distribution operations and our natural gas distribution operations. These capital expenditures are anticipated to maintain reliability and safety, as well asincrease resiliency and expand our systems through value-added projects.

The following table sets forth estimates of our contractual obligations, including payments due by period (in millions):period:
Contractual Obligations Total 2015 2016-2017 2018-2019 
2020 and
thereafter
 Total 2018 2019-2020 2021-2022 2023 and thereafter
Transition and system restoration bond debt $3,046
 $372
 $802
 $893
 $979
 (in millions)
Securitization Bonds $1,868
 $434
 $689
 $430
 $315
Other long-term debt (1) 6,352
 269
 825
 1,181
 4,077
 7,316
 50
 
 3,549
 3,717
Interest payments — transition and system restoration bond debt (2) 475
 108
 176
 111
 80
Interest payments — Securitization Bonds (2)
 191
 65
 76
 38
 12
Interest payments — other long-term debt (2) 3,947
 303
 549
 425
 2,670
 3,756
 277
 548
 459
 2,472
Short-term borrowings 53
 53
 
 
 
 39
 39
 
 
 
Capital leases 5
 2
 2
 1
 
Operating leases (3) 23
 5
 7
 4
 7
 26
 5
 9
 7
 5
Benefit obligations (4) 
 
 
 
 
 
 
 
 
 
Non-trading derivative liabilities 20
 19
 1
 
 
 24
 20
 4
 
 
Other commodity commitments (5) 2,728
 696
 1,156
 762
 114
Commodity and other commitments (5)
 1,286
 500
 550
 128
 108
Total contractual cash obligations (6) $16,649
 $1,827
 $3,518
 $3,377
 $7,927
 $14,506
 $1,390
 $1,876
 $4,611
 $6,629
___________________


(1)
2.0% Zero-Premium Exchangeable Subordinated Notes due 2029 (ZENS)ZENS obligations are included in the 20202023 and thereafter column at their contingent principal amount as of December 31, 20142017 of $751$505 million.  These obligations are exchangeable for cash at any time at the option of the holders for 95% of the current value of the reference shares attributable to each ZENS ($930960 million atas of December 31, 20142017), as discussed in Note 1011 to our consolidated financial statements.  

(2)
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, 20142017. We typically expect to settle such interest payments with cash flows from operations and short-term borrowings.

(3)For a discussion of operating leases, please read Note 14(c)15(c) to our consolidated financial statements.

(4)
In 2015,2018, we expect to make contributionscontribute a minimum of approximately $60 million to our qualified pension plan aggregating approximately $35 million.plan. We expect to contribute approximately $317 million and $1716 million, respectively, to our non-qualified pension and postretirement benefits plans in 2015.2018.

(5)For a discussion of commodity and other commodity commitments, please read Note 14(a)15(a) to our consolidated financial statements.

(6)This table does not include estimated future payments for expected future asset retirement obligations.AROs. These payments are primarily estimated to be incurred after 2020.2022. We record a separate liability for the fair value of these asset retirement obligationsAROs, which totaled $176$281 million as of December 31, 2014.2017. See Note 3(c), Asset Retirement Obligation in to our consolidated financial statements.


57



Off-Balance Sheet Arrangements

Prior to the distribution of our ownership in Reliant Resources, Inc. (RRI) to our shareholders, CERC had guaranteed certain contractual obligations of what became RRI’s trading subsidiary.  When the companies separated, RRI agreed to secure CERC against obligations under the guarantees RRI had been unable to extinguish by the time of separation.  Pursuant to such agreement, as amended in December 2007, RRI (now GenOn Energy, Inc. (GenOn)) agreed to provide to CERC cash or letters of credit as security against CERC’s obligations under its remaining guarantees for demand charges under certain gas transportation agreements if and to the extent changes in market conditions expose CERC to a risk of loss on those guarantees based on an annual calculation, with any required collateral to be posted each December.  The undiscounted maximum potential payout of the demand charges under these transportation contracts, which will be in effect until 2018, was approximately $42 million as of December 31, 2014.  Based on market conditions in the fourth quarter of 2014 at the time the most recent annual calculation was made under the agreement, GenOn was not obligated to post any security. If GenOn should fail to perform the contractual obligations, CERC could have to honor its guarantee and, in such event, any collateral provided as security may be insufficient to satisfy CERC’s obligations.

CenterPoint Energy has provided guarantees (CenterPoint Midstream Guarantees) with respect to the performance of certain obligations of Enable under long-term gas gathering and treating agreements with an indirect wholly owned subsidiary of Encana Corporation and an indirect wholly owned subsidiary of Royal Dutch Shell plc. As of December 31, 2014, CenterPoint Energy, Inc. had guaranteed Enable’s obligations up to an aggregate amount of $100 million under these agreements. Under the terms of the omnibus agreement entered into in connection with the closing of the formation of Enable, Enable and CenterPoint Energy have agreed to use commercially reasonable efforts and cooperate with each other to terminate the CenterPoint Midstream Guarantees and to release CenterPoint Energy from such guarantees by causing Enable or one of its subsidiaries to enter into substitute guarantees or to assume the CenterPoint Midstream Guarantees as applicable.

CERC Corp. has also provided a guarantee of collection of $1.1 billion of Enable’s senior notes due 2019 and 2024. This guarantee is subordinated to all senior debt of CERC Corp. and is subject to automatic release on May 1, 2016.

The fair value of these guarantees is not material. Other than the guarantees described above and operating leases, we have no off-balance sheet arrangements.

Regulatory Matters

CenterPoint Houston

2008 Energy Efficiency Cost Recovery Factor (EECRF) Appeal. In October 2009, the Public Utility Commission of Texas (Texas Utility Commission) issued an order disallowing recovery of a performance bonus of $2 million on approximately $10 million in 2008 energy efficiency costs expended pursuant to the terms of a settlement agreement in a prior rate case. CenterPoint Houston appealed the denial of the full 2008 performance bonus. CenterPoint Houston had also appealed similar orders by the Texas Utility Commission providing for the partial disallowance of performance bonuses totaling approximately $5.5 million relating to CenterPoint Houston’s 2009, 2010 and 2011 (only through August 2011) energy efficiency programs. These subsequent cases were abated pending the final outcome of the 2008 bonus appeal. In August 2013, the court of appeals reversed the Texas Utility Commission’s decision disallowing such bonuses and in January 2014, the Texas Supreme Court declined to hear the Texas Utility Commission’s appeal. As a result of the Texas Supreme Court’s decision, in April 2014, four separate proceedings were initiated, which were later consolidated into one proceeding, at the Texas Utility Commission to determine the amount CenterPoint Houston is to recover. In May 2014, parties to the proceeding entered into a unanimous stipulation agreeing to the amount to be recovered but not to the customer class recovery allocation. The parties agreed that CenterPoint Houston is to recover $7.5 million in performance bonus, $0.2 million in rate case expenses associated with appeals of the proceedings and at least $2.5 million in carrying costs, with final determination of carrying costs based on the timing of the decision regarding customer class recovery allocation. In August 2014, the Texas Utility Commission entered a final order approving $10.4 million with no change regarding customer class recovery allocation. The rates became effective October 15, 2014. Starting September 2011, CenterPoint Houston’s energy efficiency programs are no longer funded pursuant to the terms of the prior settlement, and performance bonus calculations subsequent to that date are not affected by the court’s decision.

2014 EECRF. On May 30, 2014, CenterPoint Houston filed an application for approval of an adjustment to its EECRF for 2015. CenterPoint Houston’s requested recovery is $51.4 million composed of approximately: (1) $39.1 million in estimated 2015 program costs; (2) a performance bonus for 2013 achievements of $16.2 million; (3) $0.9 million for 2015 evaluation, measurement and verification costs; (4) a credit of $5.1 million for the over-recovery of 2013 program costs; and (5) $0.2 million in rate case expenses from the 2013 EECRF proceeding. In September 2014, the parties signed a partial stipulation

58



agreeing that CenterPoint Houston shall be allowed to recover the net of (1) $39.1 million in estimated 2015 program costs; (2) a performance bonus for 2013 achievements of between $15.8 million and $16.2 million, depending on the outcome of the one remaining contested issue relating to a bonus calculation; (3) $0.9 million for 2015 evaluation, measurement and verification costs; (4) a credit of $5.1 million for the over-recovery of 2013 program costs; (5) $0.2 million in rate case expenses from the 2013 EECRF proceeding; and (6) an adjustment of $57,000 to exclude certain administrative costs.  In November 2014, the Texas Utility Commission approved the partial settlement and decided the remaining contested issue relating to the bonus calculation in CenterPoint Energy’s favor. The effective date of the rate adjustment will be March 1, 2015.
Brazos Valley Connection Project. In July 2013, CenterPointProject

Construction began on the Brazos Valley Connection in February 2017, and Houston Electric expects to complete construction in the first quarter of 2018 and other transmission service providers submitted analyses and transmission proposals toenergize the Brazos Valley Connection in the early second quarter of 2018, ahead of the original June 1, 2018 energization date.  Houston Electric Reliability Councilanticipates that the final capital costs of Texas (ERCOT) for an additional transmission path into the Houston region.  project will be approximately $285 million, which is within the estimated range of approximately $270-$310 million in the PUCT’s original order.

Bailey-Jones Creek Project

In April 2014, ERCOT’s Board2017, Houston Electric submitted a proposal to ERCOT requesting its endorsement of Directors voted to endorse a Houston regionElectric’s approximately $250 million transmission project in the greater Freeport, Texas area, which includes enhancements to two existing substations and deemed it critical for reliability.  The project will consist of (i)the construction of a new double-circuit 345 kilovolt (kV) line spanning 130 miles, (ii) upgrades to three substations to accommodate new connections and additional capacity, and (iii) improvements to approximately 11 miles of an existing 345 kV TH Wharton-Addicksdouble-circuit transmission line to increase its rating.  Also in April 2014,line. On December 12, 2017, Houston Electric received approval from ERCOT, staff determined that CenterPoint Houston would be the designated transmission service provider for the portion of the project between our Zenith substation and the Gibbons Creek substation owned by the Texas Municipal Power Agency, consisting of approximately 60 miles of 345 kV transmission line, upgrades to the Limestone and Zenith substations and upgrades to 11 miles of the 345 kV TH Wharton-Addicks transmission line (this portion of the Houston region transmission project is referred to by CenterPoint Houston as the Brazos Valley Connection).  Other transmission service providers were designated by ERCOT for the portion of the project from Gibbons Creek Substation to the Limestone Substation as well as the upgrades to the Gibbons Creek Substation.  As the owner of the originating and terminating substations of the entire project, CenterPoint Houston appealed that determination to the Texas Utility Commission in May 2014 and sought the right to construct, own, and maintain the entire project, except for necessary upgrades to the Gibbons Creek Substation.  On October 17, 2014, the Texas Utility Commission filed an order that denied CenterPoint Houston’s appeal and upheld the April 2014 ERCOT decision to split the project between CenterPoint Houston and other transmission service providers.  ERCOT estimates that the capital cost of the entire Houston region transmission project will be approximately $600 million, and CenterPoint Houston estimates that the capital costs for the Brazos Valley Connection will be approximately $300 million.  CenterPoint Houston anticipates that the Brazos Valley Connection projectPUCT will be completed by mid-2018. provide a decision in 2019 regarding the design and route of the project.

In May 2014, several electric generators appealedRate Change Applications

Houston Electric and CERC are routinely involved in rate change applications before state regulatory authorities.  Those applications include general rate cases, where the ERCOT Boardentire cost of Directors’ April 2014 approvalservice of the utility is assessed and reset.  In addition, Houston region transmission project and the determination that the project was critical for reliabilityElectric is periodically involved in the Houston region to the Texas Utility Commission.  A hearing on the May 2014 appeal by the electric generators was held in October 2014 and in December 2014, the Texas Utility Commission denied the generators’ appeal. A motion for rehearing was filed by the electric generators on January 5, 2015, replies to the motion for rehearing were filed on January 15, 2015, and on January 21, 2015, the Texas Utility Commission voted not to consider the motion for rehearing. CenterPoint Houston must obtain final approval of the project and the route for the project from the Texas Utility Commission. CenterPoint Houston anticipates filing its application for approval of the project in the spring of 2015. Once filed, the Texas Utility Commission will have 180 days to rule on the application.

Transmission Cost of Service (TCOS). On March 26, 2014, CenterPoint Houston filed an application with the Texas Utility Commission for an interim update of its TCOS seeking an increase in annual revenue of $13.6 million based on an increase in total rate base of $184.5 million. CenterPoint Houston received approval from the Texas Utility Commission during the second quarter of 2014, and rates became effective May 12, 2014. A second TCOS filing, as amended, was made on November 21, 2014 seeking an increase in annual revenue of $23.5 million based on an increase in total rate base of $113.2 million.  The case is still pending before the Texas Utility Commission.

Agreement with City of Houston. On June 13, 2014, CenterPoint Houston entered into an agreement with the City of Houston, Texas providing that neither CenterPoint Houston nor the city will initiate a base rate case for CenterPoint Houston earlier than December 31, 2016, subject to a $20 million force majeure provision. During that period, CenterPoint Houston has the rightproceedings to adjust its rates through (1) the schedulescapital tracking mechanisms (TCOS and ridersDCRF) and annually files to adjust its EECRF.  CERC is periodically involved in proceedings to adjust its tariff approved by thecapital tracking mechanisms in Texas Utility Commission; (2) adjustments to(GRIP), its distribution rates using the distribution cost recovery factor rule adopted by the Texas Utility Commission; and (3) adjustments to its transmission rates under Texas Utility Commission rules. CenterPoint Houston also has the right to propose rates for new services. This agreement is not binding on any other city within CenterPoint Houston’s service territory or the Texas Utility Commission.


59



CERC

Cost of Service Adjustment (COSA) Rate Adjustments. In March 2008, NGD filed a request to change its rates with the Railroad Commission of Texas (Railroad Commission) and the 47 cities in its Texas Coast service territory, including a request for an annual cost of service adjustmentadjustments in Arkansas, Louisiana, Mississippi and Oklahoma (FRP, RSP, RRA and PBRC), its decoupling mechanism in Minnesota, and its energy efficiency cost trackers in Arkansas, Minnesota, Mississippi and Oklahoma (EECR, CIP, EECR and EECR). The table below reflects significant applications pending or COSA, that adjustscompleted during 2017 and to date in 2018.






Mechanism
Annual Increase (1)
(in millions)
Filing
 Date
Effective DateApproval DateAdditional Information
Houston Electric (PUCT)
AMSN/A
June
2017
September 2017December 2017Final reconciliation of AMS surcharge for a $29.2 million refund of AMS revenue in excess of expenses, for which a reserve has been recorded. Refunds began in September 2017 and will continue through August 2018.
EECRF (2)$11.0
June
2017
March 2018November 2017Annual reconciliation filing for program year 2016 and includes performance bonus of $11 million.
DCRF41.8
April
 2017
September
2017
July
2017
Based on an increase in eligible distribution-invested capital for 2016 of $479 million. Unanimous Stipulation and Settlement Agreement was filed in June 2017 for $86.8 million (a $41.8 million annual increase).  The settlement agreement also included the AMS refund referenced above.
TCOS7.8December 2016
February
2017
February
2017
Based on an incremental increase in total rate base of $109.6 million.
TCOS39.3September 2017November 2017November 2017Based on an incremental increase in total rate base of $263.4 million.
TCOSN/A
February
2018
TBDTBDRevise TCOS application approved in November 2017 by a reduction of $41.6 million to recognize change in tax rates, amortize certain EDIT balances and adjust rate base by EDIT attributable to new plant since the last rate case, all of which are related to the TCJA.
South Texas and Beaumont/East Texas (Railroad Commission)
GRIP7.6
March
 2017
July
2017
June
2017
Based on net change in invested capital of $46.5 million.
Rate Case
(South Texas only)
0.5November 2017TBDTBDReflects a proposed 10.3% ROE on a 55% equity ratio for South Texas jurisdiction.
Houston and Texas Coast (Railroad Commission)
Rate Case16.5November 2016
May
2017
May
2017
The Railroad Commission approved a unanimous settlement agreement establishing parameters for future GRIP filings, including a 9.6% ROE on a 55.15% equity ratio.
Texarkana, Texas Service Area (Multiple City Jurisdictions)
Rate Case1.1
July
2017
September
2017
August 2017Approved rates are consistent with Arkansas rates approved in 2016.
Arkansas (APSC)
EECR (2)0.5
May
2017
January 2018September 2017Recovers $11.0 million, including an incentive of $0.5 million based on 2016 program performance.
FRP7.6April
2017
October
2017
September 2017Based on ROE of 9.5% as approved in the last rate case. Unanimous Settlement Agreement was filed in July 2017 for $7.6 million and was subsequently approved.
BDA3.9
March
2017
June
2017
June
2017
For the evaluation period between January 2016 and August 2016. Amounts are recorded during the evaluation period.
BDA16.5December 2017
February
2018
January
2018
For the evaluation period between October 2016 and September 2017. Amounts are recorded during the evaluation period.
Minnesota (MPUC)
Rate Case56.5August 2017TBDTBDReflects a proposed 10.0% ROE on a 52.18% equity ratio. Includes a proposal to extend decoupling beyond current expiration date of June 2018. Interim rates reflecting an annual increase of $47.8 million were effective October 1, 2017.
CIP (2)13.8
May
2017
August 2017August 2017Annual reconciliation filing for program year 2016 and includes performance bonus of $13.8 million.
Decoupling20.4September 2017
September
2017
February 2018Reflects revenue under recovery for the period July 1, 2016 through June 30, 2017 and $3.0 million related to the under recovery of prior period adjustment factor. $9.2 million and $11.2 million was recognized in 2016 and 2017, respectively.
Mississippi (MPSC)
RRA2.3
May
2017
July
2017
July
2017
Authorized ROE of 9.59% and a capital structure of 50% debt and 50% equity.
Louisiana (LPSC)
RSP1.0September 2016December 2016
April
2017
Authorized ROE of 9.95% and a capital structure of 48% debt and 52% equity.
RSP3.0September 2017December 2017January 2018Authorized ROE of 9.95% and a capital structure of 48% debt and 52% equity.
Oklahoma (OCC)
EECR (2)0.4
March
 2017
November 2017October 2017Recovers $2.6 million, including an incentive of $0.4 million based on 2016 program performance.
PBRC2.2
March
2017
November 2017October 2017Based on ROE of 10%.


(1)Represents proposed increases when effective date and/or approval date is not yet determined. Approved rates could differ materially from proposed rates.

(2)Amounts are recorded when approved.

Tax Reform

For Houston Electric and CERC’s NGD, federal income tax expense is included in the rates annually for changes in invested capital as well as certain operating expenses. In 2008,approved by state commissions and local municipalities and charged by those utilities to consumers. When Houston Electric and NGD have general rate cases and other periodic rate adjustments, we expect the Railroad Commission approved the implementation of rates increasing annual revenueslower corporate tax expense resulting from the Texas Coast service territory by approximately $3.5 millionTCJA (which includes determining the treatment of EDIT), along with other increases and a COSA mechanism. The approved rates were contested by a coalition of nine citiesdecreases in our revenue requirements, to be incorporated into Houston Electric’s and certain state agencies in an appealNGD’s future rates. Nevertheless, regulators may require us to respond to the Travis County District Court. In 2010,TCJA in other ways, including through faster recoveries of reductions in federal income tax expense, accounting orders to reflect a liability to return to customers in future rate proceedings, accelerated returns to consumers of previously collected deferred federal income taxes, increased funding of infrastructure upgrades, or offsets of future rate increases. The effect on us of any potential return of tax savings resulting from the district court ruled thatTCJA to consumers may differ depending on how each regulatory body requires us to return such savings.

On January 25, 2018, the Railroad Commission lacked authorityPUCT issued an accounting order in Project No. 47945 directing electric utilities, including Houston Electric, to imposerecord as a regulatory liability (1) the approved COSA mechanism both in those nine cities and in those areas in which the Railroad Commission has original jurisdiction, and also found that the commission’s order lacked findings to support the inclusion of certain affiliate expenses in rates. The decision by the District Court placed at risk certaindifference between revenues collected pursuantunder existing rates and revenues that would have been collected had the existing rates been set using the recently approved federal income tax rates and (2) the balance of EDIT that now exists because of the reduction in federal income tax rates. On February 13, 2018, Houston Electric and other likely parties to COSA mechanisms.a future rate case announced a settlement that requires Houston Electric to make (i) a TCOS filing by February 20, 2018 to reflect the change in the federal income tax rate for Houston Electric’s transmission rate base through July 31, 2017 and account for certain EDIT (and such filing was timely submitted), (ii) a DCRF filing in April 2018 to reflect the change in the federal income tax rate for Houston Electric’s distribution rate base through December 31, 2017 and (iii) a full rate case filing by April 30, 2019. The Railroad Commission and NGD appealed the court’s ruling on the COSA mechanism. In October 2011, the court of appeals reversed the district court’s ruling on the COSA mechanism. The cities and state agencies appealed that decisionsettlement was presented to the Texas Supreme Court.PUCT during its open meeting on February 15, 2018. In January 2014, the Texas Supreme Court confirmed that the Railroad Commission had authority to approve the COSA rate adjustments utilized by NGD and remanded the case back to state district court. In April 2014, the district court remanded the caseresponse to the Railroad Commissionsettlement, the PUCT did not proceed with a prior proposal to correct deficiencies in the commission’s 2008 order relatedrequire Houston Electric to certain affiliate expenses but affirming the commission’s order in all other respects. The matter is currently pending at the Railroad Commission.

Minnesota Rate Proceeding. On August 2, 2013, NGD filedfile a general rate case in Minnesotathe summer of 2018. The PUCT also amended its prior accounting order to increase base rates by $44.3 million (includingremove the movement of a $15 million energy efficiency rider into base rates), based on a rate base of $700 million and return on equity (ROE) of 10.3%.  In compliance with state law, NGD implemented interim rates reflecting $42.9 million dollars of the requested increase for gas used on and after October 1, 2013. This rate filing is intended to recover significant capital expenditures NGD is making in Minnesota and included moving $15 million of energy efficiency expenditures to base rates. Evidentiary hearings were held before an administrative law judge (ALJ) in January 2014. On April 9, 2014 the ALJ issued its findings of fact and recommendations, which support a $31.6 million revenue increase based on a 9.59% ROE.  In May 2014, the Minnesota Public Utility Commission (MPUC) entered an order approving a rate increase of $33 million based on a 9.59% ROE and a 52.6% equity ratio. The MPUC also authorized the implementation of a three-year pilot revenue decoupling mechanism with an effective date of July 1, 2015. NGD implemented final ratesrequirement that utilities include carrying costs in the fourth quarter of 2014. Sincenew regulatory liability. 

PHMSA Matters

On December 19, 2016, PHMSA published in the adopted revenue increase is less thanFederal Register an interim final rule to impose industry-developed recommendations as enforceable safety standards for downhole (underground) equipment, including wells, wellbore tubing, and casing, at both interstate and intrastate underground natural gas storage facilities. Both CERC and Enable own and operate underground storage facilities that are subject to this rule’s provisions, which include procedures and practices for operations, maintenance, threat identification, monitoring, assessment, site security, emergency response and preparedness, training and recordkeeping. Although not yet finalized, the interim revenue increase, a refund to customers, which had already been accrued, was completed in December 2014.

Houston, South Texas and Beaumont/East Texas Gas Reliability Infrastructure Programs (GRIP). NGD’s Houston, South Texas and Beaumont/East Texas Divisions each submitted annual GRIP filings on March 31, 2014. For the Houston Division, CERC has asked that its GRIP filing to recover costs related to $66.6 million in incremental capital expenditures that were incurred in 2013 be operationally suspended for one year so as to ensure earnings more consistent with those currently approved. For the South Texas Division, the filing is to recover costs related to $15.9 million in incremental capital expenditures that were incurred in 2013. The increase in revenue requirements for this filing period is $1.8 million annually based on an authorized rate of return of 8.75%. Rates were implemented for certain customers in May 2014. In those areas in which the jurisdictional deadline was extended by regulatory action, the rates were implemented in July 2014 after final approval by the Railroad Commission of Texas (Railroad Commission). For the Beaumont/East Texas Division, the first GRIP filing is to recover costs related to $31.4 million in incremental capital expenditures that were incurred in 2012 and 2013. The increase in revenue requirements for this filing period is $3.0 million annually based on an authorized rate of return of 8.51%. Rates were implemented for certain customers in May 2014. In those areas in which the jurisdictional deadline was extended by regulatory action, the rates were implemented in July 2014 after final approval by the Railroad Commission.

Oklahoma Performance Based Rate Change (PBRC). In March 2014, NGD made a PBRC filing for the 2013 calendar year proposing to increase revenues by $1.5 million. On July 3, 2014, the Oklahoma Corporation Commission approved a joint stipulation by NGD and the intervening parties resulting in a rate increase of $0.3 million, which included an adjustment to amortize over five years $1.5 million of expense incurred within the 2013 test year. New ratesrule went into effect on July 3, 2014.

Arkansas Government Mandated Expenditure Surcharge Rider (GMESR).  On May 1, 2014, NGD madeJanuary 18, 2017, with an announced compliance deadline of January 18, 2018. PHMSA determined, however, that it will not issue enforcement citations to any operators for violations of provisions of the interim final rule that had previously been non-mandatory provisions of American Petroleum Institute Recommended Practices 1170 and 1171 until one year after PHMSA issues a filing with the Arkansas Public Service Commission (APSC) requesting to increase revenue under its interim GMESR by an additional $1.8 million.  Interim rates were implemented upon filingfinal rule, which has not yet been issued. This matter remains ongoing and are subject to refund pending a final order fromfuture PHMSA determinations. CERC and Enable will continue to monitor developments and assess the APSC. 

Mississippi Rate Regulation Adjustment (RRA). On May 1, 2014, NGD filed for a $4.1 million RRA with an adjusted ROEpotential impact of 9.27%.  On August 5, 2014, the Mississippi Public Service Commission approved a joint stipulation for a revenue adjustment

60



of $2.8 million, which included an adjustmentany modifications to amortize over three years $0.5 million of expense incurred with the 2013 test year. New rates went into effect in September 2014. 
Louisiana Rate Stabilization Plan (RSP). NGD made its 2014 Louisiana RSP filings with the Louisiana Public Service Commission on October 1, 2014. The North Louisiana Rider RSP filing shows a revenue deficiency of $4.0 million, compared to the authorized ROE of 10.25%.  The South Louisiana Rider RSP filing shows a revenue deficiency of $2.3 million, compared to the authorized ROE of 10.5%. NGD began billing the revised rates in December 2014 subject to refund. On November 19, 2014, NGD sought permission to amend the prior year’s South Louisiana RSP filing to use a more representative capital structure and to adjust the filing’s equity banding mechanism. On December 2, 2014, NGD sought permission for similar amendments to the prior year’s North Louisiana RSP filings. The Louisiana Public Service Commission has yet to take action on either request.

Minneapolis Franchise. In 2014, NGD provided natural gas distribution services to approximately 124,000 customers in Minneapolis, Minnesota under a franchise that was due to expire at the end of the year. In October 2014, the Minneapolis City Council unanimously approved a ten-year franchise agreement with NGD, effective January 1, 2015. The agreement is renewable for two additional five-year terms upon mutual consent of the parties. Also in October 2014, the Minneapolis City Council unanimously approved a newly formed Clean Energy Partnership (CEP) between the city, NGD and Xcel Energy.   The CEP board includes the mayor, two council members, the city’s coordinator and two senior officials from each of the utilities.  The board’s work plan will include new ideas to support developing renewable energy, increasing residential and business use of energy-efficiency programs and reducing the city’s energy use.  The new franchise agreement with NGD can be terminated by the city after five years if the city finds, through a city council vote, that NGD is not acting in good faith to support the city’s clean energy goals.this rule.

Other Matters

Credit Facilities

Our revolving credit facilities may be drawn on by the companies from time to time to provide funds used for general corporate purposes, including to backstop the companies’ commercial paper programs. The facilities may also be utilized to obtain letters of credit. For further details related to our revolving credit facilities and the 2017 amendments, please see Note 13 to our consolidated financial statements.



As of February 17, 2015,9, 2018, we had the following facilities (in millions):facilities:
Execution Date Company 
Size of
Facility
 
Amount
Utilized at
February 17, 2015 (1)
 Termination Date
September 9, 2011 CenterPoint Energy $1,200
 $170
(2) 
September 9, 2019
September 9, 2011 CenterPoint Houston 300
 4
(3) 
September 9, 2019
September 9, 2011 CERC Corp. 600
 248
(4) 
September 9, 2019
Company 
Size of
Facility
 
Amount
Utilized as of
February 9, 2018 (1)
 Termination Date
(in millions)
CenterPoint Energy $1,700
 $877
(2) 
March 3, 2022
Houston Electric 300
 4
(3) 
March 3, 2022
CERC Corp. 900
 899
(4) 
March 3, 2022
___________________
(1)
Based on the consolidated debt to capitalization covenant in our revolving credit facility and the revolving credit facility of each of CenterPoint Houston Electric and CERC Corp., we would have been permitted to utilize the full capacity of such revolving credit facilities, which aggregated $2.1$2.9 billion at as of December 31, 2014.
2017.

(2)Represents outstanding commercial paper of $871 million and outstanding letters of credit of $6 million and outstanding commercial paper of $164 million.

(3)Represents outstanding letters of credit.

(4)Represents outstanding commercial paper.paper of $898 million and outstanding letters of credit of $1 million.

Our $1.2 billion revolving credit facility can be drawn at the London Interbank Offered Rate (LIBOR) plus 1.25% based on our current credit ratings. The revolving credit facility contains a financial covenant which limits our consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of our consolidated capitalization. The financial covenant limit will temporarily increase from 65% to 70% if CenterPoint Houston experiences damage from a natural disaster in its service territory and we certify to the administrative agent that CenterPoint Houston has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive twelve-month period, all or part of which CenterPoint Houston intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date we deliver our certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of our certification or (iii) the revocation of such certification.

CenterPoint Houston’s $300 million revolving credit facility can be drawn at LIBOR plus 1.125% based on CenterPoint Houston’s current credit ratings. The revolving credit facility contains a financial covenant which limits CenterPoint Houston’s

61



consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of CenterPoint Houston’s consolidated capitalization.

CERC Corp.’s $600 million revolving credit facility can be drawn at LIBOR plus 1.5% based on CERC Corp.’s current credit ratings. The revolving credit facility contains a financial covenant which limits CERC’s consolidated debt to an amount not to exceed 65% of CERC’s consolidated capitalization.
Borrowings under each of the three revolving credit facilities are subject to customary terms and conditions. However, there is no requirement that the borrower make representations prior to borrowings as to the absence of material adverse changes or litigation that could be expected to have a material adverse effect. Borrowings under each of the revolving credit facilities are subject to acceleration upon the occurrence of events of default that we consider customary. The revolving credit facilities also provide for customary fees, including commitment fees, administrative agent fees, fees in respect of letters of credit and other fees. In each of the three revolving credit facilities, the spread to LIBOR and the commitment fees fluctuate based on the borrower’s credit rating. The borrowers are currently in compliance with the various business and financial covenants in the three revolving credit facilities.

On September 9, 2014, our revolving credit facility and the revolving credit facilities of CenterPoint HoustonLong-term Debt

In 2017, we and CERC Corp. were amended to, among other things, extend the maturity dateretired or redeemed a combined $800 million aggregate principal amount of the commitments under the credit facilities from September 9, 2018 to September 9, 2019. The amendments also reduced the swingline and letterunsecured senior notes. Additionally, we issued $500 million aggregate principal amount of credit sub-facilities under each credit facility, with total commitments under each credit facility remaining unchanged.

Our $1.2 billion revolving credit facility backstops our $1.0 billion commercial paper program. As of December 31, 2014, we had $191 million of outstanding commercial paper. CERC Corp.’s $600 million revolving credit facility backstops its $600 million commercial paper program. As of December 31, 2014,unsecured senior notes, CERC Corp. had $341issued $300 million aggregate principal amount of outstanding commercial paper.unsecured senior notes and Houston Electric issued $300 million aggregate principal amount of general mortgage bonds. For further information about our 2017 debt transactions, see Note 13 to our consolidated financial statements.

Securities Registered with the SEC

On January 31, 2017, CenterPoint Energy, CenterPoint Houston Electric and CERC Corp. have filed a joint shelf registration statement with the SEC registering indeterminate principal amounts of CenterPoint Houston’sHouston Electric’s general mortgage bonds, CERC Corp.’s senior debt securities and CenterPoint Energy’s senior debt securities and junior subordinated debt securities and an indeterminate number of CenterPoint Energy’s shares of common stock, shares of preferred stock, as well as stock purchase contracts and equity units. The joint shelf registration statement will expire on January 31, 2020.

Temporary Investments

As of February 17, 2015,9, 2018, we had no temporary investments.

Money Pool

We have a money pool through which the holding company and participating subsidiaries can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings under our revolving credit facility or the sale of our commercial paper.
 


Impact on Liquidity of a Downgrade in Credit Ratings

The interest on borrowings under our credit facilities is based on our credit rating. On December 4, 2017, S&P revised its rating outlooks on senior debt of CenterPoint Energy, Houston Electric and CERC Corp. to stable from positive and affirmed its ratings. On September 24, 2017, Fitch upgraded Houston Electric’s senior secured debt rating to A+ and maintained its rating outlook of stable. In addition, Fitch revised its rating outlooks on senior debt of CenterPoint Energy and CERC Corp. to positive from stable and affirmed its ratings.

As of February 17, 2015,9, 2018, Moody’s, Investors Service, Inc. (Moody’s), Standard & Poor’s Ratings Services (S&P), a division of The McGraw-Hill Companies,S&P and Fitch Inc. (Fitch) had assigned the following credit ratings to senior debt of CenterPoint Energy and certain subsidiaries:
  Moody’s S&P Fitch
Company/Instrument Rating Outlook (1) Rating Outlook(2)Outlook (2) Rating Outlook(3)Outlook (3)
CenterPoint Energy Senior
Unsecured Debt
 Baa1 Stable BBB+ Stable BBB StablePositive
CenterPoint Houston Electric Senior
Secured Debt
 A1 Stable A Stable AA+ Stable
CERC Corp. Senior Unsecured
Debt
 Baa2 Stable A- Stable BBB StablePositive
___________________

62



(1)A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’s rating over the medium term.

(2)An S&P rating outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term.

(3)A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-year period.

We cannot assure you that the ratings set forth above will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. We note that these credit ratings are included for informational purposes and are not recommendations to buy, sell or hold our securities and may be revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. Any future reduction or withdrawal of one or more of our credit ratings could have a material adverse impact on our ability to obtain short- and long-term financing, the cost of such financings and the execution of our commercial strategies.

A decline in credit ratings could increase borrowing costs under our $1.2 billion revolving credit facility, CenterPoint Houston’s $300 million revolving credit facility and CERC Corp.’s $600 million revolving credit facility.facilities. If our credit ratings or those of CenterPoint Houston Electric or CERC Corp. had been downgraded one notch by each of the three principal credit rating agencies from the ratings that existed at December 31, 2014,2017, the impact on the borrowing costs under the three revolving credit facilities would have been immaterial. A decline in credit ratings would also increase the interest rate on long-term debt to be issued in the capital markets and could negatively impact our ability to complete capital market transactions and to access the commercial paper market. Additionally, a decline in credit ratings could increase cash collateral requirements and reduce earnings of our Natural Gas Distribution and Energy Services Business Segments.business segments.

CERC Corp. and its subsidiaries purchase natural gas from one of their suppliers under supply agreements that contain an aggregate credit threshold of $140 million based on CERC Corp.’s S&P senior unsecured long-term debt rating of A-. Under these agreements, CERC may need to provide collateral if the aggregate threshold is exceeded or if the S&P senior unsecured long-term debt rating is downgraded below BBB+.

CenterPoint Energy Services, Inc. (CES),CES, a wholly ownedwholly-owned subsidiary of CERC Corp. operating in our Energy Services business segment, provides natural gas sales and services primarily to commercial and industrial customers and electric and natural gas utilities throughout the central and eastern United States. In order toTo economically hedge its exposure to natural gas prices, CES uses derivatives with provisions standard for the industry, including those pertaining to credit thresholds. Typically, the credit threshold negotiated with each counterparty defines the amount of unsecured credit that such counterparty will extend to CES. To the extent that the credit exposure that a counterparty has to CES at a particular time does not exceed that credit threshold, CES is not obligated to provide collateral. Mark-to-market exposure in excess of the credit threshold is routinely collateralized by CES. Similarly, mark-to-market exposure offsetting and exceeding the credit threshold may cause the counterparty to provide collateral to CES. As of December 31, 2014,2017, the amount posted by CES as collateral aggregated approximately $83$41 million. Should the credit ratings of CERC Corp. (as the credit support provider for CES) fall below certain levels, CES would be required to provide additional collateral up to the amount of its previously unsecured credit limit. We estimate that as of December 31, 2014,2017, unsecured credit limits extended to CES by counterparties aggregated $308$348 million, and $1$2 million of such amount was utilized.

Pipeline tariffs and contracts typically provide that if the credit ratings of a shipper or the shipper’s guarantor drop below a threshold level, which is generally investment grade ratings from both Moody’s and S&P, cash or other collateral may be demanded from the shipper in an amount equal to the sum of three months’ charges for pipeline services plus the unrecouped cost of any lateral built for such shipper. If the credit ratings of CERC Corp. decline below the applicable threshold levels, CERC Corp. might need to provide cash or other collateral of as much as $160$196 million as of December 31, 2014.2017. The amount of collateral will depend on seasonal variations in transportation levels.

In September 1999, we issued Zero-Premium Exchangeable Subordinated Notes due 2029 (ZENS) having an original principal amount of $1.0 billion of which $828 million remains outstanding at December 31, 2014. Each ZENS note was originally exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares of Time Warner Inc. common stock (TW Common) attributable to such note.  The number and identity of the reference shares attributable to each ZENS note are adjusted for certain corporate events. On June 6, 2014, Time Warner Inc. spun off its ownership of Time Inc. by distributing one share of Time Inc. common stock (Time Common) for every eight shares of TW Common held on the May 23, 2014 record date. As of December 31, 2014, the reference shares for each ZENS note consisted of 0.5 share of TW Common, 0.125505 share of Time Warner Cable Inc. (TWC) common stock (TWC Common), 0.045455 share of AOL Inc. common stock (AOL Common) and 0.0625 share of Time Common.  On February 13, 2014, TWC announced that it had agreed to merge with Comcast Corporation (Comcast). In the merger, each share of TWC Common would be exchanged for 2.875 shares of Comcast common stock (Comcast Common). Upon the closing of the merger (assuming

63



no change in the merger consideration), the reference shares for each ZENS note would include 0.360827 share of Comcast Common in place of the current 0.125505 share of TWC Common. and Securities Related to ZENS

If our creditworthiness were to drop such that ZENS note holders thought our liquidity was adversely affected or the market for the ZENS notes were to become illiquid, some ZENS note holders might decide to exchange their ZENS notes for cash. Funds for the payment of cash upon exchange could be obtained from the sale of the shares of TW Common, TWC Common, AOL Common and Time CommonSecurities that we own or from other sources. We own shares of TW Common, TWC Common, AOL Common and Time CommonSecurities equal to approximately 100% of the reference shares used to calculate our obligation to the holders of the ZENS. ZENS notes. ZENS note exchanges result in a cash outflow because tax deferrals related to the ZENS notes and TW Common, TWC Common, AOL Common and Time CommonSecurities shares would typically cease when ZENS notes are exchanged or otherwise retired and TW Common, TWC Common, AOL Common and Time CommonSecurities shares are sold. The ultimate tax liability related to the ZENS notes continues to increase by the amount of the tax benefit realized each year, and there could be a significant cash outflow when the taxes are paid as a result of the retirement of the ZENS notes.ZENS. If all ZENS notes had been exchanged for cash on December 31, 2014,2017, deferred taxes of approximately $357$521 million would have been payable in 2014.2017, based on 2017 tax rates in effect. If all the TW Common, TWC Common, AOL Common and Time CommonSecurities had been sold on December 31, 2014,2017, capital gains taxes of approximately $278$297 million would have been payable in 2014.2017.

For additional information about ZENS, see Note 11 to our consolidated financial statements.

Cross Defaults

Under our revolving credit facility, a payment default on, or a non-payment default that permits acceleration of, any indebtedness for borrowed money and certain other specified types of obligations (including guarantees) exceeding $75$125 million by us or any of our significant subsidiaries will cause a default. In addition, three outstanding series of our senior notes, aggregating $750 million in principal amount as of December 31, 2014, provide that a payment default by us, CERC Corp. or CenterPoint Houston in respect of, or an acceleration of, borrowed money and certain other specified types of obligations (including guarantees), in the aggregate principal amount of $50 million, will cause a default. A default by CenterPoint Energy would not trigger a default under our subsidiaries’ debt instruments or revolving credit facilities.

Possible Acquisitions, Divestitures and Joint Ventures

From time to time, we consider the acquisition or the disposition of assets or businesses or possible joint ventures, strategic initiatives or other joint ownership arrangements with respect to assets or businesses. Any determination to take action in this regard will be based on market conditions and opportunities existing at the time, and accordingly, the timing, size or success of any efforts and the associated potential capital commitments are unpredictable. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances. Debt or equity financing may not, however, be available to us at that time due to a variety of events, including, among others, maintenance of our credit ratings, industry conditions, general economic conditions, market conditions and market perceptions.

In February 2016, we announced that we were evaluating strategic alternatives for our investment in Enable, including a sale or spin-off qualifying under Section 355 of the U.S. Internal Revenue Code. We have determined that we will no longer pursue a spin option at this time. More recently, we announced that late-stage discussions with a third party regarding a transaction involving our investment in Enable had terminated because an agreement on mutually acceptable terms could not be reached. We may reduce our ownership in Enable over time through sales in the public equity markets, or otherwise, of the common units we hold, subject to market conditions. Although a transaction for all our interests in Enable is not viable at this time, we may pursue such a transaction if it is viable in the future. There can be no assurances that we will engage in any specific action or that any sale transaction or any sale of common units in the public equity markets or otherwise will be completed, and we do not intend to disclose further developments unless and until our Board of Directors approves a specific action or as otherwise required by applicable law or NYSE regulations. Any sale transaction or sale of common units in the public equity markets or otherwise may involve significant costs and expenses, including, in connection with any public offering, a significant underwriting discount. We may not realize any or all of the anticipated strategic, financial, operational or other benefits from any completed sale or reduction in our investment in Enable.

Enable Midstream Partners

Certain ofWe receive quarterly cash distributions from Enable on its common units and Series A Preferred Units we own. A reduction in the entities contributedcash distributions we receive from Enable could significantly impact our liquidity. For additional information about cash distributions from Enable, see Notes 10 and 19 to Enable by CERC Corp. are obligated on approximately $363 million of indebtedness owed to a wholly owned subsidiary of CERC Corp. that is scheduled to mature in 2017.our consolidated financial statements.

Following its IPOHedging of Interest Expense for Future Debt Issuances

During 2016, 2017 and 2018, we entered into forward interest rate agreements to hedge, in April 2014, Enable is expected to pay a minimum quarterly distribution of $0.2875 per unit on its outstanding units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates (referred to as “available cash”) within 45 days after the end of each quarter. On January 23, 2015, Enable declared a quarterly cash distribution of $0.30875 per unit on all of its outstanding common and subordinated units for the quarter ended December 31, 2014. Accordingly, CERC Corp. expects to receive a cash distribution of approximately $72 million from Enablepart, volatility in the first quarter of 2015U.S. treasury rates by reducing variability in cash flows related to be made with respectinterest payments. For further information, see Note 8(a) to CERC Corp.’s limited partner interest in Enable for the fourth quarter of 2014.our consolidated financial statements.

Dodd-Frank Swaps Regulation

Weather Hedge

We use derivative instruments such as physical forward contracts, swapshave historically entered into partial weather hedges for certain NGD jurisdictions and optionsHouston Electric’s service territory to mitigate the impact of changes in commodity prices andfluctuations from normal weather. We remain exposed to some weather on our operating results and cash flows. Following enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in July 2010, the Commodity Futures Trading Commission (CFTC) has promulgated regulations to implement Dodd-Frank’s changes to the Commodity Exchange Act, including the definition of commodity-based swaps subject to those regulations.  The CFTC regulations are intended to implement new reporting and record keeping requirements related to their swap transactions and a mandatory clearing and exchange-execution regime for various types, categories or classes of swaps, subject to certain exemptions, including the trade-option and end-user exemptions. Although we anticipate that most, if not all, of our swap transactions should qualify for an exemption to the clearing and

64



exchange-execution requirements, we will still be subject to record keeping and reporting requirements. Other changes to the Commodity Exchange Act maderisk as a result of Dodd-Frank and the CFTC’s implementing regulations could increase the cost of entering into new swaps.partial hedges. For more information about our weather hedges, see Note 8(a) to our consolidated financial statements.

Collection of Receivables from REPs

CenterPoint Houston’sHouston Electric’s receivables from the distribution of electricity are collected from REPs that supply the electricity CenterPoint Houston Electric distributes to their customers. Adverse economic conditions, structural problems in the market served by ERCOT or financial difficulties of one or more REPs could impair the ability of these REPs to pay for CenterPoint Houston’sHouston Electric’s services or could cause them to delay such payments. CenterPoint Houston Electric depends on these REPs to remit payments on a timely basis, and any delay or default in payment by REPs could adversely affect CenterPoint Houston’sHouston Electric’s cash flows. In the event of a REP’s default, CenterPoint Houston’sHouston Electric’s tariff provides a number of remedies, including the option for CenterPoint Houston Electric to request that the Texas Utility CommissionPUCT suspend or revoke the certification of the REP. Applicable regulatory provisions require that customers be shifted to another REP or a provider of last resort if a REP cannot make timely payments. However, CenterPoint Houston Electric remains at risk for payments related to services provided prior to the shift to the replacement REP or the provider of last resort. If a REP were unable to meet its obligations, it could consider, among various options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its obligations, and claims might be made against CenterPoint Houston Electric involving payments it had received from such REP. If a REP were to file for bankruptcy, CenterPoint Houston Electric may not be successful in recovering accrued receivables owed by such REP that are unpaid as of the date the REP filed for bankruptcy. However, Texas Utility CommissionPUCT regulations authorize utilities, such as CEHE,Houston Electric, to defer bad debts resulting from defaults by REPs for recovery in future rate cases, subject to a review of reasonableness and necessity.

Other Factors that Could Affect Cash Requirements

In addition to the above factors, our liquidity and capital resources could be affected by:

cash collateral requirements that could exist in connection with certain contracts, including our weather hedging arrangements, and gas purchases, gas price and gas storage activities of our Natural Gas Distribution and Energy Services business segments;
 
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 legislative or regulatory actions;
 
incremental collateral, if any, that may be required due to regulation of derivatives;
 
the ability of GenOn and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations in respect of GenOn’s indemnity obligations to us and our subsidiaries;

the ability of REPs, including REP affiliates of NRG and Vistra Energy Inc. and Energy Future HoldingsCorp., formerly known as TCEH Corp., to satisfy their obligations to us and our subsidiaries;

slower customer payments and increased write-offs of receivables due to higher gas prices or changing economic conditions;
 
the outcome of litigation brought by andor against us;
 
contributions to pension and postretirement benefit plans;
 


restoration costs and revenue losses resulting from future natural disasters such as hurricanes and the timing of recovery of such restoration costs; and

various other risks identified in “Risk Factors” in Item 1A of Part I of this report.

65




Certain Contractual Limits on Our Ability to Issue Securities and Borrow Money

CenterPoint Houston’s revolving credit facility limits CenterPoint Houston’s consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of its consolidated capitalization. CERC Corp.’s revolving credit facility limits CERC’s consolidated debt to an amount not to exceed 65% of its consolidated capitalization. Our revolving credit facility limits our consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of our consolidated capitalization. The financial covenant limit in our revolving credit facility will temporarily increase from 65% to 70% if CenterPoint Houston experiences damage from a natural disaster in its service territory that meets certain criteria. Additionally, CenterPoint HoustonElectric has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions. For information about the total debt to capitalization financial covenants in our revolving credit facilities see Note 13 to our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

A critical accounting policy is one that is both important to the presentation of our financial condition and results of operations and requires management to make difficult, subjective or complex accounting estimates. An accounting estimate is an approximation made by management of a financial statement element, item or account in the financial statements. Accounting estimates in our historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require us to make assumptions about matters that are highly uncertain at the time the estimate is made. Additionally, different estimates that we could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of our financial condition, results of operations or cash flows. The circumstances that make these judgments difficult, subjective and/or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. Estimates and assumptions about future events and their effects cannot be predicted with certainty. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Our significant accounting policies are discussed in Note 2 to our consolidated financial statements. We believe the following accounting policies involve the application of critical accounting estimates. Accordingly, these accounting estimates have been reviewed and discussed with the audit committeeAudit Committee of the boardBoard of directors.Directors.

Accounting for Rate Regulation

Accounting guidance for regulated operations provides that rate-regulated entities account for and report assets and liabilities consistent with the recovery of those incurred costs in rates if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it probable that such rates can be charged and collected. Our Electric Transmission & Distribution business segment and our Natural Gas Distribution business segment apply this accounting guidance. Certain expenses and revenues subject to utility regulation or rate determination normally reflected in income are deferred on the balance sheet as regulatory assets or liabilities and are recognized in income as the related amounts are included in service rates and recovered from or refunded to customers.  Regulatory assets and liabilities are recorded when it is probable that these items will be recovered or reflected in future rates.  Determining probability requires significant judgment on the part of management and includes, but is not limited to, consideration of testimony presented in regulatory hearings, proposed regulatory decisions, final regulatory orders and the strength or status of applications for rehearing or state court appeals.  If events were to occur that would make the recovery of these assets and liabilities no longer probable, we would be required to write off or write down these regulatory assets and liabilities.  At December 31, 2014, we had recordedFor further detail on our regulatory assets of $3.5 billion and regulatory liabilities, of $1.2 billion.see Note 6 to our consolidated financial statements.

Impairment of Long-Lived Assets, Including Identifiable Intangibles, Goodwill and Equity Method Investments

We review the carrying value of our long-lived assets, including identifiable intangibles, goodwill and equity method investments whenever events or changes in circumstances indicate that such carrying values may not be recoverable, and at least annually for goodwill as required by accounting guidance for goodwill and other intangible assets.  A loss in value of an equity method investment is recognized when the decline is deemed to be other than temporary.  Unforeseen events and changes in market conditions could have a material effect on the value of long-lived assets, including intangibles, goodwill and equity method investments due to changes in estimates of future cash flows, interest rate and regulatory matters and could result in an impairment charge. 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 impairment of $-0-impairments during 20142017, 2016 and 2013, and $252 million during 2012.2015. We did not record material impairments to long-lived assets, including intangibles, orduring 2017, 2016 and 2015. We recorded impairments totaling $1,225 million to our equity method investmentsinvestment during 2014, 2013,2015 and 2012.no impairment during 2017 and 2016. See Notes 9 and 10 to our consolidated financial statements for further discussion of the impairments recorded to our equity method investment in 2015.


66




We performed our annual goodwill impairment test in the third quarter of 20142017 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 valuevalues of our Natural Gas Distribution and Energy Services reporting unitunits significantly exceeded the carrying value. The fair value of our Energy Services reporting unit exceeded the carrying value by approximately $50 million or approximately 14% excess fair value over the carrying value.

A key assumption in the income approach was the weighted average cost of capital of 5.5% and 5.9% applied in the valuation for Natural Gas Distributions and Energy Services, respectively. An increase in the discount rate to greater than 6.5%, a decline in long-term growth rate from 3% to 2.3%, or a decrease in the aggregate cash flows of greater than 15% could have individually triggered a step-two goodwill impairment evaluation for our Energy Services reporting unit in 2014.values.

Although there was not a goodwill asset impairment in our 20142017 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 20142017 annual test.

During the year ended December 31, 2015, we determined 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 common 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 approach include Enable’s forecasted cash distributions, projected cash flows of incentive distribution rights, forecasted growth rate of Enable’s cash distributions beyond 2020, and the discount rate used to determine the present value of the estimated future cash flows. A weighing of the different approaches was utilized to determine the estimated fair value of our investment in Enable.

As a result of the analysis, we recorded other than temporary impairments on our equity method investment in Enable of $1,225 million during the year ended December 31, 2015. We based our assumptions on projected financial information that we believe is reasonable; however, actual results may differ materially from those projections. It is reasonably possible that the estimate of the impairment of our equity method investment in Enable will change in the near term due to the following: actual Enable cash distribution is materially lower than expected, significant adverse changes in Enable’s operating environment, increase in the discount rate, and changes in other key assumptions which require judgment and are forward-looking in nature.

Unbilled Energy Revenues

Revenues related to electricity delivery and natural gas sales and services are generally recognized upon delivery to customers. However, the determination of deliveries to individual customers is based on the reading of their meters, which is performed on a systematic basis throughout the month either electronically through AMS meter communications or manual readings. At the end of each month, deliveries to non-AMS customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is estimated. Information regarding deliveries to AMS customers after the last billing is obtained from actual AMS meter usage data. Unbilled electricity delivery revenue is estimated each month based on actual AMS meter data, daily supply volumes and applicable rates. Unbilled natural gas sales are estimated based on estimated purchased gas volumes, estimated lost and unaccounted for gas and tariffed rates in effect. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates.

Pension and Other Retirement Plans

We sponsor pension and other retirement plans in various forms covering all employees who meet eligibility requirements. We use several statistical and other factors that attempt to anticipate future events in calculating the expense and liability related


to our plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as estimated by management, within certain guidelines. In addition, our actuarial consultants use subjective factors such as withdrawal and mortality rates. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension expense recorded. Please read “— Other Significant Matters — Pension Plans” for further discussion.
 
NEW ACCOUNTING PRONOUNCEMENTS

See Note 2(o)2(p) to our consolidated financial statements, incorporated herein by reference, for a discussion of new accounting pronouncements that affect us.


67



OTHER SIGNIFICANT MATTERS

Pension Plans.  As discussed in Note 6(b)7(b) to our consolidated financial statements, we maintain a non-contributory qualified defined benefit pension plan covering substantially all employees. Employer contributions for the qualified plan are based on actuarial computations that establish the minimum contribution required under the Employee Retirement Income Security Act of 1974 (ERISA)ERISA and the maximum deductible contribution for income tax purposes.
 
Under the terms of our pension plan, we reserve the right to change, modify or terminate the plan. Our funding policy is to review amounts annually and contribute an amount at least equal to the minimum contribution required under ERISA.
 
The minimum funding requirements for the qualified pension plan were $87$39 million, $83 million$-0- and $73 million$-0- for 20142017, 20132016 and 20122015, respectively. We made contributions of $87$39 million, $83$-0- million and $73$35 million in 20142017, 20132016 and 20122015 for the respective years. We expect to make contributions aggregatingcontribute a minimum of approximately $35$60 million to the qualified pension plan in 20152018.
 
Additionally, we maintain an unfunded non-qualified benefit restoration plan that allows participants to receive the benefits to which they would have been entitled under our non-contributory qualified pension plan except for the federally mandated limits on qualified plan benefits or on the level of compensation on which qualified plan benefits may be calculated. Employer contributions for the non-qualified benefit restoration plan represent benefit payments made to participants and totaled $10$9 million, $8$9 million and $9$31 million in 20142017, 20132016 and 20122015, respectively. We expect to make contributions aggregating approximately $31$7 million in 20152018.
 
Changes in pension obligations and assets may not be immediately recognized as pension expense in the income statement, but generally are recognized in future years over the remaining average service period of plan participants. As such, significant portions of pension expense recorded in any period may not reflect the actual level of benefit payments provided to plan participants.
 
As the sponsor of a plan, we are required to (a) recognize on our balance sheet as an asset a plan’s over-funded status or as a liability such plan’s under-funded status, (b) measure a plan’s assets and obligations as of the end of our fiscal year and (c) recognize changes in the funded status of our plans in the year that changes occur through adjustments to other comprehensive income and regulatory assets.

The projected benefit obligation for all defined benefit pension plans was $2,403$2,225 million and $2,153$2,197 million as of December 31, 20142017 and 2013,2016, respectively. The adoption of the new mortality table by the Society of Actuaries as of December 31, 2014 significantly contributed to the increase in the projected benefit obligation for the year.

As of December 31, 20142017, the projected benefit obligation exceeded the market value of plan assets of our pension plans by $478$424 million. Changes in interest rates or the market values of the securities held by the plan during 20152018 could materially, positively or negatively, change our funded status and affect the level of pension expense and required contributions.
 
Pension cost was $77$95 million, $72$102 million and $82$90 million for 2014, 20132017, 2016 and 2012,2015, respectively, of which $71 million, $64$67 million and $67$59 million impacted pre-tax earnings.earnings, respectively. Included in the 20142015 pension costs was a $10 million settlement charge as discussed below.

A one-time, non-cash settlement charge is required when lump sum distributions or other settlements of plan benefit obligations during the year exceed the service cost was $6 million relatedand interest cost components of net periodic cost for the year. Due to the curtailment loss discussed below.amount of lump sum payment distributions from the non-qualified pension plan during the year ended December 31, 2015, CenterPoint Energy recognized a non-cash settlement charge of $10 million.  This charge is an acceleration of costs that would otherwise be recognized in future periods. 

During the fourth quarter of 2014, CenterPoint Energy received notification from Enable of its intent to provide employment offers to substantially all seconded employees. As a result, an additional pension cost of $6 million was recognized for the curtailment loss related to our pension plans. Substantially all of the seconded employees became employees of Enable effective January 1, 2015.

The calculation of pension expense and related liabilities requires the use of assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from the assumptions. Two of the most critical assumptions are the expected long-term rate of return on plan assets and the assumed discount rate.
 
As of December 31, 20142017, our qualified pension plan had an expected long-term rate of return on plan assets of 6.50%6.00%, which is a 0.50% decreaseunchanged from the rate assumed as of December 31, 20162013 due to the increase in the allocation to fixed income investments in our targeted asset allocation.. The expected rate of return assumption was developed using the targeted asset allocation of our plans and the expected return for each asset class. We regularly review our actual asset allocation and periodically rebalance plan assets to reduce volatility and better match plan assets and liabilities.
 
As of December 31, 20142017, the projected benefit obligation was calculated assuming a discount rate of 4.05%3.65%, which is 0.75%0.50% lower than the 4.80%4.15% discount rate assumed inas of 2013December 31, 2016. The discount rate was determined by reviewing yields on high-quality bonds

68



that receive one of the two highest ratings given by a recognized rating agency and the expected duration of pension obligations specific to the characteristics of our plan.
 
Our actuarially determined pension and other postemployment expense for 2017 and 2016 that is greater or less than the amounts being recovered through rates in certain jurisdictions is deferred as a regulatory asset or liability, respectively.  Pension cost for 20152018, including the benefit restoration plan, is estimated to be $80$61 million, of which we expect $55approximately $58 million to impact pre-tax earnings after effecting such deferrals and capitalization, based on an expected return on plan assets of 6.50%6.00% and a discount rate of 4.05%3.65% as of December 31, 20142017. If the expected return assumption were lowered by 0.50% from 6.50%6.00% to 6.00%5.50%, 20152018 pension cost would increase by approximately $9 million.
 
As of December 31, 20142017, the pension plan projected benefit obligation, including the unfunded benefit restoration plan, exceeded plan assets by $478$424 million.  If the discount rate were lowered by 0.50% from 4.05%3.65% to 3.55%3.15%, the assumption change would increase our projected benefit obligation by approximately $130$124 million and decrease our 2018 pension expense by approximately $3$2 million. The expected reduction in pension expense due to the decrease in discount rate is a result of the expected correlation between the reduced interest rate and appreciation of fixed income assets in pension plans with significantly more fixed income instruments than equity instruments. In addition, the assumption change would impact our Consolidated Balance Sheet by increasing the regulatory asset recorded as of December 31, 20142017 by $113$107 million and would result in a charge to comprehensive income in 20142017 of $11$13 million, net of tax.
 
Future changes in plan asset returns, assumed discount rates and various other factors related to the pension planplans will impact our future pension expense and liabilities. We cannot predict with certainty what these factors will be.be in the future.

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

Impact of Changes in Interest Rates, Equity Prices and Energy Commodity Prices

We are exposed to various market risks. These risks arise from transactions entered into in the normal course of business and are inherent in our consolidated financial statements. Most of the revenues and income from our business activities are affected by market risks. Categories of market risk include exposure to commodity prices through non-trading activities, interest rates and equity prices. A description of each market risk is set forth below:

Commodity price risk results from exposures to changes in spot prices, forward prices and price volatilities of commodities, such as natural gas, natural gas liquids and other energy commodities.

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.

Commodity price risk results from exposures to changes in spot prices, forward prices and price volatilities of commodities, such as natural gas, NGLs and other energy commodities.

Management has established comprehensive risk management policies to monitor and manage these market risks.

Interest Rate Risk
As of December 31, 2017, we had outstanding long-term debt, lease obligations and obligations under our ZENS that subject us to the risk of loss associated with movements in market interest rates.

Our floating rate obligations aggregated $1.8 billion and $1.4 billion as of December 31, 2017 and 2016, respectively. If the floating interest rates were to increase by 10% from December 31, 2017 rates, our combined interest expense would increase by $3 million annually.



As of December 31, 2017 and 2016, we had outstanding fixed-rate debt (excluding indexed debt securities) aggregating $7 billion and $7.1 billion, respectively, in principal amount and having a fair value of $7.5 billion and $7.5 billion, respectively. Because these instruments are fixed-rate, they do not expose us to the risk of loss in earnings due to changes in market interest rates (see Note 13 to our consolidated financial statements). However, the fair value of these instruments would increase by approximately $218 million if interest rates were to decline by 10% from their levels as of December 31, 2017. In general, such an increase in fair value would impact earnings and cash flows only if we were to reacquire all or a portion of these instruments in the open market prior to their maturity.

As discussed in Note 11 to our consolidated financial statements, the ZENS obligation is bifurcated into a debt component and a derivative component. The debt component of $122 million at December 31, 2017 was a fixed-rate obligation and, therefore, did not expose us to the risk of loss in earnings due to changes in market interest rates. However, the fair value of the debt component would increase by approximately $19 million if interest rates were to decline by 10% from levels at December 31, 2017. Changes in the fair value of the derivative component, a $668 million recorded liability at December 31, 2017, are recorded in our Statements of Consolidated Income and, therefore, we are exposed to changes in the fair value of the derivative component as a result of changes in the underlying risk-free interest rate. If the risk-free interest rate were to increase by 10% from December 31, 2017 levels, the fair value of the derivative component liability would increase by approximately $6 million, which would be recorded as an unrealized loss in our Statements of Consolidated Income.

Equity Market Value Risk

We are exposed to equity market value risk through our ownership of 7.1 million shares of TW Common, 0.9 million shares of Time Common and 0.9 million shares of Charter Common, which we hold to facilitate our ability to meet our obligations under the ZENS. See Note 11 to our consolidated financial statements for a discussion of our ZENS obligation. Changes in the fair value of the TW Securities held by CenterPoint Energy are expected to substantially offset changes in the fair value of the derivative component of the ZENS. A decrease of 10% from the December 31, 2017 aggregate market value of these shares would result in a net loss of approximately $2 million, which would be recorded as an unrealized loss in our Statements of Consolidated Income.

Commodity Price Risk From Non-Trading Activities

We manage these risk exposures through the implementation of our risk management policies and framework. We manage our commodity price risk exposures through the use of derivative financial instruments and derivative commodity instrument contracts. During the normal course of business, we review our hedging strategies and determine the hedging approach we deem appropriate based upon the circumstances of each situation.

Derivative instruments such as futures, forward contracts, swaps and options derive their value from underlying assets, indices, reference rates or a combination of these factors. These derivative instruments include negotiated contracts, which are referred to as over-the-counter derivatives, and instruments that are listed and traded on an exchange.

Derivative transactions are entered into in our non-trading operations to manage and hedge certain exposures, such as exposure to changes in natural gas prices. We believe that the associated market risk of these instruments can best be understood relative to the underlying assets or risk being hedged.

Interest Rate Risk
As of December 31, 2014, we had outstanding long-term debt, lease obligations and obligations under our ZENS that subject us to the risk of loss associated with movements in market interest rates.

Our floating rate obligations aggregated $532 million and $118 million at December 31, 2014 and 2013, respectively.

As of December 31, 2014 and 2013, we had outstanding fixed-rate debt (excluding indexed debt securities) aggregating $8.2 billion and $8.1 billion, respectively, in principal amount and having a fair value of $8.9 billion and $8.6 billion, respectively.

69



Because these instruments are fixed-rate, they do not expose us to the risk of loss in earnings due to changes in market interest rates (please read Note 12 to our consolidated financial statements). However, the fair value of these instruments would increase by approximately $232 million if interest rates were to decline by 10% from their levels at December 31, 2014. In general, such an increase in fair value would impact earnings and cash flows only if we were to reacquire all or a portion of these instruments in the open market prior to their maturity.

As discussed in Note 10 to our consolidated financial statements, the ZENS obligation is bifurcated into a debt component and a derivative component. The debt component of $152 million at December 31, 2014 was a fixed-rate obligation and, therefore, did not expose us to the risk of loss in earnings due to changes in market interest rates. However, the fair value of the debt component would increase by approximately $25 million if interest rates were to decline by 10% from levels at December 31, 2014. Changes in the fair value of the derivative component, a $541 million recorded liability at December 31, 2014, are recorded in our Statements of Consolidated Income and, therefore, we are exposed to changes in the fair value of the derivative component as a result of changes in the underlying risk-free interest rate. If the risk-free interest rate were to increase by 10% from December 31, 2014 levels, the fair value of the derivative component liability would increase by approximately $9 million, which would be recorded as an unrealized loss in our Statements of Consolidated Income.

Equity Market Value Risk

We are exposed to equity market value risk through our ownership of 7.1 million shares of TW Common, 1.8 million shares of TWC Common, 0.6 million shares of AOL Common and 0.9 million shares of Time Common, which we hold to facilitate our ability to meet our obligations under the ZENS. Please read Note 10 to our consolidated financial statements for a discussion of our ZENS obligation. A decrease of 10% from the December 31, 2014 aggregate market value of these shares would result in a net loss of approximately $14 million, which would be recorded as an unrealized loss in our Statements of Consolidated Income.

Commodity Price Risk From Non-Trading Activities

We use derivative instruments as economic hedges to offset the commodity price exposure inherent in our businesses. The stand-alone commodity risk created by these instruments, without regard toincluding the offsetting effectimpact on the market value of the underlying exposure these instruments are intended to hedge,natural gas inventory, is described below. We measure thethis commodity risk of our non-trading energy derivatives using a sensitivity analysis. The sensitivityFor purposes of this analysis, performed onwe estimate commodity price risk by applying a $0.50 change in the forward NYMEX price to our non-trading energy derivatives measuresnet open fixed price position (including forward fixed price physical contracts, natural gas inventory and fixed price financial contracts) at the potential loss in fair value based on a hypothetical 10% movement in energy prices. At end of each period. As of December 31, 2014,2017, the recorded fair value of our non-trading energy derivatives was a net asset of $47$111 million (before collateral), all of which is related to our Energy Services business segment. An increase of 10%A $0.50 change in the market prices of energy commodities from their December 31, 2014 levelsforward NYMEX price would have decreased the fair valuehad a combined impact of $5 million on our non-trading energy derivatives net asset by $7 million.

The above analysis ofand the non-trading energy derivatives utilized for commodity price risk management purposes does not include the favorable impact that the same hypothetical price movement would have on our non-derivative physical purchases and salesmarket value of natural gas inventory.

Commodity price risk is not limited to whichchanges in forward NYMEX prices. Variation of commodity pricing between the hedges relate. Furthermore,different indices used to mark to market portions of our natural gas inventory (Gas Daily) and the non-trading energy derivative portfolio is managedrelated fair value hedge (NYMEX) can result in volatility to complementour net income. Over time, any gains or losses on the physical transaction portfolio, reducing overall risks within limits. Therefore, the adverse impact tosale of storage gas inventory would be offset by gains or losses on the fair value of the portfolio of non-trading energy derivatives held for hedging purposes associated with the hypothetical changes in commodity prices referenced above is expected to be substantially offset by a favorable impact on the underlying hedged physical transactions.hedges.

70




Item 8.        Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
CenterPoint Energy, Inc.
Houston, Texas

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CenterPoint Energy, Inc. and subsidiaries (the “Company”"Company") as of December 31, 20142017 and 2013, and2016, the related statements of consolidated income, comprehensive income, shareholders’shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 20142017, and the related notes (collectively referred to as the "financial statements"). TheseIn our opinion, the financial statements arepresent fairly, in all material respects, the responsibilityfinancial position of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We conducted our auditshave also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CenterPoint Energy, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.



/s/ DELOITTE & TOUCHE LLP

Houston, Texas
February 26, 201522, 2018  

We have served as the Company's auditor since 1932.




71



CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME

 Year Ended December 31,
 2014 2013 2012
 (in millions, except per share amounts)
Revenues$9,226
 $8,106
 $7,452
Expenses: 
    
Natural gas4,921
 3,908
 2,873
Operation and maintenance1,969
 1,847
 1,874
Depreciation and amortization1,013
 954
 1,050
Taxes other than income taxes388
 387
 365
Goodwill impairment
 
 252
Total8,291
 7,096
 6,414
Operating Income935
 1,010
 1,038
Other Income (Expense):     
Gain on marketable securities163
 236
 154
Loss on indexed debt securities(86) (193) (71)
Interest and other finance charges(353) (351) (422)
Interest on transition and system restoration bonds(118) (133) (147)
Equity in earnings of unconsolidated affiliates308
 188
 31
Step acquisition gain
 
 136
Other, net36
 24
 38
Total(50) (229) (281)
Income Before Income Taxes885
 781
 757
Income tax expense274
 470
 340
Net Income$611
 $311
 $417
      
Basic Earnings Per Share$1.42
 $0.73
 $0.98
      
Diluted Earnings Per Share$1.42
 $0.72
 $0.97
      
Weighted Average Shares Outstanding, Basic430
 428
 427
      
Weighted Average Shares Outstanding, Diluted432
 431
 430
 Year Ended December 31,
 2017 2016 2015
 (in millions, except per share amounts)
Revenues:     
Utility revenues$5,603
 $5,440
 $5,448
Non-utility revenues4,011
 2,088
 1,938
Total9,614
 7,528
 7,386
Expenses: 
    
Utility natural gas1,109
 983
 1,264
Non-utility natural gas3,785
 1,983
 1,838
Operation and maintenance2,221
 2,093
 2,007
Depreciation and amortization1,036
 1,126
 970
Taxes other than income taxes391
 384
 374
Total8,542
 6,569
 6,453
Operating Income1,072
 959
 933
Other Income (Expense):     
Gain (loss) on marketable securities7
 326
 (93)
Gain (loss) on indexed debt securities49
 (413) 74
Interest and other finance charges(313) (338) (352)
Interest on Securitization Bonds(77) (91) (105)
Equity in earnings (losses) of unconsolidated affiliates265
 208
 (1,633)
Other, net60
 35
 46
Total(9) (273) (2,063)
Income (Loss) Before Income Taxes1,063
 686
 (1,130)
Income tax expense (benefit)(729) 254
 (438)
Net Income (Loss)$1,792
 $432
 $(692)
      
Basic Earnings (Loss) Per Share$4.16
 $1.00
 $(1.61)
      
Diluted Earnings (Loss) Per Share$4.13
 $1.00
 $(1.61)
      
Weighted Average Shares Outstanding, Basic431
 431
 430
      
Weighted Average Shares Outstanding, Diluted434
 434
 430

See Notes to Consolidated Financial Statements


72




CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

 Year Ended December 31,
 2014 2013 2012
 (in millions)
Net income$611
 $311
 $417
Other comprehensive income (loss):   
  
Adjustment to pension and other postretirement plans (net of tax of $5, $25 and $2, respectively)3
 44
 (2)
Reclassification of deferred loss from cash flow hedges realized in net income (net of tax)1
 1
 
Other comprehensive income (loss)4
 45
 (2)
Comprehensive income$615
 $356
 $415
 Year Ended December 31,
 2017 2016 2015
 (in millions)
Net income (loss)$1,792
 $432
 $(692)
Other comprehensive income (loss):   
  
Adjustment to pension and other postretirement plans (net of tax of $6, $4 and $12, respectively)6
 (7) 20
Net deferred gain (loss) from cash flow hedges (net of tax of $2, $-0-, and $-0-, respectively)(3) 1
 
Reclassification of deferred loss from cash flow hedges realized in net income (net of tax of $-0-, $1, and $-0-, respectively)
 1
 
Other comprehensive income (loss)3
 (5) 20
Comprehensive income (loss)$1,795
 $427
 $(672)

See Notes to Consolidated Financial Statements


73




CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 December 31,
2014
 December 31,
2013
 (in millions)
ASSETS   
Current Assets:   
Cash and cash equivalents ($290 and $207 related to VIEs, respectively)$298
 $208
Investment in marketable securities930
 767
Accounts receivable ($58 and $60 related to VIEs, respectively), less bad debt reserve of $26 and $28, respectively837
 851
Accrued unbilled revenues357
 398
Inventory379
 285
Non-trading derivative assets99
 24
Taxes receivable190
 
Prepaid expense and other current assets ($47 and $41 related to VIEs, respectively)178
 125
Total current assets3,268
 2,658
Property, Plant and Equipment, net10,502
 9,593
Other Assets: 
  
Goodwill840
 840
Regulatory assets ($2,738 and $3,179 related to VIEs, respectively)3,527
 3,726
Notes receivable - affiliated companies363
 363
Non-trading derivative assets32
 10
Investment in unconsolidated affiliates4,521
 4,518
Other147
 162
Total other assets9,430
 9,619
Total Assets$23,200
 $21,870
LIABILITIES AND SHAREHOLDERS’ EQUITY 
  
Current Liabilities: 
  
Short-term borrowings$53
 $43
Current portion of VIE transition and system restoration bonds long-term debt372
 354
Indexed debt152
 143
Current portion of other long-term debt271
 
Indexed debt securities derivative541
 455
Accounts payable716
 689
Taxes accrued161
 184
Interest accrued124
 124
Non-trading derivative liabilities19
 17
Accumulated deferred income taxes, net683
 608
Other383
 402
Total current liabilities3,475
 3,019
Other Liabilities: 
  
Accumulated deferred income taxes, net4,757
 4,542
Non-trading derivative liabilities1
 4
Benefit obligations953
 802
Regulatory liabilities1,206
 1,152
Other251
 205
Total other liabilities7,168
 6,705
Long-term Debt: 
  
VIE transition and system restoration bonds2,674
 3,046
Other long-term debt5,335
 4,771
Total long-term debt8,009
 7,817
Commitments and Contingencies (Note 14) 

  
Shareholders’ Equity4,548
 4,329
Total Liabilities and Shareholders’ Equity$23,200
 $21,870
 December 31,
2017
 December 31,
2016
 (in millions)
ASSETS   
Current Assets:   
Cash and cash equivalents ($230 and $340 related to VIEs, respectively)$260
 $341
Investment in marketable securities960
 953
Accounts receivable ($73 and $52 related to VIEs, respectively), less bad debt reserve of $19 and $15, respectively1,000
 740
Accrued unbilled revenues427
 335
Natural gas inventory222
 131
Materials and supplies175
 181
Non-trading derivative assets110
 51
Taxes receivable
 30
Prepaid expense and other current assets ($35 and $40 related to VIEs, respectively)241
 161
Total current assets3,395
 2,923
Property, Plant and Equipment, net13,057
 12,307
Other Assets: 
  
Goodwill867
 862
Regulatory assets ($1,590 and $1,919 related to VIEs, respectively)2,347
 2,677
Non-trading derivative assets44
 19
Investment in unconsolidated affiliates2,472
 2,505
Preferred units - unconsolidated affiliate363
 363
Other191
 173
Total other assets6,284
 6,599
Total Assets$22,736
 $21,829

See Notes to Consolidated Financial Statements


CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, cont.

74

 December 31,
2017

December 31,
2016
 (in millions, except par value
and shares)
LIABILITIES AND SHAREHOLDERS’ EQUITY 
  
Current Liabilities: 
  
Short-term borrowings$39
 $35
Current portion of VIE Securitization Bonds long-term debt434
 411
Indexed debt122
 114
Current portion of other long-term debt50
 500
Indexed debt securities derivative668
 717
Accounts payable963
 657
Taxes accrued181
 172
Interest accrued104
 108
Dividends accrued120
 
Non-trading derivative liabilities20
 41
Other368
 325
Total current liabilities3,069
 3,080
Other Liabilities: 
  
Deferred income taxes, net3,174
 5,263
Non-trading derivative liabilities4
 5
Benefit obligations785
 913
Regulatory liabilities2,464
 1,298
Other357
 278
Total other liabilities6,784
 7,757
Long-term Debt: 
  
VIE Securitization Bonds, net1,434
 1,867
Other long-term debt, net6,761
 5,665
Total long-term debt, net8,195
 7,532
Commitments and Contingencies (Note 15) 

 

Shareholders’ Equity:   
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized, none issued or outstanding
 
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 431,044,845 shares and 430,682,504 shares outstanding, respectively4
 4
Additional paid-in capital4,209
 4,195
Retained earnings (accumulated deficit)543
 (668)
Accumulated other comprehensive loss(68) (71)
Total shareholders’ equity4,688
 3,460
Total Liabilities and Shareholders’ Equity$22,736
 $21,829

See Notes to Consolidated Financial Statements



CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31,Year Ended December 31,
2014 2013 20122017 2016 2015
(in millions)(in millions)
Cash Flows from Operating Activities:          
Net income$611
 $311
 $417
Adjustments to reconcile net income to net cash provided by operating activities:   
  
Net income (loss)$1,792
 $432
 $(692)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
  
Depreciation and amortization1,013
 954
 1,050
1,036
 1,126
 970
Amortization of deferred financing costs28
 30
 32
24
 26
 27
Deferred income taxes280
 356
 328
(770) 213
 (413)
Goodwill impairment
 
 252
Step acquisition gain
 
 (136)
Unrealized gain on marketable securities(163) (236) (154)
Unrealized loss on indexed debt securities86
 193
 71
Unrealized loss (gain) on marketable securities(7) (326) 93
Loss (gain) on indexed debt securities(49) 413
 (74)
Write-down of natural gas inventory8
 4
 4

 1
 4
Equity in earnings of unconsolidated affiliates, net of distributions(2) (58) 8
Equity in (earnings) losses of unconsolidated affiliates, net of distributions(265) (208) 1,779
Pension contributions(97) (91) (82)(48) (9) (66)
Changes in other assets and liabilities: 
  
  
Changes in other assets and liabilities, excluding acquisitions: 
  
  
Accounts receivable and unbilled revenues, net39
 (256) 10
(216) (117) 345
Inventory(102) (22) 27
(7) 34
 28
Taxes receivable(190) 7
 (7)30
 142
 18
Accounts payable(3) 152
 (6)136
 133
 (224)
Fuel cost recovery(41) 108
 (52)(85) (72) 43
Non-trading derivatives, net(34) 4
 20
(84) 30
 (7)
Margin deposits, net(79) 16
 53
(55) 101
 (4)
Interest and taxes accrued(23) 41
 (62)5
 5
 (10)
Net regulatory assets and liabilities22
 61
 66
(107) (60) 63
Other current assets1
 (2) (12)1
 (17) 10
Other current liabilities(20) 21
 18
34
 22
 (50)
Other assets9
 (24) (18)(4) (16) (5)
Other liabilities41
 20
 16
36
 30
 8
Other, net13
 24
 17
24
 48
 27
Net cash provided by operating activities1,397
 1,613
 1,860
1,421
 1,931
 1,870
Cash Flows from Investing Activities: 
  
  
 
  
  
Capital expenditures, net of acquisitions(1,372) (1,286) (1,212)
Capital expenditures(1,426) (1,414) (1,584)
Acquisitions, net of cash acquired
 
 (360)(132) (102) 
Decrease (increase) in restricted cash of transition and system restoration bond companies(7) 17
 (13)
Investment in unconsolidated affiliates(1) 
 (5)
Cash contribution to Enable
 (38) 
Decrease in notes receivable - unconsolidated affiliate
 363
 
Investment in preferred units - unconsolidated affiliate
 (363) 
Distributions from unconsolidated affiliates in excess of cumulative earnings297
 297
 148
Decrease (increase) in restricted cash of Bond companies5
 (5) 12
Proceeds from sale of marketable securities
 9
 

 178
 32
Other, net(4) (2) (13)(1) 
 5
Net cash used in investing activities(1,384) (1,300) (1,603)(1,257) (1,046) (1,387)
Cash Flows from Financing Activities: 
  
  
 
  
  
Increase (decrease) in short-term borrowings, net10
 5
 (24)4
 (5) (13)
Proceeds from (payments of) commercial paper, net414
 118
 (285)
Proceeds from long-term debt600
 1,050
 2,495
Proceeds from commercial paper, net349
 469
 403
Proceeds from long-term debt, net1,096
 600
 200
Payments of long-term debt(537) (1,573) (1,590)(1,211) (1,218) (644)
Cash paid for debt exchange and debt retirement(1) (7) (69)
Loss on reacquired debt(5) (22) 
Debt issuance costs(8) (3) (16)(13) (9) 
Redemption of indexed debt securities
 (8) 
Payment of common stock dividends(408) (355) (346)
Proceeds from issuance of common stock, net1
 4
 4
Payment of dividends on common stock(461) (443) (426)
Distribution to ZENS holders
 (178) (32)
Other, net6
 18
 
(4) (2) (5)
Net cash provided by (used in) financing activities77
 (751) 169
Net cash used in financing activities(245) (808) (517)
Net Increase (Decrease) in Cash and Cash Equivalents90
 (438) 426
(81) 77
 (34)
Cash and Cash Equivalents at Beginning of Year208
 646
 220
341
 264
 298
Cash and Cash Equivalents at End of Year$298
 $208
 $646
$260
 $341
 $264
          

See Notes to Consolidated Financial Statements

75




CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS, cont.
Year Ended December 31,Year Ended December 31,
2014 2013 20122017 2016 2015
(in millions)(in millions)
Supplemental Disclosure of Cash Flow Information: 
  
  
 
  
  
Cash Payments: 
  
  
 
  
  
Interest, net of capitalized interest$434
 $475
 $556
$378
 $406
 $426
Income taxes, net192
 35
 46
Income taxes (refunds), net15
 (104) (45)
Non-cash transactions:   
  
   
  
Accounts payable related to capital expenditures104
 74
 110
144
 87
 95
Formation of Enable
 4,252
 
Exercise of SESH put to Enable196
 
 

See Notes to Consolidated Financial Statements


76




CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY
 
2014 2013 20122017 2016 2015
Shares Amount Shares Amount Shares AmountShares Amount Shares Amount Shares Amount
(in millions of dollars and shares)(in millions of dollars and shares, except per share amounts)
Preference Stock, none outstanding
 $
 
 $
 
 $

 $
 
 $
 
 $
Cumulative Preferred Stock, $0.01 par value; authorized 20,000,000 shares, none outstanding
 
 
 
 
 

 
 
 
 
 
Common Stock, $0.01 par value; authorized 1,000,000,000 shares 
  
  
  
  
  
 
  
  
  
  
  
Balance, beginning of year429
 4
 428
 4
 426
 4
431
 4
 430
 4
 430
 4
Issuances related to benefit and investment plans1
 
 1
 
 2
 

 
 1
 
 
 
Balance, end of year430
 4
 429
 4
 428
 4
431
 4
 431
 4
 430
 4
Additional Paid-in-Capital     
  
         
  
    
Balance, beginning of year  4,157
  
 4,130
   4,120
  4,195
  
 4,180
   4,169
Issuances related to benefit and investment plans  12
  
 27
   10
  14
  
 15
   11
Balance, end of year  4,169
  
 4,157
   4,130
  4,209
  
 4,195
   4,180
Retained Earnings   
  
  
    
Retained Earnings (Accumulated Deficit)   
  
  
    
Balance, beginning of year  258
  
 302
   231
  (668)  
 (657)   461
Net income  611
  
 311
   417
Common stock dividends   (408)  
 (355)   (346)
Net income (loss)  1,792
  
 432
   (692)
Common stock dividends declared ($1.3475, $1.03 and $0.99 per share, respectively)  (581)  
 (443)   (426)
Balance, end of year  461
  
 258
   302
  543
  
 (668)   (657)
Accumulated Other Comprehensive Loss   
  
  
    
   
  
  
    
Balance, end of year:   
  
  
    
   
  
  
    
Adjustment to pension and postretirement plans  (85)  
 (88)   (132)  (66)  
 (72)   (65)
Net deferred loss from cash flow hedges  (1)  
 (2)   (3)
Net deferred gain (loss) from cash flow hedges  (2)  
 1
   (1)
Total accumulated other comprehensive loss, end of year  (86)  
 (90)   (135)  (68)  
 (71)   (66)
Total Shareholders’ Equity  $4,548
  
 $4,329
   $4,301
  $4,688
  
 $3,460
   $3,461
 
See Notes to Consolidated Financial Statements


77




CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)Background
(1) Background

CenterPoint Energy, Inc. is a public utility holding company. CenterPoint Energy’s operating subsidiaries own and operate electric transmission and distribution facilities and natural gas distribution facilities, supply natural gas to commercial and industrial customers and electric and natural gas utilities and own interests in Enable Midstream Partners, LP (Enable) as described below. As of December 31, 2014, CenterPoint Energy’s indirect, wholly ownedwholly-owned subsidiaries included:include:

CenterPoint Energy Houston Electric, LLC (CenterPoint Houston), which engages in the electric transmission and distribution business in the Texas Gulf Coast area that includes the city of Houston; and

CenterPoint Energy ResourcesCERC Corp. (CERC Corp. and, together with its subsidiaries, CERC), which owns and operates natural gas distribution systems (NGD). A wholly owned subsidiary of CERC Corp.in six states; and

CES, which obtains and offers competitive variable and fixed-price physical natural gas supplies and services primarily to commercial and industrial customers and electric and natural gas utilities. utilities in 33 states.

As of December 31, 2014, CERC Corp.2017, CenterPoint Energy also owned approximately 55.4%an aggregate of the limited partner interests14,520,000 Series A Preferred Units in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets.
assets, and CERC Corp. owned approximately 54.1% of the common units representing limited partner interests in Enable.

For a description of CenterPoint Energy’s reportable business segments, see Note 17.18.

(2)Summary of Significant Accounting Policies
(2) Summary of Significant Accounting Policies

(a)Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(b)Principles of Consolidation

The accounts of CenterPoint Energy and its wholly ownedwholly-owned and majority owned subsidiaries are included in the consolidated financial statements. All intercompany transactions and balances are eliminated in consolidation.

As of December 31, 2017, CenterPoint Energy had VIEs consisting of the Bond Companies, which it consolidates. The consolidated VIEs are wholly-owned, bankruptcy remote special purpose entities that were formed solely for the purpose of securitizing transition and system restoration related property. Creditors of CenterPoint Energy have no recourse to any assets or revenues of the Bond Companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property and the bondholders have no recourse to the general credit of CenterPoint Energy.

(c)Equity and Cost Method Investments
CenterPoint Energy generally uses the equity method of accounting for investments in entities in which CenterPoint Energy has an ownership interest between 20% and 50% and exercises significant influence. CenterPoint Energy also uses the equity method for investments in which it has ownership percentages greater than 50%, when it exercises significant influence, does not have control and is not considered the primary beneficiary, if applicable.

On March 14,In 2013, CenterPoint Energy, entered into a Master Formation Agreement (MFA) with OGE Energy Corp. (OGE) and affiliates of ArcLight, Capital Partners, LLC (ArcLight), pursuant to which CenterPoint Energy, OGE and ArcLight agreed to formformed Enable as a private limited partnership. On May 1, 2013, the parties closed on the formation of Enable. In connection with the closing (i) CERC Corp. converted its direct wholly owned subsidiary, CenterPoint Energy Field Services, LLC, a Delaware limited liability company (CEFS), into a Delaware limited partnership that became Enable, (ii) CERC Corp. contributed to Enable its equity interests in each of CenterPoint Energy Gas Transmission Company, LLC, which has been subsequently renamed Enable Gas Transmission, LLC (EGT), CenterPoint Energy - Mississippi River Transmission, LLC, which has been subsequently renamed Enable Mississippi River Transmission, LLC (MRT), certain of its other midstream subsidiaries (Other CNP Midstream Subsidiaries), and a 24.95% interest in Southeast Supply Header, LLC (SESH and, collectively with CEFS, EGT, MRT and Other CNP Midstream Subsidiaries, CenterPoint Midstream), and (iii) OGE and ArcLight indirectly contributed 100% of the equity interests in Enogex LLC, which has been subsequently renamed Enable Oklahoma Intrastate Transmission, LLC (Enogex), to Enable.

The formation of Enable by CenterPoint Energy was considered a contribution of in-substance real estate to a limited partnership as the businesses are composed of, and reliant upon, substantial real estate assets and integral equipment. Real estate assets and integral equipment primarily include gas transmission pipelines, compressor station equipment, rights of way, storage and processing assets and long-term customer contracts. Accordingly, CenterPoint Energy did not recognize a gain or loss upon contribution and recorded its investment in Enable using the equity method of accounting based on the historical cost of the contributed assets and liabilities as of May 1, 2013 (Closing Date). Approximately $5.8 billion of assets (which includes $4.7 billion in property, plant and equipment, net, $629 million in goodwill and $197 million for the 24.95% investment in SESH) and

78



$1.5 billion of liabilities (which includes a term loan and the indebtedness owed to CERC of $1.05 billion and $363 million, respectively) were contributed by CERC Corp. CenterPoint Energy has the ability to significantly influence the operating and financial policies of, but not solely control, Enable and, accordingly, recorded an equity method investment, at the historical costs ofinvestment. The net assets contributed of $4.3 billion in Enable on the Closing Date. Pursuantwere deemed to the MFA, CenterPoint Energy retained certain assetsbe in-substance real estate and liabilities historically held by CenterPoint Midstream such as balances relating to federal income taxes and benefit plan obligations.were therefore recorded at historical cost.



Under the equity method, CenterPoint Energy adjusts its investment in Enable each period for contributions made, distributions received, CenterPoint Energy’s share of Enable’s comprehensive income and accretionamortization of basis differences, as appropriate. CenterPoint Energy evaluates its equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline.

CenterPoint Energy’s investment in Enable is considered to be a variable interest entity (VIE)VIE because the power to direct the activities that most significantly impact Enable’s economic performance does not reside with the holders of equity investment at risk. However, CenterPoint Energy is not considered the primary beneficiary of Enable since it does not have the power to direct the activities of Enable that are considered most significant to the economic performance of Enable.

AsCenterPoint Energy considers distributions received from equity method investments which do not exceed cumulative equity in earnings subsequent to the date of December 31, 2014, CERC Corp.investment to be a return on investment and OGE held approximately 55.4% and 26.3%, respectively, of the limited partner interests in Enable. Enable is controlled jointly by CERC Corp. and OGE, and each own 50% of the management rightsclassifies these distributions as operating activities in the general partnerStatements of Enable.

As of December 31, 2014, CERC Corp. and OGE also own a 40% and 60% interest, respectively, in the incentive distribution rights held by the general partner of Enable. Enable is expected to pay a minimum quarterly distribution of $0.2875 per unit on its outstanding units to the extent it has sufficient cashConsolidated Cash Flows. CenterPoint Energy considers distributions received from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates, within 45 days after the end of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per unit in any quarter, the general partner will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributesequity method investments in excess of that amount. In certain circumstancescumulative equity in earnings subsequent to the general partnerdate of Enable will have the right to reset the minimum quarterly distribution and the target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable’s cash distributions at the time of the exercise of this reset election.

Prior to July 2012, CenterPoint Energy owned a 50% interest in Waskom Gas Processing Company (Waskom), a Texas general partnership, which owns and operates a natural gas processing plant and natural gas gathering assets. On July 31, 2012, CenterPoint Energy purchased the 50% interest that it did not already own in Waskom, as well as other gathering and related assets from a third-party for approximately $273 million. The purchase of the 50% interest in Waskom was determinedinvestment to be a business combination achievedreturn of investment and classifies these distributions as investing activities in stages, and as such CenterPoint Energy recorded a pre-tax gainthe Statements of approximately $136 million on July 31, 2012, which is the result of remeasuring its original 50% interest in Waskom to fair value.Consolidated Cash Flows.

Other investments, excluding marketable securities, are carried at cost.

As of December 31, 2014, CenterPoint Energy had VIEs consisting of transition and system restoration bond companies, which it consolidates. The consolidated VIEs are wholly owned bankruptcy remote special purpose entities that were formed specifically for the purpose of securitizing transition and system restoration related property. Creditors of CenterPoint Energy have no recourse to any assets or revenues of the transition and system restoration bond companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property and the bondholders have no recourse to the general credit of CenterPoint Energy.

(c)(d)Revenues

CenterPoint Energy records revenue for electricity delivery and natural gas sales and services under the accrual method and these revenues are recognized upon delivery to customers. Electricity deliveries not billed by month-end are accrued based on actual advanced metering systemAMS data, daily supply volumes and applicable rates. Natural gas sales not billed by month-end are accrued based upon estimated purchased gas volumes, estimated lost and unaccounted for gas and currently effective tariff rates.


79



(d)(e) Long-lived Assets and Intangibles

CenterPoint Energy records property, plant and equipment at historical cost. CenterPoint Energy expenses repair and maintenance costs as incurred.

CenterPoint Energy periodically evaluates long-lived assets, including property, plant and equipment, and specifically identifiable intangibles, when events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted cash flows attributable to the assets compared to the carrying value of the assets.

(e)(f) Regulatory Assets and Liabilities

CenterPoint Energy applies the guidance for accounting for regulated operations to the Electric Transmission & Distribution business segment and the Natural Gas Distribution business segment. CenterPoint Energy’s rate-regulated subsidiaries may collect revenues subject to refund pending final determination in rate proceedings. In connection with such revenues, estimated rate refund liabilities are recorded which reflect management’s current judgment of the ultimate outcomes of the proceedings.

CenterPoint Energy’s rate-regulated businesses recognize removal costs as a component of depreciation expense in accordance with regulatory treatment. As of December 31, 2014 and 2013, these removal costs of $958 million and $941 million, respectively, are classified as regulatory liabilities in CenterPoint Energy’s Consolidated Balance Sheets. In addition, a portion of the amount of removal costs that relate to asset retirement obligationsAROs has been reclassified from a regulatory liability to an asset retirement liability in accordance with accounting guidance for asset retirement obligations.AROs.

(f)For further detail on CenterPoint Energy’s regulatory assets and liabilities, please see Note 6.

(g) Depreciation and Amortization Expense

Depreciation and amortization is computed using the straight-line method based on economic lives or regulatory-mandated recovery periods. Amortization expense includes amortization of certain regulatory assets and other intangibles.

(g)(h) Capitalization of Interest and Allowance for Funds Used During ConstructionAFUDC

Interest and allowance for funds used during construction (AFUDC)AFUDC are capitalized as a component of projects under construction and are amortized over the assets’ estimated useful lives once the assets are placed in service. AFUDC represents the composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction for subsidiaries that apply the guidance for accounting for regulated operations. During 2014, 2013Although AFUDC increases both utility plant and 2012, CenterPoint Energy capitalized interest and AFUDC of $11 million, $11 million and $9 million, respectively. During 2014, 2013 and 2012, earnings, it is realized in cash when the assets are included in rates.


CenterPoint Energy recorded AFUDC equity of $14 million, $8 million and $6 million, respectively, which is included in Other Income in its Statements of Consolidated Income.the following:
  Year Ended December 31,
  2017 2016 2015
  (in millions)
Capitalized interest and AFUDC included in Interest and other finance charges $9
 $8
 $10
AFUDC equity included in Other Income 11
 7
 12

(h)(i) Income Taxes

CenterPoint Energy uses the asset and liability method of accounting for deferred income taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established against deferred tax assets for which management believes realization is not considered to be more likely than not. CenterPoint Energy recognizes interest and penalties as a component of income tax expense. CenterPoint Energy reports the income tax provision associated with its interest in Enable in Income tax expense (benefit) in its Statements of Consolidated Income.

(i)To the extent certain EDIT of CenterPoint Energy’s rate-regulated subsidiaries may be recoverable or payable through future rates, regulatory assets and liabilities have been recorded, respectively.

On December 22, 2017, President Trump signed into law comprehensive tax reform legislation informally called the Tax Cuts and Jobs Acts, or TCJA, which resulted in significant changes to federal tax laws effective January 1, 2018. See Note 14 for further discussion of the impacts of tax reform implementation.

(j) Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. It is the policy of management to review the outstanding accounts receivable monthly, as well as the bad debt write-offs experienced in the past, and establish an allowance for doubtful accounts. Account balances are charged off against the allowance when management determines it is probable the receivable will not be recovered. The provision for doubtful accounts in CenterPoint Energy’s Statements of Consolidated Income for 20142017, 20132016 and 20122015 was $2214 million, $217 million and $1619 million, respectively.


80



(j)(k) Inventory

Inventory consists principally of materials and supplies and natural gas. Materials and supplies are valued at the lower of average cost or market.  Materials and supplies are recorded to inventory when purchased and subsequently charged to expense or capitalized to plant when installed. Natural gas inventories of CenterPoint Energy’s Energy Services business segment are valued at the lower of average cost or market. Natural gas inventories of CenterPoint Energy’s Natural Gas Distribution business segment are primarily valued at weighted average cost. During 20142017, 20132016 and 20122015, CenterPoint Energy recorded$8 million, $4 million and $4 million, respectively, in write-downs of natural gas inventory to the lower of average cost or market.market which are disclosed on the Statements of Consolidated Cash Flows.

 December 31,
 2014 2013
    
Materials and supplies$168
 $140
Natural gas211
 145
Total inventory$379
 $285

(k)(l) Derivative Instruments

CenterPoint Energy is exposed to various market risks. These risks arise from transactions entered into in the normal course of business.  CenterPoint Energy utilizes derivative instruments such as physical forward contracts, swaps and options to mitigate the impact of changes in commodity prices, weather and weatherinterest rates on its operating results and cash flows. Such derivatives are recognized in CenterPoint Energy’s Consolidated Balance Sheets at their fair value unless CenterPoint Energy elects the normal purchase and sales exemption for qualified physical transactions. A derivative may be designated as a normal purchase or normal sale if the intent is to physically receive or deliver the product for use or sale in the normal course of business.

CenterPoint Energy has a Risk Oversight Committee composed of corporate and business segment officers that oversees all commodity price, weather and credit risk activities, including CenterPoint Energy’s marketing, risk management services and hedging activities. The committee’s duties are to establish CenterPoint Energy’s commodity risk policies, allocate board-approved commercial risk limits, approve the use of new products and commodities, monitor positions and ensure compliance with CenterPoint Energy’s risk management policies and procedures and limits established by CenterPoint Energy’s boardBoard of directors.Directors.



CenterPoint Energy’s policies prohibit the use of leveraged financial instruments. A leveraged financial instrument, for this purpose, is a transaction involving a derivative whose financial impact will be based on an amount other than the notional amount or volume of the instrument.

(l)(m) Investments in Other Debt and Equity Securities

CenterPoint Energy reports securities classified as trading at estimated fair value in its Consolidated Balance Sheets, and any unrealized holding gains and losses are recorded as other income (expense)Other Income (Expense) in its Statements of Consolidated Income.

(m)(n) Environmental Costs

CenterPoint Energy expenses or capitalizes environmental expenditures, as appropriate, depending on their future economic benefit. CenterPoint Energy expenses amounts that relate to an existing condition caused by past operations that do not have future economic benefit. CenterPoint Energy records undiscounted liabilities related to these future costs when environmental assessments and/or remediation activities are probable and the costs can be reasonably estimated.

(n) Statements of Consolidated(o) Cash Flowsand Cash Equivalents and Restricted Cash

For purposes of reporting cash flows, CenterPoint Energy considers cash equivalents to be short-term, highly-liquid investments with maturities of three months or less from the date of purchase. Cash and cash equivalents held by the Bond Companies (VIEs) solely to support servicing the Securitization Bonds as of December 31, 2017 and 2016 are reflected on the Consolidated Balance Sheets.

In connection with the issuance of transition bonds and system restoration bonds,Securitization Bonds, CenterPoint Energy was required to establish restricted cash accounts to collateralize the bonds that were issued in these financing transactions. These restricted cash accounts are not available for withdrawal until the maturity of the bonds and are not included in cash and cash equivalents. These restrictedRestricted cash accounts as of $47 millionDecember 31, 2017 and $41 million2016 at December 31, 2014 and 2013, respectively, are included in other current assets in CenterPoint Energy’s Consolidated Balance Sheets. Cash and cash equivalents included $290 million and $207 million at December 31, 2014 and 2013, respectively, thatreported below.

81



was held by CenterPoint Energy’s transition and system restoration bond subsidiaries solely to support servicing the transition and system restoration bonds.
  December 31,
  2017 2016
  (in millions)
Restricted cash included in Prepaid expenses and other current assets $35
 $40
Restricted cash included in Other assets 1
 
  Total restricted cash $36
 $40

CenterPoint Energy considers distributions received from equity method investments which do not exceed cumulative equity in earnings subsequent to the date of investment to be a return on investment and classifies these distributions as operating activities in the Statements of Consolidated Cash Flows. CenterPoint Energy considers distributions received from equity method investments in excess of cumulative equity in earnings subsequent to the date of investment to be a return of investment and classifies these distributions as investing activities in the Statements of Consolidated Cash Flows.

(o)(p) New Accounting Pronouncements

Recently Adopted

In April 2014,March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09).  The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. CenterPoint Energy adopted this standard as of January 1, 2017. The adoption did not have a material impact on CenterPoint Energy’s financial position or results of operations.  However, CenterPoint Energy’s statement of cash flows reflects a decrease in financing activity and a corresponding increase in operating activity of $4 million, $3 million and $5 million as of December 31, 2017, 2016 and 2015, respectively, due to the retrospective application of the requirement that cash paid to a tax authority when shares are withheld to satisfy statutory income tax withholding obligations should be presented as a financing rather than as an operating activity.

Issued, Not Yet Effective

In January 2016, the FASB issued ASU No. 2016-01, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08, PresentationInstruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Statements (Topic 205)Assets and Property, Plant,Financial Liabilities (ASU 2016-01). ASU 2016-01 requires equity investments that do not result in consolidation and Equipment (Topic 360): Reporting Discontinued Operationsare not accounted for under the equity method to be measured at fair value and Disclosuresto recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. It does not change the guidance for classifying and measuring investments in debt securities and loans. ASU 2016-01 also changes certain disclosure requirements and other aspects related to recognition and measurement of Disposals of Components of an Entity (ASU 2014-08), which significantly changes the existing accounting guidance on discontinued operations. Under ASU 2014-08, only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operationsfinancial assets and financial results should be reported as a discontinued operation.liabilities. ASU 2014-082016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014.2017. As of the first reporting period in which


the guidance is adopted, a cumulative-effect adjustment to beginning retained earnings will be made, with two features that will be adopted prospectively. This standard will not have a material impact on CenterPoint Energy’s financial position, results of operations, cash flows and disclosures upon adoption on January 1, 2018.

In 2016, the FASB issued ASU 2014-08 should be appliedNo. 2016-02, Leases (Topic 842) (ASU 2016-02) and related amendments. ASU 2016-02 provides a comprehensive new lease model that requires lessees to componentsrecognize assets and liabilities for most leases and would change certain aspects of lessor accounting. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. CenterPoint Energy expects to adopt this standard on January 1, 2019 and is evaluating available transitional practical expedients. A modified retrospective adoption approach is required. CenterPoint Energy is in the process of reviewing contracts to identify leases as defined in ASU 2016-02 and expects to recognize on the statements of financial position right-of-use assets and lease liabilities for the majority of its leases that are currently classified as held for sale afteroperating leases. CenterPoint Energy is continuing to assess the impact that this standard will have on its effective date. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The adoption is expected to reduce the numberposition, results of disposals that meet the definition of a discontinued operation.operations, cash flows and disclosures.

In May 2014,2016 and 2017, the FASB issued ASUs which amended ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (Topic 606) (ASU 2014-09), which supersedes most current revenue recognition guidance.. ASU 2014-09, as amended, provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted, and entities have the option of using either a full retrospective or a modified retrospective adoption approach. Accordingly,While these ASUs will expand disclosures, CenterPoint Energy has not identified any significant changes as the result of these new standards. A substantial amount of CenterPoint Energy’s revenues are tariff and derivative based, which will not be significantly impacted by these ASUs. ASU 2014-09 eliminates industry specific guidance, including ASC 360-20, and as a result our investment in Enable will no longer be considered in-substance real estate. Gains or losses on subsequent sales or dilution events in our investment in Enable will be recognized in earnings. CenterPoint Energy adopted these ASUs on January 1, 2018 using the modified retrospective adoption approach.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 provides clarifying guidance on the classification of certain cash receipts and payments in the statement of cash flows and eliminates the variation in practice related to such classifications. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. CenterPoint Energy adopted this standard on January 1, 2018. A retrospective adoption approach is required. CenterPoint Energy does not believe this standard will have a material impact on its financial position, results of operations, and disclosures. Due to the requirement that cash proceeds from COLI policies be classified as cash inflows from investing activity, there will be an increase in investing activity and a corresponding decrease in operating activity on the statement of cash flows when COLI proceeds are received.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. This standard will not have an impact on CenterPoint Energy’s financial position, results of operations, and disclosures, but it will have an impact on the presentation of the statement of cash flows upon adoption on January 1, 2018.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). ASU 2017-01 revises the definition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then under ASU 2017-01, the asset or group of assets is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs to be more closely aligned with how outputs are described in ASC 606. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted in certain circumstances. A prospective adoption approach is required. ASU 2017-01 could have a potential impact on CenterPoint Energy’s accounting for future acquisitions upon adoption on January 1, 2018.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods


within those fiscal years, beginning after December 15, 2019, with early adoption permitted. CenterPoint Energy will adopt ASU 2014-092017-04 on January 1, 2018. A prospective adoption approach is required. ASU 2017-04 will have an impact on CenterPoint Energy’s future calculation of goodwill impairments if an impairment is identified.

In February 2017, the FASB issued ASU No. 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU 2017-05). ASU 2017-05 clarifies when and how to apply ASC 610-20 Gains and Losses from the Derecognition of Nonfinancial Assets, which was issued as part of ASU 2014-09 Revenue from Contracts with Customers (Topic 606). ASU 2017-05 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Companies can elect a retrospective or modified retrospective approach to adoption. This standard will not have a material impact on CenterPoint Energy’s financial position, results of operations, cash flows and disclosures upon adoption on January 1, 2018.

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 requires an employer to report the service cost component of the net periodic pension cost and postretirement benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period; all other components will be presented separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, only the service cost component will be eligible for capitalization in assets. ASU 2017-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components and prospectively for the capitalization of the service cost component. The adoption of this guidance is expected to result in an increase to operating income and a decrease to other income. Prospectively, other components previously capitalized in assets will be recorded as regulatory assets in CenterPoint Energy’s rate-regulated businesses. This standard will not have a material impact on CenterPoint Energy’s financial position, results of operations, cash flows and disclosures upon adoption on January 1, 2018.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. ASU 2017-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2017-09 should be applied prospectively for awards modified on or after the adoption date. This standard, upon adoption on January 1, 2018, will have an impact on CenterPoint Energy’s accounting for future changes to share-based payment awards.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness, eases certain documentation and assessment requirements, and updates the presentation and disclosure requirements. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. A cumulative-effect adjustment to eliminate the separate measurement of ineffectiveness upon adoption is required for existing cash flow and net investment hedges. Presentation and disclosure guidance should be applied prospectively. CenterPoint Energy is currently evaluatingassessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.

In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (ASU 2014-16).  ASU 2014-16 clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of a host contract. ASU 2014-16 is effective for fiscal years and interim periods beginning after December 15, 2015. CenterPoint Energy is currently assessing the impact, if any, that this standard will have on its financial position, results of operations, cash flows and disclosures.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20)-Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (ASU 2015-01), which eliminates the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, and may be applied either prospectively or retrospectively. CenterPoint Energy will adopt ASU 2015-01 on January 1, 2016 and does not anticipate the adoption to have a material impact on its consolidated financial statements.

Management believes that other recently issued standards, which are not yet effective, will not have a material impact on CenterPoint Energy’s consolidated financial position, results of operations or cash flows upon adoption.

82




(3)Property, Plant and Equipment


(3) Property, Plant and Equipment

(a) Property, Plant and Equipment

Property, plant and equipment includes the following:
Weighted Average
Useful Lives
 December 31, 
Weighted Average
Useful Lives
 December 31,
(Years) 2014 2013 (in years) 2017 2016
  (in millions)  (in millions)
Electric Transmission & Distribution31 $9,393
 $8,741
 32 $11,496
 $10,840
Natural Gas Distribution33 5,235
 4,694
 28 6,735
 6,219
Energy Services27 84
 82
 27 102
 83
Other property22 646
 621
 26 698
 689
Total  15,358
 14,138
   19,031
 17,831
Accumulated depreciation and amortization:     
      
Electric Transmission & Distribution  3,050
 2,907
   3,633
 3,443
Natural Gas Distribution  1,493
 1,324
   1,968
 1,722
Energy Services  31
 28
   35
 29
Other property  282
 286
   338
 330
Total accumulated depreciation and amortization  4,856
 4,545
   5,974
 5,524
Property, plant and equipment, net  $10,502
 $9,593
   $13,057
 $12,307

(b) Depreciation and Amortization

The following table presents depreciation and amortization expense for 20142017, 20132016 and 20122015 (in millions).
2017 2016 2015
2014 2013 2012(in millions)
Depreciation expense$521
 $531
 $562
$619
 $607
 $557
Amortization expense492
 423
 488
417
 519
 413
Total depreciation and amortization expense$1,013
 $954
 $1,050
$1,036
 $1,126
 $970

(c) Asset Retirement ObligationsAROs

A reconciliation of the changes in the asset retirement obligation (ARO)ARO liability is as follows (in millions):follows:
December 31,
December 31,2017 2016
2014 2013(in millions)
Beginning balance$134
 $164
$205
 $195
Accretion expense5
 5
8
 10
Revisions in estimates of cash flows37
 (35)68
 
Ending balance$176
 $134
$281
 $205

CenterPoint Energy recorded asset retirement obligationsAROs associated with the removal of asbestos and asbestos-containing material in its buildings, including substation building structures. CenterPoint Energy also recorded asset retirement obligationsAROs relating to gas pipelines abandoned in place, treated wood poles for electric distribution, distribution transformers containing PCB (also known as Polychlorinated Biphenyl), and underground fuel storage tanks. The estimates of future liabilities were developed using historical information, and where available, quoted prices from outside contractors.

The increase of $37$68 million in the ARO from the revision of estimate in 2014 is primarily attributable to a reduction of the estimated service lives of steel and plastic pipe. The decrease of $35 millionestimates in the ARO from the revision of estimate in 20132017 is primarily attributable to a decrease in the long-term discounts rates used in the ARO calculation for CERC.



(4) Acquisition

On January 3, 2017,CES, an indirect, wholly-owned subsidiary of CenterPoint Energy, completed its acquisition of AEM. After working capital adjustments, the final purchase price was $147 million and was allocated to identifiable assets acquired and liabilities assumed based on their estimated fair values on the acquisition date.

The following table summarizes the final purchase price allocation and the fair value amounts recognized for the assets acquired and liabilities assumed related to the acquisition:

  (in millions)
Total purchase price consideration $147
Cash $15
Receivables 140
Natural gas inventory 78
Derivative assets 35
Prepaid expenses and other current assets 5
Property and equipment 8
Identifiable intangibles 25
Total assets acquired 306
Accounts payable 113
Derivative liabilities 43
Other current liabilities 7
Other liabilities 1
Total liabilities assumed 164
Identifiable net assets acquired 142
Goodwill 5
Net assets acquired $147


The goodwill of $5 million resulting from the acquisition reflects the excess of the purchase price over the fair value of the net identifiable assets acquired. The goodwill recorded as part of the acquisition primarily reflects the value of the complementary operational and geographic footprints, scale and expanded capabilities provided by the acquisition.

Identifiable intangible assets were recorded at estimated fair value as determined by management based on available information, which included a valuation prepared by an independent third party. The significant assumptions used in arriving at the estimated identifiable intangible asset values included management’s estimates of future expected cash flows, the discount rate which is based on the weighted average cost of capital for comparable publicly traded guideline companies and projected customer attrition rates. The useful lives for the identifiable intangible assets were determined using methods that approximate the pattern of economic benefit provided by the utilization of the assets.

The estimated fair value of the identifiable intangible assets and related useful lives as included in the final purchase price allocation include:
  Estimate Fair Value Estimate Useful Life
  (in millions) (in years)
Customer relationships $25
 15

Amortization expense related to the above identifiable intangible assets was $2 million for the year ended December 31, 2017.

Revenues of approximately $1.3 billion and operating income of approximately $74 million attributable to the AEM acquisition are reported in the Energy Services business segment and included in CenterPoint Energy’s Statements of Consolidated Income for the year ended December 31, 2017.



The following unaudited pro forma financial information reflects the consolidated results of operations of CenterPoint Energy, assuming the AEM acquisition had taken place on January 1, 2016. Adjustments to pro forma net income include intercompany sales, amortization of intangible assets, depreciation of fixed assets, interest expense associated with debt financing to fund the retirementacquisition, and related income tax effects. The pro forma information does not include the mark-to-market impact of steel pipe.financial instruments designated as cash flow hedges of anticipated purchases and sales at index prices. The effective portion of these hedges is excluded from earnings and reported as changes in Other comprehensive income. Additionally, the pro forma information does not include the mark-to-market impact of physical forward transactions that were previously accounted for as normal purchase and sale transactions.


The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved had the acquisition taken place on the dates indicated or the future consolidated results of operations of the combined company.
83

  Year Ended December 31,
  2017 2016
  (in millions)
Operating Revenue $9,614
 $8,541
Net Income (1)
 1,792
 442

(1)Net income for the year ended December 31, 2017 includes a reduction in income taxes of $1,113 million due to tax reform. See Note 14 for further discussion of the impacts of tax reform implementation.


(4)
(5) Goodwill and Other Intangibles

Goodwill by reportable business segment as of both December 31, 20142016 and 2013changes in the carrying amount of goodwill as of December 31, 2017 are as follows (in millions):follows:

December 31, 2016 AEM Acquisition (1) December 31,
2017
 
(in millions) 
Natural Gas Distribution $746
$746
 $
 $746
 
Energy Services (1) 83
Other 11
Energy Services105
(2)5
 110
(2)
Other Operations11
 
 11
 
Total $840
$862
 $5
 $867
 
(1)Amounts presented are net of accumulated goodwill impairment charge of $252 million.
(1) See Note 4.
(2) Amount presented is net of the accumulated goodwill impairment charge of $252 million.

CenterPoint Energy performs its goodwill impairment tests at least annually and evaluates goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed by using a two-step process. In the first step, the fair value of each reporting unit which approximate the reportable business segments, is compared with the carrying amount of the reporting unit, including goodwill. The estimated fair value of the reporting unit is generally determined on the basis of discounted cash flows. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, then a second step must be completed in order to determine the amount of the goodwill impairment that should be recorded. In the second step, the implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets) in a manner similar to a purchase price allocation. The resulting implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge is recorded for the difference.

CenterPoint Energy performed its annual goodwill impairment test in the third quarter of each of 20142017 and 20132016 and determined, based on the results of the first step, that no goodwill impairment charge was required for any reporting unit, which approximate the reportable segment.segments.



The tables below present information on CenterPoint Energy’s other intangible assets recorded in Other intangibles were not material asnon-current assets on the Consolidated Balance Sheets.
 December 31, 2017
 Useful Lives Gross Carrying Amount Accumulated Amortization Net Balance
 (in years) (in millions)
Customer relationships15 $86
 $(21) $65
Covenants not to compete4 4
 (2) 2
OtherVarious 15
 (8) 7
Total  $105
 $(31) $74
 December 31, 2016
 Useful Lives Gross Carrying Amount Accumulated Amortization Net Balance
 (in years) (in millions)
Customer relationships15 $61
 $(16) $45
Covenants not to compete4 4
 (1) 3
OtherVarious 2
 (1) 1
Total  $67
 $(18) $49

Amortization expense of intangible assets was $13 million, $4 million and $2 million in the years ended December 31, 20142017, 2016 and 2013.2015, respectively. CenterPoint Energy estimates that amortization expense of intangible assets with finite lives will be $12 million, $11 million, $6 million, $6 million and $5 million in the years ending December 31, 2018, 2019, 2020, 2021 and 2022, respectively.



CenterPoint Energy’s annual impairment test in the third quarter of 2012 resulted in a non-cash goodwill impairment charge in the amount of $252 million for the Energy Services reportable segment. The Energy Services reporting unit fair value analysis resulted in an implied fair value of goodwill of $83 million for this reporting unit, and as a result, the non-cash impairment charge was recorded in the third quarter of 2012. The adverse wholesale market conditions facing CenterPoint Energy’s Energy Services business, specifically the prospects for continued low geographic and seasonal price differentials for natural gas, led to a reduction in the estimate of the fair value of goodwill associated with this reporting unit.(6) Regulatory Accounting

CenterPoint Energy estimated the value of the Energy Services reporting unit using an income approach. Under this approach, the fair value of the reporting unit is determined by using the present value of future expected cash flows, which are based on management projections of revenue growth, gross margin, and overall market conditions. These estimated future cash flows are then discounted using a rate that approximates the weighted average cost of capital of a market participant.


84



(5)Regulatory Accounting

The following is a list of regulatory assets/assets and liabilities reflected on CenterPoint Energy’s Consolidated Balance Sheets as of December 31, 20142017 and 20132016:
December 31,December 31,
2014 20132017 2016
(in millions)(in millions)
Current regulatory assets (1)
$130
 $70
Non-current regulatory assets:   
Securitized regulatory assets$2,738
 $3,179
1,590
 1,919
Unrecognized equity return (1)(442) (508)
Unrecognized equity return (2)
(287) (329)
Unamortized loss on reacquired debt104
 111
75
 84
Pension and postretirement-related regulatory asset (2)922
 732
Other long-term regulatory assets (3)205
 212
Pension and postretirement-related regulatory asset (3)
646
 809
Hurricane Harvey restoration costs (4)
64
 
Excess deferred income taxes (5)
48
 
Other long-term regulatory assets (6)
211
 194
Total non-current regulatory assets2,347
 2,677
Total regulatory assets3,527
 3,726
2,477
 2,747
      
Current regulatory liabilities (7)
24
 18
Non-current regulatory liabilities:   
Excess deferred income taxes (5)
1,354
 
Estimated removal costs958
 941
878
 1,010
Other long-term regulatory liabilities248
 211
232
 288
Total non-current regulatory liabilities2,464
 1,298
Total regulatory liabilities1,206
 1,152
2,488
 1,316
      
Total regulatory assets and liabilities, net$2,321
 $2,574
$(11) $1,431

(1)Current regulatory assets are included in Prepaid expenses and other current assets in CenterPoint Energy’s Consolidated Balance Sheets.

(2)
As of December 31, 2014, CenterPoint Energy has not recognized anThe unrecognized allowed equity return of $442 million because such return will be recognized as it is recovered in rates through 2024. During the years ended December 31, 20142017, 20132016 and 20122015, CenterPoint Houston Electric recognized approximately $6842 million, $4564 million and $4749 million, respectively, of the allowed equity return. The timing of CenterPoint Energy’s recognition of the allowed equity return will vary each period based on amounts actually collected during the period. The actual amounts recovered for the allowed equity returnrecognized are reviewed and adjusted at least annually by the Texas Utility Commission to correct any over-collections or under-collections during the preceding 12 months and to provide for the full and timely recovery of the allowed equity return.months.

(2)(3)
CenterPoint Houston’sNGD’s actuarially determined pension and other postemployment expense in excess of the amount being recovered through rates is being deferred for rate making purposes. Deferred pension and other postemployment expenses of $-0-$7 million and $5$6 million as of December 31, 20142017 and 2013,2016, respectively, were not earning a return.

(3)(4)CenterPoint Energy is not earning a return on its Hurricane Harvey restoration costs.

(5)The EDIT will be recovered or refunded to customers as required by tax and regulatory authorities. See Note 14 for additional information.

(6)
Other long-term regulatory assets that are not earning a return were not material as of December 31, 20142017 and 20132016.

(6)(7)Stock-Based Incentive Compensation Plans and Employee Benefit PlansCurrent regulatory liabilities are included in Other current liabilities in CenterPoint Energy’s Consolidated Balance Sheets.



Hurricane Harvey. Houston Electric’s electric delivery system and CERC Corp.’s NGD suffered damage as a result of Hurricane Harvey, a major storm classified as a Category 4 hurricane on the Saffir-Simpson Hurricane Wind Scale, that first struck the Texas coast on Friday, August 25, 2017 and remained over the Houston area for the next several days. The unprecedented flooding from torrential amounts of rainfall accompanying the storm caused significant damage to or destruction of residences and businesses served by Houston Electric and NGD.

Houston Electric estimates that total costs to restore the electric delivery facilities damaged as a result of Hurricane Harvey will be approximately $120 million and estimates that the total restoration costs covered by insurance will be approximately $28 million. NGD estimates that total costs to restore natural gas distribution facilities damaged as a result of Hurricane Harvey will be approximately $25 million and estimates that the total restoration costs covered by insurance will be approximately $19 million. Houston Electric and NGD will defer the uninsured storm restoration costs as management believes it is probable that such costs will be recovered through traditional rate adjustment mechanisms for capital costs and through the next base rate proceeding for operation and maintenance expenses. As a result, storm restoration costs did not materially affect Houston Electric’s or CERC’s reported net income for 2017.

As of December 31, 2017, Houston Electric and NGD recorded the following:
  Houston Electric NGD
  (in millions)
Property, plant and equipment $42
 $5
Insurance proceeds received (11) 
Insurance receivable 
 (5)
    Net property, plant and equipment $31
 $
     
Operation and maintenance expense $75
 $10
Insurance proceeds received (3) 
Insurance receivable (14) (4)
    Net regulatory asset $58
 $6

(7) Stock-Based Incentive Compensation Plans and Employee Benefit Plans

(a) Stock-Based Incentive Compensation Plans

CenterPoint Energy has long-term incentive plans (LTIPs)LTIPs that provide for the issuance of stock-based incentives, including stock options, performance awards, restricted stock unit awards and restricted and unrestricted stock awards to officers, employees and non-employee directors.  Approximately 14 million shares of CenterPoint Energy common stock are authorized under these plans for awards.

Equity awards are granted to employees without cost to the participants. The performance awards granted in 20142017, 20132016 and 20122015 are distributed based upon the achievement of certain objectives over a three-year performance cycle. The stock awards granted in 20142017, 2016 and 2015 are service based. The stock awards granted in 2013 and 2012 are subject to the performance condition that total common dividends declared during the three-year vesting period must be at least $2.49 and $2.43 per share, respectively. The stock awards generally vest at the end of a three-year period. Upon vesting, both the performance and stock awards are issued to the participants along with the value of dividend equivalents earned over the performance cycle or vesting period. CenterPoint Energy issues new shares in order to satisfy stock-based payments related to LTIPs.

CenterPoint Energy recorded LTIP compensation expense of $1821 million, $19 million and $1817 million for the years ended December 31, 20142017, 20132016 and 20122015, respectively.  This expense is included in Operation and Maintenance Expense in the Statements of Consolidated Income.


85



The total income tax benefit recognized related to LTIPs was $78 million, $7 million and $6 million for each of the years ended December 31, 20142017, 20132016 and 20122015., respectively. No compensation cost related to LTIPs was capitalized as a part of inventory or fixed assets in 20142017, 20132016 or 20122015. The actual tax benefit realized for tax deductions related to LTIPs totaled $136 million, $135 million and $146 million for 20142017, 20132016 and 20122015, respectively.

Compensation costs for the performance and stock awards granted under LTIPs are measured using fair value and expected achievement levels on the grant date.  For performance awards with operational goals, the achievement levels are revised as goals are evaluated. The fair value of awards granted to employees is based on the closing stock price of CenterPoint Energy’s common


stock on the grant date.  The compensation expense is recorded on a straight-line basis over the vesting period.  Forfeitures are estimated on the date of grant based on historical averages and estimates are updated periodically throughout the vesting period.  
 
The following tables summarize CenterPoint Energy’s LTIP activity for 20142017:

Stock Options
 Outstanding Options
 Year Ended December 31, 2014
 
Shares
(Thousands)
 
Weighted-Average
Exercise Price
 
Remaining Average
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value (Millions)
Outstanding at December 31, 2013120
 $10.93
    
Exercised(120) 10.93
    
Outstanding at December 31, 2014
 
 
 $
Exercisable at December 31, 2014
 
 
 

Cash received from stock options exercised was $1 million, $3 million and $3 million for 2014, 2013 and 2012, respectively.

CenterPoint Energy has not issued stock options since 2004.
Performance Awards
 Outstanding and Non-Vested Shares
 Year Ended December 31, 2014
 
Shares
(Thousands)
 
Weighted-Average
Grant Date
Fair Value
 
Remaining Average
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value (Millions)
Outstanding at December 31, 20132,703
 $18.17
    
Granted1,198
 23.70
    
Forfeited or cancelled(515) 21.09
    
Vested and released to participants(926) 15.50
    
Outstanding at December 31, 20142,460
 21.26
 1.1 $40
 Outstanding and Non-Vested Shares
 Year Ended December 31, 2017
 
Shares
(Thousands)
 
Weighted-Average
Grant Date
Fair Value
 
Remaining Average
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value (Millions)
Outstanding as of December 31, 20163,423
 $20.90
    
Granted1,263
 26.64
    
Forfeited or canceled(846) 23.38
    
Vested and released to participants(213) 23.68
    
Outstanding as of December 31, 20173,627
 22.15
 1 $51
 
The outstanding and non-vested shares displayed in the table above assumes that shares are issued at the maximum performance level. The aggregate intrinsic value reflects the impact of current expectations of achievement and stock price.


86



Stock Awards
 Outstanding and Non-Vested Shares
 Year Ended December 31, 2014
 
Shares
(Thousands)
 
Weighted-Average
Grant Date
Fair Value
 
Remaining Average
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value (Millions)
Outstanding at December 31, 2013898
 $18.72
    
Granted322
 23.89
    
Forfeited or cancelled(122) 21.60
    
Vested and released to participants(375) 17.03
    
Outstanding at December 31, 2014723
 21.41
 1.0 $17
 Outstanding and Non-Vested Shares
 Year Ended December 31, 2017
 
Shares
(Thousands)
 
Weighted-Average
Grant Date
Fair Value
 
Remaining Average
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value (Millions)
Outstanding as of December 31, 2016920
 $20.74
    
Granted414
 26.77
    
Forfeited or canceled(47) 22.25
    
Vested and released to participants(307) 22.46
    
Outstanding as of December 31, 2017980
 22.68
 1.2 $28

The weighted-average grant-date fair values per unit of awards granted were as follows for 20142017, 20132016 and 20122015:
Year Ended December 31,Year Ended December 31,
2014 2013 20122017 2016 2015
Performance awards$23.70
 $20.67
 $18.79
$26.64
 $18.98
 $21.28
Stock awards23.89
 21.53
 18.96
26.77
 19.24
 21.39
 
Valuation Data

The total intrinsic value of awards received by participants was as follows for 20142017, 20132016 and 20122015:
Year Ended December 31,Year Ended December 31,
2014 2013 20122017 2016 2015
(in millions)(in millions)
Stock options exercised$2
 $4
 $6
Performance awards24
 20
 24
$7
 $7
 $9
Stock awards10
 10
 9
9
 6
 7

The total grant date fair value of performance and stock awards which vested during the years ended December 31, 20142017, 20132016 and 20122015 was $2112 million, $1913 million and $1913 million, respectively.  As of December 31, 20142017, there was $1724 million of total unrecognized compensation cost related to non-vested performance and stock awards which is expected to be recognized over a weighted-average period of 1.61.7 years.



(b) Pension and Postretirement Benefits

CenterPoint Energy maintains a non-contributory qualified defined benefit pension plan covering substantially all employees, with benefits determined using a cash balance formula. Under the cash balance formula, participants accumulate a retirement benefit based upon 5% of eligible earnings and accrued interest. Participants are 100% vested in their benefit after completing three years of service. In addition to the non-contributory qualified defined benefit pension plan, CenterPoint Energy maintains unfunded non-qualified benefit restoration plans which allow participants to receive the benefits to which they would have been entitled under CenterPoint Energy’s non-contributory qualified pension plan except for federally mandated limits on qualified plan benefits or on the level of compensation on which qualified plan benefits may be calculated.

CenterPoint Energy provides certain healthcare and life insurance benefits for retired employees on both a contributory and non-contributory basis. Employees hired before January 1, 2018 become eligible for these benefits if they have met certain age and service requirements at retirement, as defined in the plans. Under plan amendments, effective in early 1999, healthcareEmployees hired on or after January 1, 2018 are not eligible for these benefits, except for future retirees were changed to limit employer contributions for medical coverage.

Such benefitthose employees represented by IBEW. Benefit costs are accrued over the active service period of employees. The net unrecognized transition obligation is being amortized over approximately 20 years.Effective January 1, 2017, members of the IBEW Local Union 66 who retire on or after January 1, 2017, and their dependents, will receive any retiree medical and prescription drug benefits exclusively through the NECA/IBEW Family Medical Care Plan pursuant to the terms of the renegotiated collective bargaining agreement entered into in May 2016.   


87



CenterPoint Energy’s net periodic cost includes the following components relating to pension, including the benefit restoration plan, and postretirement benefits:
Year Ended December 31,Year Ended December 31,
2014 2013 20122017 2016 2015
Pension
Benefits
 Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
Pension
Benefits
 Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
(in millions)(in millions)
Service cost$42
 $2
 $44
 $2
 $35
 $1
$36
 $2
 $38
 $2
 $41
 $2
Interest cost100
 22
 90
 20
 100
 23
89
 16
 93
 16
 93
 20
Expected return on plan assets(125) (7) (135) (7) (121) (7)(97) (5) (101) (6) (120) (7)
Amortization of prior service cost (credit)10
 (1) 10
 1
 8
 3
9
 (5) 9
 (3) 9
 (1)
Amortization of net loss44
 1
 63
 6
 60
 4
58
 
 63
 1
 57
 5
Amortization of transition obligation
 5
 
 7
 
 7
Benefit enhancement
 
 
 
 
 1
Curtailment (1)6
 
 
 
 
 

 
 
 (5) 
 
Settlement (2)

 
 
 
 10
 
Net periodic cost$77
 $22
 $72
 $29
 $82
 $32
$95
 $8
 $102
 $5
 $90
 $19
 

(1)A curtailment gain or loss is required when the expected future services of a significant number of current employees are reduced or eliminated for the accrual of benefits. During 2016, postretirement healthcare benefits were amended resulting in a net curtailment gain of $5 million. In May 2016, Houston Electric entered into a renegotiated collective bargaining agreement with the fourth quarterIBEW Local Union 66 that provides that for Houston Electric union employees covered under the agreement who retire on or after January 1, 2017, retiree medical and prescription drug coverage will be provided exclusively through the NECA/IBEW Family Medical Care Plan in exchange for the payment of 2014,monthly premiums as determined under the agreement. As a result, the accrued postretirement benefits related to such future Houston Electric union retirees were eliminated. Houston Electric recognized a curtailment gain of $3 million as an accelerated recognition of the prior service credit that would otherwise be recognized in future periods for the postretirement plan. CenterPoint Energy also recognized an additional curtailment gain of $2 million in October 2016 related to other amendments in the postretirement plan. As a result of these amendments, the 2016 postretirement expense was significantly lower than expenses reported for previous years.

(2)A one-time, non-cash settlement charge is required when lump sum distributions or other settlements of plan benefit obligations during a plan year exceed the service cost and interest cost components of net periodic cost for that year.  Due to the amount of lump sum payment distributions from the non-qualified pension plan during the year ended December 31, 2015, CenterPoint Energy recognized a curtailment pension lossnon-cash settlement charge of $6 million related to employees seconded to Enable. Substantially all$10 million.  This charge is an acceleration of the seconded employees became employees of Enable effective January 1, 2015.costs that would otherwise be recognized in future periods. 



CenterPoint Energy used the following assumptions to determine net periodic cost relating to pension and postretirement benefits:
Year Ended December 31,Year Ended December 31,
2014 2013 20122017 2016 2015
Pension
Benefits
 Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 Pension
Benefits
 Post-retirement
Benefits
Pension
Benefits
 Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 Pension
Benefits
 Post-retirement
Benefits
Discount rate4.80% 4.75% 4.00% 3.90% 4.90% 4.80%4.15% 4.15% 4.40% 4.35% 4.05% 3.90%
Expected return on plan assets7.00
 5.50
 8.00
 5.50
 8.00
 5.50
6.00
 4.50
 6.25
 4.80
 6.50
 5.20
Rate of increase in compensation levels3.90
 
 4.00
 
 4.20
 
4.50
 
 4.15
 
 4.00
 

In determining net periodic benefits cost, CenterPoint Energy uses fair value, as of the beginning of the year, as its basis for determining expected return on plan assets.


88



The following table summarizes changes in the benefit obligation, plan assets, the amounts recognized in consolidated balance sheets and the key assumptions of CenterPoint Energy’s pension, including benefit restoration, and postretirement plans. The measurement dates for plan assets and obligations were December 31, 20142017 and 20132016.
December 31,December 31,
2014 20132017 2016
Pension
Benefits
 Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
Pension
Benefits
 Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
(in millions, except for actuarial assumptions)(in millions, except for actuarial assumptions)
Change in Benefit Obligation              
Benefit obligation, beginning of year$2,153
 $476
 $2,316
 $538
$2,197
 $383
 $2,193
 $432
Service cost42
 2
 44
 2
36
 2
 38
 2
Interest cost100
 22
 90
 20
89
 16
 93
 16
Participant contributions
 7
 
 7

 7
 
 10
Benefits paid(156) (32) (142) (34)(168) (26) (181) (37)
Actuarial (gain) loss264
 52
 (155) (60)
Actuarial loss71
 4
 54
 13
Medicare reimbursement
 3
 
 3

 
 
 3
Plan amendment(1)
 1
 
 

 
 
 (56)
Curtailment
 (2) 
 
Benefit obligation, end of year2,403
 529
 2,153
 476
2,225
 386
 2,197
 383
Change in Plan Assets 
  
  
  
 
  
  
  
Fair value of plan assets, beginning of year1,803
 140
 1,698
 139
1,656
 113
 1,679
 136
Employer contributions97
 18
 91
 19
48
 16
 9
 18
Participant contributions
 7
 
 7

 7
 
 10
Benefits paid(156) (32) (142) (34)(168) (26) (181) (37)
Plan amendment (2)

 
 
 (20)
Actual investment return181
 8
 156
 9
265
 10
 149
 6
Fair value of plan assets, end of year1,925
 141
 1,803
 140
1,801
 120
 1,656
 113
Funded status, end of year$(478) $(388) $(350) $(336)$(424) $(266) $(541) $(270)
Amounts Recognized in Balance Sheets 
  
  
  
 
  
  
  
Current liabilities-other$(31) $(9) $(9) $(9)$(7) $(6) $(7) $(6)
Other liabilities-benefit obligations(447) (379) (341) (327)(417) (260) (534) (264)
Net liability, end of year$(478) $(388) $(350) $(336)$(424) $(266) $(541) $(270)
Actuarial Assumptions 
  
  
  
Discount rate4.05% 3.90% 4.80% 4.75%
Expected return on plan assets6.50
 5.20
 7.00
 5.50
Rate of increase in compensation levels4.00
 
 3.90
 
Healthcare cost trend rate assumed for the next year - Pre-65
 7.25
 
 7.00
Healthcare cost trend rate assumed for the next year - Post-65
 8.50
 
 7.50
Prescription drug cost trend rate assumed for the next year
 6.50
 
 7.00
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
 5.00
 
 5.50
Year that the healthcare rate reaches the ultimate trend rate
 2024
 
 2018
Year that the prescription drug rate reaches the ultimate trend rate
 2024
 
 2018


 December 31,
 2017 2016
 Pension Benefits Post-retirement
Benefits
 Pension Benefits Post-retirement
Benefits
Actuarial Assumptions       
Discount rate3.65% 3.60% 4.15% 4.15%
Expected return on plan assets6.00
 4.55
 6.00
 4.50
Rate of increase in compensation levels4.45
 
 4.50
 
Medical cost trend rate assumed for the next year - Pre-65
 6.15
 
 5.75
Medical/prescription drug cost trend rate assumed for the next year - Post-65
 23.85
 
 10.65
Prescription drug cost trend rate assumed for the next year - Pre-65
 9.85
 
 10.75
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
 4.50
 
 4.50
Year that the cost trend rates reach the ultimate trend rate - Pre-65
 2026
 
 2024
Year that the cost trend rates reach the ultimate trend rate - Post-65
 2024
 
 2024

(1)The postretirement benefits were amended during 2016 to change retiree medical coverage, effective January 1, 2017, as follows: (i) members of the IBEW Local Union 66 who retire on or after January 1, 2017, and their dependents, will receive any retiree medical and prescription drug coverage exclusively through the NECA/IBEW Family Medical Care Plan pursuant to the terms of the renegotiated collective bargaining agreement entered into in May 2016; and (ii)  Medicare eligible post-65 retirees will receive coverage through a Medicare Advantage Program, an insured benefit, in lieu of the previous self-insured benefit.  These changes resulted in a reduction in our postretirement plan liability of $56 million as of December 31, 2016.

(2)In May 2016, Houston Electric entered into a renegotiated collective bargaining agreement with the IBEW Local Union 66. The Houston Lighting & Power Company Union Retirees’ Medical and Dental Benefits Trust was amended to reflect the renegotiated collective bargaining agreement by establishing a segregated and restricted account under the trust for the retiree medical benefits of post-2016 union retirees who are now covered exclusively by the NECA/IBEW Family Medical Care Plan. $20 million was transferred to the account for post-2016 union retirees.

The accumulated benefit obligation for all defined benefit pension plans was $2,3712,164 million and $2,1232,168 million as of December 31, 20142017 and 20132016, respectively.
 
The expected rate of return assumption was developed using the targeted asset allocation of CenterPoint Energy’s plans and the expected return for each asset class.



89



The discount rate assumption was determined by matching the projected cash flows of CenterPoint Energy’s plans against a hypothetical yield curve of high-quality corporate bonds represented by a series of annualized individual discount rates from one-half to 99 years.

For measurement purposes, medical and prescription drug costs are assumed to increase to 7.25%6.15% and 8.50%9.85%, respectively, for the pre-65 retirees, and the combined medical/prescription drug cost increase is assumed to be 23.85% for the post-65 retirees during 2015, respectively, and the prescription cost is assumed to increase 6.50% during 20152018, after which these rates decrease until reaching the ultimate trend rate of 5.00%4.50% in 2024.2026 and 2024 for the pre-65 and post-65 retirees, respectively.



CenterPoint Energy’s changes in accumulated comprehensive loss related to defined benefit, postretirement and other postemployment plans are as follows (in millions):follows:
Year Ended December 31,
 Year Ended December 31,2017 2016
 2014 2013(in millions)
Beginning Balance $(88) $(132)$(72) $(65)
Other comprehensive income (loss) before reclassifications (1) (3) 52
4
 (19)
Amounts reclassified from accumulated other comprehensive income:       
Prior service cost (2) 2
 3
1
 
Actuarial losses (2) 9
 14
7
 8
Total reclassifications from accumulated other comprehensive income 11
 17
8
 8
Tax expense (5) (25)
Net current period other comprehensive income 3
 44
Tax benefit (expense)(6) 4
Net current period other comprehensive income (loss)6
 (7)
Ending Balance $(85) $(88)$(66) $(72)
________________
(1)Total other comprehensive income (loss) related to the re-measurementremeasurement of pension, postretirement and other postemployment plans.

(2)These accumulated other comprehensive components are included in the computation of net periodic cost.

Amounts recognized in accumulated other comprehensive loss consist of the following:
 December 31,
 2014 2013
 
Pension
Benefits
 
Postretirement
Benefits
 
Pension
Benefits
 
Postretirement
Benefits
 (in millions)
Unrecognized actuarial loss$113
 $14
 $126
 $7
Unrecognized prior service cost4
 2
 12
 1
Net amount recognized in accumulated other comprehensive loss$117
 $16
 $138
 $8
 December 31,
 2017 2016
 
Pension
Benefits
 
Postretirement
Benefits
 
Pension
Benefits
 
Postretirement
Benefits
 (in millions)
Unrecognized actuarial loss (gain)$94
 $(8) $100
 $3
Unrecognized prior service cost1
 6
 2
 6
Net amount recognized in accumulated other comprehensive loss (gain)$95
 $(2) $102
 $9

The changes in plan assets and benefit obligations recognized in other comprehensive income during 20142017 are as follows (in millions):follows:
 
Pension
Benefits
 
Postretirement
Benefits
Net gain (loss)$10
 $(6)
Amortization of net loss (gain)9
 (1)
Amortization of prior service credit (cost)2
 (1)
Total recognized in comprehensive income$21
 $(8)
 
Pension
Benefits
 
Postretirement
Benefits
 (in millions)
Net loss (gain)$1
 $(10)
Amortization of net loss(7) 
Amortization of prior service cost(1) (1)
Total recognized in comprehensive income$(7) $(11)

The total expense recognized in net periodic costs and other comprehensive income was $5688 million and $30$(3) million for pension and postretirement benefits, respectively, for the year ended December 31, 20142017.


90



The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 20152018 are as follows (in millions):follows:
Pension
Benefits
 
Postretirement
Benefits
Pension
Benefits
 
Postretirement
Benefits
(in millions)
Unrecognized actuarial loss$12
 $1
$6
 $
Unrecognized prior service cost1
 
1
 1
Amounts in accumulated comprehensive loss to be recognized in net periodic cost in 2015$13
 $1
Amounts in accumulated comprehensive loss to be recognized in net periodic cost in 2018 (1)
$7
 $1



(1)Upon adoption of ASU 2017-07 on January 1, 2018, these amounts will be recognized as Other Income (Expense) in CenterPoint Energy’s Statements of Consolidated Income.

The following table displays pension benefits related to CenterPoint Energy’s pension plans that have accumulated benefit obligations in excess of plan assets:
December 31,December 31,
2014 20132017 2016
Pension
Qualified
 
Pension
Non-qualified
 
Pension
Qualified
 
Pension
Non-qualified
Pension
Qualified
 
Pension
Non-qualified
 
Pension
Qualified
 
Pension
Non-qualified
(in millions)(in millions)
Accumulated benefit obligation$2,273
 $98
 $2,031
 $92
$2,090
 $74
 $2,097
 $71
Projected benefit obligation2,304
 98
 2,061
 92
2,151
 74
 2,126
 71
Fair value of plan assets1,925
 
 1,803
 
1,801
 
 1,656
 

Assumed healthcare cost trend rates have a significant effect on the reported amounts for CenterPoint Energy’s postretirement benefit plans. A 1% change in the assumed healthcare cost trend rate would have the following effects:
1%
Increase
 
1%
Decrease
1%
Increase
 
1%
Decrease
(in millions)(in millions)
Effect on the postretirement benefit obligation$19
 $16
Effect on postretirement benefit obligation$12
 $11
Effect on total of service and interest cost1
 1

 

In managing the investments associated with the benefit plans, CenterPoint Energy’s objective is to achieve and maintain a fully funded plan.  This objective is expected to be achieved through an investment strategy that manages liquidity requirements while maintaining a long-term horizon in making investment decisions and efficient and effective management of plan assets.

As part of the investment strategy discussed above, CenterPoint Energy maintained the following weighted average allocation targets for its benefit plans as of December 31, 2014:2017:
 
Pension
Benefits
 
Postretirement
Benefits
U.S. equity12 – 28% 141324%
23%
International developed market equity7 – 17% 3 – 13%
Emerging market equity3 – 13% 
Fixed income54 – 66% 686978%
79%
Cash0 – 2% 0 – 2%


91




The following tables set forth by level, within the fair value hierarchy (see Note 8)9), CenterPoint Energy’s pension plan assets at fair value as of December 31, 20142017 and 20132016:
Fair Value Measurements at December 31, 2014Fair Value Measurements as of December 31, 2017
(in millions)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3) (3)
 Total
Total 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
(in millions)
Cash$6
 $6
 $
 $
$18
 $
 $
 $18
Common collective trust funds (1)1,108
 
 1,108
 
Corporate bonds:   
  
  
 
  
  
  
Investment grade or above368
 
 368
 

 432
 
 432
Equity securities: 
  
  
  
 
  
  
  
International companies49
 49
 
 
U.S. companies83
 83
 
 
76
 
 
 76
Cash received as collateral from securities lending86
 86
 
 
76
 
 
 76
U.S. treasuries47
 47
 
 
67
 
 
 67
Mortgage backed securities4
 
 4
 

 8
 
 8
Asset backed securities4
 
 4
 

 1
 
 1
Municipal bonds79
 
 79
 

 47
 
 47
Mutual funds (2)161
 161
 
 
Mutual funds (1)
211
 
 
 211
International government bonds15
 
 15
 

 17
 
 17
Real estate1
 
 
 1
Obligation to return cash received as collateral from securities lending(86) (86) 
 
(76) 
 
 (76)
Total$1,925
 $346
 $1,578
 $1
Total investments at fair value$372
 $505
 $
 $877
Investments measured by net asset value per share or its equivalent (2)
      924
Total Investments      $1,801

(1)
61%57% of the amount invested in common collective trustmutual funds is in fixed income securities, 14% is in U.S. equities, 22% iswas in international equities, and 3%30% iswas in emerging market equities and 13% was in U.S. equities.

(2)This represents the common collective trust funds with 55% of the amount invested in fixed income securities, 6% in U.S. equities, 34% in international equities and 5% in emerging market equities.

(3)The changes in the fair value of the pension plan’s Level 3 investments for the year ended December 31, 2017 were not material.




 Fair Value Measurements as of December 31, 2016
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3) (3)
 Total
 (in millions)
Cash$14
 $
 $
 $14
Corporate bonds: 
  
  
  
Investment grade or above
 401
 
 401
Equity securities: 
  
  
  
U.S. companies73
 
 
 73
Cash received as collateral from securities lending69
 
 
 69
U.S. treasuries49
 
 
 49
Mortgage backed securities
 3
 
 3
Asset backed securities
 2
 
 2
Municipal bonds
 52
 
 52
Mutual funds (1)
171
 
 
 171
International government bonds
 16
 
 16
Obligation to return cash received as collateral from securities lending(69) 
 
 (69)
Total investments at fair value$307
 $474
 $
 $781
Investments measured by net asset value per share or its equivalent (2)
      875
Total Investments      $1,656

(1)
57% of the amount invested in mutual funds iswas in international equities, 30% is28% was in emerging market equities and 13%15% iswas in U.S. equities.

92



 Fair Value Measurements at December 31, 2013
 (in millions)
 Total 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash$11
 $11
 $
 $
Common collective trust funds (1)1,107
 
 1,107
 
Corporate bonds: 
  
  
  
Investment grade or above256
 
 256
 
Equity securities: 
  
  
  
International companies75
 75
 
 
U.S. companies77
 77
 
 
Cash received as collateral from securities lending71
 71
 
 
U.S. government backed agencies bonds1
 1
 
 
U.S. treasuries18
 18
 
 
Mortgage backed securities7
 
 7
 
Asset backed securities6
 
 6
 
Municipal bonds61
 
 61
 
Mutual funds (2)172
 172
 
 
International government bonds11
 
 11
 
Real estate1
 
 
 1
Obligation to return cash received as collateral from securities lending(71) (71) 
 
Total$1,803
 $354
 $1,448
 $1

(1)
50% of the amount invested in common collective trust funds is in fixed income securities, 20% is in U.S. equities, 25% is in international equities and 5% is in emerging market equities.

(2)
58%This represents the common collective trust funds with 53% of the amount invested in mutual funds isfixed income securities, 12% in U.S. equities, 30% in international equities 30% isand 5% in emerging market equities and 12% isequities.

(3)The changes in U.S. equities.the fair value of the pension plan’s Level 3 investments for the year ended December 31, 2016 were not material.

The pension plan utilized both exchange traded and over-the-counter financial instruments such as futures, interest rate options and swaps that were marked to market daily with the gains/losses settled in the cash accounts. The pension plan did not include any holdings of CenterPoint Energy common stock as of December 31, 20142017 or 20132016.

The changes in the fair value of the pension plan’s level 3 investments for the years ended December 31, 2014 and 2013 were not material.

The following tables present by level, within the fair value hierarchy, CenterPoint Energy’s postretirement plan assets at fair value as of December 31, 20142017 and 20132016, by asset category:
Fair Value Measurements at December 31, 2014Fair Value Measurements as of December 31, 2017
(in millions)
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
Total 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
(in millions)
Mutual funds (1)$141
 $141
 $
 $
$120
 $
 $
 $120
Total$141
 $141
 $
 $
$120
 $
 $
 $120

(1)
73%74% of the amount invested in mutual funds iswas in fixed income securities, 19%18% iswas in U.S. equities and 8% iswas in international equities.


93




Fair Value Measurements at December 31, 2013Fair Value Measurements as of December 31, 2016
(in millions)
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
Total 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
(in millions)
Mutual funds (1)$140
 $140
 $
 $
$113
 $
 $
 $113
Total$140
 $140
 $
 $
$113
 $
 $
 $113

(1)
72%74% of the amount invested in mutual funds iswas in fixed income securities, 20%18% iswas in U.S. equities and 8% iswas in international equities.

CenterPoint Energy contributed $39 million, $87 million, $109 million and $1816 million to its qualified pension, non-qualified pension and postretirement benefits plans, respectively, in 20142017. CenterPoint Energy expects to contribute a minimum of approximately $35$60 million,, $31 $7 million and $1716 million to its qualified pension, non-qualified pension and postretirement benefits plans, respectively, in 20152018.

The following benefit payments are expected to be paid by the pension and postretirement benefit plans (in millions):plans:
   Postretirement Benefit Plan
 
Pension
Benefits
 
Benefit
Payments
 
Medicare
Subsidy
Receipts
2015$223
 $35
 $(4)
2016143
 36
 (4)
2017147
 38
 (5)
2018154
 40
 (5)
2019152
 42
 (6)
2020-2024785
 228
 (39)
 
Pension
Benefits
 
Postretirement Benefit
Payments
 (in millions)
2018$144
 $19
2019147
 21
2020153
 24
2021156
 27
2022158
 29
2023-2027774
 145

(c) Savings Plan

CenterPoint Energy has a tax-qualified employee savings plan that includes a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended (the Code), and an employee stock ownership plan (ESOP) under Section 4975(e)(7) of the Code. Under the plan, participating employees may contribute a portionmake pre-tax or Roth contributions up to 50%, and after tax contributions up to 16%, of their eligible compensation, on a pre-tax or after-tax basis, generally upnot to a maximum of 50% of eligible compensation. The Companyexceed certain federally mandated limits. CenterPoint Energy matches 100% of the first 6% of each employee’s compensation contributed. The matching contributions are fully vested at all times.

ParticipatingPrior to January 1, 2016, participating employees maycould elect to invest all or a portion of their contributions to the plan in CenterPoint Energy, Inc. common stock, to have dividends reinvested in additional shares or to receive dividend payments in cash on any investment in CenterPoint Energy, Inc. common stock, and to transfer all or part of their investment in CenterPoint Energy, Inc. common stock to other investment options offered by the plan.

Effective January 1, 2016, the savings plan was amended to limit the percentage of future contributions that could be invested in CenterPoint Energy, Inc. common stock to 25% and to prohibit transfers of account balances where the transfer would result in more than 25% of a participant’s total account balance invested in CenterPoint Energy, Inc. common stock.

The savings plan has significant holdings of CenterPoint Energy, Inc. common stock. As of December 31, 20142017, 17,497,67612,806,085 shares of CenterPoint Energy’sEnergy, Inc. common stock were held by the savings plan, which represented approximately 20%16% of its investments. Given the concentration of the investments in CenterPoint Energy’sEnergy, Inc. common stock, the savings plan and its participants have market risk related to this investment.

CenterPoint Energy’s savings plan benefit expenses were $3941 million, $38 million and $3635 million in 20142017, 20132016 and 20122015, respectively.



(d) Postemployment Benefits

CenterPoint Energy provides postemployment benefits for certain former or inactive employees, their beneficiaries and covered dependents, after employment but before retirement (primarily healthcare and life insurance benefits for participants in the long-term disability plan). The CompanyCenterPoint Energy recorded postemployment expenses of $36 million, $45 million and $82 million in 20142017, 20132016 and 20122015, respectively.


94



Included in “Benefit Obligations”Benefit Obligations in the accompanying Consolidated Balance Sheets atas of December 31, 20142017 and 20132016 was $2820 million and $3022 million, respectively, relating to postemployment obligations.

(e) Other Non-Qualified Plans

CenterPoint Energy has non-qualified deferred compensation plans that provide benefits payable to directors, officers and certain key employees or their designated beneficiaries at specified future dates or upon termination, retirement or death. Benefit payments are made from the general assets of CenterPoint Energy. CenterPoint Energy recorded benefit expense relating to these plans of $53 million for each of the years in 20142017, 20132016 and 20122015. Included in “Benefit Obligations”Benefit Obligations in the accompanying Consolidated Balance Sheets atas of December 31, 20142017 and 20132016 was $6045 million and $6447 million, respectively, relating to deferred compensation plans.

Included in Benefit Obligations in CenterPoint Energy’s Consolidated Balance Sheets atas of December 31, 20142017 and 20132016 was $3339 million and $2840 million, respectively, relating to split-dollar life insurance arrangements.

(f) Change in Control Agreements and Other Employee Matters

CenterPoint Energy had change in control agreements with certain of its officers, which expired December 31, 2014.  In lieu of these agreements, our Board of Directors approvedhas a new change in control plan, which was effective January 1, 2015.  The plan like the expired agreements, generally provides, to the extent applicable, in the case of a change in control of CenterPoint Energy and termination of employment, for severance benefits of up to three times annual base salary plus bonus, and other benefits.  Our officers, including our Executive Chairman, are participants under the plan.

As of December 31, 2014,2017, approximately 31%35% of CenterPoint Energy’s employees were subject tocovered by collective bargaining agreements. The collective bargaining agreement with the IBEW Local 66 and the two collective bargaining agreements with theProfessional Employees International Union Local 12, covering approximately 21% of CenterPoint Energy’s employees, will expire in May of 2020 and March and May of 2021, respectively. These three agreements were last negotiated in 2016.

The collective bargaining agreements with Gas Workers Union, Local Union 340 and International Brotherhood of Electrical Workersthe IBEW Local 949, in Minnesota, which collectively covercovering approximately 8% of CenterPoint Energy’s employees, are scheduled towill expire in April and December 2015,of 2020, respectively. These two agreements were last negotiated in 2015.

The two collective bargaining agreements with the United Steelworkers Union, Locals 13-227 and 13-1, which cover approximately 5% of CenterPoint Energy believes it has good relationships with these bargaining units and expects to negotiateEnergy’s employees, were successfully negotiated in 2017. The new agreements will expire in 2015.June and July of 2022 for the Local 13-227 and Local 13-1, respectively.

(7)Derivative Instruments
(8) Derivative Instruments

CenterPoint Energy is exposed to various market risks. These risks arise from transactions entered into in the normal course of business.  CenterPoint Energy utilizes derivative instruments such as physical forward contracts, swaps and options to mitigate the impact of changes in commodity prices, weather and weatherinterest rates on its operating results and cash flows.

(a) Non-Trading Activities

Derivative Instruments. CenterPoint Energy enters into certain derivative instruments to manage physicalmitigate the effects of commodity price risk and does not engage in proprietary or speculative commodity trading.  Thesemovements. Certain financial instruments used to hedge portions of the natural gas inventory of the Energy Services business segment are designated as fair value hedges for accounting purposes. All other financial instruments do not qualify or are not designated as cash flow or fair value hedges.

Weather Hedges. CenterPoint Energy has weather normalization or other rate mechanisms that mitigate the impact of weather on NGD in Arkansas, Louisiana, Mississippi, Minnesota and Oklahoma. NGD in Texas and Minnesota and electric operations in Texas do not have such mechanisms.mechanisms, although fixed customer charges are historically higher in Texas for NGD compared to CenterPoint Energy’s other


jurisdictions. As a result, fluctuations from normal weather may have a significant positive or negative effect on NGD’s results in Texas and Minnesota and on CenterPoint Houston’sHouston Electric’s results in its service territory.

CenterPoint Energy entered into heating-degree day swaps for certain NGD jurisdictions to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows for the 2014-2015 winter heating season, which contained a bilateral dollar cap of $15 million in 2012 - 2013, $16 million in 2013 - 2014 and $16 million in 2014 - 2015. In both 2013 and 2014,million. However, CenterPoint Energy alsodid not enter into heating-degree day swaps for NGD jurisdictions for the 2015–2016 or 2016–2017 winter heating seasons. CenterPoint Energy entered into a similar winter weather hedgeheating-degree day swaps for certain NGD Texas jurisdictions for the CenterPoint Houston service territory,2017–2018 winter heating season, which each contained a bilateral dollar cap of $8 million. CenterPoint Energy entered into weather hedges for the Houston Electric service territory to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows, which contained bilateral dollar caps of $7 million, $9 million and $9 million for the 2015–2016, 2016–2017 and 2017–2018 winter seasons, respectively. The swaps are based on ten-year10-year normal weather. During the years ended December 31, 2014, 20132017, 2016 and 2012,2015, CenterPoint Energy recognized lossesa loss of $11$1 million,, losses gain of $22$1 million and gainsa loss of $8$6 million,, respectively, related to these swaps.   Weather hedge gains and losses are included in revenues in the Statements of Consolidated Income.

Hedging of Interest Expense for Future Debt Issuances. In January 2017, Houston Electric entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $150 million. These agreements were executed to hedge, in part, volatility in the 10-year U.S. treasury rate by reducing Houston Electric’s exposure to variability in cash flows related to interest payments of Houston Electric’s $300 million issuance of fixed rate debt in January 2017. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $1 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the bonds.


95In 2017, CenterPoint Energy entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $350 million. These agreements were executed to hedge, in part, volatility in the 5-year U.S. treasury rate by reducing CenterPoint Energy’s exposure to variability in cash flows relating to interest payments of CenterPoint Energy’s $500 million issuance of fixed rate debt in August 2017. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $3 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the fixed rate debt.


In August 2017, CERC Corp. entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $150 million. These agreements were executed to hedge, in part, volatility in the 30-year U.S. treasury rate by reducing CERC Corp.’s exposure to variability in cash flows related to interest payments of CERC Corp.’s $300 million issuance of fixed rate debt in August 2017. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $2 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the fixed rate debt.

As of December 31, 2017, none of CenterPoint Energy, Houston Electric or CERC Corp. had any pre-issuance interest rate hedges in place.

In January and February 2018, Houston Electric entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $200 million. These agreements were executed to hedge, in part, volatility in the 30-year U.S. treasury rate by reducing Houston Electric’s exposure to variability in cash flows related to interest payments on a forecasted issuance of fixed rate debt in 2018. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of unrealized gains and losses associated with the forward interest rate agreements will be recorded as a component of accumulated other comprehensive income and the ineffective portion, if any, will be recorded in income.




(b) Derivative Fair Values and Income Statement Impacts

The following tables present information about CenterPoint Energy’s derivative instruments and hedging activities. The first twofour tables provide a balance sheet overview of CenterPoint Energy’s Derivative Assets and Liabilities as of December 31, 20142017 and 2013,2016, while the last table provides a breakdown of the related income statement impacts for the years ending December 31, 20142017, 2016 and 2013.

2015.
Fair Value of Derivative Instruments
 December 31, 2014 December 31, 2017
Total derivatives not designated
as hedging instruments
 
Balance Sheet
Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
Derivatives designated
as fair value hedges:
 
Balance Sheet
Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
   (in millions) (in millions)
Natural gas derivatives (1) (2) (3)
 Current Liabilities: Non-trading derivative liabilities $13
 $1
    
Derivatives not designated as hedging instruments:    
Natural gas derivatives (1) (2) (3) Current Assets: Non-trading derivative assets $101
 $1
 Current Assets: Non-trading derivative assets 114
 4
Natural gas derivatives (1) (2) (3) Other Assets: Non-trading derivative assets 32
 
 Other Assets: Non-trading derivative assets 44
 
Natural gas derivatives (1) (2) (3) Current Liabilities: Non-trading derivative liabilities 14
 83
 Current Liabilities: Non-trading derivative liabilities 38
 78
Natural gas derivatives (1) (2) (3) Other Liabilities: Non-trading derivative liabilities 2
 18
 Other Liabilities: Non-trading derivative liabilities 9
 24
Indexed debt securities derivative Current Liabilities 
 541
 Current Liabilities 
 668
Total Total  $149
 $643
Total $218
 $775

(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 804 billion cubic feet (Bcf)1,795 Bcf or a net 60224 Bcf long position.  Of the net long position,Certain natural gas contracts hedge basis swaps constitute 127 Bcf.
risk only and lack a fixed price exposure.

(2)Natural gas contracts are presented on a net basis in the Consolidated Balance Sheets. Natural gas contractsSheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities was a $111$130 million asset as shown on CenterPoint Energy’s Consolidated Balance Sheets (and as detailed in the table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above, offsetimpacted by collateral netting of $64$19 million.

(3)Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.

Offsetting of Natural Gas Derivative Assets and Liabilities
 December 31, 2014 December 31, 2017
 
Gross Amounts Recognized (1)
 Gross Amounts Offset in the Consolidated Balance Sheets Net Amount Presented in the Consolidated Balance Sheets (2) 
Gross Amounts Recognized (1)
 Gross Amounts Offset in the Consolidated Balance Sheets Net Amount Presented in the Consolidated Balance Sheets (2)
 (in millions) (in millions)
Current Assets: Non-trading derivative assets $115
 $(16) $99
 $165
 $(55) $110
Other Assets: Non-trading derivative assets 34
 (2) 32
 53
 (9) 44
Current Liabilities: Non-trading derivative liabilities (84) 65
 (19) (83) 63
 (20)
Other Liabilities: Non-trading derivative liabilities (18) 17
 (1) (24) 20
 (4)
Total $47
 $64
 $111
 $111
 $19
 $130
________________
(1)Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements.

(2)The derivative assets and liabilities on the Consolidated Balance Sheets exclude accounts receivable or accounts payable that, should they exist, could be used as offsets to these balances in the event of a default.


96



Fair Value of Derivative Instruments
 December 31, 2013 December 31, 2016
Total derivatives not designated
as hedging instruments
 
Balance Sheet
Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
Balance Sheet
Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
   (in millions)   (in millions)
Natural gas derivatives (1) (2) (3) Current Assets: Non-trading derivative assets $28
 $4
 Current Assets: Non-trading derivative assets $79
 $14
Natural gas derivatives (1) (2) Other Assets: Non-trading derivative assets 10
 ��
Natural gas derivatives (1) (2) Current Liabilities: Non-trading derivative liabilities 4
 21
Natural gas derivatives (1) (2) Other Liabilities: Non-trading derivative liabilities 1
 5
Natural gas derivatives (1) (2) (3)
 Other Assets: Non-trading derivative assets 24
 5
Natural gas derivatives (1) (2) (3)
 Current Liabilities: Non-trading derivative liabilities 2
 43
Natural gas derivatives (1) (2) (3)
 Other Liabilities: Non-trading derivative liabilities 
 5
Indexed debt securities derivative Current Liabilities 
 455
 Current Liabilities 
 717
TotalTotal $43
 $485
Total $105
 $784

(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 6071,035 Bcf or a net 4659 Bcf long position.  Of the net long position,Certain natural gas contracts hedge basis swaps constitute 99 Bcf.
risk only and lack a fixed price exposure.

(2)
Natural gas contracts are presented on a net basis in the Consolidated Balance Sheets. Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Consolidated Balance Sheets. The net of total non-trading derivative assets and liabilities was a $13$24 million asset as shown on CenterPoint Energy’s Consolidated Balance Sheets (and as detailed in the table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above, offsetimpacted by collateral netting of less than $114 million.

(3)The $28 million Derivative Current Asset includes $1 millionAssets and Derivative Liabilities include no material amounts related to physical forwards purchased fromforward transactions with Enable.

Offsetting of Natural Gas Derivative Assets and Liabilities
 December 31, 2013 December 31, 2016
 
Gross Amounts Recognized (1)
 Gross Amounts Offset in the Consolidated Balance Sheets Net Amount Presented in the Consolidated Balance Sheets (2) 
Gross Amounts Recognized (1)
 Gross Amounts Offset in the Consolidated Balance Sheets Net Amount Presented in the Consolidated Balance Sheets (2)
 (in millions) (in millions)
Current Assets: Non-trading derivative assets $32
 $(8) $24
 $81
 $(30) $51
Other Assets: Non-trading derivative assets 11
 (1) 10
 24
 (5) 19
Current Liabilities: Non-trading derivative liabilities (25) 8
 (17) (57) 16
 (41)
Other Liabilities: Non-trading derivative liabilities (5) 1
 (4) (10) 5
 (5)
Total $13
 $
 $13
 $38
 $(14) $24
________________
(1)Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements.

(2)The derivative assets and liabilities on the Consolidated Balance Sheets exclude accounts receivable or accounts payable that, should they exist, could be used as offsets to these balances in the event of a default.

For CenterPoint Energy’s price stabilization activities of the Natural Gas Distribution business segment, the settled costs of derivatives are ultimately recovered through purchased gas adjustments. Accordingly, the net unrealized gains and losses associated with these contracts are recorded as net regulatory assets. Realized and unrealized gains and losses on othernatural gas derivatives are recognized in the Statements of Consolidated Income as revenue for retailphysical sales derivative contracts and as natural gas expense for financial natural gas derivatives and non-retail related physical purchase natural gas derivatives. UnrealizedRealized and unrealized gains and losses on indexed debt securities are recorded as Other Income (Expense) in the Statements of Consolidated Income.


97Hedge ineffectiveness is recorded as a component of natural gas expense and primarily results from differences in the location of the derivative instrument and the hedged item. Basis ineffectiveness arises from natural gas market price differences between the locations of the hedged inventory and the delivery location specified in the hedge instruments. The impact of natural gas derivatives designated as fair value hedges, the related hedged item, and natural gas derivatives not designated as hedging instruments are presented in the table below.





Income Statement Impact of Derivative Activity
   Year Ended December 31, Year Ended December 31,
Total derivatives not designated
as hedging instruments
 Income Statement Location 2014 2013 2011
   (in millions) Income Statement Location 2017 2016 2015
Derivatives designated as fair value hedges: (in millions)
Natural gas derivatives Gains (Losses) in Revenue $35
 $11
 $43
 Gains (Losses) in Expenses: Natural Gas $(9) $
 $
Natural gas derivatives (1) (2) Gains (Losses) in Expense: Natural Gas 11
 10
 (63)
Fair value adjustments for natural gas inventory designated as the hedged item Gains (Losses) in Expenses: Natural Gas 14
 
 
Total increase in Expenses: Natural Gas (1)
Total increase in Expenses: Natural Gas (1)
 $5
 $
 $
      
Derivatives not designated as hedging instruments:      
Natural gas derivatives Gains (Losses) in Revenues $211
 $(18) $134
Natural gas derivatives Gains (Losses) in Expenses: Natural Gas (72) 70
 (105)
Indexed debt securities derivative Gains (Losses) in Other Income (Expense) (86) (193) (71) Gains (Losses) in Other Income (Expense) 49
 (413) 74
Total $(40) $(172) $(91)
Total - derivatives not designated as hedging instrumentsTotal - derivatives not designated as hedging instruments $188
 $(361)
$103

(1)
The Gains (Losses)Hedge ineffectiveness results from the basis ineffectiveness discussed above, and excludes the impact to natural gas expense from timing ineffectiveness.  Timing ineffectiveness arises due to changes in Expense: Natural Gas includes $2 millionthe difference between the spot price and $(2) million during the years ended December 31, 2014 and 2013, respectively, related to physical forwards purchased from Enable.

(2)
The Gains (Losses) in Expense: Natural Gas includes $-0-, $-0- and $(38) million of costs in 2014, 2013 and 2012, respectively, associated withfutures price, stabilization activitiesas well as the difference between the timing of the Natural Gas Distribution business segment that will be ultimately recovered through purchasedsettlement of the futures and the valuation of the underlying physical commodity.  As the commodity contract nears the settlement date, spot-to-forward price differences should converge, which should reduce or eliminate the impact of this ineffectiveness on natural gas adjustments.
expense.

(c) Credit Risk Contingent Features

CenterPoint Energy enters into financial derivative contracts containing material adverse change provisions.  These provisions could require CenterPoint Energy to post additional collateral if the Standard & Poor’s Ratings ServicesS&P or Moody’s Investors Service, Inc. credit ratings of CenterPoint Energy, Inc. or its subsidiaries are downgraded.  The total fair value of the derivative instruments that contain credit risk contingent features that are in a net liability position atas of December 31, 20142017 and 20132016 was $2 million and $1$1 million,, respectively.  The aggregate fair value ofCenterPoint Energy posted no assets that are already posted as collateral was less than $1 million at both towards derivative instruments that contain credit risk contingent features as of either December 31, 2014 and 2013.2017 or 2016.  If all derivative contracts (in a net liability position) containing credit risk contingent features were triggered at December 31, 20142017 and 20132016, $2 million and $1 million$-0-, respectively, of additional assets would be required to be posted as collateral.

(d) Credit Quality of Counterparties

In addition to the risk associated with price movements, credit risk is also inherent in CenterPoint Energy’s non-trading derivative activities. Credit risk relates to the risk of loss resulting from non-performance of contractual obligations by a counterparty. The following table shows the composition of counterparties to the non-trading derivative assets of CenterPoint Energy as of December 31, 20142017 and 20132016 (in millions):

December 31, 2017 December 31, 2016 
December 31, 2014 December 31, 2013
Investment
Grade (1)
 Total 
Investment
Grade (1)
 Total 
Investment
Grade(1)
 Total 
Investment
Grade(1)
 Total(in millions) 
Energy marketers$2
 $4
 $1
 $4
$6
 $45
 $1
 $4
 
Financial institutions
 
 1
 9

 
 33
 33
 
End users (2)2
 127
 1
 21
17
 109
 2
 47
 
Total$4
 $131
 $3
 $34
$23
 $154
(3)$36
 $84
(3)

(1)“Investment grade” is primarily determined using publicly available credit ratings and considers credit support (including parent company guarantees) and collateral (including cash and standby letters of credit). For unrated counterparties, CenterPoint Energy determines a synthetic credit rating by performing financial statement analysis and considers contractual rights and restrictions and collateral.

(2)End users are comprised primarily of customers who have contracted to fix the price of a portion of their physical gas requirements for future periods.

98





(8)(3)Fair Value MeasurementsThe net of total non-trading natural gas derivative assets was $154 million and $70 million as of December 31, 2017 and 2016, respectively, as shown on CenterPoint Energy’s Consolidated Balance Sheets, and was comprised of the natural gas contracts derivatives assets separately shown above, impacted by collateral netting of $-0- and $14 million as of December 31, 2017 and 2016, respectively.

(9) Fair Value Measurements

Assets and liabilities that are recorded at fair value in the Consolidated Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined below and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value generally are exchange-traded derivatives and equity securities.securities, as well as natural gas inventory that has been designated as the hedged item in a fair value hedge.

Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets.  A market approach is utilized to value CenterPoint Energy’s Level 2 assets or liabilities.

Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Unobservable inputs reflect CenterPoint Energy’s judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. CenterPoint Energy develops these inputs based on the best information available, including CenterPoint Energy’s own data. A market approach is utilized to value CenterPoint Energy’s Level 3 assets or liabilities. AtAs of December 31, 2014,2017, CenterPoint Energy’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options.options and its indexed debt securities. Level 3 physical natural gas forward contracts are valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $1.60$1.73 to $4.23$9.02 per one million British thermal units (Btu))MMBtu) as an unobservable input. Level 3 options are valued through Black-Scholes (including forward start) option models which include option volatilities (ranging from 00% to 88%83%) as an unobservable input.  CenterPoint Energy’s Level 3 physical natural gas forward contracts and options derivative assets and liabilities consist of both long and short positions (forwards and options) and their fair value is sensitive to forward prices and volatilities. If forward prices decrease, CenterPoint Energy’s long forwards lose value whereas its short forwards gain in value.  If volatility decreases, CenterPoint Energy’s long options lose value whereas its short options gain in value. CenterPoint Energy’s Level 3 indexed debt securities are valued using a Black-Scholes option model and a discounted cash flow model, which use option volatility (17%) and a projected dividend growth rate (7%) as unobservable inputs. An increase in either volatilities or projected dividends will increase the value of the indexed debt securities, and a decrease in either the volatilities or projected dividends will decrease the value of the indexed debt securities.

CenterPoint Energy determines the appropriate level for each financial asset and liability on a quarterly basis and recognizes transfers between levels at the end of the reporting period.  For the year ended December 31, 2014,2017, there were no transfers between Level 1 and 2. CenterPoint Energy also recognizes purchases of Level 3 financial assets and liabilities at their fair market value at the end of the reporting period.



The following tables present information about CenterPoint Energy’s assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of December 31, 20142017 and 2013,December 31, 2016, and indicate the fair value hierarchy of the valuation techniques utilized by CenterPoint Energy to determine such fair value.
December 31, 2017
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Netting
Adjustments (1)
 Balance
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Netting
Adjustments (1)
 Balance at December 31, 2014 
(in millions)(in millions)
Assets                  
Corporate equities$932
 $
 $
 $
 $932
$963
 $
 $
 $
 $963
Investments, including money market funds54
 
 
 
 54
Natural gas derivatives (2)7
 122
 20
 (18) 131
Investments, including money
market funds (2)
68
 
 
 
 68
Natural gas derivatives (3)

 161
 57
 (64) 154
Hedged portion of natural gas inventory14
 
 
 
 14
Total assets$993
 $122
 $20
 $(18) $1,117
$1,045
 $161
 $57
 $(64) $1,199
Liabilities 
  
  
  
  
 
  
  
  
  
Indexed debt securities derivative$
 $541
 $
 $
 $541
$
 $
 $668
 $
 $668
Natural gas derivatives (2)22
 77
 3
 (82) 20
Natural gas derivatives (3)

 96
 11
 (83) 24
Total liabilities$22
 $618
 $3
 $(82) $561
$
 $96
 $679
 $(83) $692
(1)
Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy to settle positive and negative positions and also include cash collateral of $64 million posted with the same counterparties.


99



(2)Natural gas derivatives include no material amounts related to physical forward transactions with Enable.

 
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Netting
Adjustments (1)
 Balance at December 31, 2013
 (in millions)
Assets         
Corporate equities$770
 $
 $
 $
 $770
Investments, including money market funds61
 
 
 
 61
Natural gas derivatives (2)5
 33
 5
 (9) 34
Total assets$836
 $33
 $5
 $(9) $865
Liabilities 
  
  
  
  
Indexed debt securities derivative$
 $455
 $
 $
 $455
Natural gas derivatives1
 27
 2
 (9) 21
Total liabilities$1
 $482
 $2
 $(9) $476
(1)Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy to settle positive and negative positions and also include cash collateral of less than $1$19 million posted with the same counterparties.

(2)The (Level 2) Amounts are included in Prepaid and Other Current Assets and Other Assets in the Consolidated Balance Sheets.

(3)Natural gas derivative assets of $33 millionderivatives include $1 millionno material amounts related to physical forwards purchased fromforward transactions with Enable.

 December 31, 2016
 
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Netting
Adjustments (1)
 Balance
 (in millions)
Assets         
Corporate equities$956
 $
 $
 $
 $956
Investments, including money
market funds (2)
77
 
 
 
 77
Natural gas derivatives (3)
11
 74
 20
 (35) 70
Total assets$1,044
 $74
 $20
 $(35) $1,103
Liabilities 
  
  
  
  
Indexed debt securities derivative$
 $
 $717
 $
 $717
Natural gas derivatives (3)
4
 56
 7
 (21) 46
Total liabilities$4
 $56
 $724
 $(21) $763

(1)Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy to settle positive and negative positions and also include cash collateral of $14 million held by CES from the same counterparties.

(2)Amounts are included in Prepaid and Other Current Assets and Other Assets in the Consolidated Balance Sheets.

(3)Natural gas derivatives include no material amounts related to physical forward transactions with Enable.



The following tables presenttable presents additional information about assets or liabilities, including derivatives that are measured at fair value on a recurring basis for which CenterPoint Energy has utilized Level 3 inputs to determine fair value:

Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Derivative assets and liabilities, netDerivative assets and liabilities, net
Year Ended December 31,Year Ended December 31,
2014 2013 20122017 2016 2015
(in millions)(in millions)
Beginning balance$3
 $2
 $6
$(704) $12
 $17
Purchases (1)

 12
 
Total gains14
 3
 3
96
 12
 7
Total settlements1
 (3) (6)(11) (27) (12)
Transfers out of Level 3
 
 (1)(17) (1) (1)
Transfers into Level 3(1) 1
 
14
 (712) 1
Ending balance (1)$17
 $3
 $2
The amount of total gains for the period included in earnings
attributable to the change in unrealized gains or losses relating
to assets still held at the reporting date
$16
 $2
 $1
Ending balance (2)
$(622) $(704) $12
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date (3)
$87
 $(402) $6

(1)During 2014, 2013 and 2012, Mark-to-market value of Level 3 derivative assets acquired through the purchase of AEM was less than $1 million at the acquisition date.

(2)CenterPoint Energy did not have significant Level 3 purchasessales during any of the years ended December 31, 2017, 2016 or sales.2015.


100

(3)During 2016, CenterPoint Energy transferred its indexed debt securities from Level 2 to Level 3 to reflect changes in the significance of the unobservable inputs used in the valuation. As of December 31, 2017, the indexed debt securities liability was $668 million. During the year ended December 31, 2017, there was a gain of $49 million on the indexed debt securities.

Items Measured at Fair Value on a Nonrecurring Basis

In 2015, CenterPoint Energy determined that an other than temporary decrease in the value of its investment in Enable had occurred and, using multiple valuation methodologies under both the market and income approaches, recorded an impairment on its investment in Enable of $1,225 million. Key assumptions in the market approach included 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 at the valuation date, 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 approach included Enable’s forecasted cash distributions, projected cash flows of incentive distribution rights, forecasted growth rate of Enable’s cash distributions beyond 2020, and the discount rate used to determine the present value of the estimated future cash flows. A weighing of the different approaches was utilized to determine the estimated fair value of our investment in Enable. Based on the significant unobservable estimates and assumptions required, CenterPoint Energy concluded that the fair value estimate should be classified as a Level 3 measurement within the fair value hierarchy. See Note 10 for further discussion of the impairments. As of December 31, 2017 and 2016, there were no significant assets or liabilities measured at fair value on a nonrecurring basis.



Estimated Fair Value of Financial Instruments

The fair values of cash and cash equivalents, investments in debt and equity securities classified as “trading” and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s 2.0% Zero-Premium Exchangeable Subordinated Notes due 2029 (ZENS)ZENS indexed debt securities derivative are stated at fair value and are excluded from the table below.  The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by the market price.a combination of historical trading prices and comparable issue data. These assets and liabilities, which are not measured at fair value in the Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 1 or Level 2 in the fair value hierarchy.
December 31, 2014 December 31, 2013December 31, 2017 December 31, 2016
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
(in millions)(in millions)
Financial assets:       
Notes receivable - affiliated companies$363
 $362
 $363
 $363
Financial liabilities:              
Long-term debt$8,652
 $9,427
 $8,171
 $8,670
$8,679
 $9,220
 $8,443
 $8,846

(9)Unconsolidated Affiliates
(10) Unconsolidated Affiliates

On May 1, 2013 (the Closing Date) CERC Corp., OGECenterPoint Energy Corp. (OGE)has the ability to significantly influence the operating and ArcLight Capital Partners, LLC (ArcLight) closed on the formationfinancial policies of Enable, a publicly traded MLP, and, CenterPoint Energy recorded anaccordingly, accounts for its investment in Enable’s common units using the equity method investment in Enable at the historical cost of the contributed net assets.accounting for in-substance real estate. See Note 2 for further information on the formation of Enable.

CenterPoint Energy’s maximum exposure to loss related to Enable, a VIE in which CenterPoint Energy is not the primary beneficiary, is limited to its equity investment and Series A Preferred Unit investment as presented in the Consolidated Balance Sheet atas of December 31, 2014, CERC Corp.’s guarantee of collection of Enable’s $1.1 billion senior notes due 2019 and 2024 (Guaranteed Senior Notes) and other guarantees discussed in Note 14, CERC Corp.’s $363 million notes receivable from Enable2017 and outstanding current accounts receivable from Enable.

Limited Partner Interest in Enable (1):
  As of December 31,
  2017 2016 (2) 2015
CenterPoint Energy 54.1% 54.1% 55.4%
OGE 25.7% 25.7% 26.3%

(1)Excluding the Series A Preferred Units owned by CenterPoint Energy.

(2)In November 2016, Enable completed a public offering of 11,500,000 common units of which 1,424,281 were sold by ArcLight Capital Partners, LLC. The common units issued and sold by Enable resulted in dilution of both CenterPoint Energy’s and OGE’s limited partner interest in Enable.

Enable Common Units and Series A Preferred Units Held:
 December 31, 2017
 Common Series A Preferred 
CenterPoint Energy233,856,623
(1)14,520,000
(2)
OGE110,982,805
 
 

(1)The 139,704,916 subordinated units previously owned by CERC Corp. converted into common units of Enable on a one-for-one basis, on August 30, 2017, at the end of the subordination period, as set forth in Enable’s Fourth Amended and Restated Agreement of Limited Partnership. Upon conversion, holders of common units resulting from the conversion of subordinated units have all the rights and obligations of unitholders holding all other common units, including the right to receive distributions pro rata made with respect to common units.

(2)On February 18, 2016, CenterPoint Energy purchased an aggregate of 14,520,000 Series A Preferred Units from Enable for a total purchase price of $363 million, which is accounted for as a cost method investment.



Generally, sales of notes receivable from Enable bears interest at an annual ratemore than 5% of 2.10% to 2.45% and matures in 2017.the aggregate of the common units CenterPoint Energy recordedowns in Enable or sales by OGE of more than 5% of the aggregate of the common units it owns in Enable are subject to mutual rights of first offer and first refusal.

Enable is controlled jointly by CERC Corp. and OGE, and each own 50% of the management rights in the general partner of Enable. Sale of CenterPoint Energy’s or OGE’s ownership interests in Enable’s general partner to a third party is subject to mutual rights of first offer and first refusal, and CenterPoint Energy is not permitted to dispose of less than all of its interest incomein Enable’s general partner.

Distributions Received from Enable:
  Year Ended December 31,
  2017 2016 2015
  (in millions)
Investment in Enable’s common units $297
 $297
 $294
Investment in Enable’s Series A Preferred Units 36
 22
(1)
  Total $333
 $319
 $294
(1)Represents the period from February 18, 2016 to December 31, 2016.

As of $8 million and $5 million during the year ended December 31, 20142017, CERC Corp. and 2013,OGE also owned 40% and 60%, respectively, for interest earnedof the incentive distribution rights held by the general partner of Enable. Enable is expected to pay a minimum quarterly distribution of $0.2875 per common unit on orits outstanding common units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates, within 60 days after the Closing Dateend of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per common unit in any quarter, the general partner will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances the general partner of Enable will have the right to reset the minimum quarterly distribution and had interest receivable from Enablethe target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable’s cash distributions at the time of $4 million asthe exercise of both December 31, 2014 and 2013 on its notes receivable from Enable.this reset election. To date, no incentive distributions have been made.

Effective on the Closing Date,formation date, CenterPoint Energy and Enable entered into athe Transition Agreements. Under the Services Agreement, Employee Transition Agreement, Transitional Services Agreement and other agreements (collectively, Transition Agreements) whereby CenterPoint Energy agreed to provide certain support services to Enable such as accounting, legal, risk management and treasury functions for an initial term, endingwhich ended on April 30, 2016.  Effective April 1, 2014, Enable’s general partner, CenterPoint Energy and OGE agreed to reduceis providing certain governance related costs billedservices to Enable for transition services.  Effective December 31, 2014, Enable’s general partner, CenterPoint Energy and OGE agreedon a year-to-year basis. Enable may terminate (i) the entire Services Agreement with at least 90 days’ notice prior to terminate certain support services provided by CenterPoint Energy to Enable. CenterPoint Energy expects to terminate all remaining support services by April 2016.

CenterPoint Energy billed Enable for reimbursement of transitional services, including the costs of seconded employees, $163 million and $119 million during the years ended December 31, 2014 and 2013, respectively, under the Transition Agreements for transition services incurred on or after the Closing Date. Actual transitional services costs are recorded net of reimbursements received from Enable. CenterPoint Energy had accounts receivable from Enable of $28 million and $21 million as of December 31, 2014 and 2013, respectively, for amounts billed for transitional services, including the cost of seconded employees.

CenterPoint Energy provided seconded employees to Enable to support its operations for a term ending on December 31, 2014. Enable, at its discretion, had the right to select and offer employment to seconded employees from CenterPoint Energy. During the fourth quarter of 2014, Enable notified CenterPoint Energy that it selected seconded employees and provided employment offers to substantially all of the seconded employees from CenterPoint Energy. Substantially all of the seconded employees became employees of Enable effective January 1, 2015. See Note 6 for additional information.

On April 16, 2014, Enable completed its initial public offering (IPO) of 28,750,000 common units, at a price of $20.00 per unit, which included 3,750,000 common units sold by ArcLight pursuant to an over-allotment option that was fully exercised by the underwriters. Enable received $464 million in net proceeds from the sale of the units, after deducting underwriting fees, structuring fees and other offering costs. In connection with Enable’s IPO, a portion of CenterPoint Energy’s common units were

101



converted into subordinated units, as discussed further below. Subsequent to the IPO, Enable continues to be controlled jointly by CenterPoint Energy and OGE.

As a result of Enable’s IPO, CenterPoint Energy’s limited partner interest in Enable was reduced from approximately 58.3% to approximately 54.7%. CenterPoint Energy accounted for the dilution of its investment in Enable as a result of Enable’s IPO as a failed partial sale of in-substance real estate. CenterPoint Energy did not receive any cash from Enable’s IPO and, as such, CenterPoint Energy did not recognize a gain or loss. CenterPoint Energy’s basis difference in Enable was reduced for the impact of the Enable IPO.

In accordance with the Enable formation agreements, CenterPoint Energy had certain put rights, and Enable had certain call rights, exercisable with respect to the 25.05% interest in Southeast Supply Header, LLC (SESH) retained by CenterPoint Energy on the Closing Date, under which CenterPoint Energy would contribute its retained interest in SESH, in exchange for a specified number of limited partner common units in Enable and a cash payment, payable either from CenterPoint Energy to Enable or from Enable to CenterPoint Energy, to the extent of changes in the value of SESH subject to certain restrictions. Specifically, the rights were and are exercisable with respect to (1) a 24.95% interest in SESH (24.95% Put), which closed on May 30, 2014 as discussed below and (2) a 0.1% interest in SESH, which may be exercised no earlier than June 2015 for 25,341 common units in Enable.

On May 30, 2014, CenterPoint Energy closed its 24.95% Put and contributed to Enable its 24.95% interest in SESH in exchange for 6,322,457 common units of Enable, which increased CenterPoint Energy’s limited partner interest in Enable from approximately 54.7% to approximately 55.4%. No cash payment was required to be made pursuant to the Enable formation agreements in connection with CenterPoint Energy’s exercise of the 24.95% Put. CenterPoint Energy accounted for the contribution of its 24.95% interest in SESH to Enable in exchange for common units of Enable as a non-monetary transaction of in-substance real estate equity method investments. As such, CenterPoint Energy recorded the 6,322,457 common units at the historical cost of the contributed 24.95% interest in SESH of $196 million and recorded no gain or loss in connection with its exercise of the 24.95% Put. As a result, CenterPoint Energy’s basis difference in Enable was reduced for the impact of its exercise of the 24.95% Put.

CenterPoint Energy incurred natural gas expenses, including transportation and storage costs, of $130 million and $123 million during the year ended December 31, 2014 and 2013, respectively, for transactions with Enable occurring on or after the Closing Date. CenterPoint Energy had accounts payable to Enable of $23 million and $22 million at December 31, 2014 and 2013, respectively, from such transactions.

As of December 31, 2014, CenterPoint Energy held an approximate 55.4% limited partner interest in Enable consisting of 94,126,366 common units and 139,704,916 subordinated units and a 0.1% interest in SESH. The principal difference between Enable common units and subordinated units is that in any quarter during the subordination period, holders of the subordinated units are not entitled to receive any distribution of available cash until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. If Enable does not pay distributions on its subordinated units, the subordinated units will not accrue arrearages for those unpaid distributions. At the end of any extension term, or (ii) either any service provided under the subordination period, CenterPoint Energy’s subordinated units in Enable will be converted to common units in Enable on a one-for-one basis.Services Agreement, or the entire Services Agreement, at any time upon approval by its board of directors and with at least 180 days’ notice.

Transactions with Enable:
  Year Ended December 31,
  2017 2016 2015
  (in millions)
Reimbursement of transition services (1)
 $4
 $7
 $16
Natural gas expenses, including transportation and storage costs 115
 110
 117
Interest income related to notes receivable from Enable (2)
 
 1
 8

(1)Represents amounts billed under the Transition Agreements, including the costs of seconded employees. Substantially all of the seconded employees became employees of Enable effective January 1, 2015. Actual transition services costs are recorded net of reimbursement.

(2)In connection with CenterPoint Energy’s purchase of Series A Preferred Units, Enable redeemed $363 million of notes owed to a wholly-owned subsidiary of CERC Corp., which bore interest at an annual rate of 2.10% to 2.45%.


  Year Ended December 31,
  2017 2016
  (in millions)
Accounts receivable for amounts billed for transition services $1
 $1
Accounts payable for natural gas purchases from Enable 13
 10

CenterPoint Energy evaluates its equity method investments for impairment when factors indicate that a decrease in the value of its investment has occurred and the carrying amount of its investment may not be recoverable. An impairment loss, based on the excess of the carrying value over estimated fair value of the investment, is recognized in earnings when an impairment is deemed to be other than temporary. Considerable judgment is used in determining if an impairment loss is other than temporary and the amount of any impairment. Based on the sustained low Enable common unit price and further declines in such price during the year ended December 31, 2015, as well as the market outlook for continued depressed crude oil and natural gas prices impacting the midstream oil and gas industry, CenterPoint Energy determined that an other than temporary decrease in the value of its equity method investment in Enable had occurred. CenterPoint Energy wrote down the value of its equity method investment in Enable to its estimated fair value which resulted in impairment charges of $1,225 million for the year ended December 31, 2015. Both the income approach and market approach were utilized to estimate the fair value of CenterPoint Energy’s total investment in Enable, which includes the limited partner common and subordinated units, general partner interest and incentive distribution rights held by CenterPoint Energy. The determination of fair value considered a number of relevant factors including Enable’s common unit price and forecasted results, recent comparable transactions and the limited float of Enable’s publicly traded common units. See Note 9 for further discussion of the determination of fair value of CenterPoint Energy’s equity method investment in Enable in 2015.

As of December 31, 2017 and 2016, the carrying value of CenterPoint Energy’s equity method investment in Enable is $19.33was $10.57 and $10.71 per unit. As ofunit, respectively, which includes limited partner common units, a general partner interest and incentive distribution rights. On December 31, 2014,2017 and 2016, Enable’s common unit price closed at $19.39 (approximately $14 million above carrying value). The lowest close price for Enable’s common units$14.22 and $15.73, respectively. There was no impairment indicated in January 2015 was $17.34 (approximately $465 million below carrying value).2017 or 2016.

As there were no identified events or changes in circumstances that may have a significant adverse effect on the fair value of CenterPoint Energy performed an analysis of itsEnergy’s cost method investment in EnableEnable’s Series A Preferred Units as of December 31, 2014.  Based on that analysis, CenterPoint Energy believes that2017 and 2016, and the decline ininvestment’s fair value is not readily determinable, an estimate of the fair value of itsthe cost method investment is temporary, and that CenterPoint Energy will recover the value of its investment of $4.5 billion.was not performed.


102



Investment in Unconsolidated Affiliates:
  Year Ended December 31,
  2014 2013
  (in millions)
Enable $4,520
 $4,319
SESH (1) 1
 199
  Total $4,521
 $4,518

(1)On May 30, 2014, CenterPoint Energy contributed a 24.95% interest in SESH to Enable, leaving CenterPoint Energy with a 0.1% interest in SESH as of December 31, 2014.

Equity in Earnings of Unconsolidated Affiliates, net:
  Year Ended December 31,
  2014 2013 2012
  (in millions)
Enable (1) $303
 $173
 $
SESH (2) 5
 15
 26
Waskom (3) 
 
 5
  Total $308
 $188
 $31

(1)On May 1, 2013, CenterPoint Energy formed Enable with OGE and ArcLight.

(2)On each of May 1, 2013 and May 30, 2014, CenterPoint Energy contributed a 24.95% interest in SESH to Enable, leaving CenterPoint Energy with a 0.1% interest in SESH as of December 31, 2014.

(3)On July 31, 2012, Waskom became a wholly owned subsidiary of CenterPoint Energy. Beginning on August 1, 2012, Waskom’s operating results are consolidated on the Statements of Consolidated Income. On May 1, 2013, CenterPoint Energy contributed Waskom to Enable.

Summarized consolidated income (loss) information for Enable is as follows:
  Year Ended December 31,
  2014 2013 (1)
  (in millions)
Operating revenues $3,367
 $2,123
Cost of sales, excluding depreciation and amortization 1,914
 1,241
Operating income 586
 322
Net income attributable to Enable 530
 289
     
CenterPoint Energy’s approximate interest $298
 $168
Basis difference accretion 5
 5
CenterPoint Energy’s equity in earnings, net $303
 $173
  Year Ended December 31,
  2017 2016 2015
  (in millions)
Operating revenues $2,803
 $2,272
 $2,418
Cost of sales, excluding depreciation and amortization 1,381
 1,017
 1,097
Impairment of goodwill and other long-lived assets 
 9
 1,134
Operating income (loss) 528
 385
 (712)
Net income (loss) attributable to Enable 400
 290
 (752)
       
Reconciliation of Equity in Earnings (Losses), net:      
CenterPoint Energy’s interest $216
 $160
 $(416)
Basis difference amortization (1)
 49
 48
 8
Impairment of CenterPoint Energy’s equity method investment in Enable 
 
 (1,225)
CenterPoint Energy’s equity in earnings (losses), net (2)
 $265
 $208
 $(1,633)
(1)The amounts includedEquity in this column represent the eight month period from formationearnings of unconsolidated affiliates includes CenterPoint Energy’s share of Enable on May 1, 2013 through Decemberearnings adjusted for the amortization of the basis difference of CenterPoint Energy’s original investment in Enable and its underlying equity in net assets of Enable. The basis difference is being amortized over approximately 31 2013.years, the average life of the assets to which the basis difference is attributed.


103



(2)These amounts include impairment charges totaling $1,846 million composed of CenterPoint Energy’s impairment of its equity method investment in Enable of $1,225 million and CenterPoint Energy’s share, $621 million, of impairment charges Enable recorded for goodwill and long-lived assets for the year ended December 31, 2015. This impairment is offset by $213 million of earnings for the year ended December 31, 2015.

Summarized consolidated balance sheet information for Enable is as follows:
  December 31,
  2014 2013
  (in millions)
Current assets $438
 $549
Non-current assets 11,399
 10,683
Current liabilities 671
 720
Non-current liabilities 2,343
 2,331
Non-controlling interest 31
 33
Enable partners’ capital 8,792
 8,148
     
CenterPoint Energy’s ownership interest in Enable’s partner capital $4,869
 $4,753
     
CenterPoint Energy’s basis difference attributable to goodwill (1) (217) (229)
CenterPoint Energy’s accretable basis difference (2) (132) (205)
CenterPoint Energy’s total basis difference (349) (434)
     
CenterPoint Energy’s investment in Enable $4,520
 $4,319

(1)The difference relates to CenterPoint Energy’s proportionate share of Enable’s goodwill arising from its acquisition of Enogex, and therefore will be recognized by CenterPoint Energy upon dilution or disposition of its interest in Enable.

(2)The difference will be recognized by CenterPoint Energy over 30 years beginning May 1, 2013. CenterPoint Energy will also adjust the accretable basis difference for dilution or disposition of its interest in Enable.

Enable concluded that the formation of Enable is considered a business combination, and CenterPoint Midstream is the acquirer for accounting purposes.  Under this method, the fair value of the consideration paid by CenterPoint Midstream for Enogex was allocated to the assets acquired and liabilities assumed on the Closing Date based on their fair value.  Enogex’s assets, liabilities and equity were accordingly adjusted to estimated fair value as of May 1, 2013.  Determining the fair value of assets and liabilities is judgmental in nature and involves the use of significant estimates and assumptions.  Enable used appraisers to assist in the determination of the estimated fair value of certain assets and liabilities contributed by Enogex.
  December 31,
  2017 2016
  (in millions)
Current assets $416
 $396
Non-current assets 11,177
 10,816
Current liabilities 1,279
 362
Non-current liabilities 2,660
 3,056
Non-controlling interest 12
 12
Preferred equity 362
 362
Enable partners’ capital 7,280
 7,420
     
Reconciliation of Investment in Enable:    
CenterPoint Energy’s ownership interest in Enable partners’ capital $3,935
 $4,067
CenterPoint Energy’s basis difference (1,463) (1,562)
CenterPoint Energy’s investment in Enable $2,472
 $2,505

Distributions Received from Unconsolidated Affiliates:
(11) Indexed Debt Securities (ZENS) and Securities Related to ZENS
  Year Ended December 31,
  2014 2013 2012
  (in millions)
Enable (1) $298
 $106
 $
SESH (2) 7
 23
 32
Waskom (3) 
 
 7
  Total $305
 $129
 $39
(1)On May 1, 2013, CenterPoint Energy formed Enable with OGE and ArcLight.

(2)On each of May 1, 2013 and May 30, 2014, CenterPoint Energy contributed a 24.95% interest in SESH to Enable, leaving CenterPoint Energy with a 0.1% interest in SESH as of December 31, 2014.

(3)On July 31, 2012, Waskom became a wholly owned subsidiary of CenterPoint Energy. Beginning on August 1, 2012, Waskom’s operating results are consolidated on the Statements of Consolidated Income. On May 1, 2013, CenterPoint Energy contributed Waskom to Enable.


104




(10)Indexed Debt Securities (ZENS) and Securities Related to ZENS

(a) Investment in Securities Related to ZENS

In 1995, CenterPoint Energy sold a cable television subsidiary to Time Warner, Inc. (TW)TW and received TW securities as partial consideration. A subsidiary of CenterPoint Energy now holds 7.1 million shares of TW common stock (TW Common), 1.8Common, 0.9 million shares of Time Warner Cable Inc. (TWC) common stock (TWC Common), 0.6 million shares of AOL, Inc. (AOL) common stock (AOL Common)Common and 0.9 million shares of Time Inc. common stock (Time Common) (together with the TWCharter Common, TWC Common and AOL Common, the TW Securities) which are classified as trading securities and are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS. Unrealized gains and losses resulting from changes in the market value of the TW Securities are recorded in CenterPoint Energy’s Statements of Consolidated Income.

(b) ZENS

In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1 billion of which $828 million remain outstanding at December 31, 20142017. Each ZENS note was originally exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares of TW Common attributable to such note. The number and identity of the reference shares attributable to each ZENS note are adjusted for certain corporate events. AsPrior to the closing of December 31, 2014,the transactions discussed below, the reference shares for each ZENS note consisted of 0.5 share of TW Common, 0.125505 share of TWC Common and 0.045455 share of AOL Common and 0.0625 share of Time Common.

On February 13, 2014, TWCMay 26, 2015, Charter announced that it had agreedentered into a definitive merger agreement with TWC. On September 21, 2015, Charter shareholders approved the announced transaction with TWC. Pursuant to merge with Comcast Corporation (Comcast). In the merger each shareagreement, upon closing of the merger, TWC Common would be exchanged for 2.875cash and Charter Common and as a result, reference shares for the ZENS would consist of Charter Common, TW Common and Time Common. The merger closed on May 18, 2016. CenterPoint Energy received $100 and 0.4891 shares of Comcast common stock (Comcast Common). UponCharter Common for each share of TWC Common held, resulting in cash proceeds of $178 million and 872,531 shares of Charter Common. In accordance with the closingterms of the merger (assuming no changeZENS, CenterPoint Energy remitted $178 million to ZENS holders in June 2016, which reduced contingent principal.



As a result, CenterPoint Energy recorded the merger consideration),following during the year ended December 31, 2016:
 (in millions)
Cash payment to ZENS holders$178
Indexed debt – reduction(40)
Indexed debt securities derivative – reduction(21)
Loss on indexed debt securities$117

As of December 31, 2017, the reference shares for each ZENS note would include 0.360827consisted of 0.5 share of ComcastTW Common, 0.0625 share of Time Common and 0.061382 share of Charter Common.

On October 22, 2016, AT&T announced that it had entered into a definitive agreement to acquire TW in placea stock and cash transaction. On February 15, 2017, TW shareholders approved the announced transaction with AT&T. Pursuant to the merger agreement, upon closing of the current 0.125505merger, TW shareholders would receive for each of their shares of TW Common an estimated implied value of $107.50, comprised of $53.75 per share in cash and $53.75 per share in AT&T Common. The stock portion will be subject to a collar such that TW shareholders will receive 1.437 shares of TWCAT&T Common if AT&T Common’s average stock price is below $37.411 at closing and 1.3 shares of AT&T Common if AT&T Common’s average stock price is above $41.349 at closing. Cash received for the TW Common reference shares would subsequently be distributed to ZENS holders, which is expected to reduce the contingent principal balance, and reference shares would consist of Charter Common, Time Common and AT&T Common. In November 2017, the U.S. Department of Justice filed a civil antitrust lawsuit to block AT&T’s acquisition of TW. AT&T has announced it does not expect the outcome of this matter to prohibit the acquisition. Legal proceedings are expected to begin in the first or second quarter of 2018.

On November 26, 2017, Meredith announced that it had entered into a definitive merger agreement with Time. Pursuant to the merger agreement, a subsidiary of Meredith offered to purchase for cash all outstanding Time Common shares for $18.50 per share. The transaction was consummated on January 31, 2018. CenterPoint Energy elected to make a reference share offer adjustment and distribute additional interest, if any, in accordance with the terms of its ZENS rather than electing to increase the early exchange ratio to 100% during the pendency of Meredith’s tender offer for all outstanding shares of Time Common. Distributions of additional interest on the ZENS will be made by CenterPoint Energy in connection with the consummation of Meredith’s tender offer and the subsequent merger of Time with a subsidiary of Meredith. CenterPoint Energy's distribution of additional interest in connection with the reference share offer is expected to be proportionate to the percentage of eligible shares that are validly tendered by Time stockholders in Meredith’s tender offer. In accordance with the terms of the ZENS, CenterPoint Energy will remit additional interest of approximately $16 million to ZENS holders on March 6, 2018, which will reduce the contingent principal amount.

CenterPoint Energy pays interest on the ZENS at an annual rate of 2% plus the amount of any quarterly cash dividends paid in respect of the reference shares attributable to the ZENS. The principal amount of ZENS is subject to being increased or decreased to the extent that the annual yield from interest and cash dividends on the reference shares is less than or more than 2.309%. The adjusted principal amount is defined in the ZENS instrument as “contingent principal.” At December 31, 20142017, ZENS having an original principal amount of $828 million and a contingent principal amount of $751$505 million were outstanding and were exchangeable, at the option of the holders, for cash equal to 95% of the market value of reference shares deemed to be attributable to the ZENS. AtAs of December 31, 20142017, the market value of such shares was approximately $930$960 million, which would provide an exchange amount of $1,067$1,101 for each $1,000 original principal amount of ZENS. At maturity of the ZENS in 2029, CenterPoint Energy will be obligated to pay in cash the higher of the contingent principal amount of the ZENS or an amount based on the then-current market value of the reference shares, which will include any additional publicly-traded securities distributed with respect to the current reference shares prior to maturity.

The ZENS obligation is bifurcated into a debt component and a derivative component (the holder’s option to receive the appreciated value of the reference shares at maturity). The bifurcated debt component accretes through interest charges at 17.3%19.5% annually up to the contingent principal amount of the ZENS in 2029. Such accretion will be reduced by annual cash interest payments, as described above. The derivative component is recorded at fair value and changes in the fair value of the derivative component are recorded in CenterPoint Energy’s Statements of Consolidated Income. Changes in the fair value of the TW Securities held by CenterPoint Energy are expected to substantially offset changes in the fair value of the derivative component of the ZENS.


105




The following table sets forth summarized financial information regarding CenterPoint Energy’s investment in TW Securities and each component of CenterPoint Energy’s ZENS obligation (in millions).obligation. 
TW
Securities
 
Debt
Component
of ZENS
 
Derivative
Component
of ZENS
TW
Securities
 
Debt
Component
of ZENS (1)
 
Derivative
Component
of ZENS
Balance at December 31, 2011$386
 $131
 $197
Accretion of debt component of ZENS
 24
 
2% interest paid
 (17) 
Loss on indexed debt securities
 
 71
Gain on TW Securities154
 
 
Balance at December 31, 2012540
 138
 268
(in millions)
Balance as of December 31, 2014$930
 $142
 $541
Accretion of debt component of ZENS
 24
 

 27
 
2% interest paid
 (17) 

 (17) 
Sale of TW Securities(9) 
 
(32) 
 
Redemption of indexed debt securities
 (2) (6)
Distribution to ZENS holders
 (7) (18)
Gain on indexed debt securities
 
 (81)
Loss on TW Securities(93) 
 
Balance as of December 31, 2015805
 145
 442
Accretion of debt component of ZENS
 26
 
2% interest paid
 (17) 
Sale of TW Securities(178) 
 
Distribution to ZENS holders
 (40) (21)
Loss on indexed debt securities
 
 193

 
 296
Gain on TW Securities236
 
 
326
 
 
Balance at December 31, 2013767
 143
 455
Balance as of December 31, 2016953
 114
 717
Accretion of debt component of ZENS
 26
 

 27
 
2% interest paid
 (17) 

 (17) 
Loss on indexed debt securities
 
 86
Distribution to ZENS holders
 (2) 
Gain on indexed debt securities
 
 (49)
Gain on TW Securities163
 
 
7
 
 
Balance at December 31, 2014$930
 $152
 $541
Balance as of December 31, 2017$960
 $122
 $668

(11)(1)EquityTo reflect adoption of ASU 2015-03, balances have been restated to include unamortized debt issuance costs of $9 million and $10 million as of December 31, 2015 and 2014, respectively.

Capital Stock

CenterPoint Energy has 1,020,000,000 authorized shares of capital stock, comprised of 1,000,000,000 shares of $0.01 par value common stock and 20,000,000 shares of $0.01 par value cumulative preferred stock.(12) Equity

Dividends Declared

CenterPoint Energy declared and paid dividends per share of $0.951.07, $0.831.03 and $0.810.99, respectively, during the years ended December 31, 20142017, 20132016 and 20122015.

On December 13, 2017, our Board of Directors declared a regular quarterly cash dividend of $0.2775 per share, payable on March 8, 2018 to shareholders of record at the close of business on February 15, 2018.

Undistributed Retained Earnings

As of both December 31, 20142017 and 2013,2016, CenterPoint Energy’s consolidated retained earnings balance includes undistributed earnings from Enable of $71 million and $67 million, respectively.$-0-.


106




(12)Short-term Borrowings and Long-term Debt


(13) Short-term Borrowings and Long-term Debt
 December 31,
2014
 December 31,
2013
 Long-Term Current(1) Long-Term Current(1)
 (in millions)
Short-term borrowings:       
Inventory financing$
 $53
 $
 $43
Total short-term borrowings
 53
 
 43
Long-term debt: 
  
  
  
CenterPoint Energy: 
  
  
  
ZENS (2)
 152
 
 143
Senior notes 5.95% to 6.85% due 2015 to 2018550
 200
 750
 
Pollution control bonds 4.90% to 5.125% due 2015 to 2028 (3)118
 69
 187
 
Commercial paper (4)191
 
 
 
   Other2
 2
 
 
CenterPoint Houston: 
  
  
  
First mortgage bonds 9.15% due 2021102
 
 102
 
General mortgage bonds 2.25% to 6.95% due 2022 to 20441,912
 
 1,312
 
Pollution control bonds 4.25% to 5.60% due 2017 to 2027
 
 183
 
System restoration bonds 1.833% to 4.243% due 2015 to 2022415
 48
 463
 47
Transition bonds 0.90% to 5.302% due 2015 to 20242,259
 324
 2,583
 307
   Other1
 
 
 
CERC Corp.: 
  
  
  
Senior notes 4.50% to 6.625% due 2016 to 20412,168
 
 2,168
 
Commercial paper (4)341
 
 118
 
Other
 
 1
 
Unamortized discount and premium, net(50) 
 (50) 
Total long-term debt8,009
 795
 7,817
 497
Total debt$8,009
 $848
 $7,817
 $540
 December 31,
2017
 December 31,
2016
 Long-Term 
Current (1)
 Long-Term 
Current (1)
 (in millions)
Short-term borrowings:       
Inventory financing (2)
$
 $39
 $
 $35
Total short-term borrowings
 39
 
 35
Long-term debt: 
  
  
  
CenterPoint Energy: 
  
  
  
ZENS due 2029 (3)

 122
 
 114
Senior notes 2.50% due 2022500
 
 
 250
Pollution control bonds 5.05% to 5.125% due 2018 to 2028 (4)
68
 50
 118
 
Commercial paper (5)
855
 
 835
 
Houston Electric: 
  
  
  
First mortgage bonds 9.15% due 2021102
 
 102
 
General mortgage bonds 1.85% to 6.95% due 2021 to 20442,812
 
 2,512
 
System restoration bonds 3.46% to 4.243% due 2018 to 2022256
 56
 312
 53
Transition bonds 2.161% to 5.302% due 2019 to 20241,181
 378
 1,560
 358
CERC Corp.: 
  
  
  
Senior notes 4.10% to 6.625% due 2021 to 20471,593
 
 1,593
 250
Commercial paper (5)
898
 
 569
 
Unamortized debt issuance costs(38) 
 (33) 
Unamortized discount and premium, net(32) 
 (36) 
Total long-term debt8,195
 606
 7,532
 1,025
Total debt$8,195
 $645
 $7,532
 $1,060

(1)Includes amounts due or exchangeable within one year of the date noted.

(2)NGD has AMAs associated with its utility distribution service in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. The AMAs have varying terms, the longest of which expires in 2020. Pursuant to the provisions of the agreements, NGD sells natural gas and agrees to repurchase an equivalent amount of natural gas during the winter heating seasons at the same cost, plus a financing charge. These transactions are accounted for as an inventory financing.

(3)CenterPoint Energy’s ZENS obligation is bifurcated into a debt component and an embedded derivative component. For additional information regarding ZENS, see Note 10(b)11(b). As ZENS are exchangeable for cash at any time at the option of the holders, these notes are classified as a current portion of long-term debt.

(3)(4)
$118 million of these series of debt were secured by general mortgage bonds of CenterPoint Houston atElectric as of both December 31, 20142017 and 20132016.

(4)(5)Classified as long-term debt because the termination date of the facility that backstops the commercial paper is more than one year from the date noted.


107



(a) Short-term Borrowings

Inventory Financing. NGD has asset management agreements associated with its utility distribution service in Arkansas, north Louisiana and Oklahoma that extend through 2018. Pursuant to the provisions of the agreements, NGD sells natural gas and agrees to repurchase an equivalent amount of natural gas during the winter heating seasons at the same cost, plus a financing charge. These transactions are accounted for as a financing and they had an associated principal obligation of $53 million and $43 million as of December 31, 2014 and 2013, respectively.

(b) Long-term Debt

On March 17, 2014,Debt Retirements. In February 2017, CenterPoint Energy Houston Electric, LLC issued $600 million principal amount of 4.50% General Mortgage Bonds due 2044.

Debt Repayments. Approximately $44retired $250 million aggregate principal amount of pollution control bonds issued on behalfits 5.95% senior notes at their maturity. The retirement of CenterPoint Houston were redeemed on March 3, 2014 at 101%senior notes was financed by the issuance of their principal amount plus accrued interest. The bonds had an interest rate of 4.25%, were scheduled to mature in 2017 and were collateralized by general mortgage bonds of CenterPoint Houston.commercial paper.

Approximately $56

In November 2017, CERC Corp. retired $250 million aggregate principal amount of pollution control bonds issued on behalfits 6.125% senior notes at their maturity. The retirement of CenterPoint Houston were purchasedsenior notes was financed by CenterPoint Houston on March 3, 2014 at 101%the issuance of their principal amount plus accrued interest pursuant to the mandatory tender provisions of the bonds. The bonds had an interest rate of 5.60% prior to CenterPoint Houston’s purchase and have a variable rate thereafter. The bonds mature in 2027 and are collateralized by general mortgage bonds of CenterPoint Houston. The purchased pollution control bonds may be remarketed.commercial paper.

Approximately $84In December 2017, CERC Corp. redeemed $300 million aggregate principal amount of pollution control bonds issued on behalf of CenterPoint Houston were redeemed on June 2, 2014its 6.00% senior notes due 2018 at a redemption price equal to 100% of theirthe principal amount thereof, plus accrued interest.and unpaid interest thereon to but excluding the redemption date, plus the make-whole premium. The bonds had an interest ratemake-whole premium associated with the redemption was approximately $5 million and was included in Other Income, net on the Statements of 4.25%, were scheduled to mature in 2017 and were collateralized by general mortgage bonds of CenterPoint Houston.Consolidated Income.

TransitionDebt Issuances. During the year ended December 31, 2017, CenterPoint Energy, Houston Electric and System RestorationCERC Corp. issued the following debt instruments:

  Issuance Date Debt Instrument Aggregate Principal Amount Interest Rate Maturity Date
      (in millions)    
Houston Electric January 2017 General mortgage bonds $300
 3.00% 2027
CenterPoint Energy August 2017 Unsecured senior notes   500
 2.50% 2022
CERC Corp. August 2017 Unsecured senior notes   300
 4.10% 2047

The proceeds from these issuances were used for general limited liability company and corporate purposes, as applicable, including to repay portions of outstanding commercial paper.

Securitization Bonds. As of December 31, 2014, CenterPoint2017, Houston Electric had special purpose subsidiaries consisting of transition and system restoration bond companies,the Bond Companies, which it consolidates. The consolidated special purpose subsidiaries are wholly ownedwholly-owned, bankruptcy remote entities that were formed solely for the purpose of purchasing and owning transition or system restoration property through the issuance of transition bonds or system restoration bonds and activities incidental thereto. These transition bonds and system restoration bondsSecuritization Bonds are payable only through the imposition and collection of “transition” or “system restoration” charges, as defined in the Texas Public Utility Regulatory Act, which are irrevocable, non-bypassable charges payable by most of CenterPoint Houston’s retail electric customers in order to provide recovery of authorized qualified costs. CenterPoint Houston Electric has no payment obligations in respect of the transition and system restoration bondsSecuritization Bonds other than to remit the applicable transition or system restoration charges it collects. Each special purpose entity is the sole owner of the right to impose, collect and receive the applicable transition or system restoration charges securing the bonds issued by that entity. Creditors of CenterPoint Energy or CenterPoint Houston Electric have no recourse to any assets or revenues of the transition and system restoration bond companiesBond Companies (including the transition and system restoration charges), and the holders of transition bonds or system restoration bondsSecuritization Bonds have no recourse to the assets or revenues of CenterPoint Energy or CenterPoint Houston.Houston Electric.

Credit Facilities.In June 2017, CenterPoint Energy, Houston Electric and CERC Corp. each entered into amendments to their respective revolving credit facilities to extend the termination date thereof from March 3, 2021 to March 3, 2022 and to terminate the swingline loan subfacility thereunder. The amendments to the CenterPoint Energy and CERC Corp. revolving credit facilities also increased the aggregate commitments by $100 million and $300 million, respectively, to $1.7 billion and $900 million under their respective revolving credit facilities. No changes were made to the aggregate commitments under the Houston Electric revolving credit facility. In connection with the amendments to increase the aggregate commitments under their respective revolving credit facilities, CenterPoint Energy and CERC Corp. each increased the size of their respective commercial paper programs to permit the issuance of commercial paper notes in an aggregate principal amount not to exceed $1.7 billion and $900 million, respectively, at any time outstanding.

As of December 31, 20142017 and 2013,2016, CenterPoint Energy, CenterPoint Houston Electric and CERC Corp. had the following revolving credit facilities and utilization of such facilities (in millions):facilities:
December 31, 2017 December 31, 2016 
  December 31, 2014 December 31, 2013Size of
Facility
 Loans Letters
of Credit
 Commercial
Paper
 Size of
Facility
 Loans Letters
of Credit
 Commercial
Paper
 
Size of
Facility
 Loans Letters
of Credit
 Commercial
Paper
 Loans Letters
of Credit
 Commercial
Paper
(in millions) 
CenterPoint Energy$1,200
 $
 $6
 $191
 $
 $6
 $
$1,700
 $
 $6
 $855
(1)$1,600
 $
 $6
 $835
(1)
CenterPoint Houston300
 
 4
 
 
 4
 
Houston Electric300
 
 4
 
 300
 
 4
 
 
CERC Corp.600
 
 
 341
 
 
 118
900
 
 1
 898
(2)600
 
 4
 569
(2)
Total$2,100
 $
 $10
 $532
 $
 $10
 $118
$2,900
 $
 $11
 $1,753
 $2,500
 $
 $14
 $1,404
 

(1)Weighted average interest rate was 1.88% and 1.04% as of December 31, 2017 and December 31, 2016, respectively.



(2)Weighted average interest rate was 1.72% and 1.03% as of December 31, 2017 and December 31, 2016, respectively.

Execution
 Date
 Company 
Size of
Facility
 
Draw Rate of LIBOR plus (2)
 Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio 
Debt for Borrowed Money to Capital
Ratio as of
December 31, 2017 (3)
 
Termination Date (5)
    (in millions)        
March 3, 2016 CenterPoint Energy $1,700
(1)1.250% 65%(4)52.9% March 3, 2022
March 3, 2016 Houston Electric 300
 1.125% 65%(4)48.6% March 3, 2022
March 3, 2016 CERC Corp. 900
(1)1.250% 65% 40.4% March 3, 2022

(1)Amended on June 16, 2017 to increase the aggregate commitment size as noted above.

(2)Based on current credit ratings.

(3)As defined in the revolving credit facility agreement, excluding Securitization Bonds.

(4)The financial covenant limit will temporarily increase from 65% to 70% if Houston Electric experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive 12-month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification.

(5)Amended on June 16, 2017 to extend the termination date as noted above.

CenterPoint Energy’s $1.2 billion revolving credit facility, which is scheduled to terminate on September 9, 2019, can be drawn at the London Interbank Offered Rate (LIBOR) plus 1.25% based on CenterPoint Energy’s current credit ratings. The revolving credit facility contains a financial covenant which limits CenterPoint Energy’s consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of CenterPoint Energy’s consolidated capitalization. The financial covenant limit will temporarily increase from 65% to 70% if CenterPointEnergy, Houston experiences damage from a natural disaster in

108



its service territory and CenterPoint Energy certifies to the administrative agent that CenterPoint Houston has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive twelve-month period, all or part of which CenterPoint Houston intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification.

CenterPoint Houston’s $300 million revolving credit facility, which is scheduled to terminate on September 9, 2019, can be drawn at LIBOR plus 1.125% based on CenterPoint Houston’s current credit ratings. The revolving credit facility contains a financial covenant which limits CenterPoint Houston’s consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of CenterPoint Houston’s consolidated capitalization.

CERC Corp.’s $600 million revolving credit facility, which is scheduled to terminate on September 9, 2019, can be drawn at LIBOR plus 1.50% based on CERC Corp.’s current credit ratings. The revolving credit facility contains a financial covenant which limits CERC’s consolidated debt to an amount not to exceed 65% of CERC’s consolidated capitalization.

CenterPoint Energy, CenterPoint HoustonElectric and CERC Corp. were in compliance with all financial debt covenants as of December 31, 2014.2017.

Maturities.  CenterPoint Energy’s maturitiesMaturities of long-term debt, capital leases and sinking fund requirements, excluding the ZENS obligation, are $641 million in 2015, $716 million in 2016, $911 million in 2017, $1.1 billion in 2018 and $1.0 billion in 2019.  These maturities include transition and system restoration bond principal repayments on scheduled payment dates aggregating $372 million in 2015, $391 million in 2016, $411 million in 2017, $434 million in 2018 and $458 million in 2019.as follows:
 
CenterPoint
Energy (1)
 Securitization Bonds
 (in millions)
2018$484
 $434
2019458
 458
2020231
 231
20211,206
 211
20222,773
 219

(1)These maturities include Securitization Bonds principal repayments on scheduled payment dates.

Liens.  As of December 31, 2014, CenterPoint Houston’s2017, Houston Electric’s assets were subject to liens securing approximately $102$102 million of first mortgage bonds. Sinking or improvement fund and replacement fund requirements on the first mortgage bonds may be satisfied by certification of property additions. Sinking fund and replacement fund requirements for 2014, 20132017, 2016 and 20122015 have been satisfied by certification of property additions. The replacement fund requirement to be satisfied in 20152018 is approximately $209$266 million,, and the sinking fund requirement to be satisfied in 20152018 is approximately $1.6 million. CenterPoint Energy expects CenterPoint Houston Electric to meet these 20152018 obligations by certification of property additions. As of December 31, 20142017, CenterPoint Houston’sHouston Electric’s assets were also subject to liens securing approximately $2.42.9 billion of general mortgage bonds, which are junior to the liens of the first mortgage bonds.


(13)Income Taxes


(14) Income Taxes

The components of CenterPoint Energy’s income tax expense (benefit) were as follows:

Year Ended December 31,Year Ended December 31,
2014 2013 20122017 2016 2015
(in millions)(in millions)
Current income tax expense (benefit):          
Federal$(20) $91
 $
$32
 $23
 $(37)
State14
 23
 12
9
 18
 12
Total current expense (benefit)(6) 114
 12
41
 41
 (25)
Deferred income tax expense (benefit): 
  
  
 
  
  
Federal273
 370
 280
(806) 185
 (359)
State7
 (14) 48
36
 28
 (54)
Total deferred expense280
 356
 328
Total income tax expense$274
 $470
 $340
Total deferred expense (benefit)(770) 213
 (413)
Total income tax expense (benefit)$(729) $254
 $(438)


109



A reconciliation of income tax expense (benefit) using the federal statutory income tax rate to the actual income tax expense and resulting effective income tax rate is as follows:
 Year Ended December 31,
 2014 2013 2012
 (in millions)
Income before income taxes$885
 $781
 $757
Federal statutory income tax rate35.0% 35.0% 35.0%
Expected federal income tax expense310
 273
 265
Increase (decrease) in tax expense resulting from: 
  
  
State income tax expense, net of federal income tax16
 21
 39
Amortization of investment tax credit
 
 (2)
Tax effect related to the formation of Enable
 196
 
Decrease in settled and uncertain income tax positions
 (9) (33)
Goodwill impairment
 
 88
Tax basis balance sheet adjustments(29) 
 
Other, net(23) (11) (17)
Total(36) 197
 75
Total income tax expense$274
 $470
 $340
Effective tax rate31.0% 60.2% 44.9%
 Year Ended December 31,
 2017 2016 2015
 (in millions)
Income (loss) before income taxes$1,063
 $686
 $(1,130)
Federal statutory income tax rate35 % 35% 35%
Expected federal income tax expense (benefit)372
 240
 (396)
Increase (decrease) in tax expense resulting from: 
  
  
State income tax expense, net of federal income tax26
 27
 (27)
State valuation allowance, net of federal income tax3
 3
 
Federal income tax rate reduction(1,113) 
 
Other, net(17) (16) (15)
Total(1,101) 14
 (42)
Total income tax expense (benefit)$(729) $254
 $(438)
Effective tax rate(69)% 37% 39%

In 2014,2017, CenterPoint Energy recognized a $29 million$1.1 billion deferred tax benefit from the remeasurement of CenterPoint Energy’s ADFIT liability as a result of the enactment of the TCJA on December 22, 2017 which reduced the U.S. corporate income tax benefit upon completionrate from 35% to 21%. For additional information on the 2017 impacts of its tax basis balance sheet review.  The adjustment resulted in a decrease tothe TCJA, please see the discussion following the deferred tax assets and liabilities of $32 million, a decrease to income taxes payable of $5 million and a decrease to income tax regulatory assets of $8 million.  CenterPoint Energy determined the impact of the $29 million adjustment was not material to any prior period or the year ended December 31, 2014.table below.

In 2013, CenterPoint Energy recorded a deferred tax expense of $225 million at the formation of Enable related to the book-to-tax basis difference for contributed non-tax deductible goodwill and recognized a tax benefit of $29 million associated with the remeasurement of state deferred taxes at formation. In addition,2016, CenterPoint Energy recognized a $6 million deferred tax benefit of $8expense due to Louisiana state law change and recorded an additional $3 million basedvaluation allowance on the settlement with the Internal Revenue Service (IRS) of outstanding tax claims for the 2002 and 2003 tax years.certain state carryforwards.

In 2012,2015, CenterPoint Energy recorded a non-tax deductibleEnergy’s effective tax rate was higher than the statutory rate primarily due to lower earnings from the impairment of goodwill of $252 million ($88 millionCenterPoint Energy’s equity method investment in Enable. The impairment loss reduced the deferred tax effect) and a net decreaseliability on CenterPoint Energy’s equity method investment in income tax expense of $33 million related to favorable audit settlements.Enable.


110




The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities were as follows:
 December 31,
 2014 2013
 (in millions)
Deferred tax assets:   
Current:   
Allowance for doubtful accounts$10
 $11
Deferred gas costs
 7
Other13
 12
Total current deferred tax assets23
 30
Non-current: 
  
Loss and credit carryforwards69
 51
Employee benefits327
 258
Other89
 76
Total non-current deferred tax assets before valuation allowance485
 385
Valuation allowance(2) (2)
Total non-current deferred tax assets, net of valuation allowance483
 383
Total deferred tax assets, net of valuation allowance506
 413
Deferred tax liabilities: 
  
Current: 
  
Unrealized gain on indexed debt securities636
 541
Unrealized gain on TW securities65
 97
Deferred gas costs6
 
Total current deferred tax liabilities707
 638
Non-current: 
  
Depreciation2,201
 1,908
Regulatory assets, net1,228
 1,308
Investment in unconsolidated affiliates1,789
 1,590
Other21
 119
Total non-current deferred tax liabilities5,239
 4,925
Total deferred tax liabilities5,946
 5,563
Accumulated deferred income taxes, net$5,440
 $5,150
 December 31,
 2017 2016
 (in millions)
Deferred tax assets:   
Benefits and compensation$162
 $316
Regulatory liabilities347
 57
Loss and credit carryforwards90
 79
Asset retirement obligations68
 77
Other16
 21
Valuation allowance(7) (5)
Total deferred tax assets676
 545
Deferred tax liabilities: 
  
Property, plant, and equipment1,808
 2,603
Investment in unconsolidated affiliates927
 1,383
Regulatory assets473
 940
Investment in marketable securities and indexed debt502
 772
Indexed debt securities derivative13
 4
Other127
 106
Total deferred tax liabilities3,850
 5,808
Net deferred tax liabilities$3,174
 $5,263

Federal Tax Reform. On December 22, 2017, President Trump signed into law comprehensive tax reform legislation informally called the Tax Cuts and Jobs Acts, or TCJA, which resulted in significant changes to federal tax laws effective January 1, 2018.  The new legislation contains several key tax provisions that will impact CenterPoint Energy, including the reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018. The new legislation also includes a variety of other changes, such as, a limitation on the tax deductibility of interest expense, acceleration of business asset expensing and reduction in the amount of executive pay that may qualify for a tax deduction, among others. Several other provisions of the TCJA are not generally applicable to the public utility industry, including the limitation on the tax deductibility of interest expense and the acceleration of business asset expensing.

While the effective date of the rate change in the legislation is January 1, 2018, ASC 740 requires that deferred tax balances be adjusted in the period of enactment to the rate in which those deferred taxes will reverse. The EDIT from the rate change resulted in an adjustment to income tax expense of approximately $1.1 billion and creation of a net regulatory liability of $1.3 billion (includes $0.3 billion gross-up) for the amount that is likely to be returned to ratepayers. The major components of the $1.1 billion benefit to income tax expense are for the remeasurement of CenterPoint Energy's deferred taxes associated with its investment in Enable, investment in marketable securities (ZENS) and stranded costs related to the Securitization Bonds. The amount and expected amortization of the net regulatory tax liability may differ from the $1.3 billion estimate, possibly materially, due to, among other things, regulatory actions, interpretations and assumptions CenterPoint Energy has made, and any guidance that may be issued in the future. CenterPoint Energy will continue to assess the amount and expected amortization of the net regulatory tax liability as it has proceedings with regulators in future periods. For the discussion of risks associated with the amount and expected flow through of EDIT by Houston Electric and NGD, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Regulatory Matters —Tax Reform” in Item 7 of Part II of this report.

Tax Attribute Carryforwards and Valuation Allowance.  CenterPoint Energy has $9 millionno remaining federal net operating loss carryforward or federal tax credits as of federal capital loss carryforwards which expire in 2018, $725December 31, 2017. As of December 31, 2017, CenterPoint Energy had $870 million of state net operating loss carryforwards whichthat expire between 20152018 and 2034, $42037 and $12 million of state tax credits whichthat do not expire, and $244 million ofexpire. A state capital loss carryforwards which expire in 2017 for which management establishedcarryforward of $244 million expired unutilized at the end of 2017. CenterPoint Energy reported a full valuation allowance of $2$7 million because it is more likely than not that the benefit from certain state net of federal tax. The valuation allowance was established based upon management’s evaluation thatoperating loss carryforwards maywill not be fully realized.





111



Uncertain Income Tax Positions. The following table reconciles the beginning and ending balance of CenterPoint Energy’s unrecognized tax benefits (expenses):
 December 31,
 2014 2013 2012
 (in millions)
Balance, beginning of year$
 $(23) $51
Tax Positions related to prior years: 
  
  
Reductions
 (1) (75)
Tax Positions related to current year: 
  
  
Settlements
 24
 1
Balance, end of year$
 $
 $(23)

CenterPoint Energy reported no uncertain tax liability as of December 31, 20142017, 2016 and 2015. CenterPoint Energy expects no significant change to the uncertain tax liability over the next twelve12 months ending December 31, 2015 to have a material impact on financial position, results of operations and cash flows.

CenterPoint Energy recognizes interest and penalties as a component of income tax expense.  CenterPoint Energy recognized $3 million of income tax expense, $3 million of income tax benefit and $7 million of income tax benefit related to interest on income tax positions during 2014, 2013 and 2012, respectively.  CenterPoint Energy had $5 million of interest receivable on income tax positions accrued at December 31, 2013.2018.

Tax Audits and Settlements.   Tax years through 20112015 have been audited and settled with the IRS. The consolidated federal incomeFor the 2016 through 2018 tax returns for the years, 2012 and 2013 are currently under audit by the IRS. For 2014, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process. CenterPoint Energy has considered the effects of these examinations in its accrual for settled issues and liability for uncertain income tax positions as of December 31, 2014.

(14)Commitments and Contingencies
(15) Commitments and Contingencies

(a) Natural Gas Supply and Other Commitments

Natural gas supply commitments include natural gas contracts related to CenterPoint Energy’s Natural Gas Distribution and Energy Services business segments, which have various quantity requirements and durations, that are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s Consolidated Balance Sheets as of December 31, 20142017 and 20132016 as these contracts meet an exception as “normal purchases contracts” or do not meet the definition of a derivative. Natural gas supply commitments also include natural gas transportation contracts that do not meet the definition of a derivative. As of December 31, 20142017, minimum payment obligations for natural gas supply and other commitments are approximately approximately:
 Natural Gas Supply 
Other (1)
 (in millions)
2018$463
 $37
2019353
 17
2020169
 11
202179
 
202249
 
2023 and beyond108
 

(1)$696 million in 2015, $605 million in 2016, $551 million in 2017, $507 million in 2018, $255 million in 2019Primarily relates to technology hardware and $114 million after 2019.software

(b) Asset Management AgreementsAMAs

NGD currently has asset management agreements (AMAs)AMAs associated with its utility distribution service in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. The AMAs have varying terms, the longest of which expires in 2020. Generally, these AMAs are contracts between NGD and an asset manager that are intended to transfer the working capital obligation and maximize the utilization of the assets.  In these AMAs, NGD agreedagrees to release transportation and storage capacity to other parties to manage natural gas storage, supply and delivery arrangements for NGD and to use the released capacity for other purposes when it is not needed for NGD. NGD is compensated by the asset manager through payments made over the life of the AMAs based in part on the results of the asset optimization. NGD has an obligation to purchase its winter storage requirements that have been released to the asset manager under these AMAs. The AMAs have varying terms,NGD has received approval from the longeststate regulatory commissions in Arkansas, Louisiana, Mississippi and Oklahoma to retain a share of which expires in 2018.the AMA proceeds.


112



(c) Lease Commitments

The following table sets forth information concerning CenterPoint Energy’s obligations under non-cancelable long-term operating leases atas of December 31, 20142017, which primarily consist of rental agreements for building space, data processing equipment, compression equipment and rights of way (in millions):rights-of-way:
            
2015$5
20164
20173
20182
20192
2020 and beyond7
Total$23
 (in millions)
2018$5
20195
20204
20214
20223
2023 and beyond5
Total$26



Total lease expense for all operating leases was $1110 million, $2110 million and $279 million during 20142017, 20132016 and 20122015, respectively.

(d) Legal, Environmental and Other Regulatory Matters

Legal Matters

Gas Market Manipulation CasesCases..  CenterPoint Energy, CenterPoint Houston Electric or their predecessor, Reliant Energy, Incorporated (Reliant Energy), and certain of their former subsidiaries have been named as defendants in certain lawsuits described below. Under a master separation agreement between CenterPoint Energy and a former subsidiary, Reliant Resources, Inc. (RRI),RRI, CenterPoint Energy and its subsidiaries are entitled to be indemnified by RRI and its successors for any losses, including certain attorneys’ fees and other costs, arising out of these lawsuits.  In May 2009, RRI sold its Texas retail business to a subsidiary of NRG and RRI changed its name to RRI Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly ownedwholly-owned subsidiary of RRI, and RRI changed its name to GenOn Energy, Inc. (GenOn).GenOn. In December 2012, NRG acquired GenOn through a merger in which GenOn became a wholly ownedwholly-owned subsidiary of NRG. None of the sale of the retail business, the merger with Mirant Corporation, or the acquisition of GenOn by NRG alters RRI’s (now GenOn’s) contractual obligations to indemnify CenterPoint Energy and its subsidiaries, including CenterPoint Houston Electric, for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation, nor does it affect the terms of existing guarantee arrangements for certain GenOn gas transportation contracts discussed below.litigation.

A large number of lawsuits were filed against numerous gas market participants in a number of federal and western state courts in connection with the operation of the natural gas markets in 2000-2002.2000–2002. CenterPoint Energy and its affiliates have since been released or dismissed from all but one such case. CenterPoint Energy Services, Inc. (CES),cases. CES, a subsidiary of CERC Corp., iswas a defendant in a case now pending in federal court in Nevada alleging a conspiracy to inflate Wisconsin natural gas prices in 2000-2002.  In July 2011,2000–2002. On May 24, 2016, the district court issued an ordergranted CES’s motion for summary judgment, dismissing CES from the plaintiffs’ claims against other defendants in the case, each of whom had demonstrated Federal Energy Regulatory Commission jurisdictional sales for resale during the relevant period, based on federal preemption, and stayed the remainder of the case pending outcome of the appeals.case. The plaintiffs have appealed this rulingthat ruling. CenterPoint Energy and CES intend to the United States Court of Appeals for the Ninth Circuit, which reversed the trial court’s dismissal ofcontinue vigorously defending against the plaintiffs’ claims. In August 2013, the other defendantsJune 2017, GenOn and various affiliates filed a petition for review withprotection under Chapter 11 of the U.S. Supreme Court, which theBankruptcy Code. In December 2017, GenOn received court granted on July 1, 2014. Four amicus briefs favorable to our co-defendants were filed by the United States, Interstate Natural Gas Associationapproval of America, et. al., Washington Legal Foundationa restructuring plan and Noble America Corporation, et. al. The Supreme Court heard arguments on January 12, 2015, and a ruling is expected by summer 2015.to emerge from Chapter 11 in mid-2018. CenterPoint Energy, believesCERC, and CES submitted proofs of claim in the bankruptcy proceedings to protect their indemnity rights. If GenOn were unable to meet its indemnity obligations or satisfy a liability that CES is not a proper defendanthas been assumed in this casethe gas market manipulation litigation, then CenterPoint Energy, Houston Electric or CERC could incur liability and will continue to pursue a dismissal.be responsible for satisfying the liability. CenterPoint Energy does not expect the ultimate outcome of this matterthe case against CES to have a material adverse effect on its financial condition, results of operations or cash flows.

Minnehaha Academy.  On August 2, 2017, a natural gas explosion occurred at the Minnehaha Academy in Minneapolis, Minnesota, resulting in the deaths of two school employees, serious injuries to others and significant property damage to the school.  CenterPoint Energy, certain of its subsidiaries, and the contractor company working in the school have been named in litigation arising out of this incident.  Additionally, CenterPoint Energy is cooperating with the ongoing investigation conducted by the National Transportation Safety Board. Further, CenterPoint Energy is contesting approximately $200,000 in fines imposed by the Minnesota Office of Pipeline Safety.  In early 2018, the Minnesota Occupational Safety and Health Administration concluded its investigation without any adverse findings against CenterPoint Energy. CenterPoint Energy’s general and excess liability insurance policies provide coverage for third party bodily injury and property damage claims. 

Environmental Matters

Manufactured Gas PlantMGP Sites. CERC and its predecessors operated manufactured gas plants (MGPs)MGPs in the past.  There are seven MGP sites in CERC’s Minnesota service territory.  CERC believes it never owned or operated, and therefore has no liability with respect to, two of these sites.  With respect to two othercertain Minnesota MGP sites, CERC has completed state orderedstate-ordered remediation other than ongoingand continues state-ordered monitoring and water treatment.

At As of December 31, 2014,2017, CERC had a recorded a liability of $7 million for continued monitoring and any future remediation of these Minnesota sites.required by regulators in Minnesota. The estimated range of possible remediation costs for the sites for which CERC believes it may have responsibility was $5 million to $29$30 million

113



based on remediation continuing for 30 to 50 years. The cost estimates are based on studies of a site or industry average costs for remediation of sites of similar size. The actual remediation costs will be dependent upondepend on the number of sites to be remediated, the participation of other potentially responsible parties (PRPs),PRPs, if any, and the remediation methods used. As of December 31, 2014, CERC had collected $4 million from insurance companies to be used for future environmental remediation.

In addition to the Minnesota sites, the United States Environmental Protection AgencyEPA and other regulators have investigated MGP sites that were owned or operated by CERC or may have been owned by one of its former affiliates. CERC and CenterPoint Energy dodoes not expect the ultimate outcome of these investigationsmatters to have a material adverse effect on the financial condition, results of operations or cash flows of either CenterPoint Energy or CERC.

Asbestos.Some facilities owned by CenterPoint Energy or its predecessors in interest contain or have contained asbestos insulation and other asbestos-containing materials. CenterPoint Energy orand its subsidiaries have beenare from time to time named, along


with numerous others, as a defendantdefendants in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos. Some of the claimants have worked at locations owned by subsidiaries of CenterPoint Energy, but most existing claims relate to facilities previously owned by CenterPoint Energy’s subsidiaries, some of which are currently owned by an affiliate of NRG. In 2004asbestos, and early 2005, CenterPoint Energy sold its generating business, to which most of these claims relate, to a company which is now an affiliate of NRG. Under the terms of the arrangements regarding separation of the generating business from CenterPoint Energy and its sale of that business, ultimate financial responsibility for uninsured losses from claims relating to the generating business has been assumed by the NRG affiliate, but CenterPoint Energy has agreed to continue to defend such claims to the extent they are covered by insurance maintained by CenterPoint Energy, subject to reimbursement of the costs of such defense by the NRG affiliate. CenterPoint Energy anticipates that additional claims like those received may be asserted in the future.  Although their ultimate outcome cannot be predicted at this time, CenterPoint Energy intends to continue vigorously contesting claims that it does not consider to have merit and, based on its experience to date, does not expect these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’s financial condition, results of operations or cash flows.

Other Environmental.From time to time, CenterPoint Energy identifies the presence of environmental contaminants during its operations or on property where its subsidiaries conduct orpredecessor companies have conducted operations.  Other such sites involving contaminants may be identified in the future.  CenterPoint Energy has and expects to continue to remediate any identified sites consistent with its state and federal legal obligations.  From time to time CenterPoint Energy has received notices, and may receive notices in the future, from regulatory authorities or others regarding its status as a PRP in connection with sites found to require remediation due to the presence of environmental contaminants. In addition, CenterPoint Energy has been, or may be, named from time to time as a defendant in litigation related to such sites. Although the ultimate outcome of such matters cannot be predicted at this time, CenterPoint Energy does not expect based on its experience to date, these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’s financial condition, results of operations or cash flows.

Other Proceedings

CenterPoint Energy is involved in other legal, environmental, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. From time to time, CenterPoint Energy is also a defendant in legal proceedings with respect to claims brought by various plaintiffs against broad groups of participants in the energy industry. Some of these proceedings involve substantial amounts. CenterPoint Energy regularly analyzes current information and, as necessary, provides accruals for probable and reasonably estimable liabilities on the eventual disposition of these matters. CenterPoint Energy does not expect the disposition of these matters to have a material adverse effect on CenterPoint Energy’s financial condition, results of operations or cash flows.

(e) Guarantees

Prior to the distribution of CenterPoint Energy’s ownership in RRI to its shareholders, CERC had guaranteed certain contractual obligations of what became RRI’s trading subsidiary.  When the companies separated, RRI agreed to secure CERC against obligations under the guarantees RRI had been unable to extinguish by the time of separation.  Pursuant to such agreement, as amended in December 2007, RRI (now GenOn) agreed to provide to CERC cash or letters of credit as security against CERC’s obligations under its remaining guarantees for demand charges under certain gas transportation agreements if and to the extent changes in market conditions expose CERC to a risk of loss on those guarantees based on an annual calculation, with any required collateral to be posted each December.  The undiscounted maximum potential payout of the demand charges under these transportation contracts, which will be in effect until 2018, was approximately $42 million as of December 31, 2014.  Based on market conditions in the fourth quarter of 2014 at the time the most recent annual calculation was made under the agreement, GenOn was not obligated to post any security. If GenOn should fail to perform the contractual obligations, CERC could have to honor its guarantee and, in such event, any collateral then provided as security may be insufficient to satisfy CERC’s obligations.(16) Earnings Per Share


114



CenterPoint Energy has provided guarantees (CenterPoint Midstream Guarantees) with respect to the performance of certain obligations of Enable under long-term gas gathering and treating agreements with an indirect wholly owned subsidiary of Encana Corporation and an indirect wholly owned subsidiary of Royal Dutch Shell plc. As of December 31, 2014, CenterPoint Energy had guaranteed Enable’s obligations up to an aggregate amount of $100 million under these agreements. Under the terms of the omnibus agreement entered into in connection with the closing of the formation of Enable, Enable and CenterPoint Energy have agreed to use commercially reasonable efforts and cooperate with each other to terminate the CenterPoint Midstream Guarantees and to release CenterPoint Energy from such guarantees by causing Enable or one of its subsidiaries to enter into substitute guarantees or to assume the CenterPoint Midstream Guarantees as applicable.

CERC Corp. has also provided a guarantee of collection of $1.1 billion of Enable’s Guaranteed Senior Notes. This guarantee is subordinated to all senior debt of CERC Corp. and is subject to automatic release on May 1, 2016.

The fair value of these guarantees is not material.

(15)Earnings Per Share

The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings (loss) per share calculations:
 For the Year Ended December 31,
 2014 2013 2012
 (in millions, except per share and share amounts)
Net income$611
 $311
 $417
      
Basic weighted average shares outstanding429,634,000
 428,466,000
 427,189,000
Plus: Incremental shares from assumed conversions: 
  
  
Stock options
 41,000
 152,000
Restricted stock2,034,000
 2,423,000
 2,453,000
Diluted weighted average shares431,668,000
 430,930,000
 429,794,000
      
Basic earnings per share$1.42
 $0.73
 $0.98
      
Diluted earnings per share$1.42
 $0.72
 $0.97
 For the Year Ended December 31,
 2017 2016 2015
 (in millions, except per share and share amounts)
Net income (loss) (1)
$1,792
 $432
 $(692)
      
Basic weighted average shares outstanding430,964,000
 430,606,000
 430,180,000
Plus: Incremental shares from assumed conversions: 
  
  
Restricted stock (2)
3,344,000
 2,997,000
 
Diluted weighted average shares434,308,000
 433,603,000
 430,180,000
      
Basic earnings (loss) per share$4.16
 $1.00
 $(1.61)
      
Diluted earnings (loss) per share$4.13
 $1.00
 $(1.61)

115




(16)(1)Unaudited Quarterly InformationNet income for the year ended December 31, 2017 includes a reduction in income taxes of $1,113 million due to tax reform. See Note 14 for further discussion of the impacts of tax reform implementation.

(2)2,349,000 incremental shares from assumed conversions of restricted stock have not been included in the computation of diluted earnings (loss) per share for the year ended December 31, 2015, as their inclusion would be anti-dilutive.



(17) Unaudited Quarterly Information

Summarized quarterly financial data is as follows:
Year Ended December 31, 2014Year Ended December 31, 2017
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter (3)
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
(in millions, except per share amounts)(in millions, except per share amounts)
Revenues$3,163
 $1,884
 $1,807
 $2,372
$2,735
 $2,143
 $2,098
 $2,638
Operating income295
 186
 233
 221
274
 223
 279
 296
Net income(1)185
 107
 143
 176
192
 135
 169
 1,296
              
Basic earnings per share(1)(2)$0.43
 $0.25
 $0.33
 $0.41
$0.45
 $0.31
 $0.39
 $3.01
              
Diluted earnings per share(1)(2)$0.43
 $0.25
 $0.33
 $0.41
$0.44
 $0.31
 $0.39
 $2.99
Year Ended December 31, 2013Year Ended December 31, 2016
First
Quarter
 Second
Quarter (2)
 
Third
Quarter
 
Fourth
Quarter
First
Quarter
 Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
(in millions, except per share amounts)(in millions, except per share amounts)
Revenues$2,388
 $1,894
 $1,640
 $2,184
$1,984
 $1,574
 $1,889
 $2,081
Operating income332
 223
 244
 211
250
 182
 284
 243
Net income (loss)$147
 $(100) $151
 $113
154
 (2) 179
 101
              
Basic earnings (loss) per share(1)(2)$0.34
 $(0.23) $0.35
 $0.26
$0.36
 $(0.01) $0.42
 $0.23
              
Diluted earnings (loss) per share(1)(2)$0.34
 $(0.23) $0.35
 $0.26
$0.36
 $(0.01) $0.41
 $0.23

(1)Net income for the fourth quarter 2017 includes a reduction in income taxes of $1,113 million due to tax reform. See Note 14 for further discussion of the impacts of tax reform implementation.

(2)Quarterly earnings (loss) per common share are based on the weighted average number of shares outstanding during the quarter, and the sum of the quarters may not equal annual earnings (loss) per common share.

(2)Effective May 1, 2013, CenterPoint Energy contributed CenterPoint Midstream to Enable.  See Note 2(b) and Note 9 for further discussion on the formation of Enable and CenterPoint Energy’s investment in Enable, respectively.

(3)CenterPoint Energy recognized a $29 million deferred income tax benefit upon completion of its tax basis balance sheet review. 

(17)Reportable Business Segments
(18) Reportable Business Segments

CenterPoint Energy’s determination of reportable business segments considers the strategic operating units under which CenterPoint Energy manages sales, allocates resources and assesses performance of various products and services to wholesale or retail customers in differing regulatory environments. CenterPoint Energy uses operating income as the measure of profit or loss for its business segments.segments other than Midstream Investments, where it uses equity in earnings.

CenterPoint Energy’s reportable business segments include the following: Electric Transmission & Distribution, Natural Gas Distribution, Energy Services, Midstream Investments and Other Operations. The electric transmission and distribution function (CenterPoint Houston)(Houston Electric) is reported in the Electric Transmission & Distribution business segment. Natural Gas Distribution consists of intrastate natural gas sales to, and natural gas transportation and distribution for, residential, commercial, industrial and institutional customers. Energy Services represents CenterPoint Energy’s non-rate regulated gas sales and services operations. Midstream Investments consists primarily of CenterPoint Energy’s equity investment in Enable and its retained interest in SESH.Enable. Other Operations consists primarily of other corporate operations which support all of CenterPoint Energy’s business operations.

Prior to May 1, 2013, CenterPoint Energy also reported an Interstate Pipelines business segment, which included CenterPoint Energy’s interstate natural gas pipeline operations, and a Field Services business segment, which included CenterPoint Energy’s non-rate regulated natural gas gathering, processing and treating operations. The formation of Enable closed on May 1, 2013. Enable now owns substantially all of CenterPoint Energy’s former Interstate Pipelines and Field Services business segments,

116



except for a 0.1% interest in SESH. As a result, effective May 1, 2013, CenterPoint Energy reports equity earnings associated with its interest in Enable and equity earnings associated with its interest in SESH under its Midstream Investments segment, and no longer has Interstate Pipelines and Field Services reporting segments prospectively.

Long-lived assets include net property, plant and equipment, goodwill and other intangibles and equity investments in unconsolidated subsidiaries. Intersegment sales are eliminated in consolidation.



Financial data for business segments and products and services are as follows (in millions):follows:
Revenues
from
External
Customers
  
Intersegment
Revenues
 
Depreciation
and
Amortization
 
Operating
Income (Loss)
 
Total
Assets
  
Expenditures
for Long-Lived
Assets
Revenues
from
External
Customers
  
Intersegment
Revenues
 
Depreciation
and
Amortization
 
Operating
Income
 
Total
Assets (1)
  
Expenditures
for Long-Lived
Assets
As of and for the year ended December 31, 2014: 
  
       
  
 
(in millions)
As of and for the year ended December 31, 2017: 
  
       
  
 
Electric Transmission & Distribution$2,845
(1)$
 $768
 $595
 $10,066
 $818
$2,997
(2)$
 $724
 $610
 $10,292
 $924
Natural Gas Distribution3,271
  
30
 201
 287
 5,464
 525
2,606
  
33
 260
 328
 6,608
 523
Energy Services3,095
  
84
 5
 52
 978
 3
3,997
  
52
 19
 125
 1,521
 11
Midstream Investments (2)
 
 
 
 4,521
 
Midstream Investments (3)
 
 
 
 2,472
 
Other15
  

 39
 1
 3,368
(3)56
14
  

 33
 9
 2,497
(4)36
Reconciling Eliminations
  
(114) 
 
 (1,197) 
Eliminations
  
(85) 
 
 (654) 
Consolidated$9,226
  
$
 $1,013
 $935
 $23,200
 $1,402
$9,614
  
$
 $1,036
 $1,072
 $22,736
 1,494
As of and for the year ended December 31, 2013: 
  
 
  
  
  
  
Reconciling items          (68)
Capital expenditures per Statements of Consolidated Cash Flows          $1,426
As of and for the year ended December 31, 2016: 
  
 
  
  
  
  
Electric Transmission & Distribution$2,570
(1)$
 $685
 $607
 $9,605
 $759
$3,060
(2)$
 $838
 $628
 $10,211
 $858
Natural Gas Distribution2,837
  
26
 185
 263
 4,976
 430
2,380
  
29
 242
 303
 6,099
 510
Energy Services2,374
  
27
 5
 13
 895
 3
2,073
  
26
 7
 20
 1,102
 5
Interstate Pipelines (4) (6)133
  
53
 20
 72
 
 29
Field Services (5) (6)178
  
18
 20
 73
 
 16
Midstream Investments (2)
 
 
 
 4,518
 
Midstream Investments (3)
 
 
 
 2,505
 
Other14
  

 39
 (18) 3,026
(3)35
15
  

 39
 8
 2,681
(4)33
Reconciling Eliminations
  
(124) 
 
 (1,150) 
Eliminations
  
(55) 
 
 (769) 
Consolidated$8,106
  
$
 $954
 $1,010
 $21,870
 $1,272
$7,528
  
$
 $1,126
 $959
 $21,829
 1,406
As of and for the year ended December 31, 2012: 
  
         
Reconciling items          8
Capital expenditures per Statements of Consolidated Cash Flows          $1,414
As of and for the year ended December 31, 2015: 
  
         
Electric Transmission & Distribution$2,540
(1)$
 $729
 $639
 $11,174
 $599
$2,845
(2)$
 $705
 $607
 $10,028
 $934
Natural Gas Distribution2,320
  
22
 173
 226
 4,775
 359
2,603
  
29
 222
 273
 5,657
 601
Energy Services1,758
  
26
 6
 (250) 839
 6
1,924
  
33
 5
 42
 857
 5
Interstate Pipelines (4)356
  
146
 56
 207
 4,004
 132
Field Services (5)467
  
39
 50
 214
 2,453
 52
Midstream Investments (3)
 
 
 
 2,594
 
Other11
  

 36
 2
 2,600
(3)40
14
  

 38
 11
 2,879
(4)35
Reconciling Eliminations
  
(233) 
 
 (2,974) 
Eliminations
  
(62) 
 
 (725) 
Consolidated$7,452
  
$
 $1,050
 $1,038
 $22,871
  
$1,188
$7,386
  
$
 $970
 $933
 $21,290
  
1,575
Reconciling items          9
Capital expenditures per Statements of Consolidated Cash Flows          $1,584

(1)
SalesAmounts for 2015 have been restated to affiliatesreflect the adoption of NRG in 2014, 2013 and 2012 represented approximately $735 million, $658 million and $648 million, respectively, of CenterPoint Houston’s transmission and distribution revenues. Sales to affiliates of Energy Future Holdings Corp. in 2014, 2013 and 2012 represented approximately $189 million, $167 million and $162 million, respectively, of CenterPoint Houston’s transmission and distribution revenues.
ASU 2015-03.

(2)
Houston Electric’s transmission and distribution revenues from major customers are as follows:
  Year Ended December 31, 2017
  2017 2016 2015
  (in millions)
Affiliates of NRG $713
 $698
 $741
Affiliates of Vistra Energy Corp. 229
 220
 220



(3)Midstream Investments reportedInvestments’ equity earnings (losses) are as follows:
  Year Ended December 31, 2017
  2017 2016 2015 (a)
  (in millions)
Enable $265
 $208
 $(1,633)

(a)Includes impairment charges totaling $1,846 million composed of $303CenterPoint Energy’s impairment of its equity method investment in Enable of $1,225 million from Enable and $5CenterPoint Energy’s share, $621 million, of equity earnings from CenterPoint Energy’s interest in SESHimpairment charges Enable recorded for goodwill and long-lived assets for the year ended December 31, 2014. Midstream Investments reported equity earnings of $173 million from Enable and $82015. This impairment is offset by $213 million of equity earnings from CenterPoint Energy’s interest in SESH for the eight monthsyear ended December 31, 2013. Included in total assets of Midstream Investments as of December 31, 2014 and 2013 is $4,520 million and $4,319 million, respectively, related to CenterPoint Energy’s investment in Enable and $1 million and $199 million related to CenterPoint Energy’s retained interest in SESH, respectively.2015.

(3)(4)
Included in total assets of Other Operations as of December 31, 20142017, 20132016 and 20122015, are pension and other postemployment related regulatory assets of $795600 million, $627759 million and $832814 million, respectively.


117



(4)
Interstate Pipelines recorded equity income of $7 million and $26 million in the years ended December 31, 2013 and 2012, respectively, from its interest in SESH, a jointly-owned pipeline. These amounts are included in Equity in earnings of unconsolidated affiliates under the Other Income (Expense) caption.  Interstate Pipelines’ investment in SESH was $404 million as of December 31, 2012, and is included in Investment in unconsolidated affiliates. As discussed above, effective May 1, 2013, CenterPoint Energy reports equity earnings associated with its interest in Enable and equity earnings associated with its interest in SESH under its Midstream Investments segment, and no longer has an Interstate Pipelines reporting segment prospectively.

(5)
Field Services recorded equity income of $5 million for the year ended December 31, 2012 from its interest in Waskom. This amount is included in Equity in earnings of unconsolidated affiliates under the Other Income (Expense) caption. Beginning on August 1, 2012, financial results for Waskom are included in operating income due to the July 31, 2012 purchase of the 50% interest in Waskom that CenterPoint Energy did not already own. CenterPoint Energy contributed 100% interest in Waskom to Enable on May 1, 2013. Effective May 1, 2013, CenterPoint Energy reports equity earnings associated with its interest in Enable under its Midstream Investments segment, and no longer has a Field Services reporting segment prospectively.

(6)Results reflected in the year ended December 31, 2013 represent only January 2013 through April 2013.
 Year Ended December 31, Year Ended December 31,
Revenues by Products and Services: 2014 2013 2012 2017 2016 2015
     (in millions)
Electric delivery $2,845
 $2,570
 $2,540
 $2,997
 $3,060
 $2,845
Retail gas sales 5,049
 4,150
 3,328
 3,634
 3,329
 3,725
Wholesale gas sales 1,159
 913
 613
 2,811
 977
 657
Gas transportation and processing 38
 345
 847
 29
 23
 26
Energy products and services 135
 128
 124
 143
 139
 133
Total $9,226
 $8,106
 $7,452
 $9,614
 $7,528
 $7,386

(18)
(19) Subsequent Events

On January 22, 2015, CenterPoint Energy’s board of directors declared a regular quarterly cash dividend of $0.2475 per share of common stock payable on March 10, 2015, to shareholders of record as of the close of business on February 13, 2015.

On January 23, 2015,February 9, 2018, Enable declared a quarterly cash distribution of $0.30875$0.318 per unit on all of its outstanding common and subordinated units for the quarter ended December 31, 2014.2017. Accordingly, CERC Corp. expects to receive a cash distribution of approximately $72$74 million from Enable in the first quarter of 20152018 to be made with respect to CERC Corp.’s limited partner interest in Enable for the fourth quarter of 2014.2017.

On February 9, 2018, Enable declared a quarterly cash distribution of $0.625 per Series A Preferred Unit for the quarter ended December 31, 2017. Accordingly, CenterPoint Energy expects to receive a cash distribution of approximately $9 million from Enable in the first quarter of 2018 to be made with respect to CenterPoint Energy’s investment in Series A Preferred Units of Enable for the fourth quarter of 2017.

Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.Controls and Procedures

Disclosure Controls And Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 20142017 to provide assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.

There has been no change in our internal controls over financial reporting that occurred during the three months ended December 31, 20142017 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

118




The Committee of Sponsoring Organizations of the Treadway Commission (COSO) pertains to the assessment of internal control effectiveness in an organization.  This framework was first implemented in 1992 and revised in 2013.  CenterPoint Energy utilizes this framework for assessing the effectiveness of our internal controls and transitioned to the new 2013 COSO framework during the fourth quarter of 2014.


Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Management has designed its internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. Management’s assessment included review and testing of both the design effectiveness and operating effectiveness of controls over all relevant assertions related to all significant accounts and disclosures in the financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework (2013), our management has concluded that our internal control over financial reporting was effective as of December 31, 20142017.

Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 20142017 which is set forth below. 

119














REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
CenterPoint Energy, Inc.
Houston, Texas

Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of CenterPoint Energy, Inc. and subsidiaries (the “Company”) as of December 31, 2014,2017, based on criteria established in Internal Control - Integrated Framework (2013) (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Company and our report dated February 22, 2018, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2014 of the Company and our report dated February 26, 2015expressed an unqualified opinion on those financial statements.
 
/s/ DELOITTE & TOUCHE LLP
 
Houston, Texas
February 26, 201522, 2018



120




Item 9B.Other Information

None.Compensatory Arrangements of Certain Officers

Amendments to Forms of Award Agreements under Long-Term Incentive Plan

On February 21, 2018, the Compensation Committee of the Board of Directors of CenterPoint Energy approved new forms of award agreements under CenterPoint Energy’s LTIP for performance share awards and restricted stock unit awards.

Among other things, the newly approved forms of award agreements for officers and director employees provide that a “retirement eligible” (age 55 or greater with at least five years of service) participant, who meets the requirements for enhanced retirement as specified under the agreement will fully vest in the award, subject, in the case of performance share awards, to the achievement of the relevant performance metrics. The requirements for enhanced retirement include having a sum of age and years of employment equal to 65 or greater, providing at least six months’ written notice of retirement, providing a transition plan and retiring on or after the January 1 immediately following the grant (for restricted stock units) or the first anniversary of the beginning of the designated performance cycle (for performance share awards). In addition, for officers subject to Section 16 of the Exchange Act, eligibility for enhanced retirement is subject to approval by the Compensation Committee.

In connection with a change in control of CenterPoint Energy (as defined in the LTIP), the newly approved forms of award agreements provide for full vesting if (a) such awards are not assumed or continued, or substituted with a substantially equivalent award, by the surviving or successor entity, or (b) the award holder is terminated (other than due to death, disability, voluntary resignation or for cause) within two years after the date upon which such change in control occurred.

In addition, the newly approved forms of award agreements provide for vesting upon death or termination due to disability. The newly approved forms of award agreements also include restrictive covenants (confidentiality, non-solicitation and non-competition provisions) that provide for forfeiture of unpaid awards and return of paid awards upon violation.

The description of the forms of award agreements, as amended, is qualified in its entirety by reference to the full text of the forms of performance share award and restricted stock unit award agreements, which are included as Exhibits 10(q)(2), 10(q)(3), 10(q)(5) and 10(q)(7) hereto and incorporated by reference herein.

With respect to the newly approved form of award agreement for restricted stock unit awards (retention) only, such agreement has been updated solely for purposes of the change in control and restrictive covenant provisions described above. The description of the form of award agreement for restricted stock unit awards (retention), as amended, is qualified in its entirety by reference to the full text of the form of restricted stock unit award agreement (retention), which is included as Exhibit 10(q)(6) hereto and incorporated by reference herein.

PART III

Item 10.Directors, Executive Officers and Corporate Governance

The information called for by Item 10, to the extent not set forth in “Executive Officers” in Item 1, will be set forth in the definitive proxy statement relating to CenterPoint Energy’s 20152018 annual meeting of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a meeting of shareholders involving the election of directors and the portions thereof called for by Item 10 are incorporated herein by reference pursuant to Instruction G to Form 10-K.

Item 11.Executive Compensation

The information called for by Item 11 will be set forth in the definitive proxy statement relating to CenterPoint Energy’s 20152018 annual meeting of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a meeting of shareholders involving the election of directors and the portions thereof called for by Item 11 are incorporated herein by reference pursuant to Instruction G to Form 10-K.



Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information called for by Item 12 will be set forth in the definitive proxy statement relating to CenterPoint Energy’s 20152018 annual meeting of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a meeting of shareholders involving the election of directors and the portions thereof called for by Item 12 are incorporated herein by reference pursuant to Instruction G to Form 10-K.

Item 13.
Certain Relationships and Related Transactions, and Director Independence

The information called for by Item 13 will be set forth in the definitive proxy statement relating to CenterPoint Energy’s 20152018 annual meeting of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a meeting of shareholders involving the election of directors and the portions thereof called for by Item 13 are incorporated herein by reference pursuant to Instruction G to Form 10-K.

Item 14.Principal Accounting Fees and Services

The information called for by Item 14 will be set forth in the definitive proxy statement relating to CenterPoint Energy’s 20152018 annual meeting of shareholders pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a meeting of shareholders involving the election of directors and the portions thereof called for by Item 14 are incorporated herein by reference pursuant to Instruction G to Form 10-K.


121



PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)(1) Financial Statements.

Report of Independent Registered Public Accounting Firm
Statements of Consolidated Income for the Three Years Ended December 31, 20142017
Statements of Consolidated Comprehensive Income for the Three Years Ended December 31, 20142017
Consolidated Balance Sheets atas of December 31, 20142017 and 20132016
Statements of Consolidated Cash Flows for the Three Years Ended December 31, 20142017
Statements of Consolidated Shareholders’ Equity for the Three Years Ended December 31, 20142017
Notes to Consolidated Financial Statements

The financial statements of Enable Midstream Partners, LP required pursuant to Rule 3-09 of Regulation S-X are included in this filing as Exhibit 99.5.99.1.

(a)(2) Financial Statement Schedules for the Three Years Ended December 31, 2014

Report of Independent Registered Public Accounting Firm
I — Condensed Financial Information of CenterPoint Energy, Inc. (Parent Company)
II — Valuation and Qualifying Accounts
2017.

The following schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements:

I, II, III, IV and V.

(a)(3) Exhibits.

See Index of Exhibits beginning on page 132,130, which index also includes the management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.


122



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
CenterPoint Energy, Inc.
Houston, Texas

We have audited the consolidated financial statements of CenterPoint Energy, Inc. and subsidiaries (the “Company”) as of Item 16.December 31, 2014 and 2013, and for each of the three years in the period ended December 31, 2014, and the Company’s internal control over financial reporting as of December 31, 2014, and have issued our reports thereon dated February 26, 2015; such reports are included elsewhere in this Form 10-K.  Our audits also included the financial statement schedules of the Company listed in the index at Item 15 (a)(2).  These financial statement schedules are the responsibility of the Company’s management.  Our responsibility is to express an opinion based on our audits.  In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.10-K Summary


None.
/s/ DELOITTE & TOUCHE LLP

Houston, Texas
February 26, 2015


123



CENTERPOINT ENERGY, INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT ENERGY, INC. (PARENT COMPANY)

STATEMENTS OF INCOME

 For the Year Ended December 31,
 2014 2013 2012
 (in millions)
Expenses:     
Operation and Maintenance Expenses$(22) $(13) $(20)
Total(22) (13) (20)
Other Income (Expense):     
Interest Income from Subsidiaries
 8
 10
Other Income (Expense)(1) (5) 6
Loss on Indexed Debt Securities(86) (193) (71)
Interest Expense to Subsidiaries
 (24) (25)
Interest Expense(103) (104) (112)
Total(190) (318) (192)
Loss Before Income Taxes, Equity in Subsidiaries(212) (331) (212)
Income Tax Benefit115
 137
 87
Loss Before Equity in Subsidiaries(97) (194) (125)
Equity Income of Subsidiaries708
 505
 542
Net Income$611
 $311
 $417


See Notes to Condensed Financial Information (Parent Company) and
CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements in Part II, Item 8

124



CENTERPOINT ENERGY, INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT ENERGY, INC. (PARENT COMPANY)

STATEMENTS OF COMPREHENSIVE INCOME

 Year Ended December 31,
 2014 2013 2012
 (in millions)
Net income$611
 $311
 $417
Other comprehensive income (loss):   
  
Adjustment to pension and other postretirement plans (net of tax of $5,$25 and $2)3
 44
 (2)
Reclassification of deferred loss from cash flow hedges realized in net income (net of tax)1
 1
 
Other comprehensive income (loss)4
 45
 (2)
Comprehensive income$615
 $356
 $415

See Notes to Condensed Financial Information (Parent Company) and
CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements in Part II, Item 8



125



CENTERPOINT ENERGY, INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT ENERGY, INC. (PARENT COMPANY)

BALANCE SHEETS
 December 31,
 2014 2013
 (in millions)
ASSETS   
Current Assets:   
Cash and cash equivalents$
 $
Notes receivable — subsidiaries227
 88
Accounts receivable — subsidiaries230
 116
Other assets87
 21
Total current assets544
 225
Other Assets: 
  
Investment in subsidiaries6,529
 6,142
Other assets811
 649
Total other assets7,340
 6,791
Total Assets$7,884
 $7,016
LIABILITIES AND SHAREHOLDERS’ EQUITY 
  
Current Liabilities: 
  
Notes payable — subsidiaries$142
 $11
Indexed debt152
 143
Current portion of other long-term debt269
 
Indexed debt securities derivative541
 455
Accounts payable: 
  
     Subsidiaries80
 35
Other2
 5
Taxes accrued575
 517
Interest accrued13
 13
Other22
 
Total current liabilities1,796
 1,179
Other Liabilities: 
  
Accumulated deferred tax liabilities240
 232
Benefit obligations441
 340
Other1
 
Total non-current liabilities682
 572
Long-Term Debt858
 936
Shareholders’ Equity: 
  
Common stock4
 4
Additional paid-in capital4,169
 4,157
Retained earnings461
 258
Accumulated other comprehensive loss(86) (90)
Total shareholders’ equity4,548
 4,329
Total Liabilities and Shareholders’ Equity$7,884
 $7,016

See Notes to Condensed Financial Information (Parent Company) and
CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements in Part II, Item 8

126




CENTERPOINT ENERGY, INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF
CENTERPOINT ENERGY, INC. (PARENT COMPANY)

STATEMENTS OF CASH FLOWS

 For the Year Ended December 31,
 2014 2013 2012
 (in millions)
Operating Activities:     
Net income$611
 $311
 $417
Non-cash items included in net income: 
  
  
Equity income of subsidiaries(708) (505) (542)
Deferred income tax expense86
 6
 113
Amortization of debt issuance costs4
 4
 4
Loss on indexed debt securities86
 193
 71
Changes in working capital: 
  
  
Accounts receivable/(payable) from subsidiaries, net(7) 47
 39
Accounts payable(3) 5
 
Other current assets
 
 26
Other current liabilities(83) 42
 (63)
Common stock dividends received from subsidiaries315
 766
 1,700
Other(76) (70) (72)
Net cash provided by operating activities225
 799
 1,693
Investing Activities: 
  
  
Decrease (increase) in notes receivable from subsidiaries(139) 868
 (398)
Net cash provided by (used in) investing activities(139) 868
 (398)
Financing Activities: 
  
  
Proceeds from commercial paper, net191
 
 
Payments on long-term debt
 (151) (375)
Debt issuance costs(1) (2) 
Common stock dividends paid(408) (355) (346)
Proceeds from issuance of common stock, net1
 4
 4
Increase (decrease) in notes payable to subsidiaries131
 (1,173) (578)
Redemption of indexed debt securities
 (8) 
Other
 18
 
Net cash used in financing activities(86) (1,667) (1,295)
Net Decrease in Cash and Cash Equivalents
 
 
Cash and Cash Equivalents at Beginning of Year
 
 
Cash and Cash Equivalents at End of Year$
 $
 $

See Notes to Condensed Financial Information (Parent Company) and
CenterPoint Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements in Part II, Item 8

127



CENTERPOINT ENERGY, INC.
SCHEDULE I — NOTES TO CONDENSED FINANCIAL INFORMATION (PARENT COMPANY)


(1) Background. The condensed parent company financial statements and notes of CenterPoint Energy, Inc. (CenterPoint Energy) should be read in conjunction with the consolidated financial statements and notes of CenterPoint Energy, Inc. and subsidiaries appearing in the Annual Report on Form 10-K. Credit facilities at CenterPoint Energy Houston Electric, LLC (CenterPoint Houston) and CenterPoint Energy Resources Corp., indirect wholly owned subsidiaries of CenterPoint Energy, limit debt, excluding transition and system restoration bonds, as a percentage of their consolidated capitalization to 65%. These covenants could restrict the ability of these subsidiaries to distribute dividends to CenterPoint Energy.

(2) New Accounting Pronouncements. In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08), which significantly changes the existing accounting guidance on discontinued operations. Under ASU 2014-08, only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results should be reported as a discontinued operation.  ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014.  ASU 2014-08 should be applied to components classified as held for sale after its effective date. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The adoption is expected to reduce the number of disposals that meet the definition of a discontinued operation.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which supersedes most current revenue recognition guidance. ASU 2014-09 provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted, and entities have the option of using either a full retrospective or a modified retrospective adoption approach. Accordingly, CenterPoint Energy will adopt ASU 2014-09 on January 1, 2017, and is currently evaluating the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.

In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (ASU 2014-16).  ASU 2014-16 clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of a host contract. ASU 2014-16 is effective for fiscal years and interim periods beginning after December 15, 2015. CenterPoint Energy is currently assessing the impact, if any, that this standard will have on its financial position, results of operations, cash flows and disclosures.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20)-Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (ASU 2015-01), which eliminates the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, and may be applied either prospectively or retrospectively. CenterPoint Energy will adopt ASU 2015-01 on January 1, 2016 and does not anticipate the adoption to have a material impact on its consolidated financial statements.

Management believes that other recently issued standards, which are not yet effective, will not have a material impact on CenterPoint Energy’s consolidated financial position, results of operations or cash flows upon adoption.

(3) Long-term Debt. As of December 31, 2014 and 2013, CenterPoint Energy had no borrowings and approximately $6 million and $6 million, respectively, of outstanding letters of credit under its $1.2 billion credit facility. There was $191 million of commercial paper outstanding that was backstopped by CenterPoint Energy’s $1.2 billion credit facility as of December 31, 2014. CenterPoint Energy was in compliance with all financial debt covenants as of December 31, 2014.

CenterPoint Energy’s $1.2 billion revolving credit facility, which is scheduled to terminate on September 9, 2019, can be drawn at the London Interbank Offered Rate (LIBOR) plus 1.25% based on CenterPoint Energy’s current credit ratings. The revolving credit facility contains a financial covenant which limits CenterPoint Energy’s consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of CenterPoint Energy’s consolidated capitalization. The financial covenant limit will temporarily increase from 65% to 70% if CenterPoint Houston experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that CenterPoint Houston has incurred system

128



restoration costs reasonably likely to exceed $100 million in a consecutive twelve-month period, all or part of which CenterPoint Houston intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification.

CenterPoint Energy’s maturities of long-term debt, excluding the indexed debt securities obligation, are $269 million in 2015, $250 million in 2017, $350 million in 2018 and $191 million in 2019.  There are no maturities of long-term debt in 2016.

(4) Guarantees. CenterPoint Energy has provided guarantees (CenterPoint Midstream Guarantees) with respect to the performance of certain obligations of Enable under long-term gas gathering and treating agreements with an indirect wholly owned subsidiary of Encana Corporation and an indirect wholly owned subsidiary of Royal Dutch Shell plc. As of December 31, 2014, CenterPoint Energy had guaranteed Enable’s obligations up to an aggregate amount of $100 million under these agreements. Under the terms of the omnibus agreement entered into in connection with the closing of the formation of Enable, Enable and CenterPoint Energy have agreed to use commercially reasonable efforts and cooperate with each other to terminate the CenterPoint Midstream Guarantees and to release CenterPoint Energy from such guarantees by causing Enable or one of its subsidiaries to enter into substitute guarantees or to assume the CenterPoint Midstream Guarantees as applicable.


129



CENTERPOINT ENERGY, INC.

SCHEDULE II —VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 2014
Column A Column B Column C Column D Column E
    Additions    
  
Balance at
Beginning
of Period
 
 Charged
to Income
 
 Charged to
Other
Accounts
 
 Deductions
From
Reserves (1)
 
 Balance at
End of
Period
Description  (in millions)
Year Ended December 31, 2014          
Accumulated provisions:          
Uncollectible accounts receivable $28
 $22
 $2
 $26
 $26
Deferred tax asset valuation allowance 2
 
 
 
 2
Year Ended December 31, 2013          
Accumulated provisions:          
Uncollectible accounts receivable $25
 $21
 $1
 $19
 $28
Deferred tax asset valuation allowance 2
 
 
 
 2
Year Ended December 31, 2012          
Accumulated provisions:          
Uncollectible accounts receivable $25
 $16
 $1
 $17
 $25
Deferred tax asset valuation allowance 4
 (1) (1) 
 2
(1)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.


130



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, the State of Texas, on the 26th day of February, 2015.

CENTERPOINT ENERGY, INC.
(Registrant)
By:  /s/ Scott M. Prochazka
Scott M. Prochazka
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 26, 2015.

SignatureTitle
/s/  SCOTT M. PROCHAZKAPresident, Chief Executive Officer and
Scott M. ProchazkaDirector (Principal Executive Officer and Director)
/s/  GARY L. WHITLOCKExecutive Vice President and Chief
Gary L. WhitlockFinancial Officer (Principal Financial Officer)
/s/  KRISTIE L. COLVINSenior Vice President and Chief
Kristie L. ColvinAccounting Officer (Principal Accounting Officer)
/s/  MILTON CARROLLExecutive Chairman of the Board of Directors
Milton Carroll
/s/  MICHAEL P. JOHNSONDirector
Michael P. Johnson
/s/  JANIECE M. LONGORIADirector
Janiece M. Longoria
/s/  SCOTT J. MCLEANDirector
Scott J. McLean
/s/  SUSAN O. RHENEYDirector
Susan O. Rheney
/s/  PHILIP R. SMITHDirector
Philip R. Smith
/s/  R. A. WALKERDirector
R. A. Walker
/s/  PETER S. WAREINGDirector
Peter S. Wareing


131



CENTERPOINT ENERGY, INC.

EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K
For Fiscal Year Ended December 31, 20142017

INDEX OF EXHIBITS

Exhibits included with this report are designated by a cross (†); all exhibits not so designated are incorporated herein by reference to a prior filing as indicated. Exhibits designated by an asterisk (*) are management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K. CenterPoint Energy has not filed the exhibits and schedules to Exhibit 2. CenterPoint Energy hereby agrees to furnish supplementally a copy of any schedule omitted from Exhibit 2 to the SEC upon request.

The agreements included as exhibits are included only to provide information to investors regarding their terms.  The agreements listed below may contain representations, warranties and other provisions that were made, among other things, to provide the parties thereto with specified rights and obligations and to allocate risk among them, and such agreements should not be relied upon as constituting or providing any factual disclosures about us, any other persons, any state of affairs or other matters.
 
Exhibit
Number
 Description Report or Registration Statement 
SEC File or
Registration
Number
 
Exhibit
Reference
 Description Report or Registration Statement 
SEC File or
Registration
Number
 
Exhibit
Reference
2Transaction Agreement dated July 21, 2004 among CenterPoint Energy, Utility Holding, LLC, NN Houston Sub, Inc., Texas Genco Holdings, Inc. (Texas Genco), HPC Merger Sub, Inc. and GC Power Acquisition LLC CenterPoint Energy’s Form 8-K dated July 21, 2004 1-31447 10.1 CenterPoint Energy’s Form 8-K dated July 21, 2004 1-31447 10.1
3(a)Restated Articles of Incorporation of CenterPoint Energy CenterPoint Energy’s Form 8-K dated July 24, 2008 1-31447 3.2 CenterPoint Energy’s Form 8-K dated July 24, 2008 1-31447 3.2
3(b)Amended and Restated Bylaws of CenterPoint Energy CenterPoint Energy’s Form 8-K dated July 24, 2014 1-31447 3.1 
CenterPoint Energy’s Form 8-K dated February 21, 2017

 1-31447 3.1
3(c)
Statement of Resolutions Deleting Shares Designated Series A Preferred Stock of CenterPoint Energy

 CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 1-31447 3(c)

 CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 1-31447 3(c)
4(a)Form of CenterPoint Energy Stock Certificate CenterPoint Energy’s Registration Statement on Form S-4 333-69502 4.1 CenterPoint Energy’s Registration Statement on Form S-4 333-69502 4.1
4(c)(b)Contribution and Registration Agreement dated December 18, 2001 among Reliant Energy, CenterPoint Energy and the Northern Trust Company, trustee under the Reliant Energy, Incorporated Master Retirement Trust CenterPoint Energy’s Form 10-K for the year ended December 31, 2001 1-31447 4.3 CenterPoint Energy’s Form 10-K for the year ended December 31, 2001 1-31447 4.3
4(d)(1)Mortgage and Deed of Trust, dated November 1, 1944 between Houston Lighting and Power Company (HL&P) and Chase Bank of Texas, National Association (formerly, South Texas Commercial National Bank of Houston), as Trustee, as amended and supplemented by 20 Supplemental Indentures thereto HL&P’s Form S-7 filed on August 25, 1977 2-59748 2(b)
4(d)(2)Twenty-First through Fiftieth Supplemental Indentures to Exhibit 4(d)(1) HL&P’s Form 10-K for the year ended December 31, 1989 1-3187 4(a)(2)
4(d)(3)Fifty-First Supplemental Indenture to Exhibit 4(d)(1) dated as of March 25, 1991 HL&P’s Form 10-Q for the quarter ended June 30, 1991 1-3187 4(a)
4(d)(4)Fifty-Second through Fifty-Fifth Supplemental Indentures to Exhibit 4(d)(1) each dated as of March 1, 1992 HL&P’s Form 10-Q for the quarter ended March 31, 1992 1-3187 4
4(d)(5)Fifty-Sixth and Fifty-Seventh Supplemental Indentures to Exhibit 4(d)(1) each dated as of October 1, 1992  HL&P’s Form 10-Q for the quarter ended September 30, 1992 1-3187 4
4(c)(1)Mortgage and Deed of Trust, dated November 1, 1944 between Houston Lighting and Power Company (HL&P) and Chase Bank of Texas, National Association (formerly, South Texas Commercial National Bank of Houston), as Trustee, as amended and supplemented by 20 Supplemental Indentures thereto HL&P’s Form S-7 filed on August 25, 1977 2-59748 2(b)
4(c)(2)Twenty-First through Fiftieth Supplemental Indentures to Exhibit 4(c)(1) HL&P’s Form 10-K for the year ended December 31, 1989 1-3187 4(a)(2)
4(c)(3)Fifty-First Supplemental Indenture to Exhibit 4(c)(1) dated as of March 25, 1991 HL&P’s Form 10-Q for the quarter ended June 30, 1991 1-3187 4(a)
4(c)(4)Fifty-Second through Fifty-Fifth Supplemental Indentures to Exhibit 4(c)(1) each dated as of March 1, 1992 HL&P’s Form 10-Q for the quarter ended March 31, 1992 1-3187 4
4(c)(5)Fifty-Sixth and Fifty-Seventh Supplemental Indentures to Exhibit 4(c)(1) each dated as of October 1, 1992  HL&P’s Form 10-Q for the quarter ended September 30, 1992 1-3187 4

132




4(d)4(c)(6)Fifty-Eighth and Fifty-Ninth Supplemental Indentures to Exhibit 4(d)4(c)(1) each dated as of March 1, 1993 HL&P’s Form 10-Q for the quarter ended March 31, 1993 1-3187 4
4(d)4(c)(7)Sixtieth Supplemental Indenture to Exhibit 4(d)4(c)(1) dated as of July 1, 1993 HL&P’s Form 10-Q for the quarter ended June 30, 1993 1-3187 4
4(d)4(c)(8)Sixty-First through Sixty-Third Supplemental Indentures to Exhibit 4(d)4(c)(1) each dated as of December 1, 1993 HL&P’s Form 10-K for the year ended December 31, 1993 1-3187 4(a)(8)
4(d)4(c)(9)Sixty-Fourth and Sixty-Fifth Supplemental Indentures to Exhibit 4(d)4(c)(1) each dated as of July 1, 1995 HL&P’s Form 10-K for the year ended December 31, 1995 1-3187 4(a)(9)
4(e)4(d)(1) CenterPoint Houston’sHouston Electric’s Form 10-Q for the quarter ended September 30, 2002 1-3187 4(j)(1)
4(e)4(d)(2) CenterPoint Houston’sHouston Electric’s Form 10- Q for the quarter ended September 30, 2002 1-3187 4(j)(3)
4(e)4(d)(3) CenterPoint Houston’sHouston Electric’s Form 10-Q for the quarter ended September 30, 2002 1-3187 4(j)(4)
4(e)4(d)(4)Fourth Supplemental Indenture to Exhibit 4(e)(1), dated as of October 10, 2002CenterPoint Houston’s Form 10- Q for the quarter ended September 30, 20021-31874(j)(5)
4(e)(5)Fifth Supplemental Indenture to Exhibit 4(e)(1), dated as of October 10, 2002CenterPoint Houston’s Form 10-Q for the quarter ended September 30, 20021-31874(j)(6)
4(e)(6)Sixth Supplemental Indenture to Exhibit 4(e)(1), dated as of October 10, 2002CenterPoint Houston’s Form 10-Q for the quarter ended September 30, 20021-31874(j)(7)
4(e)(7)Seventh Supplemental Indenture to Exhibit 4(e)(1), dated as of October 10, 2002CenterPoint Houston’s Form 10-Q for the quarter ended September 30, 20021-31874(j)(8)
4(e)(8)Eighth Supplemental Indenture to Exhibit 4(e)(1), dated as of October 10, 2002CenterPoint Houston’s Form 10-Q for the quarter ended September 30, 20021-31874(j)(9)
4(e)(9) CenterPoint Energy’s Form 10-K for the year ended December 31, 2003 1-31447 4(e)(10)
4(e)(10)4(d)(5) CenterPoint Energy’s Form 10-K for the year ended December 31, 2002 1-31447 4(e)(10)
4(e)(11)4(d)(6)Officer’s Certificate dated November 12, 2003 setting forth the form, terms and provisions of the Ninth Series of General Mortgage BondsCenterPoint Energy’s Form 10-K for the year ended December 31, 20031-314474(e)(12)
4(e)(12) CenterPoint Energy’s Form 8-K dated March 13, 2003 1-31447 4.1
4(e)(13)4(d)(7) CenterPoint Energy’s Form 8-K dated March 13, 2003 1-31447 4.2
4(e)(14)4(d)(8) CenterPoint Energy’s Form 8-K dated May 16, 2003 1-31447 4.2
4(e)(15)4(d)(9) CenterPoint Energy’s Form 8-K dated May 16, 2003 1-31447 4.1

133



4(e)(16)4(d)(10)Twelfth Supplemental Indenture to Exhibit 4(e)(1), dated as of September 9, 2003CenterPoint Energy’s Form 8-K dated September 9, 20031-314474.2
4(e)(17)Officer’s Certificate dated September 9, 2003 setting forth the form, terms and provisions of the Thirteenth Series of General Mortgage BondsCenterPoint Energy’s Form 8-K dated September 9, 20031-314474.3
4(e)(18)Thirteenth Supplemental Indenture to Exhibit 4(e)(1), dated as of February 6, 2004CenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(16)
4(e)(19)Officer’s Certificate dated February 6, 2004 setting forth the form, terms and provisions of the Fourteenth Series of General Mortgage BondsCenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(17)
4(e)(20)Fourteenth Supplemental Indenture to Exhibit 4(e)(1), dated as of February 11, 2004CenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(18)
4(e)(21)Officer’s Certificate dated February 11, 2004 setting forth the form, terms and provisions of the Fifteenth Series of General Mortgage BondsCenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(19)
4(e)(22)Fifteenth Supplemental Indenture to Exhibit 4(e)(1), dated as of March 31, 2004CenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(20)
4(e)(23)Officer’s Certificate dated March 31, 2004 setting forth the form, terms and provisions of the Sixteenth Series of General Mortgage BondsCenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(21)
4(e)(24)Sixteenth Supplemental Indenture to Exhibit 4(e)(1), dated as of March 31, 2004CenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(22)
4(e)(25)Officer’s Certificate dated March 31, 2004 setting forth the form, terms and provisions of the Seventeenth Series of General Mortgage BondsCenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(23)
4(e)(26)Seventeenth Supplemental Indenture to Exhibit 4(e)(1), dated as of March 31, 2004CenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(24)
4(e)(27)Officer’s Certificate dated March 31, 2004 setting forth the form, terms and provisions of the Eighteenth Series of General Mortgage BondsCenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(e)(25)
4(e)(28)Nineteenth Supplemental Indenture to Exhibit 4(e)(1), dated as of November 26, 2008CenterPoint Energy’s Form 8-K dated November 25, 20081-314474.2
4(e)(29)Officer’s Certificate dated November 26, 2008 setting forth the form, terms and provisions of the Twentieth Series of General Mortgage BondsCenterPoint Energy’s Form 8-K dated November 25, 20081-314474.3
4(e)(30) CenterPoint Houston’sHouston Electric’s Form 8-K dated January 6, 2009 1-3187 4.2
4(e)(31)4(d)(11)Twenty-First Supplemental Indenture to Exhibit 4(e)(1), dated as of January 9, 2009CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-314474(e)(31)
4(e)(32)Officer’s Certificate dated January 20, 2009 setting forth the form, terms and provisions of the Twenty-First Series of General Mortgage BondsCenterPoint Energy’s Form 10-K for the year ended December 31, 20081-314474(e)(32)
4(e)(33) CenterPoint Energy’s Form 10-K for the year ended December 31, 2012 1-31447 4(e)(33)

134



4(e)(34)4(d)(12) CenterPoint Energy’s Form 10-K for the year ended December 31, 2012 1-31447 4(e)(34)
4(e)(35)4(d)(13) CenterPoint Energy’s Form 10-Q for the quarter ended March 31, 2014 1-31447 4.10
4(e)(36)4(d)(14) CenterPoint Energy’s Form 10-Q for the quarter ended March 31, 2014 1-31447 4.11
4(f)4(d)(15)CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 20161-314474.5


4(d)(16)CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 20161-314474.6
4(d)(17)CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 20161-314474.5
4(d)(18)CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 20161-314474.6
4(d)(19)CenterPoint Energy’s Form 10-K for the year ended December 31, 20161-314474(e)(41)
4(d)(20)CenterPoint Energy’s Form 10-K for the year ended December 31, 20161-314474(e)(42)
4(e)(1)Indenture, dated as of February 1, 1998, between Reliant Energy Resources Corp. (RERC Corp.) and Chase Bank of Texas, National Association, as Trustee CERC Corp.’s Form 8-K dated February 5, 1998 1-13265 4.1
4(f)4(e)(2)Supplemental Indenture No. 1 to Exhibit 4(f)(1), dated as of February 1, 1998, providing for the issuance of RERC Corp.’s 6 1/2% Debentures due February 1, 2008CERC Corp.’s Form 8-K dated November 9, 19981-132654.2
4(f)(3)Supplemental Indenture No. 2 to Exhibit 4(f)(1), dated as of November 1, 1998, providing for the issuance of RERC Corp.’s 6 3/8% Term Enhanced ReMarketable SecuritiesCERC Corp.’s Form 8-K dated November 9, 19981-132654.1
4(f)(4)Supplemental Indenture No. 3 to Exhibit 4(f)(1), dated as of July 1, 2000, providing for the issuance of RERC Corp.’s 8.125% Notes due 2005CERC Corp.’s Registration Statement on Form S-4333-491624.2
4(f)(5)Supplemental Indenture No. 4 to Exhibit 4(f)(1), dated as of February 15, 2001, providing for the issuance of RERC Corp.’s 7.75% Notes due 2011CERC Corp.’s Form 8-K dated February 21, 20011-132654.1
4(f)(6)Supplemental Indenture No. 5 to Exhibit 4(f)(1), dated as of March 25, 2003, providing for the issuance of CenterPoint Energy Resources Corp.’s (CERC Corp.’s) 7.875% Senior Notes due 2013CenterPoint Energy’s Form 8-K dated March 18, 20031-314474.1
4(f)(7)Supplemental Indenture No. 6 to Exhibit 4(f)(1), dated as of April 14, 2003, providing for the issuance of CERC Corp.’s 7.875% Senior Notes due 2013CenterPoint Energy’s Form 8-K dated April 7, 20031-314474.2
4(f)(8)Supplemental Indenture No. 7 to Exhibit 4(f)(1), dated as of November 3, 2003, providing for the issuance of CERC Corp.’s 5.95% Senior Notes due 2014CenterPoint Energy’s Form 8-K dated October 29, 20031-314474.2
4(f)(9)Supplemental Indenture No. 8 to Exhibit 4(f)(1), dated as of December 28, 2005, providing for a modification of CERC Corp.’s 6 1/2% Debentures due 2008CenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(f)(9)
4(f)(10)Supplemental Indenture No. 9 to Exhibit 4(f)(1), dated as of May 18, 2006, providing for the issuance of CERC Corp.’s 6.15% Senior Notes due 2016CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 20061-314474.7
4(f)(11) CenterPoint Energy’s Form 10-K for the year ended December 31, 2006 1-31447 4(f)(11)
4(f)(12)4(e)(3)Supplemental Indenture No. 11 to Exhibit 4(f)(1) dated as of October 23, 2007, providing for the issuance of CERC Corp.’s 6.125% Senior Notes due 2017CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 20071-314474.8

135



4(f)(13)Supplemental Indenture No. 12 to Exhibit 4(f)4(e)(1) dated as of October 23, 2007, providing for the issuance of CERC Corp.’s 6.625% Senior Notes due 2037 CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 2008 1-31447 4.9
4(f)(14)4(e)(4)Supplemental Indenture No. 13 to Exhibit 4(f)(1) dated as of May 15, 2008, providing for the issuance of CERC Corp.’s 6.00% Senior Notes due 2018CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 20081-314474.9
4(f)(15) CenterPoint Energy’s Form 10-K for the year ended December 31, 2010 1-31447 4(f)(15)
4(f)(16)4(e)(5) CenterPoint Energy’s Form 10-K for the year ended December 31, 2010 1-31447 4(f)(16)
4(g)4(e)(6)CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 20171-314474.11
4(f)(1) CenterPoint Energy’s Form 8-K dated May 19, 2003 1-31447 4.1
4(g)4(f)(2)CenterPoint Energy’s Form 8-K dated May 19, 20031-314474.2
4(g)(3)Supplemental Indenture No. 2 to Exhibit 4(g)(1), dated as of May 27, 2003, providing for the issuance of CenterPoint Energy’s 5.875% Senior Notes due 2008 and 6.85% Senior Notes due 2015CenterPoint Energy’s Form 8-K dated May 19, 20031-314474.3
4(g)(4)Supplemental Indenture No. 3 to Exhibit 4(g)(1), dated as of September 9, 2003, providing for the issuance of CenterPoint Energy’s 7.25% Senior Notes due 2010CenterPoint Energy’s Form 8-K dated September 9, 20031-314474.2
4(g)(5)Supplemental Indenture No. 4 to Exhibit 4(g)(1), dated as of December 17, 2003, providing for the issuance of CenterPoint Energy’s 2.875% Convertible Senior Notes due 2024CenterPoint Energy’s Form 8-K dated December 10, 20031-314474.2
4(g)(6)Supplemental Indenture No. 5 to Exhibit 4(g)(1), dated as of December 13, 2004, as supplemented by Exhibit 4(g)(5), relating to the issuance of CenterPoint Energy’s 2.875% Convertible Senior Notes due 2024CenterPoint Energy’s Form 8-K dated December 9, 20041-314474.1
4(g)(7)Supplemental Indenture No. 6 to Exhibit 4(g)(1), dated as of August 23, 2005, providing for the issuance of CenterPoint Energy’s 3.75% Convertible Senior Notes, Series B due 2023CenterPoint Energy’s Form 10-K for the year ended December 31, 20051-314474(g)(7)
4(g)(8)Supplemental Indenture No. 7 to Exhibit 4(g)(1), dated as of February 6, 2007, providing for the issuance of CenterPoint Energy’s 5.95% Senior Notes due 2017CenterPoint Energy’s Form 10-K for the year ended December 31, 20061-314474(g)(8)
4(g)(9)Supplemental Indenture No. 8 to Exhibit 4(g)(1), dated as of May 5, 2008, providing for the issuance of CenterPoint Energy’s 6.50% Senior Notes due 20182022 CenterPoint Energy’s Form 10-Q for the quarter ended JuneSeptember 30, 20082017 1-31447 4.74.9
4(h)4(g)(1)Subordinated Indenture dated as of September 1, 1999 Reliant Energy’s Form 8-K dated September 1, 1999 1-3187 4.1

136



4(h)4(g)(2)Supplemental Indenture No. 1 dated as of September 1, 1999, between Reliant Energy and Chase Bank of Texas (supplementing Exhibit 4(h)4(g)(1) and providing for the issuance Reliant Energy’s 2% Zero-Premium Exchangeable Subordinated Notes Due 2029) Reliant Energy’s Form 8-K dated September 15, 1999 1-3187 4.2


4(h)
4(g)(3) CenterPoint Energy’s Form 8-K12B dated August 31, 2002 1-31447 4(e)
4(h)4(g)(4) CenterPoint Energy’s Form 10-K for the year ended December 31, 2005 1-31447 4(h)(4)
4(i)4(h)(1) CenterPoint Energy’s Form 8-K dated September 9, 2011March 3, 2016 1-31447 4.1
4(i)4(h)(2)

 
CenterPoint Energy’s Form 8-K dated April 11, 2013June 16, 2017

 1-31447 4.1
4(i)(3)(1)SecondCenterPoint Energy’s Form 8-K dated March 3, 20161-314474.2
4(i)(2) CenterPoint Energy’s Form 8-K dated September 9, 20131-314474.1
4(i)(4)Third Amendment to Credit Agreement, dated as of September 9, 2014, among CenterPoint Energy, as Borrower, and the banks named thereinCenterPoint Energy’s Form 8-K dated September 10, 20141-314474.1
4(j)(1)$300,000,000 Credit Agreement dated as of September 9, 2011, among CenterPoint Houston, as Borrower, and the banks named thereinCenterPoint Energy’s Form 8-K dated September 9, 2011June 16, 2017 1-31447 4.2
4(j)(2)(1)First Amendment toCenterPoint Energy’s Form 8-K dated September 9, 20131-314474.2
4(j)(3)Second Amendment to Credit Agreement, dated as of September 9, 2014, among CenterPoint Houston, as Borrower, and the banks named thereinCenterPoint Energy’s Form 8-K dated September 10, 20141-314474.2
4(k)$950,000,000 Credit Agreement dated as of September 9, 2011,March 3, 2016, among CERC Corp., as Borrower, and the banks named therein CenterPoint Energy’s Form 8-K dated September 9, 2011March 3, 2016 1-31447 4.3
4(k)4(j)(2) CenterPoint Energy’s Form 8-K dated April 11, 20131-314474.2
4(k)(3)Second Amendment to Credit Agreement, dated as of September 9, 2013, among CERC Corp., as Borrower, and the banks named thereinCenterPoint Energy’s Form 8-K dated September 9, 20131-314474.3
4(k)(4)Third Amendment to Credit Agreement, dated as of September 9, 2014, among CERC Corp., as Borrower, and the banks named thereinCenterPoint Energy’s Form 8-K dated September 10, 2014June 16, 2017 1-31447 4.3

Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, CenterPoint Energy has not filed as exhibits to this Form 10-K certain long-term debt instruments, including indentures, under which the total amount of securities authorized does not exceed 10% of the total assets of CenterPoint Energy and its subsidiaries on a consolidated basis. CenterPoint Energy hereby agrees to furnish a copy of any such instrument to the SEC upon request.
 

137



Exhibit
Number
 Description Report or Registration Statement 
SEC File or
Registration
Number
 
Exhibit
Reference
*10(a)CenterPoint Energy Executive Benefits Plan, as amended and restated effective June 18, 2003CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 20031-3144710.4
*10(b)(1)Executive Incentive Compensation Plan of Houston Industries Incorporated (HI) effective as of January 1, 1982HI’s Form 10-K for the year ended December 31, 19911-762910(b)
*10(b)(2)First Amendment to Exhibit 10(b)(1) effective as of March 30, 1992HI’s Form 10-Q for the quarter ended March 31, 19921-762910(a)
*10(b)(3)Second Amendment to Exhibit 10(b)(1) effective as of November 4, 1992HI’s Form 10-K for the year ended December 31, 19921-762910(b)
*10(b)(4)Third Amendment to Exhibit 10(b)(1) effective as of September 7, 1994HI’s Form 10-K for the year ended December 31, 19941-762910(b)(4)
*10(b)(5)Fourth Amendment to Exhibit 10(b)(1) effective as of August 6, 1997HI’s Form 10-K for the year ended December 31, 19971-318710(b)(5)
*10(c)(1)Executive Incentive Compensation Plan of HI as amended and restated on January 1, 1991HI’s Form 10-K for the year ended December 31, 19901-762910(b)
*10(c)(2)First Amendment to Exhibit 10(c)(1) effective as of January 1, 1991HI’s Form 10-K for the year ended December 31, 19911-762910(f)(2)
*10(c)(3)Second Amendment to Exhibit 10(c)(1) effective as of March 30, 1992HI’s Form 10-Q for the quarter ended March 31, 19921-762910(d)
*10(c)(4)Third Amendment to Exhibit 10(c)(1) effective as of November 4, 1992HI’s Form 10-K for the year ended December 31, 19921-762910(f)(4)
*10(c)(5)Fourth Amendment to Exhibit 10(c)(1) effective as of January 1, 1993HI’s Form 10-K for the year ended December 31, 19921-762910(f)(5)
*10(c)(6)Fifth Amendment to Exhibit 10(c)(1) effective in part, January 1, 1995, and in part, September 7, 1994HI’s Form 10-K for the year ended December 31, 19941-762910(f)(6)
*10(c)(7)Sixth Amendment to Exhibit 10(c)(1) effective as of August 1, 1995HI’s Form 10-Q for the quarter ended June 30, 19951-762910(a)
*10(c)(8)Seventh Amendment to Exhibit 10(c)(1) effective as of January 1, 1996HI’s Form 10-Q for the quarter ended June 30, 19961-762910(a)
*10(c)(9)Eighth Amendment to Exhibit 10(c)(1) effective as of January 1, 1997HI’s Form 10-Q for the quarter ended June 30, 19971-762910(a)
*10(c)(10)Ninth Amendment to Exhibit 10(c)(1) effective in part, January 1, 1997, and in part, January 1, 1998HI’s Form 10-K for the year ended December 31, 19971-318710(f)(10)
*10(d)Benefit Restoration Plan of HI effective as of June 1, 1985HI’s Form 10-Q for the quarter ended March 31, 19871-762910(c)
*10(e)Benefit Restoration Plan of HI as amended and restated effective as of January 1, 1988HI’s Form 10-K for the year ended December 31, 19911-762910(g)(2)
*10(f) CenterPoint Energy’s Form 10-Q for the quarter ended March 31, 2011 1-31447 10.3
*10(g)10(b)(1) CenterPoint Energy’s Form 8-K dated December 22, 2008 1-31447 10.1
*10(g)10(b)(2) CenterPoint Energy’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 1-31447 10.4
*10(h)(1)10(c)HI 1995 Section 415 Benefit Restoration Plan effective August 1, 1995CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(h)(1)
*10(h)(2)First Amendment to Exhibit 10(h)(1) effective as of August 1, 1995CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(h)(2)

138



*10(i)CenterPoint Energy 1985 Deferred Compensation Plan, as amended and restated effective January 1, 2003 CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 2003 1-31447 10.1
*10(j)10(d)(1)Reliant Energy 1994 Long- Term Incentive Compensation Plan, as amended and restated effective January 1, 2001Reliant Energy’s Form 10-Q for the quarter ended June 30, 20021-318710.6
*10(j)(2)First Amendment to Exhibit 10(j)(1), effective December 1, 2003CenterPoint Energy’s Form 10-K for the year ended December 31, 20031-3144710(p)(7)
*10(j)(3)Form of Non-Qualified Stock Option Award Notice under Exhibit 10(i)(1)CenterPoint Energy’s Form 8-K dated January 25, 20051-3144710.6
*10(k)(1)Savings Restoration Plan of HI effective as of January 1, 1991HI’s Form 10-K for the year ended December 31, 19901-762910(f)
*10(k)(2)First Amendment to Exhibit 10(k)(1) effective as of January 1, 1992HI’s Form 10-K for the year ended December 31, 19911-762910(l)(2)
*10(k)(3)Second Amendment to Exhibit 10(k)(1) effective in part, August 6, 1997, and in part, October 1, 1997HI’s Form 10-K for the year ended December 31, 19971-318710(q)(3)
*10(l)(1) CenterPoint Energy’s Form 8-K dated December 22, 2008 1-31447 10.4
*10(l)10(d)(2) CenterPoint Energy’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 1-31447 10.5
*10(m)10(e)(1) CenterPoint Energy’s Form 8-K dated December 22, 2008 1-31447 10.3


*10(m)10(e)(2) CenterPoint Energy’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 1-31447 10.6
*10(n)(1)10(f)CenterPoint Energy Outside Director Benefits Plan, as amended and restated effective June 18, 2003CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 20031-3144710.6
*10(n)(2)First Amendment to Exhibit 10(n)(1) effective as of January 1, 2004CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 20041-3144710.6
*10(n)(3)CenterPoint Energy Outside Director Benefits Plan, as amended and restated effective December 31, 2008CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(n)(3)
*10(o) CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 2003 1-31447 10.5
*10(p)Employment and Supplemental Benefits Agreement between HL&P and Hugh Rice KellyHI’s Form 10-Q for the quarter ended March 31, 19871-762910(f)
10(q)10(g)(1)Stockholder’s Agreement dated as of July 6, 1995 between Houston Industries Incorporated and Time Warner Inc.  Schedule 13-D dated July 6, 1995 5-19351 2
10(q)10(g)(2)Amendment to Exhibit 10(q)10(g)(1) dated November 18, 1996 HI’s Form 10-K for the year ended December 31, 1996 1-7629 10(x)(4)
*10(r)(1)†10(h)Houston Industries Incorporated Executive Deferred Compensation Trust effective as of December 19, 1995HI’s Form 10-K for the year ended December 31, 19951-762910(7)
*10(r)(2)First Amendment to Exhibit 10(r)(1) effective as of August 6, 1997HI’s Form 10-Q for the quarter ended June 30, 19981-318710
†10(s)      

139



*10(t)Reliant Energy, Incorporated and Subsidiaries Common Stock Participation Plan for Designated New Employees and Non-Officer Employees, as amended and restated effective January 1, 2001CenterPoint Energy’s Form 10-K for the year ended December 31, 20021-3144710(y)(2)
*10(u)10(i)(1)Long-Term Incentive Plan of CenterPoint Energy, Inc. (amended and restated effective as of May 1, 2004)CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 20041-3144710.5
*10(u)(2)First Amendment to Exhibit (u)(1), effective January 1, 2007CenterPoint Energy’s Form 10-Q for the quarter ended March 31, 20071-3144710.5
*10(u)(3)Form of Non-Qualified Stock Option Award Agreement under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated January 25, 20051-3144710.1
*10(u)(4)Form of Restricted Stock Award Agreement under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated January 25, 20051-3144710.2
*10(u)(5)Form of Performance Share Award under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated January 25, 20051-3144710.3
*10(u)(6)Form of Performance Share Award Agreement for 20XX-20XX Performance Cycle under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated February 22, 20061-3144710.2
*10(u)(7)Form of Restricted Stock Award Agreement (With Performance Vesting Requirement) under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated February 21, 20051-3144710.2
*10(u)(8)Form of Stock Award Agreement (With Performance Goal) under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated February 22, 20061-3144710.3
*10(u)(9)Form of Performance Share Award Agreement for 20XX — 20XX Performance Cycle under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated February 21, 20071-3144710.1
*10(u)(10)Form of Stock Award Agreement (With Performance Goal) under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated February 21, 20071-3144710.2
*10(u)(11)Form of Stock Award Agreement (Without Performance Goal) under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated February 21, 20071-3144710.3
*10(u)(12)Form of Performance Share Award Agreement for 20XX — 20XX Performance Cycle under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated February 20, 20081-3144710.1
*10(u)(13)Form of Stock Award Agreement (With Performance Goal) under Exhibit 10(u)(1)CenterPoint Energy’s Form 8-K dated February 20, 20081-3144710.2
10(v)(1) Reliant Energy’s Form 10-Q for the quarter ended March 31, 2001 1-3187 10.1
10(v)10(i)(2) CenterPoint Energy’s Form 10-K for the year ended December 31, 2002 1-31447 10(bb)(5)
10(v)10(i)(3) Reliant Energy’s Form 10-Q for the quarter ended March 31, 2001 1-3187 10.5
10(v)10(i)(4) Reliant Energy’s Form 10-Q for the quarter ended March 31, 2001 1-3187 10.6
10(v)10(i)(5) Reliant Energy’s Form 10-Q for the quarter ended March 31, 2001 1-3187 10.8
10(w)10(j)(1) CenterPoint Energy’s Form 10-K for the year ended December 31, 2002 1-31447 10(cc)(1)
10(w)10(j)(2) CenterPoint Energy’s Form 10-K for the year ended December 31, 2002 1-31447 10(cc)(2)
10(w)10(j)(3) CenterPoint Energy’s Form 10-K for the year ended December 31, 2002 1-31447 10(cc)(3)

140



*10(x)Retention Agreement effective October 15, 2001 between Reliant Energy and David G. TeesReliant Energy’s Form 10-K for the year ended December 31, 20011-318710(jj)
*10(y)Retention Agreement effective October 15, 2001 between Reliant Energy and Michael A. ReedReliant Energy’s Form 10-K for the year ended December 31, 20011-318710(kk)
*10(z)Non-Qualified Unfunded Executive Supplemental Income Retirement Plan of Arkla, Inc. effective as of August 1, 1983CenterPoint Energy’s Form 10-K for the year ended December 31, 20021-3144710(gg)
*10(aa)10(k)(1)Deferred Compensation Plan for Directors of Arkla, Inc. effective as of November 10, 1988CenterPoint Energy’s Form 10-K for the year ended December 31, 20021-3144710(hh)(1)
*10(aa)(2)First Amendment to Exhibit 10(aa)(1) effective as of August 6, 1997CenterPoint Energy’s Form 10-K for the year ended December 31, 20021-3144710(hh)(2)
*10(bb)(1) CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 2003 1-31447 10.2
*10(bb)10(k)(2) CenterPoint Energy’s Form 8-K dated February 20, 2008 1-31447 10.4
*10(bb)(3)10(l)(1) CenterPoint Energy’s Form 8-K dated February 20, 2008 1-31447 10.3
*10(bb)(4)10(l)(2) CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 2008 1-31447 10.1
*10(cc)10(m)(1) CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 2003 1-31447 10.3
*10(cc)(2)10(m)(3) CenterPoint Energy’s Form 8-K dated December 10, 2009 1-31447 10.1
*10(dd)10(n)(1) CenterPoint Energy’s Form 10-K for the year ended December 31, 2003 1-31447 10(ll)
*10(dd)10(n)(2) CenterPoint Energy’s Form 10-Q for the quarter ended March 31, 2010 1-31447 10.2
*10(dd)10(n)(3) CenterPoint Energy’s Registration Statement on Form S-8 333-173660 4.6


*†10(dd)10(n)(4) CenterPoint Energy’s Form 10-K for the year ended December 31, 2014 1-31447 10(dd)(4)
10(ee)10(o) CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 2005 1-31447 10.1
10(ff)Letter Agreement dated March 16, 2006 between CenterPoint Energy and John T. CaterCenterPoint Energy’s Form 10-Q for the quarter ended March 30, 20061-3144710
10(gg)10(p)(1) CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 2008 1-31447 10.2
10(gg)10(p)(2) CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 2008 1-31447 10.3
*10(hh)10(q)(1)Executive Benefits Agreement by and between HL&P and Thomas R. Standish effective August 20, 1993CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(hh)(1)
*10(hh)(2)First Amendment to Exhibit 10(hh)(1) effective as of December 31, 2008CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(hh)(2)
*10(ii)(1)Executive Benefits Agreement by and between HL&P and David M. McClanahan effective August 24, 1993CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(ii)(1)
*10(ii)(2)First Amendment to Exhibit 10(ii)(1) effective as of December 31, 2008CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(ii)(2)
*10(jj)(1)Executive Benefits Agreement by and between HL&P and Joseph B. McGoldrick effective August 30, 1993CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(jj)(1)

141



*10(jj)(2)First Amendment to Exhibit 10(jj)(1) effective as of December 31, 2008CenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(jj)(2)
*†10(kk)(1)Letter Agreement dated January 23, 2015 between CenterPoint Energy and William D. Rogers
*10(ll)(1)CenterPoint Energy, Inc. 2009 Long Term Incentive Plan CenterPoint Energy’s Schedule 14A dated March 13, 2009 1-31447 A
*†10(ll)10(q)(2)
†*10(q)(3)      
*†10(ll)(3)Form of Qualified Performance Award Agreement for Executive Chairman 20XX — 20XX Performance Cycle under Exhibit 10(ll)(1)
*10(ll)10(q)(4) CenterPoint Energy’s Form 8-K dated February 28, 2012 1-31447 10.2
*10(ll)10(q)(5) CenterPoint Energy’s Form 8-K dated February 28, 2012 1-31447 10.3
*†10(ll)10(q)(6)      
*†10(ll)10(q)(7)
*†10(ll)(8)Form of Executive Chairman Restricted Stock Unit Award Agreement (Retention, Service-Based Vesting) under Exhibit 10(ll)(1)      
10(mm)10(r)      
10(nn)10(s)      
10(oo)10(t)Form of Executive Officer CenterPoint Energy’s Form 8-K dated April 27, 20171-3144710.1
10(u) CenterPoint Energy’s Form 10-K for the year ended December 31, 20082013 1-31447 10(nn)10(zz)
10(pp)10(v)Form of Corporate Officer Change in Control AgreementCenterPoint Energy’s Form 10-K for the year ended December 31, 20081-3144710(oo)
10(qq)Change in Control PlanCenterPoint Energy’s Form 8-K/A dated December 11, 20141-3144710.1
10(rr) CenterPoint Energy’s Form 8-K dated March 14, 2013 1-31447 2.1
10(ss)10(w)Commitment Letter CenterPoint Energy’s Form 8-K dated MarchNovember 14, 20132017 1-31447 10.1
10(tt)10(x)Commitment Letter CenterPoint Energy’s Form 8-K dated March 14, 2013June 22, 2016 1-31447 10.2
10(uu)10(y)First Amended and Restated CenterPoint Energy’s Form 8-K dated May 1, 2013 1-31447 10.110.3
10(vv)10(z)First Amendment to the First Amended and RestatedCenterPoint Energy’s Form 10-Q for the quarter ended September 30, 20131-3144710.1
10(ww)Second Amended and Restated Agreement of Limited Partnership of Enable Midstream Partners, LP dated April 16, 2014CenterPoint Energy’s Form 8-K dated April 16, 20141-3144710.1
10(xx)Amended and Restated Limited Liability Company Agreement of CNP OGE GP LLC dated as of May 1, 2013 among CenterPoint Energy, OGE, Enogex Holdings LLC and CEFS CenterPoint Energy’s Form 8-K dated May 1, 2013 1-31447 10.4
10(aa)CenterPoint Energy’s Form 8-K dated January 28, 20161-3144710.1
10(bb)CenterPoint Energy’s Form 8-K dated February 18, 20161-3144710.2
†12
†21

142




10(yy)(1)Second Amended and Restated Limited Liability Company Agreement of Enable GP, LLC dated as of July 30, 2013 CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 2013 1-31447 10.2
10(yy)(2)First Amendment to the Second Amended and Restated Limited Liability Company Agreement of Enable GP, LLC dated as of April 16, 2014 CenterPoint Energy’s Form 8-K dated April 16, 2014 1-31447 10.2
10(zz)Registration Rights Agreement dated as of May 1, 2013 by and among CEFS, CERC Corp., OGE Enogex Holdings LLC, and Enogex Holdings LLC CenterPoint Energy’s Form 8-K dated May 1, 2013 1-31447 10.3
10(aaa)Omnibus Agreement dated as of May 1, 2013 among CenterPoint Energy, OGE, Enogex Holdings LLC and CEFS CenterPoint Energy’s Form 8-K dated May 1, 2013 1-31447 10.4
10(bbb)Agreement, dated June 26, 2013, by and between CERC Corp. and C. Gregory Harper CenterPoint Energy’s Form 10-Q for the quarter ended June 30, 2013 1-31447 10.6
10(ccc)Omnibus Amendment to CenterPoint Energy, Inc. Benefit Plans, dated May 23, 2013 CenterPoint Energy’s Form 10-K for the year ended December 31, 2013 1-31447 10(zz)
†12Computation of Ratio of Earnings to Fixed Charges      
†21Subsidiaries of CenterPoint Energy      
†23.1Consent of Deloitte & Touche LLP      
†23.2Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm of Enable Midstream Partners, LP      
†31.1Rule 13a-14(a)/15d-14(a) Certification of Scott M. Prochazka      
†31.2Rule 13a-14(a)/15d-14(a) Certification of Gary L. Whitlock      
†32.1Section 1350 Certification of Scott M. Prochazka      
†32.2Section 1350 Certification of Gary L. Whitlock      
99.1$1,400,000,000 Credit Agreement, dated as of May 1, 2013, among CEFS as Borrower, and the banks named therein CenterPoint Energy’s Form 8-K dated May 1, 2013 1-31447 99.2
99.2First Amendment and Waiver to Revolving Credit Agreement dated as of January 23, 2014 by and among Enable Midstream Partners, LP, the lenders party thereto and Citibank, N.A., as agent CenterPoint Energy’s Form 10-K for the year ended December 31, 2013 1-31447 99.3
99.3Financial Statements of Enable Midstream Partners, LP as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012 Part II, Item 8 of Enable Midstream Partners, LP’s Form 10-K for the year ended December 31, 2014 001-36413 Item 8
†101.INSXBRL Instance Document      
†101.SCHXBRL Taxonomy Extension Schema Document      
†101.CALXBRL Taxonomy Extension Calculation Linkbase Document      
†101.DEFXBRL Taxonomy Extension Definition Linkbase Document      
†101.LABXBRL Taxonomy Extension Labels Linkbase Document      
†101.PREXBRL Taxonomy Extension Presentation Linkbase Document      
†23.1
†23.2
†31.1
†31.2
†32.1
†32.2
99.1Financial Statements of Enable Midstream Partners, LP as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015Part II, Item 8 of Enable Midstream Partners, LP’s Form 10-K for the year ended December 31, 2017001-36413Item 8
†101.INSXBRL Instance Document
†101.SCHXBRL Taxonomy Extension Schema Document
†101.CALXBRL Taxonomy Extension Calculation Linkbase Document
†101.DEFXBRL Taxonomy Extension Definition Linkbase Document
†101.LABXBRL Taxonomy Extension Labels Linkbase Document
†101.PREXBRL Taxonomy Extension Presentation Linkbase Document



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, the State of Texas, on the 22nd day of February, 2018.

143
CENTERPOINT ENERGY, INC.
(Registrant)
By:  /s/ Scott M. Prochazka
Scott M. Prochazka
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 22, 2018.

SignatureTitle
/s/  SCOTT M. PROCHAZKAPresident, Chief Executive Officer and
Scott M. ProchazkaDirector (Principal Executive Officer and Director)
/s/  WILLIAM D. ROGERSExecutive Vice President and Chief
William D. RogersFinancial Officer (Principal Financial Officer)
/s/  KRISTIE L. COLVINSenior Vice President and Chief
Kristie L. ColvinAccounting Officer (Principal Accounting Officer)
/s/  MILTON CARROLLExecutive Chairman of the Board of Directors
Milton Carroll
/s/  MICHAEL P. JOHNSONDirector
Michael P. Johnson
/s/  JANIECE M. LONGORIADirector
Janiece M. Longoria
/s/  SCOTT J. MCLEANDirector
Scott J. McLean
/s/  THEODORE F. POUNDDirector
Theodore F. Pound
/s/  SUSAN O. RHENEYDirector
Susan O. Rheney
/s/  PHILLIP R. SMITHDirector
Phillip R. Smith
/s/  JOHN W. SOMERHALDER IIDirector
John W. Somerhalder II
/s/  PETER S. WAREINGDirector
Peter S. Wareing


137