UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
(Mark One)
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20172018
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM __________________ TO __________________

Commission file number 1-31447

CenterPoint Energy, Inc.
(Exact name of registrant as specified in its charter)
Texas74-0694415
(Registrant, State or other jurisdictionOther Jurisdiction of incorporationIncorporation or organization)Organization(
Commission file numberAddress of Principal Executive Offices, Zip Code and Telephone NumberI.R.S. Employer Identification No.)
  
1-31447CenterPoint Energy, Inc.74-0694415
(a Texas corporation)
1111 Louisiana 
Houston, Texas 77002(713) 207-1111
(Address and zip code of principal executive offices)
(713-207-1111)
1-3187CenterPoint Energy Houston Electric, LLC22-3865106
(Registrant’s telephone number, including area code)a Texas limited liability company)
1111 Louisiana
Houston, Texas 77002
(713-207-1111)
1-13265CenterPoint Energy Resources Corp.76-0511406
(a Delaware corporation)
1111 Louisiana
Houston, Texas 77002
(713-207-1111)


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.

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

CenterPoint Energy, Inc.            Yes þ  No o
CenterPoint Energy Houston Electric, LLC    Yes þ  No o
CenterPoint Energy Resources Corp.        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):
CenterPoint Energy, Inc.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
CenterPoint Energy Houston Electric, LLC
Large accelerated filer o
(Do not check if a smaller
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company)company o
Emerging growth company o
CenterPoint Energy Resources Corp.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
Emerging growth company o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

CenterPoint Energy, Inc.            Yes o  No þ
As of October 26, 2017, CenterPoint Energy Inc. had 431,033,509Houston Electric, LLC    Yes o  No þ
CenterPoint Energy Resources Corp.        Yes o  No þ

Indicate the number of shares outstanding of each of the issuers’ classes of common stock outstanding, excluding 166 shares held as treasury stock.of October 22, 2018:
CenterPoint Energy, Inc.501,191,387 shares of common stock outstanding, excluding 166 shares held as treasury stock
CenterPoint Energy Houston Electric, LLC1,000 common shares outstanding, all held by Utility Holding, LLC, a wholly-owned subsidiary of CenterPoint Energy, Inc.
CenterPoint Energy Resources Corp.1,000 shares of common stock outstanding, all held by Utility Holding, LLC, a wholly-owned subsidiary of CenterPoint Energy, Inc.
This combined Form 10-Q is filed separately by three 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.

Except as discussed in the last paragraph in Note 12 to the Registrants’ Condensed Consolidated 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.

CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.

 

CENTERPOINT ENERGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION 
Item 1. 
Financial Statements
1
  
CondensedCenterPoint Energy, Inc. Financial Statements of Consolidated Income (unaudited)
Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)
1
  
Condensed Statements of Consolidated Comprehensive Income
Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)
2
Condensed Consolidated Balance Sheets
September 30, 2017 and December 31, 2016 (unaudited)
3
Condensed Statements of Consolidated Cash Flows
Nine Months Ended September 30, 2017 and 2016 (unaudited)
5
Notes to Unaudited Condensed ConsolidatedCenterPoint Energy Houston Electric, LLC Financial Statements (unaudited)
6
  
CenterPoint Energy Resources Corp. Financial Statements (unaudited)
11
  
Combined Notes to Unaudited Condensed Consolidated Financial Statements (unaudited)
16
(1) Background and Basis of Presentation
16
(2) New Accounting Pronouncements
17
(3) Pending Merger with Vectren
20
(4) Revenue Recognition
20
(5) Employee Benefit Plans
23
(6) Regulatory Accounting
25
(7) Derivative Instruments
26
(8) Fair Value Measurements
30
(9) Unconsolidated Affiliate
32
(10) Goodwill and Other Intangibles
35
(11) Indexed Debt Securities (ZENS) and Securities Related to ZENS
36
(12) Short-term Borrowings and Long-term Debt
37
(13) Income Taxes
39
(14) Commitments and Contingencies
40
(15) Earnings Per Share
42
(16) Reportable Business Segments
42
(17) Supplemental Disclosure of Cash Flow Information
45
(18) Related Party Transactions
45
(19) Equity
46
(20) Subsequent Events
49
Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2850
  
Recent Events
50
  
Consolidated Results of Operations
51
Results of Operations by Business Segment
55
Certain Factors Affecting Future Earnings
62
Liquidity and Capital Resources
62
Item 3. 
Quantitative and Qualitative Disclosures about Market Risk
4372
Item 4. 
Controls and Procedures
4373
    
PART II. OTHER INFORMATION 
Item 1. 
Legal Proceedings
4474
Item 1A. 
Risk Factors
4474
Item 5.
Other Information
44
Item 6. 
Exhibits
4474
Signatures
77


i


GLOSSARY
AEM Atmos Energy Marketing, LLC, previously a wholly-owned subsidiary of Atmos Energy Holdings, Inc., a wholly-owned subsidiary of Atmos Energy Corporation
AMAsAMA Asset Management AgreementsAgreement
AMS Advanced Metering System
APSC Arkansas Public Service Commission
ARAMAverage rate assumption method
ARPAlternative revenue program
ASCAccounting Standards Codification
ASU Accounting Standards Update
AT&T AT&T Inc.
AT&T Common AT&T common stock
Bcf Billion cubic feet
BDABilling Determinant Adjustment, which is a revenue stabilization mechanism used to adjust revenues impacted by declines in natural gas consumption which occurred after the most recent rate case
Bond Companies TransitionBond Company II, Bond Company III, Bond Company IV and Restoration Bond Company, each a wholly-owned, bankruptcy remote entity formed solely for the purpose of purchasing and owning transition or system restoration bond companiesproperty through the issuance of Securitization Bonds
Bond Company IICenterPoint Energy Transition Bond Company II, LLC, a wholly-owned subsidiary of Houston Electric
Bond Company IIICenterPoint Energy Transition Bond Company III, LLC, a wholly-owned subsidiary of Houston Electric
Bond Company IVCenterPoint Energy Transition Bond Company IV, LLC, a wholly-owned subsidiary of Houston Electric
Brazos Valley Connection A portion of the Houston region transmission project between Houston Electric’s Zenith substation and the Gibbons Creek substation owned by the Texas Municipal Power Agency
Bridge FacilityA $5 billion 364-day senior unsecured bridge term loan facility
CECLCurrent expected credit losses
CenterPoint Energy CenterPoint Energy, Inc., and its subsidiaries
CERC Corp. CenterPoint Energy Resources Corp.
CERC CERC Corp., together with its subsidiaries
CES CenterPoint Energy Services, Inc., a wholly-owned subsidiary of CERC Corp.
Charter Common Charter Communications, Inc. common stock
Charter mergerMerger of Charter Communications, Inc. and Time Warner Cable Inc.
CIP Conservation Improvement Program
CNP MidstreamCenterPoint Energy Midstream, Inc., a wholly-owned subsidiary of CenterPoint Energy
COLICorporate-owned life insurance
Common StockCenterPoint Energy, Inc. common stock, par value $0.01 per share
Continuum The retail energy services business of Continuum Retail Energy Services, LLC, including its wholly-owned subsidiary Lakeshore Energy Services, LLC and the natural gas wholesale assets previously owned byof Continuum Energy Services, LLC
DCRF Distribution Cost Recovery Factor
EDITExcess deferred income taxes
EECR Energy Efficiency Cost Recovery
EECRF Energy Efficiency Cost Recovery Factor
Enable Enable Midstream Partners, LP
Enable GPEnable GP, LLC, Enable’s general partner
Enable Series A Preferred UnitsEnable’s 10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units, representing limited partner interests in Enable

ii

GLOSSARY
EPAEnvironmental Protection Agency
ERCOT Electric Reliability Council of Texas
FASBFCC Financial Accounting Standards BoardFederal Communications Commission
FERCFederal Energy Regulatory Commission
Fitch Fitch, Inc.
Form 10-Q Quarterly Report on Form 10-Q
FRP Formula Rate Plan
FTCFederal Trade Commission
Gas Daily Platt’sPlatts gas daily indices
GenOn GenOn Energy, Inc.
GMESGovernment Mandated Expenditure Surcharge
GRIP Gas Reliability Infrastructure Program
GWh Gigawatt-hours
Houston Electric CenterPoint Energy Houston Electric, LLC and its subsidiaries
IBEWHSR International Brotherhood of Electrical WorkersHart-Scott-Rodino
Interim Condensed Financial Statements CondensedUnaudited condensed consolidated interim financial statements and combined notes
IRS Internal Revenue Service
kVKilovolt
LIBOR London Interbank Offered Rate
LPSC Louisiana Public Service Commission
MGPsMeredithMeredith Corporation
MergerThe merger of Merger Sub with and into Vectren on the terms and subject to the conditions set forth in the Merger Agreement, with Vectren continuing as the surviving corporation and as a wholly-owned subsidiary of CenterPoint Energy, Inc.
Merger AgreementAgreement and Plan of Merger, dated as of April 21, 2018, among CenterPoint Energy, Vectren and Merger Sub
Merger SubPacer Merger Sub, Inc., an Indiana corporation and wholly-owned subsidiary of CenterPoint Energy
MGP Manufactured gas plantsplant
MLP Master Limited Partnership
MMBtu One million British thermal units

ii

GLOSSARY (cont.)
Moody’s Moody’s Investors Service, Inc.
MPSC Mississippi Public Service Commission
MPUC Minnesota Public Utilities Commission
NECANational Electrical Contractors Association
NGD Natural gas distribution business
NGLs Natural gas liquids
NOPRNotice of Proposed Rulemaking
NRG NRG Energy, Inc.
NYMEX New York Mercantile Exchange
NYSENew York Stock Exchange
OCC Oklahoma Corporation Commission
OGE OGE Energy Corp.
PBRC Performance Based Rate Change
PHMSAU.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration
PRPs Potentially responsible parties
PUCT Public Utility Commission of Texas
Railroad Commission Railroad Commission of Texas
RegistrantsCenterPoint Energy, Houston Electric and CERC, collectively
Reliant Energy Reliant Energy, Incorporated

iii

GLOSSARY
REP Retail electric provider
Restoration Bond CompanyCenterPoint Energy Restoration Bond Company, LLC, a wholly-owned subsidiary of Houston Electric
Revised Policy StatementRevised Policy Statement on Treatment of Income Taxes
ROE Return on equity
RRA Rate Regulation Adjustment
RRI Reliant Resources, Inc.
RSP Rate Stabilization Plan
SEC Securities and Exchange Commission
Securitization Bonds Transition and system restoration bonds
Series A Preferred UnitsStock 10%CenterPoint Energy’s 6.125% Series A Fixed-to-Floating Non-CumulativeRate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in EnableStock, par value $0.01 per share, with a liquidation preference of $1,000 per share
Series B Preferred StockCenterPoint Energy’s 7.00% Series B Mandatory Convertible Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share
S&P Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies
TBD To be determined
TCEH Corp. Formerly Texas Competitive Electric Holdings Company LLC, predecessor to Vistra Energy Corp. whose major subsidiaries include Luminant and TXU Energy
TCJATax reform legislation informally called the Tax Cuts and Jobs Act of 2017
TCOS Transmission Cost of Service
TDU Transmission and distribution utility
TimeTime Inc.
Time Common Time Inc. common stock
Transition Agreements Services Agreement, Employee Transition Agreement, Transitional Seconding Agreement and other agreements entered into in connection with the formation of Enable
TW Time Warner Inc.
TW Common TW common stock
TW SecuritiesUtility Holding Charter Common, Time Common and TW CommonUtility Holding, LLC, a wholly-owned subsidiary of CenterPoint Energy
VectrenVectren Corporation, an Indiana corporation
VIE Variable interest entity
Vistra Energy Corp. Texas-based energy company focused on the competitive energy and power generation markets
WACCWeighted average cost of capital
ZENS 2.0% Zero-Premium Exchangeable Subordinated Notes due 2029
2016ZENS-Related SecuritiesAs of September 30, 2018, consisted of AT&T Common and Charter Common and as of December 31, 2017, consisted of Charter Common, Time Common and TW Common
2017 Form 10-K Annual Report on Form 10-K for the fiscal year ended December 31, 20162017


iiiiv

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 and CERC.

The following are some of the factors that could cause actual results to differ from those expressed or implied by ourthe Registrants’ forward-looking statements:statements and apply to all Registrants unless otherwise indicated:

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

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

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

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

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

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

◦changes in tax status;

◦access to debt and equity capital; and

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

industrial, commercial and residential growth in our service territories and changes in market demand, including the demand for our non-rate regulated products and services and effects of energy efficiency measures and demographic patterns;

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

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

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

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

tax reformCenterPoint Energy’s expected timing, likelihood and legislation;benefits of completion of the Merger, including the timing, receipt and terms and conditions of any required approvals by regulatory agencies or the outcome of shareholder litigation filed against Vectren that could reduce anticipated benefits or cause the parties to delay or abandon the Merger, as well as the ability to successfully integrate the businesses and realize anticipated benefits and the risk that the credit ratings of the combined company or its subsidiaries may be different from what CenterPoint Energy expects;


v

tax legislation, including the effects of the TCJA (which includes any potential changes to interest deductibility) and uncertainties involving state commissions’ and local municipalities’ regulatory requirements and determinations regarding the treatment of EDIT and our rates;

CenterPoint Energy’s and CERC’s 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 on CERC and Enable;

actions by credit rating agencies, including any potential downgrades to credit ratings;

changes in interest rates and their impact on costs of borrowing and the valuation of CenterPoint Energy’s pension benefit obligation;

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;


iv

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

the impact of unplanned facility outages;

any direct or indirect effects on our or Enable’s facilities, operations and financial condition resulting from terrorism, cyber-attacks, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other catastrophic events such as fires, earthquakes, explosions, leaks, floods, droughts, hurricanes, pandemic health events or other occurrences;

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

our ability to control operation and maintenance costs;

actions by credit rating agencies;

the sufficiency of our insurance coverage, including availability, cost, coverage and terms;terms and ability to recover claims;

the investment performance of ourCenterPoint Energy’s pension and postretirement benefit plans;

commercial bank and financial market conditions, our access to capital, the cost of such capital, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets;

changes in interest rates 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 and Enable’s risk management and hedging activities, including, but not limited to our financial and weather hedges and weather hedges;commodity risk management activities;

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

ourCenterPoint Energy’s 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 interestsCenterPoint Energy’s interest in Enable, if any, whether through our electionits decision to sell all or a portion of the Enable common units we ownit owns in the public equity markets or otherwise, subject to certain limitations), which weCenterPoint Energy and Enable cannot assure you will be completed or will have the anticipated benefits to usCenterPoint Energy 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;

the outcome of litigation;

the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to CenterPoint Energy and Houston Electric;

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

the outcome of litigation;
vi

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

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

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

the effective tax rates;

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

other factors we discussdiscussed in “Risk Factors” in Item 1A of Part I of our 2016each of the Registrants’ 2017 Form 10-K and in Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q, which isare incorporated herein by reference, and 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 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.

vvii
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.     FINANCIAL STATEMENTS

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(In Millions, Except Per Share Amounts)
(Unaudited)

Three Months Ended Nine Months EndedThree Months Ended Nine Months Ended
September 30, September 30,September 30, September 30,
2017 2016 2017 20162018 2017 2018 2017
              
Revenues:              
Utility revenues$1,233
 $1,278
 $4,001
 $4,003
$1,299
 $1,233
 $4,534
 $4,001
Non-utility revenues865
 611
 2,975
 1,444
913
 865
 3,019
 2,975
Total2,098
 1,889
 6,976
 5,447
2,212
 2,098
 7,553
 6,976
              
Expenses:              
Utility natural gas106
 99
 706
 663
134
 106
 959
 706
Non-utility natural gas832
 584
 2,843
 1,368
864
 832
 2,927
 2,843
Operation and maintenance519
 505
 1,614
 1,539
567
 501
 1,714
 1,562
Depreciation and amortization269
 324
 749
 873
326
 269
 982
 749
Taxes other than income taxes93
 93
 288
 288
95
 93
 307
 288
Total1,819
 1,605
 6,200
 4,731
1,986
 1,801
 6,889
 6,148
Operating Income279
 284
 776
 716
226
 297
 664
 828
              
Other Income (Expense):              
Gain on marketable securities37
 77
 104
 187
43
 37
 66
 104
Loss on indexed debt securities(36) (72) (59) (258)(44) (36) (316) (59)
Interest and other finance charges(80) (83) (235) (256)(90) (80) (259) (235)
Interest on securitization bonds(18) (23) (58) (70)
Interest on Securitization Bonds(16) (18) (46) (58)
Equity in earnings of unconsolidated affiliate, net68
 73
 199
 164
81
 68
 208
 199
Other, net17
 20
 50
 41
9
 (1) 16
 (2)
Total(12) (8) 1
 (192)(17) (30) (331) (51)
              
Income Before Income Taxes267
 276
 777
 524
209
 267
 333
 777
Income tax expense98
 97
 281
 193
51
 98
 85
 281
Net Income$169
 $179
 $496
 $331
158
 169
 248
 496
Series A Preferred Stock dividend requirement5
 —
 5
 —
Income Available to Common Shareholders$153
 $169
 $243
 $496
              
Basic Earnings Per Share$0.39
 $0.42
 $1.15
 $0.77
Basic Earnings Per Common Share$0.35
 $0.39
 $0.56
 $1.15
              
Diluted Earnings Per Share$0.39
 $0.41
 $1.14
 $0.76
Diluted Earnings Per Common Share$0.35
 $0.39
 $0.56
 $1.14
              
Dividends Declared Per Share$0.2675
 $0.2575
 $0.8025
 $0.7725
Weighted Average Common Shares Outstanding, Basic432
 431
 431
 431
              
Weighted Average Shares Outstanding, Basic431
 431
 431
 431
       
Weighted Average Shares Outstanding, Diluted434
 433
 434
 433
Weighted Average Common Shares Outstanding, Diluted435
 434
 435
 434

See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(In Millions)
(Unaudited)

Three Months Ended Nine Months EndedThree Months Ended Nine Months Ended
September 30, September 30,September 30, September 30,
2017 2016 2017 20162018 2017 2018 2017
Net income$169
 $179
 $496
 $331
$158
 $169
 $248
 $496
Other comprehensive income:       
Adjustment related to pension and other postretirement plans (net of tax of $2, $2, $4 and $1)—
 1
 2
 1
Net deferred gain (loss) from cash flow hedges (net of tax of $2, $1, $2 and $-0-)(2) 2
 (3) 1
Other comprehensive income (loss):       
Adjustment to pension and other postretirement plans (net of tax of $1, $2, $2 and $4)1
 —
 4
 2
Net deferred gain (loss) from cash flow hedges (net of tax of $1, $2, $2 and $2)3
 (2) 6
 (3)
Total(2) 3
 (1) 2
4
 (2) 10
 (1)
Comprehensive income$167
 $182
 $495
 $333
$162
 $167
 $258
 $495

See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements



CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
(Unaudited)

ASSETS

September 30,
2017		 December 31,
2016		September 30,
2018		 December 31,
2017
Current Assets:      
Cash and cash equivalents ($200 and $340 related to VIEs, respectively)$201
 $341
Cash and cash equivalents ($278 and $230 related to VIEs, respectively)$293
 $260
Investment in marketable securities1,057
 953
627
 960
Accounts receivable ($65 and $52 related to VIEs, respectively), less bad debt reserve of $16 and $15, respectively783
 740
Accounts receivable ($92 and $73 related to VIEs, respectively), less bad debt reserve of $15 and $19, respectively918
 1,000
Accrued unbilled revenues213
 335
212
 427
Natural gas inventory252
 131
207
 222
Materials and supplies190
 181
198
 175
Non-trading derivative assets64
 51
76
 110
Taxes receivable—
 30
38
 —
Prepaid expenses and other current assets ($31 and $40 related to VIEs, respectively)175
 161
Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively)157
 241
Total current assets2,935
 2,923
2,726
 3,395
      
Property, Plant and Equipment:      
Property, plant and equipment18,581
 17,831
19,861
 19,031
Less: accumulated depreciation and amortization5,881
 5,524
6,208
 5,974
Property, plant and equipment, net12,700
 12,307
13,653
 13,057
      
Other Assets:      
Goodwill867
 862
867
 867
Regulatory assets ($1,690 and $1,919 related to VIEs, respectively)2,539
 2,677
Regulatory assets ($1,146 and $1,590 related to VIEs, respectively)1,934
 2,347
Non-trading derivative assets56
 19
38
 44
Investment in unconsolidated affiliate2,481
 2,505
2,457
 2,472
Preferred units – unconsolidated affiliate363
 363
363
 363
Other194
 173
190
 191
Total other assets6,500
 6,599
5,849
 6,284
      
Total Assets$22,135
 $21,829
$22,228
 $22,736

See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements



CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
(In Millions, except share amounts)
(Unaudited)

LIABILITIES AND SHAREHOLDERS’ EQUITY

September 30,
2017		 December 31,
2016		September 30,
2018		 December 31,
2017
Current Liabilities:      
Short-term borrowings$48
 $35
$—
 $39
Current portion of VIE securitization bonds long-term debt432
 411
Current portion of VIE Securitization Bonds long-term debt456
 434
Indexed debt, net120
 114
25
 122
Current portion of other long-term debt550
 500
50
 50
Indexed debt securities derivative776
 717
685
 668
Accounts payable657
 657
708
 963
Taxes accrued199
 172
152
 181
Interest accrued83
 108
80
 104
Dividends accrued—
 120
Non-trading derivative liabilities17
 41
33
 20
Other339
 325
392
 368
Total current liabilities3,221
 3,080
2,581
 3,069
      
Other Liabilities: 
  
 
  
Deferred income taxes, net5,458
 5,263
3,220
 3,174
Non-trading derivative liabilities10
 5
6
 4
Benefit obligations886
 913
722
 785
Regulatory liabilities1,127
 1,298
2,506
 2,464
Other284
 278
433
 357
Total other liabilities7,765
 7,757
6,887
 6,784
      
Long-term Debt: 
  
 
  
VIE securitization bonds, net1,500
 1,867
VIE Securitization Bonds, net1,045
 1,434
Other long-term debt, net6,031
 5,665
6,207
 6,761
Total long-term debt, net7,531
 7,532
7,252
 8,195
      
Commitments and Contingencies (Note 13)

 

Commitments and Contingencies (Note 14)

 

      
Shareholders’ Equity: 
  
 
  
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized, none issued or outstanding—
 —
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 431,030,884 shares and 430,682,504 shares outstanding, respectively4
 4
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized

 

Series A Preferred Stock, $0.01 par value, $800,000 aggregate liquidation preference, 800,000 shares outstanding790
 —
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 431,555,853 shares and 431,044,845 shares outstanding, respectively4
 4
Additional paid-in capital4,204
 4,195
4,221
 4,209
Accumulated deficit(518) (668)
Retained earnings551
 543
Accumulated other comprehensive loss(72) (71)(58) (68)
Total shareholders’ equity3,618
 3,460
5,508
 4,688
      
Total Liabilities and Shareholders’ Equity$22,135
 $21,829
$22,228
 $22,736

See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Millions)
(Unaudited)
Nine Months Ended September 30,Nine Months Ended September 30,
2017 20162018 2017
Cash Flows from Operating Activities:      
Net income$496
 $331
$248
 $496
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization749
 873
982
 749
Amortization of deferred financing costs18
 19
34
 18
Deferred income taxes185
 150
33
 185
Unrealized gain on marketable securities(104) (187)(66) (104)
Loss on indexed debt securities59
 258
316
 59
Write-down of natural gas inventory—
 1
2
 —
Equity in earnings of unconsolidated affiliate, net of distributions(199) (164)(15) (199)
Pension contributions(46) (7)(67) (46)
Changes in other assets and liabilities, excluding acquisitions:      
Accounts receivable and unbilled revenues, net216
 86
355
 216
Inventory(52) (5)(10) (52)
Taxes receivable30
 149
(38) 30
Accounts payable(137) (90)(262) (137)
Fuel cost recovery(30) (43)53
 (30)
Non-trading derivatives, net(53) 23
63
 (53)
Margin deposits, net(49) 65
2
 (49)
Interest and taxes accrued2
 (48)(53) 2
Net regulatory assets and liabilities(135) (26)44
 (135)
Other current assets21
 (9)11
 18
Other current liabilities19
 31
16
 19
Other assets(3) —
(3) (3)
Other liabilities28
 29
24
 28
Other, net16
 19
10
 16
Net cash provided by operating activities1,031
 1,455
1,679
 1,028
Cash Flows from Investing Activities:      
Capital expenditures(994) (1,047)(1,121) (994)
Acquisitions, net of cash acquired(132) (102)—
 (132)
Decrease in notes receivable – unconsolidated affiliate—
 363
Investment in preferred units – unconsolidated affiliate—
 (363)
Distributions from unconsolidated affiliate in excess of cumulative earnings223
 223
30
 223
Decrease (increase) in restricted cash of Bond Companies8
 (2)
Proceeds from sale of marketable securities—
 178
398
 —
Other, net3
 11
19
 6
Net cash used in investing activities(892) (739)(674) (897)
Cash Flows from Financing Activities:      
Increase in short-term borrowings, net13
 3
Proceeds from (payments of) commercial paper, net(428) 63
Increase (decrease) in short-term borrowings, net(39) 13
Payments of commercial paper, net(1,551) (428)
Proceeds from long-term debt, net1,096
 600
997
 1,096
Payments of long-term debt(597) (855)(368) (597)
Debt issuance costs(13) (9)(36) (13)
Payment of dividends on common stock(346) (332)
Payment of dividends on Common Stock(360) (346)
Proceeds from issuance of Series A Preferred Stock, net790
 —
Distribution to ZENS note holders—
 (178)(398) —
Other, net(4) (2)(5) (4)
Net cash used in financing activities(279) (710)(970) (279)
Net Increase (Decrease) in Cash and Cash Equivalents(140) 6
Cash and Cash Equivalents at Beginning of Period341
 264
Cash and Cash Equivalents at End of Period$201
 $270
Supplemental Disclosure of Cash Flow Information:   
Cash Payments/Receipts:   
Interest, net of capitalized interest$306
 $324
Income taxes (refunds), net14
 (105)
Non-cash transactions:   
Accounts payable related to capital expenditures111
 75
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash35
 (148)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period296
 381
Cash, Cash Equivalents and Restricted Cash at End of Period$331
 $233

See Combined Notes to Unaudited Condensed Consolidated Financial Statements

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Millions of Dollars)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
  
Revenues$897
 $843
 $2,506
 $2,233
        
Expenses: 
  
  
  
Operation and maintenance369
 337
 1,062
 1,021
Depreciation and amortization242
 193
 737
 525
Taxes other than income taxes59
 59
 180
 177
Total670
 589
 1,979
 1,723
Operating Income227
 254
 527
 510
        
Other Income (Expense): 
  
  
  
Interest and other finance charges(32) (32) (101) (97)
Interest on Securitization Bonds(16) (18) (46) (58)
Other, net—
 (3) (6) (9)
Total(48) (53) (153) (164)
Income Before Income Taxes179
 201
 374
 346
Income tax expense36
 71
 78
 123
Net Income$143
 $130
 $296
 $223

See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Millions of Dollars)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
Net income$143
 $130
 $296
 $223
Other comprehensive income:       
Net deferred gain (loss) from cash flow hedges (net of tax of $1, $-0-, $2 and $-0-)3
 —
 7
 (1)
Total3
 —
 7
 (1)
Comprehensive income$146
 $130
 $303
 $222

See Combined Notes to Unaudited Condensed Consolidated Financial Statements


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)

ASSETS
 September 30,
2018		 December 31,
2017
Current Assets:   
Cash and cash equivalents ($278 and $230 related to VIEs, respectively)$279
 $238
Accounts and notes receivable ($92 and $73 related to VIEs, respectively), less bad debt reserve of $1 and $1, respectively389
 284
Accounts and notes receivable–affiliated companies13
 7
Accrued unbilled revenues122
 120
Materials and supplies129
 119
Taxes receivable9
 —
Non-trading derivative assets3
 —
Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively)50
 62
Total current assets994
 830
    
Property, Plant and Equipment:   
Property, plant and equipment11,962
 11,496
Less: accumulated depreciation and amortization3,742
 3,633
Property, plant and equipment, net8,220
 7,863
    
Other Assets: 
  
Regulatory assets ($1,146 and $1,590 related to VIEs, respectively)1,202
 1,570
Other20
 29
Total other assets1,222
 1,599
    
Total Assets$10,436
 $10,292


See Combined Notes to Unaudited Condensed Consolidated Financial Statements


















CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)

LIABILITIES AND MEMBER’S EQUITY
 September 30,
2018		 December 31,
2017
Current Liabilities: 
  
Current portion of VIE Securitization Bonds long-term debt$456
 $434
Accounts payable220
 243
Accounts and notes payable–affiliated companies113
 104
Taxes accrued88
 116
Interest accrued43
 65
Other111
 120
Total current liabilities1,031
 1,082
Other Liabilities: 
  
Deferred income taxes, net1,044
 1,059
Benefit obligations142
 146
Regulatory liabilities1,265
 1,263
Other79
 54
Total other liabilities2,530
 2,522
Long-term Debt: 
  
VIE Securitization Bonds, net1,045
 1,434
Other, net3,281
 2,885
Total long-term debt, net4,326
 4,319
    
Commitments and Contingencies (Note 14)
 
    
Member’s Equity:   
Common stock—
 —
Paid-in capital1,696
 1,696
Retained earnings846
 673
Accumulated other comprehensive income7
 —
Total member’s equity2,549
 2,369
    
Total Liabilities and Member’s Equity$10,436
 $10,292


See Combined Notes to Unaudited Condensed Consolidated Financial Statements


CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
(Unaudited)
 Nine Months Ended September 30,
 2018 2017
Cash Flows from Operating Activities:   
Net income$296
 $223
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Depreciation and amortization737
 525
Amortization of deferred financing costs8
 10
Deferred income taxes(24) 29
Changes in other assets and liabilities: 
  
Accounts and notes receivable, net(95) (131)
Accounts receivable/payable–affiliated companies(12) (49)
Inventory(10) (3)
Accounts payable(6) 105
Taxes receivable(9) 6
Interest and taxes accrued(50) (28)
Net regulatory assets and liabilities(66) (149)
Other current assets13
 8
Other current liabilities(9) 25
Other assets4
 1
Other liabilities16
 (1)
Other, net(5) (4)
Net cash provided by operating activities788
 567
Cash Flows from Investing Activities: 
  
Capital expenditures(678) (603)
Decrease in notes receivable–affiliated companies—
 29
Other, net15
 5
Net cash used in investing activities(663) (569)
Cash Flows from Financing Activities: 
  
Proceeds from long-term debt, net398
 298
Payments of long-term debt(368) (347)
Decrease in notes payable–affiliated companies15
 —
Dividend to parent(123) (87)
Debt issuance costs(4) (3)
Other, net—
 —
Net cash used in financing activities(82) (139)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash43
 (141)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period274
 381
Cash, Cash Equivalents and Restricted Cash at End of Period$317
 $240


See Combined Notes to Unaudited Condensed Consolidated 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 Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
        
Revenues:       
Utility revenues$402
 $390
 $2,032
 $1,767
Non-utility revenues910
 861
 3,008
 2,964
Total1,312
 1,251
 5,040
 4,731
        
Expenses: 
  
  
  
Utility natural gas134
 106
 959
 706
Non-utility natural gas864
 832
 2,927
 2,843
Operation and maintenance211
 182
 666
 587
Depreciation and amortization77
 68
 222
 202
Taxes other than income taxes33
 32
 120
 104
Total1,319
 1,220
 4,894
 4,442
Operating Income (Loss)(7) 31
 146
 289
        
Other Income (Expense): 
  
  
  
Interest and other finance charges(30) (32) (92) (92)
Other, net—
 (4) (5) (13)
Total(30) (36) (97) (105)
Income (Loss) From Continuing Operations Before Income Taxes(37) (5) 49
 184
Income tax expense (benefit)(2) (1) 14
 69
Income (Loss) From Continuing Operations(35) (4) 35
 115
Income from discontinued operations (net of tax of $13, $26, $44 and $75, respectively)44
 42
 140
 124
Net Income$9
 $38
 $175
 $239




See Combined Notes to Unaudited 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 Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
        
Net income$9
 $38
 $175
 $239
Comprehensive income$9
 $38
 $175
 $239


See Combined Notes to Unaudited 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
 September 30,
2018		 December 31,
2017
Current Assets:
   
Cash and cash equivalents$1
 $12
Accounts receivable, less bad debt reserve of $14 and $18, respectively527
 713
Accrued unbilled revenues90
 307
Accounts and notes receivable–affiliated companies9
 6
Materials and supplies69
 56
Natural gas inventory206
 222
Non-trading derivative assets73
 110
Prepaid expenses and other current assets85
 166
Total current assets1,060
 1,592
    
Property, Plant and Equipment:   
Property, plant and equipment7,260
 6,888
Less: accumulated depreciation and amortization2,185
 2,036
Property, plant and equipment, net5,075
 4,852
    
Other Assets: 
  
Goodwill867
 867
Regulatory assets170
 181
Non-trading derivative assets38
 44
Investment in unconsolidated affiliate - discontinued operations—
 2,472
Other95
 104
Total other assets1,170
 3,668
    
Total Assets$7,305
 $10,112


See Combined Notes to Unaudited 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)
LIABILITIES AND STOCKHOLDER’S EQUITY

 September 30,
2018		 December 31,
2017
Current Liabilities: 
  
Short-term borrowings$—
 $39
Accounts payable429
 669
Accounts and notes payable–affiliated companies44
 611
Taxes accrued64
 75
Interest accrued31
 32
Customer deposits74
 76
Non-trading derivative liabilities33
 20
Other171
 137
Total current liabilities846
 1,659
    
Other Liabilities: 
  
Deferred income taxes, net370
 362
Deferred income taxes, net - discontinued operations—
 927
Non-trading derivative liabilities6
 4
Benefit obligations98
 97
Regulatory liabilities1,241
 1,201
Other350
 297
Total other liabilities2,065
 2,888
    
Long-Term Debt2,257
 2,457
    
Commitments and Contingencies (Note 14)

 

    
Stockholder’s Equity:   
Common stock—
 —
Paid-in capital1,668
 2,528
Retained earnings (accumulated deficit)463
 574
Accumulated other comprehensive income6
 6
Total stockholder’s equity2,137
 3,108
    
Total Liabilities and Stockholder’s Equity$7,305
 $10,112


See Combined Notes to Unaudited 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)
 Nine Months Ended September 30,
 2018 2017
Cash Flows from Operating Activities:   
Net income$175
 $239
Less: Income from discontinued operations, net of tax140
 124
Income from continuing operations35
 115
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: 
  
Depreciation and amortization222
 202
Amortization of deferred financing costs7
 7
Deferred income taxes6
 69
Write-down of natural gas inventory2
 —
Changes in other assets and liabilities, excluding acquisitions: 
  
Accounts receivable and unbilled revenues, net449
 346
Accounts receivable/payable–affiliated companies—
 (1)
Inventory1
 (49)
Accounts payable(261) (227)
Fuel cost recovery53
 (30)
Interest and taxes accrued(9) (13)
Non-trading derivatives, net60
 (51)
Margin deposits, net2
 (49)
Net regulatory assets and liabilities73
 (28)
Other current assets7
 16
Other current liabilities24
 (5)
Other assets5
 5
Other liabilities(2) 4
Other, net—
 1
Net cash provided by operating activities from continuing operations674
 312
Net cash provided by operating activities from discontinued operations176
 —
Net cash provided by operating activities850
 312
Cash Flows from Investing Activities: 
  
Capital expenditures(411) (373)
Acquisitions, net of cash acquired—
 (132)
Other, net5
 2
Net cash used in investing activities from continuing operations(406) (503)
Net cash provided by investing activities from discontinued operations47
 223
Net cash used in investing activities(359) (280)
Cash Flows from Financing Activities: 
  
Increase (decrease) in short-term borrowings, net(39) 13
Payments of commercial paper, net(800) (40)
Proceeds from long-term debt599
 298
Dividends to parent(286) (337)
Debt issuance costs(5) (4)
Decrease in notes payable–affiliated companies(570) —
Contribution from parent600
 38
Other, net(1) —
Net cash used in financing activities from continuing operations(502) (32)
Net cash provided by financing activities from discontinued operations—
 —
Net cash used in financing activities(502) (32)
Net Decrease in Cash and Cash Equivalents(11) —
Cash and Cash Equivalents at Beginning of Period12
 1
Cash and Cash Equivalents at End of Period$1
 $1
See Combined Notes to Unaudited Condensed Consolidated Financial Statements

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES

COMBINED NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Background and Basis of Presentation

No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.

General. Included in this combined Form 10-Q are the Interim Condensed Financial Statements of CenterPoint Energy.Energy, Houston Electric and CERC, which are referred to collectively as the Registrants. The Combined Notes to the Unaudited Condensed Consolidated Financial Statements apply to all Registrants unless otherwise indicated. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with each of the 2016Registrants’ 2017 Form 10-K.

Background. CenterPoint Energy, Inc. is a public utility holding company.company and owns interests in Enable as described below. CenterPoint Energy’s operating subsidiaries, Houston Electric and CERC, own and operate electric transmission and distribution and natural gas distribution facilities and supply natural gas to commercial and industrial customers and electric and natural gas utilities and own interests in Enable as described below. CenterPoint Energy’s indirect, wholly-owned subsidiaries include:utilities.

Houston Electric which engages in the electric transmission and distribution business in the Texas Gulf Coast area that includes the city of Houston; and

CERC Corp., which (i) owns and operates natural gas distribution systems in six states;states and

CES, which (ii) obtains and offers competitive variable and fixed-price physical natural gas supplies and services primarily to commercial and industrial customers and electric and natural gas utilities in 33 states.states through its wholly-owned subsidiary, CES.

As of September 30, 2017,2018, CenterPoint Energy, indirectly through CNP Midstream, owned approximately 54.0% of the common units representing limited partner interests in Enable, 50% of the management rights and 40% of the incentive distribution rights in Enable GP and also directly owned an aggregate of 14,520,000 Enable Series A Preferred Units inUnits. Enable which owns, operates and develops natural gas and crude oil infrastructure assets,assets.

On September 4, 2018, CERC entered into a Contribution Agreement, by and between CERC Corp. owned approximately 54.1%and CNP Midstream, a new subsidiary formed by CERC in June 2018, pursuant to which CERC contributed its equity investment in Enable consisting of Enable common units and its interests in Enable GP, to CNP Midstream (collectively, the Enable Contribution). Immediately following the Enable Contribution, CERC distributed all of its interest in CNP Midstream to Utility Holding, CERC’s sole stockholder and a wholly-owned subsidiary of CenterPoint Energy. Utility Holding then distributed all of its interest in CNP Midstream to CenterPoint Energy, its sole member (collectively with the Enable Contribution, the Internal Spin). CERC executed the Internal Spin to, among other things, enhance the access of CERC and CenterPoint Energy to low cost debt and equity through increased transparency and understandability of the common units representing limited partner interestsfinancial statements, improve CERC’s credit quality by eliminating the exposure to Enable’s midstream business and provide clarity of internal reporting and performance metrics to enhance management’s decision making for CERC and CNP Midstream.

As a result of the Internal Spin, CERC’s equity in Enable.earnings in Enable and related income taxes have been classified as discontinued operations in CERC’s Interim Condensed Financial Statements. For further information regarding the Internal Spin and CERC’s presentation of discontinued operations, see Note 9.

As of September 30, 2017,2018, CenterPoint Energy and Houston Electric had VIEs consisting of the Bond Companies, which it consolidates.are consolidated. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed specifically for the purpose of securitizing transition and system restoration-related property. Creditors of CenterPoint Energy and Houston Electric have no recourse to any assets or revenues of the Bond Companies. The bonds issued by these VIEs are only payable only from and secured by transition and system restoration property, and the bondholders have no recourse to the general credit of CenterPoint Energy.Energy or Houston Electric.

Basis of Presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CenterPoint Energy’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 CenterPoint Energy’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 presentation. See Notes 2 and 9 for further discussion.

For a description of CenterPoint Energy’sthe Registrants’ reportable business segments, see Note 15.16.

(2) New Accounting Pronouncements

In January 2016,The following table provides an overview of recently adopted or issued accounting pronouncements applicable to all 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 incomeRegistrants, 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. CenterPoint Energy does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures.otherwise noted.
Recently Adopted Accounting Standards
ASU Number and NameDescriptionDate of Adoption
Financial Statement Impact
upon Adoption
ASU 2014-09- Revenue from Contracts with Customers (Topic 606) and related amendments
This standard 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.
Transition method: modified retrospective

January 1, 2018Note 4 addresses the disclosure requirements. Adoption of the standard did not result in significant changes to revenue recognition. A substantial amount of the Registrants’ revenues are tariff and/or derivative based, which were not significantly impacted by these ASUs.
ASU 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
This standard clarifies when and how to apply ASC 610-20, which was issued as part of ASU 2014-09. It amends or supersedes the guidance in ASC 350 and ASC 360 on determining a gain or loss recognized upon the derecognition of nonfinancial assets.
Transition method: modified retrospective
January 1, 2018ASU 2017-05 eliminates industry specific guidance, including ASC 360-20 Property, Plant, and Equipment - Real Estate Sales, for the recognition of gains or losses upon the sale of in-substance real estate. CenterPoint Energy and CERC elected to apply the practical expedient upon adoption to only evaluate transactions that were not determined to be complete as of the date of adoption. Subsequent to adoption, gains or losses on sales or dilution events in CenterPoint Energy’s investment in Enable may result in gains or losses recognized in earnings. See Note 9 for further discussion.
ASU 2016-01-Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

ASU 2018-03-Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
This standard 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. It also changes certain disclosure requirements and other aspects related to recognition and measurement of financial assets and financial liabilities.
Transition method: cumulative-effect adjustment to beginning retained earnings, and two features prospective
January 1, 2018The adoption of this standard did not have an impact on the Registrants’ financial position, results of operations or cash flows. The Registrants elected the practicability exception for investments without a readily determinable fair value to be measured at cost. This includes the Enable Series A Preferred Units owned by CenterPoint Energy, which were previously accounted for under the cost method. See Note 9 for further discussion.
ASU 2016-15- Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
This standard provides clarifying guidance on the classification of certain cash receipts and payments in the statement of cash flows and eliminates the variation in practice related to such classifications.
Transition method:retrospective
January 1, 2018The adoption did not have a material impact on the Registrants’ financial position, results of operations or disclosures. However, CenterPoint Energy’s and Houston Electric’s Condensed Statements of Consolidated Cash Flows reflect an increase in investing activities and a corresponding decrease in operating activities of $1 million and $3 million for the nine months ended September 30, 2018 and 2017, respectively, due to the requirement that cash proceeds from COLI policies be classified as cash inflows from investing activity.

Recently Adopted Accounting Standards
ASU Number and NameDescriptionDate of Adoption
Financial Statement Impact
upon Adoption
ASU 2016-18- Statement of Cash Flows (Topic 230): Restricted Cash
This standard 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.
Transition method: retrospective
January 1, 2018The adoption of this standard did not have an impact on the Registrants’ financial position, results of operations or disclosures. However, CenterPoint Energy’s and Houston Electric’s Condensed Statements of Consolidated Cash Flows are reconciled to cash, cash equivalents and restricted cash, resulting in a decrease in investing activities of $2 million and an increase in investing activities of $8 million for the nine months ended September 30, 2018 and 2017, respectively. See Note 17 for further discussion.
ASU 2017-01- Business Combinations (Topic 805): Clarifying the Definition of a Business
This standard 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.
Transition method: prospective
January 1, 2018The adoption of this revised definition will reduce the number of transactions that are accounted for as a business combination, and therefore may have a potential impact on the Registrants’ accounting for future acquisitions.
ASU 2017-04- Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
This standard eliminates Step 2 of the goodwill impairment test, which required 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.
Transition method: prospective
January 1, 2018The adoption of this standard will have an impact on CenterPoint Energy’s and CERC’s future calculation of goodwill impairments if an impairment is identified.
ASU 2017-07- Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
This standard 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.
Transition method: retrospective for the presentation of the service cost component and other components; prospective for the capitalization of the service cost component
January 1, 2018The adoption of this standard did not have a material impact on the Registrants’ financial position, results of operations, cash flows or disclosures; however, it resulted in the increases to operating income and corresponding decreases to other income reported in the table below. Other components previously capitalized in assets will be recorded as regulatory assets in the Registrants’ rate-regulated businesses, prospectively.
ASU 2017-09- Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting
This standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes.
Transition method: prospective
January 1, 2018The adoption of this standard will have an impact on CenterPoint Energy’s accounting for future changes to share-based payment awards.
ASU 2017-12- Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
This standard expands an entity’s ability to hedge and account for risk components, reduces the complexity of applying certain aspects of hedge accounting and updates the presentation and disclosure requirements. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness.
Transition method: cumulative-effect adjustment for elimination of the separate measurement of ineffectiveness; prospective for presentation and disclosure
July 1, 2018
Applicable January 1, 2018
The adoption of this standard did not have a material impact on the Registrants’ financial position, results of operations or cash flows. As a result of the adoption, the Registrants will no longer recognize ineffectiveness for derivatives designated as cash flow hedges; all changes in fair value will flow through other comprehensive income. As the Registrants did not have existing cash flow hedges as of the initial application date and the adoption date, no cumulative effective adjustment was recorded. Note 7 reflects disclosures modified upon adoption.
ASU 2018-13- Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
This standard eliminates, modifies and adds certain disclosure requirements for fair value measurements.
Transition method: prospective for additions and one modification and retrospective for all other amendments
Adoption of eliminations and modifications as of September 30, 2018; Additions will be adopted January 1, 2020The adoption of this standard did not impact the Registrants’ financial position, results of operations or cash flows. Note 8 reflects the disclosures modified upon adoption.


In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02) and related amendments. ASU 2016-02 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. CenterPoint Energy 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. CenterPoint Energy adopted this standard as of January 1, 2017. The adoption did not have a material impact on CenterPoint Energy’s financial position or results of operations.  However, CenterPoint Energy’s statement of cash flows reflects a decrease in financing activity and a corresponding increase in operating activity of $4 million and $3 million as of September 30, 2017 and 2016, respectively, due to the retrospective application of the requirement that cash paid to a tax authority when shares are withheld to satisfy statutory income tax withholding obligations should be presented as a financing rather than as an operating activity.

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. CenterPoint Energy 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 CenterPoint Energy’s revenues are tariff and derivative based, which we do not anticipate will be significantly impacted by these ASUs. CenterPoint Energy 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 classification of certain cash receipts and payments in the statement of cash flows and eliminates the variation in practice related to such classifications. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. CenterPoint Energy is currently assessing the impact that this standard will have on its statement of cash flows.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. This standard will not have an impact on CenterPoint Energy’s financial position, results of operations, and disclosures, but it will have an impact on the presentation of the statement of cash flows.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). ASU 2017-01 revises the definition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then under ASU 2017-01, the asset or group of assets is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs to be more closely aligned with how outputs are described in ASC 606. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted in certain circumstances. A prospective adoption approach is required. ASU 2017-01 could have a potential impact on CenterPoint Energy’s accounting for future acquisitions.

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 CenterPoint Energy’s future calculation of goodwill impairments if an impairment is identified.


In February 2017,The table below reflects the FASB issued ASU No. 2017-05, Other Income-Gains and Losses from the Derecognitionimpact 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 partadoption 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. CenterPoint Energy does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures.2017-07:
 Three Months Ended September 30,
 2018 2017
 CenterPoint Energy Houston Electric CERC CenterPoint Energy Houston Electric CERC
 (in millions)
Increase to operating income$9
 $3
 $—
 $18
 $7
 $5
Decrease to other income9
 3
 —
 18
 7
 5
 Nine Months Ended September 30,
 2018 2017
 CenterPoint Energy Houston Electric CERC CenterPoint Energy Houston Electric CERC
 (in millions)
Increase to operating income$38
 $18
 $8
 $52
 $22
 $16
Decrease to other income38
 18
 8
 52
 22
 16

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 requires an employer to report the service cost component of the net periodic pension cost and postretirement benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period; all other components will be presented separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, only the service cost component will be eligible for capitalization in assets. ASU 2017-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components and prospectively for the capitalization of the service cost component. The adoption of this guidance is expected to result in an increase to operating income and a decrease to other income. Prospectively, other components previously capitalized in assets will be recorded as regulatory assets in CenterPoint Energy’s rate-regulated businesses. CenterPoint Energy does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures.
Issued, Not Yet Effective Accounting Standards
ASU Number and NameDescriptionDate of Adoption
Financial Statement Impact
upon Adoption
ASU 2016-02- Leases (Topic 842) and related amendments



ASU 2018-01- Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842



ASU 2018-10 - Codification Improvements to Topic 842, Leases



ASU 2018-11- Leases (Topic 842)-Targeted Improvements


ASU 2016-02 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.
Transition method: modified retrospective

ASU 2018-01 allows entities to elect not to assess whether existing land easements that were not previously accounted for in accordance with ASC 840 Leases under ASC 842 Leases when transitioning to the new leasing standard.


ASU 2018-10 makes sixteen narrow-scope amendments to ASC 842 Leases.


ASU 2018-11 allows entities the transition option to not apply the new lease standards in the comparative financial statements presented in the year of adoption. It also gives lessors the practical expedient to not separate non-lease and lease components when certain criteria are met.
January 1, 2019 Early adoption is permittedThe Registrants will elect the practical expedient on existing easements provided by ASU 2018-01, and the transition option to not apply the new lease standards in the comparative financial statements presented in the year of adoption provided by ASU 2018-11. The Registrants are evaluating other available transitional practical expedients. The Registrants are in the process of reviewing contracts to identify leases as defined in ASU 2016-02 and expect to recognize on the statements of financial position right-of-use assets and lease liabilities for the majority of their respective leases that are currently classified as operating leases. The Registrants are continuing to assess the impact that adoption of these standards will have on their financial position, results of operations, cash flows and disclosures.
ASU 2016-13- Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This standard requires a new model called CECL to estimate credit losses for (1) financial assets subject to credit losses and measured at amortized cost and (2) certain off-balance sheet credit exposures. Upon initial recognition of the exposure, the CECL model requires an entity to estimate the credit losses expected over the life of an exposure based on historical information, current information and reasonable and supportable forecasts, including estimates of prepayments.
Transition method: modified retrospective
January 1, 2020
Early adoption is permitted starting January 1, 2019		The Registrants are currently assessing the impact that this standard will have on their financial position, results of operations, cash flows and disclosures.
ASU 2018-02-Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA and requires entities to provide certain disclosures regarding stranded tax effects.
Transition method: either in the period of adoption or retrospective
January 1, 2019
Early adoption is permitted
The adoption of this standard will allow the Registrants to reclass stranded deferred tax adjustments primarily related to benefit plans from other comprehensive income to retained earnings. The Registrants are currently assessing the impact that adoption of this standard will have on their financial position and disclosures.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. ASU 2017-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2017-09 should be applied prospectively for awards modified on or after the adoption date. This standard will have an impact on CenterPoint Energy’s future treatment of changes to share-based payment awards.
Issued, Not Yet Effective Accounting Standards
ASU Number and NameDescriptionDate of Adoption
Financial Statement Impact
upon Adoption
ASU 2018-14-Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans
This standard eliminates, modifies and adds certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness, eases certain documentation and assessment requirements, and updates the presentation and disclosure requirements. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. A cumulative-effect adjustment to eliminate the separate measurement of ineffectiveness upon adoption is required for existing cash flow and net investment hedges. Presentation and disclosure guidance should be applied prospectively. CenterPoint Energy is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.Transition method: retrospective
January 1, 2021
Early adoption is permitted		The adoption of this standard will impact the Registrants’ annual disclosures and is not expected to have an impact on their financial position, results of operations, and cash flows. The Registrants are currently assessing the standard’s impact on the Stock-Based Incentive Compensation Plans and Employee Benefit Plans footnote.
ASU 2018-15- Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
This standard aligns accounting for implementation costs incurred in a cloud computing arrangement that is accounted for as a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures.
Transition method: retrospective or prospective
January 1, 2020
Early adoption is permitted
The adoption of this standard will allow the Registrants to capitalize certain implementation costs incurred in cloud computing arrangements that are accounted for as service contracts. The Registrants are currently assessing the impact that adoption of this standard will have on their 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 CenterPoint Energy’s consolidatedthe Registrants’ financial position, results of operations or cash flows upon adoption.

(3) AcquisitionPending Merger with Vectren (CenterPoint Energy)

On January 3, 2017,CES, an indirect,April 21, 2018, CenterPoint Energy entered into the Merger Agreement. Under the terms of the Merger Agreement, CenterPoint Energy will acquire Vectren for approximately $6 billion in cash. Upon closing, Vectren will become a wholly-owned subsidiary of CenterPoint Energy.

Pursuant to the Merger Agreement, upon the closing of the Merger, each share of Vectren common stock issued and outstanding immediately prior to the closing will be converted automatically into the right to receive $72.00 in cash per share. During August and October 2018, CenterPoint Energy completed its acquisitionpermanent financing for the Merger through offerings of AEM. After working capital adjustments, the final purchase price was $147Series A Preferred Stock, depositary shares, each representing a 1/20th interest in a share of Series B Preferred Stock, Common Stock and unsecured senior notes. See Notes 12 and 19 for further details regarding the Merger financings. As of September 30, 2018, Vectren and its subsidiaries had outstanding $325 million of short-term debt and was allocated to identifiable assets acquired$2.0 billion of long-term debt, including current maturities. It is anticipated that Vectren and liabilities assumed based on their estimated fair values on the acquisition date.its subsidiaries will have approximately $2.5 billion of outstanding short-term and long-term debt as of December 31, 2018.

Consummation of the Merger is conditioned upon approval by federal regulatory commissions, orders from state regulatory commissions, expiration or termination of the applicable HSR waiting period and approval of the Merger by Vectren shareholders. In June 2018, CenterPoint Energy and Vectren (i) submitted their filings with the FERC and the FCC, (ii) submitted their filings with the FTC pursuant to the HSR Act and (iii) initiated informational proceedings with regulators in Indiana and Ohio. On June 26, 2018, CenterPoint Energy and Vectren received notice from the FTC granting early termination of the waiting period under the HSR Act in connection with the Merger. On August 28, 2018, shareholders of Vectren, during a special shareholders’ meeting, approved the Merger. The FCC granted approvals on July 20 and 24, 2018, and on October 5, 2018, the FERC authorized the Merger. A hearing before the Indiana Utility Regulatory Commission was held on October 17, 2018 with respect to the Merger. CenterPoint Energy has requested a final order for this proceeding by the end of January or early February 2019.

The following table summarizesMerger Agreement contains termination rights for both CenterPoint Energy and Vectren, and provides that, upon termination of the final purchase price allocation and the fair value amounts recognized for the assets acquired and liabilities assumed relatedMerger Agreement under specified circumstances, CenterPoint Energy would be required to the acquisition:
  (in millions)
Total purchase price consideration $147
Cash $15
Receivables 140
Natural gas inventory 78
Derivative assets 35
Prepaid expenses and other current assets 5
Property and equipment 8
Identifiable intangibles 25
Total assets acquired 306
Accounts payable 113
Derivative liabilities 43
Other current liabilities 7
Other liabilities 1
Total liabilities assumed 164
Identifiable net assets acquired 142
Goodwill 5
Net assets acquired $147
pay a termination fee of $210 million to Vectren or Vectren would be required to pay CenterPoint Energy a termination fee of $150 million.

The goodwillSubject to receipt of $5 million resulting from the acquisition reflects the excessrequired regulatory and statutory approvals and satisfaction and/or waiver of the purchase price overclosing conditions, CenterPoint Energy continues to anticipate closing 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 includedMerger 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 for the three and nine months ended September 30, 2017, respectively.

Revenuesfirst quarter of approximately $311 million and $989 million, respectively, and operating income of approximately $3 million and $28 million, respectively, attributable to the AEM acquisition are reported in the Energy Services business segment and included in CenterPoint Energy’s Condensed Statements of Consolidated Income for the three and nine months ended September 30, 2017.

The following unaudited pro forma financial information reflects the consolidated results of operations of CenterPoint Energy, assuming the AEM acquisition had taken place on January 1, 2016. Adjustments to pro forma net income include intercompany sales, amortization of intangible assets, depreciation of fixed assets, interest expense associated with debt financing to fund the acquisition, and related income tax effects. The pro forma information does not include the mark-to-market impact of financial instruments designated as cash flow hedges of anticipated purchases and sales at index prices. The effective portion of these hedges are excluded from earnings and reported as changes in Other Comprehensive Income. Additionally, the pro forma information does not include the mark-to-market impact of physical forward transactions that were previously accounted for as normal purchase and sale transactions.

The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved had the acquisition taken place on the dates indicated or the future consolidated results of operations of the combined company.
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
  (in millions)
Operating Revenue $2,098
 $2,145
 $6,976
 $6,161
Net Income 169
 179
 496
 335
2019.

(4) Revenue Recognition

The Registrants adopted ASC 606 and all related amendments on January 1, 2018 using the modified retrospective method for those contracts that were not completed as of the date of adoption. Application of the new revenue standard did not result in a cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and

continues to be reported under the accounting standards in effect for those periods. The adoption of the new standard did not have a material impact on the Registrants’ financial position, results of operations or cash flows.

In accordance with ASC 606, 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. Contract assets and liabilities are not material.

The following tables disaggregate revenues by reportable business segment and major source:

CenterPoint Energy
  Three Months Ended September 30,
  2018 2017
  Electric Transmission & Distribution (1) Natural Gas Distribution (1) 
Energy
 Services
 (2)
 Other Operations (2) Total Electric Transmission & Distribution (1) Natural Gas Distribution (1) 
Energy
 Services
 (2)
 Other Operations (2) Total
  (in millions)
Revenue from contracts $904
 $398
 $82
 $1
 $1,385
 $852
 $396
 $97
 $2
 $1,347
Derivatives income —
 —
 838
 —
 838
 —
 —
 774
 —
 774
Other (3) (7) 12
 —
 2
 7
 (9) 2
 —
 2
 (5)
Eliminations —
 (8) (10) —
 (18) —
 (8) (10) —
 (18)
Total revenues $897
 $402
 $910
 $3
 $2,212
 $843
 $390
 $861
 $4
 $2,098
                     
  Nine Months Ended September 30,
  2018 2017
  Electric Transmission & Distribution (1) Natural Gas Distribution (1) 
Energy
 Services
 (2)
 Other Operations (2) Total Electric Transmission & Distribution (1) Natural Gas Distribution (1) 
Energy
 Services
 (2)
 Other Operations (2) Total
  (in millions)
Revenue from contracts $2,525
 $2,093
 $338
 $4
 $4,960
 $2,254
 $1,784
 $355
 $4
 $4,397
Derivatives income (4) —
 2,727
 —
 2,723
 1
 —
 2,643
 —
 2,644
Other (3) (19) (35) —
 7
 (47) (21) 7
 —
 7
 (7)
Eliminations —
 (26) (57) —
 (83) —
 (24) (34) —
 (58)
Total revenues $2,502
 $2,032
 $3,008
 $11
 $7,553
 $2,234
 $1,767
 $2,964
 $11
 $6,976

Houston Electric
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
  (in millions)
Revenue from contracts $904
 $852
 $2,525
 $2,254
Other (3) (7) (9) (19) (21)
  $897
 $843
 $2,506
 $2,233

CERC
  Three Months Ended September 30,
  2018 2017
  Natural Gas Distribution (1) 
Energy
 Services
 (2)
 Total Natural Gas Distribution (1) 
Energy
 Services
 (2)
 Total
  (in millions)
Revenue from contracts $398
 $82
 $480
 $396
 $97
 $493
Derivatives income —
 838
 838
 —
 774
 774
Other (3) 12
 —
 12
 2
 —
 2
Eliminations (8) (10) (18) (8) (10) (18)
Total revenues $402
 $910
 $1,312
 $390
 $861
 $1,251
             
  Nine Months Ended September 30,
  2018 2017
  Natural Gas Distribution (1) 
Energy
 Services
 (2)
 Total Natural Gas Distribution (1) 
Energy
 Services
 (2)
 Total
  (in millions)
Revenue from contracts $2,093
 $338
 $2,431
 $1,784
 $355
 $2,139
Derivatives income —
 2,727
 2,727
 —
 2,643
 2,643
Other (3) (35) —
 (35) 7
 —
 7
Eliminations (26) (57) (83) (24) (34) (58)
Total revenues $2,032
 $3,008
 $5,040
 $1,767
 $2,964
 $4,731

(1)Reflected in Utility revenues in the Condensed Statements of Consolidated Income.

(2)Reflected in Non-utility revenues in the Condensed Statements of Consolidated Income.

(3)Primarily consists of income from ARPs and leases. 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.

Revenues from Contracts with Customers

Electric Transmission & Distribution. Houston Electric distributes electricity to customers over time and customers consume the electricity when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by the PUCT, 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 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 PUCT. Payments are received on a monthly basis.

Natural Gas Distribution. CERC distributes and transports 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.

Energy Services. The majority of CES natural gas sales contracts are considered a derivative, as the contracts typically have a stated minimum or contractual volume of delivery.

For contracts in which CES delivers the full requirement of the natural gas needed by the customer and a volume is not stated, a contract as defined under ASC 606 is created upon the customer’s exercise of its option to take natural gas. CES supplies natural

gas to retail customers over time as customers consume the natural gas when delivered. For wholesale customers, CES supplies natural gas at a point in time because the wholesale customer is presumed to have storage capabilities. Control is transferred to both types of customers upon delivery of natural gas. Revenue is recognized on a monthly basis based on the estimated volume of natural gas delivered and the price agreed upon with the customer. Payments are received on a monthly basis.

AMAs are natural gas sales contracts under which CES also assumes management of a customer’s physical storage and/or transportation capacity. AMAs have two distinct performance obligations, which consist of natural gas sales and natural gas delivery because delivery could occur separate from the sale of natural gas (e.g., from storage to customer premises). Most AMAs’ natural gas sales performance obligations are accounted for as embedded derivatives. The transaction price is allocated between the sale of natural gas and the delivery based on the stand-alone selling price as stated in the contract. CES performs natural gas delivery over time as customers take delivery of the natural gas and recognizes revenue on an aggregated monthly basis based on the volume of natural gas delivered and the fees stated within the contract. Payments are received on a monthly basis.

Practical Expedients and Exemption. Sales taxes and other similar taxes collected from customers are excluded from the transaction price.

(5) Employee Benefit Plans

CenterPoint Energy’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)
 Three Months Ended September 30,
 2017 2016
 Pension
Benefits		 Postretirement
Benefits		 Pension
Benefits		 Postretirement
Benefits
 (in millions)
Service cost$9
 $—
 $10
 $1
Interest cost22
 4
 23
 4
Expected return on plan assets(24) (1) (26) (2)
Amortization of prior service cost (credit)2
 (1) 3
 (1)
Amortization of net loss14
 —
 15
 —
Net periodic cost (2)
$23
 $2
 $25
 $2
        
 Nine Months Ended September 30,
 2017 2016
 Pension
Benefits		 Postretirement
Benefits		 Pension
Benefits		 Postretirement
Benefits
 (in millions)
Service cost$27
 $1
 $28
 $2
Interest cost66
 12
 70
 13
Expected return on plan assets(72) (4) (76) (5)
Amortization of prior service cost (credit)7
 (3) 7
 (2)
Amortization of net loss43
 —
 47
 —
Curtailment gain (1)
—
 —
 —
 (3)
Net periodic cost (2)
$71
 $6
 $76
 $5
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
  (in millions)
Service cost (1) $10
 $9
 $28
 $27
Interest cost (2) 20
 22
 59
 66
Expected return on plan assets (2) (27) (24) (80) (72)
Amortization of prior service cost (2) 3
 2
 7
 7
Amortization of net loss (2) 10
 14
 32
 43
Net periodic cost $16
 $23
 $46
 $71

Postretirement Benefits
 Three Months Ended September 30,
 2018 2017
 CenterPoint Energy Houston Electric CERC CenterPoint Energy Houston Electric CERC
 (in millions)
Service cost (1)$—
 $—
 $1
 $—
 $—
 $1
Interest cost (2)3
 2
 1
 4
 3
 1
Expected return on plan assets (2)(1) (1) —
 (1) (1) (1)
Amortization of prior service credit (2)(1) (1) —
 (1) (2) —
Net periodic cost$1
 $—
 $2
 $2
 $—
 $1
            
 Nine Months Ended September 30,
 2018 2017
 CenterPoint Energy Houston Electric CERC CenterPoint Energy Houston Electric CERC
 (in millions)
Service cost (1)$1
 $—
 $1
 $1
 $—
 $1
Interest cost (2)10
 6
 3
 12
 7
 3
Expected return on plan assets (2)(4) (3) (1) (4) (3) (1)
Amortization of prior service cost (credit) (2)(3) (4) 1
 (3) (4) 1
Net periodic cost (credit)$4
 $(1) $4
 $6
 $—
 $4


(1)A curtailment gain or loss is required whenAmounts presented in the expected future services of a significant number of current employeestable above are reduced or eliminated for the accrual of benefits. In May 2016, Houston Electric entered into a renegotiated collective bargaining agreement with the IBEW Local Union 66 that provides that for Houston Electric union employees covered under the agreement who retire on or after January 1, 2017, retiree medicalincluded in Operation and prescription drug coverage will be provided exclusively through the NECA/IBEW Family Medical Care Planmaintenance expense in exchange for the payment of monthly premiums as determined under the agreement. As a result, the accrued postretirement benefits related to such future Houston Electric union retirees were eliminated. In 2016, Houston Electric recognized a curtailment gain of $3 million as an accelerated recognitioneach of the prior service credit that would otherwise be recognized in future periods.Registrants’ respective Condensed Statements of Consolidated Income, net of amounts capitalized and regulatory deferrals.

(2)Net periodic costAmounts presented in thisthe table is before considering amounts subject to overhead allocations for capital expenditure projects or for amounts subject to deferral forabove are included in Other, net in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of regulatory purposes.  deferrals.


CenterPoint Energy’s changesChanges in accumulated other comprehensive loss related to defined benefit and postretirement plans are as follows:

CenterPoint Energy
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in millions)(in millions)
Beginning Balance$(70) $(65) $(72) $(65)$(63) $(70) $(66) $(72)
Other comprehensive income (loss) before reclassifications (1)
—
 —
 —
 (4)
Amounts reclassified from accumulated other comprehensive loss:              
Prior service cost (2)
—
 1
 1
 1
Actuarial losses (2)
2
 2
 5
 5
Prior service cost (1)—
 —
 1
 1
Actuarial losses (1)2
 2
 5
 5
Tax expense(2) (2) (4) (1)(1) (2) (2) (4)
Net current period other comprehensive income—
 1
 2
 1
1
 —
 4
 2
Ending Balance$(70) $(64) $(70) $(64)$(62) $(70) $(62) $(70)

(1)Total other comprehensive income (loss) is related to the remeasurement of the postretirement plan.

(2)These accumulated other comprehensive components are included in the computation of net periodic cost.

CenterPoint Energy expectsThe table below reflects the expected contributions to contribute a minimum of approximately $46 millionbe made to itsthe pension plans in 2017, of which approximately $28 million and $46 million were contributed during the three and nine months ended September 30, 2017, respectively.

CenterPoint Energy expects to contribute a total of approximately $16 million to its postretirement benefit plan in 2017, of which approximately $4 million and $12 million were contributed during the three and nine months ended September 30, 2017, respectively.2018:
 CenterPoint Energy Houston Electric CERC
 (in millions)
Expected minimum contribution to pension plans during 2018$67
 $—
 $—
Expected contribution to postretirement benefit plan in 201816
 10
 5

The table below reflects the contributions made to the pension plans and postretirement benefit plan during 2018:
  Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
  CenterPoint Energy Houston Electric CERC CenterPoint Energy Houston Electric CERC
  (in millions)
Pension plans $3
 $—
 $—
 $67
 $—
 $—
Postretirement benefit plan 4
 3
 1
 11
 7
 3


(5) (6) Regulatory Accounting

Equity Return. AsThe following is a list of September 30, 2017, Houston Electric has not recognized an allowed equity return of $299 million because such return will be recognized as it is recovered in rates. Duringregulatory assets and liabilities reflected on the three months ended September 30, 2017 and 2016, Houston Electric recognized approximately $13 million and $22 million, respectively, of the allowed equity return not previously recognized. During the nine months ended September 30, 2017 and 2016, Houston Electric recognized approximately $30 million and $52 million, respectively, of the allowed equity return not previously recognized.Registrants’ Condensed Consolidated Balance Sheets:
 September 30, 2018 December 31, 2017
 CenterPoint Energy Houston Electric CERC CenterPoint Energy Houston Electric CERC
Regulatory Assets:(in millions)
Current regulatory assets (1)$60
 $—
 $60
 $130
 $—
 $130
Non-current regulatory assets:           
Securitized regulatory assets1,146
 1,146
 —
 1,590
 1,590
 —
Unrecognized equity return (2)(225) (225) —
 (287) (287) —
Unamortized loss on reacquired debt70
 70
 —
 75
 75
 —
Pension and postretirement-related regulatory asset (3)609
 32
 15
 646
 31
 20
Hurricane Harvey restoration costs (4)67
 61
 6
 64
 58
 6
Regulatory assets related to TCJA (5)48
 34
 14
 48
 33
 15
Other long-term regulatory assets (6)219
 84
 135
 211
 70
 140
Total non-current regulatory assets1,934
 1,202
 170
 2,347
 1,570
 181
Total regulatory assets1,994
 1,202
 230
 2,477
 1,570
 311
Regulatory Liabilities:           
Current regulatory liabilities (7)47
 22
 25
 24
 22
 2
Non-current regulatory liabilities:           
Regulatory liabilities related to TCJA (5)1,362
 858
 504
 1,354
 862
 492
Estimated removal costs887
 275
 612
 878
 285
 593
Other long-term regulatory liabilities257
 132
 125
 232
 116
 116
Total non-current regulatory liabilities2,506
 1,265
 1,241
 2,464
 1,263
 1,201
Total regulatory liabilities2,553
 1,287
 1,266
 2,488
 1,285
 1,203
Total regulatory assets and liabilities, net$(559) $(85) $(1,036) $(11) $285
 $(892)

(1)Current regulatory assets are included in Prepaid expenses and other current assets in the Registrants’ Condensed Consolidated Balance Sheets.

(2)The unrecognized equity return will be recognized as it is recovered in rates through 2024. During the three months ended September 30, 2018 and 2017, CenterPoint Energy and Houston Electric recognized approximately $17 million and $13 million, respectively, of the allowed equity return. During the nine months ended September 30, 2018 and 2017, CenterPoint Energy and Houston Electric recognized approximately $62 million and $30 million, respectively, of the allowed equity return. The timing of CenterPoint Energy’s and Houston Electric’s recognition of the equity return will vary each period based on amounts actually collected during the period. The actual amounts recognized are adjusted at least annually to correct any over-collections or under-collections during the preceding 12 months.

(3)Includes a portion of NGD’s actuarially determined pension and other postemployment expense in excess of the amount being recovered through rates that is being deferred for rate making purposes, of which $4 million and $7 million as of September 30, 2018 and December 31, 2017, respectively, were not earning a return.

(4)The Registrants are not earning a return on Hurricane Harvey restoration costs.

(5)The EDIT and deferred revenues will be recovered or refunded to customers as required by tax and regulatory authorities.

(6)Other long-term regulatory assets that are not earning a return were not material as of September 30, 2018 and December 31, 2017.

(7)Current regulatory liabilities are included in Other current liabilities in each of the Registrants’ respective Condensed Consolidated Balance Sheets.


Hurricane Harvey.(7) Houston Electric’s electric delivery system and CERC Corp.’s NGD suffered damage as a result of Hurricane Harvey, a major storm classified as a Category 4 hurricane on the Saffir-Simpson Hurricane Wind Scale, that first struck the Texas coast on Friday, August 25, 2017 and remained over the Houston area for the next several days. The unprecedented flooding from torrential amounts of rainfall accompanying the storm caused significant damage to or destruction of residences and businesses served by Houston Electric and NGD.

Currently, Houston Electric estimates that total costs to restore the electric delivery facilities damaged as a result of Hurricane Harvey will range from $110 million to $120 million and estimates that the total restoration costs covered by insurance will be approximately $35 million. Houston Electric will defer the uninsured storm restoration costs as management believes it is probable that such costs will be recovered through traditional rate adjustment mechanisms for capital costs and through the next rate proceeding for operation and maintenance expenses. As of September 30, 2017, Houston Electric recorded an increase of $4 million in property, plant and equipment and $73 million in regulatory assets, net of $23 million in insurance receivables recorded, for restoration costs incurred.  As a result, storm restoration costs should not materially affect Houston Electric’s reported net income for 2017.

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 uninsured storm restoration costs as management believes it is probable that such costs will be recovered through traditional rate adjustment mechanisms for capital costs and through the next rate proceeding for operation 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, for restoration costs incurred. As a result, storm restoration costs should not materially affect CERC’s reported net income for 2017.

(6) Derivative Instruments

CenterPoint Energy isThe Registrants are exposed to various market risks. These risks arise from transactions entered into in the normal course of business.  CenterPoint Energy 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 CenterPoint Energy’sthe Registrants’ Condensed Consolidated Balance Sheets at their fair value unless CenterPoint Energy electsthe Registrants elect the normal purchase and sales exemption for qualified physical transactions. A derivative may be designated as a normal purchase or normal sale if the intent is to physically receive or deliver the product for use or sale in the normal course of business.

CenterPoint Energy has a Risk Oversight Committee composed of corporate and business segment officers that oversees commodity price, weather and credit risk activities, including CenterPoint Energy’sthe Registrants’ marketing, risk management services and hedging activities. The committee’s duties are to establish CenterPoint Energy’sthe Registrants’ commodity risk policies, allocate board-approved commercial risk limits, approve the use of new products and commodities, monitor positions and ensure compliance with CenterPoint Energy’sthe Registrants’ commercial risk management policies,policy and procedures and limits established by CenterPoint Energy’s boardBoard of directors.Directors.

CenterPoint Energy’sThe Registrants’ 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

Commodity Derivative Instruments. CenterPoint Energy entersand CERC, through CES, enter into certain derivative instruments to mitigate the effects of commodity price movements. Certain financial instruments used to hedge portions of the natural gas inventory of the Energy Services business segment are designated as fair value hedges for accounting purposes. All other financial instruments do not qualify or are not designated as cash flow or fair value hedges.

Weather Hedges. CenterPoint Energy hasand CERC have weather normalization or other rate mechanisms that mitigate the impact of weather on NGD in Arkansas, Louisiana, Mississippi, Minnesota and Oklahoma. NGD and electric operations in Texas do not have such mechanisms, although fixed customer charges are historically higher in Texas for NGD compared to CenterPoint Energy’sits other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on NGD’s results in Texas and on Houston Electric’selectric operations’ results in its service territory.

CenterPoint Energy enteredand CERC, as applicable, enter into heating-degree day swapswinter season weather hedges from time to time for certain NGD Texas jurisdictions to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows for the 2017–2018 winter heating season, which contained a bilateral dollar cap of $8 million. However, CenterPoint Energy did not enter into heating-degree day swaps for NGD jurisdictions for the 2015–2016 or 2016–2017 winter heating seasons. CenterPoint Energy entered into weather hedges for the Houston Electricelectric operations’ service territory to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows, which contained bilateral dollar caps of $7 million, $9 million and $9 million for the 2015–2016, 2016–2017 and 2017–2018 winter seasons, respectively. The swapsflows. These weather hedges are based on heating degree days at 10-year normal weather. During both the three months ended September 30, 2017 and 2016, CenterPoint Energy recognized no gains or losses related to these swaps. During the nine months ended September 30, 2017 and 2016, CenterPoint Energy recognized gains of $1 million and $3 million, respectively, related to these swaps. Weather hedge gains and losses are included in revenues in the Condensed Statements of Consolidated Income.Houston Electric does not enter into weather hedges.

The table below summarizes CenterPoint Energy’s and CERC’s current weather hedge gain (loss) activity:
      Three Months Ended September 30, Nine Months Ended September 30,
Jurisdiction Winter Season Bilateral Cap 2018 2017 2018 2017
    (in millions)
Certain NGD jurisdictions 2018 – 2019 $9
 $—
 $—
 $—
 $—
Certain NGD jurisdictions 2017 – 2018 8
 —
 —
 —
 —
Total CERC (1)     —

—

—

—
Electric operations’ service territory 2018 – 2019 8
 —
 —
 —
 —
Electric operations’ service territory 2017 – 2018 9
 —
 —
 (4) —
Electric operations’ service territory 2016 – 2017 9
 —
 —
 —
 1
Total CenterPoint Energy (1)     $—

$—

$(4)
$1

(1)Weather hedge gains (losses) are recorded in Revenues in the Condensed Statements of Consolidated Income.

Cash Flow Hedging of Interest Expense for Future Debt Issuances. Expense.In January 2017, Houston Electric entered From time to time, the Registrants enter into forward interest rate agreements with severalcertain counterparties having an aggregate notional amountdesignated as cash flow hedges. The objective of $150 million. These agreements were executedthese cash flow hedges is to hedge, in part, volatility in the 10-year U.S. treasury rate by reducing Houston Electric’sreduce exposure to variability in cash flows related to interest payments of Houston Electric’s $300 million issuance ofon anticipated future fixed rate debt in January 2017. Theseofferings or other exposure to variable rate debt. In October 2018, Houston Electric entered into an additional $100 million of notional amount on forward interest rate agreements were designated

classified as cash flow hedges. Accordingly,As of September 30, 2018 and December 31, 2017, the effective portiontotal outstanding notional amount of realized losses associated withHouston Electric’s forward interest rate agreements related to cash flow hedges was $100 million and $-0-, respectively. The maximum length of time over which Houston Electric is exposed to the agreements, which totaled approximately $0.5 million, is a component of accumulated other comprehensive incomevariability in 2017 and will be amortized over the lifefuture cash flows of the bonds.forecasted debt offerings is less than 12 months.

In 2017, CenterPoint Energy enteredEconomic Hedging of Interest Rate Risk. From time to time, the Registrants may enter into forward interest rate agreements with severalcertain counterparties havingdesignated as economic hedges. The objective of these economic hedges is to offset any interest rate risk borne by one or more of the Registrants in connection with an aggregateanticipated future fixed rate debt offering or other exposure to variable rate debt. As of September 30, 2018 and December 31, 2017, the total outstanding notional amount of $350 million. These agreements were executed to hedge, in part, volatility in the 5-year U.S. treasury rate by reducing CenterPoint Energy’s exposure to variability in cash flows relating to interest payments of CenterPoint Energy’s $500 million issuance of fixed rate debt in August 2017. These forward interest rate agreements were designated as cash flow hedges.

Accordingly, the effective portion of realized losses associatedrelated to economic hedges in connection with the agreements, which totaled approximately $2.9permanent financing for the Merger was $200 million is a componentand $-0-, respectively. As of accumulated other comprehensive income inSeptember 30, 2018 and December 31, 2017, and will be amortized over the lifefair value of the notes.

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, volatilityderivatives was less than $1 million and therefore was not included 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.tabular presentation below.

(b)Derivative Fair Values and Income Statement Impacts

The following tables present information about CenterPoint Energy’s derivative instruments and hedging activities. The first fourtwo tables provide a balance sheet overview of CenterPoint Energy’s Derivative Assets and Liabilities, as of September 30, 2017 and December 31, 2016, while the last table provides a breakdown of the related income statement impacts for the threeimpacts.

Fair Value of Derivative Instruments and nine months ended September 30, 2017 and 2016.Hedged Items
Fair Value of Derivative Instruments
 September 30, 2017 September 30, 2018 December 31, 2017
 Balance Sheet Location 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
Derivatives designated as cash flow hedges:Derivatives designated as cash flow hedges: (in millions)
Interest rate derivatives Current Assets: Non-trading derivative assets $3
 $—
 $—
 $—
Total Houston ElectricTotal Houston Electric 3
 —
 —
 —
Derivatives designated
as fair value hedges:
 
Balance Sheet
Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
Derivatives designated as fair value hedges:        
 (in millions)
Natural gas derivatives (1) (2) (3)
 Current Assets: Non-trading derivative assets $—
 $—
 Current Liabilities: Non-trading derivative liabilities —
 2
 13
 1
Natural gas derivatives (1) (2) (3)
 Current Liabilities: Non-trading derivative liabilities 5
 —
    
Derivatives not designated as hedging instruments:    Derivatives not designated as hedging instruments:        
Natural gas derivatives (1) (2) (3)
 Current Assets: Non-trading derivative assets 65
 2
 Current Assets: Non-trading derivative assets 76
 3
 114
 4
Natural gas derivatives (1) (2) (3)
 Other Assets: Non-trading derivative assets 58
 2
 Other Assets: Non-trading derivative assets 38
 —
 44
 —
Natural gas derivatives (1) (2) (3)
 Current Liabilities: Non-trading derivative liabilities 27
 55
 Current Liabilities: Non-trading derivative liabilities 31
 72
 38
 78
Natural gas derivatives (1) (2) (3)
 Other Liabilities: Non-trading derivative liabilities 9
 25
 Other Liabilities: Non-trading derivative liabilities 16
 33
 9
 24
Total CERCTotal CERC 161
 110
 218
 107
Indexed debt securities derivative Current Liabilities —
 776
 Current Liabilities —
 685
 —
 668
Total $164
 $860
Total CenterPoint EnergyTotal CenterPoint Energy $164
 $795
 $218
 $775

(1)The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,8661,865 Bcf or a net 46310 Bcf long position.position and 1,795 Bcf or a net 224 Bcf long position as of September 30, 2018 and December 31, 2017, respectively.  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$72 million asset and a $130 million asset as of September 30, 2018 and December 31, 2017, respectively, as shown on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets (and as detailed in the Offsetting of Natural Gas Derivative Assets and Liabilities table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above, impacted by collateral netting of $13 million.$21 million and $19 million, respectively.

(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
Cumulative Basis Adjustment for Fair Value Hedges (CenterPoint Energy and CERC)

(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
Indexed debt securities derivative Current Liabilities —
 717
Total (4)
 $105
 $784
    September 30, 2018 December 31, 2017
  Balance Sheet Location Carrying Amount of Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Item Carrying Amount of Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Item
Hedged items in fair value hedge relationship: (in millions)
Natural gas inventory Current Assets: Natural gas inventory $39
 $1
 $80
 $14
Total CenterPoint Energy and CERC $39
 $1
 $80
 $14

(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.

Offsetting of Natural Gas Derivative Assets and Liabilities (CenterPoint Energy and CERC)
(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 CenterPoint Energy’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 September 30, 2018 December 31, 2017
 
Gross Amounts Recognized (1)
 Gross Amounts Offset in the Consolidated Balance Sheets Net Amount Presented in the Consolidated Balance Sheets (2) 
Gross Amounts Recognized (1)
 Gross Amounts Offset in the Consolidated Balance Sheets Net Amount Presented in the Consolidated Balance Sheets (2) Gross Amounts Recognized (1) Gross Amounts Offset in the Consolidated Balance Sheets Net Amount Presented in the Consolidated Balance Sheets (2)
 (in millions) (in millions)
Current Assets: Non-trading derivative assets $81
 $(30) $51
 $107
 $(34) $73
 $165
 $(55) $110
Other Assets: Non-trading derivative assets 24
 (5) 19
 54
 (16) 38
 53
 (9) 44
Current Liabilities: Non-trading derivative liabilities (57) 16
 (41) (77) 44
 (33) (83) 63
 (20)
Other Liabilities: Non-trading derivative liabilities (10) 5
 (5) (33) 27
 (6) (24) 20
 (4)
Total $38
 $(14) $24
 $51
 $21
 $72
 $111
 $19
 $130

(1)Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements.

(2)The derivative assets and liabilities on the 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.

RealizedIncome Statement Impact of Hedge Accounting Activity (CenterPoint Energy and unrealized gains and losses on natural gas derivatives are recognized in the Condensed 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. Realized and unrealized gains and losses on indexed debt securities are recorded as Other Income (Expense) in the Condensed Statements of Consolidated 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.

CERC)
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)
Indexed debt securities derivative Gains (Losses) in Other Income (Expense) (36) (72)
Total - derivatives not designated as hedging instruments $(15) $(54)

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
Indexed debt securities derivative Gains (Losses) in Other Income (Expense) (59) (258)
Total - derivatives not designated as hedging instruments $12
 $(222)
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 Location and Amount of Gain (Loss) recognized in Income on Hedging Relationship (2)
 Non-utility natural gas expense Non-utility natural gas expense
 (in millions)
Total amounts presented in the statements of income in which the effects of hedges are recorded$864
 $832
 $2,927
 $2,843
        
Gain (loss) on fair value hedging relationships:       
Commodity contracts:       
Hedged items - Natural gas inventory1
 4
 (13) (10)
Derivatives designated as hedging instruments(1) (4) 13
 10
Amounts excluded from effectiveness testing recognized in earnings immediately (1)6
 (9) (73) (93)

(1)Hedge ineffectiveness resultsAs a result of the adoption of ASU 2017-12 effective January 1, 2018 (see Note 2 for additional information), CenterPoint Energy and CERC exclude from their assessment of hedge effectiveness the basis ineffectiveness discussed above, and excludes the impact to natural gas expense from timing ineffectiveness.  Timing ineffectiveness arises due to changesmarket price difference between locations of the hedged inventory and the delivery location specified in the hedge instruments. Prior to the adoption of this accounting guidance, the timing 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.  Ascommodity, was excluded from the commodity contract nearsassessment of effectiveness for CenterPoint Energy’s and CERC’s existing fair value hedges and will continue to be excluded from the settlement date, spot-to-forward price differences should converge, which should reduce or eliminate the impactassessment of this ineffectiveness on natural gas expense.hedge effectiveness. CenterPoint Energy and CERC elected to continue to

immediately recognize amounts excluded from hedge effectiveness in their respective Condensed Statements of Consolidated Income.

(2)Income statement impact associated with cash flow hedge activity is related to gains and losses reclassified from accumulated other comprehensive income into income. Amounts are immaterial for the Registrants for both the three and nine months ended September 30, 2018 and 2017, respectively.
    Three Months Ended September 30, Nine Months Ended September 30,
  Income Statement Location 2018 2017 2018 2017
Effects of derivatives not designated as hedging instruments on the income statement: (in millions)
Commodity contracts Gains (Losses) in Non-utility revenues $2
 $30
 $70
 $162
Total CERC 2
 30
 70
 162
Indexed debt securities derivative Gains (Losses) in Other Income (Expense) (44) (36) (316) (59)
Interest rate derivatives Gains (Losses) in Interest and other finance charges —
 —
 —
 —
Total CenterPoint Energy $(42) $(6) $(246) $103

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income
 Amount of Gain (Loss) Recognized in Other Comprehensive Income, Net of Tax on Derivative
 Three Months Ended September 30,
Nine Months Ended September 30,
 2018
2017
2018
2017
 (in millions)
Effects of cash flow hedging       
Interest rate derivatives (1)$3
 $—
 $7
 $(1)
Total Houston Electric3
 —
 7
 (1)
Interest rate derivatives (1)—
 (1) —
 (1)
Total CERC—
 (1) —
 (1)
Interest rate derivatives (1)—
 (1) (1) (1)
Total CenterPoint Energy$3
 $(2) $6
 $(3)

(1)Gains and losses are reclassified from accumulated other comprehensive income into income when the hedged transactions affect earnings. The reclassification amounts are included in Interest and other finance charges in the Condensed Statements of Consolidated Income. Amounts are less than $1 million for each of the three and nine months ended September 30, 2018 and 2017. Over the next twelve months, estimated amortization of accumulated other comprehensive income into related income is expected to be immaterial.

(c)Credit Risk Contingent Features

CenterPoint Energy entersand CERC enter into financial derivative contracts containing material adverse change provisions.  These provisions could require CenterPoint Energy or CERC to post additional collateral if the S&P or Moody’s credit ratings of CenterPoint Energy, Inc. or its subsidiaries, including CERC Corp., are downgraded. The total fair value of the derivative instruments that contain credit risk contingent features that are in a net liability position as of both September 30, 2017 and December 31, 2016 was $1 million.  CenterPoint Energy 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.

CenterPoint Energy and CERC
  September 30,
2018		 December 31, 2017
  (in millions)
Aggregate fair value of derivatives containing material adverse change provisions in a net liability position $2
 $2
Fair value of collateral already posted —
 —
Additional collateral required to be posted if credit risk contingent features triggered 1
 2


(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.

Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets.  A market approach is utilized to value the Registrants’ Level 2 natural gas derivative assets or liabilities. CenterPoint Energy’s Level 2 assets or liabilities.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 CenterPoint Energy’sthe Registrants’ judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. CenterPoint Energy developsThe Registrants develop these inputs based on the best information available, including CenterPoint Energy’sthe Registrants’ own data. A market approach is utilized to value CenterPoint Energy’sthe Registrants’ Level 3 assets or liabilities. As of September 30, 2017,2018, CenterPoint Energy’s and CERC’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options and its indexed debt securities.options. Level 3 physical natural gas forward contracts are valued using a discounted cash flow model which includesand options include illiquid forward price curve locations (ranging from $1.08$1.28 to $5.83$6.88 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.  CenterPoint Energy’s and 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, CenterPoint Energy’s. Forward price decreases (increases) as of September 30, 2018 would have resulted in lower (higher) values, respectively, for long forwards lose value whereas itsand options and higher (lower) values, respectively, for short forwards gain in value.  If volatility decreases, CenterPoint Energy’s long options lose value whereas its short options gain in value. CenterPoint Energy’s Level 3 indexed debt securities are valued using a Black-Scholes option model and a discounted cash flow model, which use option volatility (11.4%) and a projected dividend growth rate (7%) as unobservable inputs. An increase in either volatilities or projected dividends will increase the value of the indexed debt securities, and a decrease in either the volatilities or projected dividends will decrease the value of the indexed debt securities.options.

CenterPoint Energy 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. CenterPoint Energybasis. The Registrants also recognizesrecognize purchases of Level 3 financial assets and liabilities at their fair market value at the end of the reporting period.


The following tables present information about CenterPoint Energy’sthe Registrants’ assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, and indicate the fair value hierarchy of the valuation techniques utilized by CenterPoint Energythe Registrants to determine such fair value.

 September 30, 2017
 
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Netting
Adjustments (1)
 Balance
     
 (in millions)
Assets         
Corporate equities$1,060
 $—
 $—
 $—
 $1,060
Investments, including money
market funds (2)
67
 —
 —
 —
 67
Natural gas derivatives (3)
3
 128
 33
 (44) 120
Hedged portion of natural gas inventory65
 —
 —
 —
 65
Total assets$1,195
 $128
 $33
 $(44) $1,312
Liabilities 
  
  
  
  
Indexed debt securities derivative$—
 $—
 $776
 $—
 $776
Natural gas derivatives (3)
3
 74
 7
 (57) 27
Total liabilities$3
 $74
 $783
 $(57) $803
CenterPoint Energy
(1)Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy to settle positive and negative positions and also include cash collateral of $13 million posted with the same counterparties.

(2)Amounts are included in Prepaid Expenses and Other Current Assets in the Condensed Consolidated Balance Sheets.

(3)Natural gas derivatives include no material amounts related to physical forward transactions with Enable.
December 31, 2016
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Netting
Adjustments (1)
 Balance
 September 30, 2018 December 31, 2017
(in millions)

Level 1
 Level 2 Level 3 
Netting
(1)
 Total 

Level 1
 Level 2 Level 3 
Netting
(1)
 Total
Assets         (in millions)
Corporate equities$956
 $—
 $—
 $—
 $956
$630
 $—
 $—
 $—
 $630
 $963
 $—
 $—
 $—
 $963
Investments, including money
market funds (2)
77
 —
 —
 —
 77
70
 —
 —
 —
 70
 68
 —
 —
 —
 68
Interest rate derivatives3
 —
 —
 —
 3
 —
 —
 —
 —
 —
Natural gas derivatives (3)
11
 74
 20
 (35) 70
—
 134
 27
 (50) 111
 —
 161
 57
 (64) 154
Hedged portion of natural gas inventory1
 —
 —
 —
 1
 14
 —
 —
 —
 14
Total assets$1,044
 $74
 $20
 $(35) $1,103
$704
 $134
 $27
 $(50) $815
 $1,045
 $161
 $57
 $(64) $1,199
Liabilities 
  
  
  
  
 
  
  
  
  
          
Indexed debt securities derivative$—
 $—
 $717
 $—
 $717
$—
 $685
 $—
 $—
 $685
 $—
 $—
 $668
 $—
 $668
Natural gas derivatives (3)
4
 56
 7
 (21) 46
—
 105
 5
 (71) 39
 —
 96
 11
 (83) 24
Total liabilities$4
 $56
 $724
 $(21) $763
$—
 $790
 $5
 $(71) $724
 $—
 $96
 $679
 $(83) $692


Houston Electric
 September 30, 2018 December 31, 2017
 

Level 1
 Level 2 Level 3 Netting Total 

Level 1
 Level 2 Level 3 Netting Total
Assets(in millions)
Investments, including money market funds (2)$52
 $—
 $—
 $—
 $52
 $51
 $—
 $—
 $—
 $51
Interest rate derivatives3
 —
 —
 —
 3
 —
 —
 —
 —
 —
Total assets$55
 $—
 $—
 $—
 $55
 $51
 $—
 $—
 $—
 $51

CERC
 September 30, 2018 December 31, 2017
 

Level 1
 Level 2 Level 3 
Netting
(1)
 Total 

Level 1
 Level 2 Level 3 
Netting
(1)
 Total
Assets(in millions)
Corporate equities$3
 $—
 $—
 $—
 $3
 $3
 $—
 $—
 $—
 $3
Investments, including money market funds (2)10
 —
 —
 —
 10
 11
 —
 —
 —
 11
Natural gas derivatives (3)—

134

27

(50) 111
 —
 161
 57
 (64) 154
Hedged portion of natural gas inventory1

—

—

—
 1
 14
 —
 —
 —
 14
Total assets$14
 $134
 $27
 $(50) $125
 $28
 $161
 $57
 $(64) $182
Liabilities 
  
  
  
  
          
Natural gas derivatives (3)$—

$105

$5

$(71) $39
 $—
 $96
 $11
 $(83) $24
Total liabilities$—
 $105
 $5
 $(71) $39
 $—
 $96
 $11
 $(83) $24

(1)Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy and CERC to settle positive and negative positions and also include cash collateral of $14$21 million held by CES fromand $19 million as of September 30, 2018 and December 31, 2017, respectively, posted with the same counterparties.

(2)Amounts are included in Prepaid Expensesexpenses and Other Current Assetsother current assets in the Condensed Consolidated Balance Sheets.

(3)Natural gas derivatives include no material amounts related to physical forward transactions with Enable.


The following table presents additional information about assets or liabilities, including derivatives that are measured at fair value on a recurring basis for which CenterPoint Energy hasand CERC have utilized Level 3 inputs to determine fair value:
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Derivative assets and liabilities, netThree Months Ended September 30, Nine Months Ended September 30,
Three Months Ended September 30, Nine Months Ended September 30,2018 2017 2018 2017
2017 2016 2017 2016CenterPoint Energy CERC CenterPoint Energy CERC CenterPoint Energy CERC CenterPoint Energy CERC
(in millions)(in millions)
Beginning balance$(712) $16
 $(704) $12
$(628) $13
 $(712) $28
 $(622) $46
 $(704) $13
Purchases (1)
—
 —
 —
 12
Total gains (losses)(38) 9
 (38) 13
1
 1
 (38) (2) 4
 4
 (38) 21
Total settlements(1) (8) (5) (24)(1) (1) (1) (1) (36) (36) (5) (5)
Transfers into Level 37
 —
 9
 5
—
 —
 7
 7
 (2) (2) 9
 9
Transfers out of Level 3(6) —
 (12) (1)
Transfers out of Level 3 (1)
650
 9
 (6) (6) 678
 10
 (12) (12)
Ending balance (2)
$(750) $17
 $(750) $17
$22
 $22
 $(750) $26
 $22
 $22
 $(750) $26
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date (3)
$(36) $6
 $(42) $14
               
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date:The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date:
$11
 $11
 $(36) $—
 $9
 $9
 $(42) $17

(1)Mark-to-market valueAs of Level 3 derivative assets acquired through the purchase of AEM was less than $1 million at the acquisition date.

(2)CenterPoint Energy did not have significant Level 3 sales during either of the three or nine months ended September 30, 2017 or 2016.

(3)During 2016,2018, CenterPoint Energy transferred its indexed debt securities derivative from Level 23 to Level 32 to reflect changes in the significance of the unobservable inputs used in the valuation. As

(2)CenterPoint Energy and CERC did not have significant Level 3 sales or purchases during either of September 30, 2017, the indexed debt securities liability was $776 million. During the three andor nine months ended September 30, 2017, there was a loss of $36 million and $59 million, respectively, on the indexed debt securities.2018 or 2017.

Estimated Fair Value of Financial Instruments

The fair values of cash and cash equivalents, investments in debt and equity securities classified as “trading” and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s 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.
 September 30, 2017 December 31, 2016
 Carrying
Amount		 Fair
Value		 
Carrying
Amount
 
Fair
Value
 (in millions)
Financial liabilities:       
Long-term debt$8,513
 $9,005
 $8,443
 $8,846
 September 30, 2018 December 31, 2017
 
CenterPoint Energy (1)
 
Houston Electric (1)
 CERC 
CenterPoint Energy (1)
 
Houston Electric (1)
 CERC
Long-term debt, including current maturities(in millions)
Carrying amount$7,758
 $4,782
 $2,257
 $8,679
 $4,753
 $2,457
Fair value7,888
 4,813
 2,367
 9,220
 5,034
 2,708

(1)Includes Securitization Bond debt.

(8)(9) Unconsolidated Affiliate (CenterPoint Energy and CERC)

CenterPoint Energy has the ability to significantly influence the operating and financial policies of Enable, a publicly traded MLP, and, accordingly, accountsaccount for itsthe investment in Enable’s common units using the equity method of accounting. Upon the adoption of ASU 2014-09 and ASU 2017-05 on January 1, 2018, CenterPoint Energy evaluated transactions in the investment in Enable that occurred prior to January 1, 2018 (the effective date) and concluded a cumulative effect adjustment to the opening balance of retained earnings was not required. See Note 2 for further discussion.

CenterPoint Energy’s maximum exposure to loss related to Enable, a VIE in which CenterPoint Energy is not the primary beneficiary, is limited to itsthe equity investment, andthe Series A Preferred Unit investment as presented in the Condensed Consolidated Balance Sheets as of September 30, 2017 and outstanding current accounts receivable from Enable.

On September 4, 2018, CERC completed the Internal Spin of its equity investment in Enable and Enable GP. The Internal Spin has been accounted for under the guidance for transactions between entities under common control. As of September 4, 2018, CERC derecognized its investment in Enable at carrying value on the date of distribution of $2.4 billion, net of deferred income taxes of $974 million, and CNP Midstream recorded the net asset contribution from CERC at CERC’s carrying value. Neither CERC nor CNP Midstream recognized a gain or loss upon the distribution or contribution, respectively, of net assets involved in the Internal Spin. In connection with the Internal Spin, CenterPoint Energy, through Utility Holding, made a $600 million capital contribution to CERC, which was used by CERC to repay outstanding indebtedness that historically supported CERC’s legacy midstream assets. See Note 18 for further discussion.

Limited Partner Interest and Units Held in Enable (CenterPoint Energy):
 September 30, 2018
 
Limited Partner Interest (1)
 Common Units 
Enable Series A Preferred Units (2)
CenterPoint Energy (3)
54.0% 233,856,623
 14,520,000
OGE25.6% 110,982,805
 —
Public unitholders20.4% 88,376,728
 —
        Total units outstanding100.0% 433,216,156
 14,520,000

(1)Excludes the Enable Series A Preferred Units owned by CenterPoint Energy.

(2)The carrying amount of the Enable Series A Preferred Units, reflected as Preferred units - unconsolidated affiliate on CenterPoint Energy’s Condensed Consolidated Balance Sheets, was $363 million as of both September 30, 2018 and December 31, 2017. No impairment charges or adjustment due to observable price changes were made during the current or prior reporting periods. See Note 2 for further discussion.

(3)Includes Enable Series A Preferred Units held directly by CenterPoint Energy and common units held indirectly through CNP Midstream.

Generally, sales to any person or entity (including a series of sales to the same person or entity) of more than 5% of the aggregate of the common units CNP Midstream owns in Enable or sales to any person or entity (including a series of sales to the same person or entity) 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 set forth in Enable’s Agreement of Limited Partnership.

Interests Held in Enable GP (CenterPoint Energy):
 September 30, 2018
 
Management Rights (1)
 
Incentive Distribution Rights (2)
CenterPoint Energy (3)
50% 40%
OGE50% 60%

(1)Enable is controlled jointly by CenterPoint Energy and OGE. Sale of CenterPoint Energy’s or OGE’s ownership interests in Enable GP to a third party is subject to mutual rights of first offer and first refusal, and CenterPoint Energy is not permitted to dispose of less than all of its interest in Enable GP.

(2)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 Enable GP 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, Enable GP will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances Enable GP 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.

(3)Includes interests held through CNP Midstream.

Distributions Received from Enable (CenterPoint Energy and CERC):
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 (in millions)
Investment in Enable common units (1)
$74
 $74
 $223
 $223
Total CERC (2)
74
 74
 223
 223
Investment in Enable Series A Preferred Units (3)
9
 9
 27
 27
  Total CenterPoint Energy$83
 $83
 $250
 $250
(1)Reflects cash distributions of $0.318 and $0.954 per common unit for the three and nine months ended September 30, 2018 and 2017, respectively.
(2)On September 4, 2018, CERC completed the Internal Spin. After such date, CNP Midstream owned the Enable common units previously owned by CERC.
(3)Reflects cash distributions of $0.625 and $1.875 per Enable Series A Preferred Unit for the three and nine months ended September 30, 2018 and 2017, respectively.

Transactions with Enable:Enable (CenterPoint Energy and CERC):
 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 costs23
 22
 80
 79
Interest income related to notes receivable from Enable—
 —
 —
 1
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 (in millions)
Reimbursement of transition services (1) (CenterPoint Energy)
$1
 $—
 $4
 $3
Natural gas expenses, including transportation and storage costs (CenterPoint Energy and CERC)
23
 23
 89
 80

(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 Enable8
 10

Limited Partner Interest in Enable (1):
September 30, 2017
CenterPoint Energy54.1%
OGE25.7%

(1)Excluding the Series A Preferred Units owned by CenterPoint Energy.

In November 2016, Enable completed a public offering of 11,500,000 common units of which 1,424,281 were sold by ArcLight Capital Partners, LLC. The common units issued and sold by Enable resulted in dilution of both CenterPoint Energy’s and OGE’s limited partner interest in Enable.

Enable Common Units and Series A Preferred Units Held:
 September 30, 2017
 Common Series A Preferred
CenterPoint Energy233,856,623
 14,520,000
OGE110,982,805
 —

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 CenterPoint Energy 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 CenterPoint Energy’s or OGE’s ownership interests in Enable’s general partner to a third party is subject to mutual rights of first offer and first refusal, and CenterPoint Energy is not permitted to dispose of less than all of its interest in Enable’s general partner.

 September 30, 2018 December 31, 2017
 (in millions)
Accounts receivable for amounts billed for transition services (CenterPoint Energy)
$3
 $1
Accounts payable for natural gas purchases from Enable (CenterPoint Energy and CERC)
8
 13

Summarized unaudited consolidated income information for Enable is as follows:
 Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017
2016 2018 2017 2018
2017
 (in millions) (in millions)
Operating revenues $705
 $620
 $1,997
 $1,658
 $928
 $705
 $2,481
 $1,997
Cost of sales, excluding depreciation and amortization 349
 268
 936
 717
 516
 349
 1,335
 936
Impairment of goodwill and other long-lived assets —
 8
 —
 8
Depreciation and amortization 100
 90
 292
 267
Operating income 137
 139
 399
 299
 171
 137
 436
 399
Net income attributable to Enable 104
 110
 301
 231
Net income attributable to Enable common units 129
 104
 320
 301
Reconciliation of Equity in Earnings, net:                
CenterPoint Energy’s interest $56
 $61
 $163
 $128
 $70
 $56
 $173
 $163
Basis difference amortization (1)
 12
 12
 36
 36
 11
 12
 35
 36
CenterPoint Energy’s equity in earnings, net $68
 $73
 $199
 $164
 $81
 $68
 $208
 $199
(1)Equity in earnings of unconsolidated affiliatesaffiliate includes CenterPoint Energy’s share of Enable’s earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s original investment in Enable and itstheir underlying equity in Enable’s net assets. The basis difference is amortized over approximately 3331 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 September 30,
2018
December 31, 2017
 (in millions) (in millions)
Current assets $446
 $396
 $481
 $416
Non-current assets 10,816
 10,816
 11,454
 11,177
Current liabilities 831
 362
 1,403
 1,279
Non-current liabilities 2,740
 3,056
 2,964
 2,660
Non-controlling interest 12
 12
 11
 12
Preferred equity 362
 362
 362
 362
Enable partners’ equity 7,317
 7,420
 7,195
 7,280
Reconciliation of Equity Method Investment in Enable:    
CenterPoint Energy’s ownership interest in Enable partners’ capital $4,007
 $4,067
Reconciliation of Investment in Enable:    
CenterPoint Energy’s ownership interest in Enable partners’ equity $3,883
 $3,935
CenterPoint Energy’s basis difference (1,526) (1,562) (1,426) (1,463)
CenterPoint Energy’s equity method investment in Enable $2,481
 $2,505
 $2,457
 $2,472

Distributions ReceivedDiscontinued Operations (CERC):

The Internal Spin represents a significant strategic shift that has a material effect on CERC’s operations and financial results and, as a result, CERC’s distribution of its equity investment in Enable met the criteria for discontinued operations classification. CERC has no continuing involvement in the equity investment of Enable. Therefore, CERC’s equity in earnings and related income taxes have been classified as Income from Unconsolidated Affiliate:discontinued operations, net of tax, in CERC’s Condensed Statements of Consolidated Income for the periods presented. CERC’s equity method investment and related deferred income tax liabilities have been classified as Investment in unconsolidated affiliate - discontinued operations and Deferred income taxes, net - discontinued operations, respectively, in CERC’s Condensed Consolidated Balance Sheets for the periods presented. The following table presents amounts included in Income from discontinued operations, net of tax in CERC’s Condensed Statements of Consolidated Income.
 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
Investment in Enable’s Series A Preferred Units9
 9
 27
 13
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.
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 (in millions)
Equity in earnings of unconsolidated affiliate, net$57
 $68
 $184
 $199
Income tax expense13
 26
 44
 75
Income from discontinued operations, net of tax$44
 $42
 $140
 $124

(9) (10) Goodwill and Other Intangibles (CenterPoint Energy and CERC)

GoodwillCenterPoint Energy’s and CERC’s goodwill by reportable business segment as of both September 30, 2018 and December 31, 2016 and changes in the carrying amount of goodwill as of September 30, 2017 areis as follows:
December 31, 2016 AEM Acquisition (1) September 30,
2017		 
(in millions) (in millions)
Natural Gas Distribution$746
 $—
 $746
 $746
Energy Services105
(2)5
 110
(2)
Energy Services (1)110
Other Operations11
 —
 11
 11
Total$862
 $5
 $867
 $867
(1) See Note 3.
(2) Amount presented is net of the accumulated goodwill impairment charge of $252 million recorded in 2012.

CenterPoint Energy performs itsand CERC perform goodwill impairment tests at least annually and evaluatesevaluate goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed using a two-step process. In the first step,by comparing the fair value 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 generallyprimarily determined on the basis of discounted cash flows. If the carrying amount is in excess of the estimated fair value of the reporting unit, then the excess amount is less thanthe impairment charge that should be recorded, not to exceed 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 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 recordedgoodwill. See Note 2 for the difference.further discussion.

CenterPoint Energy and CERC performed itsthe annual goodwill impairment test in the third quarter of 20172018 and determined based on the results of the first step, that no goodwill impairment charge was required for any reporting unit, which approximate the reportable segment.segments.

The tables below present information on CenterPoint Energy’s and CERC’s other intangible assets recorded in Other non-current assets on the Condensed Consolidated Balance Sheets.
   September 30, 2018 December 31, 2017
 Useful Lives Gross Carrying Amount Accumulated Amortization Net Balance Gross Carrying Amount Accumulated Amortization Net Balance
 (in years) (in millions)
Customer relationships15 $86
 $(26) $60
 $86
 $(21) $65
Covenants not to compete4 4
 (2) 2
 4
 (2) 2
OtherVarious 15
 (10) 5
 15
 (8) 7
Total  $105
 $(38) $67
 $105
 $(31) $74

 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 (in millions)
Amortization expense of intangible assets$2
 $2
 $7
 $5

(10)(11) Indexed Debt Securities (ZENS) and Securities Related to ZENS (CenterPoint Energy)

(a) Investment in Securities Related to ZENS

In 1995, CenterPoint Energy sold a cable television subsidiary to TW and received certain TW securities as partial consideration. A subsidiary of CenterPoint Energy now holds 7.1 million shares of TW Common, 0.9 million shares of Time Common and 0.9 million shares of Charter Common,certain securities detailed in the table below, which are classified as trading securities and are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS. Unrealized gains and losses resulting from changes in the market value of the TWZENS-Related Securities are recorded in CenterPoint Energy’s Condensed Statements of Consolidated Income.
  Shares Held
  September 30, 2018 December 31, 2017
AT&T Common 10,212,945
 —
Charter Common 872,503
 872,503
Time Common —
 888,392
TW Common —
 7,107,130

(b) ZENS

In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1 billion of which $828 million remain outstanding as of September 30, 2017.2018. Each ZENS was originally exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares of TW Common attributable to such note. The number and identity of the reference shares attributable to each ZENS are adjusted for certain corporate events. As of September 30, 2017, the reference shares for each ZENS consisted of 0.5 share of TW Common, 0.0625 share of Time Common and 0.061382 share of Charter Common, and the contingent principal balance was $507 million.

On October 22, 2016, AT&T announced that it had entered into a definitive agreement to acquire TW in a stock and cash transaction. On February 15, 2017, TW shareholders approved the announced transaction with AT&T. The merger closed on June 14, 2018. CenterPoint Energy received $53.75 and 1.437 shares of AT&T Common for each share of TW Common held, resulting in cash proceeds of $382 million and 10,212,945 shares of AT&T Common. In accordance with the terms of the ZENS, CenterPoint Energy remitted $382 million to ZENS note holders in July 2018, which reduced the contingent principal amount. 

On November 26, 2017, Meredith announced that it had entered into a definitive merger agreement with Time. Pursuant to the merger agreement, upon closing of the merger, TW shareholdersa subsidiary of Meredith would receivepurchase for cash all outstanding Time Common shares for $18.50 per share. The transaction was consummated on January 31, 2018. CenterPoint Energy elected to make a reference share offer adjustment and distribute additional interest, if any, in accordance with the terms of its ZENS rather than electing to increase the early exchange ratio to 100%. CenterPoint Energy’s distribution of additional interest in connection with the reference share offer was proportionate to the percentage of eligible shares that were validly tendered by Time stockholders in Meredith’s tender offer. CenterPoint Energy received $18.50 for each share of their shares of TWTime Common an estimated implied value of $107.50, comprised of $53.75 per shareheld, resulting in cash and $53.75 per share in AT&T Common. The stock portion will be subject to a collar such that TW shareholders will receive 1.437 sharesproceeds of AT&T Common if AT&T Common’s average stock price is below $37.411 at closing and 1.3 sharesapproximately $16 million. In accordance with the terms of AT&T Common if AT&T Common’s average stock price is above $41.349 at

closing. Cash received for the TW Common reference shares would subsequently beZENS, CenterPoint Energy distributed additional interest of approximately $16 million to ZENS holders on March 6, 2018, which is expected to reducereduced the contingent principal balance, andamount.

As a result, CenterPoint Energy recorded the following during the nine months ended September 30, 2018:
 Meredith/Time AT&T/TW
 (in millions)
Cash payment to ZENS note holders$16
 $382
Indexed debt – reduction(4) (95)
Indexed debt securities derivative – reduction(1) (45)
     Loss on indexed debt securities$11
 $242

CenterPoint Energy’s reference shares would consistfor each ZENS consisted of Charter Common, Time Common and AT&T Common. AT&T has publicly announced that the merger is expected to close byfollowing:
  September 30, 2018 December 31, 2017
  (in shares)
AT&T Common 0.7185
 —
Charter Common 0.061382
 0.061382
Time Common —
 0.0625
TW Common —
 0.5

As of September 30, 2018, the endcontingent principal amount of 2017.the ZENS was $98 million.

(11) (12) Short-term Borrowings and Long-term Debt

(a)Short-term Borrowings (CenterPoint Energy and CERC)

Inventory Financing. NGD currently has AMAs associated with its utility distribution service in Arkansas, northLouisiana, Mississippi, Oklahoma and Texas. In March 2018, NGD’s third party AMAs in Arkansas, Louisiana and Oklahoma that extend through 2020.expired, and NGD entered into new AMAs with CES effective April 1, 2018 in these states. The AMAs have varying terms, the longest of which expires in 2021. Pursuant to the provisions of the agreements, NGD sells natural gas and agrees to repurchase an equivalent amount of natural gas during the winter heating seasons at the same cost, plus a financing charge.cost. These transactions are accounted for as an inventory financing and had an associated principal obligation of $48 million$ -0- and $35$39 million as of September 30, 20172018 and December 31, 2016,2017, respectively.

(b)Long-term Debt

Debt Retirements.  In February 2017, CenterPoint Energy retired $250 million aggregate principal amount of its 5.95% senior notes at their maturity. The retirement of senior notes was financed by the issuance of commercial paper.

Debt Issuances. During the nine months ended September 30, 2017, CenterPoint Energy, Houston Electric and CERC Corp. issued2018, the following debt instruments:instruments were issued:
 Issuance Date Debt Instrument Aggregate Principal Amount Interest Rate Maturity Date Issuance Date Debt Instrument Aggregate Principal Amount Interest Rate Maturity Date
 (in millions)  (in millions) 
Houston Electric January 2017 General mortgage bonds $300
 3.00% 2027 February 2018 General mortgage bonds $400
 3.95% 2048
CenterPoint Energy August 2017 Unsecured senior notes   500
 2.50% 2022
CERC Corp. August 2017 Unsecured senior notes   300
 4.10% 2047 March 2018 Unsecured senior notes   300
 3.55% 2023
CERC Corp. March 2018 Unsecured senior notes 300
 4.00% 2028

The proceeds from thethese issuances were used for general limited liability company and corporate purposes, as applicable, including to repay portions of outstanding commercial paper.paper and borrowings under CenterPoint Energy’s money pool.

Merger Financings. On October 5, 2018, the following debt instruments were issued:
  Debt Instrument Aggregate Principal Amount Interest Rate Maturity Date
    (in millions)    
CenterPoint Energy Unsecured senior notes   $500
 3.60% 2021
CenterPoint Energy Unsecured senior notes   500
 3.85% 2024
CenterPoint Energy Unsecured senior notes   500
 4.25% 2028

CenterPoint Energy intends to use the net proceeds from these debt issuances to fund a portion of the pending Merger and to pay related fees and expenses.

If CenterPoint Energy does not consummate the Merger on or prior to October 31, 2019, or if, on or prior to such date, the Merger Agreement is terminated, CenterPoint Energy will be required to redeem all of the outstanding notes at a redemption price equal to 101% of the principal amount of the notes plus accrued and unpaid interest, if any, to, but excluding, the date of such special mandatory redemption.  The notes may also be redeemed at CenterPoint Energy’s option, in whole but not in part, at any time before October 31, 2019, at a redemption price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the date of such redemption, if CenterPoint Energy determines, in its reasonable judgment, that the Merger will not be consummated on or before close of business on October 31, 2019.


Credit Facilities. Facility. In June 2017,May 2018, CenterPoint Energy Houston Electric and CERC Corp. each entered into amendmentsan amendment to their respectiveits revolving credit facilitiesfacility to extend the termination date thereof from March 3, 2021 to March 3, 2022 and to terminate the swingline loan subfacility thereunder. The amendments to the CenterPoint Energy and CERC Corp. revolving credit facilities also increasedincrease the aggregate commitments by $100 million and $300 million, respectively, tofrom $1.7 billion to $3.3 billion effective the earlier of (i) the termination of all commitments by certain lenders to provide the Bridge Facility and $900 million(ii) the payment in full of all obligations (other than contingent obligations) under their respectivethe Bridge Facility and termination of all commitments to advance additional credit thereunder, and in each case, so long as the Merger Agreement has not been terminated pursuant to the terms thereof without consummation of the Merger. This increase to CenterPoint Energy’s revolving credit facilities. No changes were madefacility will automatically expire on the earlier of the (a) termination date of the revolving credit facility and (b) if the Merger Agreement is terminated without consummation of the Merger, the date that is 90 days after such termination. In addition, the amendment provides for a temporary increase on the maximum ratio of debt for borrowed money to capital from 65% to 75% until the earlier of (i) June 30, 2019 and (ii) the termination of all commitments in respect of the Bridge Facility without any borrowing thereunder. On October 5, 2018, CenterPoint Energy terminated all remaining commitments by lenders to provide the Bridge Facility. As a result, the aggregate commitments under the Houston Electric revolving credit facility. In connection with the amendments to increase the aggregate commitments under their respective revolving credit facilities, CenterPoint Energy and CERC Corp. eachfacility automatically increased the size of their respective commercial paper programs to permit the issuance of commercial paper notes in an aggregate principal amount not to exceedfrom $1.7 billion to $3.3 billion and $900 million, respectively, at any time outstanding.the maximum ratio of debt for borrowed money to capital reverted to 65%.

As of September 30, 2017 and December 31, 2016, CenterPoint Energy, Houston Electric and CERC Corp.The Registrants had the following revolving credit facilities and utilization of such facilities:
September 30, 2017 December 31, 2016   September 30, 2018 December 31, 2017
Size of
Facility		 Loans Letters
of Credit		 Commercial
Paper		 Size of
Facility		 Loans Letters
of Credit		 Commercial
Paper		 Size of
Facility		 Loans Letters
of Credit		 Commercial
Paper		 Weighted Average Interest Rate Loans Letters
of Credit		 Commercial
Paper		 Weighted Average Interest Rate
(in millions) (in millions, except weighted average interest rate)
CenterPoint Energy$1,700
 $—
 $6
 $447
(1)$1,600
 $—
 $6
 $835
(1)$1,700
(1)$—
 $6
 $104
 2.42% $—
 $6
 $855
 1.88%
Houston Electric300
 —
 4
 —
 300
 —
 4
 —
 300
 —
 4
 —
 —
 —
 4
 —
 —
CERC Corp.900
 —
 —
 529
(2)600
 —
 4
 569
(2)900
 —
 1
 98
 2.43% —
 1
 898
 1.72%
Total$2,900
 $—
 $10
 $976
 $2,500
 $—
 $14
 $1,404
 $2,900
 $—
 $11
 $202
   $—
 $11
 $1,753
  

(1)Weighted average interest rate was 1.42% and 1.04%Pursuant to the amendment entered into in May 2018, the aggregate commitments under the CenterPoint Energy revolving credit facility increased to $3.3 billion on October 5, 2018 as a result of September 30, 2017 and December 31, 2016, respectively.the satisfaction of certain conditions described above.

(2)Weighted average interest rate was 1.43% and 1.03% as of September 30, 2017 and December 31, 2016, respectively.


Execution
Date
 Company 
Size of
Facility
 
Draw Rate of LIBOR plus (2)
 Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio 
Debt for Borrowed Money to Capital
Ratio as of
September 30, 2017 (3)
 
Termination Date (5)
 Company 
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
September 30, 2018 (2)
 Termination Date
 (in millions)  (in millions) 
March 3, 2016 CenterPoint Energy $1,700
(1)1.250% 65%(4)56.9% March 3, 2022 CenterPoint Energy $1,700
(3)1.250% 75%(4) (5)47.5% March 3, 2022
March 3, 2016 Houston Electric 300
 1.125% 65%(4)49.0% March 3, 2022 Houston Electric 300
 1.125% 65%(5)50.7% March 3, 2022
March 3, 2016 CERC Corp. 900
(1)1.250% 65% 38.6% March 3, 2022 CERC Corp. 900
 1.125% 65% 48.6% 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)(2)As defined in the revolving credit facility agreement, excluding Securitization Bonds.

(3)Pursuant to the amendment entered into in May 2018, the aggregate commitments under the CenterPoint Energy revolving credit facility increased to $3.3 billion on October 5, 2018 as a result of the satisfaction of certain conditions described above.

(4)TheOn October 5, 2018, CenterPoint Energy’s financial covenant limit returned to 65% due to the termination of all commitments in respect of the Bridge Facility without any borrowing thereunder.

(5)For CenterPoint Energy (whenever its financial covenant limit is 65%) and Houston Electric, the financial covenant limit will temporarily increase from 65% to 70% if Houston Electric experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive 12-month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification.

(5)Amended on June 16, 2017 to extend the termination date as noted above.

securitization financing, (ii) the first anniversary of CenterPoint Energy, Houston Electric and CERC Corp.Energy’s certification or (iii) the revocation of such certification.

The Registrants were in compliance with all financial debt covenants as of September 30, 2017.2018.

Other. As of both September 30, 2018 and December 31, 2017, Houston Electric had issued $118 million of general mortgage bonds as collateral for long-term debt of CenterPoint Energy. These bonds are not reflected in Houston Electric’s consolidated financial statements because of the contingent nature of the obligations.

(12) (13) Income Taxes

The Registrants reported the following effective tax rate reported for the three months ended September 30, 2017 was 37% compared to 35% for the same period in 2016. The higher effective tax rate for the three months ended September 30, 2017 was primarily due to the tax effects of receiving less nontaxable income in the period. The effective tax rate reported for the nine months ended September 30, 2017 was 36% compared to 37% for the same period in 2016.rates:
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
CenterPoint Energy (1)
24% 37% 26% 36%
Houston Electric (2)
20% 35% 21% 36%
CERC - Continuing operations (3) (4)
5% 20% 29% 38%
CERC - Discontinued operations (5)
23% 38% 24% 38%

(1)CenterPoint Energy’s lower effective tax rate for the three and nine months ended September 30, 2018 compared to the same periods for 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate decreased by 5% and 4%, respectively, for the three and nine months ended September 30, 2018 due to the amortization of EDIT. These decreases were partially offset by an increase to the effective tax rate of 5% for the three-month period ended September 30, 2018 as a result of the establishment of a state valuation allowance on certain net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. The effective tax rate increased by 7% for the nine-month period ended September 30, 2018 due to state law changes and the state valuation allowance. See Note 9 for further discussion on the Internal Spin.
CenterPoint Energy
(2)Houston Electric’s lower effective tax rate for the three and nine months ended September 30, 2018 compared to the same periods for 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate was further reduced by 2% for both periods due to the amortization of EDIT.

(3)CERC’s lower effective tax rate on the loss from continuing operations for the three months ended September 30, 2018 compared to the same period in 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate decreased by 18% due to state taxes as a result of the establishment of a state valuation allowance on certain net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. These decreases were partially offset by an increase to the effective tax rate of 15% due to the amortization of EDIT. See Note 9 for further discussion on the Internal Spin.

(4)CERC’s lower effective tax rate on income from continuing operations for the nine months ended September 30, 2018 compared to the same period in 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate decreased by 20% due to the amortization of EDIT. These decreases were partially offset by an increase to the effective tax rate of 22% as a result of an increase in state tax rates and the establishment of a state valuation allowance on certain net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. See Note 9 for further discussion on the Internal Spin.

(5)CERC’s lower effective tax rate on income from discontinued operations for the three and nine months ended September 30, 2018 compared to the same periods in 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. See Note 9 for further discussion on the Internal Spin and the associated discontinued operations presentation.

The Registrants reported no uncertain tax liability as of September 30, 20172018 and expectsexpect no significant changechanges to the uncertain tax liability over the next twelve months. Tax years through 20152016 have been audited and settled with the IRS, however, during the

three months ended September 30, 2018, CenterPoint Energy filed an amended 2014 tax return to claim additional tax credits that is currently under review by the IRS. For the 20162017 and 20172018 tax years, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process.

(13) (14) Commitments and Contingencies

(a)Natural Gas Supply Commitments (CenterPoint Energy and CERC)

Natural gas supply commitments include natural gas contracts related to CenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services business segments, which have various quantity requirements and durations, that are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets as of September 30, 20172018 and December 31, 20162017 as these contracts meet an exception as “normal purchases contracts” or do not meet the definition of a derivative. Natural gas supply commitments also include natural gas transportation contracts that do not meet the definition of a derivative.


As of September 30, 2017,2018, minimum payment obligations for natural gas supply commitments are approximately:
(in millions)(in millions)
Remaining three months of 2017$169
2018507
Remaining three months of 2018$88
2019348
325
2020166
303
202176
219
2022 and beyond113
2022183
2023 and beyond1,644

(b)Legal, Environmental and Other Matters

Legal Matters

Gas Market Manipulation Cases.Cases (CenterPoint Energy and CERC).  CenterPoint Energy, Houston Electric or theirits predecessor, Reliant Energy, and certain of their former subsidiaries have beenwere named as defendants in certaina large number of lawsuits described below. filed against numerous gas market participants in a number of federal and western state courts in connection with the operation of the natural gas markets in 2000-2002. CenterPoint Energy and its affiliates were released or dismissed from all such cases, except for one case pending in federal court in Nevada in which CES, a subsidiary of CERC Corp., is a defendant. Plaintiffs in that case allege a conspiracy to inflate Wisconsin natural gas prices in 2000-2002. In May 2016, the district court granted CES’s motion for summary judgment, dismissing CES from the case. In August 2018, the Ninth Circuit Court of Appeals reversed that ruling, and CES requested further appellate review of that decision.

Under a master separation agreement between CenterPoint Energy and a former subsidiary, RRI, CenterPoint Energy and its subsidiaries are entitled to be indemnified by RRI and its successors for any losses, including certain attorneys’ fees and other costs, arising out of these lawsuits.  In May 2009,Through a series of transactions, RRI sold its Texas retail business to a subsidiary of NRGbecame known as GenOn 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. None of the sale of the retail business, the merger with Mirant Corporation, or the acquisition of GenOn by NRGthose transactions alters RRI’s (now GenOn’s)GenOn’s contractual obligations to indemnify CenterPoint Energy and its subsidiaries including Houston Electric, for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation.

A large number of lawsuits were filed against numerous gas market participants in a number of federal and western state courts in connection with the operation of the natural gas markets in 2000–2002. CenterPoint Energy and its affiliates have since been released or dismissed from all such cases. CES, a subsidiary 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, however, GenOn and various affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy Code.Code and are expected to emerge from Chapter 11 in 2018. CenterPoint Energy, CERC, and CES submitted proofs of claim in the bankruptcy proceedings to protect their indemnity rights.

In October 2018, CES, GenOn, and the plaintiffs reached an agreement to settle all claims against CES and CES’s indemnity claims against GenOn, subject to approvals by the bankruptcy court and the federal district court. If GenOn were unablethe settlement agreement is not approved and if GenOn’s bankruptcy proceedings result in it not being required to meetfulfill its indemnity obligations, or satisfy a liability that has been assumed in the gas market manipulation litigation, then CenterPoint Energy, Houston Electric or CERCCES could incur liability and be responsible for satisfying the liability.it. CenterPoint Energy does not expect the ultimate outcome of the case against CESthis matter to have a material adverse effect on its financial condition, results of operations or cash flows.

Minnehaha Academy.Academy (CenterPoint Energy and CERC).  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, and the contractor company working in the school have been named in litigation arising out of this incident.  CenterPoint Energy has reached confidential settlement agreements with some claimants. Additionally, CenterPoint Energy is cooperating with the ongoing investigationsinvestigation conducted by the National Transportation Safety Board,Board. Further, CenterPoint Energy is contesting approximately $200,000 in

fines imposed by the Minnesota Office of Pipeline Safety.  In early 2018, the Minnesota Occupational Safety and Health Administration and the Minnesota Office of Pipeline Safety.concluded its investigation without any adverse findings against CenterPoint Energy. CenterPoint Energy’s general and excess liability insurance policies provide coverage for third party bodily injury and property damage claims. 

Environmental Matters

MGP Sites.Sites (CenterPoint Energy and CERC). CERC and its predecessors operated MGPs in the past.  With respect to certain Minnesota MGP sites, CERC has completed state-ordered remediation and continues state-ordered monitoring and water treatment. As of September 30, 2017,2018, CERC had a recorded liability of $7 million for continued monitoring and any future remediation required by regulators in Minnesota. The estimated range of possible remediation costs for the sites for which CERC believes it may have responsibility was $4 million to $30 million based on remediation continuing for 30 to 50 years. The cost estimates are based on studies of a site or industry average costs for remediation of sites of similar size. The actual remediation costs will 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 AgencyEPA and other regulators have investigated MGP sites that were owned or operated by CERC or may have been owned by one of its former affiliates. CenterPoint Energy doesand CERC do not expect the ultimate outcome of these matters to have a material adverse effect on the financial condition, results of operations or cash flows of either CenterPoint Energy or CERC.

Asbestos. Some facilities owned by CenterPoint Energythe Registrants or itstheir predecessors in interest contain or have contained asbestos insulation and other asbestos-containing materials. CenterPoint Energy and its subsidiariesThe 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 CenterPoint Energy anticipatesthe Registrants anticipate that additional claims may be asserted in the future.  Although their ultimate outcome cannot be predicted at this time, CenterPoint Energy doesthe Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’stheir financial condition, results of operations or cash flows.

Other Environmental. From time to time, CenterPoint Energy identifiesthe Registrants identify the presence of environmental contaminants during its operations or on property where its predecessor companies have conducted operations.  Other such sites involving contaminants may be identified in the future.  CenterPoint Energy hasThe Registrants have and expectsexpect to continue to remediate any identified sites consistent with itsstate and federal legal obligations.  From time to time, CenterPoint Energy 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, CenterPoint Energy 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, CenterPoint Energy doesthe Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’stheir financial condition, results of operations or cash flows.

Other Proceedings

CenterPoint Energy 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, CenterPoint Energy 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. CenterPoint EnergyThe Registrants regularly analyzesanalyze current information and, as necessary, providesprovide accruals for probable and reasonably estimable liabilities on the eventual disposition of these matters. CenterPoint Energy doesThe Registrants do not expect the disposition of these matters to have a material adverse effect on CenterPoint Energy’sthe Registrants’ financial condition, results of operations or cash flows.


(14) (15) Earnings Per Share (CenterPoint Energy)

The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings per share calculations:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (in millions, except share and per share amounts)
Net income$169
 $179
 $496
 $331
        
Basic weighted average shares outstanding431,026,000
 430,682,000
 430,939,000
 430,581,000
Plus: Incremental shares from assumed conversions:       
Restricted stock3,060,000
 2,714,000
 3,060,000
 2,714,000
Diluted weighted average shares434,086,000
 433,396,000
 433,999,000
 433,295,000
        
Basic earnings per share       
Net income$0.39
 $0.42
 $1.15
 $0.77
        
Diluted earnings per share       
Net income$0.39
 $0.41
 $1.14
 $0.76
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 (in millions, except share and per share amounts)
Income available to common shareholders$153
 $169
 $243
 $496
        
Basic weighted average common shares outstanding431,554,000
 431,026,000
 431,437,000
 430,939,000
Plus: Incremental shares from assumed conversions:       
Restricted stock3,337,000
 3,060,000
 3,337,000
 3,060,000
Diluted weighted average common shares434,891,000
 434,086,000
 434,774,000
 433,999,000
        
Basic earnings per common share$0.35
 $0.39
 $0.56
 $1.15
Diluted earnings per common share$0.35
 $0.39
 $0.56
 $1.14

(15) (16) Reportable Business Segments

CenterPoint Energy’sThe Registrants’ determination of reportable business segments considers the strategic operating units under which CenterPoint Energy managesthe Registrants manage sales, allocatesallocate resources and assessesassess performance of various products and services to wholesale or retail customers in differing regulatory environments. CenterPoint Energy usesThe Registrants use operating income as the measure of profit or loss for itsthe business segments other than Midstream Investments, where it uses equity in earnings of unconsolidated affiliates.is used.

CenterPoint Energy’sAs of September 30, 2018, reportable business segments include the following: by Registrant are as follows:
Electric Transmission & DistributionNatural Gas Distribution
Energy
 Services
Midstream InvestmentsOther Operations
CenterPoint EnergyXXXXX
Houston ElectricX
CERCXX(1)X

(1)In the three months ended September 30, 2018, CERC completed the Internal Spin. Previously, CERC’s equity method investment in Enable was included in the Midstream Investments segment. CERC’s equity in earnings in Enable, net of basis difference amortization and income tax, has been classified as discontinued operations for all periods presented. See Note 9 for further discussion on the Internal Spin and the associated discontinued operations presentation.

Electric Transmission & Distribution Natural Gas Distribution, Energy Services, Midstream Investments and Other Operations. Theconsists of the electric transmission and distribution function

(Houston Electric) is reported in the Electric Transmission & Distribution business segment.function. Natural Gas Distribution consists of intrastate natural gas sales to, and natural gas transportation and distribution for, residential, commercial, industrial and institutional customers. Energy Services represents CenterPoint Energy’sconsists of non-rate regulated natural gas sales and services operations. Midstream Investments consists of CenterPoint Energy’sthe equity investment in Enable (excluding the Enable Series A Preferred Units). Other Operations consists primarily of other corporate operations which support all of CenterPoint Energy’sthe business operations.

Houston Electric consists of a single reportable business segment and therefore is not included in the tabular business segment presentation below. Operating income (loss) amounts for 2017 have been recast to reflect the adoption of ASU 2017-07 (see Note 2 for further information).


Financial data for business segments is as follows:

 For the Three Months Ended September 30, 2017
 Revenues from
External
Customers		 Net
Intersegment
Revenues		 Operating
Income
 (in millions)
Electric Transmission & Distribution$843
(1)$—
 $247
Natural Gas Distribution390
 8
 19
Energy Services861
 10
 7
Midstream Investments (2)
—
 —
 —
Other Operations4
 —
 6
Eliminations—
 (18) —
Consolidated$2,098
 $—
 $279
CenterPoint Energy
Three Months Ended September 30,
For the Three Months Ended September 30, 20162018 2017
Revenues from
External
Customers		 Net
Intersegment
Revenues		 Operating
Income		Revenues from
External
Customers		 Net
Intersegment
Revenues		 
Operating
Income
(Loss)
 Revenues from
External
Customers		 Net
Intersegment
Revenues		 Operating
Income
(in millions)(in millions)
Electric Transmission & Distribution$908
(1)$—
 $257
$897
(1)$—
 $227
 $843
(1)$—
 $254
Natural Gas Distribution370
 7
 22
402
 8
 3
 390
 8
 25
Energy Services608
 6
 5
910
 10
 (9) 861
 10
 7
Midstream Investments (2)
—
 —
 —
—
 —
 —
 —
 —
 —
Other Operations3
 —
 —
3
 —
 5
 4
 —
 11
Eliminations—
 (13) —
—
 (18) —
 —
 (18) —
Consolidated$1,889
 $—
 $284
$2,212
 $—
 $226
 $2,098
 $—
 $297
 For the Nine Months Ended September 30, 2017   
 
Revenues from
External
Customers
 
Net
Intersegment
Revenues
 
Operating
Income
 Total Assets as of September 30, 2017 
 (in millions) 
Electric Transmission & Distribution$2,234
(1)$—
 $489
 $10,289
 
Natural Gas Distribution1,767
 24
 220
 6,067
 
Energy Services2,964
 34
 58
 1,337
 
Midstream Investments (2)
—
 —
 —
 2,481
 
Other Operations11
 —
 9
 2,694
(3)
Eliminations—
 (58) —
 (733) 
Consolidated$6,976
 $—
 $776
 $22,135
 


Nine Months Ended September 30,
For the Nine Months Ended September 30, 2016   2018 2017
Revenues from
External
Customers		 Net
Intersegment
Revenues		 Operating
Income		 Total Assets as of December 31, 2016 
Revenues from
External
Customers
 
Net
Intersegment
Revenues
 
Operating
Income
(Loss)
 
Revenues from
External
Customers
 
Net
Intersegment
Revenues
 Operating
Income
(in millions) (in millions)
Electric Transmission & Distribution$2,331
(1)$—
 $498
 $10,211
 $2,502
(1)$—
 $523
 $2,234
(1)$—
 $511
Natural Gas Distribution1,672
 21
 202
 6,099
 2,032
 26
 166
 1,767
 24
 235
Energy Services1,433
 17
 11
 1,102
 3,008
 57
 (20) 2,964
 34
 58
Midstream Investments (2)
—
 —
 —
 2,505
 —
 —
 —
 —
 
— 

 —
Other Operations11
 —
 5
 2,681
(3)11
 —
 (5) 11
 —
 24
Eliminations—
 (38) —
 (769) —
 (83) —
 —
 (58) —
Consolidated$5,447
 $—
 $716
 $21,829
 $7,553
 $—
 $664
 $6,976
 $—
 $828

(1)CenterPoint Energy’s and Houston Electric’s Electric Transmission & Distribution revenues from major customers are as follows:
 Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016 2018 2017 2018 2017
 (in millions) (in millions)
Affiliates of NRG $221
 $223
 $540
 $527
 $213
 $221
 $543
 $540
Affiliates of Vistra Energy Corp. 72
 71
 172
 166
 79
 72
 192
 172

(2)CenterPoint Energy’s Midstream Investments’ equity earnings, net are as follows:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
  (in millions)
Enable $68
 $73
 $199
 $164
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
  (in millions)
Enable $81
 $68
 $208
 $199


CERC
 Three Months Ended September 30,
 2018 2017
 Revenues from
External
Customers		 Net
Intersegment
Revenues		 Operating
Income
(Loss)		 Revenues from
External
Customers		 Net
Intersegment
Revenues		 Operating
Income
(Loss)
 (in millions)
Natural Gas Distribution$402
 $8
 $3
 $390
 $8
 $25
Energy Services910
 10
 (9) 861
 10
 7
Other Operations—
 —
 (1) —
 —
 (1)
Eliminations—
 (18) —
 —
 (18) —
Consolidated$1,312
 $—
 $(7) $1,251
 $—
 $31
 Nine Months Ended September 30,
 2018 2017
 
Revenues from
External
Customers
 
Net
Intersegment
Revenues
 
Operating
Income
(Loss)
 
Revenues from
External
Customers
 
Net
Intersegment
Revenues
 
Operating
Income
 (Loss)
 (in millions)
Natural Gas Distribution$2,032
 $26
 $166
 $1,767
 $24
 $235
Energy Services3,008
 57
 (20) 2,964
 34
 58
Other Operations—
 —
 —
 —
 —
 (4)
Eliminations—
 (83) —
 —
 (58) —
Consolidated$5,040
 $—
 $146
 $4,731
 $—
 $289

CenterPoint Energy and CERC
 Total Assets 
 September 30, 2018 December 31, 2017 
 
CenterPoint
 Energy
 CERC CenterPoint
Energy		 CERC 
 (in millions) 
Electric Transmission & Distribution$10,436
 $—
 $10,292
 $—
 
Natural Gas Distribution6,557
 6,557
 6,608
 6,608
 
Energy Services1,253
 1,253
 1,521
 1,521
 
Midstream Investments2,457
 —
 2,472
 —
 
Assets of discontinued operations—
 —
(1)—
 2,472
(1)
Other Operations2,206
(2)110
 2,497
(2)70
 
Eliminations(681) (615) (654) (559) 
Consolidated$22,228
 $7,305
 $22,736
 $10,112
 

(3)(1)Included in total assets of Other Operations as ofOn September 30, 2017 and December 31, 2016 are4, 2018, CERC completed the Internal Spin. For further information regarding the Internal Spin, see Note 9.

(2)Includes pension and other postemployment-related regulatory assets of $715$566 million and $759$600 million, respectively.respectively, as of September 30, 2018 and December 31, 2017.


(17) Supplemental Disclosure of Cash Flow Information

The table below provides supplemental disclosure of cash flow information:
 Nine Months Ended September 30,
 2018 2017
 CenterPoint Energy Houston Electric CERC CenterPoint Energy Houston Electric CERC
 (in millions)
Cash Payments/Receipts:           
Interest, net of capitalized interest$301
 $173
 $85
 $306
 $176
 $86
Income taxes, net89
 122
 3
 14
 76
 4
Non-cash transactions:         
  
Accounts payable related to capital expenditures140
 87
 66
 111
 70
 53
Capital distribution associated with the Internal Spin—
 —
 1,460
 —
 —
 —

The table below provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets to the amount reported in the Condensed Statements of Consolidated Cash Flows:
 September 30, 2018 December 31, 2017
 CenterPoint Energy Houston Electric CenterPoint Energy Houston Electric
 (in millions)
Cash and cash equivalents$293
 $279
 $260
 $238
Restricted cash included in Prepaid expenses and other current assets37
 37
 35
 35
Restricted cash included in Other1
 1
 1
 1
Total cash, cash equivalents and restricted cash shown in Condensed Statements of Consolidated Cash Flows$331
 $317
 $296
 $274

CERC does not have restricted cash and therefore was not included in the table above.

(16) Subsequent Events(18) Related Party Transactions(Houston Electric and CERC)

Houston Electric and CERC participate in a 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 the 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 money pool activity:
 September 30, 2018
December 31, 2017
 Houston Electric
CERC
Houston Electric
CERC
 (in millions)
Money pool investments (borrowings) (1)
$(75) $—
 $(60) $(570)
Weighted average interest rate2.45% 2.45% 1.90% 1.90%

(1)Included in Accounts and notes receivable (payable)–affiliated companies in the Condensed Consolidated Balance Sheets.


Houston Electric and CERC affiliate related net interest income (expense) were as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 Houston Electric CERC Houston Electric CERC Houston Electric CERC Houston Electric CERC
     (in millions)    
Interest income (expense) (1)$1
 $(2) $1
 $—
 $1
 $(4) $3
 $—

(1)Interest income is included in Other, net and interest expense is included in Interest and other finance charges on the Condensed Statements of Consolidated Income.

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 negotiated 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 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 Houston Electric and CERC not been affiliates.

Amounts charged for these services were as follows and are included primarily in operation and maintenance expenses:
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
  Houston Electric CERC Houston Electric CERC Houston Electric CERC Houston Electric CERC
  (in millions)
Corporate service charges $47
 $36
 $41
 $30
 $138
 $105
 $127
 $93
Net affiliate service charges (billings) (3) 3
 (1) 1
 (8) 8
 (6) 6

The table below presents transactions among Houston Electric, CERC and their parent, Utility Holding.
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
  Houston Electric CERC Houston Electric CERC Houston Electric CERC Houston Electric CERC
  (in millions)
Cash dividends paid to parent $60
 $75
 $45
 $89
 $123
 $286
 $87
 $337
Cash contribution from parent —
 600
 —
 —
 —
 600
 —
 38
Capital distribution to parent associated with the Internal Spin —
 1,460
 —
 —
 —
 1,460
 —
 —

(19) Equity (CenterPoint Energy)

Dividends Declared

CenterPoint Energy declared dividends for the periods presented in the table below:
  Three Months Ended September 30, Nine Months Ended September 30,
Equity Instrument 2018 2017 
2018 (1)
 2017
  (per share)
Common Stock $0.2775
 $0.2675
 $0.5550
 $0.8025

(1)On December 13, 2017, CenterPoint Energy’s Board of Directors declared a regular quarterly cash dividend of $0.2775 per share of Common Stock, payable on March 8, 2018 to shareholders of record as of the close of business on February 15, 2018.

Series A Preferred Stock

On August 22, 2018, CenterPoint Energy completed the issuance of 800,000 shares of its Series A Preferred Stock, at a price of $1,000 per share, resulting in net proceeds of $790 million after issuance costs. The aggregate liquidation value of the Series A Preferred Stock is $800 million with a per share liquidation value of $1,000.

CenterPoint Energy intends to use the net proceeds from the Series A Preferred Stock offering to fund a portion of the pending Merger and to pay related fees and expenses.

Dividends. The Series A Preferred Stock accrue cumulative dividends, calculated as a percentage of the stated amount per share, at a fixed annual rate of 6.125% per annum to, but excluding, September 1, 2023, and at an annual rate of three-month LIBOR plus a spread of 3.270% thereafter to be paid in cash if, when and as declared. If declared, prior to September 1, 2023, dividends are payable semi-annually in arrears on each March 1 and September 1, beginning on March 1, 2019, and, for the period commencing on September 1, 2023, dividends are payable quarterly in arrears each March 1, June 1, September 1 and December 1, beginning on December 1, 2023. Cumulative dividends accrued during the applicable periods are presented on CenterPoint Energy’s Condensed Statements of Consolidated Income as Series A Preferred Stock dividend requirement.

Optional Redemption. On or after September 1, 2023, CenterPoint Energy may, at its option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $1,000 per share, plus any accumulated and unpaid dividends thereon to, but excluding, the redemption date.

At any time within 120 days after the conclusion of any review or appeal process instituted by CenterPoint Energy, if any, following the occurrence of a ratings event, CenterPoint Energy may, at its option, redeem the Series A Preferred Stock in whole, but not in part, at a redemption price in cash per share equal to $1,020 (102% of the liquidation value of $1,000) plus an amount equal to all accumulated and unpaid dividends thereon to, but excluding, the redemption date, whether or not declared.

Ranking. The Series A Preferred Stock, with respect to anticipated dividends and distributions upon CenterPoint Energy’s liquidation or dissolution, or winding-up of CenterPoint Energy’s affairs, ranks or will rank:

senior to Common Stock and to each other class or series of capital stock established after the initial issue date of the Series A Preferred Stock that is expressly made subordinated to the Series A Preferred Stock;

on a parity with any class or series of capital stock established after the initial issue date of the Series A Preferred Stock that is not expressly made senior or subordinated to the Series A Preferred Stock, including the Series B Preferred Stock;

junior to any class or series of capital stock established after the initial issue date of the Series A Preferred Stock that is expressly made senior to the Series A Preferred Stock;

junior to all existing and future indebtedness (including indebtedness outstanding under CenterPoint Energy’s credit facilities, senior notes and commercial paper) and other liabilities with respect to assets available to satisfy claims against CenterPoint Energy; and

structurally subordinated to any existing and future indebtedness and other liabilities of CenterPoint Energy’s subsidiaries and capital stock of CenterPoint Energy’s subsidiaries held by third parties.

Voting Rights. Holders of the Series A Preferred Stock generally will not have voting rights. Whenever dividends on shares of Series A Preferred Stock have not been declared and paid for the equivalent of three or more semi-annual or six or more quarterly dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the original issue date and ending on, but excluding, March 1, 2019), whether or not consecutive, the holders of such shares of Series A Preferred Stock, voting together as a single class with holders of any and all other series of voting preferred stock (as defined in the Statement of Resolution for the Series A Preferred Stock) then outstanding, will be entitled at CenterPoint Energy’s next annual or special meeting of shareholders to vote for the election of a total of two additional members of CenterPoint Energy’s Board of Directors, subject to certain limitations. This right will terminate if and when all accumulated dividends have been paid in full and, upon such termination, the term of office of each director so elected will terminate at such time and the number of directors on CenterPoint Energy’s Board of Directors will automatically decrease by two, subject to the revesting of such rights in the event of each subsequent nonpayment.


Series B Preferred Stock

On October 25, 2017,1, 2018, CenterPoint Energy completed the issuance of 19,550,000 depositary shares, each representing a 1/20th interest in a share of its Series B Preferred Stock, at a price of $50 per depositary share, resulting in net proceeds of $950 million after issuance costs. The aggregate liquidation value of Series B Preferred Stock is $978 million with a per share liquidation value of $1,000. The amount issued included 2,550,000 depositary shares issued pursuant to the exercise in full of the option granted to the underwriters to purchase additional depositary shares.

CenterPoint Energy intends to use the net proceeds from the offering of depositary shares, each representing a 1/20th interest in a share of Series B Preferred Stock, to fund a portion of the pending Merger and to pay related fees and expenses.

Dividends. Dividends on the Series B Preferred Stock will be payable on a cumulative basis when, as and if declared at an annual rate of 7.00% on the liquidation value of $1,000 per share. CenterPoint Energy may pay declared dividends in cash or, subject to certain limitations, in shares of Common Stock, or in any combination of cash and shares of Common Stock on March 1, June 1, September 1 and December 1 of each year, commencing on December 1, 2018 and ending on, and including, September 1, 2021.

Acquisition Termination Redemption. If the pending Merger has not closed at or prior to close of business on April 21, 2019 or if an acquisition termination event occurs, CenterPoint Energy may, at its option, give notice of an acquisition termination redemption to the holders of the Series B Preferred Stock. If CenterPoint Energy provides such notice, then, on the acquisition termination redemption date, CenterPoint Energy will be required to redeem the Series B Preferred Stock, in whole but not in part, at a redemption amount per share of the Series B Preferred Stock equal to the acquisition termination redemption amount. CenterPoint Energy will pay the acquisition termination redemption amount in cash unless the acquisition termination share price is greater than the initial price, in which case CenterPoint Energy will instead pay the acquisition termination redemption amount by delivering shares of Common Stock and cash; provided, that CenterPoint Energy may elect, subject to certain limitations, to pay cash or deliver shares of Common Stock in lieu of these amounts. If CenterPoint Energy redeems shares of the Series B Preferred Stock held by the depositary, the depositary will redeem, on the same acquisition termination redemption date, the number of the depositary shares representing the shares of the Series B Preferred Stock so redeemed.

Mandatory Conversion. Unless earlier converted or redeemed, each share of the Series B Preferred Stock will automatically convert on the mandatory conversion date, which is expected to be September 1, 2021, into not less than 30.5820 and not more than 36.6980 shares of Common Stock, subject to certain anti-dilution adjustments. Correspondingly, the conversion rate per depositary share will be not less than 1.5291 and not more than 1.8349 shares of Common Stock, subject to certain anti-dilution adjustments. The conversion rate will be determined based on a preceding 20-day volume-weighted-average-price of Common Stock.

The following table illustrates the conversion rate per share of the Series B Preferred Stock, subject to certain anti-dilution adjustments:
Applicable Market Value of the Common StockConversion Rate per Share of Series B Preferred Stock
Greater than $32.6990 (threshold appreciation price)30.5820 shares of Common Stock
Equal to or less than $32.6990 but greater than or equal to $27.2494Between 30.5820 and 36.6980 shares of Common Stock, determined by dividing $1,000 by the applicable market value
Less than $27.2494 (initial price)36.6980 shares of Common Stock

The following table illustrates the conversion rate per depositary share, subject to certain anti-dilution adjustments:
Applicable Market Value of the Common StockConversion Rate per Depository Share
Greater than $32.6990 (threshold appreciation price)1.5291 shares of Common Stock
Equal to or less than $32.6990 but greater than or equal to $27.2494Between 1.5291 and 1.8349 shares of Common Stock, determined by dividing $50 by the applicable market value
Less than $27.2494 (initial price)1.8349 shares of Common Stock

Optional Conversion of the Holder. Other than during a fundamental change conversion period, and unless CenterPoint Energy has redeemed the Series B Preferred Stock, a holder of the Series B Preferred Stock may, at any time prior to September 1, 2021, elect to convert such holder’s shares of the Series B Preferred Stock, in whole or in part, at the minimum conversion rate of 30.5820 shares of Common Stock per share of the Series B Preferred Stock (equivalent to 1.5291 shares of Common Stock per depositary share), subject to certain anti-dilution and other adjustments. Because each depositary share represents a 1/20th fractional interest

in a share of the Series B Preferred Stock, a holder of depositary shares may convert its depositary shares only in lots of 20 depositary shares.

Fundamental Change Conversion. If a fundamental change occurs on or prior to September 1, 2021, holders of the Series B Preferred Stock will have the right to convert their shares of the Series B Preferred Stock, in whole or in part, into shares of Common Stock at the fundamental change conversion rate during the period beginning on, and including, the effective date of such fundamental change and ending on, and including, the date that is 20 calendar days after such effective date (or, if later, the date that is 20 calendar days after holders receive notice of such fundamental change, but in no event later than September 1, 2021). Holders who convert shares of the Series B Preferred Stock during that period will also receive a make-whole dividend amount comprised of a fundamental change dividend make-whole amount, and to the extent there is any, the accumulated dividend amount. Because each depositary share represents a 1/20th fractional interest in a share of the Series B Preferred Stock, a holder of depositary shares may convert its depositary shares upon a fundamental change only in lots of 20 depositary shares.

Ranking. The Series B Preferred Stock, with respect to anticipated dividends and distributions upon CenterPoint Energy’s boardliquidation or dissolution, or winding-up of CenterPoint Energy’s affairs, ranks or will rank:

senior to Common Stock and to each other class or series of capital stock established after the initial issue date of the Series B Preferred Stock that is expressly made subordinated to the Series B Preferred Stock;

on a parity with the Series A Preferred Stock and any class or series of capital stock established after the initial issue date that is not expressly made senior or subordinated to the Series B Preferred Stock;

junior to any class or series of capital stock established after the initial issue date that is expressly made senior to the Series B Preferred Stock;

junior to all existing and future indebtedness (including indebtedness outstanding under CenterPoint Energy’s credit facilities, senior notes and commercial paper) and other liabilities with respect to assets available to satisfy claims against CenterPoint Energy; and

structurally subordinated to any existing and future indebtedness and other liabilities of CenterPoint Energy’s subsidiaries and capital stock of CenterPoint Energy’s subsidiaries held by third parties.

Voting Rights. Holders of the Series B Preferred Stock generally will not have voting rights. Whenever dividends on shares of the Series B Preferred Stock have not been declared and paid for six or more dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the initial issue date and ending on, but excluding, December 1, 2018), whether or not consecutive, the holders of such shares of Series B Preferred Stock, voting together as a single class with holders of any and all other series of voting preferred stock then outstanding (as defined in the Statement of Resolution for the Series B Preferred Stock), will be entitled at CenterPoint Energy’s next annual or special meeting of shareholders to vote for the election of a total of two additional members of CenterPoint Energy’s Board of Directors, subject to certain limitations. This right will terminate if and when all accumulated and unpaid dividends have been paid in full and, upon such termination, the term of office of each director so elected will terminate at such time and the number of directors on CenterPoint Energy’s Board of Directors will automatically decrease by two, subject to the revesting of such rights in the event of each subsequent nonpayment.

Common Stock

On October 1, 2018, CenterPoint Energy completed the issuance of approximately 69,633,027 shares of Common Stock at a price of $27.25 per share, for net proceeds of $1,844 million after issuance costs. The amount issued included 9,082,568 shares of Common Stock issued pursuant to the exercise in full of the option granted to the underwriters to purchase additional shares of Common Stock.

CenterPoint Energy intends to use the net proceeds from the Common Stock offering to fund a portion of the pending Merger and to pay related fees and expenses.

(20) Subsequent Events (CenterPoint Energy)

CenterPoint Energy Dividend Declarations

On October 23, 2018, CenterPoint Energy’s Board of Directors declared a regular quarterly cash dividend of $0.2675$0.2775 per share of common stockCommon Stock payable on December 8, 2017,13, 2018 to shareholders of record as of the close of business on November 16, 2017.15, 2018.

On October 31, 2017,23, 2018, CenterPoint Energy’s Board of Directors declared a regular quarterly cash dividend of $11.6667 per share of the newly issued Series B Preferred Stock ($0.5833 per depository share) payable on December 1, 2018 to shareholders of record as of the close of business on November 15, 2018. For more information about the Series B Preferred Stock, see Note 19.

Enable Distributions Declarations

On November 6, 2018, Enable declared a quarterly cash distribution of $0.318 per unit on all of its outstanding common units for the quarter ended September 30, 2017.2018. Accordingly, CERC Corp.CNP Midstream expects to receive a cash distribution of approximately $74 million from Enable in the fourth quarter of 20172018 to be made with respect to CERC Corp.’sCNP Midstream’s investment in common units of Enable for the third quarter of 2017.Enable.

On October 31, 2017,November 6, 2018, Enable declared a quarterly cash distribution of $0.625 per Series A Preferred Unit for the quarter ended September 30, 2017.2018. Accordingly, CenterPoint Energy expects to receive a cash distribution of approximately $9 million from Enable in the fourth quarter of 20172018 to be made with respect to CenterPoint Energy’s investment in Enable Series A Preferred Units of Enable for the third quarter of 2017.Units.

Merger Financing Transactions

On October 1, 2018, CenterPoint Energy completed concurrent equity offerings of depositary shares, each representing a 1/20th interest in a share of Series B Preferred Stock, and Common Stock. For more information about the concurrent equity offerings, see Note 19.

On October 5, 2018, CenterPoint Energy issued $1.5 billion aggregate principal amount of senior notes. For more information about the senior notes offering, see Note 12.

Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.

The following combined discussion and analysis should be read in combination with ourthe Interim Condensed Financial Statements contained in this Form 10-Q and our 2016each Registrants’ 2017 Form 10-K. When discussing CenterPoint Energy’s consolidated financial information, it includes the results of Houston Electric and 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 Form 10-Q, the terms “our,” “we” and “us” are used as abbreviated references to CenterPoint Energy, Inc. together with its consolidated subsidiaries.

RECENT EVENTS

Hurricane Harvey.Pending Merger with Vectren. Houston Electric’s electric delivery systemOn April 21, 2018, CenterPoint Energy entered into the Merger Agreement. Under the terms of the Merger Agreement, CenterPoint Energy will acquire Vectren for approximately $6 billion in cash. For more information about the pending Merger, see Note 3 to the Interim Condensed Financial Statements.

Series A Preferred Stock Offering. On August 22, 2018, we completed an offering of our Series A Preferred Stock. For more information about the offering, see Note 19 to the Interim Condensed Financial Statements.

Enable Midstream Spin. On September 4, 2018, CERC completed the Internal Spin of its equity investment in Enable and CERC Corp.’s NGD suffered damage as a result of Hurricane Harvey, which struck the Texas coast on Friday, August 25, 2017.Enable GP. For further information regarding the impact of Hurricane Harvey,Internal Spin, see Note 9 to the Interim Condensed Financial Statements.

Concurrent Equity Offerings. On October 1, 2018, we completed concurrent equity offerings of depositary shares, each representing a 1/20th interest in a share of Series B Preferred Stock, and Common Stock. For more information about the concurrent equity offerings, see Note 19 to the Interim Condensed Financial Statements.

Senior Notes Offering. On October 5, 2018, we issued $1.5 billion aggregate principal amount of senior notes. For more information about the senior notes offering, see Note 12 to the Interim Condensed Financial Statements.


Credit Facility. On October 5, 2018, we terminated all remaining commitments by lenders to provide the Bridge Facility, which resulted in increased aggregate commitments under our revolving credit facility. For further information, see Note 12 to the Interim Condensed Financial Statements.

Regulatory Proceedings. For details related to our pending and completed regulatory proceedings and orders related to the TCJA to date in 2017,2018, see “—Liquidity and Capital Resources —Regulatory Matters” below.

Debt Issuances. In August 2017, CenterPoint Energy issued $500 million aggregate principal amount of unsecured senior notes and CERC Corp. 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 CenterPoint Energy’s 2017 Form 10-K and “Risk Factors” in Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q and this Form 10-Q.
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in millions, except per share amounts)(in millions, except per share amounts)
Revenues$2,098
 $1,889
 $6,976
 $5,447
$2,212
 $2,098
 $7,553
 $6,976
Expenses1,819
 1,605
 6,200
 4,731
1,986
 1,801
 6,889
 6,148
Operating Income279
 284
 776
 716
226
 297
 664
 828
Interest and Other Finance Charges(80) (83) (235) (256)(90) (80) (259) (235)
Interest on Securitization Bonds(18) (23) (58) (70)(16) (18) (46) (58)
Equity in Earnings of Unconsolidated Affiliate, net68
 73
 199
 164
81
 68
 208
 199
Other Income, net18
 25
 95
 (30)
Other Income (Expense), net8
 —
 (234) 43
Income Before Income Taxes267
 276
 777
 524
209
 267
 333
 777
Income Tax Expense98
 97
 281
 193
51
 98
 85
 281
Net Income$169
 $179
 $496
 $331
158
 169
 248
 496
       
Series A Preferred Stock dividend requirement5
 —
 5
 —
Income Available to Common Shareholders$153
 $169
 $243
 $496
Basic Earnings Per Share$0.39
 $0.42
 $1.15
 $0.77
$0.35
 $0.39
 $0.56
 $1.15
       
Diluted Earnings Per Share$0.39
 $0.41
 $1.14
 $0.76
$0.35
 $0.39
 $0.56
 $1.14

Three months ended September 30, 20172018 compared to three months ended September 30, 20162017

We reported net income available to common shareholders of $169$153 million ($0.390.35 per diluted share) for the three months ended September 30, 20172018 compared to net income of $179$169 million ($0.410.39 per diluted share) for the three months ended September 30, 2016.same period in 2017.

The decrease of $16 million in net income of $10 millionavailable to common shareholders was primarily due to the following key factors:

a $40 million decrease in the gain on marketable securities included in Other Income, net shown above;

a $5$71 million decrease in operating income discussed below by segment;segment in Results of Operations by Business Segment;

a $5$10 million decreaseincrease in equity earnings from our investment in Enable, discussed further in Note 8interest expense primarily due to our Interim Condensed Financial Statements; andthe amortization of Bridge Facility fees;

a $3an $8 million decreaseincrease in miscellaneous other non-operating income included in Other Income, net shown above.


These decreases in net income were partially offset by the following:

a $36 million decrease in the losslosses on the underlying value of the indexed debt securities related to the ZENS included in Other Income (Expense), net shown above; and

a $5 million increase in preferred dividend requirements on our Series A Preferred Stock.

These decreases in income available to common shareholders were partially offset by the following:

a $47 million decrease in income tax expense due to lower net income and a reduction in the corporate income tax rate resulting from the TCJA;

a $13 million increase in equity earnings from our investment in Enable, discussed further in Note 9 to the Interim Condensed Financial Statements;

a $9 million decrease in non-service cost components of net periodic pension and post-retirement costs included in Other Income (Expense), net shown above;

a $5$6 million increase in gains on marketable securities included in Other Income (Expense), net shown above;

a $2 million decrease in interest expense related to lower outstanding balances of our Securitization Bonds; and

a $3$1 million decreaseincrease in interest expense due to lower weighted average interest rates on outstanding debt.miscellaneous other non-operating income included in Other Income (Expense), net shown above.

Nine months ended September 30, 20172018 compared to nine months ended September 30, 20162017

We reported net income available to common shareholders of $496$243 million ($1.140.56 per diluted share) for the nine months ended September 30, 20172018 compared to net income of $331$496 million ($0.761.14 per diluted share) for the nine months ended September 30, 2016.2017.

The increasedecrease of $253 million in net income of $165 millionavailable to common shareholders was primarily due to the following key factors:

a $199$257 million decreaseincrease in the losslosses on indexed debt securities related to the ZENS included in Other Income (Expense), net shown above, resulting from decreaseda loss of $11 million from Meredith’s acquisition of Time in March 2018, a loss of $242 million from AT&T’s acquisition of TW in June 2018 and increased losses of $82$4 million in the underlying value of the indexed debt securities and a loss of $117 million from the Charter merger in 2016;securities;

a $60$164 million increasedecrease in operating income discussed below by segment;segment in Results of Operations by Business Segment;

a $35$38 million increasedecrease in equity earnings from our investmentgains on marketable securities included in Enable, discussed further in Note 8 to our Interim Condensed Financial Statements;Other Income (Expense), net shown above;

a $21$24 million decreaseincrease in interest expense due to higher outstanding other long-term debt and the amortization of Bridge Facility fees of $17 million; and

a $5 million increase in preferred dividend requirements on our Series A Preferred Stock.

These decreases in income available to common shareholders were partially offset by the following:

a $196 million decrease in income tax expense due to lower weighted average interest rates on outstanding debt;net income and a reduction in the corporate income tax rate resulting from the TCJA;

a $14 million increasedecrease in cash distributions on Series A Preferred Unitsnon-service cost components of net periodic pension and post-retirement costs included in Other Income (Expense), net shown above; and

a $12 million decrease in interest expense related to lower outstanding balances of our Securitization Bonds.Bonds;

These increases in net income were partially offset by the following:

an $88a $9 million increase in income tax expense dueequity earnings from our investment in Enable, discussed further in Note 9 to higher net income;

an $83 million decrease in the gain on marketable securities included in Other Income, net shown above;Interim Condensed Financial Statements; and

a $5$4 million decreaseincrease in miscellaneous other non-operating income included in Other Income (Expense), net shown above.

Income Tax Expense

Our effective tax rate reported for the three months ended September 30, 20172018 was 37%24% compared to 35%37% for the same period in 2016. The higher effective tax rate for the three months ended September 30, 2017 was primarily due to the tax effects of receiving less nontaxable income in the period.2017. The effective tax rate reported for the nine months ended September 30, 20172018 was 36%26% compared to 37%36% for the same period in 2016.2017. The lower effective tax rates for the three and nine months ended September 30, 2018 were primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate also decreased by 5% and 4%, respectively, for the three and nine months ended September 30, 2018 due to the amortization of EDIT. These decreases were partially offset by an increase to the effective tax rate of 5% for the three-month period ended September 30, 2018 as a result of the establishment of a state valuation allowance on certain net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. The effective tax rate was increased by 7% for the nine-month period ended September 30, 2018 due to state law changes and the state valuation allowance. See Note 9 to the Interim Condensed Financial Statements for further discussion on the Internal Spin. We expect our annual effective tax rate for the fiscal year ending December 31, 20172018 to be approximately 36%24%.


HOUSTON ELECTRIC’S MANAGEMENT’S NARRATIVE ANALYSIS
OF CONSOLIDATED RESULTS OF OPERATIONS

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” in Item 1A of Part I of Houston Electric’s 2017 Form 10-K.
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 (in millions, except throughput and customer data)
Revenues$897

$843

$2,506

$2,233
Expenses670

589

1,979

1,723
Operating income227

254

527

510
Interest and other finance charges(32) (32) (101) (97)
Interest on Securitization Bonds(16) (18) (46) (58)
Other expense, net—
 (3) (6) (9)
Income before income taxes179

201

374

346
Income tax expense36
 71
 78
 123
Net income$143

$130

$296

$223

Three months ended September 30, 2018 compared to three months ended September 30, 2017

Houston Electric reported net income of $143 million for the three months ended September 30, 2018 compared to net income of $130 million for the same period in 2017.  

The increase of $13 million in net income was primarily due to a $35 million decrease in income tax expense due to lower net income and a reduction in the corporate income tax rate resulting from the TCJA.

This increase in net income was partially offset by a $22 million decrease in TDU operating income as discussed below in Results of Operations by Business Segment.

Nine months ended September 30, 2018 compared to nine months ended September 30, 2017

Houston Electric reported net income of $296 million for the nine months ended September 30, 2018 compared to net income of $223 million for the nine months ended September 30, 2017.  

The increase of $73 million in net income was primarily due to the following key factors:

a $45 million decrease in income tax expense due to lower net income and a reduction in the corporate income tax rate resulting from the TCJA; and

a $32 million increase in TDU operating income resulting from a $27 million increase discussed below in Results of Operations by Business Segment and increased usage of $5 million, primarily due to a return to more normal weather, which was not offset by the weather hedge loss recorded on CenterPoint Energy.

These increases in net income were partially offset by a $4 million increase in interest expense due to higher outstanding other long-term debt.

Income Tax Expense

Houston Electric’s effective tax rate reported for the three months ended September 30, 2018 was 20% compared to 35% for the same period in 2017. The effective tax rate reported for the nine months ended September 30, 2018 was 21% compared to 36% for the same period in 2017. The lower effective tax rate for the three and nine months ended September 30, 2018 was primarily

due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate also decreased by 2% for both periods due to the amortization of EDIT.

CERC’S MANAGEMENT’S NARRATIVE ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS

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. 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 CERC charges, competition in CERC’s various business operations, the effectiveness of CERC’s risk management activities, debt service costs and income tax expense. For more information regarding factors that may affect the future results of operations for CERC’s business, please read “Risk Factors” in Item 1A of Part I of CERC’s 2017 Form 10-K.
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 (in millions)
Revenues$1,312
 $1,251
 $5,040
 $4,731
Expenses1,319
 1,220
 4,894
 4,442
Operating Income (Loss)(7) 31
 146
 289
Interest and other finance charges(30) (32) (92) (92)
Other expense, net—
 (4) (5) (13)
Income (loss) from continuing operations before income taxes(37) (5) 49
 184
Income tax expense (benefit)(2) (1) 14
 69
Income (loss) from continuing operations(35) (4) 35
 115
Income from discontinued operations, net of tax44
 42
 140
 124
Net Income$9
 $38
 $175
 $239

Three months ended September 30, 2018 compared to three months ended September 30, 2017

CERC reported net income of $9 million for the three months ended September 30, 2018 compared to net income of $38 million for the same period in 2017.  

The decrease of $29 million in net income was primarily due to a $38 million decrease in operating income discussed below by segment in Results of Operations by Business Segment.

The decrease to net income was partially offset by the following:

a $4 million increase in miscellaneous other non-operating income included in Other expense, net shown above, primarily due to lower non-service cost components of net periodic postretirement costs;

a $2 million decrease in interest expense due to lower outstanding long-term debt;

a $2 million increase in income from discontinued operations, net of tax, discussed further in Notes 9 and 13 to the Interim Condensed Financial Statements; and

a $1 million decrease in income tax expense due to lower income from continuing operations and a reduction in the corporate income tax rate resulting from the TCJA, partially offset by an increase in the state tax valuation allowance.

Nine months ended September 30, 2018 compared to nine months ended September 30, 2017

CERC reported net income of $175 million for the nine months ended September 30, 2018 compared to net income of $239 million for the nine months ended September 30, 2017.  

The decrease of $64 million in net income was primarily due to a $143 million decrease in operating income discussed below by segment in Results of Operations by Business Segment.


The decrease to net income was partially offset by the following:

a $55 million decrease in income tax expense due to lower income from continuing operations and a reduction in the corporate income tax rate resulting from the TCJA, partially offset by an increase in the state tax valuation allowance;

a $16 million increase in income from discontinued operations, net of tax, discussed further in Notes 9 and 13 to the Interim Condensed Financial Statements; and

an $8 million increase in miscellaneous other non-operating income included in Other expense, net shown above, primarily due to lower non-service cost components of net periodic postretirement costs.

Income Tax Expense - Continuing Operations

CERC’s effective tax rate on the loss from continuing operations for the three months ended September 30, 2018 was 5% compared to 20% for the same period in 2017. The lower effective tax rate on the loss from continuing operations for the three months ended September 30, 2018 compared to the same period in 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate decreased by 18% due to state taxes as a result of the establishment of a state valuation allowance on certain net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. These decreases were partially offset by an increase to the effective tax rate of 15% due to the amortization of EDIT. See Note 9 to the Interim Condensed Financial Statements for further discussion on the Internal Spin.

CERC’s effective tax rate reported on income from continuing operations for the nine months ended September 30, 2018 was 29% compared to 38% for the same period in 2017. The lower effective tax rate on income from continuing operations for the nine months ended September 30, 2018 compared to the same period in 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate also decreased by 20% due to the amortization of EDIT. These decreases were partially offset by an increase to the effective tax rate of 22% as a result of an increase in state tax rates and the establishment of a state valuation allowance on certain net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. See Note 9 to the Interim Condensed Financial Statements for further discussion on the Internal Spin.

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.segment.  Included in revenues are intersegment sales. We accountsales, which are accounted for intersegment sales as if the sales were to third parties at current market prices. See Note 16 to the Interim Condensed Financial Statements for details of business segments by Registrant.
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in millions)(in millions)
Electric Transmission & Distribution$247
 $257
 $489
 $498
$227
 $254
 $523
 $511
Natural Gas Distribution19
 22
 220
 202
3
 25
 166
 235
Energy Services7
 5
 58
 11
(9) 7
 (20) 58
Other Operations6
 —
 9
 5
5
 11
 (5) 24
Total Consolidated Operating Income$279
 $284
 $776
 $716
$226
 $297
 $664
 $828


Electric Transmission & Distribution

For information regarding factors that may affect the future results of operations of ourthe Electric Transmission & Distribution business segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Electric Transmission & Distribution Business” and “— Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP” in Item 1A of Part I of our 2016CenterPoint Energy’s 2017 Form 10-K.

The following table provides summary data of our Electric Transmission & Distribution business segment for the three and nine months ended September 30, 2017 and 2016:segment:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in millions, except throughput and customer data)(in millions, except throughput and customer data)
Revenues:              
TDU$729
 $725
 $1,944
 $1,881
$735
 $729
 $2,009
 $1,944
Bond Companies114
 183
 290
 450
162
 114
 493
 290
Total revenues843
 908
 2,234
 2,331
897
 843
 2,502
 2,234
Expenses:              
Operation and maintenance, excluding Bond Companies344
 336
 1,040
 995
367
 337
 1,056
 1,018
Depreciation and amortization, excluding Bond Companies97
 96
 296
 285
95
 97
 293
 296
Taxes other than income taxes59
 59
 177
 173
59
 59
 180
 177
Bond Companies96
 160
 232
 380
149
 96
 450
 232
Total expenses596
 651
 1,745
 1,833
670
 589
 1,979
 1,723
Operating Income$247
 $257
 $489
 $498
$227
 $254
 $523
 $511
Operating Income:              
TDU$229
 $234
 $431
 $428
$214
 $236
 $480
 $453
Bond Companies (1)
18
 23
 58
 70
13
 18
 43
 58
Total segment operating income$247
 $257
 $489
 $498
$227
 $254
 $523
 $511
Throughput (in GWh):              
Residential10,419
 10,776
 23,512
 23,427
10,555
 10,419
 24,486
 23,512
Total26,453
 26,518
 67,956
 66,839
27,015
 26,453
 70,347
 67,956
Number of metered customers at end of period:              
Residential2,156,624
 2,116,312
 2,156,624
 2,116,312
2,188,211
 2,156,624
 2,188,211
 2,156,624
Total2,435,558
 2,389,014
 2,435,558
 2,389,014
2,475,018
 2,435,558
 2,475,018
 2,435,558
  
(1)RepresentsTogether with $3 million of interest income for each of the three and nine months ended September 30, 2018, represents the amount necessary to pay interest on the Securitization Bonds.


Three months ended September 30, 20172018 compared to three months ended September 30, 20162017

Our Electric Transmission & Distribution business segment reported operating income of $247$227 million for the three months ended September 30, 2017,2018, consisting of $229$214 million from the TDU and $18$13 million related to the Bond Companies. For the three months ended September 30, 2016,2017, operating income totaled $257$254 million, consisting of $234$236 million from the TDU and $23$18 million related to the Bond Companies.

TDU operating income decreased $5$22 million, primarily due to the following key factors:

lower usage of $12 million, largely due to a return to more normal weather in 2017;

lower equity return of $9 million, primarily related to the annual true-up of transition charges correcting for over-collections that occurred during 2016; and

lower miscellaneous revenues, including right-of-way, of $7 million.

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

rate increases of $12 million related to distribution capital investments;
lowerincreased operation and maintenance expenses, excluding transmission costs billed by transmission providers, of $4 million; and

customer growth of $9 million from the addition of over 46,000 new customers.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Our Electric Transmission & Distribution business segment reported operating income of $489 million for the nine months ended September 30, 2017, consisting of $431 million from the TDU and $58 million related to the Bond Companies. For the nine months ended September 30, 2016, operating income totaled $498 million, consisting of $428 million from the TDU and $70 million related to the Bond Companies.

TDU operating income increased $3$38 million primarily due to the following key factors:following:

rate increases of $39 million related to distribution capital investments; and
◦contract services of $10 million, largely due to increased vegetation management and preventative maintenance resiliency spend;

customer growth of $26 million from the addition of over 46,000 new customers.
◦support services of $9 million, primarily related to technology projects;

◦other miscellaneous operation and maintenance expenses of $9 million;
These increases to operating income were partially offset by the following:
◦labor and benefits costs of $6 million; and

◦damage claims from third parties of $4 million;

lower equity returnrevenues of $22 million primarily relateddue to the annual true-uprecording of transition charges correcting for over-collectionsa regulatory liability and a corresponding decrease to revenue of $6 million reflecting the difference in revenues collected under existing customer rates and the revenues that occurred during 2016;would have been collected had existing rates been set using the lower corporate tax rate from the TCJA and lower revenues of $16 million due to lower transmission and distribution rate filings as a result of the TCJA; and

higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $14 million;$5 million.

lower usage of $14 million;

lower miscellaneous revenues, including right-of-way, of $9 million;These decreases to operating income were partially offset by the following:

higher operationtransmission-related revenues of $14 million, exclusive of the TCJA impact discussed above, and maintenance expenses of $2 million; and

increasedlower transmission costs billed by transmission providers of $47$8 million;

customer growth of $9 million whichfrom the addition of over 39,000 customers;

rate increases of $8 million related to distribution capital investments, exclusive of the TCJA impact discussed above; and

higher equity return of $4 million, primarily related to the annual true-up of transition charges correcting for under-collections that occurred during the preceding 12 months.

Lower depreciation and amortization expenses related to AMS of $7 million were offset by a corresponding decrease in related revenues.

Nine months ended September 30, 2018 compared to nine months ended September 30, 2017

Our Electric Transmission & Distribution business segment reported operating income of $523 million for the nine months ended September 30, 2018, consisting of $480 million from the TDU and $43 million related to the Bond Companies. For the nine months ended September 30, 2017, operating income totaled $511 million, consisting of $453 million from the TDU and $58 million related to the Bond Companies.

TDU operating income increased $27 million, primarily due to the following key factors:

higher equity return of $33 million, primarily related to the annual true-up of transition charges correcting for under-collections that occurred during the preceding 12 months;

rate increases of $29 million related to distribution capital investments, exclusive of the TCJA impact discussed below;

higher transmission-related revenues of $28 million, exclusive of the TCJA impact discussed below, and lower transmission costs billed by transmission providers of $22 million;

customer growth of $23 million from the addition of over 39,000 customers;

higher usage of $12 million, primarily due to a return to more normal weather; and

increased miscellaneous revenues, including right-of-way, of $5 million.

These increases to operating income were partially offset by higher transmission-relatedthe following:

increased operation and maintenance expenses, excluding transmission costs billed by transmission providers, of $60 million primarily due to the following:

◦support services of $17 million, primarily related to technology projects;


◦
other miscellaneous operation and maintenance expenses of $14 million;

◦contract services of $15 million, largely due to increase in vegetation management and preventative maintenance resiliency spend;

◦labor and benefits costs of $10 million; and

◦damage claims from third parties of $4 million;

lower revenues of $46$53 million due to the recording of a regulatory liability and a corresponding decrease to revenue of $30 million reflecting the difference in revenues collected under existing customer rates and the revenues that would have been collected had existing rates been set using the lower corporate tax rate from the TCJA and lower revenues of $23 million due to lower transmission and distribution rate filings as a result of the TCJA; and

higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $11 million.


Lower depreciation and amortization expenses related to AMS of $11 million were offset by a corresponding decrease in related revenues.

Natural Gas Distribution

For information regarding factors that may affect the future results of operations of ourthe 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” and “— Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP” in Item 1A of Part I of our 2016CenterPoint Energy’s 2017 Form 10-K.

The following table provides summary data of our Natural Gas Distribution business segment for the three and nine months ended September 30, 2017 and 2016:segment:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in millions, except throughput and customer data)(in millions, except throughput and customer data)
Revenues$398
 $377
 $1,791
 $1,693
$410
 $398
 $2,058
 $1,791
Expenses:              
Natural gas117
 104
 742
 679
120
 117
 972
 742
Operation and maintenance163
 159
 531
 526
183
 157
 592
 516
Depreciation and amortization66
 61
 194
 180
73
 66
 210
 194
Taxes other than income taxes33
 31
 104
 106
31
 33
 118
 104
Total expenses379
 355
 1,571
 1,491
407
 373
 1,892
 1,556
Operating Income$19
 $22
 $220
 $202
$3
 $25
 $166
 $235
Throughput (in Bcf):              
Residential13
 12
 94
 105
13
 13
 123
 94
Commercial and industrial50
 51
 189
 193
53
 50
 208
 189
Total Throughput63
 63
 283
 298
66
 63
 331
 283
Number of customers at end of period:              
Residential3,179,284
 3,143,357
 3,179,284
 3,143,357
3,205,916
 3,179,284
 3,205,916
 3,179,284
Commercial and industrial253,041
 251,043
 253,041
 251,043
255,244
 253,041
 255,244
 253,041
Total3,432,325
 3,394,400
 3,432,325
 3,394,400
3,461,160
 3,432,325
 3,461,160
 3,432,325

Three months ended September 30, 20172018 compared to three months ended September 30, 20162017

Our Natural Gas Distribution business segment reported operating income of $19$3 million for the three months ended September 30, 20172018 compared to $22$25 million for the three months ended September 30, 2016.2017.


Operating income decreased $3$22 million primarily 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.$25 million, primarily consisting of:

◦support services expense of $7 million, primarily related to technology projects;

◦contracts and services, materials and supplies and damage claims from third parties of $6 million;

◦labor and benefits costs of $6 million; and

◦
other miscellaneous operation and maintenance expenses of $6 million;

increased depreciation and amortization expenses of $7 million, due to ongoing additions to plant-in-service; and

lower revenue of $6 million related to the lower corporate tax rate from the TCJA.

These decreases were partially offset by the following:

a $6 million increase from weather and usage, driven by the timing of the decoupling mechanism in Minnesota;

a $5 million increase in rate relief, increased $5 million, primarily fromin the Texas, Arkansas, Mississippi and Minnesota jurisdictions, exclusive of $2 million, Arkansas rate case filing of $1 million and Mississippi RRA of $1 million;the TCJA impact discussed above; and

a $2 million increase associated with customer growth of $2 million associated withfrom the addition of approximately 38,000 newalmost 29,000 customers.

Increased operation and maintenance expenses related to energy efficiency programs of $1 million and increased gross receipts taxes of $1 million were offset by corresponding increases in the related revenues.


Nine months ended September 30, 20172018 compared to nine months ended September 30, 20162017

Our Natural Gas Distribution business segment reported operating income of $220$166 million for the nine months ended September 30, 20172018 compared to $202$235 million for the nine months ended September 30, 2016.2017.

Operating income increased $18decreased $69 million as a result of the following key factors:

rate increaseshigher operation and maintenance expenses of $25$35 million, primarily from Texas jurisdictions of $12 million, Arkansas rate case filing of $10 million and Mississippi RRA of $3 million;consisting of:

◦contracts and services, materials and supplies, bad debt and damage claims from third parties of $19 million;

◦support services expenses of $12 million, primarily related to technology projects; and

◦other miscellaneous operation and maintenance expenses of $10 million;

◦which decreases were partially offset by a timing-related adjustment associated with the Texas Gulf rate order of $6 million;

higher labor and benefits were favorable by $11costs of $28 million, resulting primarily from the recording of a regulatory assetassets (and a corresponding reduction in expense) to recover $16 million of prior postretirementpost-retirement expenses in future rates established in the Texas Gulf rate order; andorder in 2017;

customer growthlower revenue of $3$26 million, associated with the additionrecording of approximately 38,000 new customers.a regulatory liability and a corresponding decrease to revenue in certain jurisdictions of $15 million reflecting the difference in revenues collected under existing customer rates and the revenues that would have been collected had existing rates been set using the lower corporate tax rate from the TCJA and lower filing amounts in Minnesota and south Texas of $11 million associated with the lower corporate tax rate as a result of the TCJA;

increased depreciation and amortization expense of $16 million, primarily due to ongoing additions to plant-in-service; and

higher other taxes of $9 million, primarily due to the 2017 Minnesota property tax refund.

These increasesdecreases were partially offset by the following:

increased depreciationrate increases of $35 million, primarily in the Texas, Minnesota and amortization expense, primarily due to ongoing additions to plant-in-service, and other taxesArkansas jurisdictions, exclusive of $10 million;the TCJA impact discussed above;

higher operation and maintenance expensesan increase in non-volumetric revenues of $9 million partially resulting from an adjustment associated with the Texas Gulf rate order of $4 million, which is timing related;$8 million; and

lower usagea $6 million increase associated with customer growth from the addition of $7 million primarily due to milder weather effects, partially mitigated by decoupling and weather normalization adjustments.almost 29,000 customers.

Increased operation and maintenance expenses related to energy efficiency programs of $7$13 million and increased gross receipts taxes of $2$6 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 ourthe 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 2016CenterPoint Energy’s 2017 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:segment:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in millions, except throughput and customer data)(in millions, except throughput and customer data)
Revenues$871
 $614
 $2,998
 $1,450
$920
 $871
 $3,065
 $2,998
Expenses:              
Natural gas839
 591
 2,865
 1,389
897
 839
 2,998
 2,865
Operation and maintenance22
 16
 65
 43
28
 22
 74
 65
Depreciation and amortization3
 1
 9
 5
4
 3
 12
 9
Taxes other than income taxes—
 1
 1
 2
—
 —
 1
 1
Total expenses864
 609
 2,940
 1,439
929
 864
 3,085
 2,940
Operating Income$7
 $5
 $58
 $11
Operating Income (Loss)$(9) $7
 $(20) $58
              
Timing impacts related to mark-to-market gain (loss) (1)
$2
 $(2) $23
 $(18)$1
 $2
 $(71) $23
       
Throughput (in Bcf)272
 200
 864
 570
307
 272
 993
 864
       
Number of customers at end of period (2)
30,817
 31,669
 30,817
 31,669
Approximate number of customers at end of period (2)
30,000
 31,000
 30,000
 31,000

(1)Includes the change in unrealized mark-to-market value and the impact from derivative assets and liabilities acquired through the purchase of Continuum and AEM.

(2)Does not include approximately 66,10067,000 and 66,000 natural gas customers as of September 30, 2018 and 2017, respectively, that are under residential and small commercial choice programs invoiced by their host utility.

Three months ended September 30, 20172018 compared to three months ended September 30, 20162017

Our Energy Services business segment reported an operating loss of $9 million for the three months ended September 30, 2018 compared to operating income of $7 million for the three months ended September 30, 2017 compared2017.

Operating income decreased $16 million as a result of the following key factors:

a $9 million decrease in margin due to $5reduced opportunities to optimize natural gas supply costs and timing impacts related to natural gas storage activity, which offset favorable margins from incremental sales volumes.  Lower storage balances resulting from first quarter storage activity reduced opportunities to optimize natural gas supply costs in the third quarter;


a $6 million for the three months ended September 30, 2016. The increase in operating income of $2 million wasoperation and maintenance expenses, primarily due to higher legal, technology and support services expenses; and

a $4$1 million increasedecrease 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 related to the acquisition and integration of AEM.

Nine months ended September 30, 20172018 compared to nine months ended September 30, 20162017

Our Energy Services business segment reported an operating incomeloss of $58$20 million for the nine months ended September 30, 20172018 compared to $11operating income of $58 million for the nine months ended September 30, 2016.  The increase in operating2017. 

Operating income decreased $78 million as a result of $47the following key factors:

a $94 million was primarily due to a $41 million increasedecrease from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. Operating incomemargins; and

a $9 million increase in operation and maintenance expenses, attributable to increased technology expenses, higher contract and services expense related to pipeline integrity testing, higher support services and legal expenses.

These decreases were partially offset by a $25 million increase in margin due to increased opportunities to optimize natural gas supply costs through storage and transportation capacity, primarily in the first nine monthsquarter of 2017 also included $3 million of expenses related2018, and incremental volumes from customers. Realized commercial opportunities attributable to the acquisitionContinuum and integrationAEM acquisitions and colder than normal weather in several regions of AEM. The remaining increasethe United States, primarily in operating income was primarily due to the increased throughput related to the acquisitionfirst quarter of AEM in 2017.

2018, drove incremental sales volumes.

Midstream Investments (CenterPoint Energy)
 
For information regarding factors that may affect the future results of operations of ourthe 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 2016CenterPoint Energy’s 2017 Form 10-K.

The following table provides pre-tax equity income of ourthe Midstream Investments business segment for the three and nine months ended September 30, 2017 and 2016:segment:
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
  (in millions)
Enable $68
 $73
 $199
 $164
  Three Months Ended September 30, Nine Months Ended September 30,
  2018 2017 2018 2017
  (in millions)
Equity earnings from Enable, net $81
 $68
 $208
 $199
Other Operations

The following table shows the operating income (loss) of ourCenterPoint Energy’s Other Operations business segment:
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
 (in millions)
Revenues$3
 $4
 $11
 $11
Expenses(2) (7) 16
 (13)
Operating Income (Loss)$5
 $11
 $(5) $24

Three months ended September 30, 2018 compared to three months ended September 30, 2017

Our Other Operations business segment reported operating income of $5 million for the three andmonths ended September 30, 2018 compared to operating income of $11 million for the three months ended September 30, 2017. Operating income decreased $6 million, primarily due to costs related to the Merger.

Nine months ended September 30, 2018 compared to nine months ended September 30, 2017 and 2016:

Our Other Operations business segment reported an operating loss of $5 million for the nine months ended September 30, 2018 compared to operating income of $24 million for the nine months ended September 30, 2017. Operating income decreased $29 million, primarily due to costs related to the Merger.

The following table shows the operating income (loss) of CERC’s Other Operations business segment:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
(in millions)(in millions)
Revenues$4
 $3
 $11
 $11
$—
 $—
 $—
 $—
Expenses(2) 3
 2
 6
1
 1
 —
 4
Operating Income$6
 $—
 $9
 $5
Operating Income (Loss)$(1) $(1) $—
 $(4)

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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Factors Affecting Future Earnings” in Item 7 of Part II of our 2016CenterPoint Energy’s 2017 Form 10-K, “Risk Factors” in Item 1A of Part I of our 2016each of the Registrants’ 2017 Form 10-K and in Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q and “Cautionary Statement Regarding Forward-Looking Information” in this Form 10-Q.

LIQUIDITY AND CAPITAL RESOURCES

Historical Cash Flows

The following table summarizes the net cash provided by (used in) operating, investing and financing activities:
 Nine Months Ended September 30,
 2018 2017
 CenterPoint Energy Houston Electric CERC CenterPoint Energy Houston Electric CERC
 (in millions)
Cash provided by (used in):           
Operating activities$1,679
 $788
 $850
 $1,028
 $567
 $312
Investing activities(674) (663) (359) (897) (569) (280)
Financing activities(970) (82) (502) (279) (139) (32)

Operating Activities. The following items contributed to increased (decreased) net cash provided by operating activities for the nine months ended September 30, 2017 and 2016:2018 compared to the same period of 2017:
 Nine Months Ended September 30,
 2017 2016
 (in millions)
Cash provided by (used in):   
Operating activities$1,031
 $1,455
Investing activities(892) (739)
Financing activities(279) (710)
 CenterPoint Energy 
Houston
 Electric
 CERC
 (in millions)
Changes in net income after adjusting for non-cash items$146
 $230
 $(121)
Changes in working capital352
 (28) 490
Change in equity in earnings from Enable, net of distributions (1)
184
 —
 —
Changes related to discontinued operations—
 —
 176
Higher pension contribution(21) —
 —
Other(10) 19
 (7)
 $651
 $221
 $538

(1)This change is partially offset by the change in distributions from Enable in excess of cumulative earnings in investing activities noted in the table below.
Cash Provided by Operating Activities

Net cash provided by operating activities in the first nine months of 2017Investing Activities.The following items contributed to (increased) decreased $424 million compared to the first nine months of 2016 due tochanges inworking capital ($301 million), lower net income after adjusting for non-cash and non-operating items ($116 million; primarily depreciation and amortization) and decreased cash from other non-current items ($7 million). The changes in working capital items in the first nine months of 2017 primarily related to decreased cash provided by taxes receivable; margin deposits, net; net regulatory assets and liabilities; non-trading derivatives, net; and inventory; partially offset by increased

cash provided by net accounts receivable/payable; interest and taxes accrued; net other current assets and liabilities; and fuel cost recovery.

Cash Used in Investing Activities

Net cash used in investing activities infor the first nine months of 2017 increased $153 millionended September 30, 2018 compared to the first nine monthssame period of 2016 primarily due to decreased cash received for the repayment of notes receivable from Enable ($363 million), decreased proceeds from the sale of marketable securities associated with the Charter merger ($178 million) and increased cash used for acquisitions ($30 million), which were partially offset by decreased cash used for the purchase of Series A Preferred Units ($363 million), decreased capital expenditures ($53 million) and decreased restricted cash ($10 million). In 2017, we acquired AEM for $132 million in cash and, in 2016, we acquired Continuum for $102 million in cash.2017:
Cash Used in Financing Activities
 CenterPoint Energy 
Houston
 Electric
 CERC
 (in millions)
Proceeds from the sale of marketable securities$398
 $—
 $—
AEM acquisition in 2017132
 —
 132
Higher capital expenditures(127) (75) (38)
Net change in notes receivable from unconsolidated affiliates—
 (29) —
Change in distributions from Enable in excess of cumulative earnings(193) —
 —
Changes related to discontinued operations—
 —
 (176)
Other13
 10
 3
 $223
 $(94) $(79)

NetFinancingActivities. The following items contributed to (increased) decreased net cash used in financing activities infor the first nine months of 2017 decreased $431 millionended September 30, 2018 compared to the first nine monthssame period of 2016 due to increased proceeds from long-term debt ($496 million), decreased payments of long-term debt ($258 million), decreased distributions to ZENS holders ($178 million) and increased short-term borrowings ($10 million), which were partially offset by increased payments of commercial paper ($491 million), increased payments of common stock dividends ($14 million) and increased debt issuance costs ($4 million).2017:
 CenterPoint Energy 
Houston
 Electric
 CERC
 (in millions)
Net changes in commercial paper outstanding$(1,123) $—
 $(760)
Increased proceeds from issuance of Series A Preferred Stock790
    
Net changes in long-term debt outstanding, excluding commercial paper130
 79
 301
Net changes in debt issuance costs(23) (1) (1)
Net changes in short-term borrowings(52) —
 (52)
Distributions to ZENS note holders(398) —
 —
Increased payment of Common Stock dividends(14) —
 —
Net change in notes payable from affiliated companies—
 15
 (570)
Contribution from parent—
 —
 562
Dividend to parent—
 (36) 51
Other(1) —
 (1)
 $(691) $57
 $(470)

Future Sources and Uses of Cash

OurThe liquidity and capital requirements of the Registrants, other than in connection with the pending Merger with Vectren (see Note 3 to the Interim Condensed Financial Statements), 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 electric transmission and distribution operations and our natural gas distribution operations.  These capital expenditures are anticipated to maintain reliability and safety, as well asincrease resiliency and expand our systems through value-added projects. OurIn addition to dividend payments on CenterPoint Energy’s Series A Preferred Stock, Series B Preferred Stock and Common Stock, and in addition to interest payments on debt, the Registrants’ principal anticipated cash requirements for the remaining three months of 20172018 include the following:
  CenterPoint Energy Houston Electric CERC
  (in millions)
Estimated capital expenditures (1)
 $538
 $280
 $232
Maturing collateralized pollution control bonds 50
 —
 —
Scheduled principal payments on Securitization Bonds 66
 66
 —

(1)Represents remaining capital expenditures based on anticipated 2018 capital expenditures as previously disclosed in CenterPoint Energy’s 2017 Form 10-K.
capital expenditures of approximately $473 million;

maturing senior notes of $250 million;

scheduled principal payments on Securitization Bonds of $64 million;

restoration costs associated with Hurricane Harvey;

dividend payments on CenterPoint Energy, Inc. common stock; and

interest payments on debt.

WeThe Registrants expect that borrowings under our credit facilities, proceeds from commercial paper and anticipated cash flows from operations and distributions on our investments in common units and Series A Preferred Units from Enable will be sufficient to meet our anticipated cash needs for the remaining three months of 2017.2018 will be met with borrowings under their credit facilities, proceeds from the issuance of long-term debt, anticipated cash flows from operations, with respect to CenterPoint Energy and CERC, proceeds from commercial paper and with respect to CenterPoint Energy, distributions from Enable. In addition, if CenterPoint Energy decides to sell all or a portion of the Enable common units that it owns in the public equity markets or otherwise in 2018 (reducing the amount of future distributions CenterPoint Energy receives from Enable to the extent of any such sales), any net proceeds received from such sales could provide a source for CenterPoint Energy’s remaining 2018 cash needs. Discretionary financing or refinancing may result in the issuance of equity securities of CenterPoint Energy or debt securities of the Registrants in the capital markets or the arrangement of additional credit facilities.facilities or term bank loans. Issuances of equity or debt in the capital markets, funds raised in the commercial paper markets, and additional credit facilities and any sales of CenterPoint Energy’s Enable common units may not, however, be available to us on acceptable terms.
 
For more information on CenterPoint Energy’s completed financing transactions for the pending Merger, see Notes 12 and 19 to the Interim Condensed Financial Statements.

Off-Balance Sheet Arrangements

Other than Houston Electric’s first mortgage bonds and general mortgage bonds issued as collateral for tax-exempt long-term debt of CenterPoint Energy as discussed below and operating leases, we have no off-balance sheet arrangements.

Regulatory Matters

Brazos Valley Connection Project (CenterPoint Energy and Houston Electric)

Construction beganHouston Electric completed construction on and energized the Brazos Valley Connection in February 2017, and Houston Electric expects to complete construction and energize the Brazos Valley Connection in the first quarter ofMarch 2018, ahead of the original June 1, 2018 energization date. Houston Electric continues to anticipate that theThe final capital costs of the project will bewere approximately $285 million, which was within the estimated range of approximately $270-$310 million in the PUCT’s original order. Houston Electric is eligible to continue making filingsapplied for theinterim recovery of land acquisitionproject costs through July 31, 2018 not already included in rates in a filing with the PUCT in September 2018 and is expected to receive approval for interim TCOS updatesrecovery in advanceNovember 2018. Final approval by the PUCT of the project completion.costs will occur in Houston Electric’s next base rate case.

Freeport Master Plan Project (CenterPoint Energy and Houston Electric)

In April 2017, Houston Electric submitted a proposal to ERCOT requesting its endorsement of Houston Electric’s approximately $250 milliona transmission project in the greater Freeport, Texas area, which includes enhancements to two existing substations and the construction of a new 345 kvkV double-circuit transmission line. Capital expendituresline to be located in the counties of Brazoria, Matagorda and Wharton. On December 12, 2017, Houston Electric received approval from ERCOT.  In September 2018, Houston Electric filed a certificate of convenience and necessity application with the PUCT that included capital cost estimates for the project that ranged from approximately $482-$695 million, which were higher than the initial cost estimates.  The revised project cost estimates include additional costs associated with the routing of the line to mitigate environmental and other land use impacts and structure design to address soil and coastal wind conditions.  The actual capital costs of the project will be incremental to its previously disclosed five-year capital plan.depend on those factors as well as other factors, including land acquisition costs, construction costs and the ultimate route approved by the PUCT.  On the request of the PUCT, ERCOT has intervened in the proceeding and is in the process of reviewing the cost-effectiveness of the proposed project. Houston Electric anticipates that the PUCT will issue a final decision from ERCOT inon the fourthcertificate of convenience and necessity application as early as the third quarter of 2017, and if approved, will make the necessary filings with the PUCT.

PHMSA Matters

On December 14, 2016, PHMSA announced an interim final rule to impose industry-developed recommendations as enforceable safety standards for downhole (underground) equipment, including wells, wellbore tubing, and casing, at both interstate and intrastate underground natural gas storage facilities. Both CERC and Enable own and operate underground storage facilities that are subject to this rule’s provisions, which include procedures and practices for operations, maintenance, threat identification, monitoring, assessment, site security, emergency response and preparedness, training and recordkeeping. This rule went into effect on January 18, 2017, with an announced compliance deadline of January 18, 2018. PHMSA determined, however, that it will not issue enforcement citations to any operators for violations of provisions of the interim final rule that had previously been non-mandatory provisions of American Petroleum Institute Recommended Practices 1170 and 1171 until one year after PHMSA issues a final rule, which it expects to publish in January 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 impact of any modifications to this rule.2019.

Rate Change Applications

Houston Electric and CERC are routinely involved in rate change applications before state regulatory authorities.  Those applications include general rate cases, where the entire cost of service of the utility is assessed and reset.  In addition, Houston Electric is periodically involved in proceedings to adjust its 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), its cost of service adjustments in Arkansas, Louisiana, Mississippi and Oklahoma (FRP, RSP, RRA and PBRC)PBRC, respectively), its decoupling mechanism in Minnesota, and its energy efficiency cost trackers in Arkansas, Minnesota, Mississippi and Oklahoma (EECR, CIP, EECR and EECR)EECR, respectively). The table below reflects significant applications pending or completed since our 20162017 Form 10-K was filed with the SEC.


Mechanism 
Annual Increase (Decrease) (1)
(in millions)
 
Filing
 Date
 Effective Date Approval Date Additional Information
Houston Electric (PUCT)
AMSTCOS N/A 
February
2018
April
2018
April
2018
Revised TCOS annual revenue application approved in November 2017 by a reduction of $41.6 million to recognize decrease in the federal income tax rate, amortize certain EDIT balances and adjust rate base by EDIT attributable to new plant since the last rate case, all of which are related to the TCJA.
TCOS$40.8
May
2018
July
2018
July
2018
Requested an increase of $285 million to rate base and reflects a $40.8 million annual increase in current revenues. Also reflects a one-time refund of $6.6 million in excess federal income tax collected from January to April 2018.
TCOS2.4September 2018TBDTBDRequested an increase of $15.4 million to rate base and reflects a $2.4 million annual increase in current revenues.
EECRF8.4
June
20172018
 TBD TBD Final reconciliationRevised application requests recovery of AMS surcharge proposing2019 EECRF of $41.7 million, including a $28.7$8.4 million refund for AMS revenue in excess of expenses, for which a reserve has been recorded. Refunds began in September 2017.
EECRF (2)$11.0
June
2017
TBDTBDAnnual reconciliation filing for program year 2016 and includes proposed performance bonus of $11 million. Anticipated effective date of March 2018.bonus.
DCRF 41.830.9 
April
 20172018
 
September
20172018
 
July
2017
August 2018		 Based on an increaseUnanimous settlement agreement approved by the PUCT in eligible distribution-invested capital for 2016August 2018 results in incremental annual revenue of $479$30.9 million. Unanimous Stipulation and Settlement Agreement was filedIt results in June 2017 for $86.8 million (a $41.8a $120.6 million annual increase).revenue requirement effective September 1, 2018. The settlement agreement also includedreflects an approximately $39 million decrease in the AMS refund referenced above.federal income tax rate, a $20 million decrease to return to customers the reserve recorded recognizing this decrease in the federal income tax rate from January 25, 2018 through August 31, 2018 and a $19.2 million decrease related to the unprotected EDIT. Effective September 1, 2019, the reserve amount returned to customers ends. In December 2018, Houston Electric will file an updated DCRF tariff to adjust the interim DCRF rates to reflect any difference between the $20 million estimated tax-expense regulatory liability and the actual tax-expense regulatory liability recorded by Houston Electric.
TCOSCERC - South Texas (Railroad Commission)
Rate Case 7.8(1.0) December 2016November 2017 
FebruaryMay
20172018
 FebruaryMay
20172018		 Based onUnanimous settlement agreement approved by the Railroad Commission in May 2018 that provides for a $1 million annual decrease in current revenues. The settlement agreement also reflects an incremental increaseapproximately $2 million decrease in totalthe federal income tax rate baseand amortization of $109.6 million.certain EDIT balances and establishes a 9.8% ROE for future GRIP filings for the South Texas jurisdiction.
TCOS39.3September 2017TBDTBDBased on an incremental increase in total rate base of $263.4 million.
South Texas andCERC - Beaumont/East Texas, Houston and Texas Coast (Railroad Commission)
GRIP 7.614.7 
March
 20172018
 
July
20172018
 
June
20172018
 Based on net change in invested capital of $46.5 million.$70.0 million and reflects a $14.7 million annual increase in current revenues. Also reflects an approximately $1.0 million decrease in the federal income tax rate.
Houston and Texas Coast (Railroad Commission)
Rate CaseAdministrative 104.111 16.5November 2016
May
2017
May
2017
The Railroad Commission approved a unanimous settlement agreement establishing parameters for future GRIP filings, including a 9.6% ROE on a 55.15% equity ratio.
Texarkana, Texas Service Area (Multiple City Jurisdictions)
Rate Case1.1N/A 
July
20172018
 
September
2017
2018		 August 2017Approved rates are consistent with Arkansas rates approved in 2016.
Arkansas (APSC)
EECR (2)0.5
May
2017
January 2018 September 2017Recovers $11.0Beaumont/East Texas, Houston and Texas Coast proposed to decrease base rates by $12.9 million including an incentiveto reflect the change in the federal income tax rate. In addition, Beaumont/East Texas proposed to decrease the GRIP charge to reflect the change in the federal income tax rate. The impact of $0.5 million based on 2016 program performance.deferred taxes is expected to be reflected in the next rate case.
CERC - Arkansas (APSC)
FRP 7.613.2 April
2017
August
2018
 October
2017 2018		 September 20172018 Based on ROE of 9.5% as approved in the last rate case. Unanimous Settlement Agreement was filedcase and reflects a $13.2 million annual increase in July 2017 for $7.6current revenues, excluding the effects of the recently enacted TCJA. With TCJA impacts considered, the annual increase is reduced by approximately $8.1 million, which include the effects of a lower federal income tax rate and was subsequently approved.amortization of EDIT balances.
BDACERC - Louisiana (LPSC)
RSP 3.96.6September 2018December 2018TBDBased on ROE of 9.95% and the 21% federal income tax rate and reflects a $6.6 million annual increase in current revenues. Other impacts of the TCJA, which were calculated outside the band, reduce the annual increase by approximately $4.3 million.

Mechanism 
MarchAnnual Increase (Decrease) (1)
2017(in millions)
 
JuneFiling
2017 Date
 
June
2017
Effective Date		 For the evaluation period between January 2016 and August 2016. Amounts are recorded during the evaluation period.Approval DateAdditional Information
CERC - Minnesota (MPUC)
Rate Case 56.53.9 August 2017 TBDNovember 2018 TBD
July
2018
 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 annual increase of $47.8 million were effective October 1, 2017. A unanimous settlement agreement was filed in March 2018, subject to MPUC approval. The settlement agreement increases base rates by $3.9 million, makes decoupling a permanent part of the tariff, incorporates the impact of the decrease in the federal income tax rate and amortization of EDIT balances (approximately $20 million) and establishes or continues tracker recovery mechanisms that account for approximately $13.3 million in the initial filing. The MPUC voted to approve the settlement and a formal order was issued on July 20, 2018.  Final rates (and the refund of interim rates that exceed final rates) will be implemented beginning November 1, 2018.
Decoupling(13.8)September 2018September 2018TBDRepresents revenue over-recovery of $21.9 million recorded for and during the period July 1, 2017 through June 30, 2018 offset by the rate and prior period adjustments totaling $8.1 million recorded in third quarter 2018.
CIP (2) 13.812.5 
May
20172018
 August 2017September 2018 August 2017September 2018 Annual reconciliation filing for program year 20162017 and includes performance bonus of $13.8 million.$12.5 million which was recorded in September 2018.
Decoupling20.4September 2017
September
2017
TBDReflects 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.
CERC - Mississippi (MPSC)
RRA 2.33.2 
May
20172018
 
July
2017
November 2018		 
July
2017
November 2018		 AuthorizedBased on authorized ROE of 9.59%9.144% and a capital structure of 50% debt and 50% equity.equity and reflects a $3.2 million annual increase in revenues.
Louisiana (LPSC)
RSP1.0September 2016December 2016
April
2017
Authorized ROE of 9.95% and a capital structure of 48% debt and 52% equity.
RSP3.4September 2017December 2017TBDAuthorized ROE of 9.95% and a capital structure of 48% debt and 52% equity.
CERC - Oklahoma (OCC)
EECR (2)0.4
March
 2017
November 2017October 2017Recovers $2.6 million, including an incentive of $0.4 million based on 2016 program performance.
PBRC 2.25.4 
March
20172018
November 2017 October 20172018October 2018 Based on ROE of 10%. and reflects a $5.4 million annual increase in revenues.  As a result of the final order, all EDIT was removed from the PBRC calculation.  Protected EDIT amortization will begin to be refunded in April 2019 via one-time annual bill credits.  Unprotected EDIT will be refunded over a five-year period via annual bill credits beginning in October 2018.

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

(2)Amounts are recorded when approved.
Tax Reform

For Houston Electric and CERC’s NGD, federal income tax expense is included in the rates approved by state commissions and local municipalities and charged by those utilities to consumers. As Houston Electric and NGD file general rate cases and other periodic rate adjustments, the impacts of the TCJA (including the lower tax rate and the calculation and amortization of EDIT), along with other increases and decreases in our revenue requirements, will be incorporated into Houston Electric’s and NGD’s future rates as allowed by IRS rules. The effect of any potential return of tax savings resulting from the TCJA to consumers may differ depending on how each regulatory body requires us to return such savings. Regulatory commissions across most of Houston Electric’s and NGD’s jurisdictions have issued accounting orders to track or record a regulatory liability for (1) the difference between revenues collected under existing rates and revenues that would have been collected had the existing rates been set using the recently approved federal income tax rates and (2) the balance of EDIT that now exists because of the reduction in federal income tax rates.

On January 25, 2018, the PUCT issued an accounting order in Project No. 47945 directing electric utilities, including Houston Electric, to record as a regulatory liability (1) the difference between revenues collected under existing rates and revenues that would have been collected had the existing rates been set using the recently approved federal income tax rates and (2) the balance of EDIT that now exists because of the reduction in federal income tax rates. On February 13, 2018, Houston Electric and other likely parties to a future rate case announced a settlement that requires Houston Electric to make (i) a TCOS filing by February 20, 2018 to reflect the change in the federal income tax rate for Houston Electric’s transmission rate base through July 31, 2017 and account for certain EDIT (and such filing was timely submitted), (ii) a DCRF filing in April 2018 to reflect the change in the federal income tax rate for Houston Electric’s distribution rate base through December 31, 2017 (and such filing was timely submitted) and (iii) a full rate case filing by April 30, 2019. The settlement was presented to the PUCT during its open meeting on February 15, 2018. In response to the settlement, the PUCT did not proceed with a prior proposal to require Houston Electric to file a rate case in the summer of 2018. The PUCT also amended its prior accounting order to remove the requirement that utilities include carrying costs in the new regulatory liability. Additional information related to tax reform for Houston Electric is described in the table above.

On January 12, 2018, the APSC issued an order in Docket No. 18-006-U opening an investigatory docket into the TCJA and directing utilities, including CERC, to record as a regulatory liability the current and deferred impacts of the TCJA. On July 26, 2018, the APSC issued an order in the investigatory docket requiring CERC to (1) include the reduction in tax expense due to the

January 1, 2018 change in the tax rate from 35% to 21% in the utility’s FRP as a reduction to the revenue requirement; this reduction will be reflected in the utility’s historical year netting process in the 2019 FRP filing;  (2)  file and include all unprotected EDIT, including plant-related unprotected EDIT, in a separate rider within 30 days and refund the entire balance before December 31, 2019; (3) include protected EDIT in the FRP and amortize such amount using the ARAM method; and (4) adjust all other riders impacted by the TCJA changes and apply carrying charges calculated using the pre-tax cost of capital of 6.44% for the amounts related to the TCJA within 30 days of the July 26, 2018 order. On August 24, 2018 CERC filed Rider TCJA in Docket No. 18-050-TF. This rider returns the entire unprotected excess ADIT of approximately $19 million over five months from October 2018 through February 2019. The GMES Rider, which is not currently in effect, was revised to reflect the effects of the TCJA. No other riders were impacted. On September 21, 2018, the APSC approved Rider TCJA as filed, with an effective date of October 1, 2018.

On October 5, 2018, the LPSC Staff filed its Final Report and Recommended Proposed Rule in Docket No. R-34754, which addresses the TCJA. The proposed rule recommends that CERC (1) adjust rates prospectively to reflect the new 21% federal corporate income tax rate; (2) refund to ratepayers 100% of federal corporate income taxes collected that are in excess of the new lower applicable tax rate plus carrying cost at the utility’s WACC over a 12-month period or other period approved by the LPSC; (3) accrue carrying charges on EDIT balances at the utility’s WACC until fully amortized, except to the extent ratepayers are receiving benefits of EDIT as a reduction to rate base; (4) amortize protected EDIT over ARAM and implement through an outside-the-band reduction in rates attributable to the annual amortization; and (5) amortize unprotected EDIT over 24 months or other period approved by the LPSC and implement through an outside-the-band reduction in rates or special tax rider. The LPSC Staff presented this proposed rule to the LPSC for vote at the October 26, 2018 Business & Executive Session. The anticipated implementation date for these TCJA related changes begins December 26, 2018, concurrent with the RSP implementation, with the time frame of the return of unprotected EDIT still to be determined.

On November 6, 2018, within the order approving the 2018 Mississippi RRA, the MPSC ruled that protected EDIT will be amortized over ARAM beginning with the 2019 RRA, unprotected EDIT will be amortized over a three-year period beginning December 1, 2018, and the refund due to the change in tax rate for 2018 billings prior to the 2018 RRA implementation will be a component of the 2019 RRA filing for the 2018 calendar year.

FERC Revised Policy Statement and NOPR (CenterPoint Energy and CERC)

On March 15, 2018, the FERC addressed treatment of federal income tax allowances in FERC-regulated pipeline rates. The FERC issued a Revised Policy Statement stating that it will no longer permit pipelines organized as MLPs to recover an income tax allowance in their cost-of-service rates. The FERC issued the Revised Policy Statement in response to a remand from the U.S. Court of Appeals for the D.C. Circuit in United Airlines v. FERC. On July 18, 2018, the FERC issued an order denying requests for rehearing of its Revised Policy Statement because it is a non-binding policy and parties will have the opportunity to address the policy as applied in future cases. Accordingly, the impacts that such changes may have on the rates Enable can charge for transportation services are unknown at this time.

On March 15, 2018, the FERC also proposed, in a NOPR, the method by which it would apply the Revised Policy Statement to FERC-jurisdictional natural gas pipeline rates, as well as account for the corporate income tax rate reduction in the TCJA. On July 18, 2018, the FERC issued a final rule requiring FERC-regulated natural gas pipelines that have cost-based rates to make a filing providing certain cost and revenue information and then either propose to reduce or support current cost-based rates, or take no further action. The final rule is currently subject to requests for rehearing. Enable Gas Transmission, LLC, an Enable subsidiary and owner of a FERC-regulated interstate natural gas pipeline, made its required filing on October 11, 2018, in which it asserted that no rate reduction is warranted. That filing remains subject to FERC review. Enable’s other interstate pipeline subsidiary, Enable Mississippi River Transmission, LLC, is not required to make such a filing as it is engaged in an ongoing rate case. At this time, we cannot predict the outcome of the final rule on Enable, but it could adversely impact the rates Enable is permitted to charge its customers.

Other Matters

Credit Facilities

OurThe Registrants may draw on their respective revolving credit facilities may be drawn on by the companies from time to time to provide funds used for general corporate and limited liability company purposes, including to backstop the companies’CenterPoint Energy’s and CERC’s commercial paper programs. The facilities may also be utilized to obtain letters of credit. For further details related to ourthe Registrants’ revolving credit facilities, and the 2017 amendments, please see Note 1112 to ourthe Interim Condensed Financial Statements.


As of October 26, 2017, we22, 2018, the Registrants had the following facilities:
Company 
Size of
Facility
 
Amount
Utilized at
October 26, 2017 (1)
 Termination Date
Registrant Size of Facility 
Amount Utilized (1)
 Termination Date
(in millions)
CenterPoint Energy $1,700
 $403
(2) 
March 3, 2022 $3,300
(2)$6
(3)March 3, 2022
Houston Electric 300
 4
(3) 
March 3, 2022 300
 4
(3)March 3, 2022
CERC Corp. 900
 561
(4) 
March 3, 2022 900
 26
(4)March 3, 2022

(1)Based on the consolidated debt to capitalization covenant in our revolving credit facility and the revolving credit facility of each of Houston Electric and CERC Corp., we would have been permitted to utilize the full capacity of such revolving credit facilities, which aggregated $2.9 billion as of September 30, 2017.currently aggregate $4.5 billion.

(2)Represents outstanding commercial paperPursuant to the amendment entered into in May 2018, the aggregate commitments under the CenterPoint Energy revolving credit facility increased to $3.3 billion on October 5, 2018 due to the satisfaction of $397 million and outstanding letterscertain conditions, including the termination of credit of $6 million.the Bridge Facility. For further information, see Note 12 to the Interim Condensed Financial Statements.

(3)Represents outstanding letters of credit.
 
(4)Represents outstanding commercial paper.paper of $25 million and outstanding letters of credit of $1 million.

Borrowings under each of the three revolving credit facilities are subject to customary terms and conditions. However, there is no requirement that the borrower makemakes 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 each of the revolving credit facilities are subject to acceleration upon the occurrence of events of default that we consider customary. The revolving credit facilities also provide for customary fees, including commitment fees, administrative agent fees, fees in respect of letters of credit and other fees. In each of the three revolving credit facilities, the spread to LIBOR and the commitment fees fluctuate based on the borrower’s credit rating. The borrowers are currently in compliance with the various business and financial covenants in the three revolving credit facilities.

Long-term Debt Financing Transactions

In January 2017,February 2018, Houston Electric issued $300$400 million aggregate principal amount of general mortgage bonds. In February 2017, CenterPoint Energy retired $250 million aggregate principal amount of its 5.95% senior notes at their maturity. In August 2017, CenterPoint EnergyMarch 2018, CERC Corp. issued $500$600 million aggregate principal amount of unsecured senior notes. In August 2017, CERC Corp.October 2018, CenterPoint Energy issued $300 million$1.5 billion aggregate principal amount of unsecured senior notes. For further information about our 20172018 debt transactions,issuances, see Note 1112 to ourthe Interim Condensed Financial Statements.

As of September 30, 2018, Houston Electric’s outstanding first mortgage bonds and general mortgage bonds aggregated approximately $3.4 billion, of which $118 million is not reflected in its consolidated financial statements because of the contingent nature of the obligation.

The lien of the general mortgage indenture is junior to that of the mortgage pursuant to which the first mortgage bonds are issued. Houston Electric may issue additional general mortgage bonds on the basis of retired bonds, 70% of property additions or cash deposited with the trustee.  Approximately $4.2 billion of additional first mortgage bonds and general mortgage bonds could be issued on the basis of retired bonds and 70% of property additions as of September 30, 2018. Houston Electric has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions.


Houston Electric’s long-term debt consists of its obligations and the obligations of its subsidiaries, including Securitization Bonds issued by its wholly-owned subsidiaries.  As of September 30, 2018, the Bond Companies had the following aggregate principal amount, exclusive of debt issuance costs, of Securitization Bonds outstanding.
Company Aggregate Principal Amount Outstanding
  (in millions)
Bond Company II $208
Bond Company III 85
Bond Company IV 955
Restoration Bond Company 256
Total $1,504

The Securitization Bonds are paid through the imposition of “transition” or “system restoration” charges, as defined in the Texas Public Utility Regulatory Act, which are irrevocable, non-bypassable charges to provide recovery of authorized qualified costs. The Securitization Bonds are reported as our long-term debt, although the holders of these bonds have no recourse to any of our assets or revenues, and our creditors have no recourse to any assets or revenues (including, without limitation, the transition or system restoration charges) of the Bond Companies. Houston Electric has no payment obligations with respect to the Securitization Bonds except to remit collections of transition and system restoration charges as set forth in servicing agreements between Houston Electric and the Bond Companies and in an intercreditor agreement among Houston Electric, the Bond Companies and other parties.

Securities Registered with the SEC

On January 31, 2017, CenterPoint Energy, Houston Electric and CERC Corp.the Registrants filed a joint shelf registration statement with the SEC, as amended on September 24, 2018, 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 number of CenterPoint Energy’s shares of common stock,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. For information related to debt and equity security issuances in 2018, see Notes 12 and 19 to the Interim Condensed Financial Statements.

Temporary Investments

As of October 26, 2017, we22, 2018, the Registrants had no$4.2 billion temporary external investments.


Money Pool (Houston Electric and CERC)

We have a money pool through which the holding company and participating subsidiaries can borrow or invest on a short-term basis. CNP Midstream cannot borrow from the money pool but can invest in it. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings under our revolving credit facility or the sale of our commercial paper. The money pool may not provide sufficient funds to meet our subsidiaries’ cash needs. As of October 22, 2018, Houston Electric had borrowings from the money pool of $79 million, and CERC had investments in the money pool of $38 million.

Impact on Liquidity of a Downgrade in Credit Ratings

The interest on borrowings under ourthe Registrants’ credit facilities is based on ourtheir credit rating.ratings. On AugustSeptember 4, 2017, S&P2018, Moody’s revised its rating outlooksoutlook on CERC senior debt of CenterPoint Energy, Houston Electric and CERC Corp. to positive from developing and affirmed its ratings. On September 24, 2017, Fitch upgraded Houston Electric’s senior secured debt rating to A+ and maintained its rating outlook of stable. In addition, Fitch revised its rating outlooks on senior debt of CenterPoint Energy and CERC Corp. to positive from stable and affirmedupgraded its ratings.

rating to Baa1 from Baa2. On September 6, 2018, Fitch revised its rating outlook on CERC senior debt to stable from positive and upgraded its rating to BBB+ from BBB. As of October 26, 2017,22, 2018, Moody’s, S&P and Fitch had assigned the following credit ratings to senior debt of CenterPoint Energy and certain subsidiaries: the Registrants:
  Moody’s S&P Fitch
Company/Instrument Rating Outlook (1) Rating OutlookCreditWatch (2) Rating Outlook (3)
CenterPoint Energy Senior
Unsecured Debt
 Baa1 StableNegative BBB+ PositiveNegative BBB PositiveStable
Houston Electric Senior
Secured Debt		 A1 Stable A PositiveNegative A+ Stable
CERC Corp. Senior Unsecured
Debt
 Baa2Baa1 StablePositive A- PositiveNegative BBBBBB+ PositiveStable
   

(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 outlookCreditWatch assesses the potential direction of a short-term or long-term credit rating over the intermediate to longer term.rating.

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

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

A decline in credit ratings could increase borrowing costs under ourthe Registrants’ revolving credit facilities. If ourthe Registrants’ credit ratings or those of Houston Electric or CERC Corp. had been downgraded one notch by each of the three principal credit rating agencies from the ratings that existed as of September 30, 2017,2018, the impact on the borrowing costs under the three revolving credit facilities would have been immaterial. A decline in credit ratings would also increase the interest rate on long-term debt to be issued in the capital markets and could negatively impact 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 business segments.

CES, a wholly-owned subsidiary of CERC Corp. operating in our Energy Services business segment, provides natural gas sales and services primarily to commercial and industrial customers and electric and natural gas utilities throughout the 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. Similarly, mark-to-market exposure offsetting and exceeding the credit threshold may cause the counterparty to provide collateral to CES. As of September 30, 2017,2018, the amountsamount posted by CES as collateral and settled-to-market aggregated approximately $35$41 million. Should the credit ratings of CERC Corp. (as the credit support provider for CES) fall below certain levels, CES would be required to provide additional collateral up to the amount of its previously unsecured credit limit. We estimate that as of September 30, 2017,2018, unsecured credit limits extended to CES by counterparties aggregated $358$268 million, and $1 millionnone 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$185 million as of September 30, 2017.2018. The amount of collateral will depend on seasonal variations in transportation levels.

ZENS and Securities Related to ZENS (CenterPoint Energy)

If our creditworthiness were to drop such that ZENS holders thought our 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 TWZENS-Related Securities that we own or from other sources. We own shares of TWZENS-Related Securities equal to approximately 100% of the reference shares used to calculate our obligation to the holders of the ZENS. ZENS exchanges result in a cash outflow because tax deferrals related to the ZENS and TWZENS-Related Securities shares would typically cease when ZENS are exchanged or otherwise retired and TWZENS-Related Securities shares are sold. The ultimate tax liability related to the ZENS continues to increase by the amount of the tax benefit realized each year, and there could be a significant cash outflow when the taxes are paid as a result of the retirement of the ZENS. If all ZENS had been exchanged for cash on September 30, 2017,2018, deferred taxes of approximately $472$410 million would have been payable in 2017.2018. If all the TWZENS-Related Securities had been sold on September 30, 2017,2018, capital gains taxes of approximately $331$109 million would have been payable in 2017.

2018. For additional information about ZENS, see Note 1011 to ourthe Interim Condensed Financial Statements.

Cross Defaults

Under ourCenterPoint Energy’s revolving credit facility, a payment default on, or a non-payment default that permits acceleration of, any indebtedness for borrowed money and certain other specified types of obligations (including guarantees) exceeding $125

$125 million by usit or any of ourits significant subsidiaries will cause a default. A default by CenterPoint Energy would not trigger a default under ourits subsidiaries’ debt instruments or revolving credit facilities.

Possible Acquisitions, Divestitures and Joint Ventures

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

Enable Midstream Partners (CenterPoint Energy and CERC)

In February 2016, we announced that we were evaluating strategic alternatives for ourSeptember 2018, CERC completed the Internal Spin, after which CERC’s equity investment in Enable includingmet the criteria for discontinued operations classification. As a sale or spin-off qualifying under Section 355result, the operations have been classified as Income from discontinued operations, net of tax, in CERC’s Condensed Statements of Consolidated Income for the U.S. Internal Revenue Code. We have determined that we will no longer pursue a spin option. Shouldperiods presented. For further information, see Note 9 to the sale option not be viable, we intend to reduce our ownership in Enable over time through a sale of the common units we hold in the public equity markets, subject to market conditions. There can be no assurances that these evaluations will result in any specific action, and we do not intend to disclose further developments on these initiatives unless and until our board of directors approves a specific action or as otherwise required.Interim Condensed Financial Statements.

Enable Midstream Partners

We receiveCenterPoint Energy receives quarterly cash distributions from Enable on its common units and Enable Series A Preferred Units we own.Units. A reduction in the cash distributions we receiveCenterPoint Energy receives from Enable could significantly impact ourCenterPoint Energy’s liquidity. For additional information about cash distributions from Enable, see Notes 89 and 1620 to ourthe Interim Condensed Financial Statements.

Hedging of Interest Expense for Future Debt Issuances

During the first three quarters of 2017,From time to time, we enteredmay 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.


Weather Hedge (CenterPoint Energy and CERC)

We have historically entered into partial weather hedges for certain NGD jurisdictions and Houston Electric’selectric operations’ service territory 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)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, 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’s 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, our liquidity and capital resources could be affected by:

cash collateral requirements that could exist in connection with certain contracts, including our weather hedging arrangements, and natural gas purchases, natural gas price and natural gas storage activities of ourthe Natural Gas Distribution and Energy Services business segments;

acceleration of payment dates on certain gas supply contracts, under certain circumstances, as a result of increased natural gas prices and concentration of natural gas suppliers;

increased costs related to the acquisition of natural gas;

increases in interest expense in connection with debt refinancings and borrowings under credit facilities;

various legislative or regulatory actions;

incremental collateral, if any, that may be required due to regulation of derivatives;

the ability of GenOn and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations in respect of GenOn’sto us, including indemnity obligations, to us and our subsidiaries;which may be contested by GenOn;

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

slower customer payments and increased write-offs of receivables due to higher natural gas prices or changing economic conditions;

the outcome of litigation brought by or against us;litigation; 

contributions to pension and postretirement benefit plans;

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

various other risks identified in “Risk Factors” in Item 1A of Part I of our 2016each of the Registrants’ 2017 Form 10-K.10-K and Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q.

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

Houston Electric has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions. For information about the total debt to capitalization financial covenants in our revolving credit facilities, see Note 1112 to ourthe Interim Condensed Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 2 to ourthe Interim Condensed Financial Statements, incorporated herein by reference, for a discussion of new accounting pronouncements that affect us.


Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk (CenterPoint Energy)

As of September 30, 2017,2018, we had outstanding long-term debt, lease obligations and obligations under our ZENS that subject us to the risk of loss associated with movements in market interest rates.

Our floating rate obligations aggregated $976$202 million and $1.4$1.8 billion as of September 30, 20172018 and December 31, 2016,2017, respectively. If the floating interest rates were to increase by 10% from September 30, 20172018 rates, our combined interest expense would increase by approximately $1.4less than $1 million annually.


As of September 30, 20172018 and December 31, 2016,2017, we had outstanding fixed-rate debt (excluding indexed debt securities) aggregating $7.6 billion and $7.1$7.0 billion, respectively, in principal amount and having a fair value of $8.17.8 billion and $7.5 billion, respectively. Because these instruments are fixed-rate, they do not expose us to the risk of loss in earnings due to changes in market interest rates. However, the fair value of these instruments would increase by approximately $223$263 million if interest rates were to decline by 10% from levels at September 30, 2017.2018. In general, such an increase in fair value would impact earnings and cash flows only if we were to reacquire all or a portion of these instruments in the open market prior to their maturity.

The ZENS obligation is bifurcated into a debt component and a derivative component. The debt component of $12025 million as of September 30, 20172018 was a fixed-rate obligation and, therefore, did not expose us to the risk of loss in earnings due to changes in market interest rates. However, the fair value of the debt component would increase by approximately $188 million if interest rates were to decline by 10% from levels at September 30, 2017.2018. Changes in the fair value of the derivative component, a $776$685 million recorded liability at September 30, 2017,2018, are recorded in our Condensed Statements of Consolidated Income and, therefore, we are exposed to changes in the fair value of the derivative component as a result of changes in the underlying risk-free interest rate. If the risk-free interest rate were to increase by 10% from September 30, 20172018 levels, the fair value of the derivative component liability would increasedecrease by approximately $52 million, which would be recorded as an unrealized lossgain in our Condensed Statements of Consolidated Income.

Equity Market Value Risk (CenterPoint Energy)

We are exposed to equity market value risk through our ownership of 7.1 million shares of TW Common, 0.910.2 million shares of TimeAT&T Common and 0.9 million shares of Charter Common, which we hold to facilitate our ability to meet our obligations under the ZENS. 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 September 30, 20172018 aggregate market value of these shares would result in a net loss of approximately less than $1 million, which would be recorded as an unrealized loss in our Condensed Statements of Consolidated Income.

Commodity Price Risk From Non-Trading Activities (CenterPoint Energy and CERC)

We use derivative instruments as economic hedges to offset the commodity price exposure inherent in our businesses. The commodity risk created by these instruments, including the offsetting impact on the market value of natural gas inventory, is described below. We measure this commodity risk using a sensitivity analysis. For purposes of this analysis, we estimate commodity price risk by applying a $0.50 change in the forward NYMEX price to our net open fixed price position (including forward fixed price physical contracts, natural gas inventory and fixed price financial contracts) at the end of each period. As of September 30, 2017,2018, the recorded fair value of our non-trading energy derivatives was a net asset of $80$51 million (before collateral), all of which is related to our Energy Services business segment. A $0.50 change in the forward NYMEX price would have had a combined impact of $3$7 million on our non-trading energy derivatives net asset and the market value of natural gas inventory.

Commodity price risk is not limited to changes in forward NYMEX prices. Variation of commodity pricing between the different indices used to mark to market portions of our natural gas inventory (Gas Daily) and the related fair value hedge (NYMEX) can result in volatility to our net income. Over time, any gains or losses on the sale of storage gas inventory would be offset by gains or losses on the fair value hedges.

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, 20172018 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, 20172018 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 CenterPoint Energy, please read Note 13(b)14(b) 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 — Regulation” and “— Environmental Matters” in Item 1 and “Legal Proceedings” in Item 3 of our 2016each of the Registrants’ 2017 Form 10-K.

Item 1A.RISK FACTORS

There have been no material changes from the risk factors disclosed in our 2016 Form 10-K.

Item 5.OTHER INFORMATION

Ratio of Earnings to Fixed Charges. The ratio of earnings to fixed charges for the nine months ended September 30, 2017 and 2016 was 3.63 and 2.73, respectively. We do not believe that the ratios for these nine-month periods are necessarily indicativeeach 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.Registrants’ 2017 Form 10-K and CenterPoint Energy’s First Quarter 2018 Form 10-Q.

Item 6.EXHIBITS

The following exhibits areExhibits filed herewith:

Exhibits not incorporated by reference to a prior filingherewith 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 CenterPoint Energy, Inc.,the Registrants, any other persons, any state of affairs or other matters.
 
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, CenterPoint Energy hasthe Registrants have not filed as exhibits to this 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 CenterPoint Energythe Registrants and its subsidiaries on a consolidated basis. CenterPoint EnergyThe Registrants hereby agreesagree 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
 Description 
Report or Registration
Statement
 
SEC File or
Registration
Number
 
Exhibit
Reference
 CenterPoint Energy Houston Electric CERC
2.1* 
Agreement and Plan of Merger, dated as of April 21, 2018, by and among Vectren Corporation, CenterPoint Energy, Inc. and Pacer Merger Sub, Inc.
 CenterPoint Energy’s Form 8-K dated April 21, 2018 1-31447 2.1 x 
3.1 
Restated Articles of Incorporation of CenterPoint Energy
 CenterPoint Energy’s Form 8-K dated July 24, 2008 1-31447 3.2 
Restated Articles of Incorporation of CenterPoint Energy
 CenterPoint Energy’s Form 8-K dated July 24, 2008 1-31447 3.2 x 
3.2 
Third Amended and Restated Bylaws of CenterPoint Energy
 CenterPoint Energy’s Form 8-K dated February 21, 2017 1-31447 3.1 
Restated Certificate of Formation of Houston Electric
 Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 1-3187 3.1 x 
3.3 
Statement of Resolutions Deleting Shares Designated Series A Preferred Stock of CenterPoint Energy
 CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 1-31447 3(c) 
Certificate of Incorporation of RERC Corp.

 CERC Form 10-K for the year ended December 31, 1997 1-13265 3(a)(1) x
4.1 
Form of CenterPoint Energy Stock Certificate
 CenterPoint Energy’s Registration Statement on Form S-4 3-69502 4.1
4.2 
$1,600,000,000 Credit Agreement, dated as of March 3, 2016, among CenterPoint Energy, as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated March 3, 2016 1-31447 4.1
3.4 Certificate of Merger merging former NorAm Energy Corp. with and into HI Merger, Inc. dated August 6, 1997 CERC Form 10-K for the year ended December 31, 1997 1-13265 3(a)(2) x
3.5 Certificate of Amendment changing the name to Reliant Energy Resources Corp. CERC Form 10-K for the year ended December 31, 1998 1-13265 3(a)(3) x
3.6 
Certificate of Amendment changing the name to CenterPoint Energy Resources Corp.
 CERC Form 10-Q for the quarter ended June 30, 2003 1-13265 3(a)(4) x
3.7 
Third Amended and Restated Bylaws of CenterPoint Energy
 CenterPoint Energy’s Form 8-K dated February 21, 2017 1-31447 3.1 x 
3.8 
Amended and Restated Limited Liability Company Agreement of Houston Electric
 Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 1-3187 3.2 x 
3.9 Bylaws of RERC Corp. CERC Form 10-K for the year ended December 31, 1997 1-13265 3(b) x

Exhibit
Number
 Description 
Report or Registration
Statement
 
SEC File or
Registration
Number
 
Exhibit
Reference
4.3 
$300,000,000 Credit Agreement, dated as of March 3, 2016, among Houston Electric, as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated March 3, 2016 1-31447 4.2
4.4 
$600,000,000 Credit Agreement, dated as of March 3, 2016, among CERC Corp., as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated March 3, 2016 1-31447 4.3
4.5 
First Amendment to Amended and Restated Credit Agreement, dated as of June 16, 2017, by and among CenterPoint Energy, as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated June 16, 2017 1-31447 4.1
4.6 
First Amendment to Credit Agreement, dated as of June 16, 2017, among Houston Electric, as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated June 16, 2017 1-31447 4.2
4.7 
First Amendment to Credit Agreement, dated as of June 16, 2017, among CERC Corp., as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated June 16, 2017 1-31447 4.3
4.8 
Indenture, dated as of May 19, 2003, between CenterPoint Energy and JPMorgan Chase Bank, as Trustee

 CenterPoint Energy’s Form 8-K dated May 19, 2003 1-31447 4.1
+4.9 
Supplemental Indenture No. 9 to Exhibit 4.8, dated as of August 10, 2017, providing for the issuance of CenterPoint Energy’s 2.50% Senior Notes due 2022

      
4.10 
Indenture, dated as of February 1, 1998, between Reliant Energy Resources Corp. and Chase Bank of Texas, National Association, as Trustee

 CERC Corp.’s Form 8-K dated February 5, 1998 1-13265 4.1
+4.11 
Supplemental Indenture No. 16 to Exhibit 4.10, dated as of August 23, 2017, providing for the issuance of CERC Corp.’s 4.10% Senior Notes due 2047

      
+12 
Computation of Ratios of Earnings to Fixed Charges
      
+31.1 
Rule 13a-14(a)/15d-14(a) Certification of Scott M. Prochazka
      
+31.2 
Rule 13a-14(a)/15d-14(a) Certification of William D. Rogers
      
+32.1 
Section 1350 Certification of Scott M. Prochazka
      
+32.2 
Section 1350 Certification of William D. Rogers
      
+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
3.10 
Statement of Resolutions Deleting Shares Designated Series A Preferred Stock of CenterPoint Energy
 CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 1-31447 3(c) x    
3.11 
Statement of Resolution Establishing Series of Shares Designated Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock of CenterPoint Energy
 CenterPoint Energy’s Form 8-K dated August 22, 2018 1-31447 3.1 x    
3.12 
Statement of Resolution Establishing Series of Shares designated 7.00% Series B Mandatory Convertible Preferred Stock of CenterPoint Energy
 CenterPoint Energy’s Form 8-K dated September 25, 2018 1-31447 3.1 x    
4.1 
Form of CenterPoint Energy Stock Certificate
 CenterPoint Energy’s Registration Statement on Form S-4 3-69502 4.1 x    
4.2 
Form of Certificate representing the Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock of CenterPoint Energy
 CenterPoint Energy’s Form 8-K dated August 22, 2018 1-31447 4.1 x    
4.3 
Form of Certificate representing the 7.00% Series B Mandatory Convertible Preferred Stock of CenterPoint Energy (included as Exhibit A to Exhibit 3.12)
 CenterPoint Energy’s Form 8-K dated September 25, 2018 1-31447 4.1 x    
4.4 
Deposit Agreement, dated as of October 1, 2018, among CenterPoint Energy and Broadridge Corporate Issuer Solutions, Inc., as Depositary, and the holders from time to time of the Depositary Receipts described therein
 CenterPoint Energy’s Form 8-K dated September 25, 2018 1-31447 4.2 x    
4.5 
Form of Depositary Receipt for the Depositary Shares (included as Exhibit A to Exhibit 4.4)
 CenterPoint Energy’s Form 8-K dated September 25, 2018 1-31447 4.3 x    
4.6 
$1,600,000,000 Credit Agreement, dated as of March 3, 2016, among CenterPoint Energy, as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated March 3, 2016 1-31447 4.1 x    
4.7 
$300,000,000 Credit Agreement, dated as of March 3, 2016, among Houston Electric, as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated March 3, 2016 1-31447 4.2 x x  
4.8 
$600,000,000 Credit Agreement, dated as of March 3, 2016, among CERC Corp., as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated March 3, 2016 1-31447 4.3 x   x
4.9 
First Amendment to Amended and Restated Credit Agreement, dated as of June 16, 2017, by and among CenterPoint Energy, as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated June 16, 2017 1-31447 4.1 x    
4.10 
Second Amendment to Amended and Restated Credit Agreement, dated as of May 25, 2018, by and among CenterPoint Energy, as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated May 25, 2018 1-31447 4.1 x    
4.11 
First Amendment to Credit Agreement, dated as of June 16, 2017, among Houston Electric, as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated June 16, 2017 1-31447 4.2 x x  
4.12 
First Amendment to Credit Agreement, dated as of June 16, 2017, among CERC Corp., as Borrower, and the banks named therein
 CenterPoint Energy’s Form 8-K dated June 16, 2017 1-31447 4.3 x   x
4.13 
Indenture, dated as of May 19, 2003, between CenterPoint Energy and JPMorgan Chase Bank, as Trustee
 CenterPoint Energy’s Form 8-K dated May 19, 2003 1-31447 4.1 x    



Exhibit
Number
Description
Report or Registration
Statement
SEC File or
Registration
Number
Exhibit
Reference
CenterPoint EnergyHouston ElectricCERC
+4.14
Supplemental Indenture No. 10 to Exhibit 4.11, dated as of October 5, 2018, providing for the issuance of CenterPoint Energy’s 3.60% Senior Notes due 2021, 3.85% Senior Notes due 2024 and 4.25% Senior Notes due 2028
x
+31.1.1
Rule 13a-14(a)/15d-14(a) Certification of Scott M. Prochazka
x
+31.1.2
Rule 13a-14(a)/15d-14(a) Certification of Scott M. Prochazka
x
+31.1.3
Rule 13a-14(a)/15d-14(a) Certification of Scott M. Prochazka
x
+31.2.1
Rule 13a-14(a)/15d-14(a) Certification of William D. Rogers
x
+31.2.2
Rule 13a-14(a)/15d-14(a) Certification of William D. Rogers
x
+31.2.3
Rule 13a-14(a)/15d-14(a) Certification of William D. Rogers
x
+32.1.1
Section 1350 Certification of Scott M. Prochazka
x
+32.1.2
Section 1350 Certification of Scott M. Prochazka
x
+32.1.3
Section 1350 Certification of Scott M. Prochazka
x
+32.2.1
Section 1350 Certification of William D. Rogers
x
+32.2.2
Section 1350 Certification of William D. Rogers
x
+32.2.3
Section 1350 Certification of William D. Rogers
x
+101.INSXBRL Instance Documentxxx
+101.SCHXBRL Taxonomy Extension Schema Documentxxx
+101.CALXBRL Taxonomy Extension Calculation Linkbase Documentxxx
+101.DEFXBRL Taxonomy Extension Definition Linkbase Documentxxx
+101.LABXBRL Taxonomy Extension Labels Linkbase Documentxxx
+101.PREXBRL Taxonomy Extension Presentation Linkbase Documentxxx
*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:/s/ Kristie L. Colvin
 Kristie L. Colvin
 Senior Vice President and Chief Accounting Officer
  

Date: November 3, 20178, 2018


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