UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One) |
þ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017 |
OR
For the quarterly period ended June 30, 2022
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| FOR THE TRANSITION PERIOD FROM __________________ TO __________________ |
Commission file number 1-31447
CenterPoint Energy, Inc.
(Exact name of registrant as specified in its charter)
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Texas | | 74-0694415 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1111 Louisiana | |
Houston Texas 77002 | (713) 207-1111Texas | 77002 |
(Address and zip code of principal executive offices)Principal Executive Offices) | | (Registrant’s telephone number, including area code)Zip Code) |
(713) 207-1111
Registrant's telephone number, including area code
Commission file number 1-3187
CenterPoint Energy Houston Electric, LLC
(Exact name of registrant as specified in its charter)
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Texas | | 22-3865106 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1111 Louisiana | Houston | Texas | 77002 |
(Address of Principal Executive Offices) | | (Zip Code) |
(713) 207-1111
Registrant's telephone number, including area code
Commission file number 1-13265
CenterPoint Energy Resources Corp.
(Exact name of registrant as specified in its charter)
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Delaware | | 76-0511406 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1111 Louisiana | Houston | Texas | 77002 |
(Address of Principal Executive Offices) | | (Zip Code) |
(713) 207-1111
Registrant's telephone number, including area code
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Securities registered pursuant to Section 12(b) of the Act: |
Registrant | Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
CenterPoint Energy, Inc. | Common Stock, $0.01 par value | CNP | The New York Stock Exchange |
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CenterPoint Energy Houston Electric, LLC | 6.95% General Mortgage Bonds due 2033 | n/a | The New York Stock Exchange |
CenterPoint Energy Resources Corp. | 6.625% Senior Notes due 2037 | n/a | The New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
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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). Yes þ No o
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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):
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| Large accelerated filerþ | Accelerated filero | Non-accelerated filero | Smaller reporting companyo | Emerging growth companyo |
CenterPoint Energy, Inc. | þ | (Do not check if a smaller reporting company)o | o | ☐ | ☐ |
CenterPoint Energy Houston Electric, LLC | o | o | þ | ☐ | ☐ |
CenterPoint Energy Resources Corp. | o | o | þ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
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CenterPoint Energy, Inc. | Yes | ☐ | | No | þ |
CenterPoint Energy Houston Electric, LLC | Yes | ☐ | | No | þ |
CenterPoint Energy Resources Corp. | Yes | ☐ | | No | þ |
As
Indicate the number of October 26, 2017, CenterPoint Energy, Inc. had 431,033,509 shares outstanding of each of the issuers’ classes of common stock outstanding, excluding 166 shares held as treasury stock.
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CenterPoint Energy, Inc. | | 629,502,911 | shares of common stock outstanding, excluding 166 shares held as treasury stock |
CenterPoint Energy Houston Electric, LLC | | 1,000 | 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. |
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
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PART I. | | FINANCIAL INFORMATION | |
Item 1. | | | |
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PART I. | | FINANCIAL INFORMATION | |
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Item 1. | | | |
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| | Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) | |
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| | Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) | |
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| | September 30, 2017 and December 31, 2016 (unaudited) | |
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| | Nine Months Ended September 30, 2017 and 2016 (unaudited) | |
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Item 2. | | | |
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| | Consolidated Results of Operations | |
| | Results of Operations by Reportable Segment | |
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Item 4. | | | |
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PART II. | | OTHER INFORMATION | |
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Item 1. | | | |
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Item 1A. | | | |
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Item 5.6. | | | |
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Item 6. | | | |
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GLOSSARY |
ACE | | Affordable Clean Energy |
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GLOSSARY | | |
AEMAMA | | Atmos Energy Marketing, LLC, previously a wholly-owned subsidiary of Atmos Energy Holdings, Inc., a wholly-owned subsidiary of Atmos Energy CorporationAsset Management Agreement |
AMAs | | Asset Management Agreements |
AMS | | Advanced Metering System |
APSC | | Arkansas Public Service Commission |
ASU | | Accounting Standards Update |
AT&T | | AT&T Inc. |
AT&T Common | | AT&T common stock |
Bcf | | Billion cubic feet |
BDA | | Billing 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 | | Transition and system restoration bond companies |
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 |
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 merger | | Merger of Charter Communications, Inc. and Time Warner Cable Inc. |
CIP | | Conservation Improvement Program |
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 by Continuum Energy Services, LLC |
DCRF | | Distribution Cost Recovery Factor |
EECR | | Energy Efficiency Cost Recovery |
EECRF | | Energy Efficiency Cost Recovery Factor |
Enable | | Enable Midstream Partners, LP |
ERCOT | | Electric Reliability Council of Texas |
FASB | | Financial Accounting Standards Board |
Fitch | | Fitch, Inc. |
Form 10-Q | | Quarterly Report on Form 10-Q |
FRP | | Formula Rate Plan |
Gas Daily | | Platt’s gas daily indices |
GenOn | | GenOn Energy, Inc. |
GRIP | | Gas Reliability Infrastructure Program |
GWh | | Gigawatt-hours |
Houston Electric | | CenterPoint Energy Houston Electric, LLC and its subsidiaries |
IBEW | | International Brotherhood of Electrical Workers |
Interim Condensed Financial Statements | | Condensed consolidated interim financial statements and notes |
IRS | | Internal Revenue Service |
LIBOR | | London Interbank Offered Rate |
LPSC | | Louisiana Public Service Commission |
MGPs | | Manufactured gas plants |
MLP | | Master Limited Partnership |
MMBtu | | One million British thermal units |
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GLOSSARY (cont.) | | |
Moody’sARO | | Moody’s Investors Service, Inc.Asset retirement obligation |
MPSC | | Mississippi Public Service Commission |
MPUCARP | | Minnesota Public Utilities CommissionAlternative revenue program |
NECAARPA | | National Electrical Contractors AssociationAmerican Rescue Plan Act of 2021 |
NGDASC | | Natural gas distribution businessAccounting Standards Codification |
NGLsAsset Purchase Agreement | | Natural gas liquidsAsset Purchase Agreement, dated as of April 29, 2021, by and between CERC Corp. and Southern Col Midco |
NRG | | NRG |
AT&T | | AT&T Inc. |
AT&T Common | | AT&T common stock |
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Bcf | | Billion cubic feet |
Board | | Board of Directors of CenterPoint Energy, Inc. |
Bond Companies | | 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 property through the issuance of Securitization Bonds |
Bond Company IV | | CenterPoint Energy Transition Bond Company IV, LLC, a wholly-owned subsidiary of Houston Electric |
BTA | | Build Transfer Agreement |
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Capital Dynamics | | Capital Dynamics, Inc. |
CARES Act | | Coronavirus Aid, Relief, and Economic Security Act |
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CCR | | Coal Combustion Residuals |
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CEIP | | CenterPoint Energy Intrastate Pipelines, LLC, a wholly-owned subsidiary of CERC Corp. |
CenterPoint Energy | | CenterPoint Energy, Inc., and its subsidiaries |
CERC | | CERC Corp., together with its subsidiaries |
CERC Corp. | | CenterPoint Energy Resources Corp. |
CES | | CenterPoint Energy Services, Inc. (now known as Symmetry Energy Solutions, LLC), previously a wholly-owned subsidiary of CERC Corp. |
Charter Common | | Charter Communications, Inc. common stock |
CIP | | Conservation Improvement Program |
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CODM | | Chief Operating Decision Maker, who is each Registrant’s Chief Operating Executive |
Common Stock | | CenterPoint Energy, Inc. common stock, par value $0.01 per share |
Compensation Committee | | Compensation Committee of the Board |
COVID-19 | | Novel coronavirus disease 2019, and any mutations or variants thereof, and related global outbreak that was subsequently declared a pandemic by the World Health Organization |
COVID-19 ERP | | COVID-19 Electricity Relief Program |
CPCN | | Certificate of Public Convenience and Necessity |
CPP | | Clean Power Plan |
CSIA | | Compliance and System Improvement Adjustment |
DCRF | | Distribution Cost Recovery Factor |
DOC | | U.S. Department of Commerce |
DRR | | Distribution Replacement Rider |
DSMA | | Demand Side Management Adjustment |
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ECA | | Environmental Cost Adjustment |
EDIT | | Excess deferred income taxes |
EECR | | Energy Efficiency Cost Recovery |
EECRF | | Energy Efficiency Cost Recovery Factor |
EEFC | | Energy Efficiency Funding Component |
EEFR | | Energy Efficiency Funding Rider |
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GLOSSARY |
Elk GP Merger Sub | | Elk GP Merger Sub LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Energy Transfer |
Elk Merger Sub | | Elk Merger Sub LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Energy Transfer |
Enable | | Enable Midstream Partners, LP |
Enable Common Units | | Enable common units, representing limited partner interests in Enable |
Enable GP | | Enable GP, LLC, Enable’s general partner |
Enable Merger | | The merger of Elk Merger Sub with and into Enable and the merger of Elk GP Merger Sub with and into Enable GP, in each case on the terms and subject to the conditions set forth in the Enable Merger Agreement, with Enable and Enable GP surviving as wholly-owned subsidiaries of Energy Transfer, which closed on December 2, 2021 |
Enable Merger Agreement | | Agreement and Plan of Merger by and among Energy Transfer, Elk Merger Sub, Elk GP Merger Sub, Enable, Enable GP and, solely for the purposes of Section 2.1(a)(i) therein, Energy Transfer GP, and solely for the purposes of Section 1.1(b)(i) therein, CenterPoint Energy, Inc. |
NYMEX | | New York Mercantile Exchange |
OCC | | Oklahoma Corporation Commission |
OGE | | OGE Energy Corp. |
PBRC | | Performance Based Rate Change |
PHMSA | | U.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 |
Reliant Energy | | Reliant Energy, Incorporated |
REP | | Retail electric provider |
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 |
Enable Series A Preferred Units | | Enable’s 10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units, representing limited partner interests in Enable |
S&PEnergy Services | | Standard & Poor’s Ratings Services, a division of The McGraw-Hill CompaniesOffered competitive variable and fixed-priced physical natural gas supplies primarily to commercial and industrial customers and electric and natural gas utilities through CES and CEIP |
TBDEnergy Services Disposal Group | | Substantially all of the businesses within CenterPoint Energy’s and CERC’s Energy Services reporting unit that were sold under the Equity Purchase Agreement |
Energy Systems Group | | Energy Systems Group, LLC, a wholly-owned subsidiary of Vectren |
Energy Transfer | | Energy Transfer LP, a Delaware limited partnership |
Energy Transfer Common Units | | Energy Transfer common units, representing limited partner interests in Energy Transfer |
Energy Transfer GP | | LE GP, LLC, a Delaware limited liability company and sole general partner of Energy Transfer |
Energy Transfer Series G Preferred Units | | Energy Transfer Series G Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units, representing limited partner interests in Energy Transfer |
EPA | | Environmental Protection Agency |
Equity Purchase Agreement | | Equity Purchase Agreement, dated as of February 24, 2020, by and between CERC Corp. and Symmetry Energy Solutions Acquisition, LLC (f/k/a Athena Energy Services Buyer, LLC) |
ERCOT | | Electric Reliability Council of Texas |
February 2021 Winter Storm Event | | The extreme and unprecedented winter weather event in February 2021 (Winter Storm Uri) that resulted in electricity generation supply shortages, including in Texas, and natural gas supply shortages and increased wholesale prices of natural gas in the United States, primarily due to prolonged freezing temperatures |
FERC | | Federal Energy Regulatory Commission |
Fitch | | Fitch Ratings, Inc. |
Form 10-Q | | Quarterly Report on Form 10-Q |
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GHG | | Greenhouse gases |
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GRIP | | Gas Reliability Infrastructure Program |
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GWh | | Gigawatt-hours |
Houston Electric | | CenterPoint Energy Houston Electric, LLC and its subsidiaries |
IDEM | | Indiana Department of Environmental Management |
Indiana Electric | | Operations of SIGECO’s electric transmission and distribution services, and includes its power generating and wholesale power operations |
Indiana Gas | | Indiana Gas Company, Inc., formerly a wholly-owned subsidiary of Vectren, acquired by CERC on June 30, 2022 |
Indiana North | | Gas operations of Indiana Gas |
Indiana South | | Gas operations of SIGECO |
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GLOSSARY |
Indiana Utilities | | The combination of Indiana Electric, Indiana North and Indiana South |
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Interim Condensed Financial Statements | | Unaudited condensed consolidated interim financial statements and combined notes |
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IRP | | Integrated Resource Plan |
IRS | | Internal Revenue Service |
IURC | | Indiana Utility Regulatory Commission |
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LIBOR | | London Interbank Offered Rate |
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LPSC | | Louisiana Public Service Commission |
LTIP | | Long-term Incentive Plan |
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Merger | | The 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 Agreement | | Agreement and Plan of Merger, dated as of April 21, 2018, among CenterPoint Energy, Vectren and Merger Sub |
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Merger Sub | | Pacer Merger Sub, Inc., an Indiana corporation and wholly-owned subsidiary of CenterPoint Energy |
MES | | CenterPoint Energy Mobile Energy Solutions, Inc. (now known as Mobile Energy Solutions, Inc.), previously a wholly-owned subsidiary of CERC Corp. |
MGP | | Manufactured gas plant |
MISO | | Midcontinent Independent System Operator |
MLP | | Master Limited Partnership |
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Moody’s | | Moody’s Investors Service, Inc. |
MPSC | | Mississippi Public Service Commission |
MPUC | | Minnesota Public Utilities Commission |
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MW | | Megawatt |
NERC | | North American Electric Reliability Corporation |
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NOLs | | Net operating losses |
NRG | | NRG Energy, Inc. |
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OUCC | | Indiana Office of Utility Consumer Counselor |
Posey Solar | | Posey Solar, LLC, a special purpose entity |
PowerTeam Services | | PowerTeam Services, LLC, a Delaware limited liability company, now known as Artera Services, LLC |
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PPA | | Power Purchase Agreement |
PRPs | | Potentially responsible parties |
PUCO | | Public Utilities Commission of Ohio |
PUCT | | Public Utility Commission of Texas |
Railroad Commission | | Railroad Commission of Texas |
RCRA | | Resource Conservation and Recovery Act of 1976 |
Registrants | | CenterPoint Energy, Houston Electric and CERC, collectively |
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REP | | Retail electric provider |
Restoration Bond Company | | CenterPoint Energy Restoration Bond Company, LLC, a wholly-owned subsidiary of Houston Electric |
Restructuring | | CERC Corp.’s common control acquisition of Indiana Gas and VEDO from VUH on June 30, 2022 |
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ROE | | Return on equity |
ROU | | Right of use |
RRA | | Rate Regulation Adjustment |
RSP | | Rate Stabilization Plan |
S&P | | S&P Global Ratings |
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GLOSSARY |
Scope 1 emissions | | Direct source of emissions from a company’s operations |
Scope 2 emissions | | Indirect source of emissions from a company’s energy usage |
Scope 3 emissions | | Indirect source of emissions from a company’s end-users |
SEC | | Securities and Exchange Commission |
Securities Purchase Agreement | | Securities Purchase Agreement, dated as of February 3, 2020, by and among Vectren Utility Services, Inc., PowerTeam Services and, solely for purposes of Section 10.17 of the Securities Purchase Agreement, Vectren |
Securitization Bonds | | Transition and system restoration bonds |
Series A Preferred Stock | | CenterPoint Energy’s Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share |
Series B Preferred Stock | | CenterPoint 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 |
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Series C Preferred Stock | | CenterPoint Energy’s Series C Mandatory Convertible Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share |
SIGECO | | Southern Indiana Gas and Electric Company, a wholly-owned subsidiary of Vectren |
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Southern Col Midco | | Southern Col Midco, LLC, a Delaware limited liability company and an affiliate of Summit Utilities, Inc. |
SRC | | Sales Reconciliation Component |
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Symmetry Energy Solutions Acquisition | | Symmetry Energy Solutions Acquisition, LLC, a Delaware limited liability company (f/k/a Athena Energy Services Buyer, LLC) and subsidiary of Energy Capital Partners, LLC |
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 |
TCOSTCJA | | Tax reform legislation informally called the Tax Cuts and Jobs Act of 2017 |
TCOS | | Transmission Cost of Service |
TDUTCRF | | Transmission Cost Recovery Factor |
TDSIC | | Transmission, Distribution and Storage System Improvement Charge |
TDU | | Transmission and distribution utility |
Time CommonTEEEF | | Time Inc. common stockTemporary Emergency Electric Energy Facilities |
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Tenaska | | Tenaska Wind Holdings, LLC |
Texas RE | | Texas Reliability Entity |
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Transition AgreementsServices Agreement | | Transition Services Agreement Employee Transition Agreement, Transitional Seconding Agreementby and other agreements entered into in connection with the formation of Enablebetween CenterPoint Energy Service Company, LLC and Southern Col Midco |
TWVectren | | Time Warner Inc.Vectren, LLC, which converted its corporate structure from Vectren Corporation on June 30, 2022, a wholly-owned subsidiary of CenterPoint Energy as of February 1, 2019 |
TW CommonVEDO | | TW common stockVectren Energy Delivery of Ohio, LLC, which converted its corporate structure from Vectren Energy Delivery of Ohio, Inc. on June 13, 2022, formerly a wholly-owned subsidiary of Vectren, acquired by CERC on June 30, 2022 |
TW SecuritiesVIE | | Charter Common, Time Common and TW Common |
VIE | | Variable interest entity |
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Vistra Energy Corp. | | Texas-based energy company focused on the competitive energy and power generation markets, whose major subsidiaries include Luminant and TXU Energy |
ZENSVRP | | Voluntary Remediation Program |
VUH | | Vectren Utility Holdings, LLC, which converted its corporate structure from Vectren Utility Holdings, Inc. on June 30, 2022, a wholly-owned subsidiary of Vectren |
VUH PPNs | | VUH’s private senior guaranteed notes |
WBD Common | | Warner Bros. Discovery, Inc. Series A common stock |
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GLOSSARY |
ZENS | | 2.0% Zero-Premium Exchangeable Subordinated Notes due 2029 |
2016ZENS-Related Securities | | As of December 31, 2021, consisted of AT&T Common and Charter Common and, as of June 30, 2022, consisted of AT&T Common, Charter Common and WBD Common |
2021 Form 10-K | | Annual Report on Form 10-K for the fiscal year ended December 31, 20162021 as filed with the SEC on February 22, 2022 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time wethe Registrants make statements concerning ourtheir expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “target,” “will” or other similar words.
WeThe Registrants have based ourtheir forward-looking statements on our management’s beliefs and assumptions based on information reasonably available to our management at the time the statements are made. WeThe Registrants caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, wethe Registrants cannot assure you that actual results will not differ materially from those expressed or implied by ourthe Registrants’ forward-looking statements. In this Form 10-Q, unless context requires otherwise, the terms “our,” “we” and “us” are used as abbreviated references to CenterPoint Energy, Inc. together with its consolidated subsidiaries, including Houston Electric, CERC and SIGECO.
The following are some of the factors that could cause actual results to differ from those expressed or implied by the Registrants’ forward-looking statements and apply to all Registrants unless otherwise indicated:
•CenterPoint Energy’s business strategies and strategic initiatives, restructurings, joint ventures and acquisitions or dispositions of assets or businesses, including the completed sale of our forward-looking statements:
Natural Gas businesses in Arkansas and Oklahoma, the performance of Enable, the amount of cash distributions we receiveexit from Enable, Enable’s ability to redeem the Series A Preferred Units in certain circumstancesmidstream and the value of our interest in Enable, and factors that mayRestructuring, which we cannot assure will have a material impact on such performance, cash distributions and value, including factors such as:the anticipated benefits to us;
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◦ | competitive conditions in the midstream industry, and actions taken by Enable’s customers and competitors, including the extent and timing of the entry of additional competition in the markets served by Enable; |
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◦ | the timing and extent of changes in the supply of natural gas and associated commodity prices, particularly prices of natural gas and NGLs, the competitive effects of the available pipeline capacity in the regions served by Enable, and the effects of geographic and seasonal commodity price differentials, including the effects of these circumstances on re-contracting available capacity on Enable’s interstate pipelines; |
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◦ | the demand for crude oil, natural gas, NGLs and transportation and storage services; |
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◦ | environmental and other governmental regulations, including the availability of drilling permits and the regulation of hydraulic fracturing; |
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◦ | recording of non-cash goodwill, long-lived asset or other than temporary impairment charges by or related to Enable; |
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◦ | access to debt and equity capital; and |
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◦ | the availability and prices of raw materials and services for current and future construction projects; |
•industrial, commercial and residential growth in our service territories and changes in market demand, including the demand for our non-utility products and services and effects of energy efficiency measures and demographic patterns;
•our ability to fund and invest planned capital and the timely recovery of our investments, including those related to Indiana Electric’s generation transition plan as part of its most recent IRP;
•our ability to successfully construct, operate, repair and maintain electric generating facilities, natural gas facilities, mobile generation and electric transmission facilities, including complying with applicable environmental standards and the implementation of a well-balanced energy and resource mix, as appropriate;
•timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment;investment, including the timing and amount of recovered natural gas costs in some jurisdictions associated with the February 2021 Winter Storm Event and those related to Houston Electric’s mobile generation;
•future economic conditions in regional and national markets and their effect on sales, prices and costs;
•weather variations and other natural phenomena, including the impact of severe weather events on operations and capital;capital, such as impacts from the February 2021 Winter Storm Event;
•increases in commodity prices;
•volatility in the markets for natural gas as a result of, among other factors, armed conflicts, including the conflict in Ukraine and the related sanctions on certain Russian entities;
•changes in rates of inflation;
•continued disruptions to the global supply chain, including tariffs and other legislation impacting the supply chain, that could prevent CenterPoint Energy from securing the resources needed to, among other things, fully execute on its 10-year capital plan or achieve its net zero and carbon emissions reduction goals;
•non-payment for our services due to financial distress of our customers and the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., to satisfy their obligations to CenterPoint Energy and Houston Electric, including the negative impact on such ability related to the February 2021 Winter Storm Event;
•the COVID-19 pandemic and its continuing effect on our industries and the communities we serve, U.S. and world financial markets and supply chains and changes in customer and stakeholder behaviors relating thereto;
•state and federal legislative and regulatory actions or developments affecting various aspects of our businesses, (including the businesses of Enable), including, among others, energy deregulation or re-regulation, pipeline integrity and safety and changes in regulation and legislation pertaining to trade, health care, finance and actions regarding the rates charged by our regulated businesses;
tax reform and legislation;
our ability to mitigate weather impacts through normalization or rate mechanisms, and the effectiveness of such mechanisms;
the timing and extent of changes in commodity prices, particularly natural gas, and the effects of geographic and seasonal commodity price differentials;
problems with regulatory approval, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or in cost overruns that cannot be recouped in rates;
local, state and federal legislative and regulatory actions or developments relating to the environment, including those related to global climate change;
the impact of unplanned facility outages;
any •direct or indirect effects on our facilities, resources, operations and financial condition resulting from terrorism, cyber-attacks,cyber attacks or intrusions, including as a result of global conflict such as the conflict in Ukraine, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other catastrophic events such as fires, ice, earthquakes, explosions, leaks, floods, droughts, hurricanes, tornadoes and other severe weather events, pandemic health events or other occurrences;
•the effective tax rate, including as a result of tax legislation, including the effects of the CARES Act, as well as any changes in tax laws under the current or future administrations, and uncertainties involving state commissions’ and local municipalities’ regulatory requirements and determinations regarding the treatment of EDIT and our rates;
•our ability to invest planned capitalmitigate weather impacts through normalization or rate mechanisms, and the timely recoveryeffectiveness of our investment in capital;such mechanisms;
our ability to control operation and maintenance costs;
•actions by credit rating agencies;agencies, including any potential downgrades to credit ratings;
•matters affecting regulatory approval, legislative actions, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or cancellation or in cost overruns that cannot be recouped in rates;
•local, state and federal legislative and regulatory actions or developments relating to the environment, including, among others, those related to global climate change, air emissions, carbon, waste water discharges and the handling and disposal of CCR that could impact operations, cost recovery of generation plant costs and related assets, and CenterPoint Energy’s net zero and carbon emissions reduction goals;
•the impact of unplanned facility outages or other closures;
•the sufficiency of our insurance coverage, including availability, cost, coverage and terms;terms and ability to recover claims;
•the availability and prices of raw materials and services and changes in labor for current and future construction projects and operations and maintenance costs, including our ability to control such costs;
the investment performance of our•impacts from CenterPoint Energy’s pension and postretirement benefit plans;plans, such as the investment performance and increases to net periodic costs as a result of plan settlements and changes in discount rates;
•changes in interest rates and their impact on costs of borrowing and the valuation of CenterPoint Energy’s pension benefit obligation;
•commercial bank and financial market conditions, our access to capital, the cost of such capital, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets;
changes in interest rates or rates of inflation;
•inability of various counterparties to meet their obligations to us;
non-payment for our services due to financial distress of our customers;
•the extent and effectiveness of our risk management and hedging activities, including, but not limited to, our financial hedges and weather hedges;activities;
•timely and appropriate regulatory actions, which include actions allowing securitization, for any future hurricanes or other severe weather events, or natural disasters or other recovery of costs, associated with Hurricane Harvey and any future hurricanes or natural disasters;including stranded coal generation asset costs;
our or Enable’s potential business strategies and strategic initiatives, including restructurings, joint ventures and acquisitions or dispositions of assets or businesses (including a reduction of our interests in Enable, whether through our election to sell the common units we own in the public equity markets or otherwise, subject to certain limitations), which we cannot assure you will be completed or will have the anticipated benefits to us or Enable;
•acquisition and merger activities involving us or our competitors;competitors, including the ability to successfully complete merger, acquisition and divestiture plans;
•our or Enable’s ability to recruit, effectively transition and retain management and key employees and maintain good labor relations;
the ability of GenOn (formerly known as RRI Energy, Inc., Reliant Energy and RRI), a wholly-owned subsidiary of NRG, and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations to us, including indemnity obligations;
the outcome of litigation;
the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to us and our subsidiaries;
•changes in technology, particularly with respect to efficient battery storage or the emergence or growth of new, developing or alternative sources of generation;generation, and their adoption by consumers;
•the impact of climate change and alternate energy sources on the demand for natural gas and electricity generated or transmitted by us;
•the timing and outcome of any audits, disputes and other proceedings related to taxes;
•the recording of impairment charges;
•political and economic developments, including energy and environmental policies under the effective tax rates;current administration;
•the transition to a replacement for the LIBOR benchmark interest rate;
•CenterPoint Energy’s ability to execute on its strategy, initiatives, targets and goals, including its net zero and carbon emissions reduction goals and its operations and maintenance goals;
•the outcome of litigation, including litigation related to the February 2021 Winter Storm Event;
•the development of new opportunities and the performance of projects undertaken by Energy Systems Group, which are subject to, among other factors, the level of success in bidding contracts and cancellation and/or reductions in the scope of projects by customers, and obligations related to warranties, guarantees and other contractual and legal obligations;
•the effect of changes in and application of accounting standards and pronouncements; and
•other factors we discussdiscussed in “Risk Factors” in Item 1A of Part I of our 2016the Registrants’ combined 2021 Form 10-K, which isare incorporated herein by reference, in Item 1A of Part II of this combined Form 10-Q, and in other reports wethe Registrants file from time to time with the SEC.
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and wethe Registrants undertake no obligation to update or revise any forward-looking statements.
Investors should note that the Registrants announce material financial and other information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, the Registrants may use the Investors section of CenterPoint Energy’s website (www.centerpointenergy.com) to communicate with investors about the Registrants. It is possible that the
financial and other information posted there could be deemed to be material information. The information on CenterPoint Energy’s website is not part of this combined Form 10-Q.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(In Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions, except per share amounts) |
Revenues: | | | | | | | |
Utility revenues | $ | 1,862 | | | $ | 1,652 | | | $ | 4,571 | | | $ | 4,136 | |
Non-utility revenues | 82 | | | 90 | | | 136 | | | 153 | |
Total | 1,944 | | | 1,742 | | | 4,707 | | | 4,289 | |
Expenses: | | | | | | | |
Utility natural gas, fuel and purchased power | 413 | | | 258 | | | 1,511 | | | 1,193 | |
Non-utility cost of revenues, including natural gas | 56 | | | 58 | | | 91 | | | 98 | |
Operation and maintenance | 662 | | | 677 | | | 1,350 | | | 1,346 | |
Depreciation and amortization | 327 | | | 327 | | | 645 | | | 634 | |
Taxes other than income taxes | 135 | | | 126 | | | 282 | | | 269 | |
| | | | | | | |
Total | 1,593 | | | 1,446 | | | 3,879 | | | 3,540 | |
Operating Income | 351 | | | 296 | | | 828 | | | 749 | |
Other Income (Expense): | | | | | | | |
Gain (loss) on equity securities | (61) | | | 75 | | | (78) | | | 52 | |
Gain (loss) on indexed debt securities | 65 | | | (77) | | | 171 | | | (51) | |
Gain on sale | — | | | — | | | 303 | | | — | |
Interest expense and other finance charges | (106) | | | (126) | | | (259) | | | (266) | |
Interest expense on Securitization Bonds | (4) | | | (5) | | | (8) | | | (11) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other income (expense), net | (1) | | | 18 | | | 17 | | | 37 | |
Total | (107) | | | (115) | | | 146 | | | (239) | |
Income from Continuing Operations Before Income Taxes | 244 | | | 181 | | | 974 | | | 510 | |
Income tax expense (benefit) | 54 | | | (19) | | | 253 | | | 30 | |
Income from Continuing Operations | 190 | | | 200 | | | 721 | | | 480 | |
Income from Discontinued Operations (net of tax expense of $-0-, $16, $-0- and $41, respectively) | — | | | 51 | | | — | | | 134 | |
Net Income | 190 | | | 251 | | | 721 | | | 614 | |
Income allocated to preferred shareholders | 11 | | | 30 | | | 24 | | | 59 | |
Income Available to Common Shareholders | $ | 179 | | | $ | 221 | | | $ | 697 | | | $ | 555 | |
| | | | | | | |
Basic earnings per common share - continuing operations | $ | 0.28 | | | $ | 0.29 | | | $ | 1.11 | | | $ | 0.74 | |
Basic earnings per common share - discontinued operations | — | | | 0.09 | | | — | | | 0.24 | |
Basic Earnings Per Common Share | 0.28 | | | 0.38 | | | 1.11 | | | 0.98 | |
Diluted earnings per common share - continuing operations | $ | 0.28 | | | $ | 0.29 | | | $ | 1.10 | | | $ | 0.71 | |
Diluted earnings per common share - discontinued operations | — | | | 0.08 | | | — | | | 0.22 | |
Diluted Earnings Per Common Share | $ | 0.28 | | | $ | 0.37 | | | $ | 1.10 | | | $ | 0.93 | |
| | | | | | | |
Weighted Average Common Shares Outstanding, Basic | 629 | | | 586 | | | 629 | | | 569 | |
Weighted Average Common Shares Outstanding, Diluted | 632 | | | 596 | | | 631 | | | 596 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | |
Revenues: | | | | | | | |
Utility revenues | $ | 1,233 |
| | $ | 1,278 |
| | $ | 4,001 |
| | $ | 4,003 |
|
Non-utility revenues | 865 |
| | 611 |
| | 2,975 |
| | 1,444 |
|
Total | 2,098 |
| | 1,889 |
| | 6,976 |
| | 5,447 |
|
| | | | | | | |
Expenses: | | | | | | | |
Utility natural gas | 106 |
| | 99 |
| | 706 |
| | 663 |
|
Non-utility natural gas | 832 |
| | 584 |
| | 2,843 |
| | 1,368 |
|
Operation and maintenance | 519 |
| | 505 |
| | 1,614 |
| | 1,539 |
|
Depreciation and amortization | 269 |
| | 324 |
| | 749 |
| | 873 |
|
Taxes other than income taxes | 93 |
| | 93 |
| | 288 |
| | 288 |
|
Total | 1,819 |
| | 1,605 |
| | 6,200 |
| | 4,731 |
|
Operating Income | 279 |
| | 284 |
| | 776 |
| | 716 |
|
| | | | | | | |
Other Income (Expense): | | | | | | | |
Gain on marketable securities | 37 |
| | 77 |
| | 104 |
| | 187 |
|
Loss on indexed debt securities | (36 | ) | | (72 | ) | | (59 | ) | | (258 | ) |
Interest and other finance charges | (80 | ) | | (83 | ) | | (235 | ) | | (256 | ) |
Interest on securitization bonds | (18 | ) | | (23 | ) | | (58 | ) | | (70 | ) |
Equity in earnings of unconsolidated affiliate, net | 68 |
| | 73 |
| | 199 |
| | 164 |
|
Other, net | 17 |
| | 20 |
| | 50 |
| | 41 |
|
Total | (12 | ) | | (8 | ) | | 1 |
| | (192 | ) |
| | | | | | | |
Income Before Income Taxes | 267 |
| | 276 |
| | 777 |
| | 524 |
|
Income tax expense | 98 |
| | 97 |
| | 281 |
| | 193 |
|
Net Income | $ | 169 |
| | $ | 179 |
| | $ | 496 |
| | $ | 331 |
|
| | | | | | | |
Basic Earnings Per Share | $ | 0.39 |
| | $ | 0.42 |
| | $ | 1.15 |
| | $ | 0.77 |
|
| | | | | | | |
Diluted Earnings Per Share | $ | 0.39 |
| | $ | 0.41 |
| | $ | 1.14 |
| | $ | 0.76 |
|
| | | | | | | |
Dividends Declared Per Share | $ | 0.2675 |
| | $ | 0.2575 |
| | $ | 0.8025 |
| | $ | 0.7725 |
|
| | | | | | | |
Weighted Average Shares Outstanding, Basic | 431 |
| | 431 |
| | 431 |
| | 431 |
|
| | | | | | | |
Weighted Average Shares Outstanding, Diluted | 434 |
| | 433 |
| | 434 |
| | 433 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(In Millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Net Income | $ | 190 | | | $ | 251 | | | $ | 721 | | | $ | 614 | |
Other comprehensive income: | | | | | | | |
Adjustment to pension and other postretirement plans (net of tax of $4, $-0-, $4 and $-0-) | (23) | | | 1 | | | (22) | | | 3 | |
| | | | | | | |
Reclassification of deferred loss from cash flow hedges realized in net income (net of tax of $-0-, $-0-, $-0- and $-0-) | — | | | — | | | 1 | | | — | |
| | | | | | | |
Other comprehensive income from unconsolidated affiliates (net of tax of $-0-, $-0-, $-0- and $-0-) | — | | | 1 | | | — | | | 2 | |
Total | (23) | | | 2 | | | (21) | | | 5 | |
Comprehensive income | 167 | | | 253 | | | 700 | | | 619 | |
Income allocated to preferred shareholders | 11 | | | 30 | | | 24 | | | 59 | |
Comprehensive income available to common shareholders | $ | 156 | | | $ | 223 | | | $ | 676 | | | $ | 560 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income | $ | 169 |
| | $ | 179 |
| | $ | 496 |
| | $ | 331 |
|
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 |
|
Total | (2 | ) | | 3 |
| | (1 | ) | | 2 |
|
Comprehensive income | $ | 167 |
| | $ | 182 |
| | $ | 495 |
| | $ | 333 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
(Unaudited)
ASSETS | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (in millions) |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents ($78 and $92 related to VIEs, respectively) | $ | 555 | | | $ | 230 | |
Investment in equity securities | 658 | | | 1,439 | |
| | | |
Accounts receivable ($37 and $29 related to VIEs, respectively), less allowance for credit losses of $41 and $44, respectively | 783 | | | 690 | |
Accrued unbilled revenues, less allowance for credit losses of $2 and $6, respectively | 316 | | | 513 | |
| | | |
Natural gas and coal inventory | 152 | | | 186 | |
Materials and supplies | 484 | | | 422 | |
Non-trading derivative assets | 26 | | | 9 | |
Taxes receivable | 3 | | | 1 | |
Current assets held for sale | — | | | 2,338 | |
Regulatory assets | 1,350 | | | 1,395 | |
Prepaid expenses and other current assets ($18 and $19 related to VIEs, respectively) | 116 | | | 132 | |
Total current assets | 4,443 | | | 7,355 | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 35,436 | | | 33,673 | |
Less: accumulated depreciation and amortization | 10,421 | | | 10,189 | |
Property, plant and equipment, net | 25,015 | | | 23,484 | |
Other Assets: | | | |
Goodwill | 4,294 | | | 4,294 | |
Regulatory assets ($318 and $420 related to VIEs, respectively) | 2,229 | | | 2,321 | |
| | | |
Non-trading derivative assets | 6 | | | 5 | |
| | | |
| | | |
| | | |
| | | |
Other non-current assets | 229 | | | 220 | |
Total other assets | 6,758 | | | 6,840 | |
Total Assets | $ | 36,216 | | | $ | 37,679 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Current Assets: | | | |
Cash and cash equivalents ($200 and $340 related to VIEs, respectively) | $ | 201 |
| | $ | 341 |
|
Investment in marketable securities | 1,057 |
| | 953 |
|
Accounts receivable ($65 and $52 related to VIEs, respectively), less bad debt reserve of $16 and $15, respectively | 783 |
| | 740 |
|
Accrued unbilled revenues | 213 |
| | 335 |
|
Natural gas inventory | 252 |
| | 131 |
|
Materials and supplies | 190 |
| | 181 |
|
Non-trading derivative assets | 64 |
| | 51 |
|
Taxes receivable | — |
| | 30 |
|
Prepaid expenses and other current assets ($31 and $40 related to VIEs, respectively) | 175 |
| | 161 |
|
Total current assets | 2,935 |
| | 2,923 |
|
| | | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 18,581 |
| | 17,831 |
|
Less: accumulated depreciation and amortization | 5,881 |
| | 5,524 |
|
Property, plant and equipment, net | 12,700 |
| | 12,307 |
|
| | | |
Other Assets: | | | |
Goodwill | 867 |
| | 862 |
|
Regulatory assets ($1,690 and $1,919 related to VIEs, respectively) | 2,539 |
| | 2,677 |
|
Non-trading derivative assets | 56 |
| | 19 |
|
Investment in unconsolidated affiliate | 2,481 |
| | 2,505 |
|
Preferred units – unconsolidated affiliate | 363 |
| | 363 |
|
Other | 194 |
| | 173 |
|
Total other assets | 6,500 |
| | 6,599 |
|
| | | |
Total Assets | $ | 22,135 |
| | $ | 21,829 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
(In Millions, except share amounts)
(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (in millions, except par value and shares) |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities: | | | |
Short-term borrowings | $ | 7 | | | $ | 7 | |
Current portion of VIE Securitization Bonds long-term debt | 185 | | | 220 | |
Indexed debt, net | 8 | | | 10 | |
Current portion of other long-term debt | 1,579 | | | 308 | |
Indexed debt securities derivative | 732 | | | 903 | |
Accounts payable | 1,033 | | | 1,196 | |
| | | |
Taxes accrued | 249 | | | 378 | |
Interest accrued | 144 | | | 136 | |
Dividends accrued | — | | | 131 | |
Customer deposits | 110 | | | 111 | |
Non-trading derivative liabilities | — | | | 2 | |
| | | |
| | | |
Current liabilities held for sale | — | | | 562 | |
Other current liabilities | 271 | | | 323 | |
Total current liabilities | 4,318 | | | 4,287 | |
Other Liabilities: | | | |
Deferred income taxes, net | 3,954 | | | 3,904 | |
Non-trading derivative liabilities | — | | | 12 | |
Benefit obligations | 574 | | | 511 | |
Regulatory liabilities | 3,269 | | | 3,153 | |
| | | |
Other non-current liabilities | 839 | | | 836 | |
Total other liabilities | 8,636 | | | 8,416 | |
Long-term Debt: | | | |
VIE Securitization Bonds, net | 240 | | | 317 | |
Other long-term debt, net | 12,997 | | | 15,241 | |
Total long-term debt, net | 13,237 | | | 15,558 | |
Commitments and Contingencies (Note 13) | 0 | | 0 |
Temporary Equity (Note 18) | 2 | | | 3 | |
Shareholders’ Equity: | | | |
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized, 800,000 shares and 800,000 shares outstanding, respectively, $800 and $800 liquidation preference, respectively (Note 18) | 790 | | | 790 | |
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 629,490,422 shares and 628,923,534 shares outstanding, respectively | 6 | | | 6 | |
Additional paid-in capital | 8,544 | | | 8,529 | |
Retained earnings | 768 | | | 154 | |
Accumulated other comprehensive loss | (85) | | | (64) | |
Total shareholders’ equity | 10,023 | | | 9,415 | |
Total Liabilities and Shareholders’ Equity | $ | 36,216 | | | $ | 37,679 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Current Liabilities: | | | |
Short-term borrowings | $ | 48 |
| | $ | 35 |
|
Current portion of VIE securitization bonds long-term debt | 432 |
| | 411 |
|
Indexed debt, net | 120 |
| | 114 |
|
Current portion of other long-term debt | 550 |
| | 500 |
|
Indexed debt securities derivative | 776 |
| | 717 |
|
Accounts payable | 657 |
| | 657 |
|
Taxes accrued | 199 |
| | 172 |
|
Interest accrued | 83 |
| | 108 |
|
Non-trading derivative liabilities | 17 |
| | 41 |
|
Other | 339 |
| | 325 |
|
Total current liabilities | 3,221 |
| | 3,080 |
|
| | | |
Other Liabilities: | |
| | |
|
Deferred income taxes, net | 5,458 |
| | 5,263 |
|
Non-trading derivative liabilities | 10 |
| | 5 |
|
Benefit obligations | 886 |
| | 913 |
|
Regulatory liabilities | 1,127 |
| | 1,298 |
|
Other | 284 |
| | 278 |
|
Total other liabilities | 7,765 |
| | 7,757 |
|
| | | |
Long-term Debt: | |
| | |
|
VIE securitization bonds, net | 1,500 |
| | 1,867 |
|
Other long-term debt, net | 6,031 |
| | 5,665 |
|
Total long-term debt, net | 7,531 |
| | 7,532 |
|
| | | |
Commitments and Contingencies (Note 13) |
|
| |
|
|
| | | |
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, respectively | 4 |
| | 4 |
|
Additional paid-in capital | 4,204 |
| | 4,195 |
|
Accumulated deficit | (518 | ) | | (668 | ) |
Accumulated other comprehensive loss | (72 | ) | | (71 | ) |
Total shareholders’ equity | 3,618 |
| | 3,460 |
|
| | | |
Total Liabilities and Shareholders’ Equity | $ | 22,135 |
| | $ | 21,829 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Millions)(Unaudited)
(Unaudited) | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| (in millions) |
Cash Flows from Operating Activities: | | | |
Net income | $ | 721 | | | $ | 614 | |
| | | |
| | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 645 | | | 634 | |
| | | |
Deferred income taxes | 23 | | | 51 | |
| | | |
| | | |
| | | |
| | | |
Gain on divestitures | (303) | | | — | |
Loss (gain) on equity securities | 78 | | | (52) | |
Loss (gain) on indexed debt securities | (171) | | | 51 | |
| | | |
Equity in earnings of unconsolidated affiliates | — | | | (175) | |
Distributions from unconsolidated affiliates | — | | | 77 | |
Pension contributions | (4) | | | (8) | |
Changes in other assets and liabilities: | | | |
Accounts receivable and unbilled revenues, net | 64 | | | 220 | |
| | | |
Inventory | 15 | | | 53 | |
Taxes receivable | (2) | | | 4 | |
Accounts payable | (132) | | | (120) | |
| | | |
Net regulatory assets and liabilities | 113 | | | (2,329) | |
Other current assets and liabilities | (164) | | | (100) | |
Other non-current assets and liabilities | 30 | | | (16) | |
Other operating activities, net | 65 | | | 20 | |
| | | |
| | | |
Net cash provided by (used in) operating activities | 978 | | | (1,076) | |
Cash Flows from Investing Activities: | | | |
Capital expenditures | (1,880) | | | (1,383) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Proceeds from sale of marketable securities | 702 | | | — | |
Proceeds from divestitures | 2,075 | | | — | |
| | | |
| | | |
Other investing activities, net | 45 | | | 7 | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 942 | | | (1,376) | |
Cash Flows from Financing Activities: | | | |
Decrease in short-term borrowings, net | (43) | | | (27) | |
Payment of obligation for finance lease | (171) | | | — | |
Proceeds from (payments of) commercial paper, net | (1,226) | | | 225 | |
Proceeds from long-term debt | 1,292 | | | 4,493 | |
Payments of long-term debt, including make-whole premiums | (1,187) | | | (1,960) | |
| | | |
| | | |
| | | |
| | | |
Payment of debt issuance costs | (17) | | | (37) | |
| | | |
| | | |
Payment of dividends on Common Stock | (214) | | | (183) | |
Payment of dividends on Preferred Stock | (24) | | | (65) | |
| | | |
| | | |
| | | |
| | | |
| | | |
Other financing activities, net | (7) | | | (4) | |
| | | |
| | | |
Net cash provided by (used in) financing activities | (1,597) | | | 2,442 | |
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 323 | | | (10) | |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 254 | | | 167 | |
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 577 | | | $ | 157 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash Flows from Operating Activities: | | | |
Net income | $ | 496 |
| | $ | 331 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 749 |
| | 873 |
|
Amortization of deferred financing costs | 18 |
| | 19 |
|
Deferred income taxes | 185 |
| | 150 |
|
Unrealized gain on marketable securities | (104 | ) | | (187 | ) |
Loss on indexed debt securities | 59 |
| | 258 |
|
Write-down of natural gas inventory | — |
| | 1 |
|
Equity in earnings of unconsolidated affiliate, net of distributions | (199 | ) | | (164 | ) |
Pension contributions | (46 | ) | | (7 | ) |
Changes in other assets and liabilities, excluding acquisitions: | | | |
Accounts receivable and unbilled revenues, net | 216 |
| | 86 |
|
Inventory | (52 | ) | | (5 | ) |
Taxes receivable | 30 |
| | 149 |
|
Accounts payable | (137 | ) | | (90 | ) |
Fuel cost recovery | (30 | ) | | (43 | ) |
Non-trading derivatives, net | (53 | ) | | 23 |
|
Margin deposits, net | (49 | ) | | 65 |
|
Interest and taxes accrued | 2 |
| | (48 | ) |
Net regulatory assets and liabilities | (135 | ) | | (26 | ) |
Other current assets | 21 |
| | (9 | ) |
Other current liabilities | 19 |
| | 31 |
|
Other assets | (3 | ) | | — |
|
Other liabilities | 28 |
| | 29 |
|
Other, net | 16 |
| | 19 |
|
Net cash provided by operating activities | 1,031 |
| | 1,455 |
|
Cash Flows from Investing Activities: | | | |
Capital expenditures | (994 | ) | | (1,047 | ) |
Acquisitions, net of cash acquired | (132 | ) | | (102 | ) |
Decrease in notes receivable – unconsolidated affiliate | — |
| | 363 |
|
Investment in preferred units – unconsolidated affiliate | — |
| | (363 | ) |
Distributions from unconsolidated affiliate in excess of cumulative earnings | 223 |
| | 223 |
|
Decrease (increase) in restricted cash of Bond Companies | 8 |
| | (2 | ) |
Proceeds from sale of marketable securities | — |
| | 178 |
|
Other, net | 3 |
| | 11 |
|
Net cash used in investing activities | (892 | ) | | (739 | ) |
Cash Flows from Financing Activities: | | | |
Increase in short-term borrowings, net | 13 |
| | 3 |
|
Proceeds from (payments of) commercial paper, net | (428 | ) | | 63 |
|
Proceeds from long-term debt, net | 1,096 |
| | 600 |
|
Payments of long-term debt | (597 | ) | | (855 | ) |
Debt issuance costs | (13 | ) | | (9 | ) |
Payment of dividends on common stock | (346 | ) | | (332 | ) |
Distribution to ZENS note holders | — |
| | (178 | ) |
Other, net | (4 | ) | | (2 | ) |
Net cash used in financing activities | (279 | ) | | (710 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents | (140 | ) | | 6 |
|
Cash and Cash Equivalents at Beginning of Period | 341 |
| | 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), net | 14 |
| | (105 | ) |
Non-cash transactions: | | | |
Accounts payable related to capital expenditures | 111 |
| | 75 |
|
See Combined Notes to Interim Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| (in millions of dollars and shares, except authorized shares and par value amounts) |
Cumulative Preferred Stock, $0.01 par value; authorized 20,000,000 shares | | | | | | | | | | | | | | | |
Balance, beginning of period | 1 | | | $ | 790 | | | 3 | | | $ | 2,363 | | | 1 | | | $ | 790 | | | 3 | | | $ | 2,363 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Conversion of Series B Preferred Stock and Series C Preferred Stock | — | | | — | | | — | | | (624) | | | — | | | — | | | — | | | (624) | |
Balance, end of period | 1 | | | 790 | | | 3 | | | 1,739 | | | 1 | | | 790 | | | 3 | | | 1,739 | |
Common Stock, $0.01 par value; authorized 1,000,000,000 shares | | | | | | | | | | | | | | | |
Balance, beginning of period | 629 | | | 6 | | | 552 | | | 6 | | | 629 | | | 6 | | | 551 | | | 6 | |
Issuances of Common Stock | — | | | — | | | 41 | | | — | | | — | | | — | | | 41 | | | — | |
Issuances related to benefit and investment plans | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | |
Balance, end of period | 629 | | | 6 | | | 593 | | | 6 | | | 629 | | | 6 | | | 593 | | | 6 | |
Additional Paid-in-Capital | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 8,532 | | | | | 6,916 | | | | | 8,529 | | | | | 6,914 | |
Issuances of Common Stock, net of issuance costs | | | — | | | | | 624 | | | | | — | | | | | 624 | |
Issuances related to benefit and investment plans | | | 12 | | | | | 13 | | | | | 15 | | | | | 15 | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | 8,544 | | | | | 7,553 | | | | | 8,544 | | | | | 7,553 | |
Retained Earnings (Accumulated Deficit) | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 685 | | | | | (482) | | | | | 154 | | | | | (845) | |
Net income | | | 190 | | | | | 251 | | | | | 721 | | | | | 614 | |
Common Stock dividends declared (see Note 18) | | | (107) | | | | | (95) | | | | | (107) | | | | | (95) | |
Preferred Stock dividends declared (see Note 18) | | | — | | | | | (17) | | | | | — | | | | | (17) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | 768 | | | | | (343) | | | | | 768 | | | | | (343) | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | |
Balance, beginning of period | | | (62) | | | | | (87) | | | | | (64) | | | | | (90) | |
Other comprehensive income (loss) | | | (23) | | | | | 2 | | | | | (21) | | | | | 5 | |
Balance, end of period | | | (85) | | | | | (85) | | | | | (85) | | | | | (85) | |
Total Shareholders’ Equity | | | $ | 10,023 | | | | | $ | 8,870 | | | | | $ | 10,023 | | | | | $ | 8,870 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Revenues | $ | 881 | | | $ | 786 | | | $ | 1,627 | | | $ | 1,470 | |
Expenses: | | | | | | | |
Operation and maintenance | 403 | | | 390 | | | 798 | | | 763 | |
Depreciation and amortization | 174 | | | 161 | | | 336 | | | 302 | |
Taxes other than income taxes | 68 | | | 65 | | | 131 | | | 128 | |
Total | 645 | | | 616 | | | 1,265 | | | 1,193 | |
Operating Income | 236 | | | 170 | | | 362 | | | 277 | |
Other Income (Expense): | | | | | | | |
Interest expense and other finance charges | (50) | | | (47) | | | (98) | | | (92) | |
Interest expense on Securitization Bonds | (4) | | | (5) | | | (8) | | | (11) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other income, net | 4 | | | 3 | | | 8 | | | 8 | |
Total | (50) | | | (49) | | | (98) | | | (95) | |
Income Before Income Taxes | 186 | | | 121 | | | 264 | | | 182 | |
Income tax expense | 39 | | | 18 | | | 56 | | | 26 | |
Net Income | $ | 147 | | | $ | 103 | | | $ | 208 | | | $ | 156 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Net income | $ | 147 | | | $ | 103 | | | $ | 208 | | | $ | 156 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Comprehensive income | $ | 147 | | | $ | 103 | | | $ | 208 | | | $ | 156 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (in millions) |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents ($78 and $92 related to VIEs, respectively) | $ | 78 | | | $ | 214 | |
Accounts receivable ($37 and $29 related to VIEs, respectively), less allowance for credit losses of $1 and $1, respectively | 367 | | | 263 | |
Accounts and notes receivable–affiliated companies | 276 | | | 11 | |
Accrued unbilled revenues | 142 | | | 127 | |
Materials and supplies | 337 | | | 292 | |
| | | |
| | | |
| | | |
Prepaid expenses and other current assets ($18 and $19 related to VIEs, respectively) | 29 | | | 49 | |
Total current assets | 1,229 | | | 956 | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 16,484 | | | 15,273 | |
Less: accumulated depreciation and amortization | 4,216 | | | 4,070 | |
Property, plant and equipment, net | 12,268 | | | 11,203 | |
Other Assets: | | | |
Regulatory assets ($318 and $420 related to VIEs, respectively) | 765 | | | 789 | |
| | | |
Other non-current assets | 44 | | | 32 | |
Total other assets | 809 | | | 821 | |
Total Assets | $ | 14,306 | | | $ | 12,980 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
(Unaudited)
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (in millions) |
LIABILITIES AND MEMBER’S EQUITY | | | |
Current Liabilities: | | | |
| | | |
Current portion of VIE Securitization Bonds long-term debt | $ | 185 | | | $ | 220 | |
Current portion of other long-term debt | 300 | | | 300 | |
Accounts payable | 466 | | | 510 | |
Accounts and notes payable–affiliated companies | 25 | | | 568 | |
Taxes accrued | 76 | | | 193 | |
Interest accrued | 90 | | | 74 | |
| | | |
Other current liabilities | 66 | | | 91 | |
Total current liabilities | 1,208 | | | 1,956 | |
Other Liabilities: | | | |
Deferred income taxes, net | 1,174 | | | 1,122 | |
Benefit obligations | 54 | | | 55 | |
Regulatory liabilities | 1,136 | | | 1,152 | |
| | | |
Other non-current liabilities | 105 | | | 98 | |
Total other liabilities | 2,469 | | | 2,427 | |
Long-term Debt: | | | |
VIE Securitization Bonds, net | 240 | | | 317 | |
Other long-term debt, net | 5,444 | | | 4,658 | |
Total long-term debt, net | 5,684 | | | 4,975 | |
Commitments and Contingencies (Note 13) | 0 | | 0 |
Member’s Equity: | | | |
Common stock | — | | | — | |
Additional paid-in capital | 3,860 | | | 2,678 | |
Retained earnings | 1,085 | | | 944 | |
| | | |
Total member’s equity | 4,945 | | | 3,622 | |
Total Liabilities and Member’s Equity | $ | 14,306 | | | $ | 12,980 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| (in millions) |
Cash Flows from Operating Activities: | | | |
Net income | $ | 208 | | | $ | 156 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 336 | | | 302 | |
Deferred income taxes | 36 | | | (3) | |
| | | |
| | | |
Changes in other assets and liabilities: | | | |
Accounts and notes receivable, net | (119) | | | (56) | |
Accounts receivable/payable–affiliated companies | (24) | | | (72) | |
Inventory | (45) | | | (14) | |
Accounts payable | (7) | | | 49 | |
| | | |
Net regulatory assets and liabilities | (112) | | | (142) | |
Other current assets and liabilities | (83) | | | 22 | |
Other non-current assets and liabilities | 2 | | | 17 | |
Other operating activities, net | (4) | | | (5) | |
Net cash provided by operating activities | 188 | | | 254 | |
Cash Flows from Investing Activities: | | | |
Capital expenditures | (1,140) | | | (735) | |
Increase in notes receivable–affiliated companies | (272) | | | (97) | |
| | | |
| | | |
Other investing activities, net | 21 | | | (5) | |
Net cash used in investing activities | (1,391) | | | (837) | |
Cash Flows from Financing Activities: | | | |
| | | |
| | | |
Proceeds from long-term debt | 792 | | | 1,096 | |
Payments of long-term debt | (112) | | | (510) | |
Decrease in notes payable–affiliated companies | (512) | | | (8) | |
Dividend to parent | (67) | | | — | |
Contribution from parent | 1,143 | | | — | |
| | | |
Payment of debt issuance costs | (8) | | | (12) | |
Payment of obligation for finance lease | (171) | | | — | |
Other financing activities, net | 1 | | | — | |
Net cash provided by financing activities | 1,066 | | | 566 | |
Net Decrease in Cash, Cash Equivalents and Restricted Cash | (137) | | | (17) | |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 233 | | | 154 | |
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 96 | | | $ | 137 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| (in millions, except share amounts) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | 1,000 | | | $ | — | | | 1,000 | | | $ | — | | | 1,000 | | | $ | — | | | 1,000 | | | $ | — | |
Balance, end of period | 1,000 | | | — | | | 1,000 | | | — | | | 1,000 | | | — | | | 1,000 | | | — | |
Additional Paid-in-Capital | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 3,354 | | | | | 2,548 | | | | | 2,678 | | | | | 2,548 | |
Non-cash contribution from parent | | | — | | | | | — | | | | | 38 | | | | | — | |
Contribution from parent | | | 506 | | | | | — | | | | | 1,143 | | | | | — | |
Other | | | — | | | | | — | | | | | 1 | | | | | — | |
Balance, end of period | | | 3,860 | | | | | 2,548 | | | | | 3,860 | | | | | 2,548 | |
Retained Earnings | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 968 | | | | | 616 | | | | | 944 | | | | | 563 | |
Net income | | | 147 | | | | | 103 | | | | | 208 | | | | | 156 | |
Dividend to parent | | | (30) | | | | | — | | | | | (67) | | | | | — | |
Balance, end of period | | | 1,085 | | | | | 719 | | | | | 1,085 | | | | | 719 | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | |
Balance, beginning of period | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | — | | | | | — | | | | | — | | | | | — | |
Total Member’s Equity | | | $ | 4,945 | | | | | $ | 3,267 | | | | | $ | 4,945 | | | | | $ | 3,267 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Revenues: | | | | | | | |
Utility revenues | $ | 788 | | | $ | 696 | | | $ | 2,543 | | | $ | 2,282 | |
Non-utility revenues | 8 | | | 25 | | | 17 | | | 34 | |
Total | 796 | | | 721 | | | 2,560 | | | 2,316 | |
Expenses: | | | | | | | |
Utility natural gas | 351 | | | 210 | | | 1,384 | | | 1,057 | |
Non-utility cost of revenues, including natural gas | 1 | | | 10 | | | 2 | | | 12 | |
Operation and maintenance | 202 | | | 239 | | | 440 | | | 486 | |
Depreciation and amortization | 113 | | | 118 | | | 220 | | | 236 | |
Taxes other than income taxes | 60 | | | 56 | | | 135 | | | 129 | |
| | | | | | | |
Total | 727 | | | 633 | | | 2,181 | | | 1,920 | |
Operating Income | 69 | | | 88 | | | 379 | | | 396 | |
Other Income (Expense): | | | | | | | |
Gain on sale | — | | | — | | | 557 | | | — | |
Interest expense and other finance charges | (30) | | | (32) | | | (59) | | | (64) | |
| | | | | | | |
| | | | | | | |
Other income (expense), net | (11) | | | 1 | | | (11) | | | 2 | |
Total | (41) | | | (31) | | | 487 | | | (62) | |
Income Before Income Taxes | 28 | | | 57 | | | 866 | | | 334 | |
Income tax expense (benefit) | 1 | | | (16) | | | 203 | | | 39 | |
| | | | | | | |
| | | | | | | |
Net Income | $ | 27 | | | $ | 73 | | | $ | 663 | | | $ | 295 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Net income | $ | 27 | | | $ | 73 | | | $ | 663 | | | $ | 295 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Comprehensive income | $ | 27 | | | $ | 73 | | | $ | 663 | | | $ | 295 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (in millions) |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 3 | | | $ | 15 | |
Accounts receivable, less allowance for credit losses of $37 and $40, respectively | 303 | | | 336 | |
Accrued unbilled revenues, less allowance for credit losses of $1 and $6, respectively | 126 | | | 335 | |
Accounts and notes receivable–affiliated companies | 14 | | | 28 | |
Materials and supplies | 95 | | | 82 | |
Natural gas inventory | 122 | | | 151 | |
Non-trading derivative assets | 21 | | | 8 | |
Taxes receivable | 21 | | | 28 | |
| | | |
Current assets held for sale | — | | | 2,084 | |
Regulatory assets | 1,331 | | | 1,371 | |
Prepaid expenses and other current assets | 44 | | | 48 | |
Total current assets | 2,080 | | | 4,486 | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 13,663 | | | 12,934 | |
Less: accumulated depreciation and amortization | 3,949 | | | 3,826 | |
Property, plant and equipment, net | 9,714 | | | 9,108 | |
Other Assets: | | | |
Goodwill | 1,583 | | | 1,583 | |
Regulatory assets | 865 | | | 938 | |
Non-trading derivative assets | 5 | | | 4 | |
| | | |
| | | |
| | | |
Other non-current assets | 31 | | | 34 | |
Total other assets | 2,484 | | | 2,559 | |
Total Assets | $ | 14,278 | | | $ | 16,153 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
(Unaudited)
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (in millions) |
LIABILITIES AND STOCKHOLDER’S EQUITY | | | |
Current Liabilities: | | | |
Short-term borrowings | $ | 7 | | | $ | 7 | |
Current portion of long-term debt | 1,275 | | | — | |
Accounts payable | 398 | | | 503 | |
Accounts payable–affiliated companies | 71 | | | 125 | |
Notes payable–affiliated companies | — | | | 441 | |
Taxes accrued | 100 | | | 152 | |
Interest accrued | 33 | | | 30 | |
Customer deposits | 93 | | | 92 | |
| | | |
Current liabilities held for sale | — | | | 562 | |
Other current liabilities | 144 | | | 151 | |
Total current liabilities | 2,121 | | | 2,063 | |
Other Liabilities: | | | |
Deferred income taxes, net | 1,236 | | | 1,019 | |
| | | |
| | | |
Benefit obligations | 97 | | | 100 | |
Regulatory liabilities | 1,821 | | | 1,715 | |
| | | |
Other non–current liabilities | 563 | | | 571 | |
Total other liabilities | 3,717 | | | 3,405 | |
Long-Term Debt | 3,296 | | | 5,552 | |
Commitments and Contingencies (Note 13) | 0 | | 0 |
Stockholder’s Equity: | | | |
| | | |
Additional paid-in capital | 3,565 | | | 4,106 | |
Retained earnings | 1,569 | | | 1,017 | |
Accumulated other comprehensive income | 10 | | | 10 | |
Total stockholder’s equity | 5,144 | | | 5,133 | |
Total Liabilities and Stockholder’s Equity | $ | 14,278 | | | $ | 16,153 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| (in millions) |
Cash Flows from Operating Activities: | | | |
Net income | $ | 663 | | | $ | 295 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 220 | | | 236 | |
| | | |
Deferred income taxes | 201 | | | 27 | |
| | | |
Gain on divestitures | (557) | | | — | |
Changes in other assets and liabilities: | | | |
Accounts receivable and unbilled revenues, net | 203 | | | 265 | |
Accounts receivable/payable–affiliated companies | (40) | | | (23) | |
Inventory | 60 | | | 42 | |
Accounts payable | (110) | | | (135) | |
| | | |
| | | |
| | | |
Net regulatory assets and liabilities | 136 | | | (2,137) | |
Other current assets and liabilities | (7) | | | (49) | |
Other non-current assets and liabilities | (3) | | | (33) | |
Other operating activities, net | 1 | | | 8 | |
Net cash provided by (used in) operating activities | 767 | | | (1,504) | |
Cash Flows from Investing Activities: | | | |
Capital expenditures | (688) | | | (548) | |
| | | |
| | | |
Proceeds from divestiture | 2,075 | | | — | |
Other investing activities, net | 7 | | | 20 | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 1,394 | | | (528) | |
Cash Flows from Financing Activities: | | | |
Decrease in short-term borrowings, net | (43) | | | (27) | |
| | | |
Proceeds from (payments of) commercial paper, net | (325) | | | 217 | |
Proceeds from long-term debt | 852 | | | 1,699 | |
Payments of long-term debt | (425) | | | — | |
| | | |
Dividends to parent | (831) | | | — | |
Payment of debt issuance costs | (8) | | | (10) | |
Increase (decrease) in notes payable–affiliated companies | (1,517) | | | 151 | |
Contribution from parent | 125 | | | — | |
| | | |
| | | |
Other financing activities, net | (1) | | | (2) | |
| | | |
| | | |
Net cash provided by (used in) financing activities | (2,173) | | | 2,028 | |
Net Decrease in Cash, Cash Equivalents and Restricted Cash | (12) | | | (4) | |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 15 | | | 6 | |
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 3 | | | $ | 2 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| (in millions, except share amounts) |
Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | 1,000 | | | $ | — | | | 1,000 | | | $ | — | | | 1,000 | | | $ | — | | | 1,000 | | | $ | — | |
Balance, end of period | 1,000 | | | — | | | 1,000 | | | — | | | 1,000 | | | — | | | 1,000 | | | — | |
Additional Paid-in-Capital | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 3,440 | | | | | 3,965 | | | | | 4,106 | | | | | 3,966 | |
Non-cash contribution from parent | | | — | | | | | — | | | | | 54 | | | | | — | |
Contribution from parent | | | 125 | | | | | — | | | | | 125 | | | | | — | |
Contribution to parent for sale of Arkansas and Oklahoma Natural Gas businesses | | | — | | | | | — | | | | | (720) | | | | | — | |
Other | | | — | | | | | — | | | | | — | | | | | (1) | |
Balance, end of period | | | 3,565 | | | | | 3,965 | | | | | 3,565 | | | | | 3,965 | |
Retained Earnings | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 1,614 | | | | | 866 | | | | | 1,017 | | | | | 644 | |
Net income | | | 27 | | | | | 73 | | | | | 663 | | | | | 295 | |
Dividend to parent | | | (72) | | | | | — | | | | | (111) | | | | | — | |
Balance, end of period | | | 1,569 | | | | | 939 | | | | | 1,569 | | | | | 939 | |
Accumulated Other Comprehensive Income | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 10 | | | | | 10 | | | | | 10 | | | | | 10 | |
| | | | | | | | | | | | | | | |
Balance, end of period | | | 10 | | | | | 10 | | | | | 10 | | | | | 10 | |
Total Stockholder’s Equity | | | $ | 5,144 | | | | | $ | 4,914 | | | | | $ | 5,144 | | | | | $ | 4,914 | |
See Combined Notes to Interim Condensed Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
COMBINED NOTES TO UNAUDITEDINTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Background and Basis of Presentation
General.This combined Form 10-Q is filed separately by 3 registrants: CenterPoint Energy, Inc., CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other Registrants or the subsidiaries of CenterPoint Energy other than itself or its subsidiaries.
Except as discussed in the penultimate paragraph in Note 11 to the Registrants’ Interim Condensed Financial Statements, no registrant has an obligation in respect of any other Registrant’s debt securities, and holders of such debt securities should not consider the financial resources or results of operations of any Registrant other than the obligor in making a decision with respect to such securities.
Included in this combined Form 10-Q are the Interim Condensed Financial Statements of CenterPoint Energy.Energy, Houston Electric and CERC, which are referred to collectively as the Registrants. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the 2016Registrants’ financial statements included in the Registrants’ combined 2021 Form 10-K. The Combined Notes to Interim Condensed Financial Statements apply to all Registrants and specific references to Houston Electric and CERC herein also pertain to CenterPoint Energy, unless otherwise indicated.
Background.Background. CenterPoint Energy, Inc. is a public utility holding company. CenterPoint Energy completed the Restructuring on June 30, 2022, whereby the equity interests in Indiana Gas and VEDO, both subsidiaries it acquired in its acquisition of Vectren on February 1, 2019, were transferred from VUH to CERC Corp. As a result, Indiana Gas and VEDO became wholly owned subsidiaries of CERC Corp., to better align its organizational structure with management and financial reporting and to fund future capital investments more efficiently. The Restructuring was a non-cash common control acquisition by CERC. As a result, CERC acquired these businesses at CenterPoint Energy’s historical basis in these entities and prior year amounts were recast to reflect the Restructuring as if it occurred at the earliest period presented for which CenterPoint Energy had common control. The Restructuring did not impact CenterPoint Energy’s carrying basis in any entity, its allocation of goodwill to its reporting units, or its segment presentation. Neither CenterPoint Energy nor CERC recognized any gains or losses in connection with the Restructuring. SIGECO was not acquired by CERC and remains a subsidiary of VUH. See Note 9 for a discussion of the goodwill recorded at CERC as a result of this transaction. The Restructuring was authorized by the IURC in December 2021 and by the PUCO in January 2022.
As of June 30, 2022, and upon completion of the Restructuring discussed above, CenterPoint Energy’s operating subsidiaries ownwere as follows:
•Houston Electric owns and operateoperates electric transmission and distribution and natural gas distribution facilities 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:
Houston Electric, which engages in the electric transmission and distribution business in the Texas Gulf Coastgulf coast area that includes the city of Houston;Houston.
•CERC Corp., which (i) directly owns and operates natural gas distribution systems in six states;Louisiana, Minnesota, Mississippi and
CES, which obtains Texas, (ii) indirectly, through Indiana Gas and offers competitive variableVEDO, owns and fixed-price physicaloperates natural gas suppliesdistribution systems in Indiana and Ohio, respectively, and (iii) owns and operates permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.
•SIGECO provides energy delivery services primarily to commercial and industrial customers and electric and natural gas utilitiescustomers located in 33 states.and near Evansville in southwestern Indiana and owns and operates electric generation assets to serve its electric customers and optimizes those assets in the wholesale power market; and
•Energy Systems Group provides energy performance contracting and sustainable infrastructure services, such as renewables, distributed generation and combined heat and power projects.
On January 10, 2022, CERC Corp. completed the sale of its Arkansas and Oklahoma Natural Gas businesses. For additional information regarding discontinued operations and divestitures, see Note 3.
As of SeptemberJune 30, 2017,2022, CenterPoint Energy also owned an aggregate of 14,520,000 Series A Preferred Units in Enable, which owns, operatesEnergy’s reportable segments were Electric and develops natural gas and crude oil infrastructure assets,Natural Gas. Houston Electric and CERC Corp. owned approximately 54.1%each consist of the common units representing limited partner interests in Enable.a single reportable segment. For a description of CenterPoint Energy’s reportable segments, see Note 15.
As of SeptemberJune 30, 2017,2022, 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 specificallysolely 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 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 the Registrants’ financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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.
For a descriptionCertain prior year amounts have been reclassified to conform to the current year reportable segment presentation described in Note 15 and to reflect the impacts of CenterPoint Energy’s reportable business segments, see Note 15.discontinued operations and the Restructuring.
(2) New Accounting Pronouncements
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value and to recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. It does not change the guidance for classifying and measuring investments in debt securities and loans. ASU 2016-01 also changes certain disclosure requirements and other aspects related to recognition and measurement of financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. As of the first reporting period in which the guidance is adopted, a cumulative-effect adjustment to beginning retained earnings will be made, with two features that will be adopted prospectively. CenterPoint Energy does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures.
In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02) and related amendments. ASU 2016-02The following table provides a comprehensive new lease model that requires lessees to recognize assets and liabilities for most leases and would change certain aspects of lessor accounting. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. A modified retrospective adoption approach is required. 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 classificationoverview of certain cash receipts and payments inrecently adopted accounting pronouncements applicable to all the statement of cash flows and eliminates the variation in practice related to such classifications. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. CenterPoint Energy is currently assessing the impact that this standard will have on its statement of cash flows.Registrants.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. This standard will not have an impact on 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. | | | | | | | | | | | | | | | | | | | | |
Recently Adopted Accounting Standards |
ASU Number and Name | | Description | | Date of Adoption | | Financial Statement Impact upon Adoption |
ASU 2021-10: Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance | | This standard requires additional disclosure requirements when a business receives government assistance and uses a grant or contribution accounting model by analogy to other accounting guidance such as the grant model under International Accounting Standards (IAS) 20 Accounting for Government Grants and Disclosures of Government Assistance and GAAP ASC 958-605 Not for Profit. Transition method: Prospective or retrospective | | January 1, 2022 | | Adoption of this standard may result in additional disclosures related to the recovery of Texas natural gas costs associated with the February 2021 Winter Storm Event through the state securitization, which is expected to be accounted for as a government grant by analogy to IAS 20. The adoption of this standard did not have a material impact on the Registrants’ financial position, results of operations or cash flows.
|
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). ASU 2017-01 revises the definition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then under ASU 2017-01, the asset or group of assets is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs to be more closely aligned with how outputs are described in ASC 606. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted in certain circumstances. A prospective adoption approach is required. ASU 2017-01 could have a potential impact on 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 FASB issued ASU No. 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU 2017-05). ASU 2017-05 clarifies when and how to apply ASC 610-20 Gains and Losses from the Derecognition of Nonfinancial Assets, which was issued as part of ASU 2014-09 Revenue from Contracts with Customers (Topic 606). ASU 2017-05 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. Companies can elect a retrospective or modified retrospective approach to adoption. CenterPoint Energy does not believe this standard will have a material impact on its financial position, results of operations, cash flows and disclosures.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 requires an employer to report the service cost component of the net periodic pension cost and postretirement benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period; all other components will be presented separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, only the service cost component will be eligible for capitalization in assets. ASU 2017-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components and prospectively for the capitalization of the service cost component. The adoption of this guidance is expected to result in an increase to operating income and a decrease to other income. Prospectively, other components previously capitalized in assets will be recorded as regulatory assets in 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.
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.
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.
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) AcquisitionDivestitures (CenterPoint Energy and CERC)
Divestiture of Arkansas and Oklahoma Natural Gas Businesses. On April 29, 2021, CenterPoint Energy, through its subsidiary CERC Corp., entered into an Asset Purchase Agreement to sell its Arkansas and Oklahoma Natural Gas businesses for $2.15 billion in cash, including recovery of approximately $425 million in natural gas costs, including storm-related incremental natural gas costs associated with the February 2021 Winter Storm Event, subject to certain adjustments set forth in the Asset Purchase Agreement. The assets include approximately 17,000 miles of main pipeline in Arkansas, Oklahoma and certain portions of Bowie County, Texas serving more than half a million customers. The transaction closed on January 3, 2017,CES,10, 2022.
The sale was considered an indirect, wholly-ownedasset sale for tax purposes, requiring net deferred tax liabilities to be excluded from held for sale balances. The deferred taxes associated with the businesses were recognized as a deferred income tax benefit by CenterPoint Energy and CERC upon closing of the sale in 2022.
Although the Arkansas and Oklahoma Natural Gas businesses met the held for sale criteria as of December 31, 2021, their disposals did not represent a strategic shift to CenterPoint Energy and CERC, as both retained significant operations in, and continued to invest in, their natural gas businesses. Therefore, the income and expenses associated with the disposed businesses were not reflected as discontinued operations on CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income, as applicable. Since the depreciation on the Arkansas and Oklahoma Natural Gas assets continued to be reflected in revenues through customer rates until the closing of the transaction and will be reflected in the carryover basis of the rate-regulated assets, CenterPoint Energy and CERC continued to record depreciation on those assets through the closing of the transaction. The Registrants record assets and liabilities held for sale at the lower of their carrying value or their estimated fair value less cost to sell.
CenterPoint Energy and CERC recognized gains of $303 million and $557 million, respectively, net of transaction costs of $59 million, in connection with the closing of the disposition of the Arkansas and Oklahoma Natural Gas businesses during the six months ended June 30, 2022. CenterPoint Energy and CERC collected a receivable of $15 million in May 2022 for full and final settlement of the working capital adjustment under the Asset Purchase Agreement.
As a result of the sale of the Arkansas and Oklahoma Natural Gas businesses, there were no assets or liabilities classified as held for sale as of June 30, 2022. The assets and liabilities of the Arkansas and Oklahoma Natural Gas businesses classified as held for sale in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets, as applicable, as of December 31, 2021 included the following:
| | | | | | | | | | | | | | |
| | December 31, 2021 |
| | CenterPoint Energy | | CERC |
| | (in millions) |
Receivables, net | | $ | 46 | | | $ | 46 | |
Accrued unbilled revenues | | 48 | | | 48 | |
Natural gas inventory | | 46 | | | 46 | |
Materials and supplies | | 9 | | | 9 | |
Property, plant and equipment, net | | 1,314 | | | 1,314 | |
Goodwill (1) | | 398 | | | 144 | |
Regulatory assets | | 471 | | | 471 | |
Other | | 6 | | | 6 | |
Total current assets held for sale | | $ | 2,338 | | | $ | 2,084 | |
| | | | |
Short term borrowings (2) | | $ | 36 | | | $ | 36 | |
Accounts payable | | 40 | | | 40 | |
Taxes accrued | | 7 | | | 7 | |
| | | | |
Customer deposits | | 12 | | | 12 | |
Regulatory liabilities | | 365 | | | 365 | |
Other | | 102 | | | 102 | |
Total current liabilities held for sale | | $ | 562 | | | $ | 562 | |
(1)See Note 9 for further information about the allocation of goodwill to the disposed businesses.
(2)Represents third-party AMAs associated with utility distribution service in Arkansas and Oklahoma. These transactions are accounted for as an inventory financing. For further information, see Note 11.
The pre-tax income for the Arkansas and Oklahoma Natural Gas businesses, excluding interest and corporate allocations, included in CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 (1) | | 2021 | | 2022 (1) | | 2021 |
| (in millions) | | | | |
Income from Continuing Operations Before Income Taxes | $ | — | | | $ | 10 | | | $ | 9 | | | $ | 62 | |
| | | | | | | |
(1)Reflects January 1, 2022 to January 9, 2022 results only due to of the sale of the Arkansas and Oklahoma Natural Gas businesses.
Effective on the date of the closing of the disposition of the Arkansas and Oklahoma Natural Gas businesses, a subsidiary of CenterPoint Energy completed its acquisitionentered into the Transition Services Agreement, whereby that subsidiary agreed to provide certain transition services such as accounting, customer operations, procurement, and technology functions for a term of AEM. After working capital adjustments,up to twelve months. Subject to the final purchase price was $147conditions in the Transition Services Agreement, Southern Col Midco may terminate these support services with 60 days prior written notice.
CenterPoint Energy’s charges to Southern Col Midco for reimbursement of transition services were $10 million and was allocated to identifiable assets acquired and liabilities assumed based on their estimated fair values on the acquisition date.
The following table summarizes the final purchase price allocation and the fair value amounts recognized for the assets acquired and liabilities assumed related to the acquisition:
|
| | | | |
| | (in millions) |
Total purchase price consideration | | $ | 147 |
|
Cash | | $ | 15 |
|
Receivables | | 140 |
|
Natural gas inventory | | 78 |
|
Derivative assets | | 35 |
|
Prepaid expenses and other current assets | | 5 |
|
Property and equipment | | 8 |
|
Identifiable intangibles | | 25 |
|
Total assets acquired | | 306 |
|
Accounts payable | | 113 |
|
Derivative liabilities | | 43 |
|
Other current liabilities | | 7 |
|
Other liabilities | | 1 |
|
Total liabilities assumed | | 164 |
|
Identifiable net assets acquired | | 142 |
|
Goodwill | | 5 |
|
Net assets acquired | | $ | 147 |
|
The goodwill of $5$19 million resulting from the acquisition reflects the excess of the purchase price over the fair value of the net identifiable assets acquired. The goodwill recorded as part of the acquisition primarily reflects the value of the complementary operational and geographic footprints, scale and expanded capabilities provided by the acquisition.
Identifiable intangible assets were recorded at estimated fair value as determined by management based on available information, which includes a preliminary valuation prepared by an independent third party. The significant assumptions used in arriving at the estimated identifiable intangible asset values included management’s estimates of future cash flows, the discount rate which is based on the weighted average cost of capital for comparable publicly traded guideline companies and projected customer attrition rates. The useful lives for the identifiable intangible assets were determined using methods that approximate the pattern of economic benefit provided by the utilization of the assets.
The estimated fair value of the identifiable intangible assets and related useful lives as included in the final purchase price allocation include:
|
| | | | | | |
| | Estimate Fair Value | | Estimate Useful Life |
| | (in millions) | | (in years) |
Customer relationships | | $ | 25 |
| | 15 |
Amortization expense related to the above identifiable intangible assets was $-0- and $1 million forduring the three and ninesix months ended SeptemberJune 30, 2017, respectively.2022. Actual transitional services costs incurred are recorded net of amounts charged to Southern Col Midco. CenterPoint Energy had accounts receivable from Southern Col Midco of $7 million as of June 30, 2022 for transition services.
Revenues of approximately $311 million and $989 million, respectively, and operating income of approximately $3 million and $28 million, respectively, attributableDiscontinued Operations (CenterPoint Energy)
Enable Merger. On December 2, 2021, Enable, completed the previously announced Enable Merger pursuant to the AEM acquisition are reportedEnable Merger Agreement entered into on February 16, 2021. At the closing of the Enable Merger on December 2, 2021, Energy Transfer acquired 100% of Enable’s outstanding common and preferred units, resulting in the exchange of Enable Common Units owned by CenterPoint Energy Services business segmentfor Energy Transfer Common Units and includedthe exchange of Enable Series A Preferred Units owned by CenterPoint Energy for Energy Transfer Series G Preferred Units.
During the six months ended June 30, 2022, CenterPoint Energy sold all of its remaining Energy Transfer Common Units and Energy Transfer Series G Preferred Units. See Note 10 for further information regarding Energy Transfer equity securities.
Additionally, CenterPoint Energy’s disposal of its interests in Enable represented a strategic shift that will have a major effect on CenterPoint Energy’s operations or financial results, and as such, its equity investment in Enable was classified and presented as held for sale. The equity in earnings of unconsolidated affiliates, net of tax, associated with CenterPoint Energy’s equity investment in Enable was reflected as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income for the three and ninesix months ended SeptemberJune 30, 2017.2021.
A summary of discontinued operations presented in CenterPoint Energy’s Condensed Statements of Consolidated Income is as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| | Equity Method Investment in Enable |
| | (in millions) |
Equity in earnings of unconsolidated affiliate, net | | $ | 67 | | | $ | 175 | |
Income from discontinued operations before income taxes | | 67 | | | 175 | |
Income tax expense | | 16 | | | 41 | |
Net income from discontinued operations | | $ | 51 | | | $ | 134 | |
CenterPoint Energy has elected not to separately disclose discontinued operations on its respective Condensed Statements of Consolidated Cash Flows. The following table summarizes CenterPoint Energy’s cash flows from discontinued operations and certain supplemental cash flow disclosures, as applicable:
| | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Equity Method Investment in Enable |
| | (in millions) |
Equity in earnings of unconsolidated affiliate - operating | | $ | (175) | |
Distributions from unconsolidated affiliate - operating | | 77 | |
| | |
Distributions Received from Enable (CenterPoint Energy):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2021 |
| Per Unit | | Cash Distribution | | Per Unit | | Cash Distribution |
| (in millions, except per unit amounts) |
Enable Common Units | $ | 0.16525 | | | $ | 38 | | | $ | 0.33050 | | | $ | 77 | |
Enable Series A Preferred Units | 0.58730 | | | 9 | | | 1.21230 | | | 18 | |
Total CenterPoint Energy | | | $ | 47 | | | | | $ | 95 | |
Transactions with Enable (CenterPoint Energy and CERC):
| | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| (in millions) |
Natural gas expenses, includes transportation and storage costs | $ | 16 | | | $ | 48 | |
Summarized Financial Information for Enable (CenterPoint Energy)
As a result of the closing of the Enable Merger in 2021, there were no assets classified as held for sale as of December 31, 2021. Summarized consolidated balance sheet information for Enable on the closing of the Enable Merger is as follows:
| | | | | | | | |
| | December 2, |
| | 2021 |
| | (in millions) |
Current assets | | $ | 594 | |
Non-current assets | | 11,227 | |
Current liabilities | | 1,254 | |
Non-current liabilities | | 3,281 | |
Non-controlling interest | | 26 | |
Preferred equity | | 362 | |
Accumulated other comprehensive loss | | (1) | |
Enable partners’ equity | | 6,899 | |
| | |
Reconciliation of Investment in Enable: | | |
CenterPoint Energy’s ownership interest in Enable partners’ equity | | $ | 3,701 | |
CenterPoint Energy’s basis difference | | (2,732) | |
| | |
CenterPoint Energy’s equity method investment in Enable | | $ | 969 | |
Summarized unaudited consolidated income information for Enable is as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| | (in millions) |
Operating revenues | | $ | 787 | | | $ | 1,757 | |
Cost of sales, excluding depreciation and amortization | | 426 | | | 945 | |
Depreciation and amortization | | 103 | | | 209 | |
| | | | |
Operating income | | 124 | | | 330 | |
Net income attributable to Enable Common Units | | 79 | | | 234 | |
| | | | |
| | | | |
Reconciliation of Equity in Earnings, net: | | | | |
CenterPoint Energy’s interest | | $ | 42 | | | $ | 125 | |
Basis difference amortization (1) | | 25 | | | 50 | |
| | | | |
| | | | |
CenterPoint Energy’s equity in earnings, net (2) | | $ | 67 | | | $ | 175 | |
(1)Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s share of Enable earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s investment in Enable and its underlying equity in net assets of Enable. The basis difference was being amortized through the year 2048 and ceased upon closing of the Enable Merger.
(2)Reported as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income.
(4) Revenue Recognition and Allowance for Credit Losses
Revenues from Contracts with Customers
In accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Registrants expect to be entitled to receive in exchange for these goods or services.
ARPs are contracts between the utility and its regulators, not between the utility and a customer. The Registrants recognize ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation in rates charged for utility service to customers, ARP revenue is reversed and recorded as revenue from contracts with customers. The recognition of ARP revenues and the reversal of ARP revenues upon recovery through rates charged for utility service may not occur in the same period.
The following unaudited pro forma financial information reflectstables disaggregate revenues by reportable segment and major source:
CenterPoint Energy
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 |
| | Electric | | Natural Gas | | Corporate and Other | | Total |
| | (in millions) |
Revenue from contracts | | $ | 1,060 | | | $ | 827 | | | $ | 72 | | | $ | 1,959 | |
| | | | | | | | |
Other (1) | | (7) | | | (9) | | | 1 | | | (15) | |
| | | | | | | | |
Total revenues | | $ | 1,053 | | | $ | 818 | | | $ | 73 | | | $ | 1,944 | |
| | | | | | | | |
| | Six Months Ended June 30, 2022 |
| | Electric | | Natural Gas | | Corporate and Other | | Total |
| | (in millions) |
Revenue from contracts | | $ | 1,958 | | | $ | 2,672 | | | $ | 117 | | | $ | 4,747 | |
Other (1) | | (12) | | | (30) | | | 2 | | | (40) | |
| | | | | | | | |
Total revenues | | $ | 1,946 | | | $ | 2,642 | | | $ | 119 | | | $ | 4,707 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| | Electric | | Natural Gas | | Corporate and Other | | Total |
| | (in millions) |
Revenue from contracts | | $ | 933 | | | $ | 718 | | | $ | 64 | | | $ | 1,715 | |
Other (1) | | 4 | | | 22 | | | 1 | | | 27 | |
| | | | | | | | |
Total revenues | | $ | 937 | | | $ | 740 | | | $ | 65 | | | $ | 1,742 | |
| | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Electric | | Natural Gas | | Corporate and Other | | Total |
| | (in millions) |
Revenue from contracts | | $ | 1,766 | | | $ | 2,373 | | | $ | 117 | | | $ | 4,256 | |
Other (1) | | 1 | | | 30 | | | 2 | | | 33 | |
| | | | | | | | |
Total revenues | | $ | 1,767 | | | $ | 2,403 | | | $ | 119 | | | $ | 4,289 | |
(1)Primarily consists of income from ARPs and leases. Total lease income was $3 million and $2 million for the consolidated resultsthree months ended June 30, 2022 and 2021, respectively, and $4 million and $4 million for the six months ended June 30, 2022 and 2021, respectively.
Houston Electric
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Revenue from contracts | $ | 892 | | | $ | 791 | | | $ | 1,648 | | | $ | 1,478 | |
Other (1) | (11) | | | (5) | | | (21) | | | (8) | |
Total revenues | $ | 881 | | | $ | 786 | | | $ | 1,627 | | | $ | 1,470 | |
(1)Primarily consists of operationsincome from ARPs and leases. Lease income was not significant for the three and six months ended June 30, 2022 and 2021.
CERC
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (in millions) |
Revenue from contracts | | $ | 805 | | | $ | 701 | | | $ | 2,590 | | | $ | 2,291 | |
Other (1) | | (9) | | | 20 | | | (30) | | | 25 | |
| | | | | | | | |
Total revenues | | $ | 796 | | | $ | 721 | | | $ | 2,560 | | | $ | 2,316 | |
(1)Primarily consists of income from ARPs and leases. Lease income was not significant for the three and six months ended June 30, 2022 and 2021.
Revenues from Contracts with Customers
Electric (CenterPoint Energy and Houston Electric). Houston Electric transmits and distributes electricity to customers over time, and customers consume the electricity when delivered. Indiana Electric generates, transmits and distributes electricity to customers over time, and customers consume the electricity when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by state regulators, such as the PUCT and the IURC, is recognized as electricity is delivered and represents amounts both billed and unbilled. Discretionary services requested by customers are provided at a point in time with control transferring upon the completion of the service. Revenue for discretionary services provided by Houston Electric is recognized upon completion of service based on the tariff rates set by the PUCT. Payments for electricity distribution and discretionary services are aggregated and received on a monthly basis. Houston Electric performs transmission services over time as a stand-ready obligation to provide a reliable network of transmission systems. Revenue is recognized upon time elapsed, and the monthly tariff rate set by the regulator. Payments are received on a monthly basis. Indiana Electric customers are billed monthly and payment terms, set by the regulator, require payment within a month of billing.
Natural Gas (CenterPoint Energy and CERC). CenterPoint Energy assumingand CERC distribute and transport natural gas to customers over time, and customers consume the AEM acquisition had taken placenatural 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 January 1, 2016. Adjustmentsa monthly basis.
Contract Balances. When the timing of delivery of service is different from the timing of the payments made by customers and when the right to pro forma net income include intercompany sales, amortizationconsideration is conditioned on something other than the passage of intangibletime, the Registrants recognize either a contract asset (performance precedes billing) or a contract liability (customer payment precedes performance). Those customers that prepay are represented by contract liabilities until the performance obligations are satisfied. The Registrants’ contract assets depreciationare included in Accrued unbilled revenues in their Condensed Consolidated Balance Sheets. As of fixedJune 30, 2022, CenterPoint Energy’s contract assets interest expense associatedprimarily relate to Energy Systems Group contracts where revenue is recognized using the input method. The Registrants’ contract liabilities are included in Accounts payable and Other current liabilitiesin their Condensed Consolidated Balance Sheets. As of June 30, 2022, CenterPoint Energy’s contract liabilities primarily relate to Energy Systems Group contracts where revenue is recognized using the input method.
The opening and closing balances of accounts receivable related to ASC 606 revenues, other accrued unbilled revenue, contract assets and contract liabilities from contracts with debt financingcustomers, excluding balances related to fundassets held for sale, as of December 31, 2021 and June 30, 2022, respectively, are presented below.
CenterPoint Energy
| | | | | | | | | | | | | | | | | | | | | | | |
| Accounts Receivable | | Other Accrued Unbilled Revenues | | Contract Assets | | Contract Liabilities |
| (in millions) |
Opening balance as of December 31, 2021 | $ | 627 | | | $ | 513 | | | $ | 15 | | | $ | 16 | |
Closing balance as of June 30, 2022 | 740 | | | 316 | | | 16 | | | 39 | |
Increase (decrease) | $ | 113 | | | $ | (197) | | | $ | 1 | | | $ | 23 | |
The amount of revenue recognized during the acquisition,six-month period ended June 30, 2022 that was included in the opening contract liability was $13 million. The difference between the opening and related income tax effects. closing balances of the contract liabilities primarily results from the timing difference between CenterPoint Energy’s performance and the customer’s payment.
Houston Electric
| | | | | | | | | | | | | | | | | | | |
| Accounts Receivable | | Other Accrued Unbilled Revenues | | | | Contract Liabilities |
| (in millions) |
Opening balance as of December 31, 2021 | $ | 225 | | | $ | 127 | | | | | $ | 4 | |
Closing balance as of June 30, 2022 | 327 | | | 142 | | | | | 6 | |
Increase (decrease) | $ | 102 | | | $ | 15 | | | | | $ | 2 | |
The pro forma informationamount of revenue recognized during the six-month period ended June 30, 2022 that was included in the opening contract liability was $2 million. The difference between the opening and closing balances of the contract liabilities primarily results from the timing difference between Houston Electric’s performance and the customer’s payment.
CERC
| | | | | | | | | | | | | | | | | |
| Accounts Receivable | | Other Accrued Unbilled Revenues | | | | |
| (in millions) | | |
Opening balance as of December 31, 2021 | $ | 319 | | | $ | 335 | | | | | | | |
Closing balance as of June 30, 2022 | 314 | | | 126 | | | | | | | |
Increase (decrease) | $ | (5) | | | $ | (209) | | | | | | | |
CERC does not have any opening or closing contract asset or contract liability balances.
Remaining Performance Obligations (CenterPoint Energy).The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts and (2) when CenterPoint Energy expects to recognize this revenue. Such contracts include the mark-to-market impactenergy performance and sustainable infrastructure services contracts of financial instruments designated as cash flow hedges of anticipated purchasesEnergy Systems Group, which are included in Corporate and sales at index prices. The effective portion of these hedgesOther.
| | | | | | | | | | | | | | | | | | | |
| Rolling 12 Months | | Thereafter | | Total |
| (in millions) | | |
Revenue expected to be recognized on contracts in place as of June 30, 2022: | | | | | | | |
| | | | | | | |
Corporate and Other | $ | 285 | | | $ | 576 | | | $ | 861 | | | |
| $ | 285 | | | $ | 576 | | | $ | 861 | | | |
Practical Expedients and Exemption. Sales taxes and other similar taxes collected from customers are excluded from earningsthe transaction price. For contracts for which revenue from the satisfaction of the performance obligations is recognized in the amount invoiced, the practical expedient was elected and reportedrevenue expected to be recognized on these contracts has not been disclosed.
Allowance for Credit Losses
CenterPoint Energy and CERC segregate financial assets that fall under the scope of Topic 326, primarily trade receivables due in one year or less, into portfolio segments based on shared risk characteristics, such as changes in Other Comprehensive Income.geographical location and regulatory environment, for evaluation of expected credit losses. Historical and current information, such as average write-offs, are applied to each portfolio segment to estimate the allowance for losses on uncollectible receivables. Additionally, the pro forma information doesallowance for losses on uncollectible receivables is adjusted for reasonable and supportable forecasts of future economic conditions, which can include changing weather, commodity prices, regulations, and macroeconomic factors, among others. Houston Electric recognizes losses on financial assets that fall under the scope of Topic 326. Losses on financial assets are primarily recoverable through regulatory mechanisms and do not includematerially impact Houston Electric's allowance for credit losses. For a discussion of regulatory deferrals related to the mark-to-market impact of physical forward transactions that were previously accounted for as normal purchase and sale transactions.February 2021 Winter Storm Event, see Note 6.
The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved had the acquisition taken place on the dates indicated or the future consolidated results of operations of the combined company.
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
(4)(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:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
| Pension Benefits | | Postretirement Benefits | | Pension Benefits | | Postretirement Benefits |
| (in millions) |
Service cost | $ | 9 |
| | $ | — |
| | $ | 10 |
| | $ | 1 |
|
Interest cost | 22 |
| | 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 loss | 14 |
| | — |
| | 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 cost | 66 |
| | 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 loss | 43 |
| | — |
| | 47 |
| | — |
|
Curtailment gain (1) | — |
| | — |
| | — |
| | (3 | ) |
Net periodic cost (2) | $ | 71 |
| | $ | 6 |
| | $ | 76 |
| | $ | 5 |
|
Pension Benefits (CenterPoint Energy) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Service cost (1) | $ | 8 | | | $ | 10 | | | $ | 16 | | | $ | 20 | |
Interest cost (2) | 17 | | | 14 | | | 32 | | | 29 | |
Expected return on plan assets (2) | (23) | | | (26) | | | (48) | | | (52) | |
| | | | | | | |
Amortization of net loss (2) | 7 | | | 10 | | | 14 | | | 19 | |
Settlement cost (benefit) (2) (3) | 30 | | | (1) | | | 30 | | | (1) | |
| | | | | | | |
Net periodic cost | $ | 39 | | | $ | 7 | | | $ | 44 | | | $ | 15 | |
| |
(1) | A curtailment gain or loss is required when the expected future services of a significant number of current employees are reduced or eliminated for the accrual of benefits. 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 medical and prescription drug coverage will be provided exclusively through the NECA/IBEW Family Medical Care Plan
(1)Amounts presented in the table above are included in Operation and maintenance 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 recognition of the prior service credit that would otherwise be recognized in future periods. |
| |
(2) | Net periodic cost in this table is before considering amounts subject to overhead allocations for capital expenditure projects or for amounts subject to deferral for regulatory purposes. |
CenterPoint Energy’s changesCondensed Statements of Consolidated Income, net of amounts capitalized and regulatory deferrals.
(2)Amounts presented in accumulated comprehensive loss relatedthe table above are included in Other income, net in CenterPoint Energy’s Condensed Statements of Consolidated Income, net of regulatory deferrals.
(3)Amounts presented represent a one-time, non-cash settlement cost (benefit), prior to definedregulatory deferrals, which are required when the total lump sum distributions or other settlements of plan benefit obligations during a plan year exceed the service cost and interest cost components of the net periodic cost for that year.
Postretirement Benefits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Service cost (1) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | |
Interest cost (2) | 2 | | | 1 | | | 1 | | | 2 | | | 1 | | | — | |
Expected return on plan assets (2) | (1) | | | (1) | | | — | | | (1) | | | (1) | | | — | |
Amortization of prior service cost (credit) (2) | — | | | (1) | | | 1 | | | (1) | | | (1) | | | — | |
Amortization of net loss (2) | (1) | | | — | | | (1) | | | — | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net periodic cost (benefit) | $ | — | | | $ | (1) | | | $ | 1 | | | $ | — | | | $ | (1) | | | $ | 1 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Service cost (1) | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
Interest cost (2) | 4 | | | 2 | | | 2 | | | 4 | | | 2 | | | 1 | |
Expected return on plan assets (2) | (2) | | | (2) | | | — | | | (2) | | | (2) | | | — | |
Amortization of prior service cost (credit) (2) | (1) | | | (2) | | | 1 | | | (2) | | | (2) | | | — | |
Amortization of net loss (2) | (2) | | | (1) | | | (1) | | | — | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net periodic cost (benefit) | $ | — | | | $ | (3) | | | $ | 2 | | | $ | 1 | | | $ | (2) | | | $ | 2 | |
(1)Amounts presented in the tables above are included in Operation and maintenance expense in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of amounts capitalized and regulatory deferrals.
(2)Amounts presented in the tables above are included in Other income (expense), net in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of regulatory deferrals.
The table below reflects the expected contributions to be made to the pension and postretirement benefit plans are as follows:during 2022:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Expected minimum contribution to pension plans during 2022 | $ | 7 | | | $ | — | | | $ | — | |
Expected contribution to postretirement benefit plans in 2022 | 8 | | | 1 | | | 4 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Beginning Balance | $ | (70 | ) | | $ | (65 | ) | | $ | (72 | ) | | $ | (65 | ) |
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 |
|
Tax expense | (2 | ) | | (2 | ) | | (4 | ) | | (1 | ) |
Net current period other comprehensive income | — |
| | 1 |
| | 2 |
| | 1 |
|
Ending Balance | $ | (70 | ) | | $ | (64 | ) | | $ | (70 | ) | | $ | (64 | ) |
| |
(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 contributions made to contribute a minimum of approximately $46 million 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 planplans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Pension plans | $ | 2 | | | $ | — | | | $ | — | | | $ | 4 | | | $ | — | | | $ | — | |
Postretirement benefit plans | 2 | | | 1 | | | 2 | | | 4 | | | 1 | | | 2 | |
(6) Regulatory Matters
Equity Return
The Registrants are at times allowed by a regulator to defer an equity return as part of the recoverable carrying costs of a regulatory asset. A deferred equity return is capitalized for rate-making purposes, but it is not included in 2017, of which approximately $4 million and $12 million were contributed during the three and nine months ended September 30, 2017, respectively.
(5) Regulatory Accounting
Equity Return. As of September 30, 2017, Houston Electric has not recognized anRegistrant’s regulatory assets on its Condensed Consolidated Balance Sheets. The allowed equity return is recognized in the Condensed Statements of $299 million because such return will be recognizedConsolidated Income as it is recovered in rates. During the three months ended September 30, 2017 and 2016, Houston Electric recognized approximately $13 million and $22 million, respectively, of theThe recoverable allowed equity return not previously recognized. Duringyet recognized by the nine months ended SeptemberRegistrants is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| CenterPoint Energy (1) | | Houston Electric (2) | | CERC (3) | | CenterPoint Energy (1) | | Houston Electric (2) | | CERC (3) |
| (in millions) |
Allowed equity return not recognized | $ | 190 | | | $ | 89 | | | $ | 51 | | | $ | 199 | | | $ | 100 | | | $ | 51 | |
(1)In addition to the amounts described in (2) and (3) below, represents CenterPoint Energy’s allowed equity return on post in-service carrying cost generally associated with investments at SIGECO.
(2)Represents Houston Electric’s allowed equity return on its true-up balance of stranded costs, other changes and related interest resulting from the formerly integrated electric utilities prior to Texas deregulation to be recovered in rates through 2024 and certain storm restoration and mobile generation balances pending recovery in the next rate proceeding. The actual amounts recognized are adjusted at least annually to correct any over-collections or under-collections during the preceding 12 months.
(3)CERC’s allowed equity return on post in-service carrying cost associated with certain distribution facilities replacements expenditures in Texas and costs associated with investments in Indiana.
The table below reflects the amount of allowed equity return recognized by each Registrant in its Condensed Statements of Consolidated Income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Allowed equity return recognized | $ | 12 | | | $ | 12 | | | $ | 1 | | | $ | 11 | | | $ | 11 | | | $ | 1 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Allowed equity return recognized | $ | 22 | | | $ | 21 | | | $ | 1 | | | $ | 19 | | | $ | 18 | | | $ | 1 | |
February 2021 Winter Storm Event
Amounts for the under recovery of natural gas costs associated with the February 2021 Winter Storm Event are reflected in current and non-current regulatory assets on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets. Recovery of natural gas costs within the regulatory assets are probable and are subject to customary regulatory prudence reviews in all jurisdictions that may impact the amounts ultimately recovered. CenterPoint Energy and CERC have begun recovery of natural gas costs in Indiana, Louisiana, Mississippi and Minnesota, and recovery of natural gas costs in Indiana is nearly complete. CenterPoint Energy and CERC have filed for securitization of natural gas costs in Texas, received commission approval and issuance of financing order in 2022, and expect the Texas Public Financing Authority to issue customer rate relief bonds in 2022. As part of the closing of the sale of CenterPoint Energy’s and CERC’s Natural Gas businesses in Arkansas and Oklahoma, CERC received as part of the purchase price $398 million for unrecovered natural gas costs associated with the February 2021 Winter Storm Event. In testimonies filed on December 22, 2021 and February 11, 2022, in CERC’s high gas cost prudency review case, the Minnesota Attorney General’s Office, Minnesota Department of Commerce, and Citizens Utility
Board have proposed significant disallowances for all natural gas utilities, resulting in potential disallowances for CenterPoint Energy and CERC. Recommended disallowances for CERC include up to $45 million proposed by the Minnesota Department of Commerce, $82 million proposed by the Citizens Utility Board, and $409 million (or in the alternative $57 million) proposed by the Attorney General’s Office. The natural gas costs in Minnesota were incurred in accordance with the plan on file with the MPUC and CenterPoint Energy believes the costs were prudently incurred and are eligible for recovery through an existing mechanism. In May 2022, the administrative law judges reviewing the gas prudency case concluded that CERC acted prudently in connection with the February 2021 Winter Storm Event and recommended no disallowance of CERC’s jurisdictional gas costs incurred during the event. The commissioners of the MPUC are scheduled to hear oral arguments on the administrative law judges’ report on August 4, 2022, and will begin deliberations on August 11, 2022. CenterPoint Energy and CERC anticipate a final decision in the third quarter of 2022. Additionally, due to the uncertainty of timing and method of recovery in some jurisdictions, CenterPoint Energy and CERC may not earn a return on amounts deferred in the regulatory assets associated with the February 2021 Winter Storm Event.
As of June 30, 20172022, CenterPoint Energy and 2016, Houston Electric recognized approximately $30CERC have recorded current regulatory assets of $1,186 million and $52$1,185 million, respectively, and non-current regulatory assets of $272 million and $272 million, respectively, associated with the February 2021 Winter Storm Event. As of December 31, 2021, CenterPoint Energy and CERC have recorded current regulatory assets of $1,410 million and $1,399 million, respectively, of the allowed equity return not previously recognized.
Hurricane Harvey. Houston Electric’s electric delivery systemwhich $154 million related to Arkansas and Oklahoma has been reflected in held for sale at both CenterPoint Energy and CERC, Corp.’s NGD suffered damage as a resultand non-current regulatory assets 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$583 million and estimates that$583 million, respectively, of which $244 million related to Arkansas and Oklahoma has been reflected in held for sale at both CenterPoint Energy and CERC, associated with 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. February 2021 Winter Storm Event.
As of Septemberboth June 30, 2017,2022 and December 31, 2021, as authorized by the PUCT, CenterPoint Energy and Houston Electric recorded an increasea regulatory asset of $4$8 million in property, plant and equipment and $73 million in regulatory assets,for bad debt expenses resulting from REPs’ default on their obligation to pay delivery charges to Houston Electric net of $23 million in insurance receivablescollateral. Additionally, as of both June 30, 2022 and December 31, 2021, CenterPoint Energy and Houston Electric 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 resultregulatory asset of Hurricane Harvey will range from $25$15 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 operationoperations and maintenance expenses. As of September 30, 2017, NGD has recorded approximately $7 million in regulatory assets, net of $2costs associated with the February 2021 Winter Storm Event.
million of insurance receivables recorded,See Note 13(d) for restoration costs incurred. As a result, storm restoration costs should not materially affect CERC’s reported net income for 2017.further information regarding litigation related to the February 2021 Winter Storm Event.
(6)(7) Derivative Instruments
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’s Condensed Consolidated Balance Sheets at their fair value unless
(a)Non-Trading Activities
Commodity Derivative Instruments (CenterPoint Energy and CERC). CenterPoint Energy electsand CERC, through the normal purchase and sales exemption for qualified physical transactions. A derivative may be designated as a normal purchase or sale if the intent is to physically receive or deliver the product for use or sale in the normal course of business.
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’s marketing, risk management services and hedging activities. The committee’s duties are to establish CenterPoint Energy’s commodity risk policies, allocate board-approved commercial risk limits, approve the use of new products and commodities, monitor positions and ensure compliance with CenterPoint Energy’s risk management policies, procedures and limits established by CenterPoint Energy’s board of directors.
CenterPoint Energy’s policies prohibit the use of leveraged financial instruments. A leveraged financial instrument, for this purpose, is a transaction involving a derivative whose financial impact will be based on an amount other than the notional amount or volume of the instrument.
| |
(a) | Non-Trading Activities |
Derivative Instruments. CenterPoint Energy entersIndiana Utilities, enter into certain derivative instruments to mitigate the effects of commodity price movements. Certain financialOutstanding derivative instruments used todesignated as economic hedges at the Indiana Utilities hedge portions of thelong-term variable rate natural gas inventory ofpurchases. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging natural gas purchases, and thus the Energy Services business segmentgains and losses on derivatives are deferred in a regulatory liability or asset.
Interest Rate Risk Derivative Instruments. From time to time, the Registrants may enter into interest rate derivatives that are designated as fair value hedges for accounting purposes. All other financial instruments do not qualifyeconomic or are not designated as cash flow hedges. The objective of these hedges is to offset risk associated with interest rates borne by the Registrants in connection with an anticipated future fixed rate debt offering or fair value hedges.other exposure to variable rate debt. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging financing activity, and thus the gains and losses on derivatives are deferred in a regulatory liability or asset.
The table below summarizes CenterPoint Energy’s outstanding interest rate hedging activity:
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | | | December 31, 2021 |
Hedging Classification | | Notional Principal |
| | | | | | | | |
| | (in millions) |
Economic hedge (1) | | $ | 84 | | | | | $ | 84 | | | |
| | | | | | | | |
(1)Relates to interest rate derivative instruments at SIGECO. On June 13, 2022, SIGECO amended the LIBOR interest rate swaps to adjust the termination date to May 1, 2023.
Weather Hedges.Normalization (CenterPoint Energy and CERC). CenterPoint Energy hasand CERC have weather normalization or other rate mechanisms that largely mitigate the impact of weather on NGDNatural Gas in Arkansas,Indiana, Louisiana, Mississippi, Minnesota and Oklahoma. NGDOhio, as applicable. CenterPoint Energy’s and CERC’s Natural Gas in Texas and CenterPoint Energy’s electric operations in Texas and Indiana do not have such mechanisms, although fixed customer charges are historically higher in Texas for NGDNatural Gas compared to CenterPoint Energy’sits other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on NGD’sCenterPoint Energy’s and CERC’s Natural Gas’ results in Texas and on Houston Electric’sCenterPoint Energy’s electric operations’ results in its Texas and Indiana service territory.
CenterPoint Energy entered into heating-degree day swaps 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 didterritories. The Registrants do not currently enter into heating-degree day swaps for NGD jurisdictions for the 2015–2016 or 2016–2017 winter heating seasons. CenterPointweather hedges.
(b)Derivative Fair Values and Income Statement Impacts (CenterPoint Energy entered into weather hedges for the Houston Electric service territory to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows, which contained bilateral dollar caps of $7 million, $9 million and $9 million for the 2015–2016, 2016–2017 and 2017–2018 winter seasons, respectively. The swaps are based on 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.CERC)
Hedging of Interest Expense for Future Debt Issuances. In January 2017, Houston Electric entered into forward interest rate agreements with several counterparties, having an aggregate notional amount of $150 million. These agreements were executed to hedge, in part, volatility in the 10-year U.S. treasury rate by reducing Houston Electric’s exposure to variability in cash flows related to interest payments of Houston Electric’s $300 million issuance of fixed rate debt in January 2017. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $0.5 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the bonds.
In 2017, CenterPoint Energy entered into forward interest rate agreements with several counterparties, having an aggregate notional amount of $350 million. These agreements were executed to hedge, in part, volatility in the 5-year U.S. treasury rate by reducing CenterPoint Energy’s exposure to variability in cash flows relating to interest payments of CenterPoint Energy’s $500 million issuance of fixed rate debt in August 2017. These forward interest rate agreements were designated as cash flow hedges.
Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $2.9 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life 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, volatility in the 30-year U.S. treasury rate by reducing CERC Corp.’s exposure to variability in cash flows related to interest payments of CERC Corp.’s $300 million issuance of fixed rate debt in August 2017. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the agreements, which totaled approximately $1.5 million, is a component of accumulated other comprehensive income in 2017 and will be amortized over the life of the notes.
| |
(b) | Derivative Fair Values and Income Statement Impacts |
The following tables present information about CenterPoint Energy’s derivative instruments and hedging activities. The first four tables providetable provides a balance sheet overview of CenterPoint Energy’s Derivative Assetsderivative assets and Liabilities as of September 30, 2017 and December 31, 2016,liabilities, while the last table provides a breakdown of the related income statement impacts forimpacts.
Fair Value of Derivative Instruments and Hedged Items
CenterPoint Energy
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2022 | | December 31, 2021 |
| | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | |
| Derivatives not designated as hedging instruments: | | (in millions) |
| Natural gas derivatives (1) | Current Assets: Non-trading derivative assets | | $ | 26 | | | $ | — | | | $ | 9 | | | $ | — | |
| Natural gas derivatives (1) | Other Assets: Non-trading derivative assets | | 6 | | | — | | | 5 | | | — | |
| | | | | | | | | | |
| Interest rate derivatives | Current Liabilities: Non-trading derivative liabilities | | — | | | — | | | — | | | 2 | |
| | | | | | | | | | |
| Interest rate derivatives | Other Liabilities: Non-trading derivative liabilities | | — | | | — | | | — | | | 12 | |
| Indexed debt securities derivative (2) | Current Liabilities | | — | | | 732 | | | — | | | 903 | |
| | | | | | | | | | |
| Total | | $ | 32 | | | $ | 732 | | | $ | 14 | | | $ | 917 | |
CERC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2022 | | December 31, 2021 |
| | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | |
| Derivatives not designated as hedging instruments: | | (in millions) |
| Natural gas derivatives (1) | Current Assets: Non-trading derivative assets | | $ | 21 | | | $ | — | | | $ | 8 | | | $ | — | |
| Natural gas derivatives (1) | Other Assets: Non-trading derivative assets | | 5 | | | — | | | 4 | | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total | | $ | 26 | | | $ | — | | | $ | 12 | | | $ | — | |
(1)Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due. However, the three and nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | |
Fair Value of Derivative Instruments |
| | September 30, 2017 |
Derivatives designated as fair value hedges: | | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | | | (in millions) |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | $ | — |
| | $ | — |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 5 |
| | — |
|
| | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | 65 |
| | 2 |
|
Natural gas derivatives (1) (2) (3) | | Other Assets: Non-trading derivative assets | | 58 |
| | 2 |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 27 |
| | 55 |
|
Natural gas derivatives (1) (2) (3) | | Other Liabilities: Non-trading derivative liabilities | | 9 |
| | 25 |
|
Indexed debt securities derivative | | Current Liabilities | | — |
| | 776 |
|
Total | | $ | 164 |
| | $ | 860 |
|
| |
(1) | The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,866 Bcf or a net 46 Bcf long position. Certain natural gas contracts hedge basis risk only and lack a fixed price exposure. |
| |
(2) | Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities was a $93 million asset as shown on 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 $13 million. |
| |
(3) | Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable. |
|
| | | | | | | | | | | | |
Offsetting of Natural Gas Derivative Assets and Liabilities |
| | September 30, 2017 |
| | Gross Amounts Recognized (1) | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets (2) |
| | (in millions) |
Current Assets: Non-trading derivative assets | | $ | 97 |
| | $ | (33 | ) | | $ | 64 |
|
Other Assets: Non-trading derivative assets | | 67 |
| | (11 | ) | | 56 |
|
Current Liabilities: Non-trading derivative liabilities | | (57 | ) | | 40 |
| | (17 | ) |
Other Liabilities: Non-trading derivative liabilities | | (27 | ) | | 17 |
| | (10 | ) |
Total | | $ | 80 |
| | $ | 13 |
| | $ | 93 |
|
| |
(1) | Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements. |
| |
(2) | The derivative assets and liabilities on the Condensed Consolidated Balance Sheets exclude accounts receivable or accounts payable that, should they exist, could be used as offsets to these balances in the event of a default. |
|
| | | | | | | | | | |
Fair Value of Derivative Instruments |
| | December 31, 2016 |
Derivatives not designated as hedging instruments | | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | | | (in millions) |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | $ | 79 |
| | $ | 14 |
|
Natural gas derivatives (1) (2) (3) | | Other Assets: Non-trading derivative assets | | 24 |
| | 5 |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 2 |
| | 43 |
|
Natural gas derivatives (1) (2) (3) | | Other Liabilities: Non-trading derivative liabilities | | — |
| | 5 |
|
Indexed debt securities derivative | | Current Liabilities | | — |
| | 717 |
|
Total (4) | | $ | 105 |
| | $ | 784 |
|
| |
(1) | The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,035 Bcf or a net 59 Bcf long position. Certain natural gas contracts hedge basis risk only and lack a fixed price exposure. |
| |
(2) | Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities was a $24 million asset as shown on 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 |
| | Gross Amounts Recognized (1) | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets (2) |
| | (in millions) |
Current Assets: Non-trading derivative assets | | $ | 81 |
| | $ | (30 | ) | | $ | 51 |
|
Other Assets: Non-trading derivative assets | | 24 |
| | (5 | ) | | 19 |
|
Current Liabilities: Non-trading derivative liabilities | | (57 | ) | | 16 |
| | (41 | ) |
Other Liabilities: Non-trading derivative liabilities | | (10 | ) | | 5 |
| | (5 | ) |
Total | | $ | 38 |
| | $ | (14 | ) | | $ | 24 |
|
| |
(1) | Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements. |
| |
(2) | The derivative assets and liabilities on the Condensed Consolidated Balance Sheets exclude accounts receivable or accounts payable that, should they exist, could be used as offsets to these balances in the event of a default. |
Realized and unrealized gains and losses onmark-to-market fair value of each natural gas derivativescontract is in an asset position with no offsetting amounts.
(2)Derivative component of the ZENS obligation that represents the ZENS holder’s option to receive the appreciated value of the reference shares at maturity. See Note 10 for further information.
Income Statement Impact of Hedge Accounting Activity (CenterPoint Energy)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | Income Statement Location | | 2022 | | 2021 | | 2022 | | 2021 |
Derivatives not designated as hedging instruments: | | | | (in millions) |
Indexed debt securities derivative (1) | | Gain (loss) on indexed debt securities | | $ | 65 | | | $ | (77) | | | $ | 171 | | | $ | (51) | |
| | | | | | | | | | |
| | | | | | | | |
(1)The indexed debt securities derivative is recorded at fair value and changes in the fair value are recognizedrecorded in theCenterPoint Energy’s Condensed Statements of Consolidated Income as revenue for physical salesIncome.
(c) Credit Risk Contingent Features (CenterPoint Energy)
Certain of CenterPoint Energy’s derivative contractsinstruments contain provisions that require CenterPoint Energy’s debt to maintain an investment grade credit rating on its long-term unsecured unsubordinated debt from S&P and as natural gas expense for financial natural gas derivativesMoody’s. If CenterPoint Energy’s debt were to fall below investment grade, it would be in violation of these provisions, 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 ofcounterparties to 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.could request immediate payment.
|
| | | | | | | | | | |
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 | ) |
| | | | | | | | | | | | | | |
(1) | Hedge ineffectiveness results from the basis ineffectiveness discussed above, and excludes the impact to natural gas expense from timing ineffectiveness. Timing ineffectiveness arises due to changes | June 30, 2022 (1) | | December 31, 2021 |
| | (in the difference between the spot price and the futures price, as well as the difference between the timingmillions) |
Aggregate fair value of the settlement of the futures and the valuation of the underlying physical commodity. As the commodity contract nears the settlement date, spot-to-forward price differences should converge, which should reduce or eliminate the impact of this ineffectiveness on natural gas expense.derivatives with credit risk-related contingent features in a liability position |
| $ | — | | | $ | 14 | |
(c)Fair value of collateral already posted | Credit Risk Contingent Features | — | | | 7 | |
Additional collateral required to be posted if credit risk contingent features triggered (2) | | — | | | 7 | |
CenterPoint Energy enters into financial derivative contracts containing material adverse change provisions. These provisions could require CenterPoint Energy to post additional collateral if the S&P or Moody’s
(1)As of June 30, 2022, all derivatives with credit ratings of CenterPoint Energy, Inc. or its subsidiaries are downgraded. The total fair value of the derivative instruments that contain credit risk contingent features that are in a net liability position 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 riskrisk-related contingent features were in an asset position.
(2)The maximum collateral required if further escalating collateral is 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.equal the net liability position.
(7) (8) Fair Value Measurements
Assets and liabilities that are recorded at fair value in the Registrants’ Condensed Consolidated Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined below and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value generally are exchange-traded derivatives and equity securities, as well as natural gas inventory that has been designated as the hedged item in a fair value hedge.securities.
Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, andquoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability.liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets. A market approach is utilized to value 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’s Level 3 assets or liabilities. As of September 30, 2017, CenterPoint Energy’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options and its indexed debt securities. Level 3 physical natural gas forward contracts are valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $1.08 to $5.83 per MMBtu) as an unobservable input. Level 3 options are valued through Black-Scholes (including forward start) option models which include option volatilities (ranging from 0% to 87%) as an unobservable input. CenterPoint Energy’s Level 3 physical natural gas forward contracts and options derivative assets and liabilities consist of both long and short positions (forwards and options) and their fair value is sensitive to forward prices and volatilities. If forward prices decrease, CenterPoint Energy’s long forwards lose value whereas its short forwards gain in value. If volatility decreases, CenterPoint Energy’s long options lose value whereas its short options gain in value. CenterPoint Energy’s Level 3 indexed debt securities are valued using a Black-Scholes option model and a discounted cash flow model, which use option volatility (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.
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 endbasis.
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 SeptemberJune 30, 20172022 and December 31, 2016,2021 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 inventory | 65 |
| | — |
| | — |
| | — |
| | 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 |
|
| |
(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 |
| | | | |
| (in millions) |
Assets | | | | | | | | | |
Corporate equities | $ | 956 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 956 |
|
Investments, including money market funds (2) | 77 |
| | — |
| | — |
| | — |
| | 77 |
|
Natural gas derivatives (3) | 11 |
| | 74 |
| | 20 |
| | (35 | ) | | 70 |
|
Total assets | $ | 1,044 |
| | $ | 74 |
| | $ | 20 |
| | $ | (35 | ) | | $ | 1,103 |
|
Liabilities | |
| | |
| | |
| | |
| | |
|
Indexed debt securities derivative | $ | — |
| | $ | — |
| | $ | 717 |
| | $ | — |
| | $ | 717 |
|
Natural gas derivatives (3) | 4 |
| | 56 |
| | 7 |
| | (21 | ) | | 46 |
|
Total liabilities | $ | 4 |
| | $ | 56 |
| | $ | 724 |
| | $ | (21 | ) | | $ | 763 |
|
| |
(1) | Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy to settle positive and negative positions and also include cash collateral of $14 million held by CES from the same counterparties. |
| |
(2) | Amounts are included in Prepaid 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. |
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 has utilized Level 3 inputs to determine fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | | | Total | | Level 1 | | Level 2 | | Level 3 | | | Total |
Assets | (in millions) |
Equity securities | $ | 658 | | | $ | — | | | $ | — | | | | | $ | 658 | | | $ | 1,439 | | | $ | — | | | $ | — | | | | $ | 1,439 | |
Investments, including money market funds (1) | 38 | | | — | | | — | | | | | 38 | | | 42 | | | — | | | — | | | | 42 | |
| | | | | | | | | | | | | | | | | | |
Natural gas derivatives | — | | | 32 | | | — | | | | | 32 | | | — | | | 14 | | | — | | | | 14 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Total assets | $ | 696 | | | $ | 32 | | | $ | — | | | | | $ | 728 | | | $ | 1,481 | | | $ | 14 | | | $ | — | | | | $ | 1,495 | |
Liabilities | | | | | | | | | | | | | | | | | | |
Indexed debt securities derivative | $ | — | | | $ | 732 | | | $ | — | | | | | $ | 732 | | | $ | — | | | $ | 903 | | | $ | — | | | | $ | 903 | |
Interest rate derivatives | — | | | — | | | — | | | | | — | | | — | | | 14 | | | — | | | | 14 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Total liabilities | $ | — | | | $ | 732 | | | $ | — | | | | | $ | 732 | | | $ | — | | | $ | 917 | | | $ | — | | | | $ | 917 | |
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| Derivative assets and liabilities, net |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Beginning balance | $ | (712 | ) | | $ | 16 |
| | $ | (704 | ) | | $ | 12 |
|
Purchases (1) | — |
| | — |
| | — |
| | 12 |
|
Total gains (losses) | (38 | ) | | 9 |
| | (38 | ) | | 13 |
|
Total settlements | (1 | ) | | (8 | ) | | (5 | ) | | (24 | ) |
Transfers into Level 3 | 7 |
| | — |
| | 9 |
| | 5 |
|
Transfers out of Level 3 | (6 | ) | | — |
| | (12 | ) | | (1 | ) |
Ending balance (2) | $ | (750 | ) | | $ | 17 |
| | $ | (750 | ) | | $ | 17 |
|
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 |
|
Houston Electric
| |
(1) | Mark-to-market value of Level 3 derivative assets acquired through the purchase of AEM was less than $1 million at the acquisition date. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | | | Total | | Level 1 | | Level 2 | | Level 3 | | | | Total |
Assets | (in millions) |
Investments, including money market funds (1) | $ | 23 | | | $ | — | | | $ | — | | | | | $ | 23 | | | $ | 27 | | | $ | — | | | $ | — | | | | | $ | 27 | |
| | | | | | | | | | | | | | | | | | | |
Total assets | $ | 23 | | | $ | — | | | $ | — | | | | | $ | 23 | | | $ | 27 | | | $ | — | | | $ | — | | | | | $ | 27 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| |
(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, CenterPoint Energy transferred its indexed debt securities from Level 2 to Level 3 to reflect changes in the significance of the unobservable inputs used in the valuation. As of September 30, 2017, the indexed debt securities liability was $776 million. During the three and nine months ended September 30, 2017, there was a loss of $36 million and $59 million, respectively, on the indexed debt securities. |
CERC
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | | | Total | | Level 1 | | Level 2 | | Level 3 | | | Total |
Assets | (in millions) |
| | | | | | | | | | | | | | | | | | |
Investments, including money market funds (1) | $ | 13 | | | $ | — | | | $ | — | | | | | $ | 13 | | | $ | 14 | | | $ | — | | | $ | — | | | | $ | 14 | |
Natural gas derivatives | — | | | 26 | | | — | | | | | 26 | | | — | | | 12 | | | — | | | | 12 | |
Total assets | $ | 13 | | | $ | 26 | | | $ | — | | | | | $ | 39 | | | $ | 14 | | | $ | 12 | | | $ | — | | | | $ | 26 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
(1)Amounts are included in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.
Estimated Fair Value of Financial Instruments
The fair values of cash and cash equivalents, investments in debt and equity securities classified as “trading”measured at fair value and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s ZENS indexed debt securities derivative are stated at fair value and are excluded from the table below. The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by a combination of historical trading prices and comparable issue data. These liabilities, which are not measured at fair value in the Registrants’ Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 2 in the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| CenterPoint Energy (1) | | Houston Electric (1) | | CERC | | CenterPoint Energy (1) | | Houston Electric (1) | | CERC |
Long-term debt, including current maturities | (in millions) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Carrying amount | $ | 15,001 | | | $ | 6,169 | | | $ | 4,571 | | | $ | 16,086 | | | $ | 5,495 | | | $ | 5,552 | |
Fair value | 14,225 | | | 5,705 | | | 4,496 | | | 17,385 | | | 6,230 | | | 5,999 | |
(1)Includes Securitization Bond debt.
|
| | | | | | | | | | | | | | | |
| 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 |
|
(9) Goodwill and Other Intangibles (CenterPoint Energy and CERC) (8) Unconsolidated Affiliate
Goodwill (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, accounts for its investment in Enable’s common units using the equity method of accounting.
CenterPoint Energy’s maximum exposure to loss related to Enable, a VIE in which CenterPoint Energy is not the primary beneficiary, is limited to its equity investment and Series A Preferred Unit investment as presented in the Condensed Consolidated Balance Sheets as of September 30, 2017 and outstanding current accounts receivable from Enable.
Transactions with Enable:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Reimbursement of transition services (1) | $ | — |
| | $ | 1 |
| | $ | 3 |
| | $ | 6 |
|
Natural gas expenses, including transportation and storage costs | 23 |
| | 22 |
| | 80 |
| | 79 |
|
Interest income related to notes receivable from Enable | — |
| | — |
| | — |
| | 1 |
|
| |
(1) | Represents amounts billed under the Transition Agreements for certain support services provided to Enable. Actual transition services costs are recorded net of reimbursement. |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (in millions) |
Accounts receivable for amounts billed for transition services | $ | 1 |
| | $ | 1 |
|
Accounts payable for natural gas purchases from Enable | 8 |
| | 10 |
|
Limited Partner Interest in Enable (1):
|
| | |
| September 30, 2017 |
CenterPoint Energy | 54.1 | % |
OGE | 25.7 | % |
| |
(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 soldgoodwill 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 Energy | 233,856,623 |
| | 14,520,000 |
|
OGE | 110,982,805 |
| | — |
|
The 139,704,916 subordinated units previously owned by CERC Corp. converted into common units of Enable on a one-for-one basis, on August 30, 2017, at the end of the subordination period, as set forth in Enable’s Fourth Amended and Restated Agreement of Limited Partnership. Upon conversion, holders of common units resulting from the conversion of subordinated units have all the rights and obligations of unitholders holding all other common units, including the right to receive distributions pro rata made with respect to common units.
Generally, sales of more than 5% of the aggregate of the common units 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.
Summarized unaudited consolidated income information for Enablereportable segment is as follows:
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | | | | | December 31, 2021 |
| | (in millions) |
Electric (1) | | $ | 936 | | | | | | | $ | 936 | |
Natural Gas (2) | | 2,920 | | | | | | | 2,920 | |
Corporate and Other | | 438 | | | | | | | 438 | |
| | | | | | | | |
Total | | $ | 4,294 | | | | | | | $ | 4,294 | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 |
| 2016 |
| | (in millions) |
Operating revenues | | $ | 705 |
| | $ | 620 |
| | $ | 1,997 |
| | $ | 1,658 |
|
Cost of sales, excluding depreciation and amortization | | 349 |
| | 268 |
| | 936 |
| | 717 |
|
Impairment of goodwill and other long-lived assets | | — |
| | 8 |
| | — |
| | 8 |
|
Operating income | | 137 |
| | 139 |
| | 399 |
| | 299 |
|
Net income attributable to Enable | | 104 |
| | 110 |
| | 301 |
| | 231 |
|
Reconciliation of Equity in Earnings, net: | | | | | | | | |
CenterPoint Energy’s interest | | $ | 56 |
| | $ | 61 |
| | $ | 163 |
| | $ | 128 |
|
Basis difference amortization (1) | | 12 |
| | 12 |
| | 36 |
| | 36 |
|
CenterPoint Energy’s equity in earnings, net | | $ | 68 |
| | $ | 73 |
| | $ | 199 |
| | $ | 164 |
|
| |
(1) | Equity in earnings of unconsolidated affiliates includes CenterPoint Energy’s share of Enable’s earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s original investment in EnableCERC’s goodwill has been recast to reflect the Restructuring and its underlying equity in Enable’s net assets. The basis difference is amortized over approximately 33 years, the average life of the assets to which the basis difference is attributed. |
Summarized unaudited consolidated balance sheet information for Enable is as follows:
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | | | | | December 31, 2021 |
| | (in millions) |
Goodwill (2) (3) | | $ | 1,583 | | | | | | | $ | 1,583 | |
|
| | | | | | | | |
| | September 30, 2017 |
| December 31, 2016 |
| | (in millions) |
Current assets | | $ | 446 |
| | $ | 396 |
|
Non-current assets | | 10,816 |
| | 10,816 |
|
Current liabilities | | 831 |
| | 362 |
|
Non-current liabilities | | 2,740 |
| | 3,056 |
|
Non-controlling interest | | 12 |
| | 12 |
|
Preferred equity | | 362 |
| | 362 |
|
Enable partners’ equity | | 7,317 |
| | 7,420 |
|
Reconciliation of Equity Method Investment in Enable: | | | | |
CenterPoint Energy’s ownership interest in Enable partners’ capital | | $ | 4,007 |
| | $ | 4,067 |
|
CenterPoint Energy’s basis difference | | (1,526 | ) | | (1,562 | ) |
CenterPoint Energy’s equity method investment in Enable | | $ | 2,481 |
| | $ | 2,505 |
|
Distributions Received from Unconsolidated Affiliate:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Investment in Enable’s common units | $ | 74 |
| | $ | 74 |
| | $ | 223 |
| | $ | 223 |
|
Investment in Enable’s Series A Preferred Units | 9 |
| | 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.
(9) Goodwill
Goodwill by reportable business segment as of December 31, 2016 and changes in the carrying amount of goodwill as of September 30, 2017 are as follows:
|
| | | | | | | | | | | | |
| December 31, 2016 | | AEM Acquisition (1) | | September 30, 2017 | |
| (in millions) | |
Natural Gas Distribution | $ | 746 |
| | $ | — |
| | $ | 746 |
| |
Energy Services | 105 |
| (2) | 5 |
| | 110 |
| (2) |
Other Operations | 11 |
| | — |
| | 11 |
| |
Total | $ | 862 |
| | $ | 5 |
| | $ | 867 |
| |
(1) See Note 3.
(2) Amount presented is net of the accumulated goodwill impairment charge of $252$185 million recorded in 2012.2020.
(2)Excludes $398 million and $144 million, respectively, of goodwill attributable to the Arkansas and Oklahoma Natural Gas businesses which was reflected on CenterPoint Energy’s and CERC’s respective Condensed Consolidated Balance Sheets in Current assets held for sale as of December 31, 2021 and disposed following the completion of the sale in January 2022. For further information, see Note 3.
(3)Includes $972 million of goodwill attributable to the businesses transferred in the Restructuring as of both June 30, 2022 and December 31, 2021. See below for a discussion of the goodwill valuation determination.
When the net assets or equity interest transferred in a common-control transaction constitute a business, goodwill is included with the net assets transferred at the parent company’s historical basis. CenterPoint Energy performs its goodwill impairment tests at least annually and evaluates goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed usingapplied a two-step process. In the first step, therelative 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 generally determined on the basis of discounted cash flows. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, then a second step must be completedmethodology to determine the amount of goodwill to allocate to CERC from its natural gas reporting unit as part of the Restructuring.
When a disposal group reflects a component of a reporting unit and meets the definition of a business, the goodwill impairmentwithin that should be recorded. Inreporting unit is allocated to the second step,disposal group based on the impliedrelative fair value of the reporting unit’s goodwill is determined by allocatingcomponents representing a business that will be retained and disposed. Goodwill attributable to the reporting unit’s fair value to alldisposed Natural Gas businesses was classified as held for sale as of its assetsDecember 31, 2021 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 resultsexcluded from the applicationtable above.
Other Intangibles (CenterPoint Energy)
The tables below present information on CenterPoint Energy’s intangible assets, excluding goodwill, recorded in Other non-current assets on CenterPoint Energy’s Condensed Consolidated Balance Sheets and the related amortization expense included in Depreciation and amortization on CenterPoint Energy’s Condensed Statements of this second step is then comparedConsolidated Income.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance |
| | (in millions) |
Customer relationships | | $ | 33 | | | $ | (14) | | | $ | 19 | | | $ | 33 | | | $ | (12) | | | $ | 21 | |
| | | | | | | | | | | | |
Trade names | | 16 | | | (6) | | | 10 | | | 16 | | | (5) | | | 11 | |
| | | | | | | | | | | | |
Operation and maintenance agreements (1) | | 12 | | | (1) | | | 11 | | | 12 | | | (1) | | | 11 | |
Other | | 2 | | | (1) | | | 1 | | | 2 | | | (1) | | | 1 | |
Total | | $ | 63 | | | $ | (22) | | | $ | 41 | | | $ | 63 | | | $ | (19) | | | $ | 44 | |
(1)Amortization expense related to the carrying amountoperation and maintenance agreements and construction backlog is included in Non-utility cost of the goodwill and an impairment charge is recorded for the difference.revenues, including natural gas on CenterPoint Energy’s Condensed Statements of Consolidated Income.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2022 | | 2021 | | 2022 | | 2021 | |
| (in millions) | |
Amortization expense of intangible assets recorded in Depreciation and amortization | $ | 2 | | | $ | 2 | | | $ | 3 | | | $ | 3 | | |
| | | | | | | | |
CenterPoint Energy performed its annual impairment test inestimates that amortization expense of intangible assets with finite lives for the third quarter of 2017next five years will be as follows:
| | | | | |
| Amortization Expense |
| |
| (in millions) |
Remaining six months of 2022 | $ | 3 | |
2023 | 6 | |
2024 | 5 | |
2025 | 5 | |
2026 | 5 | |
2027 | 4 | |
(10) Equity Securities and determined, based on the results of the first step, that no impairment charge was required for any reportable segment.
(10) Indexed Debt Securities (ZENS) and Securities Related to ZENS(CenterPoint Energy)
(a) Investment inEquity Securities Related to ZENS
In 1995,During February and March 2022, CenterPoint Energy sold a cable television subsidiaryexecuted its previously announced plan to TWexit the midstream sector by selling the remaining Energy Transfer Common Units and received TW securitiesEnergy Transfer Series G Preferred Units it held as partial consideration. A subsidiary ofdiscussed below. CenterPoint Energy now holds 7.1used the proceeds from these sales to redeem outstanding debt and pay incurred expenses associated with the early redemptions. See Note 11 for further information.
CenterPoint Energy’s sales of equity securities during the six months ended June 30, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | |
Equity Security/Date Sold | | Units Sold | | | | Proceeds (1) | | | |
| | | | | | (in millions) |
Energy Transfer Common Units | | | | | | | | | |
February and March 2022 | | 50,999,768 | | | | | $ | 515 | | | | |
Energy Transfer Series G Preferred Units | | | | | | | | | |
March 2022 | | 192,390 | | | | | $ | 187 | | | | |
| | | | | | | | | |
(1)Proceeds are net of transaction costs.
Gains and losses on equity securities, net of transaction costs, are recorded in Gain (Loss) on Equity Securities in CenterPoint Energy’s Condensed Statements of Consolidated Income.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gains (Losses) on Equity Securities |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (in millions) |
AT&T Common | | $ | (27) | | | $ | (15) | | | $ | (37) | | | $ | — | |
Charter Common | | (67) | | | 90 | | | (160) | | | 52 | |
WBD Common | | 33 | | | — | | | 33 | | | — | |
Energy Transfer Common Units | | — | | | — | | | 95 | | | — | |
Energy Transfer Series G Preferred Units | | — | | | — | | | (9) | | | — | |
Other | | — | | | — | | | — | | | — | |
Total | | $ | (61) | | | $ | 75 | | | $ | (78) | | | $ | 52 | |
| | | | | | | | |
CenterPoint Energy recorded net unrealized losses of $61 million and $164 million for the three and six months ended June 30, 2022 and net unrealized gains of $75 million and $52 million for the three and six months ended June 30, 2021 respectively, for equity securities held as of June 30, 2022 and 2021.
CenterPoint Energy and its subsidiaries hold 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 securitiessecurities. Shares of AT&T Common, Charter Common and WBD Common are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS. Unrealized gains and losses resulting from changes in the market value of the TW Securities are recorded in CenterPoint Energy’s Condensed Statements of Consolidated Income.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Held | | Carrying Value |
| | June 30, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
| | | | | | (in millions) |
AT&T Common | | 10,212,945 | | | 10,212,945 | | | $ | 214 | | | $ | 251 | |
Charter Common | | 872,503 | | | 872,503 | | | 409 | | | 569 | |
WBD Common | | 2,470,685 | | | — | | | 33 | | | — | |
Energy Transfer Common Units | | — | | | 50,999,768 | | | — | | | 420 | |
Energy Transfer Series G Preferred Units | | — | | | 192,390 | | | — | | | 196 | |
Other | | | | | | 2 | | | 3 | |
Total | | | | | | $ | 658 | | | $ | 1,439 | |
(b) ZENS
In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1$1.0 billion of which $828 million remainremained outstanding as of SeptemberJune 30, 2017.2022. Each ZENS was originallyis 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
CenterPoint Energy’s reference shares for each ZENS consisted of 0.5 sharethe following:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (in shares) |
AT&T Common | 0.7185 | | | 0.7185 | |
Charter Common | 0.061382 | | | 0.061382 | |
WBD Common | 0.173817 | | | — | |
| | | |
CenterPoint Energy pays interest on the ZENS at an annual rate of TW Common, 0.0625 share2% plus the amount of Time Commonany quarterly cash dividends paid in respect of the reference shares attributable to the ZENS. The principal amount of the ZENS is subject to increases or decreases to the extent that the annual yield from interest and 0.061382 sharecash dividends on the reference shares attributable to the ZENS is less than or more than 2.309%. The adjusted principal amount is defined in the ZENS instrument as “contingent principal.” As of Charter Common,June 30, 2022, the ZENS, having an original principal amount of $828 million and thea contingent principal balance was $507 million.amount of
$31 million, were outstanding and were exchangeable, at the option of the holders, for cash equal to 95% of the market value of the reference shares attributable to the ZENS.
On October 22, 2016,May 17, 2021, AT&T announced that it had entered into a definitive agreement with Discovery, Inc. to acquire TW incombine their media assets into a stock and cash transaction. On February 15, 2017, TW shareholders approved the announcednew publicly traded company, Warner Bros. Discovery. The transaction with AT&T.closed on April 8, 2022. Pursuant to the mergerdefinitive agreement, uponAT&T shareholders received 0.241917 shares of WBD Common for each share of AT&T Common owned, representing 71% of the new company. Upon the closing of the merger, TW shareholders would receive for eachtransaction, reference shares attributable to ZENS now consist of their shares of TW Common an estimated implied value of $107.50, comprised of $53.75 per share in cash and $53.75 per share in AT&T Common. The stock portion will be subject to a collar such that TW shareholders will receive 1.4370.7185 shares of AT&T Common, if AT&T Common’s average stock price is below $37.411 at closing and 1.30.061382 shares of AT&T Common if AT&T Common’s average stock price is above $41.349 at
closing. Cash received for the TW Common reference shares would subsequently be distributed to ZENS holders, which is expected to reduce the contingent principal balance, and reference shares would consist of Charter Common Time Common and AT&T0.173817 shares of WBD Common. AT&T has publicly announced that the merger is expected to close by the end of 2017.
(11) Short-term Borrowings and Long-term Debt
Inventory Financing. NGD currently hasFinancing. CenterPoint Energy’s and CERC’s Natural Gas businesses have third-party AMAs associated with itstheir utility distribution service in Arkansas, northIndiana, Louisiana, Minnesota, Mississippi and Oklahoma that extend through 2020.Texas. The AMAs have varying terms, the longest of which expires in 2027. Pursuant to the provisions of the agreements, NGDCenterPoint Energy’s and CERC’s Natural Gas either sells natural gas to the asset manager and agrees to repurchase an equivalent amount of natural gas duringthroughout the winter heating seasonsyear at the same cost, plus a financing charge.or simply purchases its full natural gas requirements at each delivery point from the asset manager. These transactions are accounted for as an inventory financingfinancing. CenterPoint Energy and CERC had an associated principal obligation of $48$7 million and $35$7 million outstanding obligations related to the AMAs as of June 30, 2022 and December 31, 2021, respectively, recorded in Short-term borrowings on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets. Outstanding obligations related to third-party AMAs associated with utility distribution service in Arkansas and Oklahoma of $36 million as of September 30, 2017 and December 31, 2016, respectively.2021 are reflected in current liabilities held for sale on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets. See Note 3 for further information.
Debt 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. Transactions. During the ninesix months ended SeptemberJune 30, 2017, CenterPoint Energy, Houston Electric and CERC Corp. issued2022, in addition to CERC’s debt exchange discussed further below, the following debt instruments:instruments were issued or incurred:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Registrant | | Issuance Date | | Debt Instrument | | Aggregate Principal Amount | | Interest Rate | | Maturity Date |
| | (in millions) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Houston Electric | | February 2022 | | General Mortgage Bonds | | $ | 300 | | | 3.00% | | 2032 |
Houston Electric | | February 2022 | | General Mortgage Bonds | | 500 | | | 3.60% | | 2052 |
| | | | Total Houston Electric (1) | | 800 | | | | | |
CERC | | June 2022 | | Senior Notes | | 500 | | | 4.40% | | 2032 |
| | | | Total CERC (2) | | 500 | | | | | |
| | | | Total CenterPoint Energy | | $ | 1,300 | | | | | |
|
| | | | | | | | | | | | |
| | Issuance Date | | Debt Instrument | | Aggregate Principal Amount | | Interest Rate | | Maturity Date |
| | | | | | (in millions) | | | | |
Houston Electric | | January 2017 | | General mortgage bonds | | $ | 300 |
| | 3.00% | | 2027 |
CenterPoint Energy | | August 2017 | | Unsecured senior notes | | 500 |
| | 2.50% | | 2022 |
CERC Corp. | | August 2017 | | Unsecured senior notes | | 300 |
| | 4.10% | | 2047 |
The(1)Total proceeds, from the issuancesnet of discounts and issuance expenses and fees, of approximately $784 million were used for general limited liability company purposes, including capital expenditures and corporate purposes, as applicable, including to repay portionsthe repayment of outstanding commercial paper.
Credit Facilities. In June 2017, CenterPoint Energy,all or a portion of Houston Electric and CERC Corp. each entered into amendments to their respective revolving credit facilities to extend the termination date thereof from March 3, 2021 to March 3, 2022 and to terminate the swingline loan subfacility thereunder. The amendments toElectric’s borrowings under the CenterPoint Energy money pool.
(2)Total proceeds, net of discounts and issuance expenses and fees, of approximately $495 million were used for general corporate purposes, including the issuance by CERC Corp. revolving credit facilities also increased’s current subsidiaries, Indiana Gas and VEDO, of intercompany notes to CERC Corp. in June 2022; these subsidiaries used the aggregate commitments by $100 million and $300 million, respectively,funds to $1.7 billion and $900 million under their respective revolving credit facilities. No changes were maderepay intercompany debt owed to the aggregate commitments under the Houston Electric revolving credit facility. InVUH in connection with the amendments to increaseRestructuring in June 2022.
Debt Exchange. As a part of the aggregate commitments under their respective revolving credit facilities, CenterPoint Energy andRestructuring, on May 27, 2022, CERC Corp. each increased the sizeand VUH completed an exchange with holders of their respective commercial paper programs to permit the issuance of commercial paperVUH PPNs whereby CERC Corp. issued new senior notes inwith an aggregate principal amount notof $302 million to exceed $1.7such holders in exchange for all of their outstanding VUH PPNs with an aggregate principal amount of $302 million. The new CERC Corp. senior notes have the same principal amount, interest rate, and payment and maturity dates as the VUH PPNs for which they were exchanged. As a result of the exchange, CERC Corp. became the creditor for the PPNs originally issued by VUH, and CERC Corp. received $302 million of cash from VUH on June 30, 2022 in full repayment of the VUH PPNs.
Debt Repayments and Redemptions. During the six months ended June 30, 2022, the following debt instruments were repaid at maturity or redeemed prior to maturity with proceeds received from the sale of Energy Transfer units discussed further in Note 10:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Registrant | | Repayment/Redemption Date | | Debt Instrument | | Aggregate Principal | | Interest Rate | | Maturity Date |
| | | | | | (in millions) | | | | |
CERC (1) | | January 2022 | | Floating Rate Senior Notes | | $ | 425 | | | Three-month LIBOR plus 0.5% | | 2023 |
| | | | Total CERC | | 425 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
CenterPoint Energy (2) | | January 2022 | | First Mortgage Bonds | | 5 | | | 0.82% | | 2022 |
CenterPoint Energy (3) | | March 2022 | | Senior Notes | | 250 | | | 3.85% | | 2024 |
CenterPoint Energy (4) | | March 2022 | | Senior Notes | | 350 | | | 4.25% | | 2028 |
| | | | Total CenterPoint Energy | | $ | 1,030 | | | | | |
(1)In January 2022, CERC provided notice of partial redemption, and on January 31, 2022, CERC redeemed a portion ($425 million) of the outstanding $1 billion aggregate principal amount of the series at a redemption price equal to 100% of the principal amount, plus accrued and $900 million, respectively, at any time outstanding.unpaid interest on the principal amount being redeemed.
(2)First Mortgage Bonds issued by SIGECO.
As of September 30, 2017 and December 31, 2016,(3)In March 2022, CenterPoint Energy Houston Electricprovided notice of redemption, and CERC Corp.on March 31, 2022, CenterPoint Energy redeemed all of the remaining outstanding senior notes of the series at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest of approximately $2 million, the write off of issuance costs of $1 million and an applicable make-whole premium of approximately $7 million for a total redemption price of $260 million.
(4)In March 2022, CenterPoint Energy provided notice of partial redemption, and on March 31, 2022, CenterPoint Energy redeemed a portion ($350 million) of the outstanding $500 million aggregate principal amount of the series at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest of approximately $6 million, the write off of issuance costs of $3 million and an applicable make-whole premium of approximately $34 million for a total redemption price of $393 million.
Credit Facilities.
The Registrants had the following revolving credit facilities as of June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Execution Date | | Registrant | | Size of Facility | | Draw Rate of LIBOR plus (1) | | Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio | | Debt for Borrowed Money to Capital Ratio as of June 30, 2022 (2) | | Termination Date |
| | | | (in millions) | | | | | | | | |
February 4, 2021 | | CenterPoint Energy | | $ | 2,400 | | | 1.625% | | 65.0% | (3) | 58.8% | | February 4, 2024 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
February 4, 2021 | | Houston Electric | | 300 | | | 1.375% | | 67.5% | (3) | 50.8% | | February 4, 2024 |
February 4, 2021 | | CERC | | 900 | | | 1.250% | | 65.0% | | 47.1% | | February 4, 2024 |
| | Total | | $ | 3,600 | | | | | | | | | |
(1)Based on current credit ratings.
(2)As defined in the revolving credit facility agreements, excluding Securitization Bonds.
(3)For CenterPoint Energy and utilizationHouston Electric, the financial covenant limit will temporarily increase to 70% if Houston Electric experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive 12-month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such facilities:certification.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | |
| Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | | Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | |
| (in millions) | |
CenterPoint Energy | $ | 1,700 |
| | $ | — |
| | $ | 6 |
| | $ | 447 |
| (1) | $ | 1,600 |
| | $ | — |
| | $ | 6 |
| | $ | 835 |
| (1) |
Houston Electric | 300 |
| | — |
| | 4 |
| | — |
| | 300 |
| | — |
| | 4 |
| | — |
| |
CERC Corp. | 900 |
| | — |
| | — |
| | 529 |
| (2) | 600 |
| | — |
| | 4 |
| | 569 |
| (2) |
Total | $ | 2,900 |
| | $ | — |
| | $ | 10 |
| | $ | 976 |
| | $ | 2,500 |
| | $ | — |
| | $ | 14 |
| | $ | 1,404 |
| |
On June 30, 2022, in connection with the Restructuring, VUH repaid in full all outstanding indebtedness and terminated all remaining commitments and other obligations under its $400 million amended and restated credit agreement dated as of February 4, 2021. VUH did not incur any penalties in connection with the early termination.
| |
(1) | Weighted average interest rate was 1.42% and 1.04% asThe Registrants, including the subsidiaries of September 30, 2017 and December 31, 2016, respectively. |
| |
(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) |
| | | | (in millions) | | | | | | | | |
March 3, 2016 | | CenterPoint Energy | | $ | 1,700 |
| (1) | 1.250% | | 65% | (4) | 56.9% | | March 3, 2022 |
March 3, 2016 | | Houston Electric | | 300 |
| | 1.125% | | 65% | (4) | 49.0% | | March 3, 2022 |
March 3, 2016 | | CERC Corp. | | 900 |
| (1) | 1.250% | | 65% | | 38.6% | | March 3, 2022 |
| |
(1) | Amended on June 16, 2017 to increase the aggregate commitment size as noted above. |
| |
(2) | Based on current credit ratings. |
| |
(3) | As defined in the revolving credit facility agreement, excluding Securitization Bonds. |
| |
(4) | The financial covenant limit will temporarily increase from 65% to 70% if Houston Electric experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive 12-month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification. |
| |
(5) | Amended on June 16, 2017 to extend the termination date as noted above. |
CenterPoint Energy Houston Electric and CERC Corp.discussed above, were in compliance with all financial debt covenants as of SeptemberJune 30, 2017.2022.
The table below reflects the utilization of the Registrants’ respective revolving credit facilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | | December 31, 2021 |
Registrant | | Loans | | Letters of Credit | | Commercial Paper (1) | | Weighted Average Interest Rate | | | Loans | | Letters of Credit | | Commercial Paper (1) | | Weighted Average Interest Rate |
| | (in millions, except weighted average interest rate) |
CenterPoint Energy | | $ | — | | | $ | 11 | | | $ | 849 | | | 1.82 | % | | | $ | — | | | $ | 11 | | | $ | 1,400 | | | 0.34 | % |
CenterPoint Energy (2) | | — | | | — | | | — | | | — | % | | | — | | | — | | | 350 | | | 0.21 | % |
| | | | | | | | | | | | | | | | | |
Houston Electric | | — | | | — | | | — | | | — | % | | | — | | | — | | | — | | | — | % |
CERC | | — | | | — | | | 574 | | | 1.93 | % | | | — | | | — | | | 899 | | | 0.26 | % |
Total | | $ | — | | | $ | 11 | | | $ | 1,423 | | | | | | $ | — | | | $ | 11 | | | $ | 2,649 | | | |
(1)Outstanding commercial paper generally has maturities of 60 days or less and each Registrants’ commercial paper program is backstopped by such Registrants’ long-term credit facilities. Houston Electric does not have a commercial paper program.
(2)This credit facility was entered into by VUH and was guaranteed by SIGECO, Indiana Gas and VEDO. This credit facility was terminated in connection with the Restructuring, as discussed above.
Liens. As of June 30, 2022, Houston Electric’s assets were subject to liens securing approximately $5.8 billion of general mortgage bonds, including approximately $68 million held in trust to secure pollution control bonds that mature in 2028 for which CenterPoint Energy is obligated. The general mortgage bonds that are held in trust to secure pollution control bonds are not reflected in Houston Electric’s consolidated financial statements because of the contingent nature of the obligations. As of June 30, 2022, Houston Electric could issue approximately $4.4 billion of additional general mortgage bonds on the basis of retired bonds and 70% of property additions.
Other. As of June 30, 2022, certain financial institutions agreed to issue, from time to time, up to $20 million of letters of credit on behalf of Vectren and certain of its subsidiaries in exchange for customary fees. These agreements to issue letters of credit expire on February 4, 2024. As of June 30, 2022, such financial institutions had issued $1 million of letters of credit on behalf of Vectren and certain of its subsidiaries.
(12) Income Taxes
The Registrants reported the following effective tax rates:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
CenterPoint Energy - Continuing operations (1) | 22 | % | | (11) | % | | 26 | % | | 6 | % |
CenterPoint Energy - Discontinued operations | — | % | | 24 | % | | — | % | | 23 | % |
Houston Electric (2) | 21 | % | | 15 | % | | 21 | % | | 14 | % |
CERC (3)(4) | 4 | % | | (28) | % | | 23 | % | | 12 | % |
| | | | | | | |
(1)CenterPoint Energy’s higher effective tax rate reportedon income from continuing operations for the three and six months ended SeptemberJune 30, 2017 was 37%2022 compared to 35%the same periods ended June 30, 2021 was primarily driven by the impact of the non-deductible goodwill associated with the sale of the Natural Gas businesses in Arkansas and Oklahoma, and a decrease in EDIT amortization of the net regulatory EDIT liability.
(2)Houston Electric’s higher effective tax rate for the three and six months ended June 30, 2022 compared to the same period in 2016. The2021 was primarily driven by a decrease in the amount of amortization of the net regulatory EDIT liability.
(3)CERC’s higher effective tax rate for the three months ended SeptemberJune 30, 20172022 compared to the same period ended June 30, 2021 was primarily driven by the impact of the non-deductible goodwill associated with the sale of the
Natural Gas businesses in Arkansas and Oklahoma, and an increase in EDIT amortization of the net regulatory EDIT liability offset by the net expense effect in 2021 of a deferred state tax benefit for the revaluation of deferred tax assets and liabilities due to both the Arkansas and Oklahoma gas assets being held for sale and Louisiana and Oklahoma tax effectsrates changes as well as the release of receiving less nontaxable incomethe valuation allowance on certain Louisiana NOLs in the period. Thequarter ended June 30, 2021, a period in which CERC had a loss.
(4)CERC’s higher effective tax rate reported for the ninesix months ended SeptemberJune 30, 2017 was 36%2022 compared to 37% for the same period ended June 30, 2021 was primarily driven by the impact of the non-deductible goodwill associated with the sale of the Natural Gas businesses in 2016.Arkansas and Oklahoma offset by an increase in EDIT amortization of the net regulatory EDIT liability and the 2021 deferred state tax benefit for the revaluation of deferred tax assets and liabilities due to both the Arkansas and Oklahoma gas assets being held for sale and Louisiana and Oklahoma tax rates changes as well as the release of the valuation allowance on certain Louisiana NOLs in the quarter ended June 30, 2021.
CenterPoint Energy reported noa net uncertain tax liability, inclusive of interest and penalties, of $5 million as of SeptemberJune 30, 2017 and expects no significant change to the uncertain2022. The Registrants believe that it is reasonably possible that a decrease of less than $1 million in unrecognized tax liability overbenefits may occur in the next twelve months. 12 months as a result of a lapse of statutes on older exposures, a tax settlement, and/or a resolution of open audits.
Tax Audits and Settlements. Tax years through 20152018 have been audited and settled with the IRS.IRS for CenterPoint Energy. For the 2016 and 20172019-2022 tax years, CenterPoint Energy is a participantthe Registrants are participants in the IRS’s Compliance Assurance Process. Vectren’s pre-Merger
2014-2019 tax years are currently under audit by the IRS.
(13) Commitments and Contingencies
| |
(a) | Natural Gas Supply Commitments |
Natural gas supply commitments(a)Purchase Obligations (CenterPoint Energy and CERC)
Commitments include natural gas contractsminimum purchase obligations related to CenterPoint Energy’s and CERC’s Natural Gas Distributionreportable segment and Energy Services business segments, whichCenterPoint Energy’s Electric reportable segment. A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the registrant and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Contracts with minimum payment provisions have various quantity requirements and durations thatand are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172022 and December 31, 2016 as these2021. These contracts meet an exception as “normal purchases contracts” or do not meet the definition of a derivative. Natural gas and coal supply commitments also include natural gas transportation contracts that do not meet the definition of a derivative.
On February 9, 2021, Indiana Electric entered into a BTA with a subsidiary of Capital Dynamics. Pursuant to the BTA, Capital Dynamics, with its partner Tenaska, originally planned to build a 300 MW solar array in Posey County, Indiana through a special purpose entity, Posey Solar. Upon completion of construction, currently projected to be at the end of 2023, and subject to IURC approval, which was received on October 27, 2021, Indiana Electric will acquire Posey Solar and its solar array assets for a fixed purchase price. Due to rising cost for the project, caused in part by supply chain issues in the energy industry, the rising cost of commodities and community feedback, CenterPoint Energy, along with Capital Dynamics, announced plans in January 2022 to downsize the project to approximately 200 MW. Indiana Electric collaboratively agreed to the scope change and is currently working through contract negotiations, contingent on further IURC review and approval.
As of SeptemberJune 30, 2017,2022, other than discussed below, undiscounted minimum purchase obligations are approximately:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | CERC |
| Natural Gas and Coal Supply | | Other (1) | | Natural Gas Supply |
| (in millions) |
Remaining six months of 2022 | $ | 594 | | | $ | 79 | | | $ | 449 | |
2023 | 1,157 | | | 509 | | | 921 | |
2024 | 986 | | | 187 | | | 855 | |
2025 | 724 | | | 31 | | | 612 | |
2026 | 552 | | | 31 | | | 474 | |
2027 | 473 | | | 72 | | | 409 | |
2028 and beyond | 2,315 | | | 547 | | | 2,074 | |
(1)CenterPoint Energy’s undiscounted minimum payment obligations related to PPAs with commitments ranging from 15 to 25 years and its purchase commitment under its BTA in Posey County, Indiana are included above. The remaining undiscounted payment obligations relate primarily to technology hardware and software agreements.
Excluded from the table above are estimates for cash outlays from other PPAs through Indiana Electric that do not have minimum thresholds but do require payment when energy is generated by the provider. Costs arising from certain of these commitments are pass-through costs, generally collected dollar-for-dollar from retail customers through regulator-approved cost recovery mechanisms. The table above also excludes a BTA Indiana Electric entered into on July 5, 2022 to acquire a 130 MW solar array in Pike County, Indiana through a special purpose entity for a capped purchase price.
(b) Guarantees and Product Warranties (CenterPoint Energy)
In the normal course of business, Energy Systems Group enters into contracts requiring it to timely install infrastructure, operate facilities, pay vendors and subcontractors and support warranty obligations and, at times, issue payment and performance bonds and other forms of assurance in connection with these contracts.
Specific to Energy Systems Group’s role as a general contractor in the performance contracting industry, as of June 30, 2022, there were 55 open surety bonds supporting future performance with an aggregate face amount of approximately $595 million. Energy Systems Group’s exposure is less than the face amount of the surety bonds and is limited to the level of uncompleted work under the contracts. As of June 30, 2022, approximately 37% of the work was yet to be completed on projects with open surety bonds. Further, various subcontractors issue surety bonds to Energy Systems Group. In addition to these performance obligations, Energy Systems Group also warrants the functionality of certain installed infrastructure generally for one year and the associated energy savings over a specified number of years. As of June 30, 2022, there were 34 warranties totaling $541 million and an additional $1.2 billion in energy savings commitments not guaranteed by Vectren. Since Energy Systems Group’s inception in 1994, CenterPoint Energy believes Energy Systems Group has had a history of generally meeting its performance obligations and energy savings guarantees and its installed products have operated effectively. CenterPoint Energy assessed the fair value of its obligation for such guarantees as of June 30, 2022 and no amounts were recorded on CenterPoint Energy’s Condensed Consolidated Balance Sheets.
CenterPoint Energy issues parent company level guarantees to certain vendors, customers and other commercial counterparties of Energy Systems Group. These guarantees do not represent incremental consolidated obligations, but rather, represent guarantees of subsidiary obligations to allow those subsidiaries to conduct business without posting other forms of assurance. As of June 30, 2022, CenterPoint Energy, primarily through Vectren, has issued parent company level guarantees supporting Energy Systems Group’s obligations. For those obligations where potential exposure can be estimated, management estimates the maximum exposure under these guarantees to be approximately $546 million as of June 30, 2022. This exposure primarily relates to energy savings guarantees on federal energy savings performance contracts. Other parent company level guarantees, certain of which do not contain a cap on potential liability, have been issued in support of federal operations and maintenance projects for which a maximum exposure cannot be estimated based on the nature of the projects. While there can be no assurance that performance under any of these parent company guarantees will not be required in the future, CenterPoint Energy considers the likelihood of a material amount being incurred as remote.
(c)Guarantees and Product Warranties (CenterPoint Energy and CERC)
On February 24, 2020, CenterPoint Energy, through its subsidiary CERC Corp., entered into the Equity Purchase Agreement to sell the Energy Services Disposal Group. The transaction closed on June 1, 2020. In the normal course of business prior to June 1, 2020, the Energy Services Disposal Group through CES, traded natural gas under supply commitments are approximately:contracts and entered into natural gas related transactions under transportation, storage and other contracts. In connection with the Energy Services Disposal Group’s business activities prior to the closing of the sale of the Energy Services Disposal Group on June 1, 2020, CERC Corp. issued guarantees to certain of CES’s counterparties to guarantee the payment of CES’s obligations. When CES remained wholly owned by CERC Corp., these guarantees did not represent incremental consolidated obligations, but rather, these guarantees represented guarantees of CES’s obligations to allow it to conduct business without posting other forms of assurance.
Under the terms of the Equity Purchase Agreement, Symmetry Energy Solutions Acquisition must generally use reasonable best efforts to replace existing CERC Corp. guarantees with credit support provided by a party other than CERC Corp. as of and after the closing of the transaction. As of June 30, 2022, management believes the exposure that remained outstanding under CERC Corp. guarantees issued prior to the closing of the transaction on June 1, 2020 is immaterial.
CenterPoint Energy and CERC recorded no amounts on their respective Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 related to the performance of these guarantees.
|
| | | |
| (in millions) |
Remaining three months of 2017 | $ | 169 |
|
2018 | 507 |
|
2019 | 348 |
|
2020 | 166 |
|
2021 | 76 |
|
2022 and beyond | 113 |
|
(d) Legal, Environmental and Other Matters
| |
(b) | Legal, Environmental and Other Matters |
Legal Matters
Gas Market Manipulation Cases.Litigation Related to the February 2021 Winter Storm Event. Various legal matters are still proceeding with respect to the February 2021 Winter Storm Event. As of June 30, 2022, there are approximately 185 related lawsuits, which are pending, and in approximately 130 CenterPoint Energy, Utility Holding, LLC and Houston Electric, or their predecessor, Reliant Energy, and certain of their former subsidiariesalong with numerous other entities, have been named as defendants in certain lawsuits described below. Under a master separation agreement betweendefendants. Like other Texas energy companies and TDUs, CenterPoint Energy and Houston Electric have become involved in certain investigations, litigation and other regulatory and legal proceedings regarding their efforts to restore power and their compliance with NERC, ERCOT and PUCT rules and directives. CenterPoint Energy, Utility Holding, LLC, and Houston Electric, along with hundreds of other defendants (including ERCOT, power generation companies, other TDUs, natural gas producers, retail electric providers, and other entities) have received, and may continue to receive, claims and lawsuits filed by plaintiffs alleging wrongful death, personal injury, property damage and other injuries and damages. The litigation is now consolidated in Texas state court in Harris County, Texas, as part of a former subsidiary, RRI,multi-district litigation proceeding. The judge overseeing the multi-district litigation has issued an initial case management order and stayed all proceedings and discovery, including discovery related to damages. Per the case management order, the judge will first entertain dispositive motions in 5 representative or “bellwether” cases, which will likely be decided later this year and then likely appealed. Until the judge rules on those motions and any appeals of such rulings are resolved, further proceedings and discovery will likely remain stayed. CenterPoint Energy, Utility Holding, LLC, and Houston Electric intend to vigorously defend themselves against the claims raised.
CenterPoint Energy and Houston Electric have also responded to inquiries from the Texas Attorney General and the Galveston County District Attorney’s Office, and various other regulatory and governmental entities have conducted or are conducting inquiries, investigations and other reviews of the February 2021 Winter Storm Event and the efforts made by various entities to prepare for, and respond to, the event, including the electric generation shortfall issues. Such other entities include the United States Congress, FERC, NERC, Texas RE, ERCOT, Texas government entities and officials such as the Texas Governor’s office, the Texas Legislature, the PUCT, the City of Houston and other municipal and county entities in Houston Electric’s service territory. Additionally, CenterPoint Energy and CERC have responded to inquiries from several state Attorneys General.
To date, there have not been demands, quantification, disclosure or discovery of damages by any party to the litigation that are sufficient to enable CenterPoint Energy and its subsidiaries to estimate exposure. Given that, as well as the preliminary nature of the proceedings, the numerosity of parties and complexity of issues involved, and the uncertainties of litigation, CenterPoint Energy and its subsidiaries are entitledunable to be indemnified by RRI and its successors forpredict the outcome or consequences of any losses, including certain attorneys’ fees and other costs, arising out of these lawsuits. In May 2009, RRI sold its Texas retail business to a subsidiary of NRG and RRI changed its name to RRI Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly-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 saleforegoing matters or to estimate a range of the retail business, the merger with Mirant Corporation, or the acquisition of GenOn by NRG alters RRI’s (now GenOn’s) contractual obligations to indemnifypotential losses. 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, GenOn and various affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy Code. CenterPoint Energy, CERC, and CES submitted proofs of claim in the bankruptcy proceedings to protect their indemnity rights. If GenOn were unable to meet its indemnity obligations or satisfy a liability that has been assumed in the gas market manipulation litigation, then CenterPoint Energy, Houston Electric or CERC could incur liability and be responsible for satisfying the liability. CenterPoint Energy does not expect the ultimate outcome of the case against CES to have a material adverse effect on its financial condition, results of operations or cash flows.
Minnehaha Academy. On August 2, 2017, a natural gas explosion occurred at the Minnehaha Academy in Minneapolis, Minnesota, resulting in the deaths of two school employees, serious injuries to others and significant property damage to the school. CenterPoint Energy, certain of its subsidiaries, and the contractor company working in the school have been named in litigation arising out of this incident. Additionally, CenterPoint Energy is cooperating with ongoing investigations conducted by the National Transportation Safety Board, the Minnesota Occupational Safety and Health Administration and the Minnesota Office of Pipeline Safety. CenterPoint Energy’s general and excess liability insurance policies that provide coverage for third party bodily injury and property damage claims.
Environmental Matters
MGP Sites. CenterPoint Energy, CERC and itstheir predecessors, including predecessors of Vectren, operated MGPs in the past. The costs CenterPoint Energy or CERC, as applicable, expect to incur to fulfill their respective obligations are estimated by management using assumptions based on actual costs incurred, the timing of expected future payments and inflation factors, among others. While CenterPoint Energy and CERC have recorded obligations for all costs which are probable and estimable, including amounts they are presently obligated to incur in connection with activities at these sites, it is possible that future events may require remedial activities which are not presently foreseen, and those costs may not be subject to PRP or insurance recovery.
(i)Minnesota MGPs (CenterPoint Energy and CERC). With respect to certain Minnesota MGP sites, CenterPoint Energy and CERC hashave completed state-ordered remediation and continuescontinue state-ordered monitoring and water treatment. As of September 30, 2017,CenterPoint Energy and CERC hadrecorded a recorded liability of $7 millionas reflected in the table below for continued monitoring and any future remediation required by regulators in Minnesota.
(ii)Indiana MGPs (CenterPoint Energy and CERC). In the Indiana Gas service territory, the existence, location and certain general characteristics of 26 gas manufacturing and storage sites have been identified for which CenterPoint Energy and CERC may have some remedial responsibility. A remedial investigation/feasibility study was completed at one of the sites under an agreed upon order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. The remaining sites have been submitted to the IDEM’s VRP. CenterPoint Energy has also identified its involvement in 5 manufactured gas plant sites in SIGECO’s service territory, all of which are
currently enrolled in the IDEM’s VRP. CenterPoint Energy is currently conducting some level of remedial activities, including groundwater monitoring at certain sites.
(iii)Other MGPs(CenterPoint Energy and CERC). In addition to the Minnesota and Indiana sites, the EPA and other regulators have investigated MGP sites that were owned or operated by CenterPoint Energy or CERC or may have been owned by one of their former affiliates.
Total costs that may be incurred in connection with addressing these sites cannot be determined at this time. The estimated accrued costs are limited to CenterPoint Energy’s and CERC’s share of the remediation efforts and are therefore net of exposures of other PRPs. The estimated range of possible remediation costs for the sites for which CenterPoint Energy and CERC believes itbelieve they may have responsibility was $4 million to $30 million based on remediation continuing for 30 to 50 years. the minimum time frame given in the table below.
| | | | | | | | | | | |
| June 30, 2022 |
| CenterPoint Energy | | CERC |
| (in millions, except years) |
Amount accrued for remediation | $ | 16 | | | $ | 14 | |
Minimum estimated remediation costs | 12 | | | 11 | |
Maximum estimated remediation costs | 51 | | | 44 | |
Minimum years of remediation | 5 | | 5 |
Maximum years of remediation | 50 | | 50 |
The cost estimates are based on studies of a site or industry average costs for remediation of sites of similar size. The actual remediation costs will depend on the number of sites to be remediated, the participation of other PRPs, if any, and the remediation methods used.
In addition to the Minnesota sites, the Environmental Protection Agency 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 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.
CCR Rule (CenterPoint Energy). In April 2015, the EPA finalized its CCR Rule, which regulates ash as non-hazardous material under the RCRA. The final rule allows beneficial reuse of ash, and the majority of the ash generated by Indiana Electric’s generating plants will continue to be reused. In July 2018, the EPA released its final CCR Rule Phase I Reconsideration which extended the deadline to October 31, 2020 for ceasing placement of ash in ponds that exceed groundwater protections standards or that fail to meet location restrictions. In August 2019, the EPA proposed additional “Part A” amendments to its CCR Rule with respect to beneficial reuse of ash and other materials. Further “Part B” amendments, which related to alternate liners for CCR surface impoundments and the surface impoundment closure process, were published in March 2020. The Part A amendments were finalized in August 2020 and extended the deadline to cease placement of ash in ponds to April 11, 2021, discussed further below. The EPA published the final Part B amendments in November 2020. The Part A amendments do not restrict Indiana Electric’s current beneficial reuse of its fly ash. CenterPoint Energy evaluated the Part B amendments to determine potential impacts and determined that the Part B amendments did not have an impact on its current plans. Shortly after taking office in January 2021, President Biden signed an executive order requiring agencies to review environmental actions taken by the Trump administration, including the CCR Rule Phase I Reconsideration, the Part A amendments, and the Part B amendments; the EPA has completed its review of the Phase I Reconsideration, Part A amendments, and Part B amendments and determined that the most environmentally protective course is to implement the rules.
Indiana Electric has 3 ash ponds, 2 at the F.B. Culley facility (Culley East and Culley West) and 1 at the A.B. Brown facility. Under the existing CCR Rule, Indiana Electric is required to perform integrity assessments, including ground water monitoring, at its F.B. Culley and A.B. Brown generating stations. The ground water studies are necessary to determine the remaining service life of the ponds and whether a pond must be retrofitted with liners or closed in place. Indiana Electric’s Warrick generating unit is not included in the scope of the CCR Rule as this unit has historically been part of a larger generating station that predominantly serves an adjacent industrial facility. Preliminary groundwater monitoring indicates potential
groundwater impacts very close to Indiana Electric’s ash impoundments, and further analysis is ongoing. The CCR Rule required companies to complete location restriction determinations by October 18, 2018. Indiana Electric completed its evaluation and determined that 1 F.B. Culley pond (Culley East) and the A.B. Brown pond fail the aquifer placement location restriction. As a result of this failure, Indiana Electric was required to cease disposal of new ash in the ponds and commence closure of the ponds by April 11, 2021, unless approved for an extension. CenterPoint Energy has applied for the extensions available under the CCR Rule that would allow Indiana Electric to continue to use the ponds through October 15, 2023. The EPA is still reviewing industry extension requests, including CenterPoint Energy’s extension request. Companies can continue to operate ponds pending completion of the EPA’s evaluation of the requests for extension. If the EPA denies a full extension request, that denial may result in increased and potentially significant operational costs in connection with the accelerated implementation of an alternative ash disposal system or may adversely impact Indiana Electric’s future operations. Failure to comply with a cease waste receipt could also result in an enforcement proceeding, resulting in the imposition of fines and penalties. On April 24, 2019, Indiana Electric received an order from the IURC approving recovery in rates of costs associated with the closure of the Culley West pond, which has already completed closure activities. On August 14, 2019, Indiana Electric filed its petition with the IURC for recovery of costs associated with the closure of the A.B. Brown ash pond, which would include costs associated with the excavation and recycling of ponded ash. This petition was subsequently approved by the IURC on May 13, 2020. On October 28, 2020, the IURC approved Indiana Electric’s ECA proceeding, which included the initiation of recovery of the federally mandated project costs.
Indiana Electric continues to refine site specific estimates of closure costs for its 10-acre Culley East pond. In July 2018, Indiana Electric filed a Complaint for Damages and Declaratory Relief against its insurers seeking reimbursement of defense, investigation and pond closure costs incurred to comply with the CCR Rule, and has since reached confidential settlement agreements with its insurers. The proceeds of these settlements will offset costs that have been and will be incurred to close the ponds.
As of June 30, 2022, CenterPoint Energy has recorded an approximate $91 million ARO, which represents the discounted value of future cash flow estimates to close the ponds at A.B. Brown and F.B. Culley. This estimate is subject to change due to the contractual arrangements; continued assessments of the ash, closure methods, and the timing of closure; implications of Indiana Electric’s generation transition plan; changing environmental regulations; and proceeds received from the settlements in the aforementioned insurance proceeding. In addition to these AROs, Indiana Electric also anticipates equipment purchases of between $60 million and $80 million to complete the A.B. Brown closure project.
Clean Water Act Permitting of Groundwater Discharges. In April 2021, the U.S. Supreme Court issued an opinion providing that indirect discharges via groundwater or other non-point sources are subject to permitting and liability under the Clean Water Act when they are the functional equivalent of a direct discharge. The Registrants are evaluating the extent to which this decision will affect Clean Water Act permitting requirements and/or liability for their operations.
Other Environmental. From time to time, CenterPoint Energy identifiesthe Registrants identify the presence of environmental contaminants during its operations or on property where its predecessor companiestheir predecessors have conducted operations. Other such sites involving contaminants may be identified in the future. 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) Earnings Per Share (CenterPoint Energy)
The Series C Preferred Stock issued in May 2020 were considered participating securities since these shares participated in dividends on Common Stock on a pari passu, pro rata, as-converted basis. As a result, beginning June 30, 2020, earnings per
share on Common Stock was computed using the two-class method required for participating securities during the periods the Series C Preferred Stock was outstanding. As of May 7, 2021, all of the remaining outstanding Series C Preferred Stock were converted into shares of Common Stock and earnings per share on Common Stock and, as such, the two-class method was no longer applicable beginning June 30, 2021.
Basic earnings per common share is computed by dividing income available to common shareholders from continuing operations by the basic weighted average number of common shares outstanding during the period. Participating securities are excluded from basic weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing income available to common shareholders from continuing operations by the weighted average number of common shares outstanding, including all potentially dilutive common shares, if the effect of such common shares is dilutive.
Diluted earnings per share reflects the dilutive effect of potential common shares from share-based awards and convertible preferred shares. The dilutive effect of Series B Preferred Stock and Series C Preferred Stock is computed using the if-converted method, as applicable, which assumes conversion of Series B Preferred Stock and Series C Preferred Stock at the beginning of the period, giving income recognition for the add-back of the preferred share dividends, amortization of beneficial conversion feature, and undistributed earnings allocated to preferred shareholders. The dilutive effect of restricted stock is computed using the treasury stock method, as applicable, which includes the incremental shares that would be hypothetically vested in excess of the number of shares assumed to be hypothetically repurchased with the assumed proceeds.
The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings per share calculations:common share.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions, except per share and share amounts) |
Numerator: | | | | | | | |
Income from continuing operations | $ | 190 | | | $ | 200 | | | $ | 721 | | | $ | 480 | |
Less: Preferred stock dividend requirement (Note 18) | 11 | | | 30 | | | 24 | | | 59 | |
| | | | | | | |
| | | | | | | |
Income available to common shareholders from continuing operations - basic and diluted | 179 | | | 170 | | | 697 | | | 421 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Income available to common shareholders from discontinued operations - basic and diluted | — | | | 51 | | | — | | | 134 | |
Income available to common shareholders - basic and diluted | $ | 179 | | | $ | 221 | | | $ | 697 | | | $ | 555 | |
Denominator: | | | | | | | |
Weighted average common shares outstanding - basic | 629,475,000 | | | 585,720,000 | | | 629,306,000 | | | 568,728,000 | |
Plus: Incremental shares from assumed conversions: | | | | | | | |
Restricted stock | 2,188,000 | | | 3,558,000 | | | 2,188,000 | | | 3,558,000 | |
| | | | | | | |
Series C Preferred Stock | — | | | 7,052,000 | | | — | | | 23,844,000 | |
Weighted average common shares outstanding - diluted | 631,663,000 | | | 596,330,000 | | | 631,494,000 | | | 596,130,000 | |
| | | | | | | |
| | | | | | | |
Anti-dilutive Incremental Shares Excluded from Denominator for Diluted Earnings Computation: | | | | | | | |
| | | | | | | |
Series B Preferred Stock | — | | | 35,898,000 | | | — | | | 35,917,000 | |
| | | | | | | |
| | | | | | | |
Earnings Per Common Share: | | | | | | | |
Basic earnings per common share - continuing operations | $ | 0.28 | | | $ | 0.29 | | | $ | 1.11 | | | $ | 0.74 | |
Basic earnings per common share - discontinued operations | — | | | 0.09 | | | — | | | 0.24 | |
Basic Earnings Per Common Share | $ | 0.28 | | | $ | 0.38 | | | $ | 1.11 | | | $ | 0.98 | |
Diluted earnings per common share - continuing operations | $ | 0.28 | | | $ | 0.29 | | | $ | 1.10 | | | $ | 0.71 | |
Diluted earnings per common share - discontinued operations | — | | | 0.08 | | | — | | | 0.22 | |
Diluted Earnings Per Common Share | $ | 0.28 | | | $ | 0.37 | | | $ | 1.10 | | | $ | 0.93 | |
|
| | | | | | | | | | | | | | | |
| 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 outstanding | 431,026,000 |
| | 430,682,000 |
| | 430,939,000 |
| | 430,581,000 |
|
Plus: Incremental shares from assumed conversions: | | | | | | | |
Restricted stock | 3,060,000 |
| | 2,714,000 |
| | 3,060,000 |
| | 2,714,000 |
|
Diluted weighted average shares | 434,086,000 |
| | 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 |
|
(15) Reportable Business Segments
CenterPoint Energy’sThe Registrants’ determination of reportable business segments considers the strategic operating units under which CenterPoint Energyits CODM manages sales, allocates resources and assesses performance of various products and services to wholesale or retail customers in differing regulatory environments. CenterPoint Energy uses operatingEach Registrant’s CODM views net income as the measure of profit or loss for its businessthe reportable segments. Certain prior year amounts have been reclassified for discontinued operations as described below. Additionally, during the six months ended June 30, 2022, CenterPoint Energy sold certain assets previously owned by entities
within Corporate and Other to businesses within the Electric and Natural Gas reportable segments. Prior year amounts were reclassified as a result of this transaction in the six months ended June 30, 2022 and as described in the combined 2021 Form 10-K.
In 2021, CenterPoint Energy’s equity investment in Enable was classified and presented as held for sale and discontinued operations. On December 2, 2021, Enable completed the previously announced Enable Merger pursuant to the Enable Merger Agreement entered into on February 16, 2021. See Note 3 for further information.
As of June 30, 2022, reportable segments other than Midstream Investments, where it uses equity in earnings of unconsolidated affiliates.by Registrant were as follows:
CenterPoint Energy
•CenterPoint Energy’s Electric reportable business segments include the following: Electric Transmission & Distribution, Natural Gas Distribution, Energy Services, Midstream Investments and Other Operations. Thesegment consisted of electric transmission and distribution function
(Houston Electric) is reportedservices in the Electric Transmission & Distribution business segment.Texas gulf coast area in the ERCOT region and electric transmission and distribution services primarily to southwestern Indiana and includes power generation and wholesale power operations in the MISO region.
•CenterPoint Energy’s Natural Gas Distributionreportable segment consists of (i) intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers. Energy Services represents customers in Indiana, Louisiana, Minnesota, Mississippi, Ohio and Texas; and (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.
CenterPoint Energy’s non-rate regulated gas salesCorporate and services operations. Midstream InvestmentsOther category consists of CenterPoint Energy’s equity investment in Enable (excluding the Series A Preferred Units). Other Operations consists primarily ofenergy performance contracting and sustainable infrastructure services through Energy Systems Group and other corporate operations which support all of the business operations of CenterPoint Energy’s business operations.Energy.
Houston Electric
•Houston Electric’s single reportable segment consisted of electric transmission services to transmission service customers in the ERCOT region and distribution services to REPs serving the Texas gulf coast area.
CERC
•CERC’s single reportable segment following the Restructuring consisted of (i) intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers in Indiana, Louisiana, Minnesota, Mississippi, Ohio and Texas; and (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.
Financial data for businessreportable segments is as follows:follows, including Corporate and Other and Discontinued Operations for reconciliation purposes:
CenterPoint Energy
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | |
| 2022 | | 2021 | | | | | | | |
| Revenues from External Customers | | | | Net Income (Loss) | | Revenues from External Customers | | | | Net Income | | | | | | | |
| (in millions) | | | | | | | |
Electric | $ | 1,053 | | (1) | | | $ | 173 | | | $ | 937 | | (1) | | | $ | 125 | | | | | | | | |
Natural Gas | 818 | | | | | 28 | | | 740 | | | | | 74 | | | | | | | | |
Corporate and Other | 73 | | | | | (11) | | | 65 | | | | | 1 | | | | | | | | |
Continuing Operations | $ | 1,944 | | | | | 190 | | | $ | 1,742 | | | | | 200 | | | | | | | | |
Discontinued Operations, net | | | | | — | | | | | | | 51 | | | | | | | | |
Consolidated | | | | | $ | 190 | | | | | | | $ | 251 | | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | |
| 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 Distribution | 390 |
| | 8 |
| | 19 |
|
Energy Services | 861 |
| | 10 |
| | 7 |
|
Midstream Investments (2) | — |
| | — |
| | — |
|
Other Operations | 4 |
| | — |
| | 6 |
|
Eliminations | — |
| | (18 | ) | | — |
|
Consolidated | $ | 2,098 |
| | $ | — |
| | $ | 279 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | | |
| 2022 | | 2021 | | | | | | | |
| Revenues from External Customers | | | | Net Income | | Revenues from External Customers | | | | Net Income (Loss) | | | | | | | |
| (in millions) | | | | | | | |
Electric | $ | 1,946 | | (1) | | | $ | 255 | | | $ | 1,767 | | (1) | | | $ | 200 | | | | | | | | |
Natural Gas | 2,642 | | | | | 426 | | | 2,403 | | | | | 303 | | | | | | | | |
Corporate and Other | 119 | | | | | 40 | | | 119 | | | | | (23) | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Continuing Operations | $ | 4,707 | | | | | 721 | | | $ | 4,289 | | | | | 480 | | | | | | | | |
Discontinued Operations, net | | | | | — | | | | | | | 134 | | | | | | | | |
Consolidated | | | | | $ | 721 | | | | | | | $ | 614 | | | | | | | | |
(1)Houston Electric revenues from major external customers are as follows (CenterPoint Energy and Houston Electric):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (in millions) |
Affiliates of NRG | | $ | 245 | | | $ | 192 | | | $ | 470 | | | $ | 387 | |
Affiliates of Vistra Energy Corp. | | 114 | | | 87 | | | 219 | | | 175 | |
| | | | | | | | | | | |
| Total Assets |
| June 30, 2022 | | December 31, 2021 |
| (in millions) |
Electric | $ | 17,769 | | | $ | 16,548 | |
Natural Gas | 16,237 | | | 16,270 | |
| | | |
Corporate and Other, net of eliminations (1) | 2,210 | | | 2,523 | |
| | | |
Continuing Operations | 36,216 | | | 35,341 | |
Assets Held for Sale | — | | | 2,338 | |
Consolidated | $ | 36,216 | | | $ | 37,679 | |
| | | |
| |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
(1)Total assets included pension and other postemployment-related regulatory assets of $436 million and $427 million as of June 30, 2022 and December 31, 2021, respectively.
Houston Electric
Houston Electric consists of a single reportable segment; therefore, a tabular reportable segment presentation has not been included.
CERC
CERC consists of a single reportable segment; therefore, a tabular reportable segment presentation has not been included.
|
| | | | | | | | | | | |
| For the Three Months Ended September 30, 2016 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income |
| (in millions) |
Electric Transmission & Distribution | $ | 908 |
| (1) | $ | — |
| | $ | 257 |
|
Natural Gas Distribution | 370 |
| | 7 |
| | 22 |
|
Energy Services | 608 |
| | 6 |
| | 5 |
|
Midstream Investments (2) | — |
| | — |
| | — |
|
Other Operations | 3 |
| | — |
| | — |
|
Eliminations | — |
| | (13 | ) | | — |
|
Consolidated | $ | 1,889 |
| | $ | — |
| | $ | 284 |
|
|
| | | | | | | | | | | | | | | | |
| 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 Distribution | 1,767 |
| | 24 |
| | 220 |
| | 6,067 |
| |
Energy Services | 2,964 |
| | 34 |
| | 58 |
| | 1,337 |
| |
Midstream Investments (2) | — |
| | — |
| | — |
| | 2,481 |
| |
Other Operations | 11 |
| | — |
| | 9 |
| | 2,694 |
| (3) |
Eliminations | — |
| | (58 | ) | | — |
| | (733 | ) | |
Consolidated | $ | 6,976 |
| | $ | — |
| | $ | 776 |
| | $ | 22,135 |
| |
(16) Supplemental Disclosure of Cash Flow Information
The table below provides supplemental disclosure of cash flow information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Cash Payments/Receipts: | | | | | | | | | | | |
Interest, net of capitalized interest | $ | 219 | | | $ | 96 | | | $ | 41 | | | $ | 261 | | | $ | 92 | | | $ | 59 | |
Income tax payments (refunds), net | 267 | | | 130 | | | 5 | | | 13 | | | — | | | (11) | |
Non-cash transactions: | | | | | | | | | | | |
Accounts payable related to capital expenditures | 352 | | | 221 | | | 147 | | | 249 | | | 185 | | | 99 | |
ROU assets obtained in exchange for lease liabilities (1) | 1 | | | — | | | — | | | 2 | | | — | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1) Excludes ROU assets obtained through prepayment of the lease liabilities. See Note 19.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Cash and cash equivalents (1) | $ | 555 | | | $ | 78 | | | $ | 3 | | | $ | 230 | | | $ | 214 | | | $ | 15 | |
Restricted cash included in Prepaid expenses and other current assets | 22 | | | 18 | | | — | | | 24 | | | 19 | | | — | |
| | | | | | | | | | | |
Total cash, cash equivalents and restricted cash shown in Condensed Statements of Consolidated Cash Flows | $ | 577 | | | $ | 96 | | | $ | 3 | | | $ | 254 | | | $ | 233 | | | $ | 15 | |
(1)Houston Electric’s Cash and cash equivalents as of June 30, 2022 and December 31, 2021 included $78 million and $92 million, respectively, of cash related to the Bond Companies.
(17) Related Party Transactions(Houston Electric and CERC)
|
| | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, 2016 | | | |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income | | Total Assets as of December 31, 2016 | |
| (in millions) | |
Electric Transmission & Distribution | $ | 2,331 |
| (1) | $ | — |
| | $ | 498 |
| | $ | 10,211 |
| |
Natural Gas Distribution | 1,672 |
| | 21 |
| | 202 |
| | 6,099 |
| |
Energy Services | 1,433 |
| | 17 |
| | 11 |
| | 1,102 |
| |
Midstream Investments (2) | — |
| | — |
| | — |
| | 2,505 |
| |
Other Operations | 11 |
| | — |
| | 5 |
| | 2,681 |
| (3) |
Eliminations | — |
| | (38 | ) | | — |
| | (769 | ) | |
Consolidated | $ | 5,447 |
| | $ | — |
| | $ | 716 |
| | $ | 21,829 |
| |
| |
(1) | Electric Transmission & Distribution revenues from major customers are as follows: |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Affiliates of NRG | | $ | 221 |
| | $ | 223 |
| | $ | 540 |
| | $ | 527 |
|
Affiliates of Vistra Energy Corp. | | 72 |
| | 71 |
| | 172 |
| | 166 |
|
| |
(2) | Midstream Investments’ equity earnings are as follows: |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Enable | | $ | 68 |
| | $ | 73 |
| | $ | 199 |
| | $ | 164 |
|
| |
(3) | IncludedHouston Electric and CERC participate in total assets of Other Operations as of September 30, 2017 and December 31, 2016 are pension and other postemployment-related regulatory assets of $715 million and $759 million, respectively. |
(16) Subsequent Events
On October 25, 2017, CenterPoint Energy’s boardmoney 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 directors declaredthe CenterPoint Energy money pool are expected to be met with borrowings under CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper.
The table below summarizes CenterPoint Energy money pool activity:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Houston Electric | | CERC | | Houston Electric | | CERC |
| (in millions, except interest rates) |
Money pool investments (borrowings) (1) | $ | 272 | | | $ | — | | | $ | (512) | | | $ | (224) | |
Weighted average interest rate | 1.85 | % | | 1.85 | % | | 0.34 | % | | 0.34 | % |
(1)Included in Accounts and notes receivable (payable)–affiliated companies on Houston Electric’s and CERC’s respective Condensed Consolidated Balance Sheets.
As a regular quarterly cashresult of the Restructuring, CERC acquired Indiana Gas and VEDO, which had notes payable to VUH for borrowings under the VUH money pool in the amount of $217 million and a weighted average interest rate of 0.21% as of December 31, 2021. These notes were repaid to VUH on June 30, 2022 in connection with the Restructuring.
CenterPoint Energy provides some corporate services to Houston Electric and CERC. The costs of services have been charged directly to Houston Electric and CERC using methods that management believes are reasonable. These methods include usage rates, dedicated asset assignment and proportionate corporate formulas based on operating expenses, assets, gross
margin, employees and a composite of assets, gross margin and employees. Houston Electric provides certain services to CERC. These services are billed at 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 June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC |
| (in millions) |
Corporate service charges | $ | 37 | | | $ | 51 | | | $ | 47 | | | $ | 58 | | | $ | 76 | | | $ | 109 | | | $ | 90 | | | $ | 114 | |
Net affiliate service charges (billings) | (9) | | | 9 | | | (1) | | | 1 | | | (15) | | | 15 | | | (2) | | | 2 | |
The table below presents transactions among Houston Electric, CERC and their parent, CenterPoint Energy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC |
| | (in millions) |
Cash dividends paid to parent | | $ | 30 | | | $ | 72 | | | $ | — | | | $ | — | | | $ | 67 | | | $ | 111 | | | $ | — | | | $ | — | |
Cash dividend paid to parent related to the sale of the Arkansas and Oklahoma Natural Gas businesses | | — | | | — | | | — | | | — | | | — | | | 720 | | | — | | | — | |
Cash contribution from parent | | 506 | | | 125 | | | — | | | — | | | 1,143 | | | 125 | | | — | | | — | |
Net assets acquired in the Restructuring (1) | | — | | | 2,345 | | | — | | | — | | | — | | | 2,345 | | | — | | | — | |
Non-cash capital contribution from parent in payment for property, plant and equipment below | | — | | | — | | | — | | | — | | | 38 | | | 54 | | | — | | | — | |
Cash paid to parent for property, plant and equipment below | | 13 | | | 13 | | | — | | | — | | | 65 | | | 61 | | | — | | | — | |
Property, plant and equipment from parent (2) | | 13 | | | 13 | | | — | | | — | | | 103 | | | 115 | | | — | | | — | |
(1) The Restructuring was a common control transaction that required the recasting of financial information to the earliest period presented. Therefore, the net asset transfer is not reflected during the current period on CERC’s Condensed Statements of Consolidated Changes in Equity.
(2) Property, plant and equipment purchased from CenterPoint Energy at its net carrying value on the date of purchase.
Common Control Transaction
The Restructuring has been accounted for as a common control transaction as there is no change in the control over the assets acquired and liabilities assumed. As a result, CERC acquired these businesses at CenterPoint Energy’s historical basis in these entities and prior year amounts were recast to reflect the Restructuring as if it occurred at the earliest period presented for which CenterPoint Energy had common control.
The following table presents the as reported and recast amounts for CERC’s Condensed Consolidated Balance Sheet.
| | | | | | | | | | | |
| December 31, 2021 |
| As Reported | | Recast |
| (in millions) |
Total Assets | $ | 11,110 | | | $ | 16,153 | |
Total Liabilities | 8,109 | | | 11,020 | |
Retained Earnings | 765 | | | 1,017 | |
Total Equity | 3,001 | | | 5,133 | |
The following table presents the as reported and recast amounts for CERC’s Condensed Statements of Consolidated Income.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| As Reported | | Recast | | As Reported | | Recast |
| (in millions) |
Net income | $ | 58 | | | $ | 73 | | | $ | 209 | | | $ | 295 | |
(18) Equity
Dividends Declared and Paid (CenterPoint Energy)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Dividends Declared Per Share | | Dividends Paid Per Share |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Common Stock | | $ | 0.170 | | | $ | 0.160 | | | $ | 0.170 | | | $ | 0.160 | | | $ | 0.170 | | | $ | 0.160 | | | $ | 0.340 | | | $ | 0.320 | |
Series A Preferred Stock | | — | | | — | | | — | | | — | | | — | | | — | | | 30.625 | | | 30.625 | |
Series B Preferred Stock | | — | | | 17.500 | | | — | | | 17.500 | | | — | | | 17.500 | | | — | | | 35.000 | |
Series C Preferred Stock (1) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0.160 | |
(1)The Series C Preferred Stock was entitled to participate in any dividend of $0.2675or distribution (excluding those payable in Common Stock) with the Common Stock on a pari passu, pro rata, as-converted basis. The per share amount reflects the dividend per share of common stock payable on December 8, 2017, to shareholders of recordCommon Stock as if the Series C Preferred Stock were converted into Common Stock. All of the closeoutstanding Series C Preferred Stock was converted to Common Stock during April and May 2021.
Preferred Stock (CenterPoint Energy)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Liquidation Preference Per Share | | Shares Outstanding as of | | Outstanding Value as of |
| | | June 30, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
| | (in millions, except shares and per share amounts) |
Series A Preferred Stock | | $ | 1,000 | | | 800,000 | | | 800,000 | | | $ | 790 | | | $ | 790 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | 800,000 | | | 800,000 | | | $ | 790 | | | $ | 790 | |
Income Allocated to Preferred Shareholders (CenterPoint Energy)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Series A Preferred Stock | $ | 11 | | | $ | 13 | | | $ | 24 | | | $ | 25 | |
Series B Preferred Stock | — | | | 17 | | | — | | | 34 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total income allocated to preferred shareholders | $ | 11 | | | $ | 30 | | | $ | 24 | | | $ | 59 | |
Temporary Equity (CenterPoint Energy)
On the approval and recommendation of business on November 16, 2017.the Compensation Committee and approval of the Board (acting solely through its independent directors), CenterPoint Energy entered into a retention incentive agreement with David J. Lesar, President and Chief Executive Officer of CenterPoint Energy, dated July 20, 2021. Under the terms of the retention incentive agreement, Mr. Lesar will receive equity-based awards under CenterPoint Energy’s LTIP covering a total of 1 million shares of Common Stock (Total Stock Award) to be granted in multiple annual awards. Mr. Lesar received 400 thousand restricted stock units in July 2021 that will vest in December 2022 and 400 thousand restricted stock units in February 2022 that will vest in December 2023. In February 2023, restricted stock units covering the remaining 200 thousand shares, or such lesser number of restricted stock units as may be required pursuant to the annual individual award limitations under CenterPoint Energy’s LTIP, will be awarded to Mr. Lesar and will vest in December 2023. In the event any shares under the Total Stock Award remain unawarded, in February 2024, a fully vested stock bonus award of the remaining shares will be granted.For accounting purposes, the 1 million
On October 31, 2017, Enable declared a quarterly cash distributionshares under the Total Stock Award, consisting of $0.318 per unit on allboth the awarded and unawarded equity-based awards described above, were considered granted in July 2021. In the event of its outstanding common unitsdeath, disability, termination without cause or resignation for the quarter ended September 30, 2017. Accordingly, CERC Corp. expects to receive a cash distribution of approximately $74 million from Enablegood reason, as defined in the fourth quarterretention incentive agreement, that occurs prior to the full Total Stock Award being awarded, CenterPoint Energy will pay a lump sum cash payment equal to the value of 2017the unawarded equity-based awards, based on the closing trading price of Common Stock on the date of the event’s occurrence. Because the unawarded equity-based awards are redeemable for cash upon events that are not probable at the grant date, the equity associated with the unawarded equity-based awards will be classified as Temporary Equity on CenterPoint Energy’s Condensed Consolidated Balance Sheets.
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated comprehensive income (loss) are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Beginning Balance | $ | (62) | | | $ | — | | | $ | 10 | | | $ | (87) | | | $ | — | | | $ | 10 | |
Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | |
Remeasurement of pension and other postretirement plans | (34) | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Other comprehensive income from unconsolidated affiliates | — | | | — | | | — | | | 1 | | | — | | | — | |
Amounts reclassified from accumulated other comprehensive income (loss): | | | | | | | | | | | |
Prior service cost (1) | 1 | | | — | | | — | | | — | | | — | | | — | |
Actuarial losses (1) | 1 | | | — | | | — | | | 2 | | | — | | | — | |
Settlement (2) | 13 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Tax expense | (4) | | | — | | | — | | | (1) | | | — | | | — | |
Net current period other comprehensive income (loss) | (23) | | | — | | | — | | | 2 | | | — | | | — | |
Ending Balance | $ | (85) | | | $ | — | | | $ | 10 | | | $ | (85) | | | $ | — | | | $ | 10 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Beginning Balance | $ | (64) | | | $ | — | | | $ | 10 | | | $ | (90) | | | $ | — | | | $ | 10 | |
Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | |
Remeasurement of pension and other postretirement plans | (34) | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Other comprehensive income (loss) from unconsolidated affiliates | — | | | — | | | — | | | 2 | | | — | | | — | |
Amounts reclassified from accumulated other comprehensive income (loss): | | | | | | | | | | | |
Prior service cost (1) | 1 | | | — | | | — | | | — | | | — | | | — | |
Actuarial losses (1) | 2 | | | — | | | — | | | 4 | | | — | | | — | |
Settlement (2) | 13 | | | — | | | — | | | — | | | — | | | — | |
Reclassification of deferred loss from cash flow hedges realized in net income | 1 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Tax expense | (4) | | | — | | | — | | | (1) | | | — | | | — | |
Net current period other comprehensive income (loss) | (21) | | | — | | | — | | | 5 | | | — | | | — | |
Ending Balance | $ | (85) | | | $ | — | | | $ | 10 | | | $ | (85) | | | $ | — | | | $ | 10 | |
(1)Amounts are included in the computation of net periodic cost and are reflected in Other income, net in each of the Registrants’ respective Condensed Statements of Consolidated Income.
(19) Leases
In 2021 Houston Electric entered into a temporary short-term lease and a long-term lease, each for mobile generation. The short-term lease agreement allows Houston Electric to be madetake delivery of mobile generation assets on a short-term basis with respect to CERC Corp.’s investmenta term ending in common units of Enable for the third quarter of 2017.2022. Per Houston Electric’s short term lease accounting policy election, a ROU asset and lease liability are not reflected on Houston Electric’s Condensed Consolidated Balance Sheets. Expenses associated with the short-term lease, including carrying costs, are deferred to a regulatory asset and totaled $72 million and $20 million as of June 30, 2022 and December 31, 2021, respectively.
On OctoberHouston Electric took delivery of an additional 128 MW of mobile generation under the long-term lease during the six months ended June 30, 2022 and remitted a cash payment under the lease of $171 million. These assets were previously available under the short-term lease agreement. Houston Electric derecognized the finance lease liability when the extinguishment criteria in Topic 405 - Liabilities was achieved. Per the terms of the agreement, lease payments are due and made in full by Houston Electric upon taking possession of the asset, relieving substantially all of the associated finance lease liability at that time. The remaining finance lease liability associated with the commenced long-term mobile generation agreement was not significant as of June 30, 2022 and December 31, 2017, Enable declared2021 and relates to removal costs that will be incurred at the end of the lease term. The long-term lease agreement includes up to 505 MW of mobile generation of which 253 MW and 125 MW was delivered as of June 30, 2022 and December 31, 2021, respectively, triggering lease commencement at delivery, and has an initial term ending in 2029 for all mobile generation leases. As of June 30, 2022, Houston Electric has secured a quarterly cash distributionfirst lien on all the generation equipment long-term leases and no amount of $0.625 per Series A Preferred Unit for the quarter ended September 30, 2017. Accordingly,payments made by Houston Electric under long-term leases were held in escrow.
The components of lease cost, included in Operation and maintenance expense on the Registrants’ respective Condensed Statements of Consolidated Income, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating lease cost | $ | 2 | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 1 | |
Short-term lease cost | 37 | | | 37 | | | — | | | 25 | | | 25 | | | — | |
Variable lease cost | — | | | — | | | — | | | — | | | — | | | — | |
Total lease cost (1) | $ | 39 | | | $ | 37 | | | $ | — | | | $ | 27 | | | $ | 25 | | | $ | 1 | |
| | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating lease cost | $ | 2 | | | $ | — | | | $ | 1 | | | $ | 4 | | | $ | — | | | $ | 2 | |
Short-term lease cost | 84 | | | 83 | | | — | | | 35 | | | 35 | | | — | |
Variable lease cost | — | | | — | | | — | | | — | | | — | | | — | |
Total lease cost (1) | $ | 86 | | | $ | 83 | | | $ | 1 | | | $ | 39 | | | $ | 35 | | | $ | 2 | |
(1) CenterPoint Energy expectsand Houston Electric defer finance lease costs for mobile generation to receive a cash distributionRegulatory assets for recovery rather than to Depreciation and Amortization in the Condensed Statements of Consolidated Income.
The components of lease income were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating lease income | $ | 1 | | | $ | — | | | $ | 1 | | | $ | 1 | | | $ | — | | | $ | — | |
Variable lease income | 1 | | | — | | | — | | | 1 | | | — | | | — | |
Total lease income | $ | 2 | | | $ | — | | | $ | 1 | | | $ | 2 | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating lease income | $ | 3 | | | $ | — | | | $ | 1 | | | $ | 3 | | | $ | — | | | $ | 1 | |
Variable lease income | 1 | | | — | | | — | | | 1 | | | — | | | — | |
Total lease income | $ | 4 | | | $ | — | | | $ | 1 | | | $ | 4 | | | $ | — | | | $ | 1 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 | | |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC | | | | | | |
| (in millions, except lease term and discount rate) |
Assets: | | | | | | | | | | | | | | | | | |
Operating ROU assets (1) | $ | 15 | | | $ | 1 | | | $ | 7 | | | $ | 22 | | | $ | 1 | | | $ | 12 | | | | | | | |
Finance ROU assets (2) | 332 | | | 332 | | | — | | | 179 | | | 179 | | | — | | | | | | | |
Total leased assets | $ | 347 | | | $ | 333 | | | $ | 7 | | | $ | 201 | | | $ | 180 | | | $ | 12 | | | | | | | |
| | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | |
Current operating lease liability (3) | $ | 4 | | | $ | — | | | $ | 2 | | | $ | 6 | | | $ | 1 | | | $ | 2 | | | | | | | |
Non-current operating lease liability (4) | 11 | | | 1 | | | 5 | | | 17 | | | — | | | 11 | | | | | | | |
Total leased liabilities (5) | $ | 15 | | | $ | 1 | | | $ | 7 | | | $ | 23 | | | $ | 1 | | | $ | 13 | | | | | | | |
| | | | | | | | | | | | | | | | | |
Weighted-average remaining lease term (in years) - operating leases | 5.1 | | 4.7 | | 4.3 | | 6.2 | | 4.1 | | 6.5 | | | | | | |
Weighted-average discount rate - operating leases | 3.13 | % | | 3.20 | % | | 3.54 | % | | 3.10 | % | | 2.86 | % | | 3.20 | % | | | | | | |
Weighted-average remaining lease term (in years) - finance leases | 7.0 | | 7.0 | | — | | | 7.5 | | 7.5 | | — | | | | | | | |
Weighted-average discount rate - finance leases | 2.21 | % | | 2.21 | % | | — | | | 2.21 | % | | 2.21 | % | | — | | | | | | | |
(1)Reported within Other assets in the Registrants’ respective Condensed Consolidated Balance Sheets.
(2)Reported within Property, Plant and Equipment in the Registrants’ respective Condensed Consolidated Balance Sheets. Finance lease assets are recorded net of accumulated amortization.
(3)Reported within Current other liabilities in the Registrants’ respective Condensed Consolidated Balance Sheets.
(4)Reported within Other liabilities in the Registrants’ respective Condensed Consolidated Balance Sheets.
(5)Finance lease liabilities were not material as of June 30, 2022 or December 31, 2021 and are reported within Other long-term debt in the Registrants’ respective Condensed Consolidated Balance Sheets when applicable.
As of June 30, 2022, finance lease liabilities were not significant to the Registrants. As of June 30, 2022, maturities of operating lease liabilities were as follows:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Remainder of 2022 | $ | 3 | | | $ | 1 | | | $ | 1 | |
2023 | 4 | | | — | | | 2 | |
2024 | 4 | | | — | | | 2 | |
2025 | 2 | | | — | | | 1 | |
2026 | 2 | | | — | | | 1 | |
2027 and beyond | 2 | | | — | | | — | |
Total lease payments | 17 | | | 1 | | | 7 | |
Less: Interest | 2 | | | — | | | — | |
Present value of lease liabilities | $ | 15 | | | $ | 1 | | | $ | 7 | |
As of June 30, 2022, future minimum finance lease payments were not significant to the Registrants, exclusive of approximately $9$347 million from Enable in the fourth quarter of 2017legally-binding undiscounted minimum lease payments for finance leases for approximately 252 MW of mobile generation leases signed but not yet commenced. As of June 30, 2022, maturities of undiscounted operating lease payments to be made with respectreceived are as follows:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Remainder of 2022 | $ | 3 | | | $ | — | | | $ | 2 | |
2023 | 6 | | | 1 | | | 3 | |
2024 | 6 | | | 1 | | | 3 | |
2025 | 6 | | | 1 | | | 3 | |
2026 | 7 | | | — | | | 4 | |
2027 | 6 | | | — | | | 4 | |
2028 and beyond | 136 | | | — | | | 132 | |
Total lease payments to be received | $ | 170 | | | $ | 3 | | | $ | 151 | |
Other information related to leases is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating cash flows from operating leases included in the measurement of lease liabilities | $ | 1 | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 1 | |
| | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating cash flows from operating leases included in the measurement of lease liabilities | $ | 3 | | | $ | — | | | $ | 1 | | | $ | 3 | | | $ | — | | | $ | 2 | |
Financing cash flows from finance leases included in the measurement of lease liabilities | 171 | | | 171 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See Note 16 for information on ROU assets obtained in exchange for operating lease liabilities.
(20) Subsequent Events (CenterPoint Energy)
CenterPoint Energy’s investment in Series A Preferred Units of Enable for the third quarter of 2017.
Energy Dividend Declarations | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Item 2.Equity Instrument | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES | Declaration Date | | Record Date | | Payment Date | | Per Share | | |
Common Stock | | July 21, 2022 | | August 18, 2022 | | September 8, 2022 | | $ | 0.1800 | | | |
Series A Preferred Stock | | July 21, 2022 | | August 15, 2022 | | September 1, 2022 | | $ | 30.6250 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
The following combined discussion and analysis should be read in combination with ourthe Interim Condensed Financial Statements contained in this combined Form 10-Q and our 2016the Registrants’ combined 2021 Form 10-K. 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 combined Form 10-Q, the terms “our,” “we” and “us” are used as abbreviated references to CenterPoint Energy, Inc. together with its consolidated subsidiaries. No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.
RECENT EVENTS
Hurricane Harvey. Houston Electric’s electric delivery systemRestructuring. CenterPoint Energy completed the Restructuring on June 30, 2022 whereby the equity interests in Indiana Gas and VEDO, each of which were acquired in its acquisition of Vectren on February 1, 2019, were transferred from VUH to CERC Corp.’s NGD suffered damage as As a result, Indiana Gas and VEDO became wholly owned subsidiaries of Hurricane Harvey, which struck the Texas coast on Friday, August 25, 2017.CERC Corp. to better align its organizational structure with management and financial reporting and to fund future capital investments more efficiently. For furtheradditional information, regarding the impact of Hurricane Harvey, see Note 51 to ourthe Interim Condensed Financial Statements.
Debt Exchange. As a part of the Restructuring, on May 27, 2022, CERC Corp. and VUH completed an exchange with holders of VUH PPNs whereby CERC Corp. issued new senior notes with an aggregate principal amount of $302 million in return for all of their outstanding VUH PPNs with an aggregate principal amount of $302 million. For additional information, see Note 11 to the Interim Condensed Financial Statements.
VUH Credit Facility. On June 30, 2022, in connection with the Restructuring, VUH repaid in full all outstanding indebtedness and terminated all remaining commitments and other obligations under its $400 million amended and restated credit agreement dated as of February 4, 2021. For additional information, see Note 11 to the Interim Condensed Financial Statements.
Debt Transactions. During the six months ended June 30, 2022, Houston Electric issued $800 million and CERC issued $500 million in new debt, excluding the debt exchange discussed above, and CenterPoint Energy repaid or redeemed a combined $1,030 million of debt, including CERC’s redemption of $425 million of debt, excluding scheduled principal payments on Securitization Bonds. For information about debt transactions to date in 2022, see Note 11 to the Interim Condensed Financial Statements.
Sale of Energy Transfer Equity Securities. During the six months ended June 30, 2022, CenterPoint Energy sold its remaining Energy Transfer Common Units and Energy Transfer Series G Preferred Units for net proceeds of $702 million. For more information, see Note 10 to the Interim Condensed Financial Statements.
Sale of Natural Gas Businesses. On January 10, 2022, CERC Corp. completed the sale of its Arkansas and Oklahoma Natural Gas businesses. For additional information regarding discontinued operations and divestitures, see Note 3 to the Interim Condensed Financial Statements.
Regulatory Proceedings. For detailsinformation related to our pending and completed regulatory proceedings to date in 2017,2022, see “—Liquidity and Capital Resources —Regulatory Matters” below.
Debt Issuances. In August 2017, CenterPoint Energy issued $500 million aggregate principal amount
CENTERPOINT ENERGY CONSOLIDATED RESULTS OF OPERATIONS
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions, except per share amounts) |
Revenues | $ | 2,098 |
| | $ | 1,889 |
| | $ | 6,976 |
| | $ | 5,447 |
|
Expenses | 1,819 |
| | 1,605 |
| | 6,200 |
| | 4,731 |
|
Operating Income | 279 |
| | 284 |
| | 776 |
| | 716 |
|
Interest and Other Finance Charges | (80 | ) | | (83 | ) | | (235 | ) | | (256 | ) |
Interest on Securitization Bonds | (18 | ) | | (23 | ) | | (58 | ) | | (70 | ) |
Equity in Earnings of Unconsolidated Affiliate, net | 68 |
| | 73 |
| | 199 |
| | 164 |
|
Other Income, net | 18 |
| | 25 |
| | 95 |
| | (30 | ) |
Income Before Income Taxes | 267 |
| | 276 |
| | 777 |
| | 524 |
|
Income Tax Expense | 98 |
| | 97 |
| | 281 |
| | 193 |
|
Net Income | $ | 169 |
| | $ | 179 |
| | $ | 496 |
| | $ | 331 |
|
| | | | | | | |
Basic Earnings Per Share | $ | 0.39 |
| | $ | 0.42 |
| | $ | 1.15 |
| | $ | 0.77 |
|
| | | | | | | |
Diluted Earnings Per Share | $ | 0.39 |
| | $ | 0.41 |
| | $ | 1.14 |
| | $ | 0.76 |
|
For information regarding factors that may affect the future results of our consolidated operations, please read “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2021 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.
Income available to common shareholders for the three and six months ended June 30, 2022 and 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | Favorable (Unfavorable) | | 2022 | | 2021 | | Favorable (Unfavorable) |
| | (in millions) |
Electric | | $ | 173 | | | $ | 125 | | | $ | 48 | | | $ | 255 | | | $ | 200 | | | $ | 55 | |
Natural Gas | | 28 | | | 74 | | | (46) | | | 426 | | | 303 | | | 123 | |
Total Utility Operations | | 201 | | | 199 | | | 2 | | | 681 | | | 503 | | | 178 | |
| | | | | | | | | | | | |
Corporate & Other (1) | | (22) | | | (29) | | | 7 | | | 16 | | | (82) | | | 98 | |
Discontinued Operations | | — | | | 51 | | | (51) | | | — | | | 134 | | | (134) | |
Total CenterPoint Energy | | $ | 179 | | | $ | 221 | | | $ | (42) | | | $ | 697 | | | $ | 555 | | | $ | 142 | |
(1)Includes energy performance contracting and sustainable infrastructure services through Energy Systems Group, unallocated corporate costs, interest income and interest expense, intercompany eliminations and the reduction of income allocated to preferred shareholders.
Three months ended SeptemberJune 30, 20172022 compared to three months ended SeptemberJune 30, 20162021
We reportedIncome available to common shareholders decreased $42 million primarily due to the following items:
•an increase in net income of $169$48 million ($0.39 per diluted share) for the three months ended September 30, 2017 compared to net income of $179 million ($0.41 per diluted share) for the three months ended September 30, 2016.Electric reportable segment, as further discussed below;
The•a decrease in net income of $10$46 million wasfor the Natural Gas reportable segment, as further discussed below;
•an increase in income available to common shareholders of $7 million for Corporate and Other, partially driven by a decrease in income allocated to preferred shareholders of $19 million, primarily due to the conversion of the Series B Preferred Stock to Common Stock during 2021; and
•a decrease in income of $51 million from discontinued operations, discussed further in Note 3 to the Interim Condensed Financial Statements.
Six months ended June 30, 2022 compared to six months ended June 30, 2021
Income available to common shareholders increased $142 million primarily due to the following key factors:items:
a $40 million decrease in the gain on marketable securities included in Other Income, net shown above;
a $5 million decrease in operating income discussed below by segment;
a $5 million decrease in equity earnings from our investment in Enable, discussed further in Note 8 to our Interim Condensed Financial Statements; and
a $3 million decrease 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 loss on the underlying value of the indexed debt securities related to the ZENS included in Other Income, net shown above;
a $5 million decrease in interest expense related to lower outstanding balances of our Securitization Bonds; and
a $3 million decrease in interest expense due to lower weighted average interest rates on outstanding debt.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
We reported net income of $496 million ($1.14 per diluted share) for the nine months ended September 30, 2017 compared to net income of $331 million ($0.76 per diluted share) for the nine months ended September 30, 2016.
The•an increase in net income of $165$55 million wasfor the Electric reportable segment, as further discussed below;
•an increase in net income of $123 million for the Natural Gas reportable segment, as further discussed below;
•an increase in income available to common shareholders of $98 million for Corporate and Other, primarily due to the following key factors:
a $199net gain of $86 million decrease in the loss on indexed debtEnergy Transfer equity securities related to the ZENS included in Other Income, net shown above, resulting from decreased losses of $82 million in the underlying value of the indexed debt securities and a loss of $117 million from the Charter merger in 2016;
a $60 million increase in operating income discussed below by segment;
a $35 million increase in equity earnings from our investment in Enable, discussed further in Note 810 to ourthe Interim Condensed Financial Statements;
Statements and a $21 million decrease in interest expense dueincome allocated to lower weighted average interest rates on outstanding debt;
a $14preferred shareholders of $35 million, increase in cash distributions on Series A Preferred Units included in Other Income, net shown above; and
a $12 million decrease in interest expense related to lower outstanding balances of our Securitization Bonds.
These increases in net income were partially offset by the following:
an $88 million increase in income tax expense due to higher net income;
an $83 million decrease in the gain on marketable securities included in Other Income, net shown above; and
a $5 million decrease in miscellaneous other non-operating income included in Other Income, net shown above.
Income Tax Expense
Our 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 effectsconversion of receiving less nontaxablethe Series B Preferred Stock to Common Stock during 2021; and
•a decrease in income of $134 million from discontinued operations, discussed further in Note 3 to the period. TheInterim Condensed Financial Statements.
Income Tax Expense. For a discussion of effective tax rate reported forper period, see Note 12 to the nine months ended September 30, 2017 was 36% compared to 37% for the same period in 2016. We expect our annual effective tax rate for the fiscal year ending December 31, 2017 to be approximately 36%.Interim Condensed Financial Statements.
CENTERPOINT ENERGY’S RESULTS OF OPERATIONS BY BUSINESSREPORTABLE SEGMENT
CenterPoint Energy’s CODM views net income as the measure of profit or loss for the reportable segments. Segment results include inter-segment interest income and expense, which may result in inter-segment profit and loss. During the six months ended June 30, 2022, CenterPoint Energy sold certain assets previously owned by entities within Corporate and Other to businesses within the Electric and Natural Gas reportable segments. Prior year amounts were reclassified as a result of the transaction in the six months ended June 30, 2022.
The following table presents operating income for eachdiscussion of our businessresults of operations by reportable segment concentrates on CenterPoint Energy’s Utility Operations, conducted through two reportable segments, for the threeElectric and nine months ended September 30, 2017 and 2016. Included in revenues are intersegment sales. We account for intersegment sales as if the sales were to third parties at current market prices.Natural Gas.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Electric Transmission & Distribution | $ | 247 |
| | $ | 257 |
| | $ | 489 |
| | $ | 498 |
|
Natural Gas Distribution | 19 |
| | 22 |
| | 220 |
| | 202 |
|
Energy Services | 7 |
| | 5 |
| | 58 |
| | 11 |
|
Other Operations | 6 |
| | — |
| | 9 |
| | 5 |
|
Total Consolidated Operating Income | $ | 279 |
| | $ | 284 |
| | $ | 776 |
| | $ | 716 |
|
Electric Transmission & Distribution(CenterPoint Energy)
For information regarding factors that may affect the future results of operations of ourthe Electric Transmission & Distribution businessreportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Electric Generation, Transmission &and Distribution Business” andBusinesses,” “— Other Risk Factors Affecting Our Businesses orBusinesses” and “— General Risk Factors Affecting Our Interests in Enable Midstream Partners, LP”Businesses” in Item 1A of Part I of our 2016the Registrants’ combined 2021 Form 10-K.10-K and in Item 1A of Part II of this combined Form 10-Q.
The following table provides summary data of ourthe Electric Transmission & Distribution business segmentreportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Favorable (Unfavorable) | | 2022 | | 2021 | | Favorable (Unfavorable) |
| (in millions, except operating statistics) |
Revenues | $ | 1,053 | | | $ | 937 | | | $ | 116 | | | $ | 1,946 | | | $ | 1,767 | | | $ | 179 | |
Expenses: | | | | | | | | | | | |
Utility natural gas, fuel and purchased power | 56 | | | 44 | | | (12) | | | 97 | | | 89 | | | (8) | |
Operation and maintenance | 449 | | | 429 | | | (20) | | | 886 | | | 840 | | | (46) | |
Depreciation and amortization | 205 | | | 194 | | | (11) | | | 397 | | | 368 | | | (29) | |
Taxes other than income taxes | 72 | | | 69 | | | (3) | | | 140 | | | 136 | | | (4) | |
| | | | | | | | | | | |
Total expenses | 782 | | | 736 | | | (46) | | | 1,520 | | | 1,433 | | | (87) | |
Operating Income | 271 | | | 201 | | | 70 | | | 426 | | | 334 | | | 92 | |
Other Income (Expense): | | | | | | | | | | | |
Interest expense and other finance charges | (59) | | | (58) | | | (1) | | | (116) | | | (114) | | | (2) | |
| | | | | | | | | | | |
Other income, net | 7 | | | 5 | | | 2 | | | 12 | | | 12 | | | — | |
Income Before Income Taxes | 219 | | | 148 | | | 71 | | | 322 | | | 232 | | | 90 | |
Income tax expense | 46 | | | 23 | | | (23) | | | 67 | | | 32 | | | (35) | |
Net Income | $ | 173 | | | $ | 125 | | | $ | 48 | | | $ | 255 | | | $ | 200 | | | $ | 55 | |
Throughput (in GWh): | | | | | | | | | | | |
Residential | 10,003 | | 8,323 | | 20 | % | | 16,349 | | 14,393 | | 14 | % |
Total | 29,270 | | 26,886 | | 9 | % | | 52,425 | | 48,127 | | 9 | % |
Weather (percentage of 10-year average for service area): | | | | | | | | | | | |
Cooling degree days | 126 | % | | 103 | % | | 23 | % | | 118 | % | | 104 | % | | 14 | % |
Heating degree days | 53 | % | | 138 | % | | (85) | % | | 121 | % | | 105 | % | | 16 | % |
Number of metered customers at end of period: | | | | | | | | | | | |
Residential | 2,517,362 | | 2,464,358 | | 2 | % | | 2,517,362 | | 2,464,358 | | 2 | % |
Total | 2,840,830 | | 2,783,920 | | 2 | % | | 2,840,830 | | 2,783,920 | | 2 | % |
The following table provides variance explanations by major income statement caption for the three and nine months ended September 30, 2017 and 2016:Electric reportable segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions, except throughput and customer data) |
Revenues: | | | | | | | |
TDU | $ | 729 |
| | $ | 725 |
| | $ | 1,944 |
| | $ | 1,881 |
|
Bond Companies | 114 |
| | 183 |
| | 290 |
| | 450 |
|
Total revenues | 843 |
| | 908 |
| | 2,234 |
| | 2,331 |
|
Expenses: | | | | | | | |
Operation and maintenance, excluding Bond Companies | 344 |
| | 336 |
| | 1,040 |
| | 995 |
|
Depreciation and amortization, excluding Bond Companies | 97 |
| | 96 |
| | 296 |
| | 285 |
|
Taxes other than income taxes | 59 |
| | 59 |
| | 177 |
| | 173 |
|
Bond Companies | 96 |
| | 160 |
| | 232 |
| | 380 |
|
Total expenses | 596 |
| | 651 |
| | 1,745 |
| | 1,833 |
|
Operating Income | $ | 247 |
| | $ | 257 |
| | $ | 489 |
| | $ | 498 |
|
Operating Income: | | | | | | | |
TDU | $ | 229 |
| | $ | 234 |
| | $ | 431 |
| | $ | 428 |
|
Bond Companies (1) | 18 |
| | 23 |
| | 58 |
| | 70 |
|
Total segment operating income | $ | 247 |
| | $ | 257 |
| | $ | 489 |
| | $ | 498 |
|
Throughput (in GWh): | | | | | | | |
Residential | 10,419 |
| | 10,776 |
| | 23,512 |
| | 23,427 |
|
Total | 26,453 |
| | 26,518 |
| | 67,956 |
| | 66,839 |
|
Number of metered customers at end of period: | | | | | | | |
Residential | 2,156,624 |
| | 2,116,312 |
| | 2,156,624 |
| | 2,116,312 |
|
Total | 2,435,558 |
| | 2,389,014 |
| | 2,435,558 |
| | 2,389,014 |
|
| | | | | | | | | | | | | | |
| | Favorable (Unfavorable) |
| | Three Months Ended June 30, 2022 vs 2021 | | Six Months Ended June 30, 2022 vs 2021 |
| | (in millions) |
Revenues | | | | |
Transmission Revenues, including TCOS and TCRF, inclusive of costs billed by transmission providers, partially offset in operation and maintenance | | $ | 46 | | | $ | 75 | |
Weather, efficiency improvements and other usage impacts | | 34 | | | 42 | |
Refund of protected and unprotected EDIT, offset in income tax expense | | 9 | | | 17 | |
Customer growth | | 7 | | | 13 | |
Miscellaneous revenues, primarily related to off-system sales | | 8 | | | 10 | |
Cost of fuel and purchased power, offset in utility natural gas, fuel and purchased power below | | 12 | | | 8 | |
Customer rates | | 3 | | | 7 | |
Bond Companies, offset in other line items | | (3) | | | 6 | |
Bond Companies equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods | | 1 | | | 3 | |
Impacts from increased peak demand in 2021, collected in rates in 2022 | | 1 | | | 2 | |
Energy efficiency and pass-through offset in operation and maintenance | | (2) | | | (4) | |
Total | | $ | 116 | | | $ | 179 | |
Utility natural gas, fuel and purchased power | | | | |
Cost of purchased power, offset in revenues above | | $ | (9) | | | $ | (12) | |
Cost of fuel, including coal, natural gas, and fuel oil, offset in revenues above | | (3) | | | 4 | |
Total | | $ | (12) | | | $ | (8) | |
Operation and maintenance | | | | |
Transmission costs billed by transmission providers, offset in revenues | | $ | (21) | | | $ | (43) | |
| | | | |
All other operation and maintenance expense, including insurance and bad debt | | (12) | | | (12) | |
Materials and supplies, including variable production costs and fuel | | (1) | | | (6) | |
Contract services | | (1) | | | (8) | |
Bond Companies, offset in other line items | | — | | | 1 | |
Energy efficiency and pass-through offset in revenues | | 2 | | | 5 | |
| | | | |
Support services, primarily information technology cost | | 13 | | | 17 | |
Total | | $ | (20) | | | $ | (46) | |
Depreciation and amortization | | | | |
Bond Companies, offset in other line items | | $ | 1 | | | $ | (11) | |
Ongoing additions to plant-in-service | | (12) | | | (18) | |
Total | | $ | (11) | | | $ | (29) | |
Taxes other than income taxes | | | | |
Franchise fees and other taxes | | $ | 2 | | | $ | 3 | |
Incremental capital projects placed in service | | (5) | | | (7) | |
Total | | $ | (3) | | | $ | (4) | |
Interest expense and other finance charges | | | | |
Bond Companies, offset in other line items | | $ | 2 | | | $ | 4 | |
Incremental borrowings to fund capital expenditures | | (3) | | | (6) | |
Total | | $ | (1) | | | $ | (2) | |
Other income, net | | | | |
Other non-operating income | | $ | 2 | | | $ | — | |
| | | | |
| | | | |
Total | | $ | 2 | | | $ | — | |
| |
(1) | Represents the amount necessary to pay interest on the Securitization Bonds. |
Three months ended September 30, 2017 compared to three months ended September 30, 2016
Our Electric Transmission & Distribution business segment reported operating incomeIncome Tax Expense. For a discussion of $247 million for the three months ended September 30, 2017, consisting of $229 million from the TDU and $18 million relatedeffective tax rate per period by Registrant, see Note 12 to the Bond Companies. For the three months ended September 30, 2016, operating income totaled $257 million, consistingInterim Condensed Financial Statements.
TDU operating income decreased $5 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;
lower operation and maintenance expenses 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 million, primarily due to the following key factors:
rate increases of $39 million related to distribution capital investments; and
customer growth of $26 million from the addition of over 46,000 new customers.
These increases to operating income were partially offset by the following:
lower equity return of $22 million, primarily related to the annual true-up of transition charges correcting for over-collections that occurred during 2016;
higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $14 million;
lower usage of $14 million;
lower miscellaneous revenues, including right-of-way, of $9 million;
higher operation and maintenance expenses of $2 million; and
increased transmission costs billed by transmission providers of $47 million, which were partially offset by higher transmission-related revenues of $46 million.
Natural Gas Distribution(CenterPoint Energy)
For information regarding factors that may affect the future results of operations of ourCenterPoint Energy’s Natural Gas Distribution businessreportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Natural Gas Distribution and Energy Services Businesses” andGas' Business,” “— Other Risk Factors Affecting Our Businesses orBusinesses” and “— General Risk Factors Affecting Our Interests in Enable Midstream Partners, LP”Businesses” in Item 1A of Part I of our 2016the Registrants’ combined 2021 Form 10-K.10-K and in Item 1A of Part II of this combined Form 10-Q.
The following table provides summary data of ourCenterPoint Energy’s Natural Gas Distribution business segmentreportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Favorable (Unfavorable) | | 2022 | | 2021 | | Favorable (Unfavorable) |
| (in millions, except operating statistics) |
Revenues | $ | 818 | | | $ | 740 | | | $ | 78 | | | $ | 2,642 | | | $ | 2,403 | | | $ | 239 | |
Expenses: | | | | | | | | | | | |
Utility natural gas, fuel and purchased power | 357 | | | 213 | | | (144) | | | 1,414 | | | 1,104 | | | (310) | |
Non-utility cost of revenues, including natural gas | 1 | | | 10 | | | 9 | | | 2 | | | 12 | | | 10 | |
Operation and maintenance | 209 | | | 240 | | | 31 | | | 455 | | | 490 | | | 35 | |
Depreciation and amortization | 117 | | | 129 | | | 12 | | | 229 | | | 257 | | | 28 | |
Taxes other than income taxes | 61 | | | 57 | | | (4) | | | 138 | | | 131 | | | (7) | |
Total expenses | 745 | | | 649 | | | (96) | | | 2,238 | | | 1,994 | | | (244) | |
Operating Income | 73 | | | 91 | | | (18) | | | 404 | | | 409 | | | (5) | |
Other Income (Expense): | | | | | | | | | | | |
Gain on sale | — | | | — | | | — | | | 303 | | | — | | | 303 | |
Interest expense and other finance charges | (33) | | | (34) | | | 1 | | | (63) | | | (67) | | | 4 | |
| | | | | | | | | | | |
Other income (expense), net | (10) | | | 2 | | | (12) | | | (10) | | | 2 | | | (12) | |
Income Before Income Taxes | 30 | | | 59 | | | (29) | | | 634 | | | 344 | | | 290 | |
Income tax expense (benefit) | 2 | | | (15) | | | (17) | | | 208 | | | 41 | | | (167) | |
Net Income | $ | 28 | | | $ | 74 | | | $ | (46) | | | $ | 426 | | | $ | 303 | | | $ | 123 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Throughput (in Bcf): | | | | | | | | | | | |
Residential | 28 | | 30 | | (7) | % | | 151 | | 158 | | (4) | % |
Commercial and Industrial | 90 | | 88 | | 2 | % | | 226 | | 233 | | (3) | % |
Total | 118 | | 118 | | — | % | | 377 | | 391 | | (4) | % |
Weather (percentage of 10-year average for service area): | | | | | | | | | | | |
Heating degree days | 102 | % | | 104 | % | | (2) | % | | 108 | % | | 100 | % | | 8 | % |
Number of metered customers at end of period: | | | | | | | | | | | |
Residential | 3,919,079 | | 4,334,297 | | (10) | % | | 3,919,079 | | 4,334,297 | | (10) | % |
Commercial and Industrial | 295,487 | | 341,963 | | (14) | % | | 295,487 | | 341,963 | | (14) | % |
Total | 4,214,566 | | 4,676,260 | | (10) | % | | 4,214,566 | | 4,676,260 | | (10) | % |
The following table provides variance explanations by major income statement caption for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions, except throughput and customer data) |
Revenues | $ | 398 |
| | $ | 377 |
| | $ | 1,791 |
| | $ | 1,693 |
|
Expenses: | | | | | | | |
Natural gas | 117 |
| | 104 |
| | 742 |
| | 679 |
|
Operation and maintenance | 163 |
| | 159 |
| | 531 |
| | 526 |
|
Depreciation and amortization | 66 |
| | 61 |
| | 194 |
| | 180 |
|
Taxes other than income taxes | 33 |
| | 31 |
| | 104 |
| | 106 |
|
Total expenses | 379 |
| | 355 |
| | 1,571 |
| | 1,491 |
|
Operating Income | $ | 19 |
| | $ | 22 |
| | $ | 220 |
| | $ | 202 |
|
Throughput (in Bcf): | | | | | | | |
Residential | 13 |
| | 12 |
| | 94 |
| | 105 |
|
Commercial and industrial | 50 |
| | 51 |
| | 189 |
| | 193 |
|
Total Throughput | 63 |
| | 63 |
| | 283 |
| | 298 |
|
Number of customers at end of period: | | | | | | | |
Residential | 3,179,284 |
| | 3,143,357 |
| | 3,179,284 |
| | 3,143,357 |
|
Commercial and industrial | 253,041 |
| | 251,043 |
| | 253,041 |
| | 251,043 |
|
Total | 3,432,325 |
| | 3,394,400 |
| | 3,432,325 |
| | 3,394,400 |
|
Three months ended September 30, 2017 compared to three months ended September 30, 2016
Our Natural Gas Distribution business segment reported operating incomereportable segment:
| | | | | | | | | | | | | | |
| | Favorable (Unfavorable) |
| | Three Months Ended June 30, 2022 vs 2021 | | Six Months Ended June 30, 2022 vs 2021 |
| | (in millions) |
Revenues | | | | |
Cost of natural gas, offset in utility natural gas, fuel and purchased power below | | $ | 170 | | | $ | 406 | |
Customer rates and impact of the change in rate design, exclusive of the TCJA impact | | 12 | | | 56 | |
Gross receipts tax, offset in taxes other than income taxes | | 5 | | | 14 | |
Customer growth | | 1 | | | 5 | |
Refund of protected and unprotected EDIT, offset in income tax expense | | 1 | | | 5 | |
Non-volumetric and miscellaneous revenue | | 1 | | | 9 | |
Energy efficiency, offset in operation and maintenance | | — | | | (2) | |
| | | | |
Weather and usage | | (14) | | | (5) | |
Other, primarily non-utility revenues | | (20) | | | (15) | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | (78) | | | (234) | |
Total | | $ | 78 | | | $ | 239 | |
Utility natural gas, fuel and purchased power | | | | |
Cost of natural gas, offset in revenues above | | $ | (170) | | | $ | (406) | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | 26 | | | 96 | |
| | | | |
| | | | |
Total | | $ | (144) | | | $ | (310) | |
Non-utility costs of revenues, including natural gas | | | | |
Other, primarily non-utility cost of revenues | | $ | 9 | | | $ | 10 | |
Total | | $ | 9 | | | $ | 10 | |
Operation and maintenance | | | | |
| | | | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 31 | | | $ | 61 | |
Energy efficiency, offset in revenues | | — | | | 2 | |
Contract services | | 1 | | | — | |
Labor and benefits | | 3 | | | (3) | |
Other operation and maintenance expenses, including material and supplies and bad debt | | (4) | | | (25) | |
Total | | $ | 31 | | | $ | 35 | |
Depreciation and amortization | | | | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 15 | | | $ | 30 | |
Lower depreciation rates in Indiana from recent rate order | | 5 | | | 10 | |
Incremental capital projects placed in service | | (8) | | | (12) | |
| | | | |
Total | | $ | 12 | | | $ | 28 | |
Taxes other than income taxes | | | | |
Gross receipts tax, offset in revenues | | $ | (5) | | | $ | (14) | |
Incremental capital projects placed in service | | (4) | | | (5) | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | 5 | | | 12 | |
Total | | $ | (4) | | | $ | (7) | |
Gain on Sale | | | | |
Net gain on sale of Arkansas and Oklahoma Natural Gas businesses | | $ | — | | | $ | 303 | |
Total | | $ | — | | | $ | 303 | |
Interest expense and other finance charges | | | | |
Impacts of February 2021 Winter Storm costs securitization | | $ | 1 | | | $ | 3 | |
AFUDC and impacts of regulatory deferrals | | 1 | | | 2 | |
Reduction of long term debt, net of issuances | | (1) | | | (1) | |
Total | | $ | 1 | | | $ | 4 | |
| | | | |
| | | | |
| | | | |
Other income (expense), net | | | | |
Increase in Equity AFUDC | | $ | 1 | | | $ | 1 | |
Increase to non-service benefit cost | | (13) | | | (13) | |
Total | | $ | (12) | | | $ | (12) | |
Income Tax Expense. For a discussion of $19 million for the three months ended September 30, 2017 compared to $22 million for the three months ended September 30, 2016.
Operating income decreased $3 million as a result of the following key factors:
increased depreciation and amortization expense, primarily due to ongoing additions to plant-in-service, and other taxes of $6 million;
lower usage of $4 million, primarily dueeffective tax rate per period by Registrant, see Note 12 to the timingInterim Condensed Financial Statements.
HOUSTON ELECTRIC’S MANAGEMENT’S NARRATIVE ANALYSIS
OF CONSOLIDATED RESULTS OF OPERATIONS
Houston Electric’s CODM views net income as the measure of profit or loss for its reportable segment. Houston Electric consists of a decoupling normalization adjustment; and
higher operation and maintenance expensessingle reportable segment. Houston Electric’s results of $3 million.
These decreases were partially offsetoperations are affected by the following:
rate relief increased $5 million, primarily from Texas jurisdictions of $2 million, Arkansas rate case filing of $1 million and Mississippi RRA of $1 million; and
customer growth of $2 million associated with the addition of approximately 38,000 new customers.
Increased operation and maintenance expenses related to energy efficiency programs of $1 million were offset by corresponding increasesseasonal fluctuations in the related revenues.
Nine months ended September 30, 2017 compareddemand 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 nine months ended September 30, 2016
Our Natural Gas Distribution business segment reported operating income of $220 million for the nine months ended September 30, 2017 compared to $202 million for the nine months ended September 30, 2016.
Operating income increased $18 million as a result of the following key factors:
rate increases of $25 million, primarilycollect receivables from Texas jurisdictions of $12 million, Arkansas rate case filing of $10 millionREPs and Mississippi RRA of $3 million;
labor and benefits were favorable by $11 million resulting primarily from the recording of a regulatory asset (and a corresponding reduction in expense)Houston Electric’s ability to recover $16 million of prior postretirement expenses in future rates established in the Texas Gulf rate order; and
customer growth of $3 million associated with the addition of approximately 38,000 new customers.
These increases were partially offset by the following:
increased depreciation and amortization expense, primarily due to ongoing additions to plant-in-service, and other taxes of $10 million;
higher operation and maintenance expenses of $9 million partially resulting from an adjustment associated with the Texas Gulf rate order of $4 million, which is timing related; and
lower usage of $7 million primarily due to milder weather effects, partially mitigated by decoupling and weather normalization adjustments.
Increased operation and maintenance expenses related to energy efficiency programs of $7 million and increased gross receipts taxes of $2 million were offset by corresponding increases in the related revenues.
Energy Services
its regulatory assets. For more information regarding factors that may affect the future results of operations of our Energy ServicesHouston Electric’s business, segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Natural GasElectric Generation, Transmission and Distribution and Energy Services Businesses” andBusinesses,” “— Other Risk Factors Affecting Our Businesses orBusinesses” and “— General Risk Factors Affecting Our Interests in Enable Midstream Partners, LP”Businesses” in Item 1A of Part I of our 2016the Registrants’ combined 2021 Form 10-K.10-K and in Item 1A of Part II of this combined Form 10-Q.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Favorable (Unfavorable) | | 2022 | | 2021 | | Favorable (Unfavorable) |
| (in millions, except operating statistics) |
Revenues: | | | | | | | | | | | |
TDU | $ | 822 | | | $ | 725 | | | $ | 97 | | | $ | 1,515 | | | $ | 1,365 | | | $ | 150 | |
Bond Companies | 59 | | | 61 | | | (2) | | | 112 | | | 105 | | | 7 | |
Total revenues | 881 | | | 786 | | | 95 | | | 1,627 | | | 1,470 | | | 157 | |
Expenses: | | | | | | | | | | | |
Operation and maintenance, excluding Bond Companies | 403 | | | 389 | | | (14) | | | 797 | | | 760 | | | (37) | |
Depreciation and amortization, excluding Bond Companies | 120 | | | 107 | | | (13) | | | 234 | | | 212 | | | (22) | |
Taxes other than income taxes | 68 | | | 65 | | | (3) | | | 131 | | | 128 | | | (3) | |
Bond Companies | 54 | | | 55 | | | 1 | | | 103 | | | 93 | | | (10) | |
Total expenses | 645 | | | 616 | | | (29) | | | 1,265 | | | 1,193 | | | (72) | |
Operating Income | 236 | | | 170 | | | 66 | | | 362 | | | 277 | | | 85 | |
Other Income (Expense) | | | | | | | | | | | |
Interest expense and other finance charges | (50) | | | (47) | | | (3) | | | (98) | | | (92) | | | (6) | |
Interest expense on Securitization Bonds | (4) | | | (5) | | | 1 | | | (8) | | | (11) | | | 3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other income, net | 4 | | | 3 | | | 1 | | | 8 | | | 8 | | | — | |
Income Before Income Taxes | 186 | | | 121 | | | 65 | | | 264 | | | 182 | | | 82 | |
Income tax expense | 39 | | | 18 | | | (21) | | | 56 | | | 26 | | | (30) | |
Net Income | $ | 147 | | | $ | 103 | | | $ | 44 | | | $ | 208 | | | $ | 156 | | | $ | 52 | |
Throughput (in GWh): | | | | | | | | | | | |
Residential | 9,710 | | 8,024 | | 21 | % | | 15,698 | | 13,725 | | 14 | % |
Total | 27,704 | | 25,396 | | 9 | % | | 49,638 | | 45,135 | | 10 | % |
Weather (percentage of 10-year average for service area): | | | | | | | | | | | |
Cooling degree days | 127 | % | | 103 | % | | 24 | % | | 118 | % | | 104 | % | | 14 | % |
Heating degree days | 13 | % | | 142 | % | | (129) | % | | 124 | % | | 105 | % | | 19 | % |
Number of metered customers at end of period: | | | | | | | | | | | |
Residential | 2,382,145 | | 2,333,786 | | 2 | % | | 2,382,145 | | 2,333,786 | | 2 | % |
Total | 2,686,295 | | 2,634,108 | | 2 | % | | 2,686,295 | | 2,634,108 | | 2 | % |
The following table provides summary datavariance explanations by major income statement caption for Houston Electric:
| | | | | | | | | | | | | | |
| | Favorable (Unfavorable) |
| | Three Months Ended June 30, 2022 vs 2021 | | Six Months Ended June 30, 2022 vs 2021 |
| | (in millions) |
Revenues | | | | |
Transmission Revenues, including TCOS and TCRF, inclusive of costs billed by transmission providers | | $ | 46 | | | $ | 75 | |
Weather impacts and other usage | | 34 | | | 42 | |
Refund of protected and unprotected EDIT, offset in income tax expense | | 9 | | | 17 | |
| | | | |
Customer growth | | 7 | | | 13 | |
Bond Companies, offset in other line items | | (3) | | | 6 | |
Equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods | | 1 | | | 3 | |
Impacts from increased peak demand in 2021, collected in rates in 2022 | | 1 | | | 2 | |
Miscellaneous revenues, primarily related to right-of-way revenues | | 1 | | | 2 | |
Energy efficiency, offset in operation and maintenance | | (1) | | | (3) | |
| | | | |
Total | | $ | 95 | | | $ | 157 | |
Operation and maintenance, excluding Bond Companies | | | | |
Transmission costs billed by transmission providers, offset in revenues | | $ | (21) | | | $ | (43) | |
Contract services | | (1) | | | (6) | |
Other operation and maintenance expense, including insurance | | (7) | | | (6) | |
Materials and Supplies, including fuel | | 1 | | | (3) | |
Labor and benefits | | 1 | | | 2 | |
| | | | |
| | | | |
Energy efficiency, offset in revenues | | 1 | | | 3 | |
Support services, primarily information technology cost | | 12 | | | 16 | |
Total | | $ | (14) | | | $ | (37) | |
Depreciation and amortization, excluding Bond Companies | | | | |
Ongoing additions to plant-in-service | | $ | (13) | | | $ | (22) | |
Total | | $ | (13) | | | $ | (22) | |
Taxes other than income taxes | | | | |
Franchise fees and other taxes | | $ | 1 | | | $ | 4 | |
Ongoing additions to plant-in-service | | (4) | | | (7) | |
Total | | $ | (3) | | | $ | (3) | |
Bond Companies expense | | | | |
Operations and maintenance and depreciation expense, offset in other line items | | $ | 1 | | | $ | (10) | |
| | $ | 1 | | | $ | (10) | |
Interest expense and other finance charges | | | | |
Incremental borrowings to fund capital expenditures | | $ | (3) | | | $ | (6) | |
Total | | $ | (3) | | | $ | (6) | |
| | | | |
| | | | |
| | | | |
| | | | |
Interest expense on Securitization Bonds | | | | |
Lower outstanding principal balance, offset in other line items | | $ | 1 | | | $ | 3 | |
Total | | $ | 1 | | | $ | 3 | |
Other income, net | | | | |
Other non-operating income | | $ | 1 | | | $ | — | |
| | | | |
| | | | |
Total | | $ | 1 | | | $ | — | |
| | | | |
| | | | |
| | | | |
| | | | |
Income Tax Expense. For a discussion of our Energy Services business segment for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions, except throughput and customer data) |
Revenues | $ | 871 |
| | $ | 614 |
| | $ | 2,998 |
| | $ | 1,450 |
|
Expenses: | | | | | | | |
Natural gas | 839 |
| | 591 |
| | 2,865 |
| | 1,389 |
|
Operation and maintenance | 22 |
| | 16 |
| | 65 |
| | 43 |
|
Depreciation and amortization | 3 |
| | 1 |
| | 9 |
| | 5 |
|
Taxes other than income taxes | — |
| | 1 |
| | 1 |
| | 2 |
|
Total expenses | 864 |
| | 609 |
| | 2,940 |
| | 1,439 |
|
Operating Income | $ | 7 |
| | $ | 5 |
| | $ | 58 |
| | $ | 11 |
|
| | | | | | | |
Timing impacts related to mark-to-market gain (loss) (1) | $ | 2 |
| | $ | (2 | ) | | $ | 23 |
| | $ | (18 | ) |
| | | | | | | |
Throughput (in Bcf) | 272 |
| | 200 |
| | 864 |
| | 570 |
|
| | | | | | | |
Number of customers at end of period (2) | 30,817 |
| | 31,669 |
| | 30,817 |
| | 31,669 |
|
| |
(1) | Includes 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 66,100 natural gas customers as of September 30, 2017 that are under residential and small commercial choice programs invoiced by their host utility. |
Three months ended September 30, 2017 compared to three months ended September 30, 2016
Our Energy Services business segment reported operating income of $7 million for the three months ended September 30, 2017 compared to $5 million for the three months ended September 30, 2016. The increase in operating income of $2 million was primarily due to a $4 million increase from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. Operating income for the three months ended September 30, 2017 also included $2 million of expenses relatedeffective tax rate per period, see Note 12 to the acquisition and integrationInterim Condensed Financial Statements.
CERC’S MANAGEMENT’S NARRATIVE ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
Our Energy Services business segment reported operatingCERC’s CODM views net income as the measure of $58 millionprofit or loss for the nine months ended September 30, 2017 compared to $11 million for the nine months ended September 30, 2016. The increase in operating incomeits reportable segment. CERC’s results of $47 million was primarily due to a $41 million increase from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. Operating incomeoperations are affected by seasonal fluctuations in the first nine monthsdemand for natural gas. CERC’s results of 2017operations are also included $3 millionaffected by, among other things, the actions of expenses relatedvarious federal, state and local governmental authorities having jurisdiction over rates CERC charges, debt service costs and income tax expense, CERC’s ability to collect receivables from customers and CERC’s ability to recover its regulatory assets. As a result of the Restructuring further discussed in Note 1 to the acquisition and integration of AEM. The remaining increase in operating income was primarily due to the increased throughput related to the acquisition of AEM in 2017.
Midstream Investments
Interim Condensed Financial Statements, prior year amounts have been recast. For more information regarding factors that may affect the future results of operations of our Midstream Investmentsfor CERC’s business, segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Interests in Enable Midstream Partners, LP” andNatural Gas’ Business,” “— Other Risk Factors Affecting Our Businesses orBusinesses” and “— General Risk Factors Affecting Our Interests in Enable Midstream Partners, LP”Businesses” in Item 1A of Part I of our 2016the Registrants’ combined 2021 Form 10-K.10-K and in Item 1A of Part II of this combined Form 10-Q.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | Favorable (Unfavorable) | | 2022 | | 2021 | | Favorable (Unfavorable) |
| (in millions, except operating statistics) |
Revenues | $ | 796 | | | $ | 721 | | | $ | 75 | | | $ | 2,560 | | | $ | 2,316 | | | $ | 244 | |
Expenses: | | | | | | | | | | | |
Utility natural gas, fuel and purchased power | 351 | | | 210 | | | (141) | | | 1,384 | | | 1,057 | | | (327) | |
Non-utility cost of revenues, including natural gas | 1 | | | 10 | | | 9 | | | 2 | | | 12 | | | 10 | |
Operation and maintenance | 202 | | | 239 | | | 37 | | | 440 | | | 486 | | | 46 | |
Depreciation and amortization | 113 | | | 118 | | | 5 | | | 220 | | | 236 | | | 16 | |
Taxes other than income taxes | 60 | | | 56 | | | (4) | | | 135 | | | 129 | | | (6) | |
Total expenses | 727 | | | 633 | | | (94) | | | 2,181 | | | 1,920 | | | (261) | |
Operating Income | 69 | | | 88 | | | (19) | | | 379 | | | 396 | | | (17) | |
Other Income (Expense): | | | | | | | | | | | |
Gain on sale | — | | | — | | | — | | | 557 | | | — | | | 557 | |
Interest expense and other finance charges | (30) | | | (32) | | | 2 | | | (59) | | | (64) | | | 5 | |
| | | | | | | | | | | |
Other income (expense), net | (11) | | | 1 | | | (12) | | | (11) | | | 2 | | | (13) | |
Income Before Income Taxes | 28 | | | 57 | | | (29) | | | 866 | | | 334 | | | 532 | |
Income tax expense (benefit) | 1 | | | (16) | | | (17) | | | 203 | | | 39 | | | (164) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net Income | $ | 27 | | | $ | 73 | | | $ | (46) | | | $ | 663 | | | $ | 295 | | | $ | 368 | |
Throughput (in Bcf): [to be updated for IGC/VEDO] | | | | | | | | | | | |
Residential | 27 | | 29 | | (7) | % | | 147 | | 154 | | (5) | % |
Commercial and Industrial | 82 | | 80 | | 3 | % | | 207 | | 217 | | (5) | % |
Total | 109 | | 109 | | — | % | | 354 | | 371 | | (5) | % |
Weather (percentage of 10-year average for service area): | | | | | | | | | | | |
Heating degree days | 102 | % | | 104 | % | | (2) | % | | 109 | % | | 100 | % | | 9 | % |
Number of metered customers at end of period: | | | | | | | | | | | |
Residential | 3,815,625 | | 4,231,270 | | (10) | % | | 3,815,625 | | 4,231,270 | | (10) | % |
Commercial and Industrial | 284,914 | | 331,547 | | (14) | % | | 284,914 | | 331,547 | | (14) | % |
Total | 4,100,539 | | 4,562,817 | | (10) | % | | 4,100,539 | | 4,562,817 | | (10) | % |
The following table provides pre-tax equityvariance explanations by major income statement caption for CERC:
| | | | | | | | | | | | | | |
| | Favorable (Unfavorable) |
| | Three Months Ended June 30, 2022 vs 2021 | | Six Months Ended June 30, 2022 vs 2021 |
| | (in millions) |
Revenues | | | | |
Cost of natural gas, offset in utility natural gas, fuel and purchased power below | | $ | 167 | | | $ | 423 | |
Customer rates and impact of the change in rate design, exclusive of the TCJA impact | | 11 | | | 42 | |
Gross receipts tax, offset in taxes other than income taxes | | 5 | | | 14 | |
Customer growth | | 1 | | | 5 | |
Refund of protected and unprotected EDIT, offset in income tax expense | | 1 | | | 5 | |
Non-volumetric and miscellaneous revenue | | 1 | | | 8 | |
Energy efficiency, offset in operation and maintenance | | 1 | | | 2 | |
Weather and usage | | (14) | | | (6) | |
| | | | |
Other, primarily non-utility revenues | | (20) | | | (15) | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | (78) | | | (234) | |
Total | | $ | 75 | | | $ | 244 | |
Utility natural gas, fuel and purchased power | | | | |
Cost of natural gas, offset in revenues above | | $ | (167) | | | $ | (423) | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | 26 | | | 96 | |
| | | | |
| | | | |
Total | | $ | (141) | | | $ | (327) | |
Non-utility costs of revenues, including natural gas | | | | |
Other, primarily non-utility cost of revenues | | $ | 9 | | | $ | 10 | |
Total | | $ | 9 | | | $ | 10 | |
Operation and maintenance | | | | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 31 | | | $ | 61 | |
Contract services | | 2 | | | — | |
Labor and benefits | | 4 | | | (2) | |
Energy efficiency, offset in revenues | | (1) | | | (2) | |
Other operating and maintenance expense, including materials and supplies and insurance | | 1 | | | (11) | |
| | | | |
| | | | |
| | | | |
Total | | $ | 37 | | | $ | 46 | |
Depreciation and amortization | | | | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 15 | | | $ | 30 | |
Indiana lower depreciation rates from recent rate order | | 5 | | | 10 | |
Incremental capital projects placed in service | | (15) | | | (24) | |
| | | | |
Total | | $ | 5 | | | $ | 16 | |
Taxes other than income taxes | | | | |
Nine days in January 2022 for Arkansas and Oklahoma Natural Gas businesses due to sale | | $ | 5 | | | $ | 12 | |
Incremental capital projects placed in service | | (4) | | | (4) | |
Gross receipts tax, offset in revenues | | (5) | | | (14) | |
Total | | $ | (4) | | | $ | (6) | |
Gain on Sale | | | | |
Net gain on sale of Arkansas and Oklahoma Natural Gas businesses | | $ | — | | | $ | 557 | |
Total | | $ | — | | | $ | 557 | |
Interest expense and other finance charges | | | | |
Impacts of February 2021 Winter Storm costs securitization | | $ | 1 | | | $ | 3 | |
AFUDC and impacts of regulatory deferrals | | 2 | | | 3 | |
Reduction of long term debt, net of issuances | | (1) | | | (1) | |
Total | | $ | 2 | | | $ | 5 | |
| | | | |
| | | | |
| | | | |
Other income (expense), net | | | | |
Increase in Equity AFUDC | | $ | 1 | | | $ | 1 | |
Increase to non-service benefit cost | | (13) | | | (14) | |
Total | | $ | (12) | | | $ | (13) | |
Income Tax Expense. For a discussion of our Midstream Investments business segment foreffective tax rate per period, see Note 12 to the three and nine months ended September 30, 2017 and 2016:Interim Condensed Financial Statements.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Enable | | $ | 68 |
| | $ | 73 |
| | $ | 199 |
| | $ | 164 |
|
Other Operations
The following table shows the operating income of our Other Operations business segment for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Revenues | $ | 4 |
| | $ | 3 |
| | $ | 11 |
| | $ | 11 |
|
Expenses | (2 | ) | | 3 |
| | 2 |
| | 6 |
|
Operating Income | $ | 6 |
| | $ | — |
| | $ | 9 |
| | $ | 5 |
|
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 2016 Form 10-K,and “Risk Factors” in Item 1A of Part I of our 2016the Registrants’ combined 2021 Form 10-K, in Item 1A of Part II of this combined Form 10-Q and “Cautionary Statement Regarding Forward-Looking Information” in this combined Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
Historical Cash Flows
As a result of the Restructuring further discussed in Note 1 to the Interim Condensed Financial Statements, prior year amounts for CERC have been recast. The following table summarizes the net cash provided by (used in) operating, investing and financing activities forduring the ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Cash provided by (used in): | | | | | | | | | | | |
Operating activities | $ | 978 | | | $ | 188 | | | $ | 767 | | | $ | (1,076) | | | $ | 254 | | | $ | (1,504) | |
Investing activities | 942 | | | (1,391) | | | 1,394 | | | (1,376) | | | (837) | | | (528) | |
Financing activities | (1,597) | | | 1,066 | | | (2,173) | | | 2,442 | | | 566 | | | 2,028 | |
|
| | | | | | | |
| 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 | ) |
Cash Provided by Operating Activities
NetActivities. The following items contributed to increased (decreased) net cash provided by operating activities infor the first ninesix months of 2017 decreased $424 millionended June 30, 2022 compared to the first ninesix months of 2016 due tochangesended June 30, 2021:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Changes in net income after adjusting for non-cash items | $ | (305) | | | $ | 125 | | | $ | (31) | |
Changes in working capital | (276) | | | (207) | | | 6 | |
Change in net regulatory assets and liabilities (1) | 2,442 | | | 30 | | | 2,273 | |
Change in equity in earnings of unconsolidated affiliates (2) | 175 | | | — | | | — | |
Change in distributions from unconsolidated affiliates (2) | (77) | | | — | | | — | |
| | | | | |
Lower pension contribution | 4 | | | — | | | — | |
Other | 91 | | | (14) | | | 23 | |
| $ | 2,054 | | | $ | (66) | | | $ | 2,271 | |
| | | | | |
| | | | | |
| | | | | |
(1)The change 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;liabilities at CenterPoint Energy and inventory; partially offset by increasedCERC is primarily due to the extraordinary natural gas costs associated with the February 2021 Winter Storm Event. See Note 6 to the Interim Condensed Financial Statements for more information on the February 2021 Winter Storm Event.
(2)In September 2021, CenterPoint Energy’s equity investment in Enable met the held for sale criteria and is reflected as discontinued operations on CenterPoint Energy’s Condensed Statements of Consolidated Income. For further information, see Note 3 to the Interim Condensed Financial Statements.
cash provided by
Investing Activities.The following items contributed to (increased) decreased 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 ninesix months of 2017 increased $153 millionended June 30, 2022 compared to the first ninesix months of 2016 primarily dueended June 30, 2021:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Proceeds from the sale of equity securities | $ | 702 | | | $ | — | | | $ | — | |
| | | | | |
Capital expenditures | (497) | | | (405) | | | (140) | |
Net change in notes receivable from affiliated companies | — | | | (175) | | | — | |
| | | | | |
| | | | | |
Proceeds from divestitures | 2,075 | | | — | | | 2,075 | |
| | | | | |
| | | | | |
Other | 38 | | | 26 | | | (13) | |
| $ | 2,318 | | | $ | (554) | | | $ | 1,922 | |
FinancingActivities. The following items contributed to (increased) 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.
Cash Used in Financing Activities
Netnet cash used in financing activities infor the first ninesix months of 2017 decreased $431 millionended June 30, 2022 compared to the first ninesix months 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).ended June 30, 2021:
| | | | | | | | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Net changes in commercial paper outstanding | $ | (1,451) | | | $ | — | | | $ | (542) | |
| | | | | |
| | | | | |
Net changes in long-term debt outstanding, excluding commercial paper | (2,428) | | | 94 | | | (1,272) | |
| | | | | |
| | | | | |
Net changes in debt issuance costs | 20 | | | 4 | | | 2 | |
Net changes in short-term borrowings | (16) | | | — | | | (16) | |
| | | | | |
Payment of obligation for finance lease | (171) | | | (171) | | | — | |
Increased payment of common stock dividends | (31) | | | — | | | — | |
Decreased payment of preferred stock dividends | 41 | | | — | | | — | |
Net change in notes payable from affiliated companies | — | | | (504) | | | (1,668) | |
Contribution from parent | — | | | 1,143 | | | 125 | |
Dividend to parent | — | | | (67) | | | (831) | |
| | | | | |
| | | | | |
Other | (3) | | | 1 | | | 1 | |
| $ | (4,039) | | | $ | 500 | | | $ | (4,201) | |
Future Sources and Uses of Cash
OurThe liquidity and capital requirements of the Registrants are affected primarily by our results of operations, capital expenditures, debt service requirements, tax payments, working capital needs and various regulatory actions. Our capitalCapital expenditures are expected to be used for investment in infrastructure for our electric transmission and distribution operations and our natural gas distribution operations.infrastructure. These capital expenditures are anticipated to maintain reliability and safety, as well asincrease resiliency and expand our systems through value-added projects. OurIn addition to dividend payments on CenterPoint Energy’s Series A Preferred Stock and Common Stock and interest payments on debt, the Registrants’ principal anticipated cash requirements for the remaining threesix months of 20172022 include the following:
| | | | | | | | | | | | | | | | | | | | |
| | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) |
Estimated capital expenditures | | $ | 1,901 | | | $ | 897 | | | $ | 802 | |
Scheduled principal payments on Securitization Bonds | | 107 | | | 107 | | | — | |
Minimum contributions to pension plans and other post-retirement plans | | 7 | | | — | | | 2 | |
Finance lease for mobile generation | | 347 | | | 347 | | | — | |
| | | | | | |
| | | | | | |
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 anticipated cash needs for the remaining six months of 2022 will be met with borrowings under ourtheir credit facilities, proceeds from commercial paper andthe issuance of long-term debt, term loans, anticipated proceeds from the Texas Public Financing Authority customer rate relief bonds for recovery of the gas cost incurred in Texas during the February 2021 Winter Storm Event, anticipated cash flows from operations, and, distributions on our investments in common unitswith respect to CenterPoint Energy and Series A Preferred UnitsCERC, proceeds from Enable will be sufficient to meet our anticipated cash needs for the remaining three months of 2017.commercial paper. Discretionary financing or refinancing may result in the issuance of equity 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 may not, however, be available to us on acceptable terms.
Off-Balance Sheet Arrangements
Other than operating leases,Houston Electric’s general mortgage bonds issued as collateral for tax-exempt long-term debt of CenterPoint Energy as discussed in Note 11 and guarantees as discussed in Note 13(b) to the Interim Condensed Financial Statements, we have no off-balance sheet arrangements.
Regulatory Matters
Brazos Valley Connection ProjectFebruary 2021 Winter Storm Event
Construction beganFor further information about the February 2021 Winter Storm Event, see Note 6 to the Interim Condensed Financial Statements.
Indiana Electric CPCN (CenterPoint Energy)
On February 9, 2021, Indiana Electric entered into a BTA with a subsidiary of Capital Dynamics. Under the agreement, Capital Dynamics, with its partner Tenaska, contracted to build a 300 MW solar array in Posey County, Indiana through a special purpose entity, Posey Solar. Upon completion of construction, Indiana Electric will acquire Posey Solar and its solar array assets for a fixed purchase price. On February 23, 2021, Indiana Electric filed a CPCN with the IURC seeking approval to purchase the project. Indiana Electric also sought approval for a 100 MW solar PPA with Clenera LLC in Warrick County, Indiana. The request accounted for increased cost of debt related to this PPA, which provides equivalent equity return to offset imputed debt during the 25 year life of the PPA. A hearing was conducted on June 21, 2021. On October 27, 2021, the IURC issued an order approving the CPCN, authorizing Indiana Electric to purchase the Posey solar project through a BTA and approved recovery of costs via a levelized rate over the anticipated 35-year life. The IURC also approved the Warrick County solar PPA but denied the request to preemptively offset imputed debt in the PPA cost. Due to rising cost for the project, caused in part by supply chain issues in the energy industry, the rising costs of commodities and community feedback, we, along with Capital Dynamics, announced plans in January 2022 to downsize the Posey solar project to approximately 200 MW. The Posey solar project is expected to be placed in service by 2023. Indiana Electric collaboratively agreed to the scope change and is currently working through contract negotiations, contingent on further IURC review and approval.
On June 17, 2021, Indiana Electric filed a CPCN with the IURC seeking approval to construct two natural gas combustion turbines to replace portions of its existing coal-fired generation fleet. A hearing was conducted on January 26 through 28, 2022, and on June 28, 2022 the IURC approved the CPCN. On July 18, 2022, the OUCC filed a petition for rehearing and reconsideration with the IURC of the approved turbine cost estimate and pipeline cost recovery issues and, as of July 29, 2022, three organizations, the OUCC, Citizens Action Coalition and Indiana Industrial Energy Consumers, had filed notices of appeal of the petition with the Indiana Court of Appeals. Because the IURC order is effective pending the appeal, Indiana Electric will continue pursuing the construction of the combustion turbine facility during the period of the appeal with statutory assurances of cost recovery for reasonable costs incurred pursuing the project during the pendency of the appeal. The estimated $334 million turbine facility is planned to be constructed at the current site of the A.B. Brown power plant in Posey County, Indiana and would provide a combined output of 460 MW. Indiana Electric received approval for depreciation expense and post in-service carrying costs to be deferred in a regulatory asset until the date Indiana South’s base rates include a return on and recovery of depreciation expense on the Brazos Valley Connection in February 2017,facility. A new approximately 23.5 mile pipeline requiring FERC approval would also be constructed and Houston Electric expectsoperated by Texas Gas Transmission, LLC to complete constructionsupply natural gas to the turbine facility. Construction of the turbines will begin following receipt of regulatory approval by FERC, which is anticipated between the fourth quarter of 2022 and energize the Brazos Valley Connection in the first quarter of 2018, ahead2023. The turbines are targeted to be operational by year end 2025 but any delays resulting from an adverse decision from the IURC or the Indiana Court of Appeals could negatively impact that timing. Recovery of the originalproposed natural gas combustion turbines and regulatory asset will be requested in the next Indiana Electric rate case expected in 2023.
On August 25, 2021, Indiana Electric filed with the IURC seeking approval to purchase 185 MW of solar power, under a 15-year PPA, from Oriden LLC, which is developing a solar project in Vermillion County, Indiana, and 150 MW of solar power, under a 20-year PPA, from Origis Energy USA Inc., which is developing a solar project in Knox County, Indiana. On May 4, 2022, the IURC issued an order approving Indiana Electric to enter into both PPAs. Both solar arrays are expected to be placed in service by the end of 2023.
On July 5, 2022, Indiana Electric entered into a BTA to acquire a 130 MW solar array in Pike County, Indiana through a special purpose entity for a capped purchase price. A CPCN for the project was filed with the IURC on July 29, 2022. Pending approval, the project is expected to be placed in service by 2025.
For more information regarding uncertainties related to our solar projects, see Item 1A of Part II of this combined Form 10-Q and “ —Solar Panel Issues” below.
Culley Unit 3 Operations
In June 2022, F.B. Culley Unit 3, an Indiana Electric coal-fired electric generation unit with an installed generating capacity of 270 MW, experienced an operating issue relating to its boiler feed pump turbine, and it remains out of service. CenterPoint Energy is investigating this incident. The current estimate of the costs to repair F.B. Culley Unit 3 is approximately $7 million to $9 million, which will largely be capital expenditures. F.B. Culley Unit 3 is expected to return to service in 6 to 12 months depending on the availability of a replacement turbine and related materials. CenterPoint Energy is evaluating the applicability of insurance coverages. For the duration of the unplanned outage, CenterPoint Energy expects to meet its generation capacity needs from its other generation units and power purchase agreements.
Indiana Electric Securitization of Planned Generation Retirements (CenterPoint Energy)
The State of Indiana has enacted legislation, Senate Bill 386, that would enable CenterPoint Energy to request approval from the IURC to securitize the remaining book value and removal costs associated with generating facilities to be retired in the next twenty-four months. The Governor of Indiana signed the legislation on April 19, 2021. On May 10, 2022, CenterPoint Energy (Indiana Electric) filed with the IURC to securitize qualified costs associated with its planned retirements of coal generation facilities. Total qualified costs are estimated at $359 million, of which $350 million would be financed and $9 million are estimated total ongoing costs. A hearing is scheduled before the IURC on September 7, 2022 and a final order is anticipated in early 2023.
Restructuring (CenterPoint Energy and CERC)
In July 2021, Indiana North and SIGECO filed petitions with the IURC for the approval of a new financial services agreement and the confirmation of Indiana North’s financing authority, and final orders were issued by the IURC on December 28, 2021. VEDO filed a similar application with the PUCO in September 2021 and the PUCO issued an order on January 26, 2022 adopting recommendations by PUCO staff. Both the IURC and PUCO approved the petitions. The orders allow the reissuance of existing debt of Indiana Gas and VEDO to CERC, to continue to amortize existing issuance expenses and discounts, and to treat any potential exchange fees as discounts to be amortized over the life of the debt. As a part of the Restructuring, on May 27, 2022, CERC Corp. and VUH completed an exchange with holders of VUH PPNs whereby CERC Corp. issued new senior notes with an aggregate principal amount of $302 million in return for all of their outstanding VUH PPNs with an aggregate principal amount of $302 million. For further information on the debt exchange, see Note 11 to the Interim Condensed Financial Statements. CenterPoint Energy completed the transfer of Indiana Gas and VEDO from VUH to CERC on June 30, 2022 to better align its organizational structure with management and financial reporting and to fund future capital investments more efficiently. See Note 1 2018 energization date. to the Interim Condensed Financial Statements for further information.
Texas Legislation (CenterPoint Energy and Houston Electric)
Houston Electric continues to anticipate thatreview the final capitaleffects of legislation passed in 2021 and is working with the PUCT regarding proposed rulemakings and pursuing implementation of these items where applicable. For example, in 2021 Houston Electric entered into two leases for temporary emergency electric energy (mobile generation): (1) a temporary short-term lease of 220 MW as of December 31, 2021 and reduced to 92 MW as of June 30, 2022 as assets were delivered under the long-term lease agreement and (2) a 7.5 year lease for up to 505 MW of mobile generation of which 253 MW and 125 MW was delivered as of June 30, 2022 and December 31, 2021. Houston Electric filed its DCRF application with the PUCT on April 5, 2022, and subsequently amended such filing on July 1, 2022 to show mobile generation in a separate Rider TEEEF, seeking recovery of deferred costs and the applicable return as of December 31, 2021 under these lease agreements of approximating $200 million. The annual revenue increase requested for these lease agreements is approximately $57 million. These mobile generation leases are expected to support resiliency in major weather events, as was the project will be withincase during the estimated rangerestoration process for Hurricane Nicholas in 2021. For additional information, see Note 19 to the Interim Condensed Financial Statements.
In addition to these measures taken by Houston Electric to support system preparedness and reliability, in February 2022, the City of approximately $270-$310 million inHouston launched the PUCT’s original order.first-of-its-kind long-term strategic power resilience initiative called “Resilient Now.” In a joint effort, Houston Electric is eligibleworking with the City of Houston to continue making filingsdevelop the Master Energy Plan for the city to help the community thrive through economic changes, digital transformation, and advancing environmental goals for the benefit of its communities. The Master Energy Plan could develop into capital opportunities for Houston Electric, including relating to infrastructure modernization, residential weatherization, and investments around electric vehicles infrastructure.
Minnesota Base Rate Cases (CenterPoint Energy and CERC)
On November 1, 2021, CERC filed a general rate case with the MPUC seeking approval for a revenue increase of approximately $67 million with a projected test year ended December 31, 2022. The revenue increase is based upon a requested ROE of 10.2% and an overall rate of return of 7.06% on a total rate base of approximately $1.8 billion. CERC requested that an interim rate increase of approximately $52 million be implemented January 1, 2022 while the rate case is litigated. An alternative request was also filed on November 1, 2021. The alternative request proposed a final rate increase of $40 million that would be implemented in the rate case on January 1, 2022, and offered: an increase in rates for plant investment only using the overall rate of return approved in the prior rate case, an asymmetrical capital true-up, extension of the recovery of land acquisitiongas costs throughincurred to serve customers in February 2021 from the then current 27 month mechanism to 63 months, an income tax rider, continuation of the existing property tax rider and continued deferral of COVID-19 incremental costs along with additional adjustments. On December 30, 2021, the MPUC issued a written order denying the alternative request but extended the recovery for extraordinary gas costs to 63-months beginning on January 1, 2022. The MPUC also issued written orders on the general rate case filing which (1) accepted CERC’s rate-increase application with a time for final determination of September 1, 2022, (2) authorized the implementation of interim TCOS updates in advancerates on January 1, 2022, of project completion.
Freeport Project
In April 2017, Houston Electric submitted$42 million based on an overall rate of return of 6.46%, and (3) referred the case to the Office of Administrative Hearings for a proposal to ERCOT requesting its endorsementcontested case proceeding. On March 14, 2022, an Offer of Houston Electric’s approximately $250 million transmission projectSettlement was filed with the Office of Administrative Hearings which would resolve all issues in the Freeport, Texas area,rate case. The Settlement provides for a general revenue increase of $48.5 million and overall rate of return of 6.65% and is currently subject to review and approval by the MPUC. Final rate implementation is expected before the end of 2022.
Minnesota Legislation (CenterPoint Energy and CERC)
The Natural Gas Innovation Act was passed by the Minnesota legislature in June 2021 with bipartisan support. This law establishes a regulatory framework to enable the state’s investor-owned natural gas utilities to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing greenhouse gas emissions and advancing the state’s clean energy future. Specifically, the Natural Gas Innovation Act allows a natural gas utility to submit an innovation plan for approval by the MPUC which includes enhancementscould propose the use of renewable energy resources and innovative technologies such as:
•renewable natural gas (produces energy from organic materials such as wastewater, agricultural manure, food waste, agricultural or forest waste);
•renewable hydrogen gas (produces energy from water through electrolysis with renewable electricity such as solar);
•energy efficiency measures (avoids energy consumption in excess of the utility’s existing conservation programs); and
•innovative technologies (reduces or avoids greenhouse gas emissions using technologies such as carbon capture).
CERC expects to submit its first innovation plan to the MPUC in the first half of 2023. The maximum allowable cost for an innovation plan will start at 1.75% of the utility's revenue in the state and could increase to 4% by 2033, subject to review and approval by the MPUC.
Solar Panel Issues (CenterPoint Energy)
CenterPoint Energy’s current and future solar projects may be significantly impacted by delays and/or increased costs. The potential delays and inflationary cost pressures communicated from the developers of our solar projects are primarily due to (i) unavailability of solar panels and other uncertainties related to the pending DOC investigation on anti-dumping and countervailing duties petition filed by a domestic solar manufacturer, (ii) the December 2021 Uyghur Forced Labor Prevention Act on solar modules and other products manufactured in China's Xinjiang Uyghur Autonomous Region and (iii) persistent general global supply chain and labor availability issues. Preliminary findings from the DOC investigation, including potential tariff amounts, are expected to be released in August 2022, with a final decision expected between January and March 2023. In June 2022, President Biden authorized an executive order which would suspend anti-circumvention tariffs on solar panels for two existing substationsyears; however, the executive order could be subject to legal challenges and the constructionits effects remain uncertain. The resolution of a new 345 kv double-circuit transmission line. Capital expenditures for the projectthese issues will determine what additional costs or delays our solar projects will be incrementalsubject to. If any of these impacts result in cost increases for certain projects, such potential impacts are expected to its previously disclosed five-year capital plan. Houston Electric anticipates a decision from ERCOTresult in the fourth quarterneed for us to seek additional regulatory review and approvals. Additionally, significant changes to project costs and schedules as a result of 2017, and if approved, will makethese factors could impact 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 provisionsviability of the interim final rule that had previously been non-mandatory provisionsprojects. For more information regarding potential delays, cancellations and supply chain disruptions, see “Item 1A. Risk Factors” in the Registrants’ 2021 Form 10-K and Item 1A of American Petroleum Institute Recommended Practices 1170 and 1171 until one year after PHMSA issues a final rule, which it expects to publish in JanuaryPart II 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.combined Form 10-Q.
Rate Change Applications
Houston Electric and CERCThe Registrants are routinely involved in rate change applications before state regulatory authorities. Those applications include general rate cases, where the entire cost of service of the utility is assessed and reset. 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 and Mississippi (RSP and Oklahoma (FRP, RSP, RRA, and PBRC)respectively), its decoupling mechanism in Minnesota, and its energy efficiency cost trackers in Arkansas, Minnesota and Mississippi (CIP and Oklahoma (EECR, CIP, EECR, respectively). CenterPoint Energy is periodically involved in proceedings to adjust its capital tracking mechanisms in Indiana (CSIA for gas and EECR)TDSIC for electric) and Ohio (DRR), its decoupling mechanism in Indiana (SRC for gas), and its energy efficiency cost trackers in Indiana (EEFC for gas and DSMA for electric) and Ohio (EEFR). The table below reflects significant applications pending or completed since our 2016the Registrants’ combined 2021 Form 10-K was filed with the SEC.
SEC through July 29, 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mechanism | | Annual Increase (Decrease) (1) (in millions) | | Filing Date | | Effective Date | | Approval Date | | Additional Information |
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(in millions)
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CenterPoint Energy and Houston Electric (PUCT) |
AMS | | N/A | | June
2017EECRF (1)
| | TBD23 | | TBDJune 2022 | | Final reconciliationTBD | | TBD | | The requested amount is comprised of AMS surcharge proposingthe following: 2023 Program and Evaluation, Measurement and Verification costs of $38 million, a $28.7charge of $3 million refundrelated to the under-recovery of 2021 program costs including interest and rate case expenses, 2021 earned bonus of $23 million for AMS revenue in excessa total of expenses, for which a reserve has been recorded. Refunds began in September 2017.$64 million. |
EECRF (2) | | $11.0 | | June
2017DCRF (1)
| | TBD142 | | TBDApril 2022 | | Annual reconciliation filingTBD | | TBD | | As amended on July 1, 2022, the net change in distribution invested capital since its last base rate proceeding of over $1 billion for programthe period January 1, 2019 through December 31, 2021 for a revenue increase of $86 million, adjusted for load growth. In addition, the request includes approximately $200 million in mobile generation facilities during the calendar year 2016 and includesending December 31, 2021 representing a revenue increase of $57 million. The requested overall revenue increase is $142 million with a proposed performance bonus of $11 million. Anticipated effective date of March 2018.September 1, 2022. On July 11, 2022, a partial settlement was filed resolving the non-mobile generation issues. The settlement provides for a black box reduction to the revenue requirement of $7.8 million for a revenue increase of $78 million and a September 1, 2022 effective date for rates. A hearing on mobile generation issues is currently scheduled for October 18 and 19, 2022. |
DCRFTCOS | | 41.864 | | April
2017 February 2022 | | September
2017 April 2022 | | July
2017 April 2022 | | Based on an increase in eligible distribution-investednet change of invested capital for 2016 of $479$574 million. Unanimous Stipulation and Settlement Agreement was filed in June 2017 for $86.8 million (a $41.8 million annual increase). The settlement agreement also included the AMS refund referenced above. |
TCOS | | 7.8 | | December 2016 | | February
2017
| | February
2017 | | Based on an incremental increase in total rate base of $109.6 million. |
TCOS | | 39.3 | | September 2017 | | TBD | | TBD | | Based on an incremental increase in total rate base of $263.4 million. |
South Texas | | | | | | | | | | |
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CenterPoint Energy and CERC - Beaumont/East Texas, South Texas, Houston and Texas Coast (Railroad Commission) |
GRIP | | 7.634 | | March 2017 2022 | | July
2017 June 2022 | | June 2017
2022 | | Based on net change in invested capital for calendar year 2021 of $46.5$213 million. |
HoustonCenterPoint Energy and Texas Coast (Railroad Commission)CERC - Minnesota (MPUC) |
Rate Case | | 16.5 | | November 2016 | | May
2017CIP Financial Incentive (1)
| | May
2017 8 | | The Railroad Commission approved a unanimous settlement agreement establishing parameters for future GRIP filings, including a 9.6% ROEMay 2022 | | TBD | | TBD | | CIP Financial Incentive based on a 55.15% equity ratio.2021 CIP program activity. |
Texarkana, Texas Service Area (Multiple City Jurisdictions)Rate Case (1) | | 67 | | November 2021 | | TBD | | TBD | | See discussion above under Minnesota Base Rate Case. |
Rate CaseDecoupling | | 1.1N/A | | July
2017 September 2021 | | September 2017 2021 | | August 2017April 2022 | | ApprovedRepresents under-recovery of approximately $19 million recorded for and during the period July 1, 2020 through June 30, 2021, including an approximately $5 million adjustment related to the implementation of final rates are consistent with Arkansas rates approvedfrom the general rate case filed in 2016.2019. |
Arkansas (APSC) | | | | | | | | | | |
EECR (2) | | 0.5 | | May
2017
| | January 2018 | | September 2017 | | Recovers $11.0 million, including an incentive of $0.5 million based on 2016 program performance. |
FRP | | 7.6 | | April
2017 | | October
2017 | | September 2017 | | |
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CenterPoint Energy and CERC - Mississippi (MPSC) |
RRA (1) | | 3 | | April 2022 | | August 2022 | | TBD | | Based on ROE of 9.5% as approved in the last rate case. Unanimous Settlement Agreement was filed in July 2017 for $7.6 million and was subsequently approved. |
BDA | | 3.9 | | March
2017
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2017
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2017
| | For the evaluation period between January 2016 and August 2016. Amounts are recorded during the evaluation period. |
Minnesota (MPUC) |
Rate Case | | 56.5 | | August 2017 | | TBD | | TBD | | Reflects a proposed 10.0% ROE on a 52.18% equity ratio. Includes a proposal to extend decoupling beyond current expiration date of June 2018. Interim rates reflecting an annual9.568% with 100 basis point (+/-) earnings band. Revenue increase of $47.8 million were effective October 1, 2017. |
CIP (2) | | 13.8 | | May
2017
| | August 2017 | | August 2017 | | Annual reconciliation filing for program year 2016 and includes performance bonus of $13.8 million. |
Decoupling | | 20.4 | | September 2017 | | September
2017
| | TBD | | Reflects revenue under recovery for the period July 1, 2016 through June 30, 2017 and $3.0 million related to the under recovery of prior period adjustment factor. $9.2 million was recognized in 2016 and $11.2 million has been recognized in 2017. |
Mississippi (MPSC) |
RRA | | 2.3 | | May
2017
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2017
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2017
| | Authorized ROE of 9.59% and a capital structure of 50% debt and 50% equity. |
Louisiana (LPSC) |
RSP | | 1.0 | | September 2016 | | December 2016 | | April
2017
| | Authorized ROE of 9.95% and a capital structure of 48% debt and 52% equity. |
RSP | | 3.4 | | September 2017 | | December 2017 | | TBD | | Authorized ROE of 9.95% and a capital structure of 48% debt and 52% equity. |
Oklahoma (OCC) |
EECR (2) | | 0.4 | | March
2017
| | November 2017 | | October 2017 | | Recovers $2.6 million, including an incentive of $0.4approximately $3 million based on 2016 program performance.2021 test year adjusted earned ROE of 7.74%. Interim increase of approximately $1 million implemented May 31, 2022. A joint stipulation was filed on July 29, 2022 resolving all issues and an agreed revenue increase of $2 million based on 2021 test year adjusted earned ROE of 8.27% with rates expected to be effective in August 2022. |
PBRCCenterPoint Energy and CERC - Ohio (PUCO) | | 2.2 | |
March
2017DRR (1)
| | November 20179 | | October 2017April 2022 | | Based on ROETBD | | TBD | | Requested an increase of 10%.$63 million to rate base for investments made in 2021, which reflects a $9 million annual increase in current revenues. A change in (over)/under-recovery variance of $(4 million) annually is also included in rates. |
CenterPoint Energy - Indiana Electric (IURC) |
TDSIC | | 3 | | February 2022 | | May 2022 | | May 2022 | | Requested an increase of $42 million to rate base, which reflects a $3 million annual increase in current revenues. 80% of the revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes a change in (over)/under-recovery variance of less than $1 million. |
CECA | | (2) | | February 2022 | | June 2022 | | May 2022 | | Requested a decrease of less than $1 million to rate base, which reflects a $3 million annual decrease in current revenues. The mechanism also includes a change in (over)/under-recovery variance of less than $1 million. This mechanism includes a non-traditional rate making approach related to a 50 MW universal solar array placed in service in January 2021. |
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(1) | Represents proposed increases when effective date and/or approval date is not yet determined. Approved rates could differ materially from proposed rates. |
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(2) | Amounts are recorded when approved. |
(1)Represents proposed increases (decreases) when effective date and/or approval date is not yet determined. Approved rates could differ materially from proposed rates.
Greenhouse Gas Regulation and Compliance (CenterPoint Energy)
On August 3, 2015, the EPA released its CPP rule, which required a 32% reduction in carbon emissions from 2005 levels. The final rule was published in the Federal Register on October 23, 2015, and that action was immediately followed by litigation ultimately resulting in the U.S. Supreme Court staying implementation of the rule. On July 8, 2019, the EPA published the ACE rule, which (i) repealed the CPP rule; (ii) replaced the CPP rule with a program that requires states to implement a program of energy efficiency improvement targets for individual coal-fired electric generating units; and (iii) amended the implementing regulations for Section 111(d) of the Clean Air Act. On January 19, 2021, the majority of the ACE rule — including the CPP repeal, CPP replacement, and the timing-related portions of the Section 111(d) implementing rule — was struck down by the U.S. Court of Appeals for the D.C. Circuit and on October 29, 2021, the U.S. Supreme Court agreed to consider four petitions filed by various coal interests and a coalition of 19 states. On June 30, 2022, the U.S. Supreme Court ruled that the U.S. EPA exceeded its authority in promulgating the CPP. The EPA has announced it plans on issuing new greenhouse gas rules in the future.
The Biden administration recommitted the United States to the Paris Agreement, which can be expected to drive a renewed regulatory push to require further GHG emission reductions from the energy sector and proceeded to lead negotiations at the global climate conference in Glasgow, Scotland. On April 22, 2021, President Biden announced new goals of 50% reduction of economy-wide GHG emissions, and 100% carbon-free electricity by 2035, which formed the basis of the U.S. commitments announced in Glasgow. In September 2021, CenterPoint Energy announced its new net zero emissions goals for both Scope 1 and Scope 2 emissions by 2035 as well as a goal to reduce Scope 3 emissions by 20% to 30% by 2035. Because Texas is an unregulated market, CenterPoint Energy’s Scope 2 estimates do not take into account Texas electric transmission and distribution assets in the line loss calculation and exclude emissions related to purchased power in Indiana between 2024 and 2026 as estimated. CenterPoint Energy’s Scope 3 estimates do not take into account the emissions of transport customers and emissions related to upstream extraction. These emission goals are expected to be used to position CenterPoint Energy to comply with anticipated future regulatory requirements from the current and future administrations to further reduce GHG emissions. CenterPoint Energy’s and CERC’s revenues, operating costs and capital requirements could be adversely affected as a result of any regulatory action that would require installation of new control technologies or a modification of their operations or would have the effect of reducing the consumption of natural gas. In addition, the EPA has indicated that it intends to implement new regulations targeting reductions in methane emissions, which are likely to increase costs related to production, transmission and storage of natural gas. Houston Electric, in contrast to some electric utilities including Indiana Electric, does not generate electricity, other than leasing facilities that provide temporary emergency electric energy to aid in restoring power to distribution customers during certain widespread power outages as allowed by a new law enacted after the February 2021 Winter Storm Event, and thus is not directly exposed to the risk of high capital costs and regulatory uncertainties that face electric utilities that burn fossil fuels to generate electricity. CenterPoint Energy’s new net zero emissions goals are aligned with Indiana Electric’s generation transition plan and are expected to position Indiana Electric to comply with anticipated future regulatory requirements related to GHG emissions reductions. Nevertheless, Houston Electric’s and Indiana Electric’s revenues could be adversely affected to the extent any resulting regulatory action has the effect of reducing consumption of electricity by ultimate consumers within their respective service territories. Likewise, incentives to conserve energy or to use energy sources other than natural gas could result in a decrease in demand for the Registrants’ services. For example, Minnesota has enacted the Natural Gas Innovation Act that seeks to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing GHG emissions.Further, certain local government bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain specified dates. For example, Minneapolis has adopted carbon emission reduction goals in an effort to decrease reliance on fossil gas. Additionally, cities in Minnesota within CenterPoint Energy’s Natural Gas operational footprint are considering initiatives to eliminate natural gas use in buildings and focus on electrification. Also, Minnesota cities may consider seeking legislative authority for the ability to enact voluntary enhanced energy standards for all development projects. These initiatives could have a significant impact on CenterPoint Energy and its operations, and this impact could increase if other cities and jurisdictions in its service area enact similar initiatives. Further, our third party suppliers, vendors and partners may also be impacted by climate change laws and regulations, which could impact CenterPoint Energy’s business by, among other things, causing permitting and construction delays, project cancellations or increased project costs passed on to CenterPoint Energy. Conversely, regulatory actions that effectively promote the consumption of natural gas because of its lower emissions characteristics would be expected to benefit CenterPoint Energy and CERC and their natural gas-related businesses. At this time, however, we cannot quantify the magnitude of the impacts from possible new regulatory actions related to GHG emissions, either positive or negative, on the Registrants’ businesses.
Compliance costs and other effects associated with climate change, reductions in GHG emissions and obtaining renewable energy sources remain uncertain. Although the amount of compliance costs remains uncertain, any new regulation or legislation relating to climate change will likely result in an increase in compliance costs. While the requirements of a federal or state rule remain uncertain, CenterPoint Energy will continue to monitor regulatory activity regarding GHG emission standards that may affect its business. Currently, CenterPoint Energy does not purchase carbon credits. In connection with its net zero emissions
goals, CenterPoint Energy is expected to purchase carbon credits in the future; however, CenterPoint Energy does not currently expect the number of credits, or cost for those credits, to be material.
Climate Change Trends and Uncertainties
As a result of increased awareness regarding climate change, coupled with adverse economic conditions, availability of alternative energy sources, including private solar, microturbines, fuel cells, energy-efficient buildings and energy storage devices, and new regulations restricting emissions, including potential regulations of methane emissions, some consumers and companies may use less energy, meet their own energy needs through alternative energy sources or avoid expansions of their facilities, including natural gas facilities, resulting in less demand for the Registrants’ services. As these technologies become a more cost-competitive option over time, whether through cost effectiveness or government incentives and subsidies, certain customers may choose to meet their own energy needs and subsequently decrease usage of the Registrants’ systems and services, which may result in, among other things, Indiana Electric’s generating facilities becoming less competitive and economical. Further, evolving investor sentiment related to the use of fossil fuels and initiatives to restrict continued production of fossil fuels have had significant impacts on CenterPoint Energy’s electric generation and natural gas businesses. For example, because Indiana Electric’s current generating facilities substantially rely on coal for their operations, certain financial institutions choose not to participate in CenterPoint Energy’s financing arrangements. Conversely, demand for the Registrants’ services may increase as a result of customer changes in response to climate change. For example, as the utilization of electric vehicles increases, demand for electricity may increase, resulting in increased usage of CenterPoint Energy’s systems and services. Any negative opinions with respect to CenterPoint Energy’s environmental practices or its ability to meet the challenges posed by climate change formed by regulators, customers, investors or legislators could harm its reputation.
To address these developments, CenterPoint Energy announced its new net zero emissions goals for both Scope 1 and Scope 2 emissions by 2035. In June of 2020, Indiana Electric identified a preferred generation resource in its most recent IRP submitted to the IURC that aligns with its new net zero emissions goals and includes the replacement of 730 MWs of coal-fired generation facilities with a significant portion comprised of renewables, including solar and wind, supported by dispatchable natural gas combustion turbines, including a pipeline to serve such natural gas generation, as well as storage. Additionally, as reflected in its 10-year capital plan announced in September 2021, CenterPoint Energy anticipates spending over $3 billion in clean energy investments and enablement, which may be used to support, among other things, renewable generation and electric vehicle expansion. CenterPoint Energy believes its planned investments in renewable energy generation and corresponding planned reduction in its GHG emissions as part of its newly adopted net zero emissions goals support global efforts to reduce the impacts of climate change.
To the extent climate changes result in warmer temperatures in the Registrants’ service territories, financial results from the Registrants’ businesses could be adversely impacted. For example, CenterPoint Energy’s and CERC’s Natural Gas could be adversely affected through lower natural gas sales. On the other hand, warmer temperatures in CenterPoint Energy’s and Houston Electric’s electric service territory may increase revenues from transmission and distribution and generation through increased demand for electricity used for cooling. Another possible result of climate change is more frequent and more severe weather events, such as hurricanes, tornadoes and flooding, including such storms as the February 2021 Winter Storm Event. Since many of the Registrants’ facilities are located along or near the Texas Gulf Coast, increased or more severe hurricanes or tornadoes could increase costs to repair damaged facilities and restore service to customers. CenterPoint Energy’s recently announced 10-year capital plan includes capital expenditures to maintain reliability and safety and increase resiliency of its systems as climate change may result in more frequent significant weather events. Houston Electric does not own or operate any electric generation facilities other than, since September 2021, leasing facilities that provide temporary emergency electric energy to aid in restoring power to distribution customers during certain widespread power outages as allowed by a new law enacted after the February 2021 Winter Storm Event. Houston Electric transmits and distributes to customers of REPs electric power that the REPs obtain from power generation facilities owned by third parties. To the extent adverse weather conditions affect the Registrants’ suppliers, results from their energy delivery businesses may suffer. For example, in Texas, the February 2021 Winter Storm Event caused an electricity generation shortage that was severely disruptive to Houston Electric’s service territory and the wholesale generation market and also caused a reduction in available natural gas capacity. When the Registrants cannot deliver electricity or natural gas to customers, or customers cannot receive services, the Registrants’ financial results can be impacted by lost revenues, and they generally must seek approval from regulators to recover restoration costs. To the extent the Registrants are unable to recover those costs, or if higher rates resulting from recovery of such costs result in reduced demand for services, the Registrants’ future financial results may be adversely impacted. Further, as the intensity and frequency of significant weather events continues, it may impact our ability to secure cost-efficient insurance.
Other Matters
Credit 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, see Note 11 to the Interim Condensed Financial Statements.
On June 30, 2022, in connection with the Restructuring, VUH repaid in full all outstanding indebtedness and terminated all remaining commitments and other obligations under its $400 million amended and restated credit agreement dated as of February 4, 2021. VUH did not incur any penalties in connection with the early termination.
Based on the consolidated debt to capitalization covenant in the Registrants’ revolving credit facilities, the Registrants would have been permitted to utilize the full capacity of such revolving credit facilities, which aggregated approximately $3.6 billion as of June 30, 2022. As of July 21, 2022, the Registrants had the following revolving credit facilities and the 2017 amendments, please see Note 11 to our Interim Condensed Financial Statements.
Asutilization of October 26, 2017, we had the followingsuch facilities:
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| | | | Amount Utilized as of July 21, 2022 | | | | |
Registrant | | Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | | Weighted Average Interest Rate | | Termination Date |
| | (in millions) | | | | |
CenterPoint Energy | | $ | 2,400 | | | $ | — | | | $ | 11 | | | $ | 443 | | | 1.87% | | February 4, 2024 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Houston Electric | | 300 | | | — | | | — | | | — | | | —% | | February 4, 2024 |
CERC | | 900 | | | — | | | — | | | 612 | | | 2.12% | | February 4, 2024 |
Total | | $ | 3,600 | | | $ | — | | | $ | 11 | | | $ | 1,055 | | | | | |
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| | | | | | | | | | |
Company | | Size of Facility | | Amount Utilized at October 26, 2017 (1) | | Termination Date |
(in millions) |
CenterPoint Energy | | $ | 1,700 |
| | $ | 403 |
| (2) | March 3, 2022 |
Houston Electric | | 300 |
| | 4 |
| (3) | March 3, 2022 |
CERC Corp. | | 900 |
| | 561 |
| (4) | March 3, 2022 |
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(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. |
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(2) | Represents outstanding commercial paper of $397 million and outstanding letters of credit of $6 million. |
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(3) | Represents outstanding letters of credit. |
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(4) | Represents outstanding commercial paper. |
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. Each of the Registrant’s credit facilities provide for a mechanism to replace LIBOR with possible alternative benchmarks upon certain benchmark replacement events. The borrowers are currently in compliance with the various business and financial covenants in the three revolving credit facilities.
Long-term Debt Financing Transactions
In January 2017, Houston Electric issued $300 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 Energy issued $500 million aggregate principal amount of unsecured senior notes. In August 2017, CERC Corp. issued $300 million aggregate principal amount of unsecured senior notes. For furtherdetailed information about our 2017the Registrants’ debt transactions in 2022, see Note 11 to ourthe Interim Condensed Financial Statements.
Securities Registered with the SEC
On January 31, 2017, CenterPoint Energy, Houston Electric and CERC Corp.May 29, 2020, the Registrants filed a joint shelf registration statement with the SEC registering indeterminate principal amounts of Houston Electric’s general mortgage bonds, CERC Corp.’s senior debt securities and CenterPoint Energy’s senior debt securities and junior subordinated debt securities and an indeterminate 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.May 29, 2023. For information related to the Registrants’ debt issuances in 2022, see Note 11 to the Interim Condensed Financial Statements.
Temporary Investments
As of October 26, 2017, weJuly 21, 2022, the Registrants had no temporary external investments.
Money Pool
We haveThe Registrants participate in a money pool through which the holding companythey and participatingcertain of their subsidiaries can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the CenterPoint Energy money pool are expected to be met with borrowings under ourCenterPoint Energy’s revolving credit facility or the sale of ourCenterPoint Energy’s commercial paper. The net funding requirements of the CERC money pool are expected to be met with borrowings under CERC’s revolving credit facility or the sale of CERC’s commercial paper. The money pool may not provide sufficient funds to meet the Registrants’ cash needs.
The table below summarizes CenterPoint Energy money pool activity by Registrant as of July 21, 2022:
| | | | | | | | | | | | | | | | | |
| Weighted Average Interest Rate | | Houston Electric | | CERC |
| | | (in millions) |
Money pool investments (borrowings) | 1.89% | | $ | 162 | | | $ | — | |
Impact on Liquidity of a Downgrade in Credit Ratings
The interest rate on borrowings under ourthe credit facilities is based on oureach respective borrower’s credit rating. On August 4, 2017, S&P revised its rating outlooks on 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 affirmed its ratings.
As of October 26, 2017,July 21, 2022, Moody’s, S&P and Fitch had assigned the following credit ratings to senior debt of CenterPoint Energy and certain subsidiaries:
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| | Moody’s | | Moody’s | | S&P | | Fitch |
Company/InstrumentRegistrant | | RatingBorrower/Instrument | | Rating | | Outlook (1) | | Rating | | Outlook (2) | | Rating | | Outlook (3) |
CenterPoint Energy | | CenterPoint Energy Senior Unsecured Debt | | Baa1Baa2 | | Stable | | BBB+BBB | | PositiveStable | | BBB | | PositiveStable |
CenterPoint Energy | | Vectren Corp. Issuer Rating | | n/a | | n/a | | BBB+ | | Stable | | n/a | | n/a |
CenterPoint Energy | | VUH Senior Unsecured Debt | | A3 | | Stable | | BBB+ | | Stable | | n/a | | n/a |
CenterPoint Energy | | Indiana Gas Senior Unsecured Debt | | n/a | | n/a | | BBB+ | | Stable | | n/a | | n/a |
CenterPoint Energy | | SIGECO Senior Secured Debt | | A1 | | Stable | | A | | Stable | | n/a | | n/a |
Houston Electric | | Houston Electric Senior Secured Debt | | A1A2 | | Stable | | A | | PositiveStable | | A+A | | Stable |
CERC | | CERC Corp. Senior Unsecured Debt | | Baa2A3 | | Stable | | A-BBB+ | | PositiveStable | | BBBA- | | PositiveStable |
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(1) | A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’s rating over the medium term. |
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(2) | An S&P rating outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term. |
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(3) | A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-year period. |
We(1)A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’s rating over the medium term.
(2)An S&P outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term.
(3)A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-year period.
The Registrants cannot assure that the ratings set forth above will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. WeThe Registrants note that these credit ratings are included for informational purposes and are not recommendations to buy, sell or hold ourthe Registrants’ securities and may be revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. Any future reduction or withdrawal of one or more of ourthe Registrants’ credit ratings could have a material adverse impact on ourthe Registrants’ ability to obtain short- and long-term financing, the cost of such financings and the execution of ourthe Registrants’ commercial strategies.
A decline in credit ratings could increase borrowing costs under ourthe Registrants’ revolving credit 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 agenciesS&P and Moody’s from the ratings that existed as of SeptemberJune 30, 2017,2022, the impact on the borrowing costs under the threefour revolving credit facilities would have been immaterial.insignificant. A decline in credit ratings would also increase the interest rate on long-term debt to be issued in the capital markets and could negatively impact ourthe Registrants’ ability to complete capital market transactions and to access the commercial paper market. Additionally, a decline in credit ratings could increase cash collateral requirements and reduce earnings of ourCenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services businessreportable segments.
CES, 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. As of September 30, 2017, the amounts posted as collateral and settled-to-market aggregated approximately $35 million. Should the credit ratings of CERC Corp. (as the credit support provider for CES) fall below certain levels, CES would be required to provide additional collateral up to the amount of its previously unsecured credit limit. We estimate that as of September 30, 2017, unsecured credit limits extended to CES by counterparties aggregated $358 million, and $1 million of such amount was utilized.
Pipeline tariffs and contracts typically provide that if the credit ratings of a shipper or the shipper’s guarantor drop below a threshold level, which is generally investment grade ratings from both Moody’s and S&P, cash or other collateral may be demanded from the shipper in an amount equal to the sum of three months’ charges for pipeline services plus the unrecouped cost of any lateral built for such shipper. If the credit ratings of CERC Corp. decline below the applicable threshold levels,
CERC Corp. might need to provide cash or other collateral of as much as $197$211 million as of SeptemberJune 30, 2017.2022. The amount of collateral will depend on seasonal variations in transportation levels.
ZENS and Securities Related to ZENS (CenterPoint Energy)
If ourCenterPoint Energy’s creditworthiness were to drop such that ZENS holders thought ourits 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 ownCenterPoint Energy owns or from other sources. We ownCenterPoint Energy owns shares of TWZENS-Related Securities equal to approximately 100% of the reference shares used to calculate ourits obligation to the holders of the ZENS. ZENS exchanges result in a cash outflow because tax deferrals related to the ZENS and TWshares of ZENS-Related Securities shares would typically cease when ZENS are exchanged or otherwise retired and TWshares of ZENS-Related Securities shares are sold. The ultimate tax liability related to the ZENS and ZENS-Related Securities continues to increase by the amount of the tax benefit realized each year, and there could be a significant cash outflow when the taxes are paid as a result of the retirement or exchange of the ZENS. If all ZENS had been exchanged for cash on SeptemberJune 30, 2017,2022, deferred taxes of approximately $472$602 million would have been payable in 2017.2022. If all the TWZENS-Related Securities had been sold on SeptemberJune 30, 2017,2022, capital gains taxes of approximately $331$112 million would have been payable in 2017.
2022 based on 2022 tax rates in effect. For additional information about ZENS, see Note 10 to ourthe Interim Condensed Financial Statements.
Cross Defaults
Under oureach of CenterPoint Energy’s, Houston Electric’s and CERC’s respective revolving credit facility,facilities, a payment default on, or a non-payment default that permits acceleration of, any indebtedness for borrowed money and certain other specified types of obligations (including guarantees) exceeding $125 million by usthe borrower or any of ourtheir respective significant subsidiaries will cause a default.default under such borrower’s respective credit facility or term loan agreement. A default by CenterPoint Energy would not trigger a default under ourits subsidiaries’ debt instruments or revolving credit facilities.
Possible Acquisitions, Divestitures and Joint Ventures
From time to time, wethe Registrants consider the acquisition or the disposition of assets or businesses or possible joint ventures, strategic initiatives or other joint ownership arrangements with respect to assets or businesses. Any determination to take action in this regard will be based on market conditions and opportunities existing at the time, and accordingly, the timing, size or success of any efforts and the associated potential capital commitments are unpredictable. WeThe Registrants may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances. Debt or equity financing may not, however, be available to usthe Registrants at that time due to a variety of events, including, among others, maintenance of our credit ratings, industry conditions, general economic conditions, market conditions and market perceptions.
In February 2016, we As announced that we were evaluating strategic alternatives for our investment in Enable, including a sale or spin-off qualifying under Section 355 ofSeptember 2021 and reiterated in May 2022, CenterPoint Energy plans to increase its planned capital expenditures in its Electric and Natural Gas businesses to support rate base growth and may explore asset sales, in addition to the U.S. Internal Revenue Code. We have determined that we will no longer pursue a spin option. Should the sale option not be viable, we intend to reduce our ownership in Enable over time through arecently completed sale of the common units we holdits Natural Gas businesses located in the public equity markets, subjectArkansas and Oklahoma, as a means to market conditions. There can be no assurances that these evaluations will result in any specific action, and we do not intendefficiently finance a portion of such increased capital expenditures. For further information, see Note 3 to disclose further developments on these initiatives unless and until our board of directors approves a specific action or as otherwise required.
Enable Midstream Partners
We receive quarterly cash distributions from Enable on its common units and Series A Preferred Units we own. A reduction in the cash distributions we receive from Enable could significantly impact our liquidity. For additional information about cash distributions from Enable, see Notes 8 and 16 to our Interim Condensed Financial Statements.
Hedging of Interest Expense for Future Debt Issuances
DuringFrom time to time, the first three quarters of 2017, we enteredRegistrants may enter into forward interest rate agreements to hedge, in part, volatility in the U.S. treasury rates by reducing variability in cash flows related to interest payments. For further information, see Note 6(a)7(a) to ourthe Interim Condensed Financial Statements.
Weather Hedge
We have entered into partial weather hedges for certain NGD jurisdictionsCollection of Receivables from REPs (CenterPoint Energy and Houston Electric)
Houston Electric’s service territoryreceivables from the distribution of electricity are collected from REPs that supply the electricity Houston Electric distributes to mitigatetheir customers. Before conducting business, a REP must register with the impactPUCT and must meet certain financial qualifications. Nevertheless, adverse economic conditions, the February 2021 Winter Storm Event, structural problems in the market served by ERCOT or financial difficulties of fluctuations from normal weather. We remain exposedone or more REPs could impair the ability of these REPs to some weather risk aspay for Houston Electric’s services or could cause them to delay such payments. Houston Electric depends on these REPs to remit payments on a resulttimely basis, and any delay or default in payment by REPs could adversely affect Houston Electric’s cash flows. In the event of a REP default, Houston Electric’s tariff provides a number of remedies, including the option for Houston Electric to request that the PUCT suspend or revoke the certification of the partial hedges. For more information about our weather hedges, see Note 6(a)REP. Applicable regulatory provisions require that customers be shifted to our Interim Condensed Financial Statements.another REP or a provider of last resort if a REP cannot make timely payments. However, Houston Electric remains at risk for payments related to services provided prior to the shift to the replacement REP or the provider of last resort. If a REP were unable to meet its obligations, it could consider, among various options, restructuring under the
bankruptcy laws, in which event such REP might seek to avoid honoring its obligations and claims might be made against Houston Electric involving payments it had received from such REP. If a REP were to file for bankruptcy, Houston Electric may not be successful in recovering accrued receivables owed by such REP that are unpaid as of the date the REP filed for bankruptcy. However, PUCT regulations authorize utilities, such as Houston Electric, to defer bad debts resulting from defaults by REPs for recovery in future rate cases, subject to a review of reasonableness and necessity.
Other Factors that Could Affect Cash Requirements
In addition to the above factors, ourthe Registrants’ liquidity and capital resources could also be negatively affected by:
•cash collateral requirements that could exist in connection with certain contracts including our weather hedging arrangements, and natural gas purchases, natural gas price and natural gas storage activities of ourCenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services business segments;reportable segment;
•acceleration of payment dates on certain gas supply contracts, under certain circumstances, as a result of increased natural gas prices and concentration of natural gas suppliers;suppliers (CenterPoint Energy and CERC);
•increased costs related to the acquisition of natural gas;gas (CenterPoint Energy and CERC);
•increases in interest expense in connection with debt refinancings and borrowings under credit facilities;facilities or term loans or the use of alternative sources of financings;
•increases in commodity prices;
•various legislative or regulatory actions;actions, including recovery of costs such as those associated with the mobile generation leases;
•incremental collateral, if any, that may be required due to regulation of derivatives;derivatives (CenterPoint Energy);
the ability of GenOn and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations in respect of GenOn’s indemnity obligations to us and our subsidiaries;
•the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to usCenterPoint Energy and our subsidiaries;Houston Electric, including the negative impact on such ability related to the February 2021 Winter Storm Event;
•slower customer payments and increased write-offs of receivables due to higher natural gas prices, or changing economic conditions;conditions or the February 2021 Winter Storm Event (CenterPoint Energy and CERC);
•the satisfaction of any obligations pursuant to guarantees;
the outcome of litigation brought by or against us;
•contributions to pension and postretirement benefit plans;
•restoration costs and revenue losses resulting from future natural disasters such as hurricanes and the timing of recovery of such restoration costs; and
Certain Contractual Limits on Our Ability to Issue Securities and Borrow Money
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 ourthe Registrants’ and certain of CenterPoint Energy’s subsidiaries’ revolving credit facilities, see Note 11 to ourthe Interim Condensed Financial Statements.
NEW
CRITICAL ACCOUNTING PRONOUNCEMENTSPOLICIES
See Note 2A critical accounting policy is one that is both important to our Interim Condensed Financial Statements, incorporated hereinthe presentation of the Registrants’ financial condition and results of operations and requires management to make difficult, subjective or complex accounting estimates. An accounting estimate is an approximation made by reference,management of a financial statement element, item or account in the financial statements. Accounting estimates in the Registrants’ historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. Additionally, different estimates that the Registrants could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of their financial condition, results of operations or cash flows. The circumstances that make these judgments difficult, subjective and/or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. Estimates and assumptions about future events and their effects cannot be predicted with certainty. The Registrants base their estimates on historical experience and on various other assumptions that they believe to be reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Registrants’ operating environment changes.
Common control transactions (CenterPoint Energy and CERC)
When accounting for a discussiontransfer of newnet assets or exchange of equity interests between entities under common control, the entity that receives the net assets or the equity interests shall initially recognize the assets and liabilities transferred at the date of transfer based on the ultimate parent company’s basis, which in the case of the Restructuring is CenterPoint Energy’s basis. CenterPoint Energy’s basis in net assets of an entity may differ from the historical net assets of that entity on a standalone basis, for example, because push-down accounting pronouncementshad not been applied on a standalone basis. Additionally, when the net assets
transferred in a common-control transaction meet the definition of a business, the receiving entity will record an allocation of goodwill from the reporting unit based on the relative fair value of the businesses transferred within that affect us.reporting unit. As a result, on June 30, 2022, CERC received $972 million of goodwill from CenterPoint Energy’s Natural Gas reporting unit in connection with the Restructuring. CERC recast prior periods to reflect the Restructuring as if it occurred at the earliest period presented for which CenterPoint Energy had common control. The Restructuring did not impact CenterPoint Energy’s basis in any entity, its allocation of goodwill to its reporting units, or its segment presentation. Neither CenterPoint Energy nor CERC recognized any gains or losses in connection with the Restructuring. SIGECO was not acquired by CERC and remains a subsidiary of VUH.
Fair value is the amount at which an asset, liability or business could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices, present value techniques based on estimates of cash flows, or multiples of earnings or revenue performance measures. The fair value could be different if different estimates and assumptions in these valuation techniques were applied.
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Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Fair value measurements require significant judgment and often depend on unobservable inputs, including (i) projected timing and amounts of future cash flows, which factor in planned growth initiatives, (ii) the regulatory environment, as applicable, and (iii) discount rates reflecting risk inherent in the future market prices. Changes in these assumptions could have a significant impact on the resulting fair value or relative fair value.
The fair value of the businesses within the Natural Gas reporting unit was estimated based on a weighted combination of income and market approaches, consistent with the methodology used in the 2021 annual goodwill impairment test.
Other than the common control transaction discussed above, there have been no significant changes in our critical accounting policies during the three and six months ended June 30, 2022, as compared to the critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Registrants’ combined 2021 Form 10-K.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Houston Electric and CERC meet the conditions specified in General Instruction H(1)(a) and (b) to Form 10-Q and are therefore permitted to use the reduced disclosure format for wholly-owned subsidiaries of reporting companies. Accordingly, Houston Electric and CERC have omitted from this report the information called for by Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I of the Form 10-Q.
Interest Rate Risk (CenterPoint Energy)
As of SeptemberJune 30, 2017, we2022, CenterPoint Energy had outstanding long-term debt, lease obligations and obligations under ourits ZENS that subject usit to the risk of loss associated with movements in market interest rates.
OurCenterPoint Energy’s floating rate obligations aggregated $976 million$2.8 billion and $1.4$4.5 billion as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. If the floating interest rates were to increase by 10% from SeptemberJune 30, 20172022 rates, ourCenterPoint Energy’s combined interest expense would increase by approximately $1.4$4 million annually.
As of SeptemberJune 30, 20172022 and December 31, 2016, we2021, CenterPoint Energy had outstanding fixed-rate debt (excluding indexed debt securities) aggregating $7.6$12.3 billion and $7.1$11.7 billion, respectively, in principal amount and having a fair value of $8.1$11.5 billion and $7.5$13.0 billion, respectively. Because these instruments are fixed-rate, they do not expose usCenterPoint Energy to the risk of loss in earnings due to changes in market interest rates. However, the fair value of these instruments would increase by approximately $223$487 million if interest rates were to decline by 10% from levels at SeptemberJune 30, 2017.2022. In general, such an increase in fair value would impact earnings and cash flows only if weCenterPoint Energy were to reacquire all or a portion of these instruments in the open market prior to their maturity.
In general, such an increase in fair value would impact earnings and cash flows only if CenterPoint Energy 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 $120$8 million as of SeptemberJune 30, 20172022 was a fixed-rate obligation and, therefore, did not expose usCenterPoint Energy to the risk of loss in earnings due to changes in market interest rates. However, the fair value of the debt component would increase by approximately $18$1 million if interest rates were to decline by 10% from levels at SeptemberJune 30, 2017.2022. Changes in the fair value of the derivative component, a $776$732 million recorded liability at SeptemberJune 30, 2017,2022, are recorded in ourCenterPoint Energy’s Condensed Statements of Consolidated Income and, therefore, we areit is 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 SeptemberJune 30, 20172022 levels, the fair value of the derivative component liability would increasedecrease by approximately $5$1 million,, which would be recorded as an unrealized lossgain in ourCenterPoint Energy’s Condensed Statements of Consolidated Income.
Equity Market Value Risk (CenterPoint Energy)
We areCenterPoint Energy is exposed to equity market value risk through ourits 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 and 2.5 million shares of WBD Common, which we holdCenterPoint Energy holds to facilitate ourits ability to meet ourits obligations under the ZENS. See Note 10 to the Interim Condensed Financial Statements for a discussion of CenterPoint Energy’s ZENS obligation. Changes in the fair value of the ZENS-Related Securities held by CenterPoint Energy are expected to substantially offset changes in the fair value of the derivative component of the ZENS. A decrease of 10% from the SeptemberJune 30, 20172022 aggregate market value of these shares would result in a net loss of approximately $1less than $1 million,, which would be recorded as an unrealizeda loss in ourCenterPoint Energy’s Condensed Statements of Consolidated Income.
Commodity Price Risk From Non-Trading Activities (CenterPoint Energy and CERC)
We use derivative instruments as economic hedgesCenterPoint Energy’s and CERC’s regulated operations in Indiana have limited exposure to offset the commodity price exposure inherent in our businesses. The commodity risk created by these instruments, including the offsetting impact on the market valuefor transactions involving purchases and sales of natural gas, inventory, is described below. We measure this commodity riskcoal and purchased power for the benefit of retail customers due to current state regulations, which, subject to compliance with those regulations, allow for recovery of the cost of such purchases through natural gas and fuel cost adjustment mechanisms. CenterPoint Energy’s and CERC’s utility natural gas operations in Indiana have regulatory authority to lock in pricing for up to 50% of annual natural gas purchases using a sensitivity analysis. For purposesarrangements with an original term of this analysis, we estimate commodity price risk by applying a $0.50 change in the forward NYMEX priceup to our net open10 years. This authority has been utilized to secure fixed price position (including forward fixed price physical contracts, natural gas inventoryusing both physical purchases and fixed price financial contracts) at the end of each period.derivatives. As of SeptemberJune 30, 2017,2022, the recorded fair value of our non-trading energy derivativesderivative assets was a net asset of $80$32 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 $3and $26 million, on our non-trading energy derivatives net assetrespectively, for CenterPoint Energy’s and the market value ofCERC’s utility natural gas inventory.operations in Indiana.
CommodityAlthough CenterPoint Energy’s and CERC’s regulated operations are exposed to limited 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 coal prices have other effects on working capital requirements, interest costs, and some level of price-sensitivity in volumes sold or delivered. Constructive regulatory orders, such as those authorizing lost margin recovery, other innovative rate designs and recovery of unaccounted for natural gas and other natural gas-related expenses, also mitigate the related fair value hedge (NYMEX) can resulteffect natural gas costs may have on CenterPoint Energy’s financial condition. In 2008, the PUCO approved an exit of the merchant function in volatilityCenterPoint Energy’s and CERC’s Ohio natural gas service territory, allowing Ohio customers to our net income. Over time, any gainspurchase substantially all natural gas directly from retail marketers rather than from CenterPoint Energy or losses on the sale of storage gas inventory would be offset by gains or losses on the fair value hedges.CERC.
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Item 4. | CONTROLS AND PROCEDURES |
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 SeptemberJune 30, 20172022 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 SeptemberJune 30, 20172022 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)13(d) to ourthe Interim Condensed Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Future Sources and Uses of Cash” and “— Regulatory Matters,” each of which is incorporated herein by reference. See also “Business“Business — Regulation” and “— Environmental Matters”Matters” in Item 1 and “Legal Proceedings”“Legal Proceedings” in Item 3 of our 2016the Registrants’ combined 2021 Form 10-K.
ThereItem 1A.RISK FACTORS
Except for the updates below, there have been no material changes from the risk factors disclosed in our 2016the Registrants’ combined 2021 Form 10-K. The following risk factor should be read in conjunction with the risk factors described in the Registrants’ combined 2021 Form 10-K.
Increases in the cost or reduction in supply of solar energy system components due to tariffs or trade restrictions imposed by the U.S. government may have an adverse effect on our business, financial condition and results of operations.
Ratio
China is a major producer of Earningssolar cells and other solar products. Certain solar cells, modules, laminates and panels from China are subject to Fixed Charges. The ratiovarious antidumping and countervailing duty rates, depending on the exporter supplying the product, imposed by the U.S. government as a result of earnings to fixed charges for the nine months ended September 30, 2017 and 2016 was 3.63 and 2.73, respectively. We do not believedeterminations that the ratiosU.S. was materially injured as a result of such imports being sold at less than fair value and subsidized by the Chinese government. In March 2022, the DOC announced that it would initiate an investigation into whether imports of solar cells and panels produced in Cambodia, Malaysia, Thailand and Vietnam are circumventing rules, such as anti-dumping and countervailing duties, intended to impose a tariff on imports of solar cells and panels manufactured in China. If an affirmative finding is made by the DOC, it could impose duties on imports of solar cells and panels from Cambodia, Malaysia, Thailand and Vietnam with both forward-looking and retroactive application. If enacted, these or similar duties could put upward pressure on prices of these solar energy products, which may reduce our ability to acquire these items in a timely and cost-efficient manner. If we are unable to secure such solar energy products in a timely and cost-efficient manner, we may be forced to delay, downsize and/or cancel solar projects and we may not be able to procure the resources needed to fully execute on our ten-year capital plan or achieve our net zero emissions goals. Additionally, delays or cancellations by developers of third-party solar power facilities expected to interconnect with CenterPoint Energy’s and Houston Electric’s system may have adverse impacts, such as delayed or reduced potential future revenues.We cannot predict what additional actions the U.S. government may adopt with respect to tariffs or other trade regulations in the future or what actions may be taken by other countries in retaliation for these nine-month periodssuch measures. If an affirmative finding is made by the DOC or other additional measures are necessarily indicativeimposed, our business, financial condition and results of the ratios for the 12-month periods due to the seasonal nature of our business. The ratios were calculated pursuant to applicable rules of the SEC.operations may be adversely affected.
The following exhibits are filed herewith:Item 5.OTHER INFORMATION
None.
Item 6.EXHIBITS
Exhibits not incorporated by reference to a prior filingfiled herewith are designated by a cross (+(†); all exhibits not so designated are incorporated by reference to a prior filing as indicated.
Agreements included as exhibits are included only to provide information to investors regarding their terms. Agreements listed below may contain representations, warranties and other provisions that were made, among other things, to provide the parties thereto with specified rights and obligations and to allocate risk among them, and no such agreement should be relied upon as constituting or providing any factual disclosures about 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 combined Form 10-Q certain long-term debt instruments, including indentures, under which the total amount of securities authorized does not exceed 10% of the total assets of 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 | | CenterPoint Energy | | Houston Electric | | CERC |
2.1* | | | | CenterPoint Energy’s Form 8-K dated April 21, 2018 | | 1-31447 | | 2.1 | | x | | | | |
2.2* | | | | CenterPoint Energy’s Form 8-K dated February 3, 2020 | | 1-31447 | | 2.1 | | x | | | | |
2.3* | | | | CenterPoint Energy’s Form 8-K dated February 24, 2020 | | 1-31447 | | 2.1 | | x | | | | x |
| | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
2.4* | | 2.4* | | | | CenterPoint Energy’s Form 10-Q for the quarter ended March 31, 2021 | | 1-31447 | | 2.4 | | x | | x |
3.1 | | | | CenterPoint Energy’s Form 8-K dated July 24, 2008 | | 1-31447 | | 3.2 | 3.1 | | | | CenterPoint Energy’s Form 8-K dated July 24, 2008 | | 1-31447 | | 3.2 | | x | |
3.2 | | | | CenterPoint Energy’s Form 8-K dated February 21, 2017 | | 1-31447 | | 3.1 | 3.2 | | | | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | | 1-3187 | | 3.1 | | x | |
3.3 | | | | CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 | | 1-31447 | | 3(c) | 3.3 | |
| | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(1) | | x |
3.4 | | 3.4 | | | | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(2) | | x |
3.5 | | 3.5 | | | | CERC Form 10-K for the year ended December 31, 1998 | | 1-13265 | | 3(a)(3) | | x |
3.6 | | 3.6 | | | | CERC Form 10-Q for the quarter ended June 30, 2003 | | 1-13265 | | 3(a)(4) | | x |
3.7 | | 3.7 | | | | CenterPoint Energy’s Form 8-K dated February 21, 2017 | | 1-31447 | | 3.1 | | x | |
3.8 | | 3.8 | | | | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | | 1-3187 | | 3.2 | | x | |
3.9 | | 3.9 | | | | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(b) | | x |
3.10 | | 3.10 | | | | CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 | | 1-31447 | | 3(c) | | x | |
3.11 | | 3.11 | | | | CenterPoint Energy’s Form 8-K dated August 22, 2018 | | 1-31447 | | 3.1 | | x | |
3.12 | | 3.12 | | | | CenterPoint Energy’s Form 8-K dated September 25, 2018 | | 1-31447 | | 3.1 | | x | |
3.13 | | 3.13 | | | | CenterPoint Energy’s Form 8-K dated May 6, 2020
| | 1-31447 | | 3.1 | | x | |
4.1 | | | | CenterPoint Energy’s Registration Statement on Form S-4 | | 3-69502 | | 4.1 | 4.1 | | | | CenterPoint Energy’s Registration Statement on Form S-4 | | 3-69502 | | 4.1 | | x | |
4.2 | | | | CenterPoint Energy’s Form 8-K dated March 3, 2016 | | 1-31447 | | 4.1 | 4.2 | | | | CenterPoint Energy’s Form 8-K dated August 22, 2018 | | 1-31447 | | 4.1 | | x | |
4.3 | | 4.3 | | | | CenterPoint Energy’s Form 8-K dated February 4, 2021 | | 1-31447 | | 4.1 | | x | |
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| | | | | | | | |
Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference |
4.3 | | | | CenterPoint Energy’s Form 8-K dated March 3, 2016 | | 1-31447 | | 4.2 |
4.4 | | | | CenterPoint Energy’s Form 8-K dated March 3, 2016 | | 1-31447 | | 4.3 |
4.5 | | | | CenterPoint Energy’s Form 8-K dated June 16, 2017 | | 1-31447 | | 4.1 |
4.6 | | | | CenterPoint Energy’s Form 8-K dated June 16, 2017 | | 1-31447 | | 4.2 |
4.7 | | | | 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 | |
| | | | | | |
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 | |
| | | | | | |
+12 | | | | | | | | |
+31.1 | | | | | | | | |
+31.2 | | | | | | | | |
+32.1 | | | | | | | | |
+32.2 | | | | | | | | |
+101.INS | | XBRL Instance Document | | | | | | |
+101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | |
+101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | |
+101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | |
+101.LAB | | XBRL Taxonomy Extension Labels Linkbase Document | | | | | | |
+101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | |
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Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
4.4 | | | | CenterPoint Energy’s Form 8-K dated February 4, 2021 | | 1-31447 | | 4.2 | | x | | x | | |
4.5 | | | | CenterPoint Energy’s Form 8-K dated February 4, 2021 | | 1-31447 | | 4.3 | | x | | | | x |
4.6* | | | | CenterPoint Energy’s Form 8-K dated May 27, 2022 | | 1-31447 | | 4.1 | | x | | | | x |
4.7* | | | | CenterPoint Energy’s Form 8-K dated May 27, 2022 | | 1-31447 | | 4.2 | | x | | | | x |
4.8* | | | | CenterPoint Energy’s Form 8-K dated May 27, 2022 | | 1-31447 | | 4.3 | | x | | | | x |
4.9* | | | | CenterPoint Energy’s Form 8-K dated May 27, 2022 | | 1-31447 | | 4.4 | | x | | | | x |
4.10* | | The Note Purchase Agreement, dated as of May 27, 2022, between CERC and the Purchasers signatory thereto, in connection with the issuance by CERC of $60,000,000 aggregate principal amount of CERC’s 5.02% Senior Notes, Series B, due November 30, 2026 and $35,000,000 aggregate principal amount of CERC’s 5.99% Senior Notes, Series C, due November 30, 2041 | | CenterPoint Energy’s Form 8-K dated May 27, 2022 | | 1-31447 | | 4.5 | | x | | | | x |
4.11 | | | | CERC’s Form 8-K dated February 5, 1998 | | 1-13265 | | 4.1 | | | | | | x |
†4.12 | | | | | | | | | | | | | | x |
10.1 | | | | CenterPoint Energy’s Definitive Proxy Statement filed on March 11, 2022 | | 1-31447 | | Appendix A | | x | | | | |
10.2 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.2 | | x | | | | |
10.3 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.3 | | x | | | | |
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Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
10.4 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.4 | | x | | | | |
10.5 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.5 | | x | | | | |
10.6 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.6 | | x | | | | |
10.7 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.7 | | x | | | | |
10.8 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.8 | | x | | | | |
10.9 | | | | CenterPoint Energy’s Form 10-Q for the quarter ended September 30, 2008 | | 1-31447 | | 10.1 | | x | | | | |
10.10 | | | | CenterPoint Energy’s Form 8-K dated April 22, 2022 | | 1-31447 | | 10.10 | | x | | | | |
10.11 | | | | CenterPoint Energy’s Form 10-Q for the quarter ended March 31, 2022 | | 1-31447 | | 10.11 | | x | | | | |
†31.1.1 | | | | | | | | | | x | | | | |
†31.1.2 | | | | | | | | | | | | x | | |
†31.1.3 | | | | | | | | | | | | | | x |
†31.2.1 | | | | | | | | | | x | | | | |
†31.2.2 | | | | | | | | | | | | x | | |
†31.2.3 | | | | | | | | | | | | | | x |
†32.1.1 | | | | | | | | | | x | | | | |
†32.1.2 | | | | | | | | | | | | x | | |
†32.1.3 | | | | | | | | | | | | | | x |
†32.2.1 | | | | | | | | | | x | | | | |
†32.2.2 | | | | | | | | | | | | x | | |
†32.2.3 | | | | | | | | | | | | | | x |
†101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | x | | x | | x |
†101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | x | | x | | x |
†101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | x | | x | | x |
†101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | x | | x | | x |
†101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase Document | | | | | | | | x | | x | | x |
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Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
†101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | x | | x | | x |
†104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | x | | x | | x |
| | | | | |
* | Schedules to this agreement have been omitted pursuant to Items 601(a)(5) and 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, theeach registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| CENTERPOINT ENERGY, INC. |
| CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC |
| CENTERPOINT ENERGY RESOURCES CORP. |
| |
| |
By: | CENTERPOINT ENERGY, INC./s/ Stacey L. Peterson |
| Stacey L. Peterson |
| |
By: | /s/ Kristie L. Colvin |
| Kristie L. Colvin |
| Senior Vice President and Chief Accounting Officer |
| |
Date: November 3, 2017August 2, 2022