WASHINGTON, D.C. 20549
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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time wethe Registrants make statements concerning ourtheir 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.
WeThe Registrants have based ourtheir 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. WeThe Registrants caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, wethe Registrants cannot assure you that actual results will not differ materially from those expressed or implied by ourthe Registrants’ forward-looking statements. In this Form 10-Q, unless context requires otherwise, the terms “our,” “we” and “us” are used as abbreviated references to CenterPoint Energy, Inc. together with its consolidated subsidiaries, including Houston Electric, CERC and Vectren.
The following are some of the factors that could cause actual results to differ from those expressed or implied by the Registrants’ forward-looking statements and apply to all Registrants unless otherwise indicated:
•CenterPoint Energy’s business strategies and strategic initiatives, restructurings, joint ventures and acquisitions or dispositions of assets or businesses, including the completed sale of our forward-looking statements:
the performance of Enable, the amount of cash distributions we receive from Enable,Natural Gas businesses in Arkansas and Oklahoma and the value of our interest in Enable, and factors that mayexit from midstream, which we cannot assure will have a material impact on such performance, cash distributions and value, including factors such as:
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◦ | 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; |
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◦ | the timing and extent of changes in the supply of natural gas and associated commodity prices, particularly prices of natural gas and 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; |
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◦ | the demand for crude oil, natural gas, NGLs and transportation and storage services; |
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◦ | environmental and other governmental regulations, including the availability of drilling permits and the regulation of hydraulic fracturing; |
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◦ | recording of non-cash goodwill, long-lived asset or other than temporary impairment charges by or related to Enable; |
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◦ | access to debt and equity capital; and |
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◦ | the availability and prices of raw materials and services for current and future construction projects; |
the anticipated benefits to us;
•industrial, commercial and residential growth in our service territories and changes in market demand, including the demand for our non-utility products and services and effects of energy efficiency measures and demographic patterns;
•our ability to fund and invest planned capital and the timely recovery of our investments, including those related to Indiana Electric’s generation transition plan as part of its most recent IRP;
•our ability to successfully construct and operate electric generating facilities, natural gas facilities, mobile generation and electric transmission facilities, including complying with applicable environmental standards and the implementation of a well-balanced energy and resource mix, as appropriate;
•the recording of impairment charges;
•timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment;investment, including the timing and amount of recovered natural gas costs associated with the February 2021 Winter Storm Event and those related to Houston Electric’s mobile generation;
•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;capital, such as impacts from the February 2021 Winter Storm Event;
•the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., to satisfy their obligations to CenterPoint Energy and Houston Electric, including the negative impact on such ability related to COVID-19 and the February 2021 Winter Storm Event;
•the COVID-19 pandemic and its effect on our operations, business and financial condition, our industries and the communities we serve, U.S. and world financial markets and supply chains, potential regulatory actions and changes in customer and stakeholder behaviors relating thereto;
•increases in commodity prices;
•volatility in the markets for oil and natural gas as a result of, among other factors, the actions of certain crude-oil exporting countries and the Organization of Petroleum Exporting Countries, armed conflicts, including the conflict in Ukraine and the related sanctions on certain Russian entities, and climate change concerns, including the increasing adoption and use of alternative energy sources;
•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;
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 facilities, resources, operations and financial condition resulting from terrorism, cyber-attacks,cyber attacks or intrusions, including as a result of global conflict such as the conflict in Ukraine, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other catastrophic events such as fires, ice, earthquakes, explosions, leaks, floods, droughts, hurricanes, tornadoes and other severe weather events, pandemic health events or other occurrences;
•tax legislation, including the effects of the CARES Act and of the TCJA (which includes but is not limited to any potential changes to tax rates, tax credits and/or interest deductibility), as well as any changes in tax laws under the
current administration, and uncertainties involving state commissions’ and local municipalities’ regulatory requirements and determinations regarding the treatment of EDIT and our rates;
•our ability to invest planned capitalmitigate weather impacts through normalization or rate mechanisms, and the timely recoveryeffectiveness of our investment in capital;such mechanisms;
our ability to control operation and maintenance costs;
•actions by credit rating agencies;agencies, including any potential downgrades to credit ratings;
•matters affecting regulatory approval, legislative actions, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or cancellation 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, among others, those related to global climate change, air emissions, carbon, waste water discharges and the handling and disposal of CCR that could impact operations, cost recovery of generation plant costs and related assets, and CenterPoint Energy’s net zero and carbon emissions reduction goals;
•the impact of unplanned facility outages or other closures;
•the sufficiency of our insurance coverage, including availability, cost, coverage and terms;terms and ability to recover claims;
•the availability and prices of raw materials and services and changes in labor for current and future construction projects and operations and maintenance costs, including our ability to control such costs;
•continued disruptions to the global supply chain, including tariffs and other legislation impacting the supply chain, that could prevent CenterPoint Energy from securing the resources needed to fully execute on its 10-year capital plan or achieve its net zero and carbon emissions reduction goals;
•the investment performance of CenterPoint Energy, Inc.’sEnergy’s pension and postretirement benefit plans;
•changes in interest rates and their impact on costs of borrowing and the valuation of CenterPoint Energy’s pension benefit obligation;
•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 or 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 hedges and weather hedges;
•timely and appropriate regulatory actions, which include actions allowing recovery of costs associated with Hurricane Harvey andsecuritization, for any future hurricanes or other severe weather events, or natural disasters;disasters or other recovery of costs;
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, whether through our election to sell the 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;competitors, including the ability to successfully complete merger, acquisition and divestiture plans;
•our or Enable’s ability to recruit, effectively transition and retain management and key employees and maintain good labor relations;
•changes in technology, particularly with respect to efficient battery storage or the abilityemergence or growth of GenOn (formerly known as RRI Energy, Inc., Reliant Energynew, developing or alternative sources of generation, and RRI), a wholly-owned subsidiarytheir adoption by consumers;
•the impact of NRG, and its subsidiaries, currentlyalternate energy sources on the subject of bankruptcy proceedings, to satisfy their obligations to us, including indemnity obligations;demand for natural gas;
the outcome of litigation;
•the timing and outcome of any audits, disputes and other proceedings related to taxes;
•the effective tax rates;
•political and economic developments, including energy and environmental policies under the current administration;
•the transition to a replacement for the LIBOR benchmark interest rate;
•CenterPoint Energy’s ability to execute on its initiatives, targets and goals, including its net zero and carbon emissions reduction goals and its operations and maintenance goals;
•the outcome of litigation, including litigation related to the February 2021 Winter Storm Event;
•the development of new opportunities and the performance of projects undertaken by Energy Systems Group, which are subject to, among other factors, the level of success in bidding contracts and cancellation and/or reductions in the scope of projects by customers, and obligations related to warranties, guarantees and other contractual and legal obligations;
•the effect of changes in and application of accounting standards and pronouncements; and
•other factors we discussdiscussed in “Risk Factors” in Item 1A of Part I of our 2016the Registrants’ combined 2021 Form 10-K, which isare incorporated herein by reference, and other factors described in Item 1A of Part II of this combined Form 10-Q, and in other reports wethe Registrants file from time to time with the SEC.
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 wethe Registrants undertake no obligation to update or revise any forward-looking statements.
Investors should note that the Registrants announce material financial and other information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, the Registrants may use the Investors section of CenterPoint
Energy’s website (www.centerpointenergy.com) to communicate with investors about the Registrants. It is possible that the financial and other information posted there could be deemed to be material information. The information on CenterPoint Energy’s website is not part of this combined Form 10-Q.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2022 | | 2021 |
| | | | | (in millions, except per share amounts) |
Revenues: | | | | | | | |
Utility revenues | | | | | $ | 2,709 | | | $ | 2,484 | |
Non-utility revenues | | | | | 54 | | | 63 | |
Total | | | | | 2,763 | | | 2,547 | |
Expenses: | | | | | | | |
Utility natural gas, fuel and purchased power | | | | | 1,098 | | | 935 | |
Non-utility cost of revenues, including natural gas | | | | | 35 | | | 40 | |
Operation and maintenance | | | | | 688 | | | 669 | |
Depreciation and amortization | | | | | 318 | | | 307 | |
Taxes other than income taxes | | | | | 147 | | | 143 | |
| | | | | | | |
Total | | | | | 2,286 | | | 2,094 | |
Operating Income | | | | | 477 | | | 453 | |
Other Income (Expense): | | | | | | | |
Loss on equity securities | | | | | (17) | | | (23) | |
Gain on indexed debt securities | | | | | 106 | | | 26 | |
Gain on sale | | | | | 303 | | | — | |
Interest expense and other finance charges | | | | | (153) | | | (140) | |
Interest expense on Securitization Bonds | | | | | (4) | | | (6) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other income, net | | | | | 18 | | | 19 | |
Total | | | | | 253 | | | (124) | |
Income from Continuing Operations Before Income Taxes | | | | | 730 | | | 329 | |
Income tax expense | | | | | 199 | | | 49 | |
Income from Continuing Operations | | | | | 531 | | | 280 | |
Income from Discontinued Operations (net of tax expense of $—, $25, respectively) | | | | | — | | | 83 | |
Net Income | | | | | 531 | | | 363 | |
Income allocated to preferred shareholders | | | | | 13 | | | 29 | |
Income Available to Common Shareholders | | | | | $ | 518 | | | $ | 334 | |
| | | | | | | |
Basic earnings per common share - continuing operations | | | | | $ | 0.82 | | | $ | 0.41 | |
Basic earnings per common share - discontinued operations | | | | | — | | | 0.15 | |
Basic Earnings Per Common Share | | | | | 0.82 | | | 0.56 | |
Diluted earnings per common share - continuing operations | | | | | $ | 0.82 | | | $ | 0.43 | |
Diluted earnings per common share - discontinued operations | | | | | — | | | 0.13 | |
Diluted Earnings Per Common Share | | | | | $ | 0.82 | | | $ | 0.56 | |
| | | | | | | |
Weighted Average Common Shares Outstanding, Basic | | | | | 629 | | | 552 | |
Weighted Average Common Shares Outstanding, Diluted | | | | | 631 | | | 631 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2022 | | 2021 |
| | | | | (in millions) |
Net Income | | | | | $ | 531 | | | $ | 363 | |
Other comprehensive income: | | | | | | | |
Adjustment to pension and other postretirement plans (net of tax of $-0- and $-0-) | | | | | 1 | | | 2 | |
| | | | | | | |
Reclassification of deferred loss from cash flow hedges realized in net income (net of tax of $-0- and $-0-) | | | | | 1 | | | — | |
| | | | | | | |
Other comprehensive income from unconsolidated affiliates (net of tax of $-0- and $-0-) | | | | | — | | | 1 | |
Total | | | | | 2 | | | 3 | |
Comprehensive income | | | | | 533 | | | 366 | |
Income allocated to preferred shareholders | | | | | 13 | | | 29 | |
Comprehensive income available to common shareholders | | | | | $ | 520 | | | $ | 337 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (in millions) |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents ($104 and $92 related to VIEs, respectively) | $ | 125 | | | $ | 230 | |
Investment in equity securities | 720 | | | 1,439 | |
| | | |
Accounts receivable ($29 and $29 related to VIEs, respectively), less allowance for credit losses of $39 and $44, respectively | 943 | | | 690 | |
Accrued unbilled revenues, less allowance for credit losses of $2 and $6, respectively | 432 | | | 513 | |
| | | |
Natural gas and coal inventory | 54 | | | 186 | |
Materials and supplies | 458 | | | 422 | |
Non-trading derivative assets | 33 | | | 9 | |
Taxes receivable | — | | | 1 | |
Current assets held for sale | — | | | 2,338 | |
Regulatory assets | 1,323 | | | 1,395 | |
Prepaid expenses and other current assets ($18 and $19 related to VIEs, respectively) | 100 | | | 132 | |
Total current assets | 4,188 | | | 7,355 | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 34,495 | | | 33,673 | |
Less: accumulated depreciation and amortization | 10,282 | | | 10,189 | |
Property, plant and equipment, net | 24,213 | | | 23,484 | |
Other Assets: | | | |
Goodwill | 4,294 | | | 4,294 | |
Regulatory assets ($372 and $420 related to VIEs, respectively) | 2,270 | | | 2,321 | |
| | | |
Non-trading derivative assets | 6 | | | 5 | |
| | | |
| | | |
| | | |
| | | |
Other non-current assets | 231 | | | 220 | |
Total other assets | 6,801 | | | 6,840 | |
Total Assets | $ | 35,202 | | | $ | 37,679 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
(Unaudited)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (in millions, except par value and shares) |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities: | | | |
Short-term borrowings | $ | — | | | $ | 7 | |
Current portion of VIE Securitization Bonds long-term debt | 182 | | | 220 | |
Indexed debt, net | 9 | | | 10 | |
Current portion of other long-term debt | 1,582 | | | 308 | |
Indexed debt securities derivative | 797 | | | 903 | |
Accounts payable | 1,036 | | | 1,196 | |
| | | |
Taxes accrued | 489 | | | 378 | |
Interest accrued | 116 | | | 136 | |
Dividends accrued | — | | | 131 | |
Customer deposits | 110 | | | 111 | |
Non-trading derivative liabilities | 1 | | | 2 | |
| | | |
| | | |
Current liabilities held for sale | — | | | 562 | |
Other current liabilities | 283 | | | 323 | |
Total current liabilities | 4,605 | | | 4,287 | |
Other Liabilities: | | | |
Deferred income taxes, net | 3,951 | | | 3,904 | |
Non-trading derivative liabilities | 5 | | | 12 | |
Benefit obligations | 499 | | | 511 | |
Regulatory liabilities | 3,250 | | | 3,153 | |
| | | |
Other non-current liabilities | 834 | | | 836 | |
Total other liabilities | 8,539 | | | 8,416 | |
Long-term Debt: | | | |
VIE Securitization Bonds, net | 317 | | | 317 | |
Other long-term debt, net | 11,789 | | | 15,241 | |
Total long-term debt, net | 12,106 | | | 15,558 | |
Commitments and Contingencies (Note 13) | 0 | | 0 |
Temporary Equity (Note 18) | 1 | | | 3 | |
Shareholders’ Equity: | | | |
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized, 800,000 shares and 800,000 shares outstanding, respectively, $800 and $800 liquidation preference, respectively (Note 18) | 790 | | | 790 | |
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 629,432,406 shares and 628,923,534 shares outstanding, respectively | 6 | | | 6 | |
Additional paid-in capital | 8,532 | | | 8,529 | |
Retained earnings | 685 | | | 154 | |
Accumulated other comprehensive loss | (62) | | | (64) | |
Total shareholders’ equity | 9,951 | | | 9,415 | |
Total Liabilities and Shareholders’ Equity | $ | 35,202 | | | $ | 37,679 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (in millions) |
Cash Flows from Operating Activities: | | | |
Net income | $ | 531 | | | $ | 363 | |
| | | |
| | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 318 | | | 307 | |
| | | |
Deferred income taxes | 28 | | | 66 | |
| | | |
| | | |
| | | |
| | | |
Gain on divestitures | (303) | | | — | |
Loss on equity securities | 17 | | | 23 | |
Gain on indexed debt securities | (106) | | | (26) | |
| | | |
Equity in (earnings) losses of unconsolidated affiliates | — | | | (108) | |
Distributions from unconsolidated affiliates | — | | | 39 | |
Pension contributions | (2) | | | (8) | |
Changes in other assets and liabilities: | | | |
Accounts receivable and unbilled revenues, net | (201) | | | 29 | |
| | | |
Inventory | 132 | | | 99 | |
Taxes receivable | 1 | | | 3 | |
Accounts payable | (85) | | | (55) | |
| | | |
Net regulatory assets and liabilities | 135 | | | (2,297) | |
Other current assets and liabilities | 82 | | | (121) | |
Other non-current assets and liabilities | (25) | | | 3 | |
Other operating activities, net | 58 | | | 2 | |
| | | |
| | | |
Net cash provided by (used in) operating activities | 580 | | | (1,681) | |
Cash Flows from Investing Activities: | | | |
Capital expenditures | (846) | | | (594) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Proceeds from sale of marketable securities | 702 | | | — | |
Proceeds from divestitures | 2,060 | | | — | |
| | | |
| | | |
Other investing activities, net | 18 | | | (10) | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 1,934 | | | (604) | |
Cash Flows from Financing Activities: | | | |
Decrease in short-term borrowings, net | (43) | | | — | |
Payment of obligation for finance lease | (171) | | | — | |
Proceeds from (payments of) commercial paper, net | (1,941) | | | 38 | |
Proceeds from long-term debt | 792 | | | 2,795 | |
Payments of long-term debt, including make-whole premiums | (1,113) | | | (388) | |
| | | |
| | | |
| | | |
| | | |
Payment of debt issuance costs | (8) | | | (20) | |
| | | |
| | | |
Payment of dividends on Common Stock | (107) | | | (88) | |
Payment of dividends on Preferred Stock | (24) | | | (48) | |
| | | |
| | | |
| | | |
| | | |
| | | |
Other financing activities, net | (6) | | | (4) | |
| | | |
| | | |
Net cash provided by (used in) financing activities | (2,621) | | | 2,285 | |
Net Decrease in Cash, Cash Equivalents and Restricted Cash | (107) | | | — | |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 254 | | | 167 | |
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 147 | | | $ | 167 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| | | | | | | | | Shares | | Amount | | Shares | | Amount |
| | | | | | | | | (in millions of dollars and shares, except authorized shares and par value amounts) |
Cumulative Preferred Stock, $0.01 par value; authorized 20,000,000 shares | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | 1 | | | $ | 790 | | | 3 | | | $ | 2,363 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | | | | | | | 1 | | | 790 | | | 3 | | | 2,363 | |
Common Stock, $0.01 par value; authorized 1,000,000,000 shares | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | 629 | | | 6 | | | 551 | | | 6 | |
| | | | | | | | | | | | | | | |
Issuances related to benefit and investment plans | | | | | | | | | — | | | — | | | 1 | | | — | |
Balance, end of period | | | | | | | | | 629 | | | 6 | | | 552 | | | 6 | |
Additional Paid-in-Capital | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 8,529 | | | | | 6,914 | |
| | | | | | | | | | | | | | | |
Issuances related to benefit and investment plans | | | | | | | | | | | 3 | | | | | 2 | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | | | | | | | | | 8,532 | | | | | 6,916 | |
Retained Earnings (Accumulated Deficit) | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 154 | | | | | (845) | |
Net income | | | | | | | | | | | 531 | | | | | 363 | |
| | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | |
Balance, end of period | | | | | | | | | | | 685 | | | | | (482) | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | (64) | | | | | (90) | |
Other comprehensive income | | | | | | | | | | | 2 | | | | | 3 | |
Balance, end of period | | | | | | | | | | | (62) | | | | | (87) | |
Total Shareholders’ Equity | | | | | | | | | | | $ | 9,951 | | | | | $ | 8,716 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| | | | | (in millions) |
Revenues | | | | | $ | 746 | | | $ | 684 | |
Expenses: | | | | | | | |
Operation and maintenance | | | | | 395 | | | 373 | |
Depreciation and amortization | | | | | 162 | | | 141 | |
Taxes other than income taxes | | | | | 63 | | | 63 | |
Total | | | | | 620 | | | 577 | |
Operating Income | | | | | 126 | | | 107 | |
Other Income (Expense): | | | | | | | |
Interest expense and other finance charges | | | | | (48) | | | (45) | |
Interest expense on Securitization Bonds | | | | | (4) | | | (6) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other income, net | | | | | 4 | | | 5 | |
Total | | | | | (48) | | | (46) | |
Income Before Income Taxes | | | | | 78 | | | 61 | |
Income tax expense | | | | | 17 | | | 8 | |
Net Income | | | | | $ | 61 | | | $ | 53 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| | | | | (in millions) |
Net income | | | | | $ | 61 | | | $ | 53 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Comprehensive income | | | | | $ | 61 | | | $ | 53 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (in millions) |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents ($104 and $92 related to VIEs, respectively) | $ | 104 | | | $ | 214 | |
Accounts and notes receivable ($29 and $29 related to VIEs, respectively), less allowance for credit losses of $1 and $1, respectively | 280 | | | 263 | |
Accounts and notes receivable–affiliated companies | 369 | | | 11 | |
Accrued unbilled revenues | 95 | | | 127 | |
Materials and supplies | 304 | | | 292 | |
| | | |
| | | |
| | | |
Prepaid expenses and other current assets ($18 and $19 related to VIEs, respectively) | 32 | | | 49 | |
Total current assets | 1,184 | | | 956 | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 15,995 | | | 15,273 | |
Less: accumulated depreciation and amortization | 4,175 | | | 4,070 | |
Property, plant and equipment, net | 11,820 | | | 11,203 | |
Other Assets: | | | |
Regulatory assets ($372 and $420 related to VIEs, respectively) | 785 | | | 789 | |
| | | |
Other non-current assets | 43 | | | 32 | |
Total other assets | 828 | | | 821 | |
Total Assets | $ | 13,832 | | | $ | 12,980 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
(Unaudited)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (in millions) |
LIABILITIES AND MEMBER’S EQUITY | | | |
Current Liabilities: | | | |
| | | |
Current portion of VIE Securitization Bonds long-term debt | $ | 182 | | | $ | 220 | |
Current portion of other long-term debt | 300 | | | 300 | |
Accounts payable | 474 | | | 510 | |
Accounts and notes payable–affiliated companies | 98 | | | 568 | |
Taxes accrued | 129 | | | 193 | |
Interest accrued | 66 | | | 74 | |
| | | |
Other current liabilities | 68 | | | 91 | |
Total current liabilities | 1,317 | | | 1,956 | |
Other Liabilities: | | | |
Deferred income taxes, net | 1,142 | | | 1,122 | |
Benefit obligations | 55 | | | 55 | |
Regulatory liabilities | 1,135 | | | 1,152 | |
| | | |
Other non-current liabilities | 100 | | | 98 | |
Total other liabilities | 2,432 | | | 2,427 | |
Long-term Debt: | | | |
VIE Securitization Bonds, net | 317 | | | 317 | |
Other long-term debt, net | 5,444 | | | 4,658 | |
Total long-term debt, net | 5,761 | | | 4,975 | |
Commitments and Contingencies (Note 13) | 0 | | 0 |
Member’s Equity: | | | |
Common stock | — | | | — | |
Additional paid-in capital | 3,354 | | | 2,678 | |
Retained earnings | 968 | | | 944 | |
| | | |
Total member’s equity | 4,322 | | | 3,622 | |
Total Liabilities and Member’s Equity | $ | 13,832 | | | $ | 12,980 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (in millions) |
Cash Flows from Operating Activities: | | | |
Net income | $ | 61 | | | $ | 53 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 162 | | | 141 | |
Deferred income taxes | 9 | | | (5) | |
| | | |
| | | |
Changes in other assets and liabilities: | | | |
Accounts and notes receivable, net | 15 | | | 21 | |
Accounts receivable/payable–affiliated companies | 38 | | | (49) | |
Inventory | (12) | | | (7) | |
Accounts payable | (62) | | | 14 | |
| | | |
Net regulatory assets and liabilities | (75) | | | (63) | |
Other current assets and liabilities | (56) | | | (59) | |
Other non-current assets and liabilities | (5) | | | 3 | |
Other operating activities, net | (2) | | | (2) | |
Net cash provided by operating activities | 73 | | | 47 | |
Cash Flows from Investing Activities: | | | |
Capital expenditures | (491) | | | (314) | |
Increase in notes receivable–affiliated companies | (354) | | | (665) | |
| | | |
| | | |
Other investing activities, net | (3) | | | (3) | |
Net cash used in investing activities | (848) | | | (982) | |
Cash Flows from Financing Activities: | | | |
| | | |
| | | |
Proceeds from long-term debt | 792 | | | 1,096 | |
Payments of long-term debt | (38) | | | (138) | |
Decrease in notes payable–affiliated companies | (512) | | | (8) | |
Dividend to parent | (37) | | | — | |
Contribution from parent | 637 | | | — | |
| | | |
Payment of debt issuance costs | (8) | | | (10) | |
Payment of obligation for finance lease | (171) | | | — | |
Other, net | 1 | | | — | |
Net cash provided by financing activities | 664 | | | 940 | |
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | (111) | | | 5 | |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 233 | | | 154 | |
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 122 | | | $ | 159 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| | | | | | | | | Shares | | Amount | | Shares | | Amount |
| | | | | | | | | (in millions, except share amounts) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | 1,000 | | | $ | — | | | 1,000 | | | $ | — | |
Balance, end of period | | | | | | | | | 1,000 | | | — | | | 1,000 | | | — | |
Additional Paid-in-Capital | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 2,678 | | | | | 2,548 | |
Contribution from parent | | | | | | | | | | | 675 | | | | | — | |
Other | | | | | | | | | | | 1 | | | | | — | |
Balance, end of period | | | | | | | | | | | 3,354 | | | | | 2,548 | |
Retained Earnings | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 944 | | | | | 563 | |
Net income | | | | | | | | | | | 61 | | | | | 53 | |
Dividend to parent | | | | | | | | | | | (37) | | | | | — | |
Balance, end of period | | | | | | | | | | | 968 | | | | | 616 | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | | | | | | | | | — | | | | | — | |
Total Member’s Equity | | | | | | | | | | | $ | 4,322 | | | | | $ | 3,164 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Millions of Dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2022 | | 2021 |
| | | | | (in millions) |
Revenues: | | | | | | | |
Utility revenues | | | | | $ | 1,376 | | | $ | 1,168 | |
Non-utility revenues | | | | | 9 | | | 9 | |
Total | | | | | 1,385 | | | 1,177 | |
Expenses: | | | | | | | |
Utility natural gas | | | | | 857 | | | 623 | |
Non-utility cost of revenues, including natural gas | | | | | 1 | | | 2 | |
Operation and maintenance | | | | | 187 | | | 198 | |
Depreciation and amortization | | | | | 72 | | | 80 | |
Taxes other than income taxes | | | | | 56 | | | 56 | |
| | | | | | | |
Total | | | | | 1,173 | | | 959 | |
Operating Income | | | | | 212 | | | 218 | |
Other Income (Expense): | | | | | | | |
Gain on sale | | | | | 557 | | | — | |
Interest expense and other finance charges | | | | | (21) | | | (24) | |
| | | | | | | |
| | | | | | | |
Other expense, net | | | | | — | | | (1) | |
Total | | | | | 536 | | | (25) | |
Income Before Income Taxes | | | | | 748 | | | 193 | |
Income tax expense | | | | | 194 | | | 42 | |
| | | | | | | |
| | | | | | | |
Net Income | | | | | $ | 554 | | | $ | 151 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | |
Revenues: | | | | | | | |
Utility revenues | $ | 390 |
| | $ | 370 |
| | $ | 1,767 |
| | $ | 1,672 |
|
Non-utility revenues | 861 |
| | 608 |
| | 2,964 |
| | 1,433 |
|
Total | 1,251 |
| | 978 |
| | 4,731 |
| | 3,105 |
|
| | | | | | | |
Expenses: | |
| | |
| | |
| | |
|
Utility natural gas | 106 |
| | 99 |
| | 706 |
| | 663 |
|
Non-utility natural gas | 832 |
| | 584 |
| | 2,843 |
| | 1,368 |
|
Operation and maintenance | 187 |
| | 175 |
| | 603 |
| | 571 |
|
Depreciation and amortization | 68 |
| | 62 |
| | 202 |
| | 185 |
|
Taxes other than income taxes | 32 |
| | 32 |
| | 104 |
| | 108 |
|
Total | 1,225 |
| | 952 |
| | 4,458 |
| | 2,895 |
|
Operating Income | 26 |
| | 26 |
| | 273 |
| | 210 |
|
| | | | | | | |
Other Income (Expense): | |
| | |
| | |
| | |
|
Interest and other finance charges | (32 | ) | | (29 | ) | | (92 | ) | | (93 | ) |
Equity in earnings of unconsolidated affiliate, net | 68 |
| | 73 |
| | 199 |
| | 164 |
|
Other, net | 1 |
| | (1 | ) | | 3 |
| | 1 |
|
Total | 37 |
| | 43 |
| | 110 |
| | 72 |
|
Income Before Income Taxes | 63 |
| | 69 |
| | 383 |
| | 282 |
|
Income tax expense | 25 |
| | 26 |
| | 144 |
| | 113 |
|
Net Income | $ | 38 |
| | $ | 43 |
| | $ | 239 |
| | $ | 169 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Millions of Dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2022 | | 2021 |
| | | | | (in millions) |
Net income | | | | | $ | 554 | | | $ | 151 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Comprehensive income | | | | | $ | 554 | | | $ | 151 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | |
Net income | $ | 38 |
| | $ | 43 |
| | $ | 239 |
| | $ | 169 |
|
Other comprehensive income, net of tax: | |
| | | | |
| | |
|
Adjustment to pension and other postretirement plans (net of tax of $2, $1, $2 and $-0-) | 1 |
| | 1 |
| | 1 |
| | 2 |
|
Net deferred loss from cash flow hedges (net of tax of $1, $-0-, $1 and $-0-) | (1 | ) | | — |
| | (1 | ) | | — |
|
Other comprehensive income | — |
| | 1 |
| | — |
| | 2 |
|
Comprehensive income | $ | 38 |
| | $ | 44 |
| | $ | 239 |
| | $ | 171 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
ASSETS | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (in millions) |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 4 | | | $ | 8 | |
Accounts receivable, less allowance for credit losses of $33 and $39, respectively | 426 | | | 240 | |
Accrued unbilled revenues, less allowance for credit losses of $2 and $5, respectively | 209 | | | 247 | |
Accounts and notes receivable–affiliated companies | 17 | | | 16 | |
Materials and supplies | 85 | | | 74 | |
Natural gas inventory | 19 | | | 127 | |
| | | |
Taxes receivable | 29 | | | 28 | |
| | | |
Current assets held for sale | — | | | 2,084 | |
Regulatory assets | 1,269 | | | 1,289 | |
Prepaid expenses and other current assets | 13 | | | 15 | |
Total current assets | 2,071 | | | 4,128 | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 8,140 | | | 7,878 | |
Less: accumulated depreciation and amortization | 2,143 | | | 2,115 | |
Property, plant and equipment, net | 5,997 | | | 5,763 | |
Other Assets: | | | |
Goodwill | 611 | | | 611 | |
Regulatory assets | 534 | | | 577 | |
| | | |
| | | |
| | | |
| | | |
Other non-current assets | 30 | | | 31 | |
Total other assets | 1,175 | | | 1,219 | |
Total Assets | $ | 9,243 | | | $ | 11,110 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Current Assets: | | | |
Cash and cash equivalents | $ | 1 |
| | $ | 1 |
|
Accounts receivable, less bad debt reserve of $15 and $14, respectively | 448 |
| | 512 |
|
Accrued unbilled revenues | 84 |
| | 229 |
|
Accounts and notes receivable–affiliated companies | 8 |
| | 5 |
|
Materials and supplies | 53 |
| | 47 |
|
Natural gas inventory | 252 |
| | 131 |
|
Non-trading derivative assets | 64 |
| | 51 |
|
Prepaid expenses and other current assets | 102 |
| | 81 |
|
Total current assets | 1,012 |
| | 1,057 |
|
| | | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 6,694 |
| | 6,351 |
|
Less: accumulated depreciation and amortization | 1,995 |
| | 1,782 |
|
Property, plant and equipment, net | 4,699 |
| | 4,569 |
|
| | | |
Other Assets: | |
| | |
|
Goodwill | 867 |
| | 862 |
|
Non-trading derivative assets | 56 |
| | 19 |
|
Investment in unconsolidated affiliate | 2,481 |
| | 2,505 |
|
Other | 261 |
| | 206 |
|
Total other assets | 3,665 |
| | 3,592 |
|
| | | |
Total Assets | $ | 9,376 |
| | $ | 9,218 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars) – (continued)
(Unaudited)
LIABILITIES AND STOCKHOLDER’S EQUITY | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (in millions) |
LIABILITIES AND STOCKHOLDER’S EQUITY | | | |
Current Liabilities: | | | |
Short-term borrowings | $ | — | | | $ | 7 | |
Current portion of long-term debt | 1,275 | | | — | |
Accounts payable | 293 | | | 365 | |
Accounts payable–affiliated companies | 147 | | | 56 | |
Notes payable–affiliated companies | — | | | 224 | |
Taxes accrued | 82 | | | 90 | |
Interest accrued | 24 | | | 27 | |
Customer deposits | 63 | | | 63 | |
| | | |
Current liabilities held for sale | — | | | 562 | |
Other current liabilities | 105 | | | 113 | |
Total current liabilities | 1,989 | | | 1,507 | |
Other Liabilities: | | | |
Deferred income taxes, net | 879 | | | 680 | |
| | | |
| | | |
Benefit obligations | 80 | | | 81 | |
Regulatory liabilities | 1,054 | | | 979 | |
| | | |
Other non–current liabilities | 477 | | | 482 | |
Total other liabilities | 2,490 | | | 2,222 | |
Long-Term Debt | 1,905 | | | 4,380 | |
Commitments and Contingencies (Note 13) | 0 | | 0 |
Stockholder’s Equity: | | | |
Common stock | — | | | — | |
Additional paid-in capital | 1,553 | | | 2,226 | |
Retained earnings | 1,296 | | | 765 | |
Accumulated other comprehensive income | 10 | | | 10 | |
Total stockholder’s equity | 2,859 | | | 3,001 | |
Total Liabilities and Stockholder’s Equity | $ | 9,243 | | | $ | 11,110 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Current Liabilities: | |
| | |
|
Short-term borrowings | $ | 48 |
| | $ | 35 |
|
Current portion of long-term debt | 550 |
| | 250 |
|
Accounts payable | 375 |
| | 471 |
|
Accounts and notes payable–affiliated companies | 42 |
| | 40 |
|
Taxes accrued | 64 |
| �� | 73 |
|
Interest accrued | 33 |
| | 33 |
|
Customer deposits | 76 |
| | 80 |
|
Non-trading derivative liabilities | 17 |
| | 41 |
|
Other | 118 |
| | 124 |
|
Total current liabilities | 1,323 |
| | 1,147 |
|
| | | |
Other Liabilities: | |
| | |
|
Deferred income taxes, net | 2,066 |
| | 1,925 |
|
Non-trading derivative liabilities | 10 |
| | 5 |
|
Benefit obligations | 105 |
| | 104 |
|
Regulatory liabilities | 699 |
| | 769 |
|
Other | 226 |
| | 221 |
|
Total other liabilities | 3,106 |
| | 3,024 |
|
| | | |
Long-Term Debt | 2,086 |
| | 2,125 |
|
| | | |
Commitments and Contingencies (Note 12) |
|
| |
|
|
| | | |
Stockholder’s Equity: | | | |
Common stock | — |
| | — |
|
Paid-in capital | 2,528 |
| | 2,489 |
|
Retained earnings | 332 |
| | 430 |
|
Accumulated other comprehensive income | 1 |
| | 3 |
|
Total stockholder’s equity | 2,861 |
| | 2,922 |
|
| | | |
Total Liabilities and Stockholder’s Equity | $ | 9,376 |
| | $ | 9,218 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)(Unaudited)
(Unaudited) | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (in millions) |
Cash Flows from Operating Activities: | | | |
Net income | $ | 554 | | | $ | 151 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 72 | | | 80 | |
| | | |
Deferred income taxes | 196 | | | 41 | |
| | | |
Gain on divestitures | (557) | | | — | |
Changes in other assets and liabilities: | | | |
Accounts receivable and unbilled revenues, net | (176) | | | (41) | |
Accounts receivable/payable–affiliated companies | 90 | | | (5) | |
Inventory | 133 | | | 64 | |
Accounts payable | (74) | | | (10) | |
| | | |
| | | |
| | | |
Net regulatory assets and liabilities | 125 | | | (2,065) | |
Other current assets and liabilities | (14) | | | 7 | |
Other non-current assets and liabilities | (3) | | | (10) | |
Other operating activities, net | 1 | | | 1 | |
Net cash provided by (used in) operating activities | 347 | | | (1,787) | |
Cash Flows from Investing Activities: | | | |
Capital expenditures | (197) | | | (133) | |
| | | |
| | | |
Proceeds from divestiture | 2,060 | | | — | |
Other investing activities, net | (3) | | | 2 | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 1,860 | | | (131) | |
Cash Flows from Financing Activities: | | | |
Decrease in short-term borrowings, net | (43) | | | — | |
| | | |
Proceeds from (payments of) commercial paper, net | (776) | | | 226 | |
Proceeds from long-term debt | — | | | 1,699 | |
Payments of long-term debt | (425) | | | — | |
| | | |
Dividends to parent | (743) | | | — | |
Payment of debt issuance costs | — | | | (6) | |
Decrease in notes payable–affiliated companies | (224) | | | — | |
| | | |
| | | |
| | | |
Other financing activities, net | — | | | (1) | |
| | | |
| | | |
Net cash provided by (used in) financing activities | (2,211) | | | 1,918 | |
Net Decrease in Cash, Cash Equivalents and Restricted Cash | (4) | | | — | |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 8 | | | 1 | |
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 4 | | | $ | 1 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash Flows from Operating Activities: | | | |
Net income | $ | 239 |
| | $ | 169 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 202 |
| | 185 |
|
Amortization of deferred financing costs | 7 |
| | 7 |
|
Deferred income taxes | 140 |
| | 108 |
|
Write-down of natural gas inventory | — |
| | 1 |
|
Equity in earnings of unconsolidated affiliate, net of distributions | (199 | ) | | (164 | ) |
Changes in other assets and liabilities, excluding acquisitions: | |
| | |
|
Accounts receivable and unbilled revenues, net | 346 |
| | 220 |
|
Accounts receivable/payable–affiliated companies | (1 | ) | | (5 | ) |
Inventory | (49 | ) | | (1 | ) |
Accounts payable | (227 | ) | | (85 | ) |
Fuel cost recovery | (30 | ) | | (43 | ) |
Interest and taxes accrued | (9 | ) | | (8 | ) |
Non-trading derivatives, net | (51 | ) | | 23 |
|
Margin deposits, net | (49 | ) | | 65 |
|
Other current assets | 23 |
| | (11 | ) |
Other current liabilities | (5 | ) | | 15 |
|
Other assets | (32 | ) | | (5 | ) |
Other liabilities | 6 |
| | 1 |
|
Other, net | 1 |
| | 2 |
|
Net cash provided by operating activities | 312 |
| | 474 |
|
Cash Flows from Investing Activities: | |
| | |
|
Capital expenditures | (373 | ) | | (378 | ) |
Distribution from unconsolidated affiliate in excess of cumulative earnings | 223 |
| | 223 |
|
Decrease in notes receivable–unconsolidated affiliate | — |
| | 363 |
|
Acquisitions, net of cash acquired | (132 | ) | | (102 | ) |
Other, net | 2 |
| | (1 | ) |
Net cash provided by (used in) investing activities | (280 | ) | | 105 |
|
Cash Flows from Financing Activities: | |
| | |
|
Decrease in short-term borrowings, net | 13 |
| | 3 |
|
Proceeds from (payments of) commercial paper, net | (40 | ) | | 240 |
|
Proceeds from long-term debt | 298 |
| | — |
|
Payments of long-term debt | — |
| | (325 | ) |
Dividends to parent | (337 | ) | | (567 | ) |
Debt issuance costs | (4 | ) | | (1 | ) |
Contribution from parent | 38 |
| | 73 |
|
Other, net | — |
| | (2 | ) |
Net cash used in financing activities | (32 | ) | | (579 | ) |
Net Increase in Cash and Cash Equivalents | — |
| | — |
|
Cash and Cash Equivalents at Beginning of Period | 1 |
| | — |
|
Cash and Cash Equivalents at End of Period | $ | 1 |
| | $ | — |
|
Supplemental Disclosure of Cash Flow Information: | |
| | |
|
Cash Payments: | |
| | |
|
Interest, net of capitalized interest | $ | 86 |
| | $ | 90 |
|
Income taxes, net | 4 |
| | 3 |
|
Non-cash transactions: | |
| | |
|
Accounts payable related to capital expenditures | $ | 53 |
| | $ | 32 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| | | | | | | | | Shares | | Amount | | Shares | | Amount |
| | | | | | | | | (in millions, except share amounts) |
Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | 1,000 | | | $ | — | | | 1,000 | | | $ | — | |
Balance, end of period | | | | | | | | | 1,000 | | | — | | | 1,000 | | | — | |
Additional Paid-in-Capital | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 2,226 | | | | | 2,046 | |
| | | | | | | | | | | | | | | |
Contribution from parent | | | | | | | | | | | 46 | | | | | — | |
Contribution to parent for sale of Arkansas and Oklahoma Natural Gas businesses | | | | | | | | | | | (720) | | | | | — | |
Other | | | | | | | | | | | 1 | | | | | — | |
Balance, end of period | | | | | | | | | | | 1,553 | | | | | 2,046 | |
Retained Earnings | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 765 | | | | | 511 | |
Net income | | | | | | | | | | | 554 | | | | | 151 | |
Dividend to parent | | | | | | | | | | | (23) | | | | | — | |
Balance, end of period | | | | | | | | | | | 1,296 | | | | | 662 | |
Accumulated Other Comprehensive Income | | | | | | | | | | | | | | | |
Balance, beginning of period | | | | | | | | | | | 10 | | | | | 10 | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | | | | | | | | | 10 | | | | | 10 | |
Total Stockholder’s Equity | | | | | | | | | | | $ | 2,859 | | | | | $ | 2,718 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
COMBINED NOTES TO UNAUDITEDINTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Background and Basis of Presentation
General.This combined Form 10-Q is filed separately by 3 registrants: CenterPoint Energy, Inc., CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other Registrants or the subsidiaries of CenterPoint Energy other than itself or its subsidiaries.
Except as discussed in the penultimate paragraph in Note 11 to the Registrants’ Interim Condensed Financial Statements, no registrant has an obligation in respect of any other Registrant’s debt securities, and holders of such debt securities should not consider the financial resources or results of operations of any Registrant other than the obligor in making a decision with respect to such securities.
Included in this combined Form 10-Q are the Interim Condensed Financial Statements of CERC.CenterPoint Energy, Houston Electric and CERC, which are referred to collectively as the Registrants. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the 2016Registrants’ financial statements included in the Registrants’ combined 2021 Form 10-K.
Background. The Combined Notes to Interim Condensed Financial Statements apply to all Registrants and specific references to Houston Electric and CERC Corp. is an indirect, wholly-owned subsidiary ofherein also pertain to CenterPoint Energy, unless otherwise indicated.
Background.CenterPoint Energy, Inc. is a public utility holding company. CERC Corp.’sAs of March 31, 2022, CenterPoint Energy’s operating subsidiaries ownwere as follows:
•Houston Electric owns and operate natural gasoperates electric transmission and distribution facilities supply natural gas to commercial and industrial customers and electric and natural gas utilities and own interests in Enable as described in Note 8. the Texas gulf coast area that includes the city of Houston.
•CERC Corp.’s operating subsidiaries and divisions include:
NGD, which (i) directly owns and operates natural gas distribution systems in six states;4 states and (ii) owns and operates permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.
CES, which obtains and offers competitive variable and fixed-price physical•Vectren holds 3 public utilities through its wholly-owned subsidiary, VUHI, a public utility holding company:
•Indiana Gas provides energy delivery services to natural gas suppliescustomers located in central and southern Indiana;
•SIGECO provides energy delivery services primarily to commercial and industrial customers and electric and natural gas utilitiescustomers located in 33 states.and near Evansville in southwestern Indiana and owns and operates electric generation assets to serve its electric customers and optimizes those assets in the wholesale power market; and
•VEDO provides energy delivery services to natural gas customers located in and near Dayton in west-central Ohio.
•Vectren performs non-utility activities through Energy Systems Group, which provides energy performance contracting and sustainable infrastructure services, such as renewables, distributed generation and combined heat and power projects.
On January 10, 2022, CERC Corp. completed the sale of its Arkansas and Oklahoma Natural Gas businesses. For additional information regarding discontinued operations and divestitures, see Note 3.
As of September 30, 2017,March 31, 2022, CenterPoint Energy’s reportable segments were Electric and Natural Gas. Houston Electric and CERC Corp. also owned approximately 54.1%each consist of a single reportable segment. For a description of CenterPoint Energy’s reportable segments, see Note 15.
As of March 31, 2022, CenterPoint Energy and Houston Electric had VIEs consisting of the common units representing limited partner interests in Enable,Bond Companies, which owns, operatesare consolidated. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed solely for
the purpose of securitizing transition and develops natural gassystem restoration-related property. Creditors of CenterPoint Energy and crude oil infrastructure assets.Houston Electric 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 or Houston Electric.
Basis of Presentation.The preparation of the Registrants’ 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.
CERC’sThe Interim Condensed Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the respective periods. Amounts reported in CERC’sthe Condensed Statements of Consolidated Income are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy, and energy services, (b) changes in energy commodity prices, (c) timing of maintenance and other expenditures and (d) acquisitions and dispositions of businesses, assets and other interests. Certain prior year amounts have been reclassified to conform to the current year reportable segment presentation described in Note 15 and to reflect the impacts of discontinued operations.
For a description of CERC’s reportable business segments, see Note 14.
(2) New Accounting Pronouncements
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value and to 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 financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 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. CERC does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures.
In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02) and related amendments. ASU 2016-02The following table provides a comprehensive new lease model that requires lessees to recognize 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. A modified retrospective adoption approach is required. CERC is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.
In 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. CERC adopted this standard as of January 1, 2017. The adoption did not have a material impact on CERC’s financial position or results of operations. However, CERC’s statement of cash flows reflects a decrease in financing activity and a corresponding increase in operating activity of $1 million as of both September 30, 2017 and 2016 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.
In 2016, the FASB issued ASUs which amended ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). 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. Early adoption is permitted, and entities have the option of using either a full retrospective or a modified retrospective adoption approach. CERC is currently evaluating its revenue streams under these ASUs and has not yet identified any significant changes as the result of these new standards. A substantial amount of CERC’s revenues are tariff and derivative based, which we do not anticipate will be significantly impacted by these ASUs. CERC expects to adopt 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 classificationoverview of certain cash receipts and payments inrecently adopted accounting pronouncements applicable to all 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. A retrospective adoption approach is required. CERC is currently assessing the impact that this standard will have on its statement of cash flows.Registrants.
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 CERC’s financial position, results of operations, cash flows and disclosures. | | | | | | | | | | | | | | | | | | | | |
Recently Adopted Accounting Standards |
ASU Number and Name | | Description | | Date of Adoption | | Financial Statement Impact upon Adoption |
ASU 2021-10: Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance | | This standard requires additional disclosure requirements when a business receives government assistance and uses a grant or contribution accounting model by analogy to other accounting guidance such as the grant model under International Accounting Standards (IAS) 20 Accounting for Government Grants and Disclosures of Government Assistance and GAAP ASC 958-605 Not for Profit. Transition method: Prospective or retrospective | | January 1, 2022 | | Adoption of this standard may result in additional disclosures related to the recovery of Texas natural gas costs associated with the February 2021 Winter Storm Event through the state securitization, which is expected to be accounted for as a government grant by analogy to IAS 20. The adoption of this standard did not have a material impact on the Registrants’ financial position, results of operations or cash flows.
|
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 CERC’s accounting for future acquisitions.
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. A prospective adoption approach is required. ASU 2017-04 will have an impact on CERC’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. CERC does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures.
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 CERC’s rate-regulated businesses. CERC does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures.
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. CERC is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.
Management believes that other recently adopted standards and recently issued standards whichthat are not yet effective will not have a material impact on CERC’s consolidatedthe Registrants’ financial position, results of operations or cash flows upon adoption.
(3) AcquisitionDivestitures (CenterPoint Energy and CERC)
Divestiture of Arkansas and Oklahoma Natural Gas Businesses. On April 29, 2021, CenterPoint Energy, through its subsidiary CERC Corp., entered into an Asset Purchase Agreement to sell its Arkansas and Oklahoma Natural Gas businesses for $2.15 billion in cash, including recovery of approximately $425 million in natural gas costs, including storm-related incremental natural gas costs associated with the February 2021 Winter Storm Event, subject to certain adjustments set forth in the Asset Purchase Agreement. The assets include approximately 17,000 miles of main pipeline in Arkansas, Oklahoma and certain portions of Bowie County, Texas serving more than half a million customers. The transaction closed on January 3, 2017,CES,10, 2022.
The sale was considered an asset sale for tax purposes, requiring net deferred tax liabilities to be excluded from held for sale balances. The deferred taxes associated with the businesses were recognized as a wholly-owned subsidiarydeferred income tax benefit by CenterPoint Energy and CERC upon closing of the sale in 2022.
Although the Arkansas and Oklahoma Natural Gas businesses met the held for sale criteria as of December 31, 2021, their disposals did not represent a strategic shift to CenterPoint Energy and CERC, completed its acquisitionas both retained significant operations in, and continued to invest in, their natural gas businesses. Therefore, the income and expenses associated with the disposed businesses were not reflected as discontinued operations on CenterPoint Energy’s and CERC’s Condensed Statements of AEM. After working capital adjustments,Consolidated Income, as applicable. Since the final purchase price was $147 milliondepreciation on the Arkansas and was allocatedOklahoma Natural Gas assets continued to identifiablebe reflected in revenues through customer rates until the closing of the transaction and will be reflected in the carryover basis of the rate-regulated assets, acquiredCenterPoint Energy and CERC continued to record depreciation on those assets through the closing of the
transaction. The Registrants record assets and liabilities assumed based onheld for sale at the lower of their carrying value or their estimated fair valuesvalue less cost to sell.
CenterPoint Energy and CERC recognized gains of $303 million and $557 million, respectively, net of transaction costs of $59 million, in connection with the closing of the disposition of the Arkansas and Oklahoma Natural Gas businesses during the three months ended March 31, 2022. As of March 31, 2022, CenterPoint Energy and CERC had a receivable for working capital and other customary adjustments set forth in the Asset Purchase Agreement, and a gain or loss on sale in future periods may be incurred by CenterPoint Energy and CERC for differences between the estimated receivable as of March 31, 2022 and the actual amount of the payment.
As a result of the sale of the Arkansas and Oklahoma Natural Gas businesses, there were no assets or liabilities classified as held for sale as of March 31, 2022. The assets and liabilities of the Arkansas and Oklahoma Natural Gas businesses classified as held for sale in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets, as applicable, as of December 31, 2021 included the following:
| | | | | | | | | | | | | | |
| | December 31, 2021 |
| | CenterPoint Energy | | CERC |
| | (in millions) |
Receivables, net | | $ | 46 | | | $ | 46 | |
Accrued unbilled revenues | | 48 | | | 48 | |
Natural gas inventory | | 46 | | | 46 | |
Materials and supplies | | 9 | | | 9 | |
Property, plant and equipment, net | | 1,314 | | | 1,314 | |
Goodwill (1) | | 398 | | | 144 | |
Regulatory assets | | 471 | | | 471 | |
Other | | 6 | | | 6 | |
Total current assets held for sale | | $ | 2,338 | | | $ | 2,084 | |
| | | | |
Short term borrowings (2) | | $ | 36 | | | $ | 36 | |
Accounts payable | | 40 | | | 40 | |
Taxes accrued | | 7 | | | 7 | |
| | | | |
Customer deposits | | 12 | | | 12 | |
Regulatory liabilities | | 365 | | | 365 | |
Other | | 102 | | | 102 | |
Total current liabilities held for sale | | $ | 562 | | | $ | 562 | |
(1)See Note 9 for further information about the allocation of goodwill to the disposed businesses.
(2)Represents third-party AMAs associated with utility distribution service in Arkansas and Oklahoma. These transactions are accounted for as an inventory financing. For further information, see Note 11.
The pre-tax income for the Arkansas and Oklahoma Natural Gas businesses, excluding interest and corporate allocations, included in CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income is as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 (1) | | 2021 |
| (in millions) |
Income from Continuing Operations Before Income Taxes | $ | 9 | | | $ | 52 | |
| | | |
(1)Reflects January 1, 2022 to January 9, 2022 results only due to of the sale of the Arkansas and Oklahoma Natural Gas businesses.
Effective on the acquisition date.date of the closing of the disposition of the Arkansas and Oklahoma Natural Gas businesses, a subsidiary of CenterPoint Energy, Inc. entered into the Transition Services Agreement, whereby that subsidiary agreed to provide certain transition services such as accounting, customer operations, procurement, and technology functions for a term of up to twelve months. Subject to the conditions in the Transition Services Agreement, Southern Col Midco may terminate these support services with 60 days prior written notice.
The following table summarizesCenterPoint Energy’s charges to Southern Col Midco for reimbursement of transition services were $9 million during the final purchase price allocationthree months ended March 31, 2022. Actual transitional services costs incurred are recorded net of amounts charged to Southern Col Midco. CenterPoint Energy had accounts receivable from Southern Col Midco of $7 million as of March 31, 2022 for transition services.
Discontinued Operations (CenterPoint Energy)
Enable Merger. On December 2, 2021, Enable, completed the previously announced Enable Merger pursuant to the Enable Merger Agreement entered into on February 16, 2021. At the closing of the Enable Merger on December 2, 2021, Energy Transfer acquired 100% of Enable’s outstanding common and preferred units, resulting in the exchange of Enable Common Units owned by CenterPoint Energy for Energy Transfer Common Units and the fair value amounts recognizedexchange of Enable Series A Preferred Units owned by CenterPoint Energy for the assets acquired and liabilities assumed related to the acquisition:Energy Transfer Series G Preferred Units.
|
| | | | |
| | (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 includes a preliminary 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 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 $-0- and $1 million forDuring the three and nine months ended September 30, 2017, respectively.March 31, 2022, CenterPoint Energy sold all of its remaining Energy Transfer Common Units and Energy Transfer Series G Preferred Units. See Note 10 for further information regarding Energy Transfer equity securities.
RevenuesAdditionally, CenterPoint Energy’s disposal of approximately $311 millionits interests in Enable represented a strategic shift that will have a major effect on CenterPoint Energy’s operations or financial results, and $989 million, respectively,as such, its equity investment in Enable was classified and operating incomepresented as held for sale. The equity in earnings of approximately $3 million and $28 million, respectively, attributable to the AEM acquisition are reportedunconsolidated affiliates, net of tax, associated with CenterPoint Energy’s equity investment in the Energy Services business segment and included in CERC’sEnable was reflected as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income for the three and nine months ended September 30, 2017.March 31, 2021.
A summary of discontinued operations presented in CenterPoint Energy’s Condensed Statements of Consolidated Income is as follows:
| | | | | | | | |
| | Three Months Ended March 31, 2021 |
| | Equity Method Investment in Enable |
| | (in millions) |
Equity in earnings of unconsolidated affiliate, net | | $ | 108 | |
Income from discontinued operations before income taxes | | 108 | |
Income tax expense | | 25 | |
Net income from discontinued operations | | $ | 83 | |
CenterPoint Energy has elected not to separately disclose discontinued operations on its respective Condensed Statements of Consolidated Cash Flows. The following table summarizes CenterPoint Energy’s cash flows from discontinued operations and certain supplemental cash flow disclosures, as applicable:
| | | | | | | | |
| | Three Months Ended March 31, 2021 |
| | CenterPoint Energy |
| | Equity Method Investment in Enable |
| | (in millions) |
Equity in earnings of unconsolidated affiliate - operating | | $ | (108) | |
Distributions from unconsolidated affiliate - operating | | 39 | |
| | |
Distributions Received from Enable (CenterPoint Energy):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2021 |
| | | | | Per Unit | | Cash Distribution |
| | | | | (in millions, except per unit amounts) |
Enable Common Units | | | | | $ | 0.16525 | | | $ | 39 | |
Enable Series A Preferred Units | | | | | 0.62500 | | | 9 | |
Total CenterPoint Energy | | | | | | | $ | 48 | |
Transactions with Enable (CenterPoint Energy and CERC):
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| | | Three Months Ended March 31, 2021 |
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Natural gas expenses, includes transportation and storage costs | | | $ | 32 | |
Summarized Financial Information for Enable (CenterPoint Energy)
As a result of the closing of the Enable Merger in 2021, there were no assets classified as held for sale as of December 31, 2021. Summarized consolidated balance sheet information for Enable on the closing of the Enable Merger is as follows:
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| | December 2, |
| | 2021 |
| | (in millions) |
Current assets | | $ | 594 | |
Non-current assets | | 11,227 | |
Current liabilities | | 1,254 | |
Non-current liabilities | | 3,281 | |
Non-controlling interest | | 26 | |
Preferred equity | | 362 | |
Accumulated other comprehensive loss | | (1) | |
Enable partners’ equity | | 6,899 | |
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Reconciliation of Investment in Enable: | | |
CenterPoint Energy’s ownership interest in Enable partners’ equity | | $ | 3,701 | |
CenterPoint Energy’s basis difference | | (2,732) | |
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CenterPoint Energy���s equity method investment in Enable | | $ | 969 | |
Summarized unaudited consolidated income information for Enable is as follows:
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| | | Three Months Ended March 31, 2021 |
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Operating revenues | | | | | $ | 970 | |
Cost of sales, excluding depreciation and amortization | | | | | 519 | |
Depreciation and amortization | | | | | 106 | |
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Operating income | | | | | 206 | |
Net income attributable to Enable Common Units | | | | | 155 | |
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Reconciliation of Equity in Earnings, net: | | | | | |
CenterPoint Energy’s interest | | | | | $ | 83 | |
Basis difference amortization (1) | | | | | 25 | |
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CenterPoint Energy’s equity in earnings, net (2) | | | | | $ | 108 | |
(1)Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s share of Enable earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s investment in Enable and its underlying equity in net assets of Enable. The basis difference was being amortized through the year 2048 and ceased upon closing of the Enable Merger.
(2)Reported as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income.
(4) Revenue Recognition and Allowance for Credit Losses
Revenues from Contracts with Customers
In accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Registrants expect to be entitled to receive in exchange for these goods or services.
ARPs are contracts between the utility and its regulators, not between the utility and a customer. The Registrants recognize ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation in rates charged for utility service to customers, ARP revenue is reversed and recorded as revenue from contracts with customers. The recognition of ARP revenues and the reversal of ARP revenues upon recovery through rates charged for utility service may not occur in the same period.
The following unaudited pro forma financial information reflectstables disaggregate revenues by reportable segment and major source:
CenterPoint Energy
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| | Electric | | Natural Gas | | Corporate and Other | | Total |
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Revenue from contracts | | $ | 898 | | | $ | 1,845 | | | $ | 45 | | | $ | 2,788 | |
Other (1) | | (5) | | | (21) | | | 1 | | | (25) | |
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Total revenues | | $ | 893 | | | $ | 1,824 | | | $ | 46 | | | $ | 2,763 | |
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| | Three Months Ended March 31, 2021 |
| | Electric | | Natural Gas | | Corporate and Other | | Total |
| | (in millions) |
Revenue from contracts | | $ | 833 | | | $ | 1,655 | | | $ | 53 | | | $ | 2,541 | |
Other (1) | | (3) | | | 8 | | | 1 | | | 6 | |
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Total revenues | | $ | 830 | | | $ | 1,663 | | | $ | 54 | | | $ | 2,547 | |
(1)Primarily consists of income from ARPs and leases. Total lease income was $1 million and $2 million for the consolidatedthree months ended March 31, 2022 and 2021, respectively.
Houston Electric
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| | | Three Months Ended March 31, |
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Revenue from contracts | | | | | $ | 756 | | | $ | 687 | |
Other (1) | | | | | (10) | | | (3) | |
Total revenues | | | | | $ | 746 | | | $ | 684 | |
(1)Primarily consists of income from ARPs and leases. Lease income was not significant for the three months ended March 31, 2022 and 2021.
CERC
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| | | | Three Months Ended March 31, |
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Revenue from contracts | | | | | | $ | 1,409 | | | $ | 1,172 | |
Other (1) | | | | | | (24) | | | 5 | |
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Total revenues | | | | | | $ | 1,385 | | | $ | 1,177 | |
(1)Primarily consists of income from ARPs and leases. Lease income was not significant for the three months ended March 31, 2022 and 2021.
Revenues from Contracts with Customers
Electric (CenterPoint Energy and Houston Electric). Houston Electric transmits and distributes electricity to customers over time, and customers consume the electricity when delivered. Indiana Electric generates, transmits and distributes electricity to customers over time, and customers consume the electricity when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by state regulators, such as the PUCT and the IURC, is recognized as electricity is delivered and represents amounts both billed and unbilled. Discretionary services requested by customers are provided at a point in time with control transferring upon the completion of the service. Revenue for discretionary services provided by Houston Electric is recognized upon completion of service based on the tariff rates set by the PUCT. Payments for electricity distribution and discretionary services are aggregated and received on a monthly basis. Houston Electric performs transmission services over time as a stand-ready obligation to provide a reliable network of transmission systems. Revenue is recognized upon time elapsed, and the monthly tariff rate set by the regulator. Payments are received on a monthly basis. Indiana Electric customers are billed monthly and payment terms, set by the regulator, require payment within a month of billing.
Natural Gas (CenterPoint Energy and CERC). CenterPoint Energy and CERC distribute and transport natural gas to customers over time, and customers consume the natural gas when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by the state governing agency for that service area, is recognized as natural gas is delivered and represents amounts both billed and unbilled. Discretionary services requested by the customer are satisfied at a point in time and revenue is recognized upon completion of service and the tariff rates set by the applicable state regulator. Payments of natural gas distribution, transportation and discretionary services are aggregated and received on a monthly basis.
Contract Balances. When the timing of delivery of service is different from the timing of the payments made by customers and when the right to consideration is conditioned on something other than the passage of time, the Registrants recognize either a contract asset (performance precedes billing) or a contract liability (customer payment precedes performance). Those customers that prepay are represented by contract liabilities until the performance obligations are satisfied. The Registrants’ contract assets are included in Accrued unbilled revenues in their Condensed Consolidated Balance Sheets. As of March 31, 2022, CenterPoint Energy’s contract assets primarily relate to Energy Systems Group contracts where revenue is recognized using the input method. The Registrants’ contract liabilities are included in Accounts payable and Other current liabilitiesin their Condensed Consolidated Balance Sheets. As of March 31, 2022, CenterPoint Energy’s contract liabilities primarily relate to Energy Systems Group contracts where revenue is recognized using the input method.
The opening and closing balances of accounts receivable related to ASC 606 revenues, other accrued unbilled revenue, contract assets and contract liabilities from contracts with customers, excluding balances related to assets held for sale, as of December 31, 2021 and March 31, 2022, respectively, are presented below.
CenterPoint Energy
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| Accounts Receivable | | Other Accrued Unbilled Revenues | | Contract Assets | | Contract Liabilities |
| (in millions) |
Opening balance as of December 31, 2021 | $ | 627 | | | $ | 513 | | | $ | 15 | | | $ | 16 | |
Closing balance as of March 31, 2022 | 876 | | | 432 | | | 16 | | | 27 | |
Increase (decrease) | $ | 249 | | | $ | (81) | | | $ | 1 | | | $ | 11 | |
The amount of revenue recognized during the three months ended March 31, 2022 that was included in the opening contract liability was $10 million. The difference between the opening and closing balances of the contract liabilities primarily results from the timing difference between CenterPoint Energy’s performance and the customer’s payment.
Houston Electric
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| Accounts Receivable | | Other Accrued Unbilled Revenues | | | | Contract Liabilities |
| (in millions) |
Opening balance as of December 31, 2021 | $ | 225 | | | $ | 127 | | | | | $ | 4 | |
Closing balance as of March 31, 2022 | 247 | | | 95 | | | | | 8 | |
Increase (decrease) | $ | 22 | | | $ | (32) | | | | | $ | 4 | |
The amount of operationsrevenue recognized during the three months ended March 31, 2022 that was included in the opening contract liability was $1 million. The difference between the opening and closing balances of CERC, 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 fundcontract liabilities primarily results from the acquisition,timing difference between Houston Electric’s performance and related income tax effects. The pro forma informationthe customer’s payment.
CERC
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| Accounts Receivable | | Other Accrued Unbilled Revenues | | | | |
| (in millions) | | |
Opening balance as of December 31, 2021 | $ | 223 | | | $ | 247 | | | | | | | |
Closing balance as of March 31, 2022 | 408 | | | 209 | | | | | | | |
Increase (decrease) | $ | 185 | | | $ | (38) | | | | | | | |
CERC does not have any opening or closing contract asset or contract liability balances.
Remaining Performance Obligations (CenterPoint Energy).The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts and (2) when CenterPoint Energy expects to recognize this revenue. Such contracts include the mark-to-market impactenergy performance and sustainable infrastructure services contracts of financial instruments designated as cash flow hedges of anticipated purchasesEnergy Systems Group, which are included in Corporate and sales at index prices. The effective portion of these hedgesOther.
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| Rolling 12 Months | | Thereafter | | Total |
| (in millions) | | |
Revenue expected to be recognized on contracts in place as of March 31, 2022: | | | | | | | |
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Corporate and Other | $ | 224 | | | $ | 535 | | | $ | 759 | | | |
| $ | 224 | | | $ | 535 | | | $ | 759 | | | |
Practical Expedients and Exemption. Sales taxes and other similar taxes collected from customers are excluded from earningsthe transaction price. For contracts for which revenue from the satisfaction of the performance obligations is recognized in the amount invoiced, the practical expedient was elected and reportedrevenue expected to be recognized on these contracts has not been disclosed.
Allowance for Credit Losses
CenterPoint Energy and CERC segregate financial assets that fall under the scope of Topic 326, primarily trade receivables due in one year or less, into portfolio segments based on shared risk characteristics, such as changes in Other Comprehensive Income.geographical location and regulatory environment, for evaluation of expected credit losses. Historical and current information, such as average write-offs, are applied to each portfolio segment to estimate the allowance for losses on uncollectible receivables. Additionally, the pro forma information doesallowance for losses on uncollectible receivables is adjusted for reasonable and supportable forecasts of future economic conditions, which can include changing weather, commodity prices, regulations, and macroeconomic factors, among others. Houston Electric recognizes losses on financial assets that fall under the scope of Topic 326. Losses on financial assets are primarily recoverable through regulatory mechanisms and do not includematerially impact Houston Electric's allowance for credit losses. For a discussion of regulatory deferrals related to the mark-to-market impact of physical forward transactions that were previously accounted for as normal purchase and sale transactions.February 2021 Winter Storm Event, see Note 6.
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.
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
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Operating Revenue | $ | 1,251 |
| | $ | 1,234 |
| | $ | 4,731 |
| | $ | 3,819 |
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Net Income | 38 |
| | 43 |
| | 239 |
| | 173 |
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(4)(5) Employee Benefit Plans
CERC’s employees participate in CenterPoint Energy’s postretirement benefit plan. CERC’sThe Registrants’ net periodic cost, before considering amounts subject to overhead allocations for capital expenditure projects or for amounts subject to deferral for regulatory purposes, includes the following components relating to pension and postretirement benefits:
Pension Benefits (CenterPoint Energy)
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| | | Three Months Ended March 31, |
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Service cost (1) | | | | | $ | 8 | | | $ | 10 | |
Interest cost (2) | | | | | 15 | | | 15 | |
Expected return on plan assets (2) | | | | | (25) | | | (26) | |
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Amortization of net loss (2) | | | | | 7 | | | 9 | |
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Net periodic cost | | | | | $ | 5 | | | $ | 8 | |
(1)Amounts presented in the table above are included in Operation and maintenance expense in CenterPoint Energy’s Condensed Statements of Consolidated Income, net of amounts capitalized and regulatory deferrals.
(2)Amounts presented in the table above are included in Other income, net in CenterPoint Energy’s Condensed Statements of Consolidated Income, net of regulatory deferrals.
Postretirement Benefits
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| Three Months Ended March 31, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Service cost (1) | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | |
Interest cost (2) | 2 | | | 1 | | | 1 | | | 2 | | | 1 | | | 1 | |
Expected return on plan assets (2) | (1) | | | (1) | | | — | | | (1) | | | (1) | | | — | |
Amortization of prior service cost (credit) (2) | (1) | | | (1) | | | — | | | (1) | | | (1) | | | — | |
Amortization of net loss (2) | (1) | | | (1) | | | — | | | — | | | — | | | — | |
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Net periodic cost (benefit) | $ | — | | | $ | (2) | | | $ | 1 | | | $ | 1 | | | $ | (1) | | | $ | 1 | |
(1)Amounts presented in the tables above are included in Operation and maintenance expense in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of amounts capitalized and regulatory deferrals.
(2)Amounts presented in the tables above are included in Other income (expense), net in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of regulatory deferrals.
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
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Service cost | $ | 1 |
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Interest cost | 1 |
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Expected return on plan assets | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) |
Amortization of prior service cost | — |
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Net periodic cost (1) | $ | 1 |
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The table below reflects the expected contributions to be made to the pension and postretirement benefit plans during 2022: | | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Expected minimum contribution to pension plans during 2022 | $ | 7 | | | $ | — | | | $ | — | |
Expected contribution to postretirement benefit plans in 2022 | 8 | | | 1 | | | 3 | |
The table below reflects the contributions made to the pension and postretirement benefit plans during 2022:
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(1) | Net periodic cost | | Three Months Ended March 31, 2022 |
| | | | | | | CenterPoint Energy | | Houston Electric | | CERC |
| | | | | | | (in this table is before considering amounts subject to overhead allocations for capital expenditure projects or for amounts subject to deferral for regulatory purposes. millions) |
Pension plans | | | | | | | $ | 2 | | | $ | — | | | $ | — | |
Postretirement benefit plans | | | | | | | 2 | | | — | | | — | |
CERC expects
(6) Regulatory Matters
Equity Return
The Registrants are at times allowed by a regulator to contribute approximately $5 milliondefer an equity return as part of the recoverable carrying costs of a regulatory asset. A deferred equity return is capitalized for rate-making purposes, but it is not included in the Registrant’s regulatory assets on its Condensed Consolidated Balance Sheets. The allowed equity return is recognized in the Condensed Statements of Consolidated Income as it is recovered in rates. The recoverable allowed equity return not yet recognized by the Registrants is as follows:
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| March 31, 2022 | | December 31, 2021 |
| CenterPoint Energy (1) | | Houston Electric (2) | | CERC (3) | | CenterPoint Energy (1) | | Houston Electric (2) | | CERC (3) |
| (in millions) |
Allowed equity return not recognized | $ | 195 | | | $ | 95 | | | $ | 16 | | | $ | 199 | | | $ | 100 | | | $ | 16 | |
(1)In addition to the amounts described in (2) and (3) below, represents CenterPoint Energy’s allowed equity return on post in-service carrying cost generally associated with investments in Indiana.
(2)Represents Houston Electric’s allowed equity return on its postretirement benefit plantrue-up balance of stranded costs, other changes and related interest resulting from the formerly integrated electric utilities prior to Texas deregulation to be recovered in 2017, of which approximately $1 millionrates through 2024 and $4 million were contributed during the three and nine months ended September 30, 2017, respectively.
(5) Regulatory Accounting
Hurricane Harvey. 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 NGD.
Currently, NGD estimates that total costs to restore natural gas distribution facilities damaged as a result of Hurricane Harvey will range from $25 million to $30 million and estimates that the total restoration costs covered by insurance will be approximately $17 million. NGD will defer the uninsuredcertain storm restoration costs as management believes it is probable that such costs will be recovered through traditional rate adjustment mechanisms for capital costs and throughbalances pending recovery in the next rate proceedingproceeding. The actual amounts recognized are adjusted at least annually to correct any over-collections or under-collections during the preceding 12 months.
(3)CERC’s allowed equity return on post in-service carrying cost associated with certain distribution facilities replacements expenditures in Texas.
The table below reflects the amount of allowed equity return recognized by each Registrant in its Condensed Statements of Consolidated Income:
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| Three Months Ended March 31, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Allowed equity return recognized | $ | 10 | | | $ | 9 | | | $ | — | | | $ | 8 | | | $ | 7 | | | $ | — | |
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February 2021 Winter Storm Event
Amounts for operationthe under recovery of natural gas costs associated with the February 2021 Winter Storm Event are reflected in current and non-current regulatory assets on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets. Recovery of natural gas costs within the regulatory assets are probable and are subject to customary regulatory prudence reviews in all jurisdictions that may impact the amounts ultimately recovered. CenterPoint Energy and CERC, as applicable, have begun recovery of natural gas costs in Indiana, Louisiana, Mississippi and Minnesota. CenterPoint Energy and CERC have filed for securitization of natural gas costs in Texas, received commission approval and issuance of financing order in 2022, and expect the Texas Public Financing Authority to issue customer rate relief bonds in 2022. As part of the closing of the sale of CenterPoint Energy’s and CERC’s Natural Gas businesses in Arkansas and Oklahoma, CERC received as part of the purchase price $398 million for unrecovered natural gas costs associated with the February 2021 Winter Storm Event. In testimonies filed on December 22, 2021 and February 11, 2022, in CERC’s high gas cost prudency review case, the Minnesota Attorney General’s Office, Minnesota Department of Commerce, and Citizens Utility Board have proposed significant disallowances for all natural gas utilities, resulting in potential disallowances for CenterPoint Energy and CERC. Recommended disallowances for CERC include up to $45 million proposed by the Minnesota Department of Commerce, $82 million proposed by the Citizens Utility Board, and $409 million (or in the alternative $57 million) proposed by the Attorney General’s Office. The natural gas costs in Minnesota were incurred in accordance with the plan on file with the MPUC and CenterPoint Energy believes the costs were prudently incurred and are eligible for recovery through an existing mechanism. Additionally, due to the uncertainty of timing and method of recovery in some jurisdictions, CenterPoint Energy and CERC may not earn a return on amounts deferred in the regulatory assets associated with the February 2021 Winter Storm Event.
As of March 31, 2022, CenterPoint Energy and CERC have recorded current regulatory assets of $1,207 million and $1,176 million, respectively, and non-current regulatory assets of $297 million and $297 million, respectively, associated with the February 2021 Winter Storm Event. As of December 31, 2021, CenterPoint Energy and CERC have recorded current regulatory assets of $1,410 million and $1,336 million, respectively, of which $154 million related to Arkansas and Oklahoma has been recast to held for sale at both CenterPoint Energy and CERC, and non-current regulatory assets of $583 million and $583 million, respectively, of which $244 million related to Arkansas and Oklahoma has been recast to held for sale at both CenterPoint Energy and CERC, associated with the February 2021 Winter Storm Event.
As of both March 31, 2022 and December 31, 2021, as authorized by the PUCT, CenterPoint Energy and Houston Electric recorded a regulatory asset of $8 million for bad debt expenses resulting from REPs’ default on their obligation to pay delivery charges to Houston Electric net of collateral. Additionally, as of both March 31, 2022 and December 31, 2021, CenterPoint Energy and Houston Electric recorded a regulatory asset of $15 million to defer operations and maintenance expenses. As of September 30, 2017, NGD has recorded approximately $7 million in regulatory assets, net of $2 million of insurance receivables recorded,costs associated with the February 2021 Winter Storm Event.
See Note 13(d) for restoration costs incurred. As a result, storm restoration costs should not materially affect CERC’s reported net income for 2017.further information regarding litigation related to the February 2021 Winter Storm Event.
(6)
(7) Derivative Instruments
CERC isThe Registrants are exposed to various market risks. These risks arise from transactions entered into in the normal course of business. CERC utilizesThe Registrants utilize derivative instruments such as physical forward contracts, swaps and options to mitigate the impact of changes in commodity prices, weather and interest rates on its operating results and cash flows. Such derivatives are recognized in CERC’s Condensed Consolidated Balance Sheets at their fair value unless CERC elects the normal purchase and sales exemption for qualified physical transactions. A derivative may be designated as a normal purchase or sale if the intent is to physically receive or deliver the product for use or sale in the normal course of business.
(a)Non-Trading Activities
Commodity Derivative Instruments (CenterPoint Energy).CenterPoint Energy, has a Risk Oversight Committee composed of corporate and business segment officers that oversees commodity price, weather and credit risk activities, including CERC’s marketing, risk management services and hedging activities. The committee’s duties are to establish CERC’s commodity risk policies, allocate board-approved commercial risk limits, approvethrough the use of new products and commodities, monitor positions and ensure compliance with CERC’s risk management policies, procedures and limits established by CenterPoint Energy’s board of directors.
CERC’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.
(a) Non-Trading Activities
Derivative Instruments. CERCIndiana Utilities, enters into certain derivative instruments to mitigate the effects of commodity price movements. Certain financialOutstanding derivative instruments used todesignated as economic hedges at the Indiana Utilities hedge portions of thelong-term variable rate natural gas inventory ofpurchases. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging natural gas purchases, and thus the Energy Services business segmentgains and losses on derivatives are deferred in a regulatory liability or asset.
Interest Rate Risk Derivative Instruments. From time to time, the Registrants may enter into interest rate derivatives that are designated as fair value hedges for accounting purposes. All other financial instruments do not qualifyeconomic or are not designated as cash flow hedges. The objective of these hedges is to offset risk associated with interest rates borne by the Registrants in connection with an anticipated future fixed rate debt offering or fair value hedges.other exposure to variable rate debt. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging financing activity, and thus the gains and losses on derivatives are deferred in a regulatory liability or asset.
The table below summarizes the Registrants’ outstanding interest rate hedging activity:
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| | March 31, 2022 | | | | December 31, 2021 |
Hedging Classification | | Notional Principal |
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| | (in millions) |
Economic hedge (1) | | $ | 84 | | | | | $ | 84 | | | |
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(1)Relates to interest rate derivative instruments at SIGECO.
Weather Hedges.Normalization (CenterPoint Energy and CERC). CenterPoint Energy and CERC hashave weather normalization or other rate mechanisms that largely mitigate the impact of weather on NGDNatural Gas in Arkansas,Indiana, Louisiana, Mississippi, Minnesota and Oklahoma. NGDOhio, as applicable. CenterPoint Energy’s and CERC’s Natural Gas in Texas doesand CenterPoint Energy’s electric operations in Texas and Indiana do not have such mechanisms, although fixed customer charges are historically higher in Texas for NGDNatural Gas compared to CERC’sits other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on NGD’sCenterPoint Energy’s and CERC’s Natural Gas’ results in Texas.
CERC entered into heating-degree day swaps for certain NGD Texas jurisdictions to mitigate the effect of fluctuations from normal weatherand on CenterPoint Energy’s electric operations’ results in its results of operationsTexas and cash flows for the 2017–2018 winter heating season, which contained a bilateral dollar cap of $8 million. However, CERC didIndiana service territories. The Registrants do not currently enter into heating-degree day swaps for NGD jurisdictions for the 2015–2016 or 2016–2017 winter heating seasons.weather hedges.
Hedging of Interest Expense for Future Debt Issuances. In August 2017, CERC Corp. entered into forward interest rate agreements with several 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 $1.5 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the notes.
(b)Derivative Fair Values and Income Statement Impacts
The following tables present information about CERC’s derivative instruments and hedging activities. The first four tables providetable provides a balance sheet overview of CERC’s Derivative Assetsderivative assets and Liabilities as of September 30, 2017 and December 31, 2016,liabilities, while the last table provides a breakdown of the related income statement impacts forimpacts.
Fair Value of Derivative Instruments and Hedged Items (CenterPoint Energy)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2022 | | December 31, 2021 |
| | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | |
| Derivatives not designated as hedging instruments: | | (in millions) |
| Natural gas derivatives (1) | Current Assets: Non-trading derivative assets | | $ | 33 | | | $ | — | | | $ | 9 | | | $ | — | |
| Natural gas derivatives (1) | Other Assets: Non-trading derivative assets | | 6 | | | — | | | 5 | | | — | |
| | | | | | | | | | |
| Interest rate derivatives | Current Liabilities: Non-trading derivative liabilities | | — | | | 1 | | | — | | | 2 | |
| | | | | | | | | | |
| Interest rate derivatives | Other Liabilities: Non-trading derivative liabilities | | — | | | 5 | | | — | | | 12 | |
| Indexed debt securities derivative (2) | Current Liabilities | | — | | | 797 | | | — | | | 903 | |
| | | | | | | | | | |
| Total | | $ | 39 | | | $ | 803 | | | $ | 14 | | | $ | 917 | |
(1)Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due. However, the three and nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | |
Fair Value of Derivative Instruments |
| | September 30, 2017 |
Derivatives designated as fair value hedges: | | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | | | (in millions) |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | $ | — |
| | $ | — |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 5 |
| | — |
|
| | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | 65 |
| | 2 |
|
Natural gas derivatives (1) (2) (3) | | Other Assets: Non-trading derivative assets | | 58 |
| | 2 |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 27 |
| | 55 |
|
Natural gas derivatives (1) (2) (3) | | Other Liabilities: Non-trading derivative liabilities | | 9 |
| | 25 |
|
Total | | $ | 164 |
| | $ | 84 |
|
| |
(1) | The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,866 Bcf or a net 46 Bcf long position. Certain natural gas contracts hedge basis risk only and lack a fixed price exposure. |
| |
(2) | Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets 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 Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities was a $93 million asset as shown on CERC’s Condensed 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, impacted by collateral netting of $13 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 |
| | September 30, 2017 |
| | Gross Amounts Recognized (1) | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets (2) |
| | (in millions) |
Current Assets: Non-trading derivative assets | | $ | 97 |
| | $ | (33 | ) | | $ | 64 |
|
Other Assets: Non-trading derivative assets | | 67 |
| | (11 | ) | | 56 |
|
Current Liabilities: Non-trading derivative liabilities | | (57 | ) | | 40 |
| | (17 | ) |
Other Liabilities: Non-trading derivative liabilities | | (27 | ) | | 17 |
| | (10 | ) |
Total | | $ | 80 |
| | $ | 13 |
| | $ | 93 |
|
| |
(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 Condensed 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. |
|
| | | | | | | | | | |
Fair Value of Derivative Instruments |
| | December 31, 2016 |
Derivatives not designated as hedging instruments | | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | | | (in millions) |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | $ | 79 |
| | $ | 14 |
|
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 |
|
Total (4) | | $ | 105 |
| | $ | 67 |
|
| |
(1) | The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,035 Bcf or a net 59 Bcf long position. Certain natural gas contracts hedge basis risk only and lack a fixed price exposure. |
| |
(2) | Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets 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 Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities was a $24 million asset as shown on CERC’s Condensed 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, impacted by collateral netting of $14 million. |
| |
(3) | Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable. |
| |
(4) | No derivatives were designated as fair value hedges as of December 31, 2016. |
|
| | | | | | | | | | | | |
Offsetting of Natural Gas Derivative Assets and Liabilities |
| | December 31, 2016 |
| | Gross Amounts Recognized (1) | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets (2) |
| | (in millions) |
Current Assets: Non-trading derivative assets | | $ | 81 |
| | $ | (30 | ) | | $ | 51 |
|
Other Assets: Non-trading derivative assets | | 24 |
| | (5 | ) | | 19 |
|
Current Liabilities: Non-trading derivative liabilities | | (57 | ) | | 16 |
| | (41 | ) |
Other Liabilities: Non-trading derivative liabilities | | (10 | ) | | 5 |
| | (5 | ) |
Total | | $ | 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 Condensed 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. |
Realized and unrealized gains and losses onmark-to-market fair value of each natural gas derivatives are recognizedcontract is in an asset position with no offsetting amounts.
(2)Derivative component of the ZENS obligation that represents the ZENS holder’s option to receive the appreciated value of the reference shares at maturity. See Note 10 for further information.
Income Statement Impact of Hedge Accounting Activity (CenterPoint Energy)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
| | Income Statement Location | | 2022 | | 2021 | | | | |
Derivatives not designated as hedging instruments: | | | | (in millions) |
Indexed debt securities derivative (1) | | Gain on indexed debt securities | | $ | 106 | | | $ | 26 | | | | | |
| | | | | | | | | | |
| | | | | | | | |
(1)The indexed debt securities derivative is recorded at fair value and changes in the Condensedfair value are recorded in CenterPoint Energy’s Statements of Consolidated Income as revenue for physical sales derivative contracts and as natural gas expense for financial natural gas derivatives and physical purchase natural gas derivatives.Income.
Hedge 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 |
| | | | Three Months Ended September 30, |
| | Income Statement Location | | 2017 | | 2016 |
Derivatives designated as fair value hedges: | | | | (in millions) |
Natural gas derivatives | | Gains (Losses) in Expenses: Natural Gas | | $ | (4 | ) | | $ | — |
|
Fair value adjustments for natural gas inventory designated as the hedged item | | Gains (Losses) in Expenses: Natural Gas | | 4 |
| | — |
|
Total increase in Expenses: Natural Gas (1) | | $ | — |
| | $ | — |
|
| | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Natural gas derivatives | | Gains (Losses) in Revenues | | $ | 30 |
| | $ | 31 |
|
Natural gas derivatives | | Gains (Losses) in Expenses: Natural Gas | | (9 | ) | | (13 | ) |
Total - derivatives not designated as hedging instruments | | $ | 21 |
| | $ | 18 |
|
|
| | | | | | | | | | |
Income Statement Impact of Derivative Activity |
| | | | Nine Months Ended September 30, |
| | Income Statement Location | | 2017 | | 2016 |
Derivatives designated as fair value hedges: | | | | (in millions) |
Natural gas derivatives | | Gains (Losses) in Expenses: Natural Gas | | $ | 8 |
| | $ | — |
|
Fair value adjustments for natural gas inventory designated as the hedged item | | Gains (Losses) in Expenses: Natural Gas | | (10 | ) | | — |
|
Total increase in Expenses: Natural Gas (1) | | $ | (2 | ) | | $ | — |
|
| | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Natural gas derivatives | | Gains (Losses) in Revenues | | $ | 162 |
| | $ | 1 |
|
Natural gas derivatives | | Gains (Losses) in Expenses: Natural Gas | | (91 | ) | | 35 |
|
Total - derivatives not designated as hedging instruments | | $ | 71 |
| | $ | 36 |
|
| |
(1) | 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 the difference between the spot price and the futures price, as well as the difference between the timing of the settlement 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 expense. |
(c) Credit Risk Contingent Features (CenterPoint Energy)
CERC enters into financialCertain of CenterPoint Energy’s derivative contracts containing material adverse change provisions. Theseinstruments contain provisions couldthat require CERCCenterPoint Energy’s debt to post additional collateral if themaintain an investment grade credit rating on its long-term unsecured unsubordinated debt from S&P or Moody’s credit ratingsand Moody’s. If
CenterPoint Energy’s debt were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the derivative instruments that contain credit risk contingent features that are in acould request immediate payment.
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | (in millions) |
Aggregate fair value of derivatives with credit-risk-related contingent features in a liability position | | $ | 6 | | | $ | 14 | |
Fair value of collateral already posted | | 7 | | | 7 | |
Additional collateral required to be posted if credit risk contingent features triggered (1) | | — | | | 7 | |
(1)The maximum collateral required if further escalating collateral is triggered would equal the net liability position as of both September 30, 2017 and December 31, 2016 was $1 million. CERC posted no assets as collateral toward derivative instruments that contain credit risk contingent features as of either September 30, 2017 or December 31, 2016. If all derivative contracts (in a net liability position) containing credit risk contingent features were triggered as of September 30, 2017 and December 31, 2016, $1 million and $-0-, respectively, of additional assets would be required to be posted as collateral.position.
(7)(8) Fair Value Measurements
Assets and liabilities that are recorded at fair value in the Registrants’ Condensed 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, as well as natural gas inventory that has been designated as the hedged item in a fair value hedge.securities.
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, andquoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability.liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. 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 CERC’sthe Registrants’ Level 2 natural gas derivative assets or liabilities. CenterPoint Energy’s Level 2 indexed debt securities derivative is valued using an option model and a discounted cash flow model, which uses projected dividends on the ZENS-Related Securities and a discount rate as observable inputs.
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 CERC’sthe Registrants’ judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. CERC developsThe Registrants develop these inputs based on the best information available, including CERC’sthe Registrants’ own data. A market approach is utilized to value CERC’s Level 3 assets or liabilities. As of September 30, 2017, CERC’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options. Level 3 physical natural gas forward contracts are valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $1.08 to $5.83 per MMBtu) as an unobservable input. Level 3 options are valued through Black-Scholes (including forward start) option models which include option volatilities (ranging from 0% to 87%) as an unobservable input. CERC’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, CERC’s long forwards lose value whereas its short forwards gain in value. If volatility decreases, CERC’s long options lose value whereas its short options gain in value.
CERC determinesThe Registrants determine 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 nine months ended September 30, 2017, there were no transfers between Level 1 and 2. CERC also recognizes purchases of Level 3 financial assets and liabilities at their fair market value at the end of the reporting period.basis.
The following tables present information about CERC’sthe Registrants’ assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of September 30, 2017March 31, 2022 and December 31, 2016,2021 and indicate the fair value hierarchy of the valuation techniques utilized by CERCthe Registrants to determine such fair value.
CenterPoint Energy
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | | | Total | | Level 1 | | Level 2 | | Level 3 | | | Total |
Assets | (in millions) |
Equity securities | $ | 720 | | | $ | — | | | $ | — | | | | | $ | 720 | | | $ | 1,439 | | | $ | — | | | $ | — | | | | $ | 1,439 | |
Investments, including money market funds (1) | 39 | | | — | | | — | | | | | 39 | | | 42 | | | — | | | — | | | | 42 | |
| | | | | | | | | | | | | | | | | | |
Natural gas derivatives | — | | | 39 | | | — | | | | | 39 | | | — | | | 14 | | | — | | | | 14 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Total assets | $ | 759 | | | $ | 39 | | | $ | — | | | | | $ | 798 | | | $ | 1,481 | | | $ | 14 | | | $ | — | | | | $ | 1,495 | |
Liabilities | | | | | | | | | | | | | | | | | | |
Indexed debt securities derivative | $ | — | | | $ | 797 | | | $ | — | | | | | $ | 797 | | | $ | — | | | $ | 903 | | | $ | — | | | | $ | 903 | |
Interest rate derivatives | — | | | 6 | | | — | | | | | 6 | | | — | | | 14 | | | — | | | | 14 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Total liabilities | $ | — | | | $ | 803 | | | $ | — | | | | | $ | 803 | | | $ | — | | | $ | 917 | | | $ | — | | | | $ | 917 | |
|
| | | | | | | | | | | | | | | | | | | |
| 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 as of September 30, 2017 |
| (in millions) |
Assets | | | | | | | | | |
Corporate equities | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
|
Investments, including money market funds (2) | 11 |
| | — |
| | — |
| | — |
| | 11 |
|
Natural gas derivatives (3) | 3 |
| | 128 |
| | 33 |
| | (44 | ) | | 120 |
|
Hedged portion of natural gas inventory | 65 |
| | — |
| | — |
| | — |
| | 65 |
|
Total assets | $ | 82 |
| | $ | 128 |
| | $ | 33 |
| | $ | (44 | ) | | $ | 199 |
|
Liabilities | |
| | |
| | |
| | |
| | |
|
Natural gas derivatives (3) | $ | 3 |
| | $ | 74 |
| | $ | 7 |
| | $ | (57 | ) | | $ | 27 |
|
Total liabilities | $ | 3 |
| | $ | 74 |
| | $ | 7 |
| | $ | (57 | ) | | $ | 27 |
|
Houston Electric
| |
(1) | Amounts represent the impact of legally enforceable master netting arrangements that allow CERC to settle positive and negative positions and also include cash collateral of $13 million posted with the same counterparties. |
| |
(2) | Amounts are included in Other Assets in the Condensed Consolidated Balance Sheets. |
| |
(3) | Natural gas derivatives include no material amounts related to physical forward transactions with Enable. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | | | Total | | Level 1 | | Level 2 | | Level 3 | | | | Total |
Assets | (in millions) |
Investments, including money market funds (1) | $ | 24 | | | $ | — | | | $ | — | | | | | $ | 24 | | | $ | 27 | | | $ | — | | | $ | — | | | | | $ | 27 | |
| | | | | | | | | | | | | | | | | | | |
Total assets | $ | 24 | | | $ | — | | | $ | — | | | | | $ | 24 | | | $ | 27 | | | $ | — | | | $ | — | | | | | $ | 27 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
CERC
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | | | Total | | Level 1 | | Level 2 | | Level 3 | | | Total |
Assets | (in millions) |
| | | | | | | | | | | | | | | | | | |
Investments, including money market funds (1) | $ | 14 | | | $ | — | | | $ | — | | | | | $ | 14 | | | $ | 14 | | | $ | — | | | $ | — | | | | $ | 14 | |
Total assets | $ | 14 | | | $ | — | | | $ | — | | | | | $ | 14 | | | $ | 14 | | | $ | — | | | $ | — | | | | $ | 14 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| 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 as of December 31, 2016 |
| (in millions) |
Assets | | | | | | | | | |
Corporate equities | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
|
Investments, including money market funds (2) | 10 |
| | — |
| | — |
| | — |
| | 10 |
|
Natural gas derivatives (3) | 11 |
| | 74 |
| | 20 |
| | (35 | ) | | 70 |
|
Total assets | $ | 24 |
| | $ | 74 |
| | $ | 20 |
| | $ | (35 | ) | | $ | 83 |
|
Liabilities | |
| | |
| | |
| | |
| | |
|
Natural gas derivatives (3) | $ | 4 |
| | $ | 56 |
| | $ | 7 |
| | $ | (21 | ) | | $ | 46 |
|
Total liabilities | $ | 4 |
| | $ | 56 |
| | $ | 7 |
| | $ | (21 | ) | | $ | 46 |
|
| |
(1) | Amounts represent the impact of legally enforceable master netting arrangements that allow CERC 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 Other Assets in the Condensed Consolidated Balance Sheets. |
| |
(3) | Natural gas derivatives include no material amounts related to physical forward transactions with Enable. |
(1)Amounts are included in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.
The following table presents additional information about assets or liabilities, including derivatives that are measured at fair value on a recurring basis for which CERC has utilized Level 3 inputs to determine fair value:
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| Derivative Assets and Liabilities, Net |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Beginning balance | $ | 28 |
| | $ | 16 |
| | $ | 13 |
| | $ | 12 |
|
Purchases (1) | — |
| | — |
| | — |
| | 12 |
|
Total gains | (2 | ) | | 9 |
| | 21 |
| | 13 |
|
Total settlements | (1 | ) | | (8 | ) | | (5 | ) | | (24 | ) |
Transfers into Level 3 | 7 |
| | — |
| | 9 |
| | 5 |
|
Transfers out of Level 3 | (6 | ) | | — |
| | (12 | ) | | (1 | ) |
Ending balance (2) | $ | 26 |
| | $ | 17 |
| | $ | 26 |
| | $ | 17 |
|
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 | $ | — |
| | $ | 6 |
| | $ | 17 |
| | $ | 14 |
|
| |
(1) | 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) | CERC did not have significant Level 3 sales during either of the three or nine months ended September 30, 2017 or 2016. |
Estimated Fair Value of Financial Instruments
The fair values of cash and cash equivalents, investments in debt and equity securities measured at fair value 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 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 a combination of historical trading prices and comparable issue data. These liabilities, which are not measured at fair value in the Registrants’ Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 2 in the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| CenterPoint Energy (1) | | Houston Electric (1) | | CERC | | CenterPoint Energy (1) | | Houston Electric (1) | | CERC |
Long-term debt, including current maturities | (in millions) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Carrying amount | $ | 13,870 | | | $ | 6,243 | | | $ | 3,180 | | | $ | 16,086 | | | $ | 5,495 | | | $ | 4,380 | |
Fair value | 14,056 | | | 6,378 | | | 3,277 | | | 17,385 | | | 6,230 | | | 4,682 | |
(1)Includes Securitization Bond debt.
(9) Goodwill and Other Intangibles (CenterPoint Energy and CERC)
Goodwill (CenterPoint Energy and CERC)
CenterPoint Energy’s goodwill by reportable segment is as follows:
| | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | | | | | March 31, 2022 |
| | (in millions) |
Electric (1) | | $ | 936 | | | | | | | $ | 936 | |
Natural Gas (2) | | 2,920 | | | | | | | 2,920 | |
Corporate and Other | | 438 | | | | | | | 438 | |
| | | | | | | | |
Total | | $ | 4,294 | | | | | | | $ | 4,294 | |
CERC’s goodwill is as follows:
| | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | | | | | March 31, 2022 |
| | (in millions) |
Goodwill (2) | | $ | 611 | | | | | | | $ | 611 | |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (in millions) |
Financial liabilities: | | | | | | | |
Long-term debt | $ | 2,636 |
| | $ | 2,854 |
| | $ | 2,375 |
| | $ | 2,551 |
|
(1)Amount presented is net of the accumulated goodwill impairment charge of $185 million recorded in 2020.
(8) Unconsolidated Affiliate
CERC Corp. has(2)Excludes $398 million and $144 million, respectively, of goodwill attributable to the ability to significantly influence the operatingArkansas and financial policies of Enable, a publicly traded MLP,Oklahoma Natural Gas businesses which was reflected on CenterPoint Energy’s and accordingly, accounts for its investment in Enable’s common units using the equity method of accounting.
CERC Corp.’s maximum exposure to loss related to Enable, a VIE in which CERC Corp. is not the primary beneficiary, is limited to its equity investment as presented in theCERC’s respective Condensed Consolidated Balance Sheets as of September 30, 2017 and outstanding current accounts receivable from Enable.
Transactions with Enable:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Reimbursement of transition services (1) | $ | — |
| | $ | 1 |
| | $ | 3 |
| | $ | 6 |
|
Natural gas expenses, including transportation and storage costs | 23 |
| | 22 |
| | 80 |
| | 79 |
|
Interest income related to notes receivable from Enable | — |
| | — |
| | — |
| | 1 |
|
| |
(1) | Represents amounts billed under the Transition Agreements for certain support services provided to Enable. Actual transition services costs are recorded net of reimbursement. |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (in millions) |
Accounts receivable for amounts billed for transition services | $ | 1 |
| | $ | 1 |
|
Accounts payable for natural gas purchases from Enable | 8 |
| | 10 |
|
Limited Partner Interest in Enable:
|
| | |
| September 30, 2017 |
CERC Corp. | 54.1 | % |
OGE | 25.7 | % |
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 CERC Corp.’s and OGE’s limited partner interest in Enable.
Enable Common Units Held:
|
| | |
| September 30, 2017 |
CERC Corp. | 233,856,623 |
|
OGE | 110,982,805 |
|
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.
Generally, sales of more than 5% of the aggregate of the common units CERC Corp. owns 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 CERC Corp.’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 CERC Corp. is not permitted to dispose of less than all of its interest in Enable’s general partner.
Summarized unaudited consolidated income informationCurrent assets held for Enable is as follows:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Operating revenues | | $ | 705 |
| | $ | 620 |
| | $ | 1,997 |
| | $ | 1,658 |
|
Cost of sales, excluding depreciation and amortization | | 349 |
| | 268 |
| | 936 |
| | 717 |
|
Impairment of goodwill and other long-lived assets | | — |
| | 8 |
| | — |
| | 8 |
|
Operating income | | 137 |
| | 139 |
| | 399 |
| | 299 |
|
Net income attributable to Enable | | 104 |
| | 110 |
| | 301 |
| | 231 |
|
| | | | | | | | |
Reconciliation of Equity in Earnings, net: | | | | | | | | |
CERC Corp.’s interest | | $ | 56 |
| | $ | 61 |
| | $ | 163 |
| | $ | 128 |
|
Basis difference amortization (1) | | 12 |
| | 12 |
| | 36 |
| | 36 |
|
CERC Corp.’s equity in earnings, net | | $ | 68 |
| | $ | 73 |
| | $ | 199 |
| | $ | 164 |
|
| |
(1) | Equity in earnings of unconsolidated affiliates includes CERC Corp.’s share of Enable’s earnings adjusted for the amortization of the basis difference of CERC Corp.’s original investment in Enable and its underlying equity in Enable’s net assets. The basis difference is amortized over approximately 33 years, the average life of the assets to which the basis difference is attributed. |
Summarized unaudited consolidated balance sheet information for Enable is as follows:
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (in millions) |
Current assets | | $ | 446 |
| | $ | 396 |
|
Non-current assets | | 10,816 |
| | 10,816 |
|
Current liabilities | | 831 |
| | 362 |
|
Non-current liabilities | | 2,740 |
| | 3,056 |
|
Non-controlling interest | | 12 |
| | 12 |
|
Preferred equity | | 362 |
| | 362 |
|
Enable partners’ equity | | 7,317 |
| | 7,420 |
|
| | | | |
Reconciliation of Equity Method Investment in Enable: | | | | |
CERC Corp.’s ownership interest in Enable partners’ capital | | $ | 4,007 |
| | $ | 4,067 |
|
CERC Corp.’s basis difference | | (1,526 | ) | | (1,562 | ) |
CERC Corp.’s equity method investment in Enable | | $ | 2,481 |
| | $ | 2,505 |
|
Distributions Received from Unconsolidated Affiliate:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Investment in Enable’s common units | | $ | 74 |
| | $ | 74 |
| | $ | 223 |
| | $ | 223 |
|
As of September 30, 2017, CERC Corp. and OGE also own 40% and 60%, respectively, of 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 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, within 60 days after the end 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 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. To date, no incentive distributions have been made.
(9) Goodwill
Goodwill by reportable business segmentsale as of December 31, 20162021 and changesdisposed following the completion of the sale in January 2022. For further information, see Note 3.
When a disposal group reflects a component of a reporting unit and meets the carrying amountdefinition of a business, the goodwill within that reporting unit is allocated to the disposal group based on the relative fair value of the components representing a business that will be retained and disposed. Goodwill attributable to the disposed Natural Gas businesses was classified as held for sale as of September 30, 2017December 31, 2021 and excluded from the table above.
Other Intangibles (CenterPoint Energy)
The tables below present information on CenterPoint Energy’s intangible assets, excluding goodwill, recorded in Other non-current assets on CenterPoint Energy’s Condensed Consolidated Balance Sheets and the related amortization expense included in Depreciation and amortization on CenterPoint Energy’s Condensed Statements of Consolidated Income.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance |
| | (in millions) |
Customer relationships | | $ | 33 | | | $ | (13) | | | $ | 20 | | | $ | 33 | | | $ | (12) | | | $ | 21 | |
| | | | | | | | | | | | |
Trade names | | 16 | | | (5) | | | 11 | | | 16 | | | (5) | | | 11 | |
| | | | | | | | | | | | |
Operation and maintenance agreements (1) | | 12 | | | (1) | | | 11 | | | 12 | | | (1) | | | 11 | |
Other | | 2 | | | (1) | | | 1 | | | 2 | | | (1) | | | 1 | |
Total | | $ | 63 | | | $ | (20) | | | $ | 43 | | | $ | 63 | | | $ | (19) | | | $ | 44 | |
(1)Amortization expense related to the operation and maintenance agreements and construction backlog is included in Non-utility cost of revenues, including natural gas on CenterPoint Energy’s Condensed Statements of Consolidated Income.
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | | | 2022 | | 2021 | |
| | | | (in millions) | |
Amortization expense of intangible assets recorded in Depreciation and amortization | | | | | $ | 1 | | | $ | 1 | | |
| | | | | | | | |
CenterPoint Energy estimates that amortization expense of intangible assets with finite lives for the next five years will be as follows:
| | | | | |
| Amortization Expense |
| |
| (in millions) |
Remaining nine months of 2022 | $ | 5 | |
2023 | 6 | |
2024 | 5 | |
2025 | 5 | |
2026 | 5 | |
2027 | 4 | |
(10) Equity Securities and Indexed Debt Securities (ZENS) (CenterPoint Energy)
(a) Equity Securities
During the three months ended March 31, 2022, CenterPoint Energy executed its previously announced plan to exit the midstream sector by selling the remaining Energy Transfer Common Units and Energy Transfer Series G Preferred Units it held
as discussed below. CenterPoint Energy used the proceeds from the these sales to redeem outstanding debt and pay incurred expenses associated with the early redemptions. See Note 11 for further information.
CenterPoint Energy’s sales of equity securities during the three months ended March 31, 2022 are as follows:
|
| | | | | | | | | | | | |
| December 31, 2016 | | AEM Acquisition (1) | | September 30, 2017 | |
| (in millions) | |
Natural Gas Distribution | $ | 746 |
| | $ | — |
| | $ | 746 |
| |
Energy Services | 105 |
| (2) | 5 |
| | 110 |
| (2) |
Other Operations | 11 |
| | — |
| | 11 |
| |
Total | $ | 862 |
| | $ | 5 |
| | $ | 867 |
| |
| |
(2) | Amount presented is net of the accumulated goodwill impairment charge of $252 million recorded in 2012. |
| | | | | | | | | | | | | | | | | | | |
Equity Security/Date Sold | | Units Sold | | | | Proceeds (1) | | | |
| | | | | | (in millions) |
Energy Transfer Common Units | | | | | | | | | |
February and March 2022 | | 50,999,768 | | | | | $ | 515 | | | | |
Energy Transfer Series G Preferred Units | | | | | | | | | |
March 2022 | | 192,390 | | | | | $ | 187 | | | | |
| | | | | | | | | |
CERC performs its goodwill impairment tests at least annually
(1)Proceeds are net of transaction costs.
Gains and evaluates goodwill when events or changeslosses on equity securities, net of transaction costs, are recorded in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed using a two-step process.Loss on Equity Securities in CenterPoint Energy’s Statements of Consolidated Income.
| | | | | | | | | | | | | | |
| | Gains (Losses) on Equity Securities |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
| | (in millions) |
AT&T Common | | $ | (10) | | | $ | 15 | |
Charter Common | | (93) | | | (38) | |
Energy Transfer Common Units | | 95 | | | — | |
Energy Transfer Series G Preferred Units | | (9) | | | — | |
| | | | |
| | $ | (17) | | | $ | (23) | |
| | | | |
In the first step, the fair valueCenterPoint Energy recorded net unrealized losses of each reporting unit 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 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$103 million 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$23 million for the difference.three months ended March 31, 2022 and 2021 respectively, for equity securities held as of March 31, 2022 and 2021.
CERC performedCenterPoint Energy and its annual impairment testsubsidiaries hold shares of certain securities detailed in the third quartertable below, which are classified as trading securities. Shares of 2017AT&T Common and determined, based on the results of the first step, that no impairment charge was required for any reportable segment.
(10) Related Party Transactions
CERC participates in a money pool through which it 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 poolCharter Common are expected to be met with borrowings underheld to facilitate CenterPoint Energy’s revolving credit facility orability to meet its obligation under the saleZENS.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Held | | Carrying Value |
| | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
| | | | | | (in millions) |
AT&T Common | | 10,212,945 | | | 10,212,945 | | | $ | 241 | | | $ | 251 | |
Charter Common | | 872,503 | | | 872,503 | | | 476 | | | 569 | |
Energy Transfer Common Units | | — | | | 50,999,768 | | | — | | | 420 | |
Energy Transfer Series G Preferred Units | | — | | | 192,390 | | | — | | | 196 | |
Other | | | | | | 3 | | | 3 | |
| | | | | | $ | 720 | | | $ | 1,439 | |
(b) ZENS
In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1.0 billion of which $828 million remained outstanding as of March 31, 2022. Each ZENS is 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 attributable to such note. The number and identity of the reference shares attributable to each ZENS are adjusted for certain corporate events.
CenterPoint Energy’s commercial paper. CERC had no investments inreference shares for each ZENS consisted of the money pool as of both September 30, 2017 and December 31, 2016, which would be included in accounts and notes receivable–affiliated companies in the Condensed Consolidated Balance Sheets. Affiliate related net interest income (expense) was not material for either the three or nine months ended September 30, 2017 or 2016.following:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (in shares) |
AT&T Common | 0.7185 | | | 0.7185 | |
Charter Common | 0.061382 | | | 0.061382 | |
| | | |
| | | |
CenterPoint Energy provides some corporate servicespays 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 CERC.the ZENS. The costsprincipal amount of services have been charged directlythe ZENS is subject to CERC using methodsincreases or decreases to the extent that management believes are reasonable. These methods include negotiated usage rates, dedicated asset assignmentthe annual yield from interest and proportionate corporate formulas basedcash dividends on operating expenses, assets, gross margin, employeesthe reference shares attributable to the ZENS is less than or more than 2.309%. The adjusted principal amount is defined in the ZENS instrument as “contingent principal.” As of March 31, 2022, the ZENS, having an original principal amount of $828 million and a compositecontingent principal amount of $33 million, were outstanding and were exchangeable, at the option of the holders, for cash equal to 95% of the market value of the reference shares attributable to the ZENS.
On May 17, 2021, AT&T announced that it had entered into a definitive agreement with Discovery, Inc. to combine their media assets gross margininto a new publicly traded company, Warner Bros. Discovery. The transaction closed on April 8, 2022. Pursuant to the definitive agreement, AT&T shareholders received 0.241917 shares of WBD Common for each share of AT&T Common owned, representing 71% of the new company. Upon the closing of the transaction, reference shares attributable to ZENS now consist of 0.7185 shares of AT&T Common, 0.061382 shares of Charter Common and employees. Houston Electric provides a number0.173817 shares of services to CERC. These services are billed at actual cost, either directly or as an allocation, and include fleet services, shop services, geographic services, surveying and right-of-way services, radio communications, data circuit management and field operations. Additionally, CERC provides certain services to Houston Electric. These services are billed at actual cost, either directly or as an allocation and include line locating and other miscellaneous services. These charges are not necessarily indicative of what would have been incurred had CERC not been an affiliate of CenterPoint Energy. Amounts charged to and by CERC for these services were as follows and are included primarily in operation and maintenance expenses:WBD Common.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Corporate service charges | $ | 30 |
| | $ | 31 |
| | $ | 93 |
| | $ | 90 |
|
Charges from Houston Electric for services provided | 3 |
| | 4 |
| | 11 |
| | 11 |
|
Billings to Houston Electric for services provided | (2 | ) | | (2 | ) | | (5 | ) | | (5 | ) |
See Note 8 for related party transactions with Enable.
(11) Short-term Borrowings and Long-term Debt
(a)Short-term Borrowings
Inventory Financing. NGD currently hasFinancing. CenterPoint Energy’s and CERC’s Natural Gas businesses have third-party AMAs associated with itstheir utility distribution service in Arkansas, northIndiana, Louisiana, Minnesota, Mississippi and Oklahoma that extend through 2020.Texas. The AMAs have varying terms, the longest of which expires in 2027. Pursuant to the provisions of the agreements, NGDCenterPoint Energy’s and CERC’s Natural Gas either sells natural gas to the asset manager and agrees to repurchase an equivalent amount of natural gas duringthroughout the winter heating seasonsyear at the same cost, plus a financing charge.or simply purchases its full natural gas requirements at each delivery point from the asset manager. These transactions are accounted for as an inventory financingfinancing. CenterPoint Energy and CERC had an$-0- and $7 million outstanding obligations related to the AMAs as of March 31, 2022 and December 31, 2021, respectively, recorded in Short-term borrowings on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets. Outstanding obligations related to third-party AMAs associated principal obligationwith utility distribution service in Arkansas and Oklahoma of $48 million and $35$36 million as of September 30, 2017 and December 31, 2016, respectively.2021 are reflected in current liabilities held for sale on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets. See Note 3 for further information.
Debt Issuances.Transactions. During the ninethree months ended September 30, 2017, CERC issuedMarch 31, 2022, the following unsecured senior notes:debt instruments were issued or incurred:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Registrant | | Issuance Date | | Debt Instrument | | Aggregate Principal Amount | | Interest Rate | | Maturity Date |
| | (in millions) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Houston Electric | | February 2022 | | General Mortgage Bonds | | $ | 300 | | | 3.00% | | 2032 |
Houston Electric | | February 2022 | | General Mortgage Bonds | | 500 | | | 3.60% | | 2052 |
| | | | Total Houston Electric (1) | | 800 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | Total CenterPoint Energy | | $ | 800 | | | | | |
|
| | | | | | | | |
Issuance Date | | Aggregate Principal Amount | | Interest Rate | | Maturity Date |
| | (in millions) | | | | |
August 2017 | | $ | 300 |
| | 4.10% | | 2047 |
The(1)Total proceeds, from thenet of discounts and issuance expenses and fees, of these unsecured senior notesapproximately $784 million were used for general corporatelimited liability company purposes, including capital expenditures and to repaythe repayment of all or a portion of Houston Electric’s borrowings under the CenterPoint Energy money pool.
Debt Repayments and Redemptions. During the three months ended March 31, 2022, the following debt instruments were repaid at maturity or redeemed prior to maturity with proceeds received from the sale of Energy Transfer units discussed further in Note 10:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Registrant | | Repayment/Redemption Date | | Debt Instrument | | Aggregate Principal | | Interest Rate | | Maturity Date |
| | | | | | (in millions) | | | | |
CERC (1) | | January 2022 | | Floating Rate Senior Notes | | $ | 425 | | | Three-month LIBOR plus 0.5% | | 2023 |
| | | | Total CERC | | 425 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
CenterPoint Energy (2) | | January 2022 | | First Mortgage Bonds | | 5 | | | 0.82% | | 2022 |
CenterPoint Energy (3) | | March 2022 | | Senior Notes | | 250 | | | 3.85% | | 2024 |
CenterPoint Energy (4) | | March 2022 | | Senior Notes | | 350 | | | 4.25% | | 2028 |
| | | | Total CenterPoint Energy | | $ | 1,030 | | | | | |
(1)In January 2022, CERC provided notice of partial redemption, and on January 31, 2022, CERC redeemed a portion of the outstanding commercial paper.
Revolving Credit Facility. In June 2017, CERC entered into an amendment to its revolving credit facility to extend the termination date thereof from March 3, 2021 to March 3, 2022 and to terminate the swingline loan subfacility thereunder. The amendment also increased the aggregate commitments by $300 million to $900 million under its revolving credit facility. In connection with the amendment to increase the aggregate commitments under its revolving credit facility, CERC increased the size of its commercial paper program to permit the issuance of commercial paper notes in an$1 billion aggregate principal amount notof the series at a redemption price equal to exceed $900100% of the principal amount, plus accrued and unpaid interest on the principal amount being redeemed.
(2)First Mortgage Bonds issued by SIGECO.
(3)In March 2022, CenterPoint Energy provided notice of redemption, and on March 31, 2022, CenterPoint Energy redeemed all of the remaining outstanding senior notes of the series at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest of approximately $2 million, the write off of issuance costs of $1 million and an applicable make-whole premium of approximately $7 million for a total redemption price of $260 million.
(4)In March 2022, CenterPoint Energy provided notice of partial redemption, and on March 31, 2022, CenterPoint Energy redeemed a portion ($350 million) of the outstanding $500 million aggregate principal amount of the series at any time outstanding.a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest of approximately $6 million, the write off of issuance costs of $3 million and an applicable make-whole premium of approximately $34 million for a total redemption price of $393 million.
As of September 30, 2017 and December 31, 2016, CERCCredit Facilities.
The Registrants had the following revolving credit facilities as of March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Execution Date | | Registrant | | Size of Facility | | Draw Rate of LIBOR plus (1) | | Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio | | Debt for Borrowed Money to Capital Ratio as of March 31, 2022 (2) | | Termination Date |
| | | | (in millions) | | | | | | | | |
February 4, 2021 | | CenterPoint Energy | | $ | 2,400 | | | 1.625% | | 65.0% | (3) | 56.9% | | February 4, 2024 |
February 4, 2021 | | CenterPoint Energy (4) | | 400 | | | 1.250% | | 65.0% | | 47.0% | | February 4, 2024 |
| | | | | | | | | | | | |
February 4, 2021 | | Houston Electric | | 300 | | | 1.375% | | 67.5% | (3) | 53.7% | | February 4, 2024 |
February 4, 2021 | | CERC | | 900 | | | 1.250% | | 65.0% | | 52.7% | | February 4, 2024 |
| | Total | | $ | 4,000 | | | | | | | | | |
(1)Based on current credit ratings.
(2)As defined in the revolving credit facility agreements, excluding Securitization Bonds.
(3)For CenterPoint Energy and utilizationHouston Electric, the financial covenant limit will temporarily increase 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 facility:certification.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2017 | | December 31, 2016 | |
Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | | Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | |
(in millions) | |
$ | 900 |
| | $ | — |
| | $ | — |
| | $ | 529 |
| (1) | $ | 600 |
| | $ | — |
| | $ | 4 |
| | $ | 569 |
| (1) |
(4)This credit facility was issued by VUHI, is guaranteed by SIGECO, Indiana Gas and VEDO and includes a $20 million letter of credit sublimit. This credit facility backstops VUHI’s commercial paper program.
| |
(1) | Weighted average interest rate was approximately 1.43% and 1.03% as of September 30, 2017 and December 31, 2016, respectively. |
|
| | | | | | | | | | | | | | |
Execution Date | | 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 September 30, 2017 | | Termination Date (3) |
| | (in millions) | | | | | | | | |
March 3, 2016 | | $ | 900 |
| (1) | 1.25 | % | | 65 | % | | 38.6% | | 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) | Amended on June 16, 2017 to extend the termination date as noted above. |
CERC Corp. wasThe Registrants, including the subsidiaries of CenterPoint Energy discussed above, were in compliance with all financial debt covenants as of September 30, 2017.March 31, 2022.
The table below reflects the utilization of the Registrants’ respective revolving credit facilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | | December 31, 2021 |
Registrant | | Loans | | Letters of Credit | | Commercial Paper (1) | | Weighted Average Interest Rate | | | Loans | | Letters of Credit | | Commercial Paper (1) | | Weighted Average Interest Rate |
| | (in millions, except weighted average interest rate) |
CenterPoint Energy | | $ | — | | | $ | 11 | | | $ | 325 | | | 0.54 | % | | | $ | — | | | $ | 11 | | | $ | 1,400 | | | 0.34 | % |
CenterPoint Energy (2) | | — | | | — | | | 260 | | | 0.58 | % | | | — | | | — | | | 350 | | | 0.21 | % |
| | | | | | | | | | | | | | | | | |
Houston Electric | | — | | | — | | | — | | | — | % | | | — | | | — | | | — | | | — | % |
CERC | | — | | | — | | | 123 | | | 0.54 | % | | | — | | | — | | | 899 | | | 0.26 | % |
Total | | $ | — | | | $ | 11 | | | $ | 708 | | | | | | $ | — | | | $ | 11 | | | $ | 2,649 | | | |
(1)Outstanding commercial paper generally has maturities of 60 days or less and each Registrants’ commercial paper program is backstopped by such Registrants’ long-term credit facilities. Houston Electric does not have a commercial paper program.
(2)This credit facility was issued by VUHI and is guaranteed by SIGECO, Indiana Gas and VEDO.
Liens. As of March 31, 2022, Houston Electric’s assets were subject to liens securing approximately $5.8 billion of general mortgage bonds, including approximately $68 million held in trust to secure pollution control bonds that mature in 2028 for which CenterPoint Energy is obligated. The general mortgage bonds that are held in trust to secure pollution control bonds are not reflected in Houston Electric’s consolidated financial statements because of the contingent nature of the obligations. As of March 31, 2022, Houston Electric could issue approximately $4.1 billion of additional general mortgage bonds on the basis of retired bonds and 70% of property additions.
Other. As of March 31, 2022, certain financial institutions agreed to issue, from time to time, up to $20 million of letters of credit on behalf of Vectren and certain of its subsidiaries in exchange for customary fees. These agreements to issue letters of credit expire on February 4, 2024. As of March 31, 2022, such financial institutions had issued $1 million of letters of credit on behalf of Vectren and certain of its subsidiaries.
(12) Income Taxes
The Registrants reported the following effective tax rates:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
CenterPoint Energy - Continuing operations (1) | | | | | 27 | % | | 15 | % |
CenterPoint Energy - Discontinued operations | | | | | — | % | | 23 | % |
Houston Electric (2) | | | | | 22 | % | | 13 | % |
CERC (3) | | | | | 26 | % | | 22 | % |
| | | | | | | |
(1)CenterPoint Energy’s higher effective tax rate on income from continuing operations for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily driven by the impact of the non-deductible goodwill associated with the sale of the Natural Gas businesses in Arkansas and Oklahoma, and a decrease in EDIT amortization of the net regulatory EDIT liability.
(2)Houston Electric’s higher effective tax rate for the three months ended March 31, 2022 compared to the same period in 2021 was primarily driven by a decrease in the amount of amortization of the net regulatory EDIT liability.
(3)CERC’s higher effective tax rate for the three months ended March 31, 2022 compared to the same period ended March 31, 2021 was primarily driven by the impact of the non-deductible goodwill associated with the sale of the Natural Gas businesses in Arkansas and Oklahoma, and an increase in EDIT amortization of the net regulatory EDIT liability.
CenterPoint Energy reported a net uncertain tax liability, inclusive of interest and penalties, of $4 million as of March 31, 2022. The Registrants believe that it is reasonably possible that a decrease of up to $3 million in unrecognized tax benefits may occur in the next 12 months as a result of a lapse of statutes on older exposures, a tax settlement, and/or a resolution of open audits.
Tax Audits and Settlements. Tax years through 2018 have been audited and settled with the IRS for CenterPoint Energy. For the 2019-2022 tax years, the Registrants are participants in the IRS’s Compliance Assurance Process. Vectren’s pre-Merger
2014-2019 tax years are currently under audit by the IRS.
(13) Commitments and Contingencies
(a) Natural Gas Supply CommitmentsPurchase Obligations (CenterPoint Energy and CERC)
Natural gas supply commitmentsCommitments include natural gas contractsminimum purchase obligations related to CenterPoint Energy’s and CERC’s Natural Gas Distributionreportable segment and Energy Services business segments, whichCenterPoint Energy’s Electric reportable segment. A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the registrant and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Contracts with minimum payment provisions have various quantity requirements and durations thatand are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2022 and December 31, 2016 as these2021. These contracts meet an exception as “normal purchases contracts” or do not meet the definition of a derivative. Natural gas and coal supply commitments
also include natural gas transportation contracts that do not meet the definition of a derivative.
On February 9, 2021, Indiana Electric entered into a BTA with a subsidiary of Capital Dynamics. Pursuant to the BTA, Capital Dynamics, with its partner Tenaska, originally planned to build a 300 MW solar array in Posey County, Indiana through a special purpose entity, Posey Solar. Upon completion of construction, currently projected to be at the end of 2023, and subject to IURC approval, which was received on October 27, 2021, Indiana Electric will acquire Posey Solar and its solar array assets for a fixed purchase price. Due to rising cost for the project, caused in part by supply chain issues in the energy industry, the rising cost of commodities and community feedback, CenterPoint Energy, along with Capital Dynamics, announced plans in January 2022 to downsize the project to approximately 200 MW. Indiana Electric collaboratively agreed to the scope change and is currently working through contract negotiations, contingent on further IURC review and approval.
As of September 30, 2017,March 31, 2022, undiscounted minimum purchase obligations are approximately:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | CERC |
| Natural Gas and Coal Supply | | Other (1) | | Natural Gas Supply |
| (in millions) |
Remaining nine months of 2022 | $ | 521 | | | $ | 99 | | | $ | 348 | |
2023 | 726 | | | 503 | | | 535 | |
2024 | 638 | | | 181 | | | 507 | |
2025 | 451 | | | 30 | | | 339 | |
2026 | 324 | | | 30 | | | 246 | |
2027 | 305 | | | 72 | | | 241 | |
2028 and beyond | 1,319 | | | 544 | | | 1,079 | |
(1)CenterPoint Energy’s undiscounted minimum payment obligations related to PPAs with commitments ranging from 15 to 25 years and its purchase commitment under its BTA in Posey County, Indiana are included above. The remaining undiscounted payment obligations relate primarily to technology hardware and software agreements.
Excluded from the table above are estimates for cash outlays from other PPAs through Indiana Electric that do not have minimum thresholds but do require payment when energy is generated by the provider. Costs arising from certain of these commitments are pass-through costs, generally collected dollar-for-dollar from retail customers through regulator-approved cost recovery mechanisms.
(b) Guarantees and Product Warranties (CenterPoint Energy)
In the normal course of business, Energy Systems Group enters into contracts requiring it to timely install infrastructure, operate facilities, pay vendors and subcontractors and support warranty obligations and, at times, issue payment and performance bonds and other forms of assurance in connection with these contracts.
Specific to Energy Systems Group’s role as a general contractor in the performance contracting industry, as of March 31, 2022, there were 53 open surety bonds supporting future performance with an aggregate face amount of approximately $527 million. Energy Systems Group’s exposure is less than the face amount of the surety bonds and is limited to the level of uncompleted work under the contracts. As of March 31, 2022, approximately 39% of the work was yet to be completed on projects with open surety bonds. Further, various subcontractors issue surety bonds to Energy Systems Group. In addition to these performance obligations, Energy Systems Group also warrants the functionality of certain installed infrastructure generally for one year and the associated energy savings over a specified number of years. As of March 31, 2022, there were 37 warranties totaling $549 million and an additional $1.2 billion in energy savings commitments not guaranteed by Vectren. Since Energy Systems Group’s inception in 1994, CenterPoint Energy believes Energy Systems Group has had a history of generally meeting its performance obligations and energy savings guarantees and its installed products have operated effectively. CenterPoint Energy assessed the fair value of its obligation for such guarantees as of March 31, 2022 and no amounts were recorded on CenterPoint Energy’s Condensed Consolidated Balance Sheets.
CenterPoint Energy issues parent company level guarantees to certain vendors, customers and other commercial counterparties of Energy Systems Group. These guarantees do not represent incremental consolidated obligations, but rather, represent guarantees of subsidiary obligations to allow those subsidiaries to conduct business without posting other forms of assurance. As of March 31, 2022, CenterPoint Energy, primarily through Vectren, has issued parent company level guarantees supporting Energy Systems Group’s obligations. For those obligations where potential exposure can be estimated, management estimates the maximum exposure under these guarantees to be approximately $511 million as of March 31, 2022. This exposure primarily relates to energy savings guarantees on federal energy savings performance contracts. Other parent company level guarantees, certain of which do not contain a cap on potential liability, have been issued in support of federal operations and maintenance projects for which a maximum exposure cannot be estimated based on the nature of the projects. While there can be no assurance that performance under any of these parent company guarantees will not be required in the future, CenterPoint Energy considers the likelihood of a material amount being incurred as remote.
(c)Guarantees and Product Warranties (CenterPoint Energy and CERC)
On February 24, 2020, CenterPoint Energy, through its subsidiary CERC Corp., entered into the Equity Purchase Agreement to sell the Energy Services Disposal Group. The transaction closed on June 1, 2020. In the normal course of business prior to June 1, 2020, the Energy Services Disposal Group through CES, traded natural gas under supply commitments are approximately:contracts and entered into natural gas related transactions under transportation, storage and other contracts. In connection with the Energy Services Disposal Group’s business activities prior to the closing of the sale of the Energy Services Disposal Group on June 1, 2020, CERC Corp. issued guarantees to certain of CES’s counterparties to guarantee the payment of CES’s obligations. When CES remained wholly owned by CERC Corp., these guarantees did not represent incremental consolidated obligations, but rather, these guarantees represented guarantees of CES’s obligations to allow it to conduct business without posting other forms of assurance.
A CERC Corp. guarantee primarily had a one- or two-year term, although CERC Corp. would generally not be released from obligations incurred by CES prior to the termination of such guarantee unless the beneficiary of the guarantee affirmatively released CERC Corp. from its obligations under the guarantee. Throughout CERC Corp.’s ownership of CES and subsequent to the sale of the Energy Services Disposal Group through March 31, 2022, CERC Corp. did not pay any amounts under guarantees of CES’s obligations.
Under the terms of the Equity Purchase Agreement, Symmetry Energy Solutions Acquisition must generally use reasonable best efforts to replace existing CERC Corp. guarantees with credit support provided by a party other than CERC Corp. as of and after the closing of the transaction. Additionally, to the extent that CERC Corp. retains any exposure relating to certain guarantees of CES’s obligations 90 days after closing of the transaction, Symmetry Energy Solutions Acquisition will pay a 3% annualized fee on such exposure, increasing by 1% on an annualized basis every three months. As of March 31, 2022, management estimates approximately $6 million of exposure remained outstanding under CERC Corp. guarantees issued prior to the closing of the transaction on June 1, 2020. If CERC Corp. is required to pay a counterparty under a guarantee in respect of obligations of CES, Symmetry Energy Solutions Acquisition is required to promptly reimburse CERC Corp. for all amounts paid. While there can be no assurance that payment under any of these guarantees will not be required in the future, CenterPoint Energy and CERC consider the likelihood of a material amount being incurred as remote.
|
| | | |
| (in millions) |
Remaining three months of 2017 | $ | 169 |
|
2018 | 507 |
|
2019 | 348 |
|
2020 | 166 |
|
2021 | 76 |
|
2022 and beyond | 113 |
|
CenterPoint Energy and CERC recorded no amounts on their respective Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 related to the performance of these guarantees.
(b)(d) Legal, Environmental and Other Matters
Legal Matters
Gas Market Manipulation Cases.Litigation Related to the February 2021 Winter Storm Event.Various legal matters are still proceeding with respect to the February 2021 Winter Storm Event. As of March, 31, 2022, CenterPoint Energy and Houston Electric or their predecessor, Relianthave been named as a defendant in over 100 lawsuits related to the February 2021 Winter Storm Event. Like other Texas energy companies and TDUs, CenterPoint Energy and Houston Electric have become involved in certain ofinvestigations, litigation and other regulatory and legal proceedings regarding their former subsidiariesefforts to restore power and their compliance with NERC, ERCOT and PUCT rules and directives. CenterPoint Energy and Houston Electric, along with ERCOT, power generation companies, other TDUs, retail electric providers, and other entities, have received, and may continue to receive, claims and lawsuits filed by plaintiffs alleging wrongful death, personal injury, property damage and other injuries and damages. CenterPoint Energy and Houston Electric, along with numerous other entities, have been named as defendants in certain lawsuits described below. Undersuch litigation, all of which is now pending in Texas state court in Harris County, Texas, as part of a master separation agreement betweenmulti-district litigation proceeding. The judge overseeing the multi-district litigation has issued an initial case management order, stayed discovery, and will first entertain dispositive motions in 5 representative or “bellwether” cases, which will likely be decided later this year and then likely appealed. CenterPoint Energy and a former subsidiary, RRI, Houston Electric intend to vigorously defend themselves against the claims raised.
CenterPoint Energy and its subsidiariesHouston Electric have also responded to inquiries from the Texas Attorney General and the Galveston County District Attorney’s Office, and various other regulatory and governmental entities have conducted or are entitled to be indemnified by RRI and its successors for any losses, including certain attorneys’ feesconducting inquiries, investigations 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-owned subsidiary of RRI, and RRI changed its name to GenOn. In December 2012, NRG acquired GenOn through a merger in which GenOn became a wholly-owned subsidiary of NRG. Nonereviews of the saleFebruary 2021 Winter Storm Event and the efforts made by various entities to prepare for, and respond to, the event, including the electric generation shortfall issues.Such other entities include the United States Congress, FERC, NERC, Texas RE, ERCOT, Texas government entities and officials such as the Texas Governor’s office, the Texas Legislature, the PUCT, the City 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 indemnifyHouston and other municipal and county entities in Houston Electric’s service territory.
Additionally, CenterPoint Energy and its subsidiaries, includingCERC have responded to inquiries from the Arkansas, Minnesota and Oklahoma Attorneys General. CenterPoint Energy, Houston Electric for certain liabilities, including their indemnification obligations regardingand CERC are unable to predict the gas market manipulation litigation.
A large numberoutcome or consequences of lawsuits were filed against numerous gas market participants in a number of federal and western state courts in connection with the operationany of the natural gas markets in 2000–2002. CenterPoint Energy and its affiliates have since been releasedforegoing matters or dismissed from all such cases. CES,to estimate a subsidiaryrange of CERC Corp., was a defendant in a case now pending in federal court in Nevada alleging a conspiracy to inflate Wisconsin natural gas prices in 2000–2002. On May 24, 2016, the district court granted CES’s motion for summary judgment, dismissing CES from the case. The plaintiffs have appealed that ruling. CenterPoint Energy and CES intend to continue vigorously defending against the plaintiffs’ claims. In June 2017, GenOn and various affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy Code. CenterPoint Energy, CERC, 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 has been assumed in the gas market manipulation litigation, then CERC, CenterPoint Energy or Houston Electric could incur liability and be responsible for satisfying the liability. CERC does not expect the ultimate outcome of the case against CES to have a material adverse effect on its financial condition, results of operations or cash flows.potential losses.
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, including CERC Corp., and the contractor company working in the school have been named in litigation arising out of this incident. Additionally, CenterPoint Energy is cooperating with ongoing investigations conducted by the National Transportation Safety Board, the Minnesota Occupational Safety and Health Administration and the Minnesota Office of Pipeline Safety. CenterPoint Energy’s general and excess liability insurance policies provide coverage for third party bodily injury and property damage claims.
Environmental Matters
MGP Sites. CenterPoint Energy, CERC and itstheir predecessors, including predecessors of Vectren, operated MGPs in the past. The costs CenterPoint Energy or CERC, as applicable, expect to incur to fulfill their respective obligations are estimated by management using assumptions based on actual costs incurred, the timing of expected future payments and inflation factors, among others. While CenterPoint Energy and CERC have recorded obligations for all costs which are probable and estimable, including amounts they are presently obligated to incur in connection with activities at these sites, it is possible that future events may require remedial activities which are not presently foreseen, and those costs may not be subject to PRP or insurance recovery.
(i)Minnesota MGPs (CenterPoint Energy and CERC). With respect to certain Minnesota MGP sites, CenterPoint Energy and CERC hashave completed state-ordered remediation and continuescontinue state-ordered monitoring and water treatment. As of September 30, 2017,CenterPoint Energy and CERC hadrecorded a recorded liability of $7 millionas reflected in the table below for continued monitoring and any future remediation required by regulators in Minnesota.
(ii)Indiana MGPs (CenterPoint Energy). In the Indiana Gas service territory, the existence, location and certain general characteristics of 26 gas manufacturing and storage sites have been identified for which CenterPoint Energy may have some remedial responsibility. A remedial investigation/feasibility study was completed at one of the sites under an agreed upon order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. The remaining sites have been submitted to the IDEM’s VRP. CenterPoint Energy has also identified its involvement in 5 manufactured gas plant sites in SIGECO’s service territory, all of which are currently enrolled in the IDEM’s VRP. CenterPoint Energy is currently conducting some level of remedial activities, including groundwater monitoring at certain sites.
(iii)Other MGPs(CenterPoint Energy and CERC). In addition to the Minnesota and Indiana sites, the EPA and other regulators have investigated MGP sites that were owned or operated by CenterPoint Energy or CERC or may have been owned by one of their former affiliates.
Total costs that may be incurred in connection with addressing these sites cannot be determined at this time. The estimated accrued costs are limited to CenterPoint Energy’s and CERC’s share of the remediation efforts and are therefore net of exposures of other PRPs. The estimated range of possible remediation costs for the sites for which CenterPoint Energy and CERC believes itbelieve they may have responsibility was $4 million to $30 million based on remediation continuing for 30 to 50 years. the minimum time frame given in the table below.
| | | | | | | | | | | |
| March 31, 2022 |
| CenterPoint Energy | | CERC |
| (in millions, except years) |
Amount accrued for remediation | $ | 17 | | | $ | 12 | |
Minimum estimated remediation costs | 12 | | | 9 | |
Maximum estimated remediation costs | 51 | | | 29 | |
Minimum years of remediation | 5 | | 30 |
Maximum years of remediation | 50 | | 50 |
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 depend on the number of sites to be remediated, the participation of other PRPs, if any, and the remediation methods used.
In addition to the Minnesota sites, the Environmental Protection AgencyCenterPoint Energy 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 doesdo not expect the ultimate outcome of these matters to have a material adverse effect on itsthe financial condition, results of operations or cash flows.flows of either CenterPoint Energy or CERC.
Asbestos.Some facilities owned by CERCthe Registrants or itstheir predecessors contain or have contained asbestos insulation and other asbestos-containing materials. CERC and its predecessor companiesThe Registrants are from time to time named, along with numerous others, as defendants in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos, and CERC anticipatesthe Registrants anticipate that additional claims may be asserted in the future. Although their ultimate outcome cannot be predicted at this time, CERC doesthe Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on itstheir financial condition, results of operations or cash flows.
CCR Rule (CenterPoint Energy). In April 2015, the EPA finalized its CCR Rule, which regulates ash as non-hazardous material under the RCRA. The final rule allows beneficial reuse of ash, and the majority of the ash generated by Indiana Electric’s generating plants will continue to be reused. In July 2018, the EPA released its final CCR Rule Phase I Reconsideration which extended the deadline to October 31, 2020 for ceasing placement of ash in ponds that exceed groundwater protections standards or that fail to meet location restrictions. In August 2019, the EPA proposed additional “Part A” amendments to its CCR Rule with respect to beneficial reuse of ash and other materials. Further “Part B” amendments, which related to alternate liners for CCR surface impoundments and the surface impoundment closure process, were published in March 2020. The Part A amendments were finalized in August 2020 and extended the deadline to cease placement of ash in ponds to April 11, 2021, discussed further below. The EPA published the final Part B amendments in November 2020. The Part A amendments do not restrict Indiana Electric’s current beneficial reuse of its fly ash. CenterPoint Energy evaluated the Part B amendments to determine potential impacts and determined that the Part B amendments did not have an impact on its current plans. Shortly after taking office in January 2021, President Biden signed an executive order requiring agencies to review environmental actions taken by the Trump administration, including the CCR Rule Phase I Reconsideration, the Part A amendments, and the Part B amendments; the EPA has completed its review of the Phase I Reconsideration, Part A amendments, and Part B amendments and determined that the most environmentally protective course is to implement the rules.
Indiana Electric has 3 ash ponds, 2 at the F.B. Culley facility (Culley East and Culley West) and 1 at the A.B. Brown facility. Under the existing CCR Rule, Indiana Electric is required to perform integrity assessments, including ground water monitoring, at its F.B. Culley and A.B. Brown generating stations. The ground water studies are necessary to determine the remaining service life of the ponds and whether a pond must be retrofitted with liners or closed in place. Indiana Electric’s Warrick generating unit is not included in the scope of the CCR Rule as this unit has historically been part of a larger generating station that predominantly serves an adjacent industrial facility. Preliminary groundwater monitoring indicates potential groundwater impacts very close to Indiana Electric’s ash impoundments, and further analysis is ongoing. The CCR Rule required companies to complete location restriction determinations by October 18, 2018. Indiana Electric completed its evaluation and determined that 1 F.B. Culley pond (Culley East) and the A.B. Brown pond fail the aquifer placement location
restriction. As a result of this failure, Indiana Electric was required to cease disposal of new ash in the ponds and commence closure of the ponds by April 11, 2021, unless approved for an extension. CenterPoint Energy has applied for the extensions available under the CCR Rule that would allow Indiana Electric to continue to use the ponds through October 15, 2023. The EPA is still reviewing industry extension requests, including CenterPoint Energy’s extension request. Companies can continue to operate ponds pending completion of the EPA’s evaluation of the requests for extension. If the EPA denies a full extension request, that denial may result in increased and potentially significant operational costs in connection with the accelerated implementation of an alternative ash disposal system or may adversely impact Indiana Electric’s future operations. Failure to comply with a cease waste receipt could also result in an enforcement proceeding, resulting in the imposition of fines and penalties. On April 24, 2019, Indiana Electric received an order from the IURC approving recovery in rates of costs associated with the closure of the Culley West pond, which has already completed closure activities. On August 14, 2019, Indiana Electric filed its petition with the IURC for recovery of costs associated with the closure of the A.B. Brown ash pond, which would include costs associated with the excavation and recycling of ponded ash. This petition was subsequently approved by the IURC on May 13, 2020. On October 28, 2020, the IURC approved Indiana Electric’s ECA proceeding, which included the initiation of recovery of the federally mandated project costs.
Indiana Electric continues to refine site specific estimates of closure costs for its 10-acre Culley East pond. In July 2018, Indiana Electric filed a Complaint for Damages and Declaratory Relief against its insurers seeking reimbursement of defense, investigation and pond closure costs incurred to comply with the CCR Rule, and has since reached confidential settlement agreements with its insurers. The proceeds of these settlements will offset costs that have been and will be incurred to close the ponds.
As of March 31, 2022, CenterPoint Energy has recorded an approximate $90 million ARO, which represents the discounted value of future cash flow estimates to close the ponds at A.B. Brown and F.B. Culley. This estimate is subject to change due to the contractual arrangements; continued assessments of the ash, closure methods, and the timing of closure; implications of Indiana Electric’s generation transition plan; changing environmental regulations; and proceeds received from the settlements in the aforementioned insurance proceeding. In addition to these AROs, Indiana Electric also anticipates equipment purchases of between $60 million and $80 million to complete the A.B. Brown closure project.
Clean Water Act Permitting of Groundwater Discharges. In April 2021, the U.S. Supreme Court issued an opinion providing that indirect discharges via groundwater or other non-point sources are subject to permitting and liability under the Clean Water Act when they are the functional equivalent of a direct discharge. The Registrants are evaluating the extent to which this decision will affect Clean Water Act permitting requirements and/or liability for their operations.
Other Environmental.From time to time, CERC identifiesthe Registrants identify the presence of environmental contaminants during its operations or on property where its predecessor companiestheir predecessors have conducted operations. Other such sites involving contaminants may be identified in the future. CERC hasThe Registrants have and expectsexpect to continue to remediate any identified sites consistent with itsstate and federal legal obligations. From time to time, CERC hasthe Registrants have 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, CERC hasthe Registrants have been, or may be, named from time to time as a defendantdefendants in litigation related to such sites. Although the ultimate outcome of such matters cannot be predicted at this time, CERC doesthe Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on itstheir financial condition, results of operations or cash flows.
Other Proceedings
CERC isThe Registrants are 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, CERC isthe Registrants are also a defendantdefendants 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. CERCThe Registrants regularly analyzesanalyze current information and, as necessary, providesprovide accruals for probable and reasonably estimable liabilities on the eventual disposition of these matters. CERC doesThe Registrants do not expect the disposition of these matters to have a material adverse effect on itsthe Registrants’ financial condition, results of operations or cash flows.
(13) Income Taxes(14) Earnings Per Share (CenterPoint Energy)
The effective tax rate reportedSeries C Preferred Stock issued in May 2020 were considered participating securities since these shares participated in dividends on Common Stock on a pari passu, pro rata, as-converted basis. As a result, beginning June 30, 2020, earnings per share on Common Stock was computed using the two-class method required for participating securities during the periods the Series C Preferred Stock was outstanding. As of May 7, 2021, all of the remaining outstanding Series C Preferred Stock were
converted into shares of Common Stock and earnings per share on Common Stock and, as such, the two-class method was no longer applicable beginning June 30, 2021.
The two-class method uses an earnings allocation formula that treats participating securities as having rights to earnings that otherwise would have been available only to common shareholders. Under the two-class method, income (loss) available to common shareholders from continuing operations is derived by subtracting the following from income (loss) from continuing operations:
•preferred share dividend requirement;
•deemed dividends for the amortization of the beneficial conversion feature recognized at issuance of the Series C Preferred Stock; and
•an allocation of undistributed earnings to preferred shareholders of participating securities (Series C Preferred Stock) based on the securities’ right to receive dividends.
Undistributed earnings are calculated by subtracting dividends declared on Common Stock, the preferred share dividend requirement and deemed dividends for the amortization of the beneficial conversion feature from net income. Net losses are not allocated to the Series C Preferred Stock as it does not have a contractual obligation to share in the losses of CenterPoint Energy.
Basic earnings per common share is computed by dividing income available to common shareholders from continuing operations by the basic weighted average number of common shares outstanding during the period. Participating securities are excluded from basic weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing income available to common shareholders from continuing operations by the weighted average number of common shares outstanding, including all potentially dilutive common shares, if the effect of such common shares is dilutive.
Diluted earnings per share reflects the dilutive effect of potential common shares from share-based awards and convertible preferred shares. The dilutive effect of Series B Preferred Stock and Series C Preferred Stock is computed using the if-converted method, as applicable, which assumes conversion of Series B Preferred Stock and Series C Preferred Stock at the beginning of the period, giving income recognition for the add-back of the preferred share dividends, amortization of beneficial conversion feature, and undistributed earnings allocated to preferred shareholders. The dilutive effect of restricted stock is computed using the treasury stock method, as applicable, which includes the incremental shares that would be hypothetically vested in excess of the number of shares assumed to be hypothetically repurchased with the assumed proceeds.
The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings per common share.
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| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
| (in millions, except per share and share amounts) | | | | |
Numerator: | | | | | | | |
Income from continuing operations | $ | 531 | | | $ | 280 | | | | | |
Less: Preferred stock dividend requirement (Note 18) | 13 | | | 29 | | | | | |
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Less: Undistributed earnings allocated to preferred shareholders (1) | — | | | 23 | | | | | |
Income available to common shareholders from continuing operations - basic | 518 | | | 228 | | | | | |
Add back: Series B Preferred Stock dividend | — | | | 17 | | | | | |
Add back: Undistributed earnings allocated to preferred shareholders (1) | — | | | 23 | | | | | |
Income available to common shareholders from continuing operations - diluted | 518 | | | 268 | | | | | |
Income available to common shareholders from discontinued operations - basic and diluted | — | | | 83 | | | | | |
Income available to common shareholders - basic and diluted | $ | 518 | | | $ | 351 | | | | | |
Denominator: | | | | | | | |
Weighted average common shares outstanding - basic | 629,134,000 | | | 551,546,000 | | | | | |
Plus: Incremental shares from assumed conversions: | | | | | | | |
Restricted stock | 2,170,000 | | | 3,114,000 | | | | | |
Series B Preferred Stock | — | | | 35,937,000 | | | | | |
Series C Preferred Stock | — | | | 40,823,000 | | | | | |
Weighted average common shares outstanding - diluted | 631,304,000 | | | 631,420,000 | | | | | |
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Earnings Per Common Share: | | | | | | | |
Basic earnings per common share - continuing operations | $ | 0.82 | | | $ | 0.41 | | | | | |
Basic earnings per common share - discontinued operations | — | | | 0.15 | | | | | |
Basic Earnings Per Common Share | $ | 0.82 | | | $ | 0.56 | | | | | |
Diluted earnings per common share - continuing operations | $ | 0.82 | | | $ | 0.43 | | | | | |
Diluted earnings per common share - discontinued operations | — | | | 0.13 | | | | | |
Diluted Earnings Per Common Share | $ | 0.82 | | | $ | 0.56 | | | | | |
(1)There were no undistributed earnings to be allocated to participating securities for the three months ended September 30, 2017 was 40% compared to 38% for the same period in 2016. March 31, 2022.
(15) Reportable Segments
The effective tax rate reported for the nine months ended September 30, 2017 was 38% compared to 40% for the same period in 2016. The higher effective tax rate for the nine months ended September 30, 2016 was due to a Louisiana state tax law change resulting in an increase to CERC’s deferred tax liability.
CERC reported no uncertain tax liability as of September 30, 2017 and expects no significant change to the uncertain tax liability over the next twelve months. CenterPoint Energy’s consolidated federal income tax returns have been audited and settled through 2015. For the 2016 and 2017 tax years, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process.
(14) Reportable Business Segments
CERC’sRegistrants’ determination of reportable business segments considers the strategic operating units under which itits CODM manages sales, allocates resources and assesses performance of various products and services to wholesale or retail customers in differing regulatory environments. CERC uses operatingEach Registrant’s CODM views net income as the measure of profit or loss for its business segments other than Midstream Investments, where it uses equity in earnings of unconsolidated affiliates.
CERC’sthe reportable business segments includesegments. Certain prior year amounts have been reclassified for discontinued operations as described below. Additionally, during the following:three months ended March 31, 2022, CenterPoint Energy sold certain assets previously owned by entities within Corporate and Other to businesses within the Electric and Natural Gas Distribution,reportable segments. Prior year amounts were reclassified as a result of this transaction in the three months ended March 31, 2022 and as described in the combined 2021 Form 10-K.
In 2021, CenterPoint Energy’s equity investment in Enable was classified and presented as held for sale and discontinued operations. On December 2, 2021, Enable completed the previously announced Enable Merger pursuant to the Enable Merger Agreement entered into on February 16, 2021. See Note 3 for further information.
As of March 31, 2022, reportable segments by Registrant were as follows:
CenterPoint Energy Services, Midstream Investments
•CenterPoint Energy’s Electric reportable segment consisted of electric transmission and Other Operations.distribution services in the Texas gulf coast area in the ERCOT region and electric transmission and distribution services primarily to southwestern Indiana and includes power generation and wholesale power operations in the MISO region.
•CenterPoint Energy’s Natural Gas Distributionreportable segment consists of (i) intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers. customers in Indiana, Louisiana, Minnesota, Mississippi, Ohio and Texas; and (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.
CenterPoint Energy’s Corporate and Other category consists of energy performance contracting and sustainable infrastructure services through Energy Services represents Systems Group and other corporate operations which support all of the business operations of CenterPoint Energy.
Houston Electric
•Houston Electric’s single reportable segment consisted of electric transmission services to transmission service customers in the ERCOT region and distribution services to REPs serving the Texas gulf coast area.
CERC
•CERC’s non-rate regulatedsingle reportable segment consisted of (i) intrastate natural gas sales to, and services operations. Midstream Investments consists of CERC’s equity investmentnatural gas transportation and distribution for residential, commercial, industrial and institutional customers in Enable. The Other Operations business segment includes unallocated corporate costsLouisiana, Minnesota, Mississippi and inter-segment eliminations.Texas; and (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.
Financial data for businessreportable segments is as follows:follows, including Corporate and Other and Discontinued Operations for reconciliation purposes:
CenterPoint Energy
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| Three Months Ended March 31, | | | | | | | |
| 2022 | | 2021 | | | | | | | |
| Revenues from External Customers | | | | Net Income | | Revenues from External Customers | | | | Net Income (Loss) | | | | | | | |
| (in millions) | | | | | | | |
Electric | $ | 893 | | (1) | | | $ | 82 | | | $ | 830 | | (1) | | | $ | 75 | | | | | | | | |
Natural Gas | 1,824 | | | | | 398 | | | 1,663 | | | | | 229 | | | | | | | | |
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Corporate and Other | 46 | | | | | 51 | | | 54 | | | | | (24) | | | | | | | | |
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Continuing Operations | $ | 2,763 | | | | | 531 | | | $ | 2,547 | | | | | 280 | | | | | | | | |
Discontinued Operations, net | | | | | — | | | | | | | 83 | | | | | | | | |
Consolidated | | | | | $ | 531 | | | | | | | $ | 363 | | | | | | | | |
(1)Houston Electric revenues from major external customers are as follows (CenterPoint Energy and Houston Electric):
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| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 |
| | | | | (in millions) |
Affiliates of NRG | | | | | | $ | 225 | | | $ | 195 | |
Affiliates of Vistra Energy Corp. | | | | | | 105 | | | 88 | |
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| For the Three Months Ended September 30, 2017 |
| Revenues from External Customers | | Inter-segment Revenues | | Operating Income |
| (in millions) |
Natural Gas Distribution | $ | 390 |
| | $ | 8 |
| | $ | 19 |
|
Energy Services | 861 |
| | 10 |
| | 7 |
|
Midstream Investments (1) | — |
| | — |
| | — |
|
Other Operations | — |
| | — |
| | — |
|
Reconciling Eliminations | — |
| | (18 | ) | | — |
|
Consolidated | $ | 1,251 |
| | $ | — |
| | $ | 26 |
|
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| Total Assets |
| March 31, 2022 | | December 31, 2021 |
| (in millions) |
Electric | $ | 17,258 | | | $ | 16,547 | |
Natural Gas | 16,306 | | | 16,267 | |
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Corporate and Other, net of eliminations (1) | 1,638 | | | 2,527 | |
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Continuing Operations | 35,202 | | | 35,341 | |
Assets Held for Sale | — | | | 2,338 | |
Consolidated | $ | 35,202 | | | $ | 37,679 | |
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(1)Total assets included pension and other postemployment-related regulatory assets of $423 million and $427 million as of March 31, 2022 and December 31, 2021, respectively.
Houston Electric
Houston Electric consists of a single reportable segment; therefore, a tabular reportable segment presentation has not been included.
CERC
CERC consists of a single reportable segment; therefore, a tabular reportable segment presentation has not been included.
(16) Supplemental Disclosure of Cash Flow Information
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| For the Three Months Ended September 30, 2016 |
| Revenues from External Customers | | Inter-segment Revenues | | Operating Income (Loss) |
| (in millions) |
Natural Gas Distribution | $ | 370 |
| | $ | 7 |
| | $ | 22 |
|
Energy Services | 608 |
| | 6 |
| | 5 |
|
Midstream Investments (1) | — |
| | — |
| | — |
|
Other Operations | — |
| | — |
| | (1 | ) |
Reconciling Eliminations | — |
| | (13 | ) | | — |
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Consolidated | $ | 978 |
| | $ | — |
| | $ | 26 |
|
The table below provides supplemental disclosure of cash flow information: |
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| For the Nine Months Ended September 30, 2017 | | |
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| Revenues from External Customers | | Inter-segment Revenues | | Operating Income (Loss) | | Total Assets as of September 30, 2017 |
| (in millions) |
Natural Gas Distribution | $ | 1,767 |
| | $ | 24 |
| | $ | 220 |
| | $ | 6,067 |
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Energy Services | 2,964 |
| | 34 |
| | 58 |
| | 1,337 |
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Midstream Investments (1) | — |
| | — |
| | — |
| | 2,481 |
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Other Operations | — |
| | — |
| | (5 | ) | | 73 |
|
Reconciling Eliminations | — |
| | (58 | ) | | — |
| | (582 | ) |
Consolidated | $ | 4,731 |
| | $ | — |
| | $ | 273 |
| | $ | 9,376 |
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| Three Months Ended March 31, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Cash Payments/Receipts: | | | | | | | | | | | |
Interest, net of capitalized interest | $ | 134 | | | $ | 63 | | | $ | 24 | | | $ | 159 | | | $ | 70 | | | $ | 21 | |
Income tax refunds, net | (15) | | | — | | | — | | | (4) | | | — | | | — | |
Non-cash transactions: | | | | | | | | | | | |
Accounts payable related to capital expenditures | 307 | | | 232 | | | 79 | | | 166 | | | 140 | | | 56 | |
ROU assets obtained in exchange for lease liabilities (1) | — | | | — | | | — | | | 1 | | | — | | | — | |
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(1) Excludes ROU assets obtained through prepayment of the lease liabilities. See Note 19. |
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| For the Nine Months Ended September 30, 2016 | | |
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| Revenues from External Customers | | Inter-segment Revenues | | Operating Income (Loss) | | Total Assets as of December 31, 2016 |
| (in millions) |
Natural Gas Distribution | $ | 1,672 |
| | $ | 21 |
| | $ | 202 |
| | $ | 6,099 |
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Energy Services | 1,433 |
| | 17 |
| | 11 |
| | 1,102 |
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Midstream Investments (1) | — |
| | — |
| | — |
| | 2,505 |
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Other Operations | — |
| | — |
| | (3 | ) | | 75 |
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Reconciling Eliminations | — |
| | (38 | ) | | — |
| | (563 | ) |
Consolidated | $ | 3,105 |
| | $ | — |
| | $ | 210 |
| | $ | 9,218 |
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(1) | Midstream Investments’ equity earnings are as follows: |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Enable | | $ | 68 |
| | $ | 73 |
| | $ | 199 |
| | $ | 164 |
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(15) Other Current AssetsThe table below provides a reconciliation of cash, cash equivalents and Liabilities
Includedrestricted cash reported in other current assets on the Condensed Consolidated Balance Sheets to the amount reported in the Condensed Statements of Consolidated Cash Flows:
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| March 31, 2022 | | December 31, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Cash and cash equivalents (1) | $ | 125 | | | $ | 104 | | | $ | 4 | | | $ | 230 | | | $ | 214 | | | $ | 8 | |
Restricted cash included in Prepaid expenses and other current assets | 22 | | | 18 | | | — | | | 24 | | | 19 | | | — | |
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Total cash, cash equivalents and restricted cash shown in Condensed Statements of Consolidated Cash Flows | $ | 147 | | | $ | 122 | | | $ | 4 | | | $ | 254 | | | $ | 233 | | | $ | 8 | |
(1)Houston Electric’s Cash and cash equivalents as of September 30, 2017March 31, 2022 and December 31, 2016 were $222021 included $104 million and less than $1$92 million, respectively, of margin depositscash related to the Bond Companies.
(17) Related Party Transactions(Houston Electric and $55 millionCERC)
Houston Electric and $40 million, respectively,CERC participate in CenterPoint Energy’s money pool through which they 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 under-recovered gas cost. the CenterPoint Energy money pool are expected to be met with borrowings under CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper.
The table below summarizes CenterPoint Energy money pool activity:
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| March 31, 2022 | | December 31, 2021 |
| Houston Electric | | CERC | | Houston Electric | | CERC |
| (in millions, except interest rates) |
Money pool investments (borrowings) (1) | $ | 354 | | | $ | — | | | $ | (512) | | | $ | (224) | |
Weighted average interest rate | 0.55 | % | | 0.55 | % | | 0.34 | % | | 0.34 | % |
(1)Included in other current liabilitiesAccounts and notes receivable (payable)–affiliated companies on theHouston Electric’s and CERC’s respective Condensed Consolidated Balance SheetsSheets.
CenterPoint Energy provides some corporate services to Houston Electric and CERC. The costs of services have been charged directly to Houston Electric and CERC using methods that management believes are reasonable. These methods include usage rates, dedicated asset assignment and proportionate corporate formulas based on operating expenses, assets, gross margin, employees and a composite of assets, gross margin and employees. Houston Electric provides certain services to CERC. These services are billed at September 30, 2017actual cost, either directly or as an allocation and include fleet services, shop services, geographic services, surveying and right-of-way services, radio communications, data circuit management and field operations. Additionally, CERC provides certain services to Houston Electric. These services are billed at actual cost, either directly or as an allocation and include line locating and other miscellaneous services. These charges are not necessarily indicative of what would have been incurred had Houston Electric and CERC not been affiliates.
Amounts charged for these services were as follows and are included primarily in operation and maintenance expenses:
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| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| | | | | | | | | Houston Electric | | CERC | | Houston Electric | | CERC |
| | | | | | | | | (in millions) |
Corporate service charges | | | | | | | | | $ | 39 | | | $ | 45 | | | $ | 43 | | | $ | 50 | |
Net affiliate service charges (billings) | | | | | | | | | (6) | | | 6 | | | (1) | | | 1 | |
The table below presents transactions among Houston Electric, CERC and their parent, CenterPoint Energy.
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| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 |
| | | | | | | | | | Houston Electric | | CERC | | Houston Electric | | CERC |
| | | | | | | | | | (in millions) |
Cash dividends paid to parent | | | | | | | | | | $ | 37 | | | $ | 23 | | | $ | — | | | $ | — | |
Cash dividend paid to parent related to the sale of the Arkansas and Oklahoma Natural Gas businesses | | | | | | | | | | — | | | 720 | | | — | | | — | |
Cash contribution from parent | | | | | | | | | | 637 | | | — | | | — | | | — | |
Non-cash capital contribution from parent in payment for property, plant and equipment below | | | | | | | | | | 38 | | | 46 | | | — | | | — | |
Payable to parent for property, plant and equipment below | | | | | | | | | | 52 | | | 41 | | | — | | | — | |
Property, plant and equipment from parent (1) | | | | | | | | | | 90 | | | 87 | | | — | | | — | |
(1) Property, plant and equipment purchased from CenterPoint Energy at its net carrying value on the date of purchase.
(18) Equity
Dividends Declared and Paid (CenterPoint Energy)
CenterPoint Energy did not declare dividends on its Common Stock or Series A Preferred Stock during either of the three months ended March 31, 2022 or 2021. The table below provides information about dividends paid during each of these periods:
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| | | | Dividends Paid Per Share |
| | | | | | Three Months Ended March 31, | | |
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Common Stock | | | | | | | | | | $ | 0.170 | | | $ | 0.160 | | | | | |
Series A Preferred Stock | | | | | | | | | | 30.625 | | | 30.625 | | | | | |
Series B Preferred Stock | | | | | | | | | | — | | | 17.500 | | | | | |
Series C Preferred Stock (1) | | | | | | | | | | — | | | 0.160 | | | | | |
(1)The Series C Preferred Stock was entitled to participate in any dividend or distribution (excluding those payable in Common Stock) with the Common Stock on a pari passu, pro rata, as-converted basis. The per share amount reflects the dividend per share of Common Stock as if the Series C Preferred Stock were converted into Common Stock. All of the outstanding Series C Preferred Stock was converted to Common Stock during April and May 2021.
Preferred Stock (CenterPoint Energy)
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| | Liquidation Preference Per Share | | Shares Outstanding as of | | Outstanding Value as of |
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
| | (in millions, except shares and per share amounts) |
Series A Preferred Stock | | $ | 1,000 | | | 800,000 | | | 800,000 | | | $ | 790 | | | $ | 790 | |
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| | | | 800,000 | | | 800,000 | | | $ | 790 | | | $ | 790 | |
Income Allocated to Preferred Shareholders (CenterPoint Energy)
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| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
| | | | (in millions) |
Series A Preferred Stock | | | | | $ | 13 | | | $ | 12 | |
Series B Preferred Stock | | | | | — | | | 17 | |
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Total income allocated to preferred shareholders | | | | | $ | 13 | | | $ | 29 | |
Temporary Equity (CenterPoint Energy)
On the approval and recommendation of the Compensation Committee and approval of the Board (acting solely through its independent directors), CenterPoint Energy entered into a retention incentive agreement with David J. Lesar, President and Chief Executive Officer of CenterPoint Energy, dated July 20, 2021. Under the terms of the retention incentive agreement, Mr. Lesar will receive equity-based awards under CenterPoint Energy’s LTIP covering a total of 1 million shares of Common Stock (Total Stock Award) to be granted in multiple annual awards. Mr. Lesar received 400 thousand restricted stock units in July 2021 that will vest in December 31, 20162022 and 400 thousand restricted stock units in February 2022 that will vest in December 2023. In February 2023, restricted stock units covering the remaining 200 thousand shares, or such lesser number of restricted stock units as may be required pursuant to the annual individual award limitations under CenterPoint Energy’s LTIP, will be awarded to Mr. Lesar and will vest in December 2023. In the event any shares under the Total Stock Award remain unawarded, in February 2024, a fully vested stock bonus award of the remaining shares will be granted.For accounting purposes, the 1 million shares under the Total Stock Award, consisting of both the awarded and unawarded equity-based awards described above, were $2 million and $10 million, respectively,considered granted in July 2021. In the event of over-recovered gas cost.
(16) Subsequent Events
On October 31, 2017, Enable declared a quarterly cash distribution of $0.318 per unit on all of its outstanding common unitsdeath, disability, termination without cause or resignation for the quarter ended September 30, 2017. Accordingly, CERC Corp. expects to receive a cash distribution of approximately $74 million from Enablegood reason, as defined in the fourth quarterretention incentive agreement, that occurs prior to the full Total Stock Award being awarded, CenterPoint Energy will pay a lump sum cash payment equal to the value of 2017the unawarded equity-based awards, based on the closing trading price
of Common Stock on the date of the event’s occurrence. Because the unawarded equity-based awards are redeemable for cash upon events that are not probable at the grant date, the equity associated with the unawarded equity-based awards will be classified as Temporary Equity on CenterPoint Energy’s Condensed Consolidated Balance Sheets.
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated comprehensive income (loss) are as follows:
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| Three Months Ended March 31, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Beginning Balance | $ | (64) | | | $ | — | | | $ | 10 | | | $ | (90) | | | $ | — | | | $ | 10 | |
Other comprehensive loss before reclassifications: | | | | | | | | | | | |
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Other comprehensive income (loss) from unconsolidated affiliates | — | | | — | | | — | | | 1 | | | — | | | — | |
Amounts reclassified from accumulated other comprehensive income (loss): | | | | | | | | | | | |
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Actuarial losses (1) | 1 | | | — | | | — | | | 2 | | | — | | | — | |
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Reclassification of deferred loss from cash flow hedges realized in net income | 1 | | | — | | | — | | | — | | | — | | | — | |
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Net current period other comprehensive income | 2 | | | — | | | — | | | 3 | | | — | | | — | |
Ending Balance | $ | (62) | | | $ | — | | | $ | 10 | | | $ | (87) | | | $ | — | | | $ | 10 | |
(1)Amounts are included in the computation of net periodic cost and are reflected in Other income, net in each of the Registrants’ respective Condensed Statements of Consolidated Income.
(19) Leases
In 2021 Houston Electric entered into a temporary short-term lease and a long-term lease, each for mobile generation. The short-term lease agreement allows Houston Electric to be madetake delivery of mobile generation assets on a short-term basis with respect to CERC Corp.’s investmenta term ending in common units of Enable for the third quarter of 2017.2022. Per Houston Electric’s short term lease accounting policy election, a ROU asset and lease liability are not reflected on Houston Electric’s Condensed Consolidated Balance Sheets. Expenses associated with the short-term lease, including carrying costs, are deferred to a regulatory asset and totaled $51 million and $20 million as of March 31, 2022 and December 31, 2021, respectively.
Houston Electric took delivery of an additional 128 MW of mobile generation under the long-term lease in the first quarter of 2022 and remitted a cash payment under the lease of $171 million. These assets were previously available under the short-term lease agreement. Houston Electric derecognized the finance lease liability when the extinguishment criteria in Topic 405 - Liabilities was achieved. Per the terms of the agreement, lease payments are due and made in full by Houston Electric upon taking possession of the asset, relieving substantially all of the associated finance lease liability as of March 31, 2022. The remaining finance lease liability associated with the commenced long-term mobile generation agreement was not significant as of March 31, 2022 and December 31, 2021 and relates to removal costs that will be incurred at the end of the lease term. The long-term lease agreement includes up to 505 MW of mobile generation of which 253 MW and 125 MW was delivered as of March 31, 2022 and December 31, 2021, respectively, triggering lease commencement at delivery, and has an initial term ending in 2029 for all mobile generation leases. As of March 31, 2022, Houston Electric has secured a first lien on all the generation equipment leases and no amount of the payments made by Houston Electric were held in escrow.
The components of lease cost, included in Operation and maintenance expense on the Registrants’ respective Statements of Consolidated Income, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating lease cost | $ | 2 | | | $ | — | | | $ | 1 | | | $ | 2 | | | $ | — | | | $ | 1 | |
Short-term lease cost | 46 | | | 46 | | | — | | | 10 | | | 10 | | | — | |
Variable lease cost | (1) | | | (1) | | | — | | | — | | | — | | | — | |
Total lease cost (1) | $ | 47 | | | $ | 45 | | | $ | 1 | | | $ | 12 | | | $ | 10 | | | $ | 1 | |
(1) CenterPoint Energy and Houston Electric defer finance lease costs for mobile generation to Regulatory assets for recovery rather than to Depreciation and Amortization in the Statements of Consolidated Income.
The components of lease income were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating lease income | $ | 1 | | | $ | — | | | $ | 1 | | | $ | 2 | | | $ | — | | | $ | 1 | |
Variable lease income | — | | | — | | | — | | | — | | | — | | | — | |
Total lease income | $ | 1 | | | $ | — | | | $ | 1 | | | $ | 2 | | | $ | — | | | $ | 1 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC | | | | | | |
| (in millions, except lease term and discount rate) |
Assets: | | | | | | | | | | | | | | | | | |
Operating ROU assets (1) | $ | 16 | | | $ | 1 | | | $ | 7 | | | $ | 22 | | | $ | 1 | | | $ | 12 | | | | | | | |
Finance ROU assets (2) | 344 | | | 343 | | | — | | | 179 | | | 179 | | | — | | | | | | | |
Total leased assets | $ | 360 | | | $ | 344 | | | $ | 7 | | | $ | 201 | | | $ | 180 | | | $ | 12 | | | | | | | |
| | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | |
Current operating lease liability (3) | $ | 4 | | | $ | — | | | $ | 2 | | | $ | 6 | | | $ | 1 | | | $ | 2 | | | | | | | |
Non-current operating lease liability (4) | 12 | | | 1 | | | 5 | | | 17 | | | — | | | 11 | | | | | | | |
Total leased liabilities (5) | $ | 16 | | | $ | 1 | | | $ | 7 | | | $ | 23 | | | $ | 1 | | | $ | 13 | | | | | | | |
| | | | | | | | | | | | | | | | | |
Weighted-average remaining lease term (in years) - operating leases | 5.2 | | 4.3 | | 4.5 | | 6.2 | | 4.1 | | 6.5 | | | | | | |
Weighted-average discount rate - operating leases | 3.20 | % | | 3.00 | % | | 3.52 | % | | 3.10 | % | | 2.86 | % | | 3.20 | % | | | | | | |
Weighted-average remaining lease term (in years) - finance leases | 7.3 | | 7.3 | | — | | | 7.5 | | 7.5 | | — | | | | | | | |
Weighted-average discount rate - finance leases | 2.21 | % | | 2.21 | % | | — | | | 2.21 | % | | 2.21 | % | | — | | | | | | | |
(1)Reported within Other assets in the Registrants’ respective Consolidated Balance Sheets.
(2)Reported within Property, Plant and Equipment in the Registrants’ respective Consolidated Balance Sheets. Finance lease assets are recorded net of accumulated amortization.
(3)Reported within Current other liabilities in the Registrants’ respective Consolidated Balance Sheets.
(4)Reported within Other liabilities in the Registrants’ respective Consolidated Balance Sheets.
(5)Finance lease liabilities were not material as of December 31, 2021 or 2020 and are reported within Other long-term debt in the Registrants’ respective Consolidated Balance Sheets when applicable.
As of March 31, 2022, finance lease liabilities were not significant to the Registrants. As of March 31, 2022, maturities of operating lease liabilities were as follows:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Remainder of 2022 | $ | 4 | | | $ | 1 | | | $ | 1 | |
2023 | 4 | | | — | | | 2 | |
2024 | 3 | | | — | | | 2 | |
2025 | 2 | | | — | | | 1 | |
2026 | 2 | | | — | | | 1 | |
2027 and beyond | 3 | | | — | | | 1 | |
Total lease payments | 18 | | | 1 | | | 8 | |
Less: Interest | 2 | | | — | | | 1 | |
Present value of lease liabilities | $ | 16 | | | $ | 1 | | | $ | 7 | |
As of March 31, 2022, future minimum finance lease payments were not significant to the Registrants, exclusive of approximately $347 million of legally-binding undiscounted minimum lease payments for finance leases for approximately 252 MW of mobile generation leases signed but not yet commenced. As of March 31, 2022, maturities of undiscounted operating lease payments to be received are as follows:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Remainder of 2022 | $ | 5 | | | $ | 1 | | | $ | 3 | |
2023 | 5 | | | — | | | 3 | |
2024 | 5 | | | — | | | 3 | |
2025 | 5 | | | — | | | 3 | |
2026 | 6 | | | — | | | 4 | |
2027 | 6 | | | — | | | 4 | |
2028 and beyond | 136 | | | — | | | 132 | |
Total lease payments to be received | $ | 168 | | | $ | 1 | | | $ | 152 | |
Other information related to leases is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating cash flows from operating leases included in the measurement of lease liabilities | $ | 2 | | | $ | — | | | $ | 1 | | | $ | 2 | | | $ | — | | | $ | 1 | |
Financing cash flows from finance leases included in the measurement of lease liabilities | 171 | | | 171 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See Note 16 for information on ROU assets obtained in exchange for operating lease liabilities.
(20) Subsequent Events (CenterPoint Energy)
CenterPoint Energy Dividend Declarations | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Instrument | | Declaration Date | | Record Date | | Payment Date | | Per Share | | |
Common Stock | | April 22, 2022 | | May 19, 2022 | | June 9, 2022 | | $ | 0.1700 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Item 2. MANAGEMENT’S NARRATIVEMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
The following narrativecombined discussion and analysis should be read in combination with ourthe Interim Condensed Financial Statements contained in this combined Form 10-Q and our 2016the Registrants’ combined 2021 Form 10-K.
We meet When discussing CenterPoint Energy’s consolidated financial information, it includes the conditions specified in General Instruction H(1)(a)results of Houston Electric and (b)CERC, which, along with CenterPoint Energy, are collectively referred to as the Registrants. Where appropriate, information relating to a specific Registrant has been segregated and labeled as such. In this combined Form 10-Q, the terms “our,” “we” and “us” are therefore permittedused as abbreviated references to useCenterPoint Energy, Inc. together with its consolidated subsidiaries. No Registrant makes any representations as to the reduced disclosure format for wholly-ownedinformation related solely to CenterPoint Energy or the subsidiaries of reporting companies. Accordingly, we have omitted from this report the information called for by Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I and the following Part II items of Form 10-Q: Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds), Item 3 (Defaults Upon Senior Securities) and Item 4 (Submission of Matters to a Vote of Security Holders). The following discussion explains material changes in our revenue and expense items between the three and nine months ended September 30, 2017 and the three and nine months ended September 30, 2016. Reference is made to “Management’s Narrative Analysis of Results of Operations” in Item 7 of our 2016 Form 10-K.CenterPoint Energy other than itself.
RECENT EVENTS
Hurricane Harvey. NGD suffered damage as a resultSale of Hurricane Harvey, which struckNatural Gas Businesses. On January 10, 2022, CERC Corp. completed the Texas coast on Friday, August 25, 2017.sale of its Arkansas and Oklahoma Natural Gas businesses. For furtheradditional information regarding the impact of Hurricane Harvey,discontinued operations and divestitures, see Note 53 to ourthe Interim Condensed Financial Statements.
Sale of Energy Transfer Equity Securities. During the three months ended March 31, 2022, CenterPoint Energy sold its remaining Energy Transfer Common Units and Energy Transfer Series G Preferred Units for net proceeds of $702 million. For more information, see Note 10 to the Interim Condensed Financial Statements.
Debt Transactions. During the three months ended March 31, 2022, Houston Electric issued $800 million in new debt and CenterPoint Energy and CERC repaid or redeemed a combined $1,030 million of debt, excluding scheduled principal payments on Securitization Bonds. For information about debt transactions to date in 2022, see Note 11 to the Interim Condensed Financial Statements.
Regulatory Proceedings. Proceedings. For detailsinformation related to our pending and completed regulatory proceedings to date in 2017,2022, see “—Liquidity and Capital Resources —Regulatory Matters” below.
Debt Issuances. In August 2017, we issued $300 million aggregate principal amount of unsecured senior notes. For further information about our 2017 debt issuances, see Note 11 to our Interim Condensed Financial Statements.
CENTERPOINT ENERGY CONSOLIDATED RESULTS OF OPERATIONS
For information regarding factors that may affect the future results of our consolidated operations, please read “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2021 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.
Income available to common shareholders for the three months ended March 31, 2022 and 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | | | 2022 | | 2021 | | Favorable (Unfavorable) |
| | | | | | | | (in millions) |
Electric | | | | | | | | $ | 82 | | | $ | 75 | | | $ | 7 | |
Natural Gas | | | | | | | | 398 | | | 229 | | | 169 | |
Total Utility Operations | | | | | | | | 480 | | | 304 | | | 176 | |
| | | | | | | | | | | | |
Corporate & Other (1) | | | | | | | | 38 | | | (53) | | | 91 | |
Discontinued Operations | | | | | | | | — | | | 83 | | | (83) | |
Total CenterPoint Energy | | | | | | | | $ | 518 | | | $ | 334 | | | $ | 184 | |
(1)Includes energy performance contracting and sustainable infrastructure services through Energy Systems Group, unallocated corporate costs, interest income and interest expense, intercompany eliminations and the reduction of income allocated to preferred shareholders.
Three months ended March 31, 2022 compared to three months ended March 31, 2021
Income available to common shareholders increased $184 million primarily due to the following items:
•the gain, net of transaction costs, associated with the sale of the Arkansas and Oklahoma Natural Gas businesses in January 2022; and
•the dividend requirement associated with the Series B Preferred Stock in 2021.
These increases were partially offset by:
•a decrease in earnings associated with midstream common and preferred units; and
•increased costs associated with the early redemption of long-term debt.
Excluding those items, income available to common shareholders increased $9 million primarily due to the following key factors:
•rate relief, net of increases in depreciation and amortization and taxes other than income taxes; and
•continued customer growth.
These increases were partially offset by:
•increased operation and maintenance expense; and
•increased interest expense.
Income Tax Expense. For a discussion of effective tax rate per period, see Note 12 to the Interim Condensed Financial Statements.
CENTERPOINT ENERGY’S RESULTS OF OPERATIONS BY REPORTABLE SEGMENT
CenterPoint Energy’s CODM views net income as the measure of profit or loss for the reportable segments. Segment results include inter-segment interest income and expense, which may result in inter-segment profit and loss. During the three months ended March 31, 2022, CenterPoint Energy sold certain assets previously owned by entities within Corporate and Other to businesses within the Electric and Natural Gas reportable segments. Prior year amounts were reclassified as a result of the transaction in the three months ended March 31, 2022.
The following discussion of results of operations by reportable segment concentrates on CenterPoint Energy’s Utility Operations, conducted through two reportable segments, Electric and Natural Gas.
Electric (CenterPoint Energy)
For information regarding factors that may affect the future results of operations of the Electric reportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Electric Generation, Transmission and Distribution Businesses,” “— Risk Factors Affecting Our Businesses” and “— General Risk Factors Affecting Our Businesses” in Item 1A of Part I of the Registrants’ combined 2021 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.
The following table provides summary data of the Electric reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | | | 2022 | | 2021 | | Favorable (Unfavorable) |
| | | | | | | (in millions, except operating statistics) |
Revenues | | | | | | | $ | 893 | | | $ | 830 | | | $ | 63 | |
Cost of revenues (1) | | | | | | | 41 | | | 45 | | | 4 | |
Revenues less Cost of revenues | | | | | | | 852 | | | 785 | | | 67 | |
Expenses: | | | | | | | | | | | |
Operation and maintenance | | | | | | | 437 | | | 411 | | | (26) | |
Depreciation and amortization | | | | | | | 192 | | | 174 | | | (18) | |
Taxes other than income taxes | | | | | | | 68 | | | 67 | | | (1) | |
| | | | | | | | | | | |
Total expenses | | | | | | | 697 | | | 652 | | | (45) | |
Operating Income | | | | | | | 155 | | | 133 | | | 22 | |
Other Income (Expense): | | | | | | | | | | | |
Interest expense and other finance charges | | | | | | | (57) | | | (56) | | | (1) | |
| | | | | | | | | | | |
Other income, net | | | | | | | 5 | | | 7 | | | (2) | |
Income Before Income Taxes | | | | | | | 103 | | | 84 | | | 19 | |
Income tax expense | | | | | | | 21 | | | 9 | | | (12) | |
Net Income | | | | | | | $ | 82 | | | $ | 75 | | | $ | 7 | |
Throughput (in GWh): | | | | | | | | | | | |
Residential | | | | | | | 6,346 | | 6,070 | | 5 | % |
Total | | | | | | | 23,155 | | 21,241 | | 9 | % |
Weather (percentage of 10-year average for service area): | | | | | | | | | | | |
Cooling degree days | | | | | | | 62 | % | | 109 | % | | (47) | % |
Heating degree days | | | | | | | 129 | % | | 95 | % | | 34 | % |
Number of metered customers at end of period: | | | | | | | | | | | |
Residential | | | | | | | 2,502,253 | | 2,448,439 | | 2 | % |
Total | | | | | | | 2,824,100 | | 2,765,496 | | 2 | % |
(1)Includes Utility natural gas, fuel and purchased power.
The following table provides variance explanations for the three months ended March 31, 2022 compared to three months ended March 31, 2021 by major income statement caption for the Electric reportable segment:
| | | | | | | | | | |
| | Favorable (Unfavorable) |
| | | | |
| | (in millions) |
Revenues less Cost of revenues | | | | |
Transmission Revenues, including TCOS and TCRF, inclusive of costs billed by transmission providers, partially offset in operation and maintenance | | $ | 29 | | | |
Bond Companies, offset in other line items | | 9 | | | |
Refund of protected and unprotected EDIT, offset in income tax expense | | 8 | | | |
Weather, efficiency improvements and other usage impacts | | 8 | | | |
Customer growth | | 6 | | | |
Customer rates | | 4 | | | |
Bond Companies equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods | | 2 | | | |
Miscellaneous revenues | | 2 | | | |
Impacts from increased peak demand in 2021, collected in rates in 2022 | | 1 | | | |
Energy efficiency and pass-through offset in operation and maintenance | | (2) | | | |
Total | | $ | 67 | | | |
Operation and maintenance | | | | |
Transmission costs billed by transmission providers, offset in revenues less cost of revenues | | $ | (22) | | | |
| | | | |
Contract services | | (7) | | | |
All other operation and maintenance expense, including materials and supplies and insurance | | (5) | | | |
Bond Companies, offset in other line items | | 1 | | | |
Energy efficiency and pass-through offset in revenues | | 3 | | | |
| | | | |
Support services | | 4 | | | |
Total | | $ | (26) | | | |
Depreciation and amortization | | | | |
Bond Companies, offset in other line items | | $ | (12) | | | |
Ongoing additions to plant-in-service | | (6) | | | |
Total | | $ | (18) | | | |
Taxes other than income taxes | | | | |
Franchise fees and other taxes | | $ | 2 | | | |
Incremental capital projects placed in service | | (3) | | | |
Total | | $ | (1) | | | |
| | | | |
| | | | |
| | | | |
Interest expense and other finance charges | | | | |
Bond Companies, offset in other line items | | $ | 2 | | | |
Incremental borrowings to fund capital expenditures | | (3) | | | |
Total | | $ | (1) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Other income, net | | | | |
Other non-operating income | | $ | (2) | | | |
| | | | |
| | | | |
Total | | $ | (2) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Income Tax Expense. For a discussion of effective tax rate per period by Registrant, see Note 12 to the Interim Condensed Financial Statements.
Natural Gas (CenterPoint Energy)
For information regarding factors that may affect the future results of operations of CenterPoint Energy’s Natural Gas reportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Natural Gas' Business,” “— Risk Factors Affecting Our Businesses” and “— General Risk Factors Affecting Our Businesses” in Item 1A of Part I of the Registrants’ combined 2021 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.
The following table provides summary data of CenterPoint Energy’s Natural Gas reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | | | 2022 | | 2021 | | Favorable (Unfavorable) |
| | | | | | | (in millions, except operating statistics) |
Revenues | | | | | | | $ | 1,824 | | | $ | 1,663 | | | $ | 161 | |
Cost of revenues (1) | | | | | | | 1,058 | | | 893 | | | (165) | |
Revenues less Cost of revenues | | | | | | | 766 | | | 770 | | | (4) | |
Expenses: | | | | | | | | | | | |
Operation and maintenance | | | | | | | 246 | | | 250 | | | 4 | |
Depreciation and amortization | | | | | | | 112 | | | 128 | | | 16 | |
Taxes other than income taxes | | | | | | | 77 | | | 74 | | | (3) | |
Total expenses | | | | | | | 435 | | | 452 | | | 17 | |
Operating Income | | | | | | | 331 | | | 318 | | | 13 | |
Other Income (Expense): | | | | | | | | | | | |
Gain on sale | | | | | | | 303 | | | — | | | 303 | |
Interest expense and other finance charges | | | | | | | (30) | | | (33) | | | 3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Income Before Income Taxes | | | | | | | 604 | | | 285 | | | 319 | |
Income tax expense | | | | | | | 206 | | | 56 | | | (150) | |
Net Income | | | | | | | $ | 398 | | | $ | 229 | | | $ | 169 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Throughput (in Bcf): | | | | | | | | | | | |
Residential | | | | | | | 123 | | 128 | | (4) | % |
Commercial and Industrial | | | | | | | 137 | | 145 | | (6) | % |
Total | | | | | | | 260 | | 273 | | (5) | % |
Weather (percentage of 10-year average for service area): | | | | | | | | | | | |
Heating degree days | | | | | | | 109 | % | | 103 | % | | 6 | % |
Number of metered customers at end of period: | | | | | | | | | | | |
Residential | | | | | | | 3,926,192 | | 4,343,863 | | (10) | % |
Commercial and Industrial | | | | | | | 297,270 | | 351,363 | | (15) | % |
Total | | | | | | | 4,223,462 | | 4,695,226 | | (10) | % |
(1)Includes Utility natural gas, fuel and purchased power and Non-utility cost of revenues, including natural gas.
The following table provides variance explanations for the three months ended March 31, 2022 compared to three months ended March 31, 2021 by major income statement caption for the Natural Gas reportable segment:
| | | | | | | | | | |
| | Favorable (Unfavorable) |
| | | | |
| | (in millions) | | |
Revenues less Cost of revenues | | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | (86) | | | |
Energy efficiency, offset in operation and maintenance | | (2) | | | |
Customer growth | | 4 | | | |
Refund of protected and unprotected EDIT, offset in income tax expense | | 4 | | | |
Gross receipts tax, offset in taxes other than income taxes | | 9 | | | |
| | | | |
Weather and usage | | 9 | | | |
Non-volumetric and miscellaneous revenue | | 14 | | | |
Customer rates and impact of the change in rate design, exclusive of the TCJA impact | | 44 | | | |
Total | | $ | (4) | | | |
Operation and maintenance | | | | |
| | | | |
Other operating and maintenance expense, including materials and supplies and insurance | | $ | (21) | | | |
Labor and benefits | | (6) | | | |
Contract services | | (1) | | | |
Energy efficiency, offset in revenues less cost of revenues | | 2 | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | 30 | | | |
Total | | $ | 4 | | | |
Depreciation and amortization | | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 15 | | | |
Indiana lower depreciation rates from recent rate order | | 5 | | | |
Incremental capital projects placed in service | | (4) | | | |
| | | | |
Total | | $ | 16 | | | |
Taxes other than income taxes | | | | |
Gross receipts tax, offset in revenues less cost of revenues | | $ | (9) | | | |
Incremental capital projects placed in service | | (1) | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | 7 | | | |
Total | | $ | (3) | | | |
Gain on Sale | | | | |
Net gain on sale of Arkansas and Oklahoma Natural Gas businesses | | $ | 303 | | | |
Total | | $ | 303 | | | |
Interest expense and other finance charges | | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 3 | | | |
| | | | |
Total | | $ | 3 | | | |
| | | | |
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| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Income Tax Expense. For a discussion of effective tax rate per period by Registrant, see Note 12 to the Interim Condensed Financial Statements.
HOUSTON ELECTRIC’S MANAGEMENT’S NARRATIVE ANALYSIS
OF CONSOLIDATED RESULTS OF OPERATIONS
Houston Electric’s CODM views net income as the measure of profit or loss for its reportable segment. Houston Electric consists of a single reportable segment. Houston Electric’s results of operations are affected by seasonal fluctuations in the demand for electricity. Houston Electric’s results of operations are also affected by, among other things, the actions of various governmental authorities having jurisdiction over rates Houston Electric charges, debt service costs, income tax expense, Houston Electric’s ability to collect receivables from REPs and Houston Electric’s ability to recover its regulatory assets. For more information regarding factors that may affect the future results of operations of Houston Electric’s business, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Electric Generation, Transmission and Distribution Businesses,” “— Risk Factors Affecting Our Businesses” and “— General Risk Factors Affecting Our Businesses” in Item 1A of Part I of the Registrants’ combined 2021 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | | | 2022 | | 2021 | | Favorable (Unfavorable) |
| | | | | | | (in millions, except operating statistics) |
Revenues: | | | | | | | | | | | |
TDU | | | | | | | $ | 693 | | | $ | 640 | | | $ | 53 | |
Bond Companies | | | | | | | 53 | | | 44 | | | 9 | |
Total revenues | | | | | | | 746 | | | 684 | | | 62 | |
Expenses: | | | | | | | | | | | |
Operation and maintenance, excluding Bond Companies | | | | | | | 394 | | | 371 | | | (23) | |
Depreciation and amortization, excluding Bond Companies | | | | | | | 114 | | | 105 | | | (9) | |
Taxes other than income taxes | | | | | | | 63 | | | 63 | | | — | |
Bond Companies | | | | | | | 49 | | | 38 | | | (11) | |
Total expenses | | | | | | | 620 | | | 577 | | | (43) | |
Operating Income | | | | | | | 126 | | | 107 | | | 19 | |
Other Income (Expense) | | | | | | | | | | | |
Interest expense and other finance charges | | | | | | | (48) | | | (45) | | | (3) | |
Interest expense on Securitization Bonds | | | | | | | (4) | | | (6) | | | 2 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other income, net | | | | | | | 4 | | | 5 | | | (1) | |
Income Before Income Taxes | | | | | | | 78 | | | 61 | | | 17 | |
Income tax expense | | | | | | | 17 | | | 8 | | | (9) | |
Net Income | | | | | | | $ | 61 | | | $ | 53 | | | $ | 8 | |
Throughput (in GWh): | | | | | | | | | | | |
Residential | | | | | | | 5,988 | | 5,701 | | 5 | % |
Total | | | | | | | 21,934 | | 19,739 | | 11 | % |
Weather (percentage of 10-year average for service area): | | | | | | | | | | | |
Cooling degree days | | | | | | | 62 | % | | 112 | % | | (50) | % |
Heating degree days | | | | | | | 129 | % | | 104 | % | | 25 | % |
Number of metered customers at end of period: | | | | | | | | | | | |
Residential | | | | | | | 2,370,818 | | 2,318,030 | | 2 | % |
Total | | | | | | | 2,673,393 | | 2,615,917 | | 2 | % |
The following table provides variance explanations for the three months ended March 31, 2022 compared to three months ended March 31, 2021 by major income statement caption for Houston Electric:
| | | | | | | | | | |
| | Favorable (Unfavorable) |
| | | | |
| | (in millions) | | |
Revenues | | | | |
Transmission Revenues, including TCOS and TCRF, inclusive of costs billed by transmission providers | | $ | 29 | | | |
Bond Companies, offset in other line items | | 9 | | | |
Refund of protected and unprotected EDIT, offset in income tax expense | | 8 | | | |
| | | | |
Weather impacts and other usage | | 8 | | | |
Customer growth | | 6 | | | |
Equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods | | 2 | | | |
Impacts from increased peak demand in 2021, collected in rates in 2022 | | 1 | | | |
Miscellaneous revenues, primarily related to right-of-way revenues, and service connections | | 1 | | | |
Energy efficiency, offset in operation and maintenance | | (2) | | | |
| | | | |
Total | | $ | 62 | | | |
Operation and maintenance, excluding Bond Companies | | | | |
Transmission costs billed by transmission providers, offset in revenues | | $ | (22) | | | |
Contract services | | (5) | | | |
Other operation and maintenance expense | | (3) | | | |
Labor and benefits | | 1 | | | |
| | | | |
| | | | |
Energy efficiency, offset in revenues | | 2 | | | |
Support services | | 4 | | | |
Total | | $ | (23) | | | |
Depreciation and amortization, excluding Bond Companies | | | | |
Ongoing additions to plant-in-service | | $ | (9) | | | |
Total | | $ | (9) | | | |
Taxes other than income taxes | | | | |
Franchise fees and other taxes | | $ | 3 | | | |
Incremental capital projects placed in service | | (3) | | | |
Total | | $ | — | | | |
Bond Companies expense | | | | |
Operations and maintenance and depreciation expense, offset in other line items | | $ | (11) | | | |
| | $ | (11) | | | |
Interest expense and other finance charges | | | | |
Incremental borrowings to fund capital expenditures | | $ | (3) | | | |
Total | | $ | (3) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Interest expense on Securitization Bonds | | | | |
Lower outstanding principal balance, offset in other line items | | $ | 2 | | | |
Total | | $ | 2 | | | |
Other income, net | | | | |
Other non-operating income | | $ | (1) | | | |
| | | | |
| | | | |
Total | | $ | (1) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Income Tax Expense. For a discussion of effective tax rate per period, see Note 12 to the Interim Condensed Financial Statements.
CERC’S MANAGEMENT’S NARRATIVE ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS
CERC’s CODM views net income as the measure of profit or loss for its reportable segment. CERC’s results of operations are affected by seasonal fluctuations in the demand for natural gas and price movements of energy commodities as well as natural gas basis differentials. Ourgas. CERC’s results of operations are also affected by, among other things, the actions of various federal, state and local governmental authorities having jurisdiction over rates we charge, competition in our various business operations, the effectiveness of our risk management activities,CERC charges, debt service costs and income tax expense.expense, CERC’s ability to collect receivables from customers and CERC’s ability to recover its regulatory assets. For more information regarding factors that may affect the future results of operations of ourfor CERC’s business, please read “Risk Factors” in Item 1A of Part I of our 2016 Form 10-K.
The following table sets forth our consolidated results of operations for the three and nine months ended September 30, 2017 and 2016, followed by a discussion of our consolidated results of operations.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Revenues | $ | 1,251 |
| | $ | 978 |
| | $ | 4,731 |
| | $ | 3,105 |
|
Expenses: | |
| | |
| | |
| | |
|
Natural gas | 938 |
| | 683 |
| | 3,549 |
| | 2,031 |
|
Operation and maintenance | 187 |
| | 175 |
| | 603 |
| | 571 |
|
Depreciation and amortization | 68 |
| | 62 |
| | 202 |
| | 185 |
|
Taxes other than income taxes | 32 |
| | 32 |
| | 104 |
| | 108 |
|
Total | 1,225 |
| | 952 |
| | 4,458 |
| | 2,895 |
|
Operating Income | 26 |
| | 26 |
| | 273 |
| | 210 |
|
Interest and other finance charges | (32 | ) | | (29 | ) | | (92 | ) | | (93 | ) |
Equity in earnings of unconsolidated affiliate, net | 68 |
| | 73 |
| | 199 |
| | 164 |
|
Other income, net | 1 |
| | (1 | ) | | 3 |
| | 1 |
|
Income Before Income Taxes | 63 |
| | 69 |
| | 383 |
| | 282 |
|
Income tax expense | 25 |
| | 26 |
| | 144 |
| | 113 |
|
Net Income | $ | 38 |
| | $ | 43 |
| | $ | 239 |
| | $ | 169 |
|
Three months ended September 30, 2017 compared to three months ended September 30, 2016
We reported net income of $38 million for the three months ended September 30, 2017 compared to net income of $43 million for the three months ended September 30, 2016.
The decrease in net income of $5 million was primarily due to the following key factors:
a $5 million decrease in equity earnings from our investment in Enable, discussed further in Note 8 to our Interim Condensed Financial Statements; and
a $3 million increase in interest expense due to the issuance of $300 million of unsecured senior notes and higher weighted average commercial paper interest rates discussed further in Note 11 to our Interim Condensed Financial Statements.
These decreases in net income were partially offset by a $2 million increase in miscellaneous other non-operating income included in Other income, net shown above, and a $1 million decrease in income tax expense due to lower net income.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
We reported net income of $239 million for the nine months ended September 30, 2017 compared to net income of $169 million for the nine months ended September 30, 2016.
The increase in net income of $70 million was primarily due to the following key factors:
a $63 million increase in operating income, discussed below by segment; and
a $35 million increase in equity earnings from our investment in Enable, discussed further in Note 8 to our Interim Condensed Financial Statements.
These increases in net income were partially offset by a $31 million increase in income tax expense due to higher net income.
Income Tax Expense
Our effective tax rates reported for the three months ended September 30, 2017 was 40% compared to 38% for the same period in 2016. The effective tax rate reported for the nine months ended September 30, 2017 was 38% compared to 40% for the same
period in 2016. The higher effective tax rate for the nine months ended September 30, 2016 was due to a Louisiana state tax law change resulting in an increase to CERC’s deferred tax liability.
RESULTS OF OPERATIONS BY BUSINESS SEGMENT
The following table presents operating income (loss) for each of our business segments for the three and nine months ended September 30, 2017 and 2016, followed by a discussion of the results of operations by business segment based on operating income. Included in revenues are intersegment sales. We account for intersegment sales as if the sales were to third parties at current market prices.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Natural Gas Distribution | $ | 19 |
| | $ | 22 |
| | $ | 220 |
| | $ | 202 |
|
Energy Services | 7 |
| | 5 |
| | 58 |
| | 11 |
|
Other Operations | — |
| | (1 | ) | | (5 | ) | | (3 | ) |
Total Consolidated Operating Income | $ | 26 |
| | $ | 26 |
| | $ | 273 |
| | $ | 210 |
|
Natural Gas Distribution
For information regarding factors that may affect the future results of operations of our Natural Gas Distribution business segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Natural Gas Distribution and Energy Services Businesses” andGas’ Business,” “— Other Risk Factors Affecting Our Businesses orBusinesses” and “— General Risk Factors Affecting Our Interests in Enable Midstream Partners, LP”Businesses” in Item 1A of Part I of our 2016the Registrants’ combined 2021 Form 10-K.10-K and in Item 1A of Part II of this combined Form 10-Q.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | | | 2022 | | 2021 | | Favorable (Unfavorable) |
| | | | | | | (in millions, except operating statistics) |
Revenues | | | | | | | $ | 1,385 | | | $ | 1,177 | | | $ | 208 | |
Cost of revenues (1) | | | | | | | 858 | | | 625 | | | (233) | |
Revenues less Cost of revenues | | | | | | | 527 | | | 552 | | | (25) | |
Expenses: | | | | | | | | | | | |
Operation and maintenance | | | | | | | 187 | | | 198 | | | 11 | |
Depreciation and amortization | | | | | | | 72 | | | 80 | | | 8 | |
Taxes other than income taxes | | | | | | | 56 | | | 56 | | | — | |
Total expenses | | | | | | | 315 | | | 334 | | | 19 | |
Operating Income | | | | | | | 212 | | | 218 | | | (6) | |
Other Income (Expense): | | | | | | | | | | | |
Gain on sale | | | | | | | 557 | | | — | | | 557 | |
Interest expense and other finance charges | | | | | | | (21) | | | (24) | | | 3 | |
| | | | | | | | | | | |
Other expense, net | | | | | | | — | | | (1) | | | 1 | |
Income Before Income Taxes | | | | | | | 748 | | | 193 | | | 555 | |
Income tax expense | | | | | | | 194 | | | 42 | | | (152) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net Income | | | | | | | $ | 554 | | | $ | 151 | | | $ | 403 | |
Throughput (in Bcf): | | | | | | | | | | | |
Residential | | | | | | | 86 | | 93 | | (8) | % |
Commercial and Industrial | | | | | | | 78 | | 87 | | (10) | % |
Total | | | | | | | 164 | | 180 | | (9) | % |
Weather (percentage of 10-year average for service area): | | | | | | | | | | | |
Heating degree days | | | | | | | 117 | % | | 102 | % | | 15 | % |
Number of metered customers at end of period: | | | | | | | | | | | |
Residential | | | | | | | 2,934,085 | | 3,362,902 | | (13) | % |
Commercial and Industrial | | | | | | | 207,348 | | 261,944 | | (21) | % |
Total | | | | | | | 3,141,433 | | 3,624,846 | | (13) | % |
(1)Includes Utility natural gas and Non-utility cost of revenues, including natural gas.
The following table provides summary data of our Natural Gas Distribution business segmentvariance explanations for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions, except throughput and customer data) |
Revenues | $ | 398 |
| | $ | 377 |
| | $ | 1,791 |
| | $ | 1,693 |
|
Expenses: | | | | | | | |
Natural gas | 117 |
| | 104 |
| | 742 |
| | 679 |
|
Operation and maintenance | 163 |
| | 159 |
| | 531 |
| | 526 |
|
Depreciation and amortization | 66 |
| | 61 |
| | 194 |
| | 180 |
|
Taxes other than income taxes | 33 |
| | 31 |
| | 104 |
| | 106 |
|
Total expenses | 379 |
| | 355 |
| | 1,571 |
| | 1,491 |
|
Operating Income | $ | 19 |
| | $ | 22 |
| | $ | 220 |
| | $ | 202 |
|
Throughput (in Bcf): | |
| | |
| | | | |
|
Residential | 13 |
| | 12 |
| | 94 |
| | 105 |
|
Commercial and industrial | 50 |
| | 51 |
| | 189 |
| | 193 |
|
Total Throughput | 63 |
| | 63 |
| | 283 |
| | 298 |
|
Number of customers at end of period: | |
| | |
| | | | |
|
Residential | 3,179,284 |
| | 3,143,357 |
| | 3,179,284 |
| | 3,143,357 |
|
Commercial and industrial | 253,041 |
| | 251,043 |
| | 253,041 |
| | 251,043 |
|
Total | 3,432,325 |
| | 3,394,400 |
| | 3,432,325 |
| | 3,394,400 |
|
Three months ended September 30, 2017March 31, 2022 compared to three months ended September 30, 2016March 31, 2021 by major income statement caption for CERC:
Our Natural Gas Distribution business segment reported operating income of $19 million for the three months ended September 30, 2017 compared to $22 million for the three months ended September 30, 2016.
Operating income decreased $3 million as a result of the following key factors:
increased depreciation and amortization expense, primarily due to ongoing additions to plant-in-service, and other taxes of $6 million;
lower usage of $4 million, primarily due to the timing of a decoupling normalization adjustment; and
higher operation and maintenance expenses of $3 million.
These decreases were partially offset by the following:
rate relief increased $5 million, primarily from Texas jurisdictions of $2 million, Arkansas rate case filing of $1 million and Mississippi RRA of $1 million; and
customer growth of $2 million associated with the addition of approximately 38,000 new customers.
Increased operation and maintenance expenses related to energy efficiency programs of $1 million were offset by corresponding increases in the related revenues.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
Our Natural Gas Distribution business segment reported operating income of $220 million for the nine months ended September 30, 2017 compared to $202 million for the nine months ended September 30, 2016.
Operating income increased $18 million as a result of the following key factors:
rate increases of $25 million, primarily from Texas jurisdictions of $12 million, Arkansas rate case filing of $10 million and Mississippi RRA of $3 million;
labor and benefits were favorable by $11 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
customer growth of $3 million associated with the addition of approximately 38,000 new customers.
These increases were partially offset by the following:
increased depreciation and amortization expense, primarily due to ongoing additions to plant-in-service, and other taxes of $10 million;
higher operation and maintenance expenses of $9 million partially resulting from an adjustment associated with the Texas Gulf rate order of $4 million, which is timing related; and
lower usage of $7 million primarily due to milder weather effects, partially mitigated by decoupling and weather normalization adjustments.
Increased operation and maintenance expenses related to energy efficiency programs of $7 million and increased gross receipts taxes of $2 million were offset by corresponding increases in the related revenues.
Energy Services
For information regarding factors that may affect the future results of operations of our Energy Services business segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Natural Gas Distribution and Energy Services Businesses” and “— Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP” in Item 1A of Part I of our 2016 Form 10-K.
The following table provides summary data of our Energy Services business segment for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions, except throughput and customer data) |
Revenues | $ | 871 |
| | $ | 614 |
| | $ | 2,998 |
| | $ | 1,450 |
|
Expenses: | | | | | | | |
Natural gas | 839 |
| | 591 |
| | 2,865 |
| | 1,389 |
|
Operation and maintenance | 22 |
| | 16 |
| | 65 |
| | 43 |
|
Depreciation and amortization | 3 |
| | 1 |
| | 9 |
| | 5 |
|
Taxes other than income taxes | — |
| | 1 |
| | 1 |
| | 2 |
|
Total expenses | 864 |
| | 609 |
| | 2,940 |
| | 1,439 |
|
Operating Income | $ | 7 |
| | $ | 5 |
| | $ | 58 |
| | $ | 11 |
|
| | | | | | | |
Timing impacts related to mark-to-market gain (loss) (1) | $ | 2 |
| | $ | (2 | ) | | $ | 23 |
| | $ | (18 | ) |
| | | | | | | |
Throughput (in Bcf) | 272 |
| | 200 |
| | 864 |
| | 570 |
|
| | | | | | | |
Number of customers at end of period (2) | 30,817 |
| | 31,669 |
| | 30,817 |
| | 31,669 |
|
| | | | | | | | | | |
(1) | Includes | Favorable (Unfavorable) |
| | | | |
| | (in millions) | | |
Revenues less Cost of revenues | | | | |
| | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | (86) | | | |
Customer growth | | 3 | | | |
Refund of protected and unprotected EDIT, offset in income tax expense | | 4 | | | |
Energy efficiency, offset in operation and maintenance | | 5 | | | |
Gross receipts tax, offset in taxes other than income taxes | | 6 | | | |
| | | | |
Weather and usage | | 7 | | | |
Non-volumetric and miscellaneous revenue | | 13 | | | |
Customer rates and impact of the change in unrealized mark-to-market value andrate design, exclusive of the TCJA impact from derivative assets and liabilities acquired through the purchase of Continuum and AEM. |
| 23 | | | |
(2)Total | Does not include approximately 66,100 natural gas customers as | $ | (25) | | | |
Operation and maintenance | | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 30 | | | |
| | | | |
Labor and benefits | | (1) | | | |
Energy efficiency, offset in revenues less cost of September 30, 2017 that are under residentialrevenues | | (5) | | | |
Other operating and small commercial choice programs invoiced by their host utility.maintenance expense, including materials and supplies and insurance | | (13) | | | |
| | | | |
| | | | |
| | | | |
Total | | $ | 11 | | | |
Depreciation and amortization | | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 15 | | | |
Incremental capital projects placed in service | | (7) | | | |
| | | | |
Total | | $ | 8 | | | |
Taxes other than income taxes | | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 7 | | | |
Incremental capital projects placed in service | | (1) | | | |
Gross receipts tax, offset in revenues less cost of revenues | | (6) | | | |
Total | | $ | — | | | |
Gain on Sale | | | | |
Net gain on sale of Arkansas and Oklahoma Natural Gas businesses | | $ | 557 | | | |
Total | | $ | 557 | | | |
Interest expense and other finance charges | | | | |
Nine days in 2022 versus three months in 2021 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 3 | | | |
Total | | $ | 3 | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Three months ended September 30, 2017 compared to three months ended September 30, 2016
Our Energy Services business segment reported operating incomeIncome Tax Expense. For a discussion of $7 million for the three months ended September 30, 2017 compared to $5 million for the three months ended September 30, 2016. The increase in operating income of $2 million was primarily due to a $4 million increase from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. Operating income for the three months ended September 30, 2017 also included $2 million of expenses relatedeffective tax rate per period, see Note 12 to the acquisition and integration of AEM.Interim Condensed Financial Statements.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
Our Energy Services business segment reported operating income of $58 million for the nine months ended September 30, 2017 compared to $11 million for the nine months ended September 30, 2016. The increase in operating income of $47 million was primarily due to a $41 million increase from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. Operating income in the first nine months of 2017 also included $3 million of expenses related to the acquisition and integration of AEM. The remaining increase in operating income was primarily due to the increased throughput related to the acquisition of AEM in 2017.
Midstream Investments
For information regarding factors that may affect the future results of operations of our Midstream Investments business segment, please read “Risk Factors — Risk Factors Affecting Our Interests in Enable Midstream Partners, LP” and “— Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP” in Item 1A of Part I of our 2016 Form 10-K.
The following table provides pre-tax equity income of our Midstream Investments business segment for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Enable | | $ | 68 |
| | $ | 73 |
| | $ | 199 |
| | $ | 164 |
|
CERTAIN FACTORS AFFECTING FUTURE EARNINGS
For information on other developments, factors and trends that may have an impact on ourthe Registrants’ future earnings, please read “Risk Factors” in Item 1A“Management’s Discussion and Analysis of Part I of our 2016 Form 10-KFinancial Condition and “Management’s Narrative Analysis of Results of Operations — Certain Factors Affecting Future Earnings” in Item 7 of Part II and “Risk Factors” in Item 1A of our 2016Part I of the Registrants’ combined 2021 Form 10-K, in Item 1A of Part II of this combined Form 10-Q and “Cautionary Statement Regarding Forward-Looking Information” in this combined Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
OurHistorical Cash Flows
The following table summarizes the net cash provided by (used in) operating, investing and financing activities during the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Cash provided by (used in): | | | | | | | | | | | |
Operating activities | $ | 580 | | | $ | 73 | | | $ | 347 | | | $ | (1,681) | | | $ | 47 | | | $ | (1,787) | |
Investing activities | 1,934 | | | (848) | | | 1,860 | | | (604) | | | (982) | | | (131) | |
Financing activities | (2,621) | | | 664 | | | (2,211) | | | 2,285 | | | 940 | | | 1,918 | |
Operating Activities. The following items contributed to increased (decreased) net cash provided by operating activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Changes in net income after adjusting for non-cash items | $ | (248) | | | $ | 43 | | | $ | (7) | |
Changes in working capital | (26) | | | 3 | | | (56) | |
Change in net regulatory assets and liabilities (1) | 2,432 | | | (12) | | | 2,190 | |
Change in equity in earnings of unconsolidated affiliates (2) | 108 | | | — | | | — | |
Change in distributions from unconsolidated affiliates (2) | (39) | | | — | | | — | |
| | | | | |
Lower pension contribution | 6 | | | — | | | — | |
Other | 28 | | | (8) | | | 7 | |
| $ | 2,261 | | | $ | 26 | | | $ | 2,134 | |
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(1)The change in net regulatory assets and liabilities at CenterPoint Energy and CERC is primarily due to the extraordinary natural gas costs associated with the February 2021 Winter Storm Event. See Note 6 to the Interim Condensed Financial Statements for more information on the February 2021 Winter Storm Event.
(2)In September 2021, CenterPoint Energy’s equity investment in Enable met the held for sale criteria and is reflected as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income. For further information, see Note 3 to the Interim Condensed Financial Statements.
Investing Activities.The following items contributed to (increased) decreased net cash used in investing activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Proceeds from the sale of equity securities | $ | 702 | | | $ | — | | | $ | — | |
| | | | | |
Capital expenditures | (252) | | | (177) | | | (64) | |
Net change in notes receivable from affiliated companies | — | | | 311 | | | — | |
| | | | | |
| | | | | |
Proceeds from divestitures | 2,060 | | | — | | | 2,060 | |
| | | | | |
| | | | | |
Other | 28 | | | — | | | (5) | |
| $ | 2,538 | | | $ | 134 | | | $ | 1,991 | |
FinancingActivities. The following items contributed to (increased) decreased net cash used in financing activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Net changes in commercial paper outstanding | $ | (1,979) | | | $ | — | | | $ | (1,002) | |
| | | | | |
| | | | | |
Net changes in long-term debt outstanding, excluding commercial paper | (2,728) | | | (204) | | | (2,124) | |
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Net changes in debt issuance costs | 12 | | | 2 | | | 6 | |
Net changes in short-term borrowings | (43) | | | — | | | (43) | |
| | | | | |
Payment of obligation for finance lease | (171) | | | (171) | | | — | |
Increased payment of common stock dividends | (19) | | | — | | | — | |
Decreased payment of preferred stock dividends | 24 | | | — | | | — | |
Net change in notes payable from affiliated companies | — | | | (504) | | | (224) | |
Contribution from parent | — | | | 637 | | | — | |
Dividend to parent | — | | | (37) | | | (743) | |
| | | | | |
| | | | | |
Other | (2) | | | 1 | | | 1 | |
| $ | (4,906) | | | $ | (276) | | | $ | (4,129) | |
Future Sources and Uses of Cash
The liquidity and capital requirements of the Registrants are affected primarily by our results of operations, capital expenditures, debt service requirements, tax payments, working capital needs and various regulatory actions. Our capitalCapital expenditures are expected to be used for investment in infrastructure for our natural gas distribution operations.infrastructure. These capital expenditures are anticipated to maintain reliability and safety, as well asincrease resiliency and expand our systems through value-added projects. OurIn addition to dividend payments on CenterPoint Energy’s Series A Preferred Stock and Common Stock, interest payments on debt, the Registrants’ principal anticipated cash requirements for the remaining threenine months of 20172022 include approximately $153 million of capital expenditures, $250 million of maturing senior notes and restoration costs related to Hurricane Harvey.the following:
| | | | | | | | | | | | | | | | | | | | |
| | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) |
Estimated capital expenditures | | $ | 2,986 | | | $ | 1,475 | | | $ | 1,182 | |
Scheduled principal payments on Securitization Bonds | | 182 | | | 182 | | | — | |
Minimum contributions to pension plans and other post-retirement plans | | 11 | | | 1 | | | 3 | |
Finance lease for mobile generation | | 347 | | | 347 | | | — | |
| | | | | | |
| | | | | | |
We
The Registrants expect that borrowings under our credit facility, proceeds from commercial paper, anticipated cash flows from operations, intercompany borrowings and distributions on our investment in common units from Enable will be sufficient to meet our anticipated cash needs for the remaining threenine months of 2017.2022 will be met with borrowings under their credit facilities, proceeds from the issuance of long-term debt, term loans, anticipated cash flows from operations, and, with respect to CenterPoint Energy and CERC, proceeds from commercial paper. Discretionary financing or refinancing may result in the issuance of debt securities of the Registrants in the capital markets or the arrangement of additional credit facilities.facilities or term bank loans. Issuances of debt in the capital markets, funds raised in the commercial paper markets and additional credit facilities may not, however, be available to us on acceptable terms.
Off-Balance Sheet Arrangements
Other than operating leases,Houston Electric’s general mortgage bonds issued as collateral for tax-exempt long-term debt of CenterPoint Energy as discussed in Note 11 and guarantees as discussed in Note 13(b) to the Interim Condensed Financial Statements, we have no off-balance sheet arrangements.
Regulatory Matters
PHMSA MattersFebruary 2021 Winter Storm Event
For further information about the February 2021 Winter Storm Event, see Note 6 to the Interim Condensed Financial Statements.
Indiana Electric CPCN (CenterPoint Energy)
On February 9, 2021, Indiana Electric entered into a BTA with a subsidiary of Capital Dynamics. Under the agreement, Capital Dynamics, with its partner Tenaska, contracted to build a 300 MW solar array in Posey County, Indiana through a special purpose entity, Posey Solar. Upon completion of construction, Indiana Electric will acquire Posey Solar and its solar array assets for a fixed purchase price. On February 23, 2021, Indiana Electric filed a CPCN with the IURC seeking approval to purchase the project. Indiana Electric also sought approval for a 100 MW solar PPA with Clenera LLC in Warrick County, Indiana. The request accounted for increased cost of debt related to this PPA, which provides equivalent equity return to offset imputed debt during the 25 year life of the PPA. A hearing was conducted on June 21, 2021. On October 27, 2021, the IURC issued an order approving the CPCN, authorizing Indiana Electric to purchase the Posey solar project through a BTA and approved recovery of costs via a levelized rate over the anticipated 35-year life. The IURC also approved the Warrick County solar PPA but denied the request to preemptively offset imputed debt in the PPA cost. Due to rising cost for the project, caused in part by supply chain issues in the energy industry, the rising costs of commodities and community feedback, we, along with Capital Dynamics, announced plans in January, 2022 to downsize the Posey solar project to approximately 200 MW. The Posey solar project is expected to be in service by 2023. Indiana Electric collaboratively agreed to the scope change and is currently working through contract negotiations, contingent on further IURC review and approval.
On June 17, 2021, Indiana Electric filed a CPCN with the IURC seeking approval to construct two natural gas combustion turbines to replace portions of its existing coal-fired generation fleet. Indiana Electric has also requested depreciation expense and post in-service carrying costs to be deferred in a regulatory asset until the date Indiana South’s base rates include a return on and recovery of depreciation expense on the facility. A hearing was conducted on January 26 through 28, 2022. The estimated $334 million turbine facility would be constructed at the current site of the A.B. Brown power plant in Posey County, Indiana and would provide a combined output of 460 MW. A new approximately 23.5 mile pipeline requiring FERC approval would also be constructed and operated by Texas Gas Transmission, LLC to supply natural gas to the turbine facility. Construction of the turbines will begin following receipt of necessary regulatory approvals by the IURC and FERC, which are anticipated in the second half of 2022 and first quarter of 2023, respectively. The turbines are targeted to be operational in first quarter of 2025. Subject to IURC approval, recovery of the proposed natural gas combustion turbines and regulatory asset will be requested in the next Indiana Electric rate case expected in 2023.
On August 25, 2021, Indiana Electric filed with the IURC seeking approval to purchase 185 MW of solar power, under a 15-year PPA, from Oriden LLC, which is developing a solar project in Vermillion County, Indiana, and 150 MW of solar power, under a 20-year PPA, from Origis Energy USA Inc., which is developing a solar project in Knox County, Indiana. Subject to necessary approvals, both solar arrays are expected to be in service by 2023. For more information regarding uncertainties related to our solar projects, see Item 1A of Part II of this combined Form 10-Q and “ —Solar Panel Issues” below.
Indiana Electric Securitization of Planned Generation Retirements (CenterPoint Energy)
The State of Indiana has enacted legislation, Senate Bill 386, that would enable CenterPoint Energy to request approval from the IURC to securitize the remaining book value and removal costs associated with generating facilities to be retired in the next twenty-four months. The Governor of Indiana signed the legislation on April 19, 2021. CenterPoint Energy intends in the second quarter of 2022 to make a filing with the IURC to securitize qualified costs associated with its planned retirements of coal generation facilities.
Subsidiary Restructuring
In July 2021, Indiana North and SIGECO filed petitions with the IURC for the approval of a new financial services agreement and the confirmation of Indiana North’s financing authority, and final orders were issued by the IURC on December 14, 2016, PHMSA announced28, 2021. VEDO filed a similar application with the PUCO in September 2021 and the PUCO issued an order on January 26, 2022 adopting recommendations by PUCO staff. CenterPoint Energy is evaluating the transfer of Indiana North and VEDO from VUHI to CERC in order to better align its organizational structure with management and financial reporting. Both the IURC and PUCO have approved the transaction. In order to effect the restructuring, VUHI has approached certain of its debt holders with an offer to exchange existing VUHI debt for CERC debt. The orders allow the reissuance of existing debt of Indiana North and VEDO to CERC, to continue to amortize existing issuance expenses and discounts, and to treat any potential exchange fees as discounts to be amortized over the life of the debt.
Texas Legislation (CenterPoint Energy and Houston Electric)
Houston Electric continues to review the effects of the legislation and is working with the PUCT regarding proposed rulemakings and pursuing implementation of these items where applicable. For example, in 2021 Houston Electric entered into two leases for temporary emergency electric energy (mobile generation): (1) a temporary short-term lease of 220 MW as of December 31, 2021 and reduced to 92 MW as of March 31, 2022 as assets were delivered under the long-term lease agreement and (2) a 7.5 year lease for up to 505 MW of mobile generation of which 253 MW and 125 MW was delivered as of March 31, 2022 and December 31, 2021. On April 5, 2022, CenterPoint Energy and Houston Electric filed its DCRF with the PUCT seeking recovery of deferred costs and the applicable return as of December 31, 2021 under these lease agreements, approximating $200 million. The annual revenue increase requested for these lease agreements is approximately $60 million. These mobile generation leases will support resiliency in major weather events and were deployed during the restoration process for Hurricane Nicholas. For additional information, see Note 19 to the Interim Condensed Financial Statements.
In addition to these measures taken by Houston Electric to support system preparedness and reliability, in February 2022, the City of Houston launched the first-of-its-kind long-term strategic power resilience initiative called “Resilient Now.” In a joint effort, Houston Electric is working with the City of Houston to develop the Master Energy Plan for the city to help the community thrive through economic changes, digital transformation, and advancing environmental goals for the benefit of its communities. The Master Energy Plan could develop into capital opportunities for Houston Electric, including relating to infrastructure modernization, residential weatherization, and investments around electric vehicles infrastructure.
Minnesota Base Rate Cases (CenterPoint Energy and CERC)
On November 1, 2021, CERC filed a general rate case with the MPUC seeking approval for a revenue increase of approximately $67 million with a projected test year ended December 31, 2022. The revenue increase is based upon a requested ROE of 10.2% and an overall rate of return of 7.06% on a total rate base of approximately $1.8 billion. CERC requested that an interim rate increase of approximately $52 million be implemented January 1, 2022 while the rate case is litigated. An alternative request was also filed on November 1, 2021. The alternative request proposed a final rulerate increase of $40 million that would be implemented in the rate case on January 1, 2022, and offered: an increase in rates for plant investment only using the overall rate of return approved in the prior rate case, an asymmetrical capital true-up, extension of the recovery of gas costs incurred to impose industry-developed recommendations as enforceable safety standardsserve customers in February 2021 from the then current 27 month mechanism to 63 months, an income tax rider, continuation of the existing property tax rider and continued deferral of COVID-19 incremental costs along with additional adjustments. On December 30, 2021, the MPUC issued a written order denying the alternative request but extended the amortization period for downhole (underground) equipment, including wells, wellbore tubing,extraordinary gas costs to 63-months beginning on January 1, 2022. The MPUC also issued written orders on the general rate case filing which (1) accepted CERC’s rate-increase application with a time for final determination of September 1, 2022, (2) authorized the implementation of interim rates on January 1, 2022, of $42 million based on an overall rate of return of 6.46%, and casing, at both interstate(3) referred the case to the Office of Administrative Hearings for a contested case proceeding. On March 14, 2022, an Offer of Settlement was filed with the Office of Administrative Hearings which would resolve all issues in the rate case. The Settlement provides for a general revenue increase of $48.5 million and intrastate undergroundoverall rate of return of 6.65% and is currently subject to review and approval by the MPUC. Final rate implementation is expected before the end of 2022.
Minnesota Legislation (CenterPoint Energy and CERC)
The Natural Gas Innovation Act was passed by the Minnesota legislature in June 2021 with bipartisan support. This law establishes a regulatory framework to enable the state’s investor-owned natural gas storage facilities. Both utilities to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing greenhouse gas emissions and advancing the state’s clean energy future. Specifically, the Natural Gas Innovation Act allows a natural gas utility to submit an innovation plan for approval by the MPUC which could propose the use of renewable energy resources and innovative technologies such as:
•renewable natural gas (produces energy from organic materials such as wastewater, agricultural manure, food waste, agricultural or forest waste);
•renewable hydrogen gas (produces energy from water through electrolysis with renewable electricity such as solar);
•energy efficiency measures (avoids energy consumption in excess of the utility’s existing conservation programs); and
•innovative technologies (reduces or avoids greenhouse gas emissions using technologies such as carbon capture).
CERC expects to submit its first innovation plan to the MPUC in 2022. The maximum allowable cost for an innovation plan will start at 1.75% of the utility's revenue in the state and Enable own and operate underground storage facilities that arecould increase to 4% by 2033, subject to this rule’s provisions, which include proceduresreview and practices for operations, maintenance, threat identification, monitoring, assessment, site security, emergency responseapproval by the MPUC.
Solar Panel Issues (CenterPoint Energy)
The DOC recently announced the commencement of an investigation into circumvention of anti-dumping and preparedness, trainingcountervailing duties by manufacturers of solar cells and recordkeeping. This rule went into effect on January 18, 2017,panels located in Cambodia, Malaysia, Thailand, and Vietnam. If an affirmative determination is made by the DOC, it could impose duties with an announced compliance deadline of January 18, 2018. PHMSA determined, however, that it will not issue enforcement citationsboth forward-looking and retroactive application. The DOC is expected to any operators for violations of provisionspresent its preliminary findings of the interim final rule that had previously been non-mandatory provisionsinvestigation in August or September of American Petroleum Institute Recommended Practices 1170 and 1171 until one year after PHMSA issues2022, but a final rule, which it expectsdetermination is not expected to publishbe issued until January 2023 (which deadline can be extended by the DOC to April 1, 2023). CenterPoint Energy’s current and future solar projects may be significantly impacted by this investigation through project delays, cancellations and increased costs to the projects. For more information regarding potential delays, cancellations and supply chain disruptions, see “Item 1A. Risk Factors” in Januarythe Registrants’ 2021 Form 10-K and Item 1A of 2018. On October 19, 2017, PHMSA formally reopened the comment period on the interim final rule in response to a petition for reconsideration. This matter remains ongoing and subject to future PHMSA determinations. CERC and Enable will continue to monitor developments and assess the potential impactPart II of any modifications to this rule.combined Form 10-Q.
Rate Change Applications
WeThe Registrants are routinely involved in rate change applications before state regulatory authorities. Those applications include general rate cases, where the entire cost of service of the utility is assessed and reset. We areIn addition, Houston Electric is periodically involved in proceedings to adjust ourits capital tracking mechanisms (TCOS and DCRF) and annually files to adjust its EECRF. CERC is periodically involved in proceedings to adjust its capital tracking mechanisms in Texas (GRIP), ourits cost of service adjustments in Arkansas, Louisiana and Mississippi (RSP and Oklahoma (FRP, RSP, RRA, and PBRC)respectively), ourits decoupling mechanism in Minnesota, and ourits energy efficiency cost trackers in Arkansas, Minnesota and Mississippi (CIP and Oklahoma (EECR, CIP, EECR, respectively). CenterPoint Energy is periodically involved in proceedings to adjust its capital tracking mechanisms in Indiana (CSIA for gas and EECR)TDSIC for electric) and Ohio (DRR), its decoupling mechanism in Indiana (SRC for gas), and its energy efficiency cost trackers in Indiana (EEFC for gas and DSMA for electric) and Ohio (EEFR). The table below reflects significant applications pending or completed since our 2016the Registrants’ combined 2021 Form 10-K was filed with the SEC.
SEC through April 29, 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mechanism | | Annual Increase (Decrease) (1) (in millions) | | Filing Date | | Effective Date | | Approval Date | | Additional Information |
|
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Mechanism | | Annual Increase (1)
(in millions)
| | Filing
Date
| | Effective Date | | Approval Date | | Additional Information |
South Texas | | | | | | | | | | |
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CenterPoint Energy and Houston Electric (PUCT) |
DCRF (1) | | 146 | | April 2022 | | TBD | | TBD | | Based on net change in distribution invested capital since its last base rate proceeding of over $1 billion for the period January 1, 2019 through December 31, 2021. In addition, request includes approximately $200 million in mobile generation facilities during the calendar year ending December 31, 2021. The requested overall revenue increase is $146 million with a proposed effective date of September 1, 2022. |
TCOS | | 64 | | February 2022 | | April 2022 | | April 2022 | | Based on net change of invested capital of $574 million. |
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CenterPoint Energy and CERC - Beaumont/East Texas, South Texas, Houston and Texas Coast (Railroad Commission) |
GRIP | | $7.6 | | March 2017 | | July
2017 (1)
| | June
2017 34 | | March 2022 | | TBD | | TBD | | Based on net change in invested capital for calendar year 2021 of $46.5$213 million. |
HoustonCenterPoint Energy and Texas Coast (Railroad Commission)CERC - Minnesota (MPUC) |
Rate Case(1) | | 16.567 | | November 20162021 | | TBD | | TBD | | MaySee discussion above under Minnesota Base Rate Case.
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)Decoupling | | N/A | | September 2021 | | September 2021 | | April 2022 | | Represents under-recovery of approximately $19 million recorded for and during the period July 1, 2020 through June 30, 2021, including an approximately $5 million adjustment related to the implementation of final rates from the general rate case filed in 2019. |
Rate Case | | 1.1 | | July
2017
| | September
2017
| | August 2017 | | Approved rates are consistent with Arkansas rates approved in 2016. |
Arkansas (APSC) | | | | | | | | | | |
EECR (2) | | 0.5 | | May
2017
| | January 2018 | | September 2017 | | Recovers $11.0 million, including an incentive of $0.5 million based on 2016 program performance. |
FRP |
| | 7.6 | | April
2017 | | October
2017 | | September 2017 | | |
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CenterPoint Energy and CERC - Mississippi (MPSC) |
RRA (1) | | 3 | | April 2022 | | TBD | | TBD | | Based 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. |
BDA | | 3.9 | | March
2017
| | June
2017
| | June
2017
| | For the evaluation period between January 2016 and August 2016. Amounts are recorded during the evaluation period. |
Minnesota (MPUC) |
Rate Case | | 56.5 | | August 2017 | | TBD | | TBD | | Reflects 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 annual9.568% with 100 basis point (+/-) earnings band. Revenue increase of $47.8 million were effective October 1, 2017. |
CIP (2) | | 13.8 | | May
2017
| | August 2017 | | August 2017 | | Annual reconciliation filing for program year 2016 and includes performance bonus of $13.8 million. |
Decoupling | | 20.4 | | September 2017 | | September 2017 | | TBD | | Reflects 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 was recognized in 2016 and $11.2 million has been recognized in 2017. |
Mississippi (MPSC) |
RRA | | 2.3 | | May
2017
| | July
2017
| | July
2017
| | Authorized ROE of 9.59% and a capital structure of 50% debt and 50% equity. |
Louisiana (LPSC) |
RSP | | 1.0 | | September 2016 | | December 2016 | | April
2017
| | Authorized ROE of 9.95% and a capital structure of 48% debt and 52% equity. |
RSP | | 3.4 | | September 2017 | | December 2017 | | TBD | | Authorized ROE of 9.95% and a capital structure of 48% debt and 52% equity. |
Oklahoma (OCC) |
EECR (2) | | 0.4 | | March 2017 | | November 2017 | | October 2017 | | Recovers $2.6 million, including an incentive of $0.4approximately $3 million based on 2016 program performance.2021 test year adjusted earned ROE of 7.74%. Interim increase of approximately $1 million to be implemented May 31, 2022. |
PBRCCenterPoint Energy - Ohio (PUCO) | | 2.2 | |
March
2017DRR (1)
| | November 20179 | | October 2017April 2022 | | Based on ROETBD | | TBD | | Requested an increase of 10%.$63 million to rate base for investments made in 2021, which reflects a $9 million annual increase in current revenues. A change in (over)/under-recovery variance of $(4 million) annually is also included in rates. |
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(1)Mechanism | Represents proposed increases when effective date and/or approval date | Annual Increase (Decrease) (1) (in millions) | | Filing Date | | Effective Date | | Approval Date | | Additional Information |
CenterPoint Energy - Indiana Electric (IURC) |
TDSIC (1) | | 3 | | February 2022 | | TBD | | TBD | | Requested an increase of $42 million to rate base, which reflects a $3 million annual increase in current revenues. 80% of the revenue requirement is not yet determined. Approved rates could differ materially from proposed rates.included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes a change in (over)/under-recovery variance of less than $1 million. |
CECA (1) | (2) | | February 2022 | | TBD | | TBD | | Requested a decrease of less than $1 million to rate base, which reflects a $3 million annual decrease in current revenues. The mechanism also includes a change in (over)/under-recovery variance of less than $1 million. This mechanism includes a non-traditional rate making approach related to a 50 MW universal solar array placed in service in January 2021. | | | | | | | | | | | | (2) | Amounts are recorded when approved. | | | | | | | | | |
(1)Represents proposed increases (decreases) when effective date and/or approval date is not yet determined. Approved rates could differ materially from proposed rates.
Greenhouse Gas Regulation and Compliance (CenterPoint Energy)
On August 3, 2015, the EPA released its CPP rule, which required a 32% reduction in carbon emissions from 2005 levels. The final rule was published in the Federal Register on October 23, 2015, and that action was immediately followed by litigation ultimately resulting in the U.S. Supreme Court staying implementation of the rule. On July 8, 2019, the EPA published the ACE rule, which (i) repealed the CPP rule; (ii) replaced the CPP rule with a program that requires states to implement a program of energy efficiency improvement targets for individual coal-fired electric generating units; and (iii) amended the implementing regulations for Section 111(d) of the Clean Air Act. On January 19, 2021, the majority of the ACE rule — including the CPP repeal, CPP replacement, and the timing-related portions of the Section 111(d) implementing rule — was struck down by the U.S. Court of Appeals for the D.C. Circuit and on October 29, 2021, the U.S. Supreme Court agreed to consider four petitions filed by various coal interests and a coalition of 19 states that seek review of the lower court’s decision vacating the ACE rule. CenterPoint Energy is currently unable to predict what a replacement rule for either the ACE rule or CPP would require.
The Biden administration recommitted the United States to the Paris Agreement, which can be expected to drive a renewed regulatory push to require further GHG emission reductions from the energy sector and proceeded to lead negotiations at the global climate conference in Glasgow, Scotland. On April 22, 2021, President Biden announced new goals of 50% reduction of economy-wide GHG emissions, and 100% carbon-free electricity by 2035, which formed the basis of the U.S. commitments announced in Glasgow. In September 2021, CenterPoint Energy announced its new net zero emissions goals for both Scope 1 and Scope 2 emissions by 2035 as well as a goal to reduce Scope 3 emissions by 20% to 30% by 2035. Because Texas is an unregulated market, CenterPoint Energy’s Scope 2 estimates do not take into account Texas electric transmission and distribution assets in the line loss calculation and exclude emissions related to purchased power in Indiana between 2024 and 2026 as estimated. CenterPoint Energy’s Scope 3 estimates do not take into account the emissions of transport customers and emissions related to upstream extraction. These emission goals are expected to be used to position CenterPoint Energy to comply with anticipated future regulatory requirements from the current and future administrations to further reduce GHG emissions. CenterPoint Energy’s and 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 their operations or would have the effect of reducing the consumption of natural gas. In addition, the EPA has indicated that it intends to implement new regulations targeting reductions in methane emissions, which are likely to increase costs related to production, transmission and storage of natural gas. Houston Electric, in contrast to some electric utilities including Indiana Electric, does not generate electricity, other than leasing facilities that provide temporary emergency electric energy to aid in restoring power to distribution customers during certain widespread power outages as allowed by a new law enacted after the February 2021 Winter Storm Event, 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. CenterPoint Energy’s new net zero emissions goals are aligned with Indiana Electric’s generation transition plan and are expected to position Indiana Electric to comply with anticipated future regulatory requirements related to GHG emissions reductions. Nevertheless, Houston Electric’s and Indiana 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 their respective service territories. Likewise, incentives to conserve energy or to use energy sources other than natural gas could result in a decrease in demand for the Registrants’ services. For example, Minnesota has enacted the Natural Gas Innovation Act that seeks to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing GHG emissions.Further, certain local government bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain specified dates. For example, Minneapolis has adopted carbon emission reduction goals in an effort to decrease reliance on fossil gas. Additionally, cities in Minnesota
within CenterPoint Energy’s Natural Gas operational footprint are considering initiatives to eliminate natural gas use in buildings and focus on electrification. Also, Minnesota cities may consider seeking legislative authority for the ability to enact voluntary enhanced energy standards for all development projects. These initiatives could have a significant impact on CenterPoint Energy and its operations, and this impact could increase if other cities and jurisdictions in its service area enact similar initiatives. Further, our third party suppliers, vendors and partners may also be impacted by climate change laws and regulations, which could impact CenterPoint Energy’s business by, among other things, causing permitting and construction delays, project cancellations or increased project costs passed on to CenterPoint Energy. Conversely, regulatory actions that effectively promote the consumption of natural gas because of its lower emissions characteristics would be expected to benefit CenterPoint Energy and CERC and their natural gas-related businesses. At this time, however, we cannot quantify the magnitude of the impacts from possible new regulatory actions related to GHG emissions, either positive or negative, on the Registrants’ businesses.
Compliance costs and other effects associated with climate change, reductions in GHG emissions and obtaining renewable energy sources remain uncertain. Although the amount of compliance costs remains uncertain, any new regulation or legislation relating to climate change will likely result in an increase in compliance costs. While the requirements of a federal or state rule remain uncertain, CenterPoint Energy will continue to monitor regulatory activity regarding GHG emission standards that may affect its business. Currently, CenterPoint Energy does not purchase carbon credits. In connection with its net zero emissions goals, CenterPoint Energy is expected to purchase carbon credits in the future; however, CenterPoint Energy does not currently expect the number of credits, or cost for those credits, to be material.
Climate Change Trends and Uncertainties
As a result of increased awareness regarding climate change, coupled with adverse economic conditions, availability of alternative energy sources, including private solar, microturbines, fuel cells, energy-efficient buildings and energy storage devices, and new regulations restricting emissions, including potential regulations of methane emissions, some consumers and companies may use less energy, meet their own energy needs through alternative energy sources or avoid expansions of their facilities, including natural gas facilities, resulting in less demand for the Registrants’ services. 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 the Registrants’ systems and services, which may result in, among other things, Indiana Electric’s generating facilities becoming less competitive and economical. Further, evolving investor sentiment related to the use of fossil fuels and initiatives to restrict continued production of fossil fuels have had significant impacts on CenterPoint Energy’s electric generation and natural gas businesses. For example, because Indiana Electric’s current generating facilities substantially rely on coal for their operations, certain financial institutions choose not to participate in CenterPoint Energy’s financing arrangements. Conversely, demand for the Registrants’ services may increase as a result of customer changes in response to climate change. For example, as the utilization of electric vehicles increases, demand for electricity may increase, resulting in increased usage of CenterPoint Energy’s systems and services. Any negative opinions with respect to CenterPoint Energy’s environmental practices or its ability to meet the challenges posed by climate change formed by regulators, customers, investors or legislators could harm its reputation.
To address these developments, CenterPoint Energy announced its new net zero emissions goals for both Scope 1 and Scope 2 emissions by 2035. In June of 2020, Indiana Electric identified a preferred generation resource in its most recent IRP submitted to the IURC that aligns with its new net zero emissions goals and includes the replacement of 730 MWs of coal-fired generation facilities with a significant portion comprised of renewables, including solar and wind, supported by dispatchable natural gas combustion turbines, including a pipeline to serve such natural gas generation, as well as storage. Additionally, as reflected in its 10-year capital plan announced in September 2021, CenterPoint Energy anticipates spending over $3 billion in clean energy investments and enablement, which may be used to support, among other things, renewable generation and electric vehicle expansion. CenterPoint Energy believes its planned investments in renewable energy generation and corresponding planned reduction in its GHG emissions as part of its newly adopted net zero emissions goals support global efforts to reduce the impacts of climate change.
To the extent climate changes result in warmer temperatures in the Registrants’ service territories, financial results from the Registrants’ businesses could be adversely impacted. For example, CenterPoint Energy’s and CERC’s Natural Gas could be adversely affected through lower natural gas sales. On the other hand, warmer temperatures in CenterPoint Energy’s and Houston Electric’s electric service territory may increase revenues from transmission and distribution and generation through increased demand for electricity used for cooling. Another possible result of climate change is more frequent and more severe weather events, such as hurricanes, tornadoes and flooding, including such storms as the February 2021 Winter Storm Event. Since many of the Registrants’ facilities are located along or near the Texas Gulf Coast, increased or more severe hurricanes or tornadoes could increase costs to repair damaged facilities and restore service to customers. CenterPoint Energy’s recently announced 10-year capital plan includes capital expenditures to maintain reliability and safety and increase resiliency of its systems as climate change may result in more frequent significant weather events. Houston Electric does not own or operate
any electric generation facilities other than, since September 2021, leasing facilities that provide temporary emergency electric energy to aid in restoring power to distribution customers during certain widespread power outages as allowed by a new law enacted after the February 2021 Winter Storm Event. Houston Electric transmits and distributes to customers of REPs electric power that the REPs obtain from power generation facilities owned by third parties. To the extent adverse weather conditions affect the Registrants’ suppliers, results from their energy delivery businesses may suffer. For example, in Texas, the February 2021 Winter Storm Event caused an electricity generation shortage that was severely disruptive to Houston Electric’s service territory and the wholesale generation market and also caused a reduction in available natural gas capacity. When the Registrants cannot deliver electricity or natural gas to customers, or customers cannot receive services, the Registrants’ financial results can be impacted by lost revenues, and they generally must seek approval from regulators to recover restoration costs. To the extent the Registrants are unable to recover those costs, or if higher rates resulting from recovery of such costs result in reduced demand for services, the Registrants’ future financial results may be adversely impacted. Further, as the intensity and frequency of significant weather events continues, it may impact our ability to secure cost-efficient insurance.
Other Matters
Credit FacilityFacilities
OurThe Registrants may draw on their respective revolving credit facility may be drawn onfacilities from time to time to provide funds used for general corporate and limited liability company purposes, including to backstop ourCenterPoint Energy’s and CERC’s commercial paper program.programs. The facilities may also be utilized to obtain letters of credit. For further details related to ourthe Registrants’ revolving credit facility and the 2017 amendment, pleasefacilities, see Note 11 to ourthe Interim Condensed Financial Statements.
Based on the consolidated debt to capitalization covenant in the Registrants’ revolving credit facilities, the Registrants would have been permitted to utilize the full capacity of such revolving credit facilities, which aggregated approximately $4 billion as of March 31, 2022. As of October 26, 2017, weApril 20, 2022, the Registrants had the following revolving credit facilityfacilities and utilization of such facility:facilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amount Utilized as of April 20, 2022 | | | | | Registrant | | Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | | Weighted Average Interest Rate | | Termination Date | | | (in millions) | | | | | CenterPoint Energy | | $ | 2,400 | | | $ | — | | | $ | 11 | | | $ | 443 | | | 0.70% | | February 4, 2024 | CenterPoint Energy (1) | | 400 | | | — | | | — | | | 245 | | | 0.62% | | February 4, 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | Houston Electric | | 300 | | | — | | | — | | | — | | | —% | | February 4, 2024 | CERC | | 900 | | | — | | | — | | | 96 | | | 0.60% | | February 4, 2024 | Total | | $ | 4,000 | | | $ | — | | | $ | 11 | | | $ | 784 | | | | | |
| | | | | | | | | | | | Execution Date | | Size of Facility | | Amount Utilized at October 26, 2017 | | Termination Date | (in millions) | March 3, 2016 | | $ | 900 |
| | $ | 561 |
| (1) | March 3, 2022 |
(1) Represents outstanding commercial paper.The credit facility was issued by VUHI and is guaranteed by SIGECO, Indiana Gas and VEDO.
Borrowings under oureach of the revolving credit facilityfacilities are subject to customary terms and conditions. However, there is no requirement that we makethe borrower makes representations prior to borrowingsborrowing as to the absence of material adverse changes or litigation that could be expected to have a material adverse effect. Borrowings under oureach of the revolving credit facilityfacilities are subject to acceleration upon the occurrence of events of default that we consider customary. The revolving credit facilityfacilities also providesprovide for customary fees, including commitment fees, administrative agent fees, fees in respect of letters of credit and other fees. In oureach of the revolving credit facility,facilities, the spread to LIBOR and the commitment fees fluctuate based on ourthe borrower’s credit rating. WeEach of the Registrant’s credit facilities provide for a mechanism to replace LIBOR with possible alternative benchmarks upon certain benchmark replacement events. The borrowers are currently in compliance with the various business and financial covenants in ourthe four revolving credit facility.facilities.
Long-term Debt Financing Transactions
In August 2017, we issued $300 million aggregate principal amount of unsecured senior notes. For furtherdetailed information about our 2017the Registrants’ debt transactions in 2022, see Note 11 to ourthe Interim Condensed Financial Statements.
Securities Registered with the SEC
On January 31, 2017, weMay 29, 2020, the Registrants filed a joint shelf registration statement with the SEC registering indeterminate principal amounts of Houston 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 principal amountnumber of our senior debt securities.shares of Common Stock, shares of preferred stock, depositary shares, as well as stock purchase contracts and equity units. The joint shelf registration statement will expire on January 31, 2020.May 29, 2023. For information related to the Registrants’ debt issuances in 2022, see Note 11 to the Interim Condensed Financial Statements.
Temporary Investments
As of October 26, 2017, weApril 20, 2022, the Registrants had no temporary external investments.
Money Pool
WeThe Registrants participate in a money pool through which wethey and certain of our affiliatestheir 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 CenterPoint Energy money pool are expected to be met with borrowings byunder CenterPoint Energy under itsEnergy’s revolving credit facility or the sale byof CenterPoint Energy of itsEnergy’s commercial paper. AsThe net funding requirements of October 26, 2017, we had nothe CERC money pool are expected to be met with borrowings fromunder CERC’s revolving credit facility or investments in the money pool.sale of CERC’s commercial paper. The money pool may not provide sufficient funds to meet ourthe Registrants’ cash needs.
The table below summarizes CenterPoint Energy money pool activity by Registrant as of April 20, 2022: | | | | | | | | | | | | | | | | | | | Weighted Average Interest Rate | | Houston Electric | | CERC | | | | (in millions) | Money pool investments (borrowings) | 0.67% | | $ | 145 | | | $ | — | |
Impact on Liquidity of a Downgrade in Credit Ratings
The interest rate on borrowings under ourthe credit facilityfacilities is based on oureach respective borrower’s credit rating. On August 4, 2017, S&P revised its rating outlook on our senior debt to positive from developing and affirmed its rating. On September 24, 2017, Fitch revised its rating outlook on our senior debt to positive from stable and affirmed its rating.
ratings. As of October 26, 2017,April 20, 2022, Moody’s, S&P and Fitch had assigned the following credit ratings to our senior unsecured debt: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Moody’s | | | | Moody’s | | S&P | | Fitch | RatingRegistrant | | Borrower/Instrument | | Rating | | Outlook (1) | | Rating | | Outlook (2) | | Rating | | Outlook (3) | Baa2CenterPoint Energy | | StableCenterPoint Energy Senior Unsecured Debt | | A-Baa2 | | PositiveStable | | BBB | | PositiveStable | | BBB | | Stable | CenterPoint Energy | | Vectren Corp. Issuer Rating | | n/a | | n/a | | BBB+ | | Stable | | n/a | | n/a | CenterPoint Energy | | VUHI Senior Unsecured Debt | | A3 | | Stable | | BBB+ | | Stable | | n/a | | n/a | CenterPoint Energy | | Indiana Gas Senior Unsecured Debt | | n/a | | n/a | | BBB+ | | Stable | | n/a | | n/a | CenterPoint Energy | | SIGECO Senior Secured Debt | | A1 | | Stable | | A | | Stable | | n/a | | n/a | Houston Electric | | Houston Electric Senior Secured Debt | | A2 | | Stable | | A | | Stable | | A | | Stable | CERC | | CERC Corp. Senior Unsecured Debt | | A3 | | Stable | | BBB+ | | Stable | | A- | | Stable |
| | (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(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 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.
The Registrants cannot assure 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. WeThe Registrants note that these credit ratings are included for informational purposes and are not recommendations to buy, sell or hold ourthe Registrants’ 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 ourthe Registrants’ credit ratings could have a material adverse impact on ourthe Registrants’ ability to obtain short- and long-term financing, the cost of such financings and the execution of ourthe Registrants’ commercial strategies.
A decline in credit ratings could increase borrowing costs under ourthe Registrants’ revolving credit facility.facilities. If ourthe Registrants’ credit ratings had been downgraded one notch by each of the three principal credit rating agenciesS&P and Moody’s from the ratings that existed as of September 30, 2017,March 31, 2022, the impact on the borrowing costs under ourthe four revolving credit facilityfacilities would have been immaterial.insignificant. 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 ourthe Registrants’ 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 ourCenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services businessreportable segments.
CES, our wholly-owned subsidiary 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 United States. To 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 or settled-to-market by CES. As of September 30, 2017, the amounts posted as collateral and settled-to-market aggregated approximately $35 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 September 30, 2017, unsecured credit limits extended to CES by counterparties aggregated $358 million, and $1 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 $197$203 million as of September 30, 2017.March 31, 2022. The amount of collateral will depend on seasonal variations in transportation levels.
ZENS and Securities Related to ZENS (CenterPoint Energy)
If CenterPoint Energy’s creditworthiness were to drop such that ZENS holders thought its liquidity was adversely affected or the market for the ZENS were to become illiquid, some ZENS holders might decide to exchange their ZENS for cash. Funds for the payment of cash upon exchange could be obtained from the sale of the shares of ZENS-Related Securities that CenterPoint Energy owns or from other sources. CenterPoint Energy owns shares of ZENS-Related Securities equal to approximately 100% of the reference shares used to calculate its obligation to the holders of the ZENS. ZENS exchanges result in a cash outflow because tax deferrals related to the ZENS and shares of ZENS-Related Securities would typically cease when ZENS are exchanged or otherwise retired and shares of ZENS-Related Securities are sold. The ultimate tax liability related to the ZENS and ZENS-Related Securities 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 or exchange of the ZENS. If all ZENS had been exchanged for cash on March 31, 2022, deferred taxes of approximately $575 million would have been payable in 2022. If all the ZENS-Related Securities had been sold on March 31, 2022, capital gains taxes of approximately $124 million would have been payable in 2022 based on 2022 tax rates in effect. For additional information about ZENS, see Note 10 to the Interim Condensed Financial Statements.
Cross Defaults
Under each of CenterPoint Energy’s (including VUHI’s), Houston Electric’s and CERC’s respective revolving credit facility,facilities, 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 $125 million by usthe borrower or any of their respective significant subsidiaries will cause a default.default under such borrower’s respective credit facility or term loan agreement. A default by CenterPoint Energy would not trigger a default under ourits subsidiaries’ debt instruments or revolving credit facility.facilities.
Possible Acquisitions, Divestitures and Joint Ventures
From time to time, wethe Registrants 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. WeThe Registrants 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 usthe Registrants 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, As announced in September 2021, CenterPoint Energy announced that it was evaluating strategic alternatives for our investmentplans to increase its planned capital expenditures in Enable, including a sale or spin-off qualifying under Section 355 ofits Electric and Natural Gas businesses to support rate base growth and may explore asset sales, in addition to the U.S. Internal Revenue Code. CenterPoint Energy has determined that it will no longer pursue the spin option. Should the sale option not be viable, we intend to reduce our ownership in Enable over time through arecently completed sale of the common units we holdits Natural Gas businesses located in the public equity markets, subjectArkansas and Oklahoma, as a means to market conditions. There can be no assurances that these evaluations will result in any specific action, and we do not intendefficiently finance a portion of such increased capital expenditures. For further information, see Note 3 to disclose further developments on these initiatives unless and until CenterPoint Energy’s board of directors approves a specific action or as otherwise required.
Enable Midstream Partners
We receive quarterly cash distributions from Enable on its common units we own. A reduction in the cash distributions we receive from Enable could significantly impact our liquidity. For additional information about cash distributions from Enable, see Notes 8 and 16 to our Interim Condensed Financial Statements.
Weather Hedge
We have entered into partial weather hedges for certain NGD jurisdictions to mitigate the impact of fluctuations from normal weather. We remain exposed to some weather risk as a result of the partial hedges. For more information about our weather hedges, see Note 6(a) to our Interim Condensed Financial Statements.
Hedging of Interest Expense for Future Debt Issuances
During August 2017, we enteredFrom time to time, the Registrants may enter into forward interest rate agreements to hedge, in part, volatility in the U.S. treasury rates by reducing variability in cash flows related to interest payments. For further information, see Note 6(a)7(a) to ourthe Interim Condensed Financial Statements.
Collection of Receivables from REPs (CenterPoint Energy and Houston Electric)
Houston Electric’s receivables from the distribution of electricity are collected from REPs that supply the electricity Houston Electric distributes to their customers. Before conducting business, a REP must register with the PUCT and must meet certain financial qualifications. Nevertheless, adverse economic conditions, the February 2021 Winter Storm Event, 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 Houston Electric’s services or could cause them to delay such payments. 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 Houston Electric’s cash flows. In the event of a REP default, Houston Electric’s tariff provides a number of remedies, including the option for Houston Electric to request that the PUCT 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, 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 Houston Electric involving payments it had received from such REP. If a REP were to file for bankruptcy, 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, PUCT regulations authorize utilities, such as 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, ourthe Registrants’ liquidity and capital resources could also be negatively affected by:
•cash collateral requirements that could exist in connection with certain contracts, including our weather hedging arrangements, and natural gas purchases, natural gas price and natural gas storage activities of ourCenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services business segments;reportable segment;
•acceleration of payment dates on certain gas supply contracts, under certain circumstances, as a result of increased natural gas prices and concentration of natural gas suppliers;suppliers (CenterPoint Energy and CERC); •increased costs related to the acquisition of natural gas;gas (CenterPoint Energy and CERC);
•increases in interest expense in connection with debt refinancings and borrowings under our credit facility;facilities or term loans or the use of alternative sources of financings; •increases in commodity prices;
•various legislative or regulatory actions;actions, including recovery of costs such as those associated with the mobile generation leases;
•incremental collateral, if any, that may be required due to regulation of derivatives;derivatives (CenterPoint Energy);
•the ability of GenOnREPs, including REP affiliates of NRG and its subsidiaries, currently the subject of bankruptcy proceedings,Vistra Energy Corp., to satisfy their obligations in respect of GenOn’s indemnity obligations to CenterPoint Energy and its subsidiaries;Houston Electric, including the negative impact on such ability related to the February 2021 Winter Storm Event;
•slower customer payments and increased write-offs of receivables due to higher natural gas prices, or changing economic conditions;conditions or the February 2021 Winter Storm Event (CenterPoint Energy and CERC); •the satisfaction of any obligations pursuant to guarantees;
the outcome of litigation brought by or 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
Certain Contractual Limits on Our Ability to Issue Securities and Borrow Money
Certain provisions in note purchase agreements relating to debt issued by VUHI have the effect of restricting the amount of additional first mortgage bonds issued by SIGECO. For information about the total debt to capitalization financial covenants in ourthe Registrants’ and certain of CenterPoint Energy’s subsidiaries’ revolving credit facility,facilities, see Note 11 to ourthe Interim Condensed Financial Statements.
Relationship
CRITICAL ACCOUNTING POLICIES
A critical accounting policy is one that is both important to the presentation of the Registrants’ 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 the Registrants’ historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. Additionally, different estimates that the Registrants could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of their 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. The Registrants base their estimates on historical experience and on various other assumptions that they 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 the Registrants’ operating environment changes.
There have been no significant changes in our critical accounting policies during the three months ended March 31, 2022, as compared to the critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Registrants’ combined 2021 Form 10-K.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Houston Electric and CERC meet the conditions specified in General Instruction H(1)(a) and (b) to Form 10-Q and are therefore permitted to use the reduced disclosure format for wholly-owned subsidiaries of reporting companies. Accordingly, Houston Electric and CERC have omitted from this report the information called for by Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I of the Form 10-Q.
Interest Rate Risk (CenterPoint Energy)
As of March 31, 2022, CenterPoint Energy had outstanding long-term debt, lease obligations and obligations under its ZENS that subject it to the risk of loss associated with movements in market interest rates.
WeCenterPoint Energy’s floating rate obligations aggregated $2.1 billion and $4.5 billion as of March 31, 2022 and December 31, 2021, respectively. If the floating interest rates were to increase by 10% from March 31, 2022 rates, CenterPoint Energy’s combined interest expense would increase by approximately $2 million annually.
As of March 31, 2022 and December 31, 2021, CenterPoint Energy had outstanding fixed-rate debt (excluding indexed debt securities) aggregating $11.8 billion and $11.7 billion, respectively, in principal amount and having a fair value of $12.0 billion and $13.0 billion, respectively. Because these instruments are fixed-rate, they do not expose CenterPoint Energy to the risk of loss in earnings due to changes in market interest rates. However, the fair value of these instruments would increase by approximately $443 million if interest rates were to decline by 10% from levels at March 31, 2022. In general, such an indirect, wholly-owned subsidiaryincrease in fair value would impact earnings and cash flows only if CenterPoint Energy were to reacquire all or a portion of these instruments in the open market prior to their maturity.
In general, such an increase in fair value would impact earnings and cash flows only if CenterPoint Energy. AsEnergy were to reacquire all or a portion of these instruments in the open market prior to their maturity.
The ZENS obligation is bifurcated into a debt component and a derivative component. The debt component of $9 million as of March 31, 2022 was a fixed-rate obligation and, therefore, did not expose CenterPoint Energy 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 $1 million if interest rates were to decline by 10% from levels at March 31, 2022. Changes in the fair value of the derivative component, a $797 million recorded liability at March 31, 2022, are recorded in CenterPoint Energy’s Condensed Statements of Consolidated Income and, therefore, it is exposed to changes in the fair value of the derivative component as a result of this relationship,changes in the financial conditionunderlying risk-free interest rate. If the risk-free interest rate were to increase by 10% from March 31, 2022 levels, the fair value of the derivative component liability would decrease by approximately $1 million, which would be recorded as an unrealized gain in CenterPoint Energy’s Condensed Statements of Consolidated Income.
Equity Market Value Risk (CenterPoint Energy)
CenterPoint Energy is exposed to equity market value risk through its ownership of 10.2 million shares of AT&T Common, 0.9 million shares of Charter Common and liquidity2.5 million shares of our parent company could affect our accessWBD Common, which CenterPoint Energy holds to capital, our credit standing and our financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
facilitate its ability to meet its obligations under the ZENS. See Note 210 to ourthe Interim Condensed Financial Statements incorporated herein by reference, for a discussion of new accounting pronouncements that affect us.CenterPoint Energy’s ZENS obligation. Changes in the fair value of the ZENS-Related 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 March 31, 2022 aggregate market value of these shares would result in a net loss of less than $1 million, which would be recorded as a loss in CenterPoint Energy’s Condensed Statements of Consolidated Income.
Commodity Price Risk From Non-Trading Activities (CenterPoint Energy)
CenterPoint Energy’s regulated operations in Indiana have limited exposure to commodity price risk for transactions involving purchases and sales of natural gas, coal and purchased power for the benefit of retail customers due to current state regulations, which, subject to compliance with those regulations, allow for recovery of the cost of such purchases through natural gas and fuel cost adjustment mechanisms. CenterPoint Energy’s utility natural gas operations in Indiana have regulatory authority to lock in pricing for up to 50% of annual natural gas purchases using arrangements with an original term of up to 10 years. This authority has been utilized to secure fixed price natural gas using both physical purchases and financial derivatives. As of March 31, 2022, the recorded fair value of non-trading energy derivative assets was $39 million for CenterPoint Energy’s utility natural gas operations in Indiana.
Although CenterPoint Energy’s regulated operations are exposed to limited commodity price risk, natural gas and coal prices have other effects on working capital requirements, interest costs, and some level of price-sensitivity in volumes sold or delivered. Constructive regulatory orders, such as those authorizing lost margin recovery, other innovative rate designs and recovery of unaccounted for natural gas and other natural gas-related expenses, also mitigate the effect natural gas costs may have on CenterPoint Energy’s financial condition. In 2008, the PUCO approved an exit of the merchant function in CenterPoint Energy’s Ohio natural gas service territory, allowing Ohio customers to purchase substantially all natural gas directly from retail marketers rather than from CenterPoint Energy.
Item 4.CONTROLS AND PROCEDURES
In accordance with Exchange Act Rules 13a-15 and 15d-15, wethe Registrants carried out an evaluation,separate evaluations, under the supervision and with the participation of each company’s management, including ourthe principal executive officer and principal financial officer, of the effectiveness of ourthe disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, ourthose evaluations, the principal executive officer and principal financial officer, in each case, concluded that ourthe disclosure controls and procedures were effective as of September 30, 2017March 31, 2022 to provide assurance that information required to be disclosed in ourthe reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to our management, including ourthe principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.
There has been no change in ourthe Registrants’ internal controls over financial reporting that occurred during the three months ended September 30, 2017March 31, 2022 that has materially affected, or is reasonably likely to materially affect, ourthe Registrants’ internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
For a description of certain legal and regulatory proceedings, affecting us, please read Note 12(b)13(d) to ourthe Interim Condensed Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Future Sources and Uses of Cash” and “— Regulatory Matters,” each of which is incorporated herein by reference. See also “Business“Business — Regulation” and “— Environmental Matters”Matters” in Item 1 and “Legal Proceedings”“Legal Proceedings” in Item 3 of our 2016the Registrants’ combined 2021 Form 10-K.
Item 1A.RISK FACTORS
ThereSee below the new risk factor affecting CenterPoint Energy’s and Houston Electric’s businesses, in addition to those risk factors discussed in “Risk Factors” in Item 1A of Part I of the combined 2021 Form 10-K, which could materially affect the Registrants’ financial condition or future results. Except for the updates below, there have been no material changes from the risk factors disclosed in our 2016the Registrants’ combined 2021 Form 10-K.
Increases in the cost or reduction in supply of solar energy system components due to tariffs or trade restrictions imposed by the U.S. government may have an adverse effect on our business, financial condition and results of operations. Item 5.OTHER INFORMATION
China is a major producer of solar cells and other solar products. Certain solar cells, modules, laminates and panels from China are subject to various antidumping and countervailing duty rates, depending on the exporter supplying the product,
imposed by the U.S. government as a result of earnings to fixed charges for the nine months ended September 30, 2017 and 2016 was 5.27 and 4.51, respectively. We do not believedeterminations that the ratiosU.S. was materially injured as a result of such imports being sold at less than fair value and subsidized by the Chinese government. In March 2022, the DOC announced that it would initiate an investigation into whether imports of solar cells and panels produced in Cambodia, Malaysia, Thailand and Vietnam are circumventing rules, such as anti-dumping and countervailing duties, intended to impose a tariff on imports of solar cells and panels manufactured in China. If an affirmative finding is made by the DOC, it could impose duties on imports of solar cells and panels from Cambodia, Malaysia, Thailand and Vietnam with both forward-looking and retroactive application. If enacted, these or similar duties could put upward pressure on prices of these solar energy products, which may reduce our ability to acquire these items in a timely and cost-efficient manner. If we are unable to secure such solar energy products in a timely and cost-efficient manner, we may be forced to delay, downsize and/or cancel solar projects and we may not be able to procure the resources needed to fully execute on our ten-year capital plan or achieve our net zero emissions goals. Additionally, delays or cancellations by developers of third-party solar power facilities expected to interconnect with CenterPoint Energy’s and Houston Electric’s system may have adverse impacts, such as delayed or reduced potential future revenues.We cannot predict what additional actions the U.S. government may adopt with respect to tariffs or other trade regulations in the future or what actions may be taken by other countries in retaliation for these nine-month periodssuch measures. If an affirmative finding is made by the DOC or other additional measures are necessarily indicativeimposed, our business, financial condition and results of the ratios for the 12-month periods due to the seasonal nature of our business. The ratios were calculated pursuant to applicable rules of the SEC.operations may be adversely affected.
Item 5.OTHER INFORMATION
None.
Item 6.EXHIBITS
The following exhibits are filed herewith:
Exhibits not incorporated by reference to a prior filingfiled herewith are designated by a cross (+(†); all exhibits not so designated are incorporated by reference to a prior filing as indicated.
Agreements included as exhibits are included only to provide information to investors regarding their terms. 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 no such agreement should be relied upon as constituting or providing any factual disclosures about CERC Corp.,the Registrants, any other persons, any state of affairs or other matters. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrants have not filed as exhibits to this combined Form 10-Q certain long-term debt instruments, including indentures, under which the total amount of securities authorized does not exceed 10% of the total assets of the Registrants and its subsidiaries on a consolidated basis. The Registrants hereby agree to furnish a copy of any such instrument to the SEC upon request. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC | 2.1* | | | | CenterPoint Energy’s Form 8-K dated April 21, 2018 | | 1-31447 | | 2.1 | | x | | | | | 2.2* | | | | CenterPoint Energy’s Form 8-K dated February 3, 2020 | | 1-31447 | | 2.1 | | x | | | | | 2.3* | | | | CenterPoint Energy’s Form 8-K dated February 24, 2020 | | 1-31447 | | 2.1 | | x | | | | x | 2.4* | | | | CenterPoint Energy’s Form 10-Q for the quarter ended March 31, 2021 | | 1-31447 | | 2.4 | | x | | | | x | 3.1 | | | | CenterPoint Energy’s Form 8-K dated July 24, 2008 | | 1-31447 | | 3.2 | | x | | | | | 3.2 | | | | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | | 1-3187 | | 3.1 | | | | x | | | 3.3 | |
| | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(1) | | | | | | x |
| | | | | | | | | | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | 3.1.1 | | Certificate of Incorporation of RERC Corp.
| | Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(1) | 3.1.2 | | Certificate of Merger merging former NorAm Energy Corp. with and into HI Merger, Inc. dated August 6, 1997
| | Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(2) | 3.1.3 | | Certificate of Amendment changing the name to Reliant Energy Resources Corp.
| | Form 10-K for the year ended December 31, 1998 | | 1-13265 | | 3(a)(3) | 3.1.4 | | | | Form 10-Q for the quarter ended June 30, 2003 | | 1-13265 | | 3(a)(4) | 3.2 | | Bylaws of RERC Corp. | | Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(b) | 4.1 | | | | Form 8-K dated March 3, 2016 | | 1-13265 | | 4.3 | 4.2 | | | | Form 8-K dated June 16, 2017 | | 1-13265 | | 4.3 | 4.3 | | Indenture, dated as of February 1, 1998, between Reliant Energy Resources Corp. and Chase Bank of Texas, National Association, as Trustee | | Form 8-K dated February 5, 1998 | | 1-13265 | | 4.1 | +4.4 | | | | | | | | | +12 | | | | | | | | | +31.1 | | | | | | | | | +31.2 | | | | | | | | | +32.1 | | | | | | | | | +32.2 | | | | | | | | | +101.INS | | XBRL Instance Document | | | | | | | +101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | +101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | +101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | +101.LAB | | XBRL Taxonomy Extension Labels Linkbase Document | | | | | | | +101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC | 3.4 | | | | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(2) | | | | | | x | 3.5 | | | | CERC Form 10-K for the year ended December 31, 1998 | | 1-13265 | | 3(a)(3) | | | | | | x | 3.6 | | | | CERC Form 10-Q for the quarter ended June 30, 2003 | | 1-13265 | | 3(a)(4) | | | | | | x | 3.7 | | | | CenterPoint Energy’s Form 8-K dated February 21, 2017 | | 1-31447 | | 3.1 | | x | | | | | 3.8 | | | | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | | 1-3187 | | 3.2 | | | | x | | | 3.9 | | | | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(b) | | | | | | x | 3.10 | | | | CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 | | 1-31447 | | 3(c) | | x | | | | | 3.11 | | | | CenterPoint Energy’s Form 8-K dated August 22, 2018 | | 1-31447 | | 3.1 | | x | | | | | 3.12 | | | | CenterPoint Energy’s Form 8-K dated September 25, 2018 | | 1-31447 | | 3.1 | | x | | | | | 3.13 | | | | CenterPoint Energy’s Form 8-K dated May 6, 2020
| | 1-31447 | | 3.1 | | x | | | | | 4.1 | | | | CenterPoint Energy’s Registration Statement on Form S-4 | | 3-69502 | | 4.1 | | x | | | | | 4.2 | | | | CenterPoint Energy’s Form 8-K dated August 22, 2018 | | 1-31447 | | 4.1 | | x | | | | | 4.3 | | | | CenterPoint Energy’s Form 8-K dated February 4, 2021 | | 1-31447 | | 4.1 | | x | | | | | 4.4 | | | | CenterPoint Energy’s Form 8-K dated February 4, 2021 | | 1-31447 | | 4.2 | | x | | x | | | 4.5 | | | | CenterPoint Energy’s Form 8-K dated February 4, 2021 | | 1-31447 | | 4.3 | | x | | | | x |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC | 4.6 | | $400,000,000 Credit Agreement dated as of February 4, 2021 among VUHI, as Borrower, Indiana Gas, SIGECO and VEDO, as guarantors, Bank of America, N.A., as Administrative Agent, the financial institutions as bank parties thereto and the other parties thereto , Inc., as Borrower, Indiana Gas Company, Inc., Southern Indiana Gas and Electric Company and Vectren Energy Delivery of Ohio, Inc. as guarantors, Bank of America, N.A., as Administrative Agent, the financial institutions as bank parties thereto and the other parties thereto | | CenterPoint Energy’s Form 8-K dated February 4, 2021 | | 1-31447 | | 4.4 | | x | | | | | 4.7 | | | | Houston Electric’s Form 10-Q for the quarter ended September 30, 2002 | | 1-3187 | | 4(j)(1) | | | | x | | | 4.8 | | | | CenterPoint Energy’s Form 10-K for the year ended December 31, 2002 | | 1-3187 | | 4(k)(10) | | | | x | | | 4.9 | | | | CenterPoint Energy’s Form 8-K dated January 9, 2009 | | 1-3187 | | 4.2 | | | | x | | | 4.10 | | | | Houston Electric’s Form 8-K dated February 23, 2022 | | 1-3187 | | 4.4 | | | | x | | | †4.11 | | | | | | | | | | | | x | | | 10.1 | | | | CenterPoint Energy’s Definitive Proxy Statement filed on March 11, 2022 | | 1-31447 | | Appendix A | | x | | | | | 10.2 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.2 | | x | | | | | 10.3 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.3 | | x | | | | | 10.4 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.4 | | x | | | | | 10.5 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.5 | | x | | | | | 10.6 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.6 | | x | | | | | 10.7 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.7 | | x | | | | | 10.8 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.8 | | x | | | | | 10.9 | | | | CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 2008 | | 1-31447 | | 10.1 | | x | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC | 10.10 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.10 | | x | | | | | †10.11 | | | | | | | | | | x | | | | | 10.12 | | | | CenterPoint Energy’s Form 8-K dated December 22, 2008 | | 1-31447 | | 10.1 | | x | | | | | 10.13 | | | | CenterPoint Energy’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 | | 1-31447 | | 10.4 | | x | | | | | †10.14 | | | | | | | | | | x | | | | | 10.15 | | | | CenterPoint Energy’s Form 8-K dated December 22, 2008 | | 1-31447 | | 10.3 | | x | | | | | 10.16 | | | | CenterPoint Energy’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 | | 1-31447 | | 10.6 | | x | | | | | 10.17 | | | | CenterPoint Energy’s Form 8-K dated December 9, 2019 | | 1-31447 | | 10.1 | | x | | | | | †10.18 | | | | | | | | | | x | | | | | †31.1.1 | | | | | | | | | | x | | | | | †31.1.2 | | | | | | | | | | | | x | | | †31.1.3 | | | | | | | | | | | | | | x | †31.2.1 | | | | | | | | | | x | | | | | †31.2.2 | | | | | | | | | | | | x | | | †31.2.3 | | | | | | | | | | | | | | x | †32.1.1 | | | | | | | | | | x | | | | | †32.1.2 | | | | | | | | | | | | x | | | †32.1.3 | | | | | | | | | | | | | | x | †32.2.1 | | | | | | | | | | x | | | | | †32.2.2 | | | | | | | | | | | | x | | | †32.2.3 | | | | | | | | | | | | | | x | †101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | x | | x | | x | †101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | x | | x | | x | †101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | x | | x | | x | †101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | x | | x | | x | †101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase Document | | | | | | | | x | | x | | x |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC | †101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | x | | x | | x | †104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | x | | x | | x |
| | | | | | * | Schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, theeach registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | | | | CENTERPOINT ENERGY, INC. | | CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC | | CENTERPOINT ENERGY RESOURCES CORP. | | | | | By: | CENTERPOINT ENERGY RESOURCES CORP./s/ Stacey L. Peterson | | Stacey L. Peterson | | | By: | /s/ Kristie L. Colvin | | Kristie L. Colvin | | Senior Vice President and Chief Accounting Officer | | |
Date: May 3, 2022
Date: November 3, 2017
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