UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
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 JUNE 30, 20172018 |
OR
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o | 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 |
( | Registrant, State or other jurisdictionOther Jurisdiction of incorporationIncorporation or organization)Organization | ( |
Commission file number | Address of Principal Executive Offices, Zip Code and Telephone Number | I.R.S. Employer Identification No.) |
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1-31447 | CenterPoint Energy, Inc. | 74-0694415 |
| (a Texas corporation) | |
| 1111 Louisiana | |
| Houston, Texas 77002 | (713) 207-1111 |
(Address and zip code of principal executive offices) | (713-207-1111) | |
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1-3187 | CenterPoint Energy Houston Electric, LLC | 22-3865106 |
| (Registrant’s telephone number, including area code)a Texas limited liability company) | |
| 1111 Louisiana | |
| Houston, Texas 77002 | |
| (713-207-1111) | |
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1-13265 | CenterPoint Energy Resources Corp. | 76-0511406 |
| (a Delaware corporation) | |
| 1111 Louisiana | |
| Houston, Texas 77002 | |
| (713-207-1111) | |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
CenterPoint Energy, Inc. Yes þ No o
CenterPoint Energy Houston Electric, LLC Yes þ No o
CenterPoint Energy Resources Corp. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
CenterPoint Energy, Inc. Yes þ No o
CenterPoint Energy Houston Electric, LLC Yes þ No o
CenterPoint Energy Resources Corp. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,��� “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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CenterPoint Energy, Inc. | Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | Emerging growth company o |
CenterPoint Energy Houston Electric, LLC | Large accelerated filer o | (Do not check if a smallerAccelerated filer o | Non-accelerated filer þ | Smaller reporting company)company o | Emerging growth company o |
CenterPoint Energy Resources Corp. | Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
CenterPoint Energy, Inc. Yes o No þ
As of July 27, 2017, CenterPoint Energy Inc. had 431,024,401Houston Electric, LLC Yes o No þ
CenterPoint Energy Resources Corp. Yes o No þ
Indicate the number of shares outstanding of each of the issuers’ classes of common stock outstanding, excluding 166 shares held as treasury stock.of July 23, 2018:
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CenterPoint Energy, Inc. | | 431,553,691 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. |
This combined Form 10-Q is filed separately by three registrants: CenterPoint Energy, Inc., CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.
Except as discussed in the last paragraph in Note 12 to the Registrants’ Condensed Consolidated Financial Statements, no registrant has an obligation in respect of any other Registrant’s debt securities, and holders of such debt securities should not consider the financial resources or results of operations of any Registrant other than the obligor in making a decision with respect to such securities.
CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.
CENTERPOINT ENERGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2017
TABLE OF CONTENTS
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PART I. | | FINANCIAL INFORMATION | |
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Item 1. | | | |
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| | Three and Six Months Ended June 30, 2017 and 2016 (unaudited) | |
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| | Three and Six Months Ended June 30, 2017 and 2016 (unaudited) | |
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| | June 30, 2017 and December 31, 2016 (unaudited) | |
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| | Six Months Ended June 30, 2017 and 2016 (unaudited) | |
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Item 2. | | | |
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Item 3. | | | |
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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. | | | |
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Item 6. | | | |
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GLOSSARY |
AEM | | Atmos Energy Marketing, LLC, previously a wholly-owned subsidiary of Atmos Energy Holdings, Inc., a wholly-owned subsidiary of Atmos Energy Corporation |
AMAsAMA | | Asset Management AgreementsAgreement |
AMS | | Advanced Metering System |
APSC | | Arkansas Public Service Commission |
ARAM | | Average rate assumption method |
ARP | | Alternative revenue program |
ASC | | Accounting Standards Codification |
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 | | TransitionBond Company II, Bond Company III, Bond Company IV and Restoration Bond Company, each a wholly-owned, bankruptcy remote entity formed solely for the purpose of purchasing and owning transition or system restoration bond companiesproperty through the issuance of Securitization Bonds |
Bond Company II | | CenterPoint Energy Transition Bond Company II, LLC, a wholly-owned subsidiary of Houston Electric |
Bond Company III | | CenterPoint Energy Transition Bond Company III, LLC, a wholly-owned subsidiary of Houston Electric |
Bond Company IV | | CenterPoint Energy Transition Bond Company IV, LLC, a wholly-owned subsidiary of Houston Electric |
Brazos Valley Connection | | A portion of the Houston region transmission project between Houston Electric’s Zenith substation and the Gibbons Creek substation owned by the Texas Municipal Power Agency |
Bridge Facility | | A $5 billion 364-day senior unsecured bridge term loan facility |
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 |
CIP | | Conservation Improvement Program |
COLI | | Corporate-owned life insurance |
Continuum | | The retail energy services business of Continuum Retail Energy Services, LLC, including its wholly-owned subsidiary Lakeshore Energy Services, LLC and the natural gas wholesale assets previously owned byof Continuum Energy Services, LLC |
DCRF | | Distribution Cost Recovery Factor |
EDIT | | Excess deferred income taxes |
EECR | | Energy Efficiency Cost Recovery |
EECRF | | Energy Efficiency Cost Recovery Factor |
Enable | | Enable Midstream Partners, LP |
EPA | | Environmental Protection Agency |
ERCOT | | Electric Reliability Council of Texas |
FASBFCC | | Financial Accounting Standards BoardFederal Communications Commission |
FERC | | Federal Energy Regulatory Commission |
Fitch | | Fitch, Inc. |
Form 10-Q | | Quarterly Report on Form 10-Q |
FRP | | Formula Rate Plan |
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GLOSSARY |
FTC | | Federal Trade Commission |
Gas Daily | | Platt’sPlatts 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 |
IBEWHSR | | International Brotherhood of Electrical WorkersHart-Scott-Rodino |
Interim Condensed Financial Statements | | CondensedUnaudited condensed consolidated interim financial statements and combined notes |
IRS | | Internal Revenue Service |
kV | | Kilovolt |
LIBOR | | London Interbank Offered Rate |
LPSCMeredith | | Louisiana Public Service CommissionMeredith Corporation |
MGPsMerger | | 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 |
Merger Sub | | Pacer Merger Sub, Inc., an Indiana corporation and wholly-owned subsidiary of CenterPoint Energy |
MGP | | Manufactured gas plantsplant |
MLP | | Master Limited Partnership |
MMBtu | | One million British thermal units |
Moody’s | | Moody’s Investors Service, Inc. |
MPSC | | Mississippi Public Service Commission |
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GLOSSARY (cont.) |
MPUC | | Minnesota Public Utilities Commission |
NECA | | National Electrical Contractors Association |
NGD | | Natural gas distribution business |
NGLs | | Natural gas liquids |
NOPR | | Notice of Proposed Rulemaking |
NRG | | NRG Energy, Inc. |
NYMEX | | New York Mercantile Exchange |
NYSE | | New York Stock Exchange |
OCC | | Oklahoma Corporation Commission |
OGE | | OGE Energy Corp. |
PBRC | | Performance Based Rate Change |
PRPs | | Potentially responsible parties |
PUCT | | Public Utility Commission of Texas |
Railroad Commission | | Railroad Commission of Texas |
Registrants | | CenterPoint Energy, Houston Electric and CERC, collectively |
Reliant Energy | | Reliant Energy, Incorporated |
REP | | Retail electric provider |
Restoration Bond Company | | CenterPoint Energy Restoration Bond Company, LLC, a wholly-owned subsidiary of Houston Electric |
Revised Policy Statement | | Revised Policy Statement on Treatment of Income Taxes |
ROE | | Return on equity |
RRA | | Rate Regulation Adjustment |
RRI | | Reliant Resources, Inc. |
RSP | | Rate Stabilization Plan |
SEC | | Securities and Exchange Commission |
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GLOSSARY |
Securitization Bonds | | Transition and system restoration bonds |
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&P | | Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies |
TBD | | To be determined |
TCEH Corp. | | Formerly Texas Competitive Electric Holdings Company LLC, predecessor to Vistra Energy Corp. whose major subsidiaries include Luminant and TXU Energy |
TCJA | | Tax reform legislation informally called the Tax Cuts and Jobs Act of 2017 |
TCOS | | Transmission Cost of Service |
TDU | | Transmission and distribution utility |
Time | | Time Inc. |
Time Common | | Time Inc. common stock |
Transition Agreements | | Services Agreement, Employee Transition Agreement, Transitional Seconding Agreement and other agreements entered into in connection with the formation of Enable |
TW | | Time Warner Inc. |
TW Common | | TW common stock |
TW SecuritiesVectren | | Charter Common, Time Common and TW CommonVectren Corporation, an Indiana corporation |
VIE | | Variable interest entity |
Vistra Energy Corp. | | Texas-based energy company focused on the competitive energy and power generation markets |
ZENS | | 2.0% Zero-Premium Exchangeable Subordinated Notes due 2029 |
2016ZENS-Related Securities | | As of June 30, 2018, consisted of AT&T Common and Charter Common and as of December 31, 2017, consisted of Charter Common, Time Common and TW Common |
2017 Form 10-K | | Annual Report on Form 10-K for the fiscal year ended December 31, 20162017 |
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.
The following are some of the factors that could cause actual results to differ from those expressed or implied by ourthe Registrants’ forward-looking statements:statements and apply to all Registrants unless otherwise indicated:
the performance of Enable, the amount of cash distributions weCenterPoint Energy and CERC receive from Enable, Enable’s ability to redeem the Series A Preferred Units in certain circumstances and the value of ourCenterPoint Energy’s and CERC’s interest in Enable, and factors that may have a material impact on such performance, cash distributions and value, including factors such as:
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◦ | competitive conditions in the midstream industry, and actions taken by Enable’s customers and competitors, including the extent and timing of the entry of additional competition in the markets served by Enable; |
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◦ | the timing and extent of changes in the supply of natural gas and associated commodity prices, particularly prices of natural gas and NGLs, the competitive effects of the available pipeline capacity in the regions served by Enable, and the effects of geographic and seasonal commodity price differentials, including the effects of these circumstances on re-contracting available capacity on Enable’s interstate pipelines; |
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◦ | the demand for crude oil, natural gas, NGLs and transportation and storage services; |
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◦ | environmental and other governmental regulations, including the availability of drilling permits and the regulation of hydraulic fracturing; |
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◦ | recording of non-cash goodwill, long-lived asset or other than temporary impairment charges by or related to Enable; |
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◦ | access to debt and equity capital; and |
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◦ | the availability and prices of raw materials and services for current and future construction projects; |
industrial, commercial and residential growth in our service territories and changes in market demand, including the demand for our non-rate regulated products and services and effects of energy efficiency measures and demographic patterns;
timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment;
future economic conditions in regional and national markets and their effect on sales, prices and costs;
weather variations and other natural phenomena, including the impact of severe weather events on operations and capital;
state and federal legislative and regulatory actions or developments affecting various aspects of our businesses (including the businesses of Enable), including, among others, energy deregulation or re-regulation, pipeline integrity and safety and changes in regulation and legislation pertaining to trade, health care, finance and actions regarding the rates charged by our regulated businesses;
tax reformCenterPoint Energy’s expected timing, likelihood and legislation;benefits of completion of the Merger, including the timing, receipt and terms and conditions of any required approvals by Vectren’s shareholders and governmental and regulatory agencies or the outcome of shareholder litigation filed against Vectren that could reduce anticipated benefits or cause the parties to delay or abandon the Merger, as well as the ability to successfully integrate the businesses and realize anticipated benefits, the possibility that long-term financing for the Merger may not be put in place before the closing of the Merger or that financing terms may not be as expected and the risk that the credit ratings of the combined company or its subsidiaries may be different from what CenterPoint Energy expects;
tax legislation, including the effects of the TCJA (which includes any potential changes to interest deductibility) and uncertainties involving state commissions’ and local municipalities’ regulatory requirements and determinations regarding the treatment of EDIT and our rates;
CenterPoint Energy’s and CERC’s ability to mitigate weather impacts through normalization or rate mechanisms, and the effectiveness of such mechanisms;
the timing and extent of changes in commodity prices, particularly natural gas, and the effects of geographic and seasonal commodity price differentials on CERC and Enable;
actions by credit rating agencies, including any potential downgrades to credit ratings;
changes in interest rates and their impact on costs of borrowing and the valuation of CenterPoint Energy’s pension benefit obligation;
problems with regulatory approval, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or in cost overruns that cannot be recouped in rates;
local, state and federal legislative and regulatory actions or developments relating to the environment, including those related to global climate change;
the impact of unplanned facility outages;
any direct or indirect effects on our or Enable’s facilities, operations and financial condition resulting from terrorism, cyber-attacks, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other catastrophic events such as fires, earthquakes, explosions, leaks, floods, droughts, hurricanes, pandemic health events or other occurrences;
our ability to invest planned capital and the timely recovery of our investment in capital;
our ability to control operation and maintenance costs;
actions by credit rating agencies;
the sufficiency of our insurance coverage, including availability, cost, coverage and terms;terms and ability to recover claims;
the investment performance of ourCenterPoint Energy’s pension and postretirement benefit plans;
commercial bank and financial market conditions, our access to capital, the cost of such capital, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets;
changes in interest rates or rates of inflation;
inability of various counterparties to meet their obligations to us;
non-payment for our services due to financial distress of our customers;
the extent and effectiveness of our and Enable’s risk management and hedging activities, including, but not limited to our financial and weather hedges and weather hedges;commodity risk management activities;
timely and appropriate regulatory actions, which include actions allowing securitization, for any future hurricanes or natural disasters or other recovery of costs, including costs associated with any future hurricanes or natural disasters;Hurricane Harvey;
ourCenterPoint Energy, CERC 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 ourCenterPoint Energy’s and CERC’s interests in Enable, if any, whether through our electiontheir decision to sell all or a portion of the Enable common units wethey own in the public equity markets or otherwise, subject to certain limitations), which weCenterPoint Energy, CERC and Enable 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 outcome of litigation;
the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to CenterPoint Energy and Houston Electric;
the ability of GenOn (formerly known as RRI Energy, Inc., Reliant Energy and RRI), a wholly-owned subsidiary of NRG, and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations to us, including indemnity obligations;
the outcome of litigation;vi
the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to us and our subsidiaries;
changes in technology, particularly with respect to efficient battery storage or the emergence or growth of new, developing or alternative sources of generation;
the timing and outcome of any audits, disputes and other proceedings related to taxes;
the effective tax rates;
the effect of changes in and application of accounting standards and pronouncements; and
other factors we discussdiscussed in “Risk Factors” in Item 1A of Part I of our 2016each of the Registrants’ 2017 Form 10-K and in Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q, which isare incorporated herein by reference, and other reports wethe Registrants file from time to time with the SEC.
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and wethe Registrants undertake no obligation to update or revise any forward-looking statements. Investors should note that the Registrants announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, the Registrants may use the Investors section of CenterPoint Energy’s website (www.centerpointenergy.com) to communicate with investors about the Registrants. It is possible that the financial and other information posted there could be deemed to be material information. The information on CenterPoint Energy’s website is not part of this combined Form 10-Q.
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 | Three Months Ended | | Six Months Ended |
| June 30, | | June 30, | June 30, | | June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
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Revenues: | | | | | | | | | | | | | | |
Utility revenues | $ | 1,222 |
| | $ | 1,177 |
| | $ | 2,768 |
| | $ | 2,725 |
| $ | 1,341 |
| | $ | 1,222 |
| | $ | 3,235 |
| | $ | 2,768 |
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Non-utility revenues | 921 |
| | 397 |
| | 2,110 |
| | 833 |
| 845 |
| | 921 |
| | 2,106 |
| | 2,110 |
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Total | 2,143 |
| | 1,574 |
| | 4,878 |
| | 3,558 |
| 2,186 |
| | 2,143 |
| | 5,341 |
| | 4,878 |
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Expenses: | | | | | | | | | | | | | | |
Utility natural gas | 150 |
| | 126 |
| | 600 |
| | 564 |
| 188 |
| | 150 |
| | 825 |
| | 600 |
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Non-utility natural gas | 882 |
| | 370 |
| | 2,011 |
| | 784 |
| 790 |
| | 882 |
| | 2,063 |
| | 2,011 |
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Operation and maintenance | 535 |
| | 513 |
| | 1,095 |
| | 1,034 |
| 578 |
| | 518 |
| | 1,147 |
| | 1,061 |
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Depreciation and amortization | 254 |
| | 289 |
| | 480 |
| | 549 |
| 342 |
| | 254 |
| | 656 |
| | 480 |
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Taxes other than income taxes | 99 |
| | 94 |
| | 195 |
| | 195 |
| 101 |
| | 99 |
| | 212 |
| | 195 |
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Total | 1,920 |
| | 1,392 |
| | 4,381 |
| | 3,126 |
| 1,999 |
| | 1,903 |
| | 4,903 |
| | 4,347 |
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Operating Income | 223 |
| | 182 |
| | 497 |
| | 432 |
| 187 |
| | 240 |
| | 438 |
| | 531 |
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Other Income (Expense): | | | | | | | | | | | | | | |
Gain on marketable securities | 23 |
| | 20 |
| | 67 |
| | 110 |
| 22 |
| | 23 |
| | 23 |
| | 67 |
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Loss on indexed debt securities | (13 | ) | | (130 | ) | | (23 | ) | | (186 | ) | (254 | ) | | (13 | ) | | (272 | ) | | (23 | ) |
Interest and other finance charges | (77 | ) | | (86 | ) | | (155 | ) | | (173 | ) | (91 | ) | | (77 | ) | | (169 | ) | | (155 | ) |
Interest on securitization bonds | (20 | ) | | (23 | ) | | (40 | ) | | (47 | ) | |
Interest on Securitization Bonds | | (14 | ) | | (20 | ) | | (30 | ) | | (40 | ) |
Equity in earnings of unconsolidated affiliate, net | 59 |
| | 31 |
| | 131 |
| | 91 |
| 58 |
| | 59 |
| | 127 |
| | 131 |
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Other, net | 16 |
| | 14 |
| | 33 |
| | 21 |
| 4 |
| | (1 | ) | | 7 |
| | (1 | ) |
Total | (12 | ) | | (174 | ) | | 13 |
| | (184 | ) | (275 | ) | | (29 | ) | | (314 | ) | | (21 | ) |
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Income Before Income Taxes | 211 |
| | 8 |
| | 510 |
| | 248 |
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Income tax expense | 76 |
| | 10 |
| | 183 |
| | 96 |
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Income (Loss) Before Income Taxes | | (88 | ) | | 211 |
| | 124 |
| | 510 |
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Income tax expense (benefit) | | (13 | ) | | 76 |
| | 34 |
| | 183 |
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Net Income (Loss) | $ | 135 |
| | $ | (2 | ) | | $ | 327 |
| | $ | 152 |
| $ | (75 | ) | | $ | 135 |
| | $ | 90 |
| | $ | 327 |
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Basic Earnings (Loss) Per Share | $ | 0.31 |
| | $ | (0.01 | ) | | $ | 0.76 |
| | $ | 0.35 |
| $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.76 |
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Diluted Earnings (Loss) Per Share | $ | 0.31 |
| | $ | (0.01 | ) | | $ | 0.75 |
| | $ | 0.35 |
| $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.75 |
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Dividends Declared Per Share | $ | 0.2675 |
| | $ | 0.2575 |
| | $ | 0.5350 |
| | $ | 0.5150 |
| $ | 0.2775 |
| | $ | 0.2675 |
| | $ | 0.2775 |
| | $ | 0.5350 |
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Weighted Average Shares Outstanding, Basic | 431 |
| | 431 |
| | 431 |
| | 431 |
| 432 |
| | 431 |
| | 431 |
| | 431 |
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Weighted Average Shares Outstanding, Diluted | 434 |
| | 431 |
| | 434 |
| | 433 |
| 432 |
| | 434 |
| | 434 |
| | 434 |
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See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(In Millions)
(Unaudited)
| | | Three Months Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
| June 30, | | June 30, | June 30, | | June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Net income (loss) | $ | 135 |
| | $ | (2 | ) | | $ | 327 |
| | $ | 152 |
| $ | (75 | ) | | $ | 135 |
| | $ | 90 |
| | $ | 327 |
|
Other comprehensive income (loss): | | | | | | | | |
Adjustment related to pension and other postretirement plans (net of tax of $1, $2, $2 and $1) | 1 |
| | (1 | ) | | 2 |
| | — |
| |
Net deferred loss from cash flow hedges (net of tax of $0, $1, $0 and $1) | — |
| | (1 | ) | | (1 | ) | | (1 | ) | |
Other comprehensive income: | | | | | | | | |
Adjustment to pension and other postretirement plans (net of tax of $-0-, $1, $1 and $2) | | 2 |
| | 1 |
| | 3 |
| | 2 |
|
Net deferred gain (loss) from cash flow hedges (net of tax of $-0-, $-0-, $1 and $-0-) | | (1 | ) | | — |
| | 3 |
| | (1 | ) |
Total | 1 |
| | (2 | ) | | 1 |
| | (1 | ) | 1 |
| | 1 |
| | 6 |
| | 1 |
|
Comprehensive income (loss) | $ | 136 |
| | $ | (4 | ) | | $ | 328 |
| | $ | 151 |
| $ | (74 | ) | | $ | 136 |
| | $ | 96 |
| | $ | 328 |
|
See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
(Unaudited)
ASSETS
| | | June 30, 2017 | | December 31, 2016 | June 30, 2018 | | December 31, 2017 |
Current Assets: | | | | | | |
Cash and cash equivalents ($245 and $340 related to VIEs, respectively) | $ | 248 |
| | $ | 341 |
| |
Cash and cash equivalents ($253 and $230 related to VIEs, respectively) | | $ | 328 |
| | $ | 260 |
|
Investment in marketable securities | 1,020 |
| | 953 |
| 584 |
| | 960 |
|
Accounts receivable ($58 and $52 related to VIEs, respectively), less bad debt reserve of $19 and $15, respectively | 762 |
| | 740 |
| |
Accounts receivable ($112 and $73 related to VIEs, respectively), less bad debt reserve of $21 and $19, respectively | | 958 |
| | 1,000 |
|
Accrued unbilled revenues | 191 |
| | 335 |
| 207 |
| | 427 |
|
Natural gas inventory | 218 |
| | 131 |
| 152 |
| | 222 |
|
Materials and supplies | 192 |
| | 181 |
| 192 |
| | 175 |
|
Non-trading derivative assets | 67 |
| | 51 |
| 74 |
| | 110 |
|
Taxes receivable | — |
| | 30 |
| 39 |
| | — |
|
Prepaid expenses and other current assets ($31 and $40 related to VIEs, respectively) | 167 |
| | 161 |
| |
Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively) | | 167 |
| | 241 |
|
Total current assets | 2,865 |
| | 2,923 |
| 2,701 |
| | 3,395 |
|
| | | | | | |
Property, Plant and Equipment: | | | | | | |
Property, plant and equipment | 18,374 |
| | 17,831 |
| 19,585 |
| | 19,031 |
|
Less: accumulated depreciation and amortization | 5,730 |
| | 5,524 |
| 6,188 |
| | 5,974 |
|
Property, plant and equipment, net | 12,644 |
| | 12,307 |
| 13,397 |
| | 13,057 |
|
| | | | | | |
Other Assets: | | | | | | |
Goodwill | 867 |
| | 862 |
| 867 |
| | 867 |
|
Regulatory assets ($1,786 and $1,919 related to VIEs, respectively) | 2,566 |
| | 2,677 |
| |
Regulatory assets ($1,293 and $1,590 related to VIEs, respectively) | | 2,067 |
| | 2,347 |
|
Non-trading derivative assets | 46 |
| | 19 |
| 46 |
| | 44 |
|
Investment in unconsolidated affiliate | 2,487 |
| | 2,505 |
| 2,451 |
| | 2,472 |
|
Preferred units – unconsolidated affiliate | 363 |
| | 363 |
| 363 |
| | 363 |
|
Other | 207 |
| | 173 |
| 216 |
| | 191 |
|
Total other assets | 6,536 |
| | 6,599 |
| 6,010 |
| | 6,284 |
|
| | | | | | |
Total Assets | $ | 22,045 |
| | $ | 21,829 |
| $ | 22,108 |
| | $ | 22,736 |
|
See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
(In Millions, except share amounts)
(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
| | | June 30, 2017 | | December 31, 2016 | June 30, 2018 | | December 31, 2017 |
Current Liabilities: | | | | | | |
Short-term borrowings | $ | 24 |
| | $ | 35 |
| $ | — |
| | $ | 39 |
|
Current portion of VIE securitization bonds long-term debt | 422 |
| | 411 |
| |
Current portion of VIE Securitization Bonds long-term debt | | 446 |
| | 434 |
|
Indexed debt, net | 118 |
| | 114 |
| 26 |
| | 122 |
|
Current portion of other long-term debt | 550 |
| | 500 |
| 50 |
| | 50 |
|
Indexed debt securities derivative | 740 |
| | 717 |
| 641 |
| | 668 |
|
Accounts payable | 631 |
| | 657 |
| 706 |
| | 963 |
|
Taxes accrued | 153 |
| | 172 |
| 103 |
| | 181 |
|
Interest accrued | 110 |
| | 108 |
| 118 |
| | 104 |
|
Dividends accrued | | — |
| | 120 |
|
Non-trading derivative liabilities | 21 |
| | 41 |
| 26 |
| | 20 |
|
Due to ZENS note holders | | 382 |
| | — |
|
Other | 269 |
| | 325 |
| 344 |
| | 368 |
|
Total current liabilities | 3,038 |
| | 3,080 |
| 2,842 |
| | 3,069 |
|
| | | | | | |
Other Liabilities: | |
| | |
| |
| | |
|
Deferred income taxes, net | 5,364 |
| | 5,263 |
| 3,168 |
| | 3,174 |
|
Non-trading derivative liabilities | 4 |
| | 5 |
| 12 |
| | 4 |
|
Benefit obligations | 908 |
| | 913 |
| 723 |
| | 785 |
|
Regulatory liabilities | 1,289 |
| | 1,298 |
| 2,521 |
| | 2,464 |
|
Other | 292 |
| | 278 |
| 412 |
| | 357 |
|
Total other liabilities | 7,857 |
| | 7,757 |
| 6,836 |
| | 6,784 |
|
| | | | | | |
Long-term Debt: | |
| | |
| |
| | |
|
VIE securitization bonds, net | 1,638 |
| | 1,867 |
| |
VIE Securitization Bonds, net | | 1,193 |
| | 1,434 |
|
Other long-term debt, net | 5,949 |
| | 5,665 |
| 6,567 |
| | 6,761 |
|
Total long-term debt, net | 7,587 |
| | 7,532 |
| 7,760 |
| | 8,195 |
|
| | | | | | |
Commitments and Contingencies (Note 13) |
|
| |
|
| |
Commitments and Contingencies (Note 14) | |
|
| |
|
|
| | | | | | |
Shareholders’ Equity: | |
| | |
| |
| | |
|
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized, none issued or outstanding | — |
| | — |
| — |
| | — |
|
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 431,021,192 shares and 430,682,504 shares outstanding, respectively | 4 |
| | 4 |
| |
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 431,547,782 shares and 431,044,845 shares outstanding, respectively | | 4 |
| | 4 |
|
Additional paid-in capital | 4,200 |
| | 4,195 |
| 4,215 |
| | 4,209 |
|
Accumulated deficit | (571 | ) | | (668 | ) | |
Retained earnings | | 513 |
| | 543 |
|
Accumulated other comprehensive loss | (70 | ) | | (71 | ) | (62 | ) | | (68 | ) |
Total shareholders’ equity | 3,563 |
| | 3,460 |
| 4,670 |
| | 4,688 |
|
| | | | | | |
Total Liabilities and Shareholders’ Equity | $ | 22,045 |
| | $ | 21,829 |
| $ | 22,108 |
| | $ | 22,736 |
|
See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Millions)
| | | Six Months Ended June 30, | Six Months Ended June 30, |
| 2017 | | 2016 | 2018 | | 2017 |
Cash Flows from Operating Activities: | | | | | | |
Net income | $ | 327 |
| | $ | 152 |
| $ | 90 |
| | $ | 327 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 480 |
| | 549 |
| 656 |
| | 480 |
|
Amortization of deferred financing costs | 12 |
| | 13 |
| 18 |
| | 12 |
|
Deferred income taxes | 95 |
| | 69 |
| (12 | ) | | 95 |
|
Unrealized gain on marketable securities | (67 | ) | | (110 | ) | (23 | ) | | (67 | ) |
Loss on indexed debt securities | 23 |
| | 186 |
| 272 |
| | 23 |
|
Write-down of natural gas inventory | — |
| | 1 |
| 1 |
| | — |
|
Equity in earnings of unconsolidated affiliate, net of distributions | (131 | ) | | (91 | ) | (9 | ) | | (131 | ) |
Pension contributions | (18 | ) | | (5 | ) | (64 | ) | | (18 | ) |
Changes in other assets and liabilities, excluding acquisitions: | | | | | | |
Accounts receivable and unbilled revenues, net | 234 |
| | 147 |
| 232 |
| | 234 |
|
Inventory | (20 | ) | | 63 |
| 52 |
| | (20 | ) |
Taxes receivable | 30 |
| | 156 |
| (39 | ) | | 30 |
|
Accounts payable | (158 | ) | | (109 | ) | (246 | ) | | (158 | ) |
Fuel cost recovery | (12 | ) | | (17 | ) | 69 |
| | (12 | ) |
Non-trading derivatives, net | (49 | ) | | 22 |
| 64 |
| | (49 | ) |
Margin deposits, net | (43 | ) | | 65 |
| (9 | ) | | (43 | ) |
Interest and taxes accrued | (17 | ) | | (64 | ) | (64 | ) | | (17 | ) |
Net regulatory assets and liabilities | (34 | ) | | (21 | ) | 57 |
| | (34 | ) |
Other current assets | 13 |
| | 4 |
| (4 | ) | | 10 |
|
Other current liabilities | (29 | ) | | 21 |
| (13 | ) | | (29 | ) |
Other assets | (1 | ) | | — |
| (3 | ) | | (1 | ) |
Other liabilities | 27 |
| | 17 |
| 60 |
| | 27 |
|
Other, net | 18 |
| | 13 |
| 8 |
| | 18 |
|
Net cash provided by operating activities | 680 |
| | 1,061 |
| 1,093 |
| | 677 |
|
Cash Flows from Investing Activities: | | | | | | |
Capital expenditures | (649 | ) | | (682 | ) | (697 | ) | | (649 | ) |
Acquisitions, net of cash acquired | (132 | ) | | (98 | ) | — |
| | (132 | ) |
Decrease in notes receivable – unconsolidated affiliate | — |
| | 363 |
| |
Investment in preferred units – unconsolidated affiliate | — |
| | (363 | ) | |
Distributions from unconsolidated affiliate in excess of cumulative earnings | 149 |
| | 149 |
| 30 |
| | 149 |
|
Decrease (increase) in restricted cash of Bond Companies | 8 |
| | (2 | ) | |
Proceeds from sale of marketable securities | — |
| | 178 |
| 398 |
| | — |
|
Other, net | (11 | ) | | (12 | ) | 2 |
| | (8 | ) |
Net cash used in investing activities | (635 | ) | | (467 | ) | (267 | ) | | (640 | ) |
Cash Flows from Financing Activities: | | | | | | |
Decrease in short-term borrowings, net | (11 | ) | | (23 | ) | (39 | ) | | (11 | ) |
Proceeds from commercial paper, net | 284 |
| | 278 |
| |
Proceeds from (payments of) commercial paper, net | | (1,188 | ) | | 284 |
|
Proceeds from long-term debt, net | 298 |
| | 300 |
| 997 |
| | 298 |
|
Payments of long-term debt | (469 | ) | | (735 | ) | (230 | ) | | (469 | ) |
Debt issuance costs | (6 | ) | | (7 | ) | (35 | ) | | (6 | ) |
Payment of dividends on common stock | (230 | ) | | (221 | ) | (240 | ) | | (230 | ) |
Distribution to ZENS note holders | — |
| | (178 | ) | (16 | ) | | — |
|
Other, net | (4 | ) | | (1 | ) | (5 | ) | | (4 | ) |
Net cash used in financing activities | (138 | ) | | (587 | ) | (756 | ) | | (138 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents | (93 | ) | | 7 |
| |
Cash and Cash Equivalents at Beginning of Period | 341 |
| | 264 |
| |
Cash and Cash Equivalents at End of Period | $ | 248 |
| | $ | 271 |
| |
Supplemental Disclosure of Cash Flow Information: | | | | |
Cash Payments/Receipts: | | | | |
Interest, net of capitalized interest | $ | 182 |
| | $ | 200 |
| |
Income taxes (refunds), net | 11 |
| | (126 | ) | |
Non-cash transactions: | | | | |
Accounts payable related to capital expenditures | 106 |
| | 79 |
| |
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | | 70 |
| | (101 | ) |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | | 296 |
| | 381 |
|
Cash, Cash Equivalents and Restricted Cash at End of Period | | $ | 366 |
| | $ | 280 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Millions of Dollars)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| |
Revenues | $ | 854 |
| | $ | 752 |
| | $ | 1,609 |
| | $ | 1,390 |
|
| | | | | | | |
Expenses: | |
| | |
| | |
| | |
|
Operation and maintenance | 351 |
| | 343 |
| | 693 |
| | 684 |
|
Depreciation and amortization | 262 |
| | 180 |
| | 495 |
| | 332 |
|
Taxes other than income taxes | 60 |
| | 58 |
| | 121 |
| | 118 |
|
Total | 673 |
| | 581 |
| | 1,309 |
| | 1,134 |
|
Operating Income | 181 |
| | 171 |
| | 300 |
| | 256 |
|
| | | | | | | |
Other Income (Expense): | |
| | |
| | |
| | |
|
Interest and other finance charges | (36 | ) | | (32 | ) | | (69 | ) | | (65 | ) |
Interest on Securitization Bonds | (14 | ) | | (20 | ) | | (30 | ) | | (40 | ) |
Other, net | (3 | ) | | (2 | ) | | (6 | ) | | (6 | ) |
Total | (53 | ) | | (54 | ) | | (105 | ) | | (111 | ) |
Income Before Income Taxes | 128 |
| | 117 |
| | 195 |
| | 145 |
|
Income tax expense | 27 |
| | 42 |
| | 42 |
| | 52 |
|
Net Income | $ | 101 |
| | $ | 75 |
| | $ | 153 |
| | $ | 93 |
|
See Combined Notes to InterimUnaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Millions of Dollars)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net income | $ | 101 |
| | $ | 75 |
| | $ | 153 |
| | $ | 93 |
|
Other comprehensive income: | | | | | | | |
Net deferred gain (loss) from cash flow hedges (net of tax of $-0-, $-0-, $1 and $-0-) | — |
| | — |
| | 4 |
| | (1 | ) |
Total | — |
| | — |
| | 4 |
| | (1 | ) |
Comprehensive income | $ | 101 |
| | $ | 75 |
| | $ | 157 |
| | $ | 92 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
ASSETS
|
| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
Current Assets: | | | |
Cash and cash equivalents ($253 and $230 related to VIEs, respectively) | $ | 253 |
| | $ | 238 |
|
Accounts and notes receivable ($112 and $73 related to VIEs, respectively), less bad debt reserve of $1 and $1, respectively | 389 |
| | 284 |
|
Accounts and notes receivable–affiliated companies | 32 |
| | 7 |
|
Accrued unbilled revenues | 122 |
| | 120 |
|
Materials and supplies | 125 |
| | 119 |
|
Taxes receivable | 23 |
| | — |
|
Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively) | 59 |
| | 62 |
|
Total current assets | 1,003 |
| | 830 |
|
| | | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 11,812 |
| | 11,496 |
|
Less: accumulated depreciation and amortization | 3,741 |
| | 3,633 |
|
Property, plant and equipment, net | 8,071 |
| | 7,863 |
|
| | | |
Other Assets: | |
| | |
|
Regulatory assets ($1,293 and $1,590 related to VIEs, respectively) | 1,321 |
| | 1,570 |
|
Other | 35 |
| | 29 |
|
Total other assets | 1,356 |
| | 1,599 |
|
| | | |
Total Assets | $ | 10,430 |
| | $ | 10,292 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
LIABILITIES AND MEMBER’S EQUITY
|
| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
Current Liabilities: | |
| | |
|
Current portion of VIE Securitization Bonds long-term debt | $ | 446 |
| | $ | 434 |
|
Accounts payable | 208 |
| | 243 |
|
Accounts and notes payable–affiliated companies | 121 |
| | 104 |
|
Taxes accrued | 61 |
| | 116 |
|
Interest accrued | 75 |
| | 65 |
|
Other | 93 |
| | 120 |
|
Total current liabilities | 1,004 |
| | 1,082 |
|
Other Liabilities: | |
| | |
|
Deferred income taxes, net | 1,025 |
| | 1,059 |
|
Benefit obligations | 143 |
| | 146 |
|
Regulatory liabilities | 1,265 |
| | 1,263 |
|
Other | 56 |
| | 54 |
|
Total other liabilities | 2,489 |
| | 2,522 |
|
Long-term Debt: | |
| | |
|
VIE Securitization Bonds, net | 1,193 |
| | 1,434 |
|
Other, net | 3,280 |
| | 2,885 |
|
Total long-term debt, net | 4,473 |
| | 4,319 |
|
| | | |
Commitments and Contingencies (Note 14) |
| |
|
| | | |
Member’s Equity: | | | |
Common stock | — |
| | — |
|
Paid-in capital | 1,697 |
| | 1,696 |
|
Retained earnings | 763 |
| | 673 |
|
Accumulated other comprehensive income | 4 |
| | — |
|
Total member’s equity | 2,464 |
| | 2,369 |
|
| | | |
Total Liabilities and Member’s Equity | $ | 10,430 |
| | $ | 10,292 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
(Unaudited)
|
| | | | | | | |
| Six Months Ended June 30, |
| 2018 | | 2017 |
Cash Flows from Operating Activities: | | | |
Net income | $ | 153 |
| | $ | 93 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 495 |
| | 332 |
|
Amortization of deferred financing costs | 6 |
| | 6 |
|
Deferred income taxes | (38 | ) | | 23 |
|
Changes in other assets and liabilities: | |
| | |
|
Accounts and notes receivable, net | (107 | ) | | (63 | ) |
Accounts receivable/payable–affiliated companies | 78 |
| | (35 | ) |
Inventory | (6 | ) | | (1 | ) |
Accounts payable | (6 | ) | | 57 |
|
Taxes receivable | (23 | ) | | (38 | ) |
Interest and taxes accrued | (45 | ) | | (41 | ) |
Net regulatory assets and liabilities | (59 | ) | | (59 | ) |
Other current assets | 4 |
| | 2 |
|
Other current liabilities | (11 | ) | | (7 | ) |
Other assets | 2 |
| | 4 |
|
Other liabilities | 2 |
| | 1 |
|
Other, net | (2 | ) | | 5 |
|
Net cash provided by operating activities | 443 |
| | 279 |
|
Cash Flows from Investing Activities: | |
| | |
|
Capital expenditures | (441 | ) | | (414 | ) |
Decrease (increase) in notes receivable–affiliated companies | (26 | ) | | 5 |
|
Other, net | (1 | ) | | (9 | ) |
Net cash used in investing activities | (468 | ) | | (418 | ) |
Cash Flows from Financing Activities: | |
| | |
|
Proceeds from long-term debt, net | 398 |
| | 298 |
|
Payments of long-term debt | (230 | ) | | (219 | ) |
Decrease in notes payable–affiliated companies | (60 | ) | | — |
|
Dividend to parent | (63 | ) | | (42 | ) |
Debt issuance costs | (4 | ) | | (3 | ) |
Other, net | 1 |
| | 1 |
|
Net cash provided by financing activities | 42 |
| | 35 |
|
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 17 |
| | (104 | ) |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 274 |
| | 381 |
|
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 291 |
| | $ | 277 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Millions of Dollars)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | |
Revenues: | | | | | | | |
Utility revenues | $ | 487 |
| | $ | 470 |
| | $ | 1,630 |
| | $ | 1,377 |
|
Non-utility revenues | 841 |
| | 917 |
| | 2,098 |
| | 2,103 |
|
Total | 1,328 |
| | 1,387 |
| | 3,728 |
| | 3,480 |
|
| | | | | | | |
Expenses: | |
| | |
| | |
| | |
|
Utility natural gas | 188 |
| | 150 |
| | 825 |
| | 600 |
|
Non-utility natural gas | 790 |
| | 882 |
| | 2,063 |
| | 2,011 |
|
Operation and maintenance | 217 |
| | 190 |
| | 455 |
| | 405 |
|
Depreciation and amortization | 72 |
| | 68 |
| | 145 |
| | 134 |
|
Taxes other than income taxes | 39 |
| | 38 |
| | 87 |
| | 72 |
|
Total | 1,306 |
| | 1,328 |
| | 3,575 |
| | 3,222 |
|
Operating Income | 22 |
| | 59 |
| | 153 |
| | 258 |
|
| | | | | | | |
Other Income (Expense): | |
| | |
| | |
| | |
|
Interest and other finance charges | (33 | ) | | (31 | ) | | (62 | ) | | (60 | ) |
Equity in earnings of unconsolidated affiliate, net | 58 |
| | 59 |
| | 127 |
| | 131 |
|
Other, net | (1 | ) | | (4 | ) | | (5 | ) | | (9 | ) |
Total | 24 |
| | 24 |
| | 60 |
| | 62 |
|
Income Before Income Taxes | 46 |
| | 83 |
| | 213 |
| | 320 |
|
Income tax expense | 10 |
| | 29 |
| | 47 |
| | 119 |
|
Net Income | $ | 36 |
| | $ | 54 |
| | $ | 166 |
| | $ | 201 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Millions of Dollars)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | |
Net income | $ | 36 |
| | $ | 54 |
| | $ | 166 |
| | $ | 201 |
|
Comprehensive income | $ | 36 |
| | $ | 54 |
| | $ | 166 |
| | $ | 201 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
ASSETS
|
| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
Current Assets: | | | |
Cash and cash equivalents | $ | 1 |
| | $ | 12 |
|
Accounts receivable, less bad debt reserve of $20 and $18, respectively | 566 |
| | 713 |
|
Accrued unbilled revenues | 85 |
| | 307 |
|
Accounts and notes receivable–affiliated companies | 15 |
| | 6 |
|
Materials and supplies | 67 |
| | 56 |
|
Natural gas inventory | 152 |
| | 222 |
|
Non-trading derivative assets | 74 |
| | 110 |
|
Prepaid expenses and other current assets | 80 |
| | 166 |
|
Total current assets | 1,040 |
| | 1,592 |
|
| | | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 7,104 |
| | 6,888 |
|
Less: accumulated depreciation and amortization | 2,136 |
| | 2,036 |
|
Property, plant and equipment, net | 4,968 |
| | 4,852 |
|
| | | |
Other Assets: | |
| | |
|
Goodwill | 867 |
| | 867 |
|
Regulatory assets | 173 |
| | 181 |
|
Non-trading derivative assets | 46 |
| | 44 |
|
Investment in unconsolidated affiliate | 2,451 |
| | 2,472 |
|
Other | 97 |
| | 104 |
|
Total other assets | 3,634 |
| | 3,668 |
|
| | | |
Total Assets | $ | 9,642 |
| | $ | 10,112 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
LIABILITIES AND STOCKHOLDER’S EQUITY
|
| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
Current Liabilities: | |
| | |
|
Short-term borrowings | $ | — |
| | $ | 39 |
|
Accounts payable | 434 |
| | 669 |
|
Accounts and notes payable–affiliated companies | 36 |
| | 611 |
|
Taxes accrued | 48 |
| | 75 |
|
Interest accrued | 38 |
| | 32 |
|
Customer deposits | 75 |
| | 76 |
|
Non-trading derivative liabilities | 26 |
| | 20 |
|
Other | 152 |
| | 137 |
|
Total current liabilities | 809 |
| | 1,659 |
|
| | | |
Other Liabilities: | |
| | |
|
Deferred income taxes, net | 1,330 |
| | 1,289 |
|
Non-trading derivative liabilities | 12 |
| | 4 |
|
Benefit obligations | 98 |
| | 97 |
|
Regulatory liabilities | 1,256 |
| | 1,201 |
|
Other | 352 |
| | 297 |
|
Total other liabilities | 3,048 |
| | 2,888 |
|
| | | |
Long-Term Debt | 2,722 |
| | 2,457 |
|
| | | |
Commitments and Contingencies (Note 14) |
|
| |
|
|
| | | |
Stockholder’s Equity: | | | |
Common stock | — |
| | — |
|
Paid-in capital | 2,528 |
| | 2,528 |
|
Retained earnings | 529 |
| | 574 |
|
Accumulated other comprehensive income | 6 |
| | 6 |
|
Total stockholder’s equity | 3,063 |
| | 3,108 |
|
| | | |
Total Liabilities and Stockholder’s Equity | $ | 9,642 |
| | $ | 10,112 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
|
| | | | | | | |
| Six Months Ended June 30, |
| 2018 | | 2017 |
Cash Flows from Operating Activities: | | | |
Net income | $ | 166 |
| | $ | 201 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 145 |
| | 134 |
|
Amortization of deferred financing costs | 4 |
| | 4 |
|
Deferred income taxes | 41 |
| | 115 |
|
Write-down of natural gas inventory | 1 |
| | — |
|
Equity in earnings of unconsolidated affiliate, net of distributions | (9 | ) | | (131 | ) |
Changes in other assets and liabilities, excluding acquisitions: | |
| | |
|
Accounts receivable and unbilled revenues, net | 339 |
| | 295 |
|
Accounts receivable/payable–affiliated companies | (14 | ) | | (1 | ) |
Inventory | 58 |
| | (18 | ) |
Accounts payable | (248 | ) | | (203 | ) |
Fuel cost recovery | 69 |
| | (12 | ) |
Interest and taxes accrued | (21 | ) | | (27 | ) |
Non-trading derivatives, net | 61 |
| | (49 | ) |
Margin deposits, net | (9 | ) | | (43 | ) |
Net regulatory assets and liabilities | 92 |
| | (1 | ) |
Other current assets | 7 |
| | 12 |
|
Other current liabilities | 8 |
| | (14 | ) |
Other assets | 4 |
| | 5 |
|
Other liabilities | 52 |
| | 10 |
|
Other, net | — |
| | 1 |
|
Net cash provided by operating activities | 746 |
| | 278 |
|
Cash Flows from Investing Activities: | |
| | |
|
Capital expenditures | (230 | ) | | (223 | ) |
Distributions from unconsolidated affiliate in excess of cumulative earnings | 30 |
| | 149 |
|
Acquisitions, net of cash acquired | — |
| | (132 | ) |
Other, net | 3 |
| | 1 |
|
Net cash used in investing activities | (197 | ) | | (205 | ) |
Cash Flows from Financing Activities: | |
| | |
|
Decrease in short-term borrowings, net | (39 | ) | | (11 | ) |
Proceeds from (payments of) commercial paper, net | (333 | ) | | 149 |
|
Proceeds from long-term debt | 599 |
| | — |
|
Dividends to parent | (211 | ) | | (248 | ) |
Debt issuance costs | (5 | ) | | (1 | ) |
Decrease in notes payable–affiliated companies | (570 | ) | | — |
|
Contribution from parent | — |
| | 38 |
|
Other, net | (1 | ) | | — |
|
Net cash used in financing activities | (560 | ) | | (73 | ) |
Net Decrease in Cash and Cash Equivalents | (11 | ) | | — |
|
Cash and Cash Equivalents at Beginning of Period | 12 |
| | 1 |
|
Cash and Cash Equivalents at End of Period | $ | 1 |
| | $ | 1 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
COMBINED NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Background and Basis of Presentation
No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.
General. Included in this combined Form 10-Q are the Interim Condensed Financial Statements of CenterPoint Energy.Energy, Houston Electric and CERC, which are referred to collectively as the Registrants. The Combined Notes to the Unaudited Condensed Consolidated Financial Statements apply to all Registrants unless otherwise indicated. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with each of the 2016Registrants’ 2017 Form 10-K.
Background. CenterPoint Energy, Inc. is a public utility holding company. CenterPoint Energy’s operating subsidiaries, Houston Electric and CERC, own and operate 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 Coast area that includes the city of Houston; and
CERC Corp., which (i) owns and operates natural gas distribution systems in six states;states and
CES, which (ii) obtains and offers competitive variable and fixed-price physical natural gas supplies and services primarily to commercial and industrial customers and electric and natural gas utilities in 33 states.states through its wholly-owned subsidiary, CES. As of June 30, 2018, CERC Corp. owned approximately 54.0% of the common units representing limited partner interests in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets.
As of June 30, 2017,2018, CenterPoint Energy also owned an aggregate of 14,520,000 Series A Preferred Units in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets, and CERC Corp. owned approximately 54.1% of the common and subordinated units representing limited partner interests in Enable.
As of June 30, 2017,2018, CenterPoint Energy and Houston Electric had VIEs consisting of the Bond Companies, which it consolidates.are consolidated. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed specifically for the purpose of securitizing transition and system restoration-related property. Creditors of CenterPoint Energy and Houston Electric have no recourse to any assets or revenues of the Bond Companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property, and the bondholders have no recourse to the general credit of CenterPoint Energy.Energy or Houston Electric.
Basis of Presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CenterPoint Energy’sThe Interim Condensed Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the respective periods. Amounts reported in CenterPoint Energy’sthe Condensed Statements of Consolidated Income are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy and energy services, (b) changes in energy commodity prices, (c) timing of maintenance and other expenditures and (d) acquisitions and dispositions of businesses, assets and other interests. Certain prior year amounts have been reclassified to conform to the current year presentation.
For a description of CenterPoint Energy’sthe Registrants’ reportable business segments, see Note 15.16.
(2) New Accounting Pronouncements
In January 2016,The following table provides an overview of recently adopted or issued accounting pronouncements applicable to all the FASBRegistrants, unless otherwise noted.
|
| | | | | | |
Recently Adopted Accounting Standards |
ASU Number and Name | | Description | | Date of Adoption | | Financial Statement Impact upon Adoption |
ASU 2014-09- Revenue from Contracts with Customers (Topic 606) and related amendments | | This standard provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. Transition method: modified retrospective
| | January 1, 2018 | | Note 4 addresses the disclosure requirements. Adoption of the standard did not result in significant changes to revenue recognition. A substantial amount of the Registrants’ revenues are tariff and/or derivative based, which were not significantly impacted by these ASUs. |
ASU 2017-05- Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets | | This standard clarifies when and how to apply ASC 610-20, which was issued as part of ASU 2014-09. It amends or supersedes the guidance in ASC 350 and ASC 360 on determining a gain or loss recognized upon the derecognition of nonfinancial assets. Transition method: modified retrospective | | January 1, 2018 | | ASU 2017-05 eliminates industry specific guidance, including ASC 360-20 Property, Plant, and Equipment - Real Estate Sales, for the recognition of gains or losses upon the sale of in-substance real estate. CenterPoint Energy and CERC elected to apply the practical expedient upon adoption to only evaluate transactions that were not determined to be complete as of the date of adoption. Subsequent to adoption, gains or losses on sales or dilution events in CenterPoint Energy’s or CERC’s investment in Enable may result in gains or losses recognized in earnings. See Note 9 for further discussion. |
ASU 2016-01-Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
ASU 2018-03-Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities | | This standard requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value and to recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. It does not change the guidance for classifying and measuring investments in debt securities and loans. It also changes certain disclosure requirements and other aspects related to recognition and measurement of financial assets and financial liabilities. Transition method: cumulative-effect adjustment to beginning retained earnings, and two features prospective | | January 1, 2018 | | The adoption of this standard did not have an impact on the Registrants’ financial position, results of operations or cash flows. The Registrants elected the practicability exception for investments without a readily determinable fair value to be measured at cost. This includes the Series A Preferred Units in Enable, which were previously accounted for under the cost method. See Note 9 for further discussion. |
ASU 2016-15- Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments | | This standard provides clarifying guidance on the classification of certain cash receipts and payments in the statement of cash flows and eliminates the variation in practice related to such classifications. Transition method:retrospective | | January 1, 2018 | | The adoption did not have a material impact on the Registrants’ financial position, results of operations or disclosures. However, CenterPoint Energy’s and Houston Electric’s Condensed Statements of Consolidated Cash Flows reflect an increase in investing activities and a corresponding decrease in operating activities of $1 million and $3 million for the six months ended June 30, 2018 and 2017, respectively, due to the requirement that cash proceeds from COLI policies be classified as cash inflows from investing activity. |
ASU 2016-18- Statement of Cash Flows (Topic 230): Restricted Cash | | This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. Transition method: retrospective | | January 1, 2018 | | The adoption of this standard did not have an impact on the Registrants’ financial position, results of operations or disclosures. However, CenterPoint Energy’s and Houston Electric’s Condensed Statements of Consolidated Cash Flows are reconciled to cash, cash equivalents and restricted cash, resulting in a decrease in investing activities of $2 million and an increase in investing activities of $8 million for the six months ended June 30, 2018 and 2017, respectively. |
|
| | | | | | |
Recently Adopted Accounting Standards |
ASU Number and Name | | Description | | Date of Adoption | | Financial Statement Impact upon Adoption |
ASU 2017-01- Business Combinations (Topic 805): Clarifying the Definition of a Business | | This standard revises the definition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then under ASU 2017-01, the asset or group of assets is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs to be more closely aligned with how outputs are described in ASC 606. Transition method: prospective | | January 1, 2018 | | The adoption of this revised definition will reduce the number of transactions that are accounted for as a business combination, and therefore may have a potential impact on the Registrants’ accounting for future acquisitions. |
ASU 2017-04- Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment | | This standard eliminates Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Transition method: prospective | | January 1, 2018 | | The adoption of this standard will have an impact on CenterPoint Energy’s and CERC’s future calculation of goodwill impairments if an impairment is identified. |
ASU 2017-07- Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost | | This standard requires an employer to report the service cost component of the net periodic pension cost and postretirement benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period; all other components will be presented separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, only the service cost component will be eligible for capitalization in assets. Transition method: retrospective for the presentation of the service cost component and other components; prospective for the capitalization of the service cost component | | January 1, 2018 | | The adoption of this standard did not have a material impact on the Registrants’ financial position, results of operations, cash flows or disclosures; however, it resulted in the increases to operating income and corresponding decreases to other income reported in the table below. Other components previously capitalized in assets will be recorded as regulatory assets in the Registrants’ rate-regulated businesses, prospectively. |
ASU 2017-09- Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting | | This standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. Transition method: prospective | | January 1, 2018 | | The adoption of this standard will have an impact on CenterPoint Energy’s accounting for future changes to share-based payment awards. |
The table below reflects the impact of adoption of 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.2017-07:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Increase to operating income | $ | 15 |
| | $ | 8 |
| | $ | 4 |
| | $ | 17 |
| | $ | 7 |
| | $ | 6 |
|
Decrease to other income | 15 |
| | 8 |
| | 4 |
| | 17 |
| | 7 |
| | 6 |
|
| Six Months Ended June 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Increase to operating income | $ | 29 |
| | $ | 15 |
| | $ | 8 |
| | $ | 34 |
| | $ | 15 |
| | $ | 11 |
|
Decrease to other income | 29 |
| | 15 |
| | 8 |
| | 34 |
| | 15 |
| | 11 |
|
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 provides a comprehensive new lease model that requires lessees to recognize assets and liabilities for most leases and would change certain aspects of lessor accounting. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. A modified retrospective adoption approach is required. CenterPoint Energy is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. CenterPoint Energy adopted this standard as of January 1, 2017. The adoption did not have a material impact on CenterPoint Energy’s financial position or results of operations. However, CenterPoint Energy’s statement of cash flows reflects a decrease in financing activity and a corresponding increase in operating activity of $4 million and $3 million as of June 30, 2017 and June 30, 2016, respectively, due to the retrospective application of the requirement that cash paid to a tax authority when shares are withheld to satisfy statutory income tax withholding obligations should be presented as a financing rather than as an operating activity.
In 2016, the FASB issued ASUs which amended ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09, as amended, provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. Early adoption is permitted, and entities have the option of using either a full retrospective or a modified retrospective adoption approach. CenterPoint Energy is currently evaluating its revenue streams under these ASUs and has not yet identified any significant changes as the result of these new standards. A substantial amount of CenterPoint Energy’s revenues are tariff and derivative based, which we do not anticipate will be significantly impacted by these ASUs. CenterPoint Energy expects to adopt these ASUs on January 1, 2018 using the modified retrospective adoption approach.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 provides clarifying guidance on the classification of certain cash receipts and payments in the statement of cash flows and eliminates the variation in practice related to such classifications. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. CenterPoint Energy is currently assessing the impact that this standard will have on its statement of cash flows.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A retrospective adoption approach is required. CenterPoint Energy is currently assessing the impact that this standard will have on its statement of cash flows and disclosures.
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 is currently assessing the impact that this standard will have 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. CenterPoint Energy is currently assessing the impact that this standard will have 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. |
| | | | | | |
Issued, Not Yet Effective Accounting Standards |
ASU Number and Name | | Description | | Date of Adoption | | Financial Statement Impact upon Adoption |
ASU 2016-02- Leases (Topic 842) and related amendments
ASU 2018-01- Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842 | | ASU 2016-02 provides a comprehensive new lease model that requires lessees to recognize assets and liabilities for most leases and would change certain aspects of lessor accounting. Transition method: modified retrospective
ASU 2018-01 allows entities to elect not to assess whether existing land easements that were not previously accounted for in accordance with ASC 840 Leases under ASC 842 Leases when transitioning to the new leasing standard. | | January 1, 2019 Early adoption is permitted | | The Registrants will elect the practical expedient on existing easements provided by ASU 2018-01 and are evaluating other available transitional practical expedients. The Registrants are in the process of reviewing contracts to identify leases as defined in ASU 2016-02 and expect to recognize on the statements of financial position right-of-use assets and lease liabilities for the majority of their respective leases that are currently classified as operating leases. The Registrants are continuing to assess the impact that adoption of these standards will have on their financial position, results of operations, cash flows and disclosures. |
ASU 2017-12- Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities | | This standard 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. Transition method: cumulative-effect adjustment for elimination of the separate measurement of ineffectiveness; prospective for presentation and disclosure | | January 1, 2019 Early adoption is permitted | | The Registrants are currently assessing the impact that adoption of this standard will have on their financial position, results of operations, cash flows and disclosures. |
ASU 2018-02-Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income | | This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA and requires entities to provide certain disclosures regarding stranded tax effects. Transition method: either in the period of adoption or retrospective | | January 1, 2019 Early adoption is permitted | | The adoption of this standard will allow the Registrants to reclass stranded deferred tax adjustments primarily related to benefit plans from other comprehensive income to retained earnings. The Registrants are currently assessing the impact that adoption of this standard will have on their financial position and disclosures. |
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) AcquisitionProposed Merger with Vectren (CenterPoint Energy)
On January 3, 2017,CES, an indirect,April 21, 2018, CenterPoint Energy entered into the Merger Agreement. Under the terms of the Merger Agreement, CenterPoint Energy will acquire Vectren for approximately $6 billion in cash. Upon closing, Vectren will become a wholly-owned subsidiary of CenterPoint Energy, completed its acquisition of AEM. After working capital adjustments, the final purchase price was $147 million and was allocated to identifiable assets acquired and liabilities assumed based on their estimated fair values on the acquisition date.Energy.
Pursuant to the Merger Agreement, upon the closing of the Merger, each share of Vectren common stock issued and outstanding immediately prior to the closing will be converted automatically into the right to receive $72.00 in cash per share. CenterPoint Energy expects to finance the Merger with a combination of debt, equity-linked and equity issuances and has obtained commitments by lenders for a Bridge Facility to provide flexibility for the timing of the long-term acquisition financing and fund, in part, amounts payable by CenterPoint Energy in connection with the Merger. All outstanding debt held by Vectren and its subsidiaries will be assumed by CenterPoint Energy at the closing of the Merger. As of June 30, 2018, Vectren and its subsidiaries had outstanding $248 million of short-term debt and $2.0 billion of long-term debt, including current maturities. It is anticipated that Vectren and its subsidiaries will have approximately $2.5 billion of outstanding short-term and long-term debt as of December 31, 2018.
Consummation of the Merger is conditioned upon approval by federal regulatory commissions, orders from state regulatory commissions, expiration or termination of the applicable HSR waiting period and approval of the Merger by Vectren shareholders. In June 2018, CenterPoint Energy and Vectren (i) submitted their filings with the FERC and the FCC and pursuant to the HSR Act and (ii) initiated informational proceedings with regulators in Indiana and Ohio. On June 26, 2018, CenterPoint Energy and Vectren received notice from the FTC granting early termination of the waiting period under the HSR Act in connection with the Merger. On July 16, 2018, Vectren filed its definitive proxy statement, as supplemented, with the SEC for a special meeting of its shareholders to be held on August 28, 2018 in connection with the Merger.
The following table summarizesMerger Agreement contains termination rights for both CenterPoint Energy and Vectren, and provides that, upon termination of the final purchase price allocationMerger Agreement under specified circumstances, CenterPoint Energy would be required to pay a termination fee of $210 million to Vectren and the fair value amounts recognized for the assets acquired and liabilities assumed relatedVectren would be required to the acquisition:
|
| | | | |
| | (in millions) |
Total purchase price consideration | | $ | 147 |
|
Cash | | $ | 15 |
|
Receivables | | 140 |
|
Natural gas inventory | | 78 |
|
Derivative assets | | 35 |
|
Prepaid expenses and other current assets | | 5 |
|
Property and equipment | | 8 |
|
Identifiable intangibles | | 25 |
|
Total assets acquired | | 306 |
|
Accounts payable | | 113 |
|
Derivative liabilities | | 43 |
|
Other current liabilities | | 7 |
|
Other liabilities | | 1 |
|
Total liabilities assumed | | 164 |
|
Identifiable net assets acquired | | 142 |
|
Goodwill | | 5 |
|
Net assets acquired | | $ | 147 |
|
pay CenterPoint Energy a termination fee of $150 million. Subject
The goodwillto receipt of $5 million resulting from the acquisition reflects the excessrequired regulatory and statutory approvals and satisfaction and/or waiver of the purchase price overclosing conditions, CenterPoint Energy continues to anticipate closing the fair value of the net identifiable assets acquired. The goodwill recorded as part of the acquisition primarily reflects the value of the complementary operational and geographic footprints, scale and expanded capabilities provided by the acquisition.
Identifiable intangible assets were recorded at estimated fair value as determined by management based on available information, which includes a preliminary valuation prepared by an independent third party. The significant assumptions used in arriving at the estimated identifiable intangible asset values included management’s estimates of future cash flows, the discount rate which is based on the weighted average cost of capital for comparable publicly traded guideline companies and projected customer attrition rates. The useful lives for the identifiable intangible assets were determined using methods that approximate the pattern of economic benefit provided by the utilization of the assets.
The estimated fair value of the identifiable intangible assets and related useful lives as includedMerger in the final purchase price allocation include:
|
| | | | | | |
| | Estimate Fair Value | | Estimate Useful Life |
| | (in millions) | | (in years) |
Customer relationships | | $ | 25 |
| | 15 |
Amortization expense related to the above identifiable intangible assets was $1 million for both the three and six months ended June 30, 2017.
Revenuesfirst quarter of approximately $319 million and $678 million, respectively, and operating income of approximately $8 million and $25 million, respectively, attributable to the AEM acquisition are reported in the Energy Services business segment and included in CenterPoint Energy’s Condensed Statements of Consolidated Income for the three and six months ended June 30, 2017.
The following unaudited pro forma financial information reflects the consolidated results of operations of CenterPoint Energy, assuming the AEM acquisition had taken place on January 1, 2016. Adjustments to pro forma net income include intercompany sales, amortization of intangible assets, depreciation of fixed assets, interest expense associated with debt financing to fund the acquisition, and related income tax effects. The pro forma information does not include the mark-to-market impact of financial instruments designated as cash flow hedges of anticipated purchases and sales at index prices. The effective portion of these hedges are excluded from earnings and reported as changes in Other Comprehensive Income. Additionally, the pro forma information does not include the mark-to-market impact of physical forward transactions that were previously accounted for as normal purchase and sale transactions.
The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved had the acquisition taken place on the dates indicated or the future consolidated results of operations of the combined company.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Operating Revenue | | $ | 2,143 |
| | $ | 1,773 |
| | $ | 4,878 |
| | $ | 4,016 |
|
Net Income | | 135 |
| | 3 |
| | 327 |
| | 156 |
|
2019.
(4) Revenue Recognition
The Registrants adopted ASC 606 and all related amendments on January 1, 2018 using the modified retrospective method for those contracts that were not completed as of the date of adoption. Application of the new revenue standard did not result in a cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new standard did not have a material impact on the Registrants’ financial position, results of operations or cash flows.
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Registrants expect to be entitled to receive in exchange for these goods or services. Contract assets and liabilities are not material.
The following tables disaggregate revenues by reportable business segment and major source:
CenterPoint Energy
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2018 | | 2017 |
| | Electric Transmission & Distribution (1) | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total | | Electric Transmission & Distribution (1) | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 860 |
| | $ | 509 |
| | $ | 78 |
| | $ | 2 |
| | $ | 1,449 |
| | $ | 758 |
| | $ | 463 |
| | $ | 116 |
| | $ | 1 |
| | $ | 1,338 |
|
Derivatives income | | — |
| | — |
| | 782 |
| | — |
| | 782 |
| | — |
| | — |
| | 815 |
| | — |
| | 815 |
|
Other (3) | | (6 | ) | | (14 | ) | | — |
| | 2 |
| | (18 | ) | | (6 | ) | | 14 |
| | — |
| | 2 |
| | 10 |
|
Eliminations | | — |
| | (8 | ) | | (19 | ) | | — |
| | (27 | ) | | — |
| | (7 | ) | | (13 | ) | | — |
| | (20 | ) |
Total revenues | | $ | 854 |
| | $ | 487 |
| | $ | 841 |
| | $ | 4 |
| | $ | 2,186 |
| | $ | 752 |
| | $ | 470 |
| | $ | 918 |
| | $ | 3 |
| | $ | 2,143 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2018 | | 2017 |
| | Electric Transmission & Distribution (1) | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total | | Electric Transmission & Distribution (1) | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 1,621 |
| | $ | 1,695 |
| | $ | 256 |
| | $ | 3 |
| | $ | 3,575 |
| | $ | 1,402 |
| | $ | 1,388 |
| | $ | 258 |
| | $ | 2 |
| | $ | 3,050 |
|
Derivatives income | | (4 | ) | | — |
| | 1,889 |
| | — |
| | 1,885 |
| | 1 |
| | — |
| | 1,869 |
| | — |
| | 1,870 |
|
Other (3) | | (12 | ) | | (47 | ) | | — |
| | 5 |
| | (54 | ) | | (12 | ) | | 5 |
| | — |
| | 5 |
| | (2 | ) |
Eliminations | | — |
| | (18 | ) | | (47 | ) | | — |
| | (65 | ) | | — |
| | (16 | ) | | (24 | ) | | — |
| | (40 | ) |
Total revenues | | $ | 1,605 |
| | $ | 1,630 |
| | $ | 2,098 |
| | $ | 8 |
| | $ | 5,341 |
| | $ | 1,391 |
| | $ | 1,377 |
| | $ | 2,103 |
| | $ | 7 |
| | $ | 4,878 |
|
Houston Electric
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) |
Revenue from contracts | | $ | 860 |
| | $ | 758 |
| | $ | 1,621 |
| | $ | 1,402 |
|
Other (3) | | (6 | ) | | (6 | ) | | (12 | ) | | (12 | ) |
| | $ | 854 |
| | $ | 752 |
| | $ | 1,609 |
| | $ | 1,390 |
|
CERC
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2018 | | 2017 |
| | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 509 |
| | $ | 78 |
| | $ | — |
| | $ | 587 |
| | $ | 463 |
| | $ | 116 |
| | $ | — |
| | $ | 579 |
|
Derivatives income | | — |
| | 782 |
| | — |
| | 782 |
| | — |
| | 815 |
| | — |
| | 815 |
|
Other (3) | | (14 | ) | | — |
| | — |
| | (14 | ) | | 14 |
| | — |
| | (1 | ) | | 13 |
|
Eliminations | | (8 | ) | | (19 | ) | | — |
| | (27 | ) | | (7 | ) | | (13 | ) | | — |
| | (20 | ) |
Total revenues | | $ | 487 |
| | $ | 841 |
| | $ | — |
| | $ | 1,328 |
| | $ | 470 |
| | $ | 918 |
| | $ | (1 | ) | | $ | 1,387 |
|
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2018 | | 2017 |
| | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 1,695 |
| | $ | 256 |
| | $ | — |
| | $ | 1,951 |
| | $ | 1,388 |
| | $ | 258 |
| | $ | — |
| | $ | 1,646 |
|
Derivatives income | | — |
| | 1,889 |
| | — |
| | 1,889 |
| | — |
| | 1,869 |
| | — |
| | 1,869 |
|
Other (3) | | (47 | ) | | — |
| | — |
| | (47 | ) | | 5 |
| | — |
| | — |
| | 5 |
|
Eliminations | | (18 | ) | | (47 | ) | | — |
| | (65 | ) | | (16 | ) | | (24 | ) | | — |
| | (40 | ) |
Total revenues | | $ | 1,630 |
| | $ | 2,098 |
| | $ | — |
| | $ | 3,728 |
| | $ | 1,377 |
| | $ | 2,103 |
| | $ | — |
| | $ | 3,480 |
|
| |
(1) | Reflected in Utility revenues in the Condensed Statements of Consolidated Income. |
| |
(2) | Reflected in Non-utility revenues in the Condensed Statements of Consolidated Income. |
| |
(3) | Primarily consists of income from ARPs and leases. ARPs are contracts between the utility and its regulators, not between the utility and a customer. The Registrants recognize ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation in rates charged for utility service to customers, ARP revenue is reversed and recorded as revenue from contracts with customers. The recognition of ARP revenues and the reversal of ARP revenues upon recovery through rates charged for utility service may not occur in the same period. |
Revenues from Contracts with Customers
Electric Transmission & Distribution. Houston Electric distributes electricity to customers over time and customers consume the electricity when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by the PUCT, is recognized as electricity is delivered and represents amounts both billed and unbilled. Discretionary services requested by customers are provided at a point in time with control transferring upon the completion of the service. Revenue for discretionary services is recognized upon completion of service based on the tariff rates set by the PUCT. Payments for electricity distribution and discretionary services are aggregated and received on a monthly basis. Houston Electric performs transmission services over time as a stand-ready obligation to provide a reliable network of transmission systems. Revenue is recognized upon time elapsed, and the monthly tariff rate set by the PUCT. Payments are received on a monthly basis.
Natural Gas Distribution. CERC distributes and transports natural gas to customers over time, and customers consume the natural gas when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by the state governing agency for that service area, is recognized as natural gas is delivered and represents amounts both billed and unbilled. Discretionary services requested by the customer are satisfied at a point in time and revenue is recognized upon completion of service and the tariff rates set by the applicable state regulator. Payments of natural gas distribution, transportation and discretionary services are aggregated and received on a monthly basis.
Energy Services. The majority of CES natural gas sales contracts are considered a derivative, as the contracts typically have a stated minimum or contractual volume of delivery.
For contracts in which CES delivers the full requirement of the natural gas needed by the customer and a volume is not stated, a contract as defined under ASC 606 is created upon the customer’s exercise of its option to take natural gas. CES supplies natural
gas to retail customers over time as customers consume the natural gas when delivered. For wholesale customers, CES supplies natural gas at a point in time because the wholesale customer is presumed to have storage capabilities. Control is transferred to both types of customers upon delivery of natural gas. Revenue is recognized on a monthly basis based on the estimated volume of natural gas delivered and the price agreed upon with the customer. Payments are received on a monthly basis.
AMAs are natural gas sales contracts under which CES also assumes management of a customer’s physical storage and/or transportation capacity. AMAs have two distinct performance obligations, which consist of natural gas sales and natural gas delivery because delivery could occur separate from the sale of natural gas (e.g., from storage to customer premises). Most AMAs’ natural gas sales performance obligations are accounted for as embedded derivatives. The transaction price is allocated between the sale of natural gas and the delivery based on the stand-alone selling price as stated in the contract. CES performs natural gas delivery over time as customers take delivery of the natural gas and recognizes revenue on an aggregated monthly basis based on the volume of natural gas delivered and the fees stated within the contract. Payments are received on a monthly basis.
Practical Expedients and Exemption. Sales taxes and other similar taxes collected from customers are excluded from the transaction price.
(5) Employee Benefit Plans
CenterPoint Energy’sThe Registrants’ net periodic cost, before considering amounts subject to overhead allocations for capital expenditure projects or for amounts subject to deferral for regulatory purposes, includes the following components relating to pension and postretirement benefits:
Pension Benefits (CenterPoint Energy)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2017 | | 2016 |
| Pension Benefits | | Postretirement Benefits | | Pension Benefits | | Postretirement Benefits |
| (in millions) |
Service cost | $ | 9 |
| | $ | 1 |
| | $ | 9 |
| | $ | — |
|
Interest cost | 22 |
| | 4 |
| | 24 |
| | 5 |
|
Expected return on plan assets | (24 | ) | | (2 | ) | | (25 | ) | | (1 | ) |
Amortization of prior service cost (credit) | 3 |
| | (1 | ) | | 2 |
| | (1 | ) |
Amortization of net loss | 15 |
| | — |
| | 16 |
| | — |
|
Curtailment gain (1) | — |
| | — |
| | — |
| | (3 | ) |
Net periodic cost (2) | $ | 25 |
| | $ | 2 |
| | $ | 26 |
| | $ | — |
|
| | | | | | | |
| Six Months Ended June 30, |
| 2017 | | 2016 |
| Pension Benefits | | Postretirement Benefits | | Pension Benefits | | Postretirement Benefits |
| (in millions) |
Service cost | $ | 18 |
| | $ | 1 |
| | $ | 18 |
| | $ | 1 |
|
Interest cost | 44 |
| | 8 |
| | 47 |
| | 9 |
|
Expected return on plan assets | (48 | ) | | (3 | ) | | (50 | ) | | (3 | ) |
Amortization of prior service cost (credit) | 5 |
| | (2 | ) | | 4 |
| | (1 | ) |
Amortization of net loss | 29 |
| | — |
| | 32 |
| | — |
|
Curtailment gain (1) | — |
| | — |
| | — |
| | (3 | ) |
Net periodic cost (2) | $ | 48 |
| | $ | 4 |
| | $ | 51 |
| | $ | 3 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) |
Service cost (1) | | $ | 9 |
| | $ | 9 |
| | $ | 18 |
| | $ | 18 |
|
Interest cost (2) | | 19 |
| | 22 |
| | 39 |
| | 44 |
|
Expected return on plan assets (2) | | (26 | ) | | (24 | ) | | (53 | ) | | (48 | ) |
Amortization of prior service cost (2) | | 2 |
| | 3 |
| | 4 |
| | 5 |
|
Amortization of net loss (2) | | 11 |
| | 15 |
| | 22 |
| | 29 |
|
Net periodic cost | | $ | 15 |
| | $ | 25 |
| | $ | 30 |
| | $ | 48 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Service cost (1) | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Interest cost (2) | 4 |
| | 2 |
| | 1 |
| | 4 |
| | 2 |
| | 1 |
|
Expected return on plan assets (2) | (2 | ) | | (1 | ) | | (1 | ) | | (2 | ) | | (1 | ) | | — |
|
Amortization of prior service cost (credit) (2) | (1 | ) | | (2 | ) | | 1 |
| | (1 | ) | | (1 | ) | | 1 |
|
Net periodic cost | $ | 2 |
| | $ | (1 | ) | | $ | 1 |
| | $ | 2 |
| | $ | — |
| | $ | 2 |
|
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Service cost (1) | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Interest cost (2) | 7 |
| | 4 |
| | 2 |
| | 8 |
| | 4 |
| | 2 |
|
Expected return on plan assets (2) | (3 | ) | | (2 | ) | | (1 | ) | | (3 | ) | | (2 | ) | | — |
|
Amortization of prior service cost (credit) (2) | (2 | ) | | (3 | ) | | 1 |
| | (2 | ) | | (2 | ) | | 1 |
|
Net periodic cost | $ | 3 |
| | $ | (1 | ) | | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 3 |
|
| |
(1) | A curtailment gain or loss is required whenIncluded in Operation and maintenance expense in the expected future servicesRegistrants’ Condensed Statements 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 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.Consolidated Income. |
| |
(2) | Net periodic costIncluded in this table is before considering amounts subject to overhead allocations for capital expenditure projects or for amounts subject to deferral for regulatory purposes. Other, net in the Registrants’ Condensed Statements of Consolidated Income. |
CenterPoint Energy’s changesChanges in accumulated other comprehensive loss related to defined benefit and postretirement plans are as follows:
CenterPoint Energy
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Beginning Balance | $ | (71 | ) | | $ | (64 | ) | | $ | (72 | ) | | $ | (65 | ) |
Other comprehensive income (loss) before reclassifications (1) | — |
| | (4 | ) | | — |
| | (4 | ) |
Amounts reclassified from accumulated other comprehensive loss: | | | | | | | |
Prior service cost (2) | 1 |
| | — |
| | 1 |
| | — |
|
Actuarial losses (2) | 1 |
| | 1 |
| | 3 |
| | 3 |
|
Tax benefit (expense) | (1 | ) | | 2 |
| | (2 | ) | | 1 |
|
Net current period other comprehensive income (loss) | 1 |
| | (1 | ) | | 2 |
| | — |
|
Ending Balance | $ | (70 | ) | | $ | (65 | ) | | $ | (70 | ) | | $ | (65 | ) |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Beginning Balance | $ | (65 | ) | | $ | (71 | ) | | $ | (66 | ) | | $ | (72 | ) |
Amounts reclassified from accumulated other comprehensive loss: | | | | | | | |
Prior service cost (1) | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Actuarial losses (1) | 1 |
| | 1 |
| | 3 |
| | 3 |
|
Tax expense | — |
| | (1 | ) | | (1 | ) | | (2 | ) |
Net current period other comprehensive income | 2 |
| | 1 |
| | 3 |
| | 2 |
|
Ending Balance | $ | (63 | ) | | $ | (70 | ) | | $ | (63 | ) | | $ | (70 | ) |
| |
(1) | Total other comprehensive income (loss) is related to the remeasurement of the postretirement plan. |
| |
(2) | These accumulated other comprehensive components are included in the computation of net periodic cost. |
CenterPoint Energy expectsThe table below reflects the expected contributions to contribute a minimum of approximately $46 millionbe made to itsthe pension plans in 2017, of which approximately $16 million and $18 million were contributed during the three and six months ended June 30, 2017, respectively.
CenterPoint Energy expects to contribute a total of approximately $16 million to its postretirement benefit plan in 2017, of which approximately $4 million and $8 million were contributed during the three and six months ended June 30, 2017, respectively.2018:
|
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Expected minimum contribution to pension plans during 2018 | $ | 67 |
| | $ | — |
| | $ | — |
|
Expected contribution to postretirement benefit plan in 2018 | 16 |
| | 10 |
| | 5 |
|
The table below reflects the contributions made to the pension plans and postretirement benefit plan during 2018: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 |
| | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) |
Pension plans | | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | 64 |
| | $ | — |
| | $ | — |
|
Postretirement benefit plan | | 3 |
| | 2 |
| | 1 |
| | 7 |
| | 4 |
| | 2 |
|
(5) (6) Regulatory Accounting
AsThe following is a list of June 30, 2017, Houston Electric has not recognized an allowed equity return of $312 million because such return will be recognized as it is recovered in rates. Duringregulatory assets and liabilities reflected on the three months ended June 30, 2017 and 2016, Houston Electric recognized approximately $10 million and $17 million, respectively, of the allowed equity return not previously recognized. During the six months ended June 30, 2017 and 2016, Houston Electric recognized approximately $17 million and $30 million, respectively, of the allowed equity return not previously recognized.Registrants’ Condensed Consolidated Balance Sheets:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2018 | | December 31, 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
Regulatory Assets: | (in millions) |
Current regulatory assets (1) | $ | 55 |
| | $ | — |
| | $ | 55 |
| | $ | 130 |
| | $ | — |
| | $ | 130 |
|
Non-current regulatory assets: | | | | | | | | | | | |
Securitized regulatory assets | 1,293 |
| | 1,293 |
| | — |
| | 1,590 |
| | 1,590 |
| | — |
|
Unrecognized equity return (2) | (242 | ) | | (242 | ) | | — |
| | (287 | ) | | (287 | ) | | — |
|
Unamortized loss on reacquired debt | 72 |
| | 72 |
| | — |
| | 75 |
| | 75 |
| | — |
|
Pension and postretirement-related regulatory asset (3) | 623 |
| | 32 |
| | 18 |
| | 646 |
| | 31 |
| | 20 |
|
Hurricane Harvey restoration costs (4) | 63 |
| | 56 |
| | 7 |
| | 64 |
| | 58 |
| | 6 |
|
Regulatory assets related to TCJA (5) | 48 |
| | 33 |
| | 15 |
| | 48 |
| | 33 |
| | 15 |
|
Other long-term regulatory assets (6) | 210 |
| | 77 |
| | 133 |
| | 211 |
| | 70 |
| | 140 |
|
Total non-current regulatory assets | 2,067 |
| | 1,321 |
| | 173 |
| | 2,347 |
| | 1,570 |
| | 181 |
|
Total regulatory assets | 2,122 |
| | 1,321 |
| | 228 |
| | 2,477 |
| | 1,570 |
| | 311 |
|
Regulatory Liabilities: | | | | | | | | | | | |
Current regulatory liabilities (7) | 43 |
| | 6 |
| | 37 |
| | 24 |
| | 22 |
| | 2 |
|
Non-current regulatory liabilities: | | | | | | | | | | | |
Regulatory liabilities related to TCJA (5) | 1,389 |
| | 885 |
| | 504 |
| | 1,354 |
| | 862 |
| | 492 |
|
Estimated removal costs | 885 |
| | 279 |
| | 606 |
| | 878 |
| | 285 |
| | 593 |
|
Other long-term regulatory liabilities | 247 |
| | 101 |
| | 146 |
| | 232 |
| | 116 |
| | 116 |
|
Total non-current regulatory liabilities | 2,521 |
| | 1,265 |
| | 1,256 |
| | 2,464 |
| | 1,263 |
| | 1,201 |
|
Total regulatory liabilities | 2,564 |
| | 1,271 |
| | 1,293 |
| | 2,488 |
| | 1,285 |
| | 1,203 |
|
Total regulatory assets and liabilities, net | $ | (442 | ) | | $ | 50 |
| | $ | (1,065 | ) | | $ | (11 | ) | | $ | 285 |
| | $ | (892 | ) |
| |
(1) | Current regulatory assets are included in Prepaid expenses and other current assets in the Registrants’ Condensed Consolidated Balance Sheets. |
| |
(2) | The unrecognized equity return will be recognized as it is recovered in rates through 2024. During the three months ended June 30, 2018 and 2017, CenterPoint Energy and Houston Electric recognized approximately $24 million and $10 million, respectively, of the allowed equity return. During the six months ended June 30, 2018 and 2017, CenterPoint Energy and Houston Electric recognized approximately $45 million and $17 million, respectively, of the allowed equity return. The timing of CenterPoint Energy’s and Houston Electric’s recognition of the equity return will vary each period based on amounts actually collected during the period. The actual amounts recognized are adjusted at least annually to correct any over-collections or under-collections during the preceding 12 months. |
| |
(3) | Includes a portion of NGD’s actuarially determined pension and other postemployment expense in excess of the amount being recovered through rates that is being deferred for rate making purposes, of which $5 million and $7 million as of June 30, 2018 and December 31, 2017, respectively, were not earning a return. |
| |
(4) | The Registrants are not earning a return on Hurricane Harvey restoration costs. |
| |
(5) | The EDIT and deferred revenues will be recovered or refunded to customers as required by tax and regulatory authorities. |
| |
(6) | Other long-term regulatory assets that are not earning a return were not material as of June 30, 2018 and December 31, 2017. |
| |
(7) | Current regulatory liabilities are included in Other current liabilities in the Registrants’ Condensed Consolidated Balance Sheets. |
(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’sthe Registrants’ Condensed Consolidated Balance Sheets at their fair value unless CenterPoint Energy electsthe Registrants elect the normal purchase and sales exemption for qualified physical transactions. A derivative may be designated as a normal purchase or normal sale if the intent is to physically receive or deliver the product for use or sale in the normal course of business.
CenterPoint Energy has a Risk Oversight Committee composed of corporate and business segment officers that oversees commodity price, weather and credit risk activities, including CenterPoint Energy’sthe Registrants’ marketing, risk management services and hedging activities. The committee’s duties are to establish CenterPoint Energy’sthe Registrants’ commodity risk policies, allocate board-approved commercial risk limits, approve the use of new products and commodities, monitor positions and ensure compliance with CenterPoint Energy’sthe Registrants’ commercial risk management policies,policy and procedures and limits established by CenterPoint Energy’s boardBoard of directors.Directors.
CenterPoint Energy’sThe Registrants’ policies prohibit the use of leveraged financial instruments. A leveraged financial instrument, for this purpose, is a transaction involving a derivative whose financial impact will be based on an amount other than the notional amount or volume of the instrument.
| |
(a) | Non-Trading Activities |
Derivative Instruments. CenterPoint Energy entersand CERC, through CES, enter into certain derivative instruments to mitigate the effects of commodity price movements. Certain financial instruments used to hedge portions of the natural gas inventory of the Energy Services business segment are designated as fair value hedges for accounting purposes. All other financial instruments do not qualify or are not designated as cash flow or fair value hedges.
Weather Hedges. CenterPoint Energy hasand CERC have weather normalization or other rate mechanisms that mitigate the impact of weather on NGD in Arkansas, Louisiana, Mississippi, Minnesota and Oklahoma. NGD and electric operations in Texas do not have such mechanisms, although fixed customer charges are historically higher in Texas for NGD compared to CenterPoint Energy’sits other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on NGD’s results in Texas and on Houston Electric’selectric operations’ results in its service territory.
CenterPoint Energy enteredand CERC, as applicable, enter into heating-degree day swapswinter season weather hedges from time to time for certain NGD Texas jurisdictions to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows for the 2017–2018 winter heating season, which contained a bilateral dollar cap of $8 million. However, CenterPoint Energy did not enter into heating-degree day swaps for NGD jurisdictions for the 2015–2016 or 2016–2017 winter heating seasons. CenterPoint Energy entered into weather hedges for the Houston Electricelectric operations’ service territory to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows, which contained bilateral dollar caps of $7 million, $9 million and $9 million for the 2015–2016, 2016–2017 and 2017–2018 winter seasons, respectively. The swapsflows. These weather hedges are based on cooling degree days and heating degree days at 10-year normal weather. During both the three months ended June 30, 2017Houston Electric does not enter into weather hedges.
The table below summarizes CenterPoint Energy’s and 2016, CenterPoint Energy recognized no gains or losses related to these swaps. During the six months ended June 30, 2017 and 2016, CenterPoint Energy recognized gains of $1 million and $3 million, respectively, related to these swaps. WeatherCERC’s current weather hedge gains and losses are included in revenues in the Condensed Statements of Consolidated Income.activity:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
Jurisdiction | | Winter Season | | Bilateral Cap | | 2018 | | 2017 | | 2018 | | 2017 |
| | | | (in millions) | | | | |
Certain NGD jurisdictions | | 2018 – 2019 | | $ | 9 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Certain NGD jurisdictions | | 2017 – 2018 | | 8 |
| | — |
| | — |
| | — |
| | — |
|
Total CERC (1) | | | | | | — |
|
| — |
|
| — |
|
| — |
|
Electric operations’ service territory | | 2018 – 2019 | | 8 |
| | — |
| | — |
| | — |
| | — |
|
Electric operations’ service territory | | 2017 – 2018 | | 9 |
| | — |
| | — |
| | (4 | ) | | — |
|
Electric operations’ service territory | | 2016 – 2017 | | 9 |
| | — |
| | — |
| | — |
| | 1 |
|
Total CenterPoint Energy (1) | | | | | | $ | — |
|
| $ | — |
|
| $ | (4 | ) |
| $ | 1 |
|
| |
(1) | Weather hedge gains (losses) are recorded in Revenues in the Condensed Statements of Consolidated Income. |
Hedging of Interest Expense for Future Debt Issuances. In January 2017,and February 2018, Houston Electric entered into forward interest rate agreements with severalmultiple counterparties, having an aggregate notional amount of $150$200 million. These agreements were executed to hedge, in part, volatility in the 10-year30-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$400 million issuance of fixed rate debt in January 2017.February 2018. These
forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized gains associated with the forward interest rate agreements, which totaled approximately $5 million, is a component of accumulated other comprehensive income in 2018 and will be amortized over the life of the fixed rate debt.
In March 2018, CERC Corp. entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $450 million. These agreements were executed to hedge, in part, volatility in the 5-year and 10-year U.S. treasury rates by reducing CERC Corp.’s exposure to variability in cash flows related to interest payments of CERC Corp.’s $600 million issuance of fixed rate debt in March 2018. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the forward interest rate agreements, which totaled approximately $0.5less than $1 million, is a component of accumulated other comprehensive income in 20172018 and will be amortized over the life of the bonds.
To date 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 on a forecasted issuance of fixed rate debt in 2017. These forward interest rate agreements were designated as cash flow hedges. As of June 30, 2017, an approximately $1 million current non-trading derivative liability was recorded on the Condensed Consolidated Balance Sheets related to these agreements. Accordingly, the effective portion of unrealized gains and losses associated with the forward interest rate agreements will be recorded as a component of accumulated other comprehensive income and the ineffective portion, if any, will be recorded in income.
debt.
| |
(b) | Derivative Fair Values and Income Statement Impacts |
The following tables present information about CenterPoint Energy’s derivative instruments and hedging activities. The first fourtwo tables provide a balance sheet overview of CenterPoint Energy’s Derivative Assets and Liabilities, as of June 30, 2017 and December 31, 2016, while the last table provides a breakdown of the related income statement impacts for the threeimpacts.
Fair Value of Derivative Instruments (CenterPoint Energy and six months ended June 30, 2017 and 2016.CERC)
| | Fair Value of Derivative Instruments | |
| | | June 30, 2018 | | December 31, 2017 |
| | June 30, 2017 | | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
Derivatives designated as fair value hedges: | | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | Derivatives designated as fair value hedges: | | (in millions) |
| | (in millions) | |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | $ | 6 |
| | $ | 1 |
| | Current Liabilities: Non-trading derivative liabilities | | $ | — |
| | $ | 3 |
| | $ | 13 |
| | $ | 1 |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 1 |
| | — |
| |
| | | | | |
Derivatives not designated as hedging instruments: | | | | | Derivatives not designated as hedging instruments: | | | | | | | | |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | 91 |
| | 25 |
| | Current Assets: Non-trading derivative assets | | 76 |
| | 2 |
| | 114 |
| | 4 |
|
Natural gas derivatives (1) (2) (3) | | Other Assets: Non-trading derivative assets | | 46 |
| | — |
| | Other Assets: Non-trading derivative assets | | 46 |
| | — |
| | 44 |
| | — |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 8 |
| | 34 |
| | Current Liabilities: Non-trading derivative liabilities | | 23 |
| | 64 |
| | 38 |
| | 78 |
|
Natural gas derivatives (1) (2) (3) | | Other Liabilities: Non-trading derivative liabilities | | 8 |
| | 21 |
| | Other Liabilities: Non-trading derivative liabilities | | 15 |
| | 41 |
| | 9 |
| | 24 |
|
Total CERC | | Total CERC | | 160 |
| | 110 |
| | 218 |
| | 107 |
|
Indexed debt securities derivative | | Current Liabilities | | — |
| | 740 |
| | Current Liabilities | | — |
| | 641 |
| | — |
| | 668 |
|
Total | | $ | 160 |
| | $ | 821 |
| |
Total CenterPoint Energy | | Total CenterPoint Energy | | $ | 160 |
| | $ | 751 |
| | $ | 218 |
| | $ | 775 |
|
| |
(1) | The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,9061,862 Bcf or a net 17268 Bcf short position.long position and 1,795 Bcf or a net 224 Bcf long position as of June 30, 2018 and December 31, 2017, respectively. Certain natural gas contracts hedge basis risk only and lack a fixed price exposure. |
| |
(2) | Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities was a $89$82 million asset and a $130 million asset as of June 30, 2018 and December 31, 2017, respectively, as shown on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets (and as detailed in the table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above, impacted by collateral netting of $10 million. |
| |
(3) | Derivative Assets$32 million and Derivative Liabilities include no material amounts related to physical forward transactions with Enable. |
|
| | | | | | | | | | | | |
Offsetting of Natural Gas Derivative Assets and Liabilities |
| | June 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 | | $ | 106 |
| | $ | (39 | ) | | $ | 67 |
|
Other Assets: Non-trading derivative assets | | 54 |
| | (8 | ) | | 46 |
|
Current Liabilities: Non-trading derivative liabilities | | (60 | ) | | 40 |
| | (20 | ) |
Other Liabilities: Non-trading derivative liabilities | | (21 | ) | | 17 |
| | (4 | ) |
Total | | $ | 79 |
| | $ | 10 |
| | $ | 89 |
|
| |
(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. Of the net long position, basis swaps constitute a net 126 Bcf long position. |
| |
(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$19 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.respectively. |
| |
(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 (CenterPoint Energy and CERC)
| | Offsetting of Natural Gas Derivative Assets and Liabilities | |
| | December 31, 2016 | | June 30, 2018 | | December 31, 2017 |
| | Gross Amounts Recognized (1) | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets (2) | | Gross Amounts Recognized (1) | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets (2) | | Gross Amounts Recognized (1) | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets (2) |
| | (in millions) | | (in millions) |
Current Assets: Non-trading derivative assets | | $ | 81 |
| | $ | (30 | ) | | $ | 51 |
| | $ | 99 |
| | $ | (25 | ) | | $ | 74 |
| | $ | 165 |
| | $ | (55 | ) | | $ | 110 |
|
Other Assets: Non-trading derivative assets | | 24 |
| | (5 | ) | | 19 |
| | 61 |
| | (15 | ) | | 46 |
| | 53 |
| | (9 | ) | | 44 |
|
Current Liabilities: Non-trading derivative liabilities | | (57 | ) | | 16 |
| | (41 | ) | | (69 | ) | | 43 |
| | (26 | ) | | (83 | ) | | 63 |
| | (20 | ) |
Other Liabilities: Non-trading derivative liabilities | | (10 | ) | | 5 |
| | (5 | ) | | (41 | ) | | 29 |
| | (12 | ) | | (24 | ) | | 20 |
| | (4 | ) |
Total | | $ | 38 |
| | $ | (14 | ) | | $ | 24 |
| | $ | 50 |
| | $ | 32 |
| | $ | 82 |
| | $ | 111 |
| | $ | 19 |
| | $ | 130 |
|
| |
(1) | Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements. |
| |
(2) | The derivative assets and liabilities on the Condensed Consolidated Balance Sheets exclude accounts receivable or accounts payable that, should they exist, could be used as offsets to these balances in the event of a default. |
Realized and unrealized gains and losses on natural gas derivatives are recognized in the Condensed Statements of Consolidated Income as revenue for physical sales derivative contracts and as natural gas expense for financial natural gas derivatives and physical purchase natural gas derivatives. Realized and unrealized gains and losses on indexed debt securities are recorded as Other Income (Expense) in the Condensed Statements of Consolidated Income.
Hedge ineffectiveness is recorded as a component of natural gas expense and primarily results from differences in the location of the derivative instrument and the hedged item. Basis ineffectiveness arises from natural gas market price differences between the locations of the hedged inventory and the delivery location specified in the hedge instruments. The impact of natural gas derivatives designated as fair value hedges, the related hedged item, and natural gas derivatives not designated as hedging instruments are presented in the table below.
Income Statement Impact of Derivative Activity (CenterPoint Energy and CERC)
|
| | | | | | | | | | |
Income Statement Impact of Derivative Activity |
| | | | Three Months Ended June 30, |
| | Income Statement Location | | 2017 | | 2016 |
Derivatives designated as fair value hedges: | | | | (in millions) |
Natural gas derivatives | | Gains (Losses) in Expenses: Natural Gas | | $ | 3 |
| | $ | — |
|
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) | | $ | (1 | ) | | $ | — |
|
| | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Natural gas derivatives | | Gains (Losses) in Revenues | | $ | 36 |
| | $ | (50 | ) |
Natural gas derivatives | | Gains (Losses) in Expenses: Natural Gas | | (9 | ) | | 59 |
|
Indexed debt securities derivative | | Gains (Losses) in Other Income (Expense) | | (13 | ) | | (130 | ) |
Total - derivatives not designated as hedging instruments | | $ | 14 |
| | $ | (121 | ) |
| | Income Statement Impact of Derivative Activity | |
| | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | Income Statement Location | | 2017 | | 2016 | | Income Statement Location | | 2018 | | 2017 | | 2018 | | 2017 |
Derivatives designated as fair value hedges: | | (in millions) | Derivatives designated as fair value hedges: | | (in millions) |
Natural gas derivatives | | Gains (Losses) in Expenses: Natural Gas | | $ | 12 |
| | $ | — |
| | Gains (Losses) in Non-utility natural gas expense | | $ | 13 |
| | $ | 3 |
| | $ | 13 |
| | $ | 12 |
|
Fair value adjustments for natural gas inventory designated as the hedged item | | Gains (Losses) in Expenses: Natural Gas | | (14 | ) | | — |
| |
Total increase in Expenses: Natural Gas (1) | | $ | (2 | ) | | $ | — |
| |
| | | | | |
Natural gas inventory | | | Gains (Losses) in Non-utility natural gas expense | | (12 | ) | | (4 | ) | | (14 | ) | | (14 | ) |
Total CenterPoint Energy and CERC (1) | | Total CenterPoint Energy and CERC (1) | | $ | 1 |
| | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) |
Derivatives not designated as hedging instruments: | | | | | Derivatives not designated as hedging instruments: | | | | | | | | |
Natural gas derivatives | | Gains (Losses) in Revenues | | $ | 132 |
| | $ | (30 | ) | | Gains (Losses) in Non-utility revenues | | $ | 11 |
| | $ | 36 |
| | $ | 68 |
| | $ | 132 |
|
Natural gas derivatives | | Gains (Losses) in Expenses: Natural Gas | | (82 | ) | | 48 |
| | Gains (Losses) in Non-utility natural gas expense | | (9 | ) | | (9 | ) | | (78 | ) | | (82 | ) |
Total CERC | | Total CERC | | 2 |
| | 27 |
| | (10 | ) | | 50 |
|
Indexed debt securities derivative | | Gains (Losses) in Other Income (Expense) | | (23 | ) | | (186 | ) | | Gains (Losses) in Other Income (Expense) | | (254 | ) | | (13 | ) | | (272 | ) | | (23 | ) |
Total - derivatives not designated as hedging instruments | | $ | 27 |
| | $ | (168 | ) | |
Total CenterPoint Energy | | Total CenterPoint Energy | | $ | (252 | ) | | $ | 14 |
| | $ | (282 | ) | | $ | 27 |
|
| |
(1) | Hedge ineffectiveness results from the basis ineffectiveness discussed above, and excludes the impact to natural gas expense from timing ineffectiveness. Timing ineffectiveness arises due to changes in the difference between the spot price and the futures price, as well as the difference between the timing of the settlement of the futures and the valuation of the underlying physical commodity. As the commodity contract nears the settlement date, spot-to-forward price differences should converge, which should reduce or eliminate the impact of this ineffectiveness on natural gas expense. |
| |
(c) | Credit Risk Contingent Features |
CenterPoint Energy entersand CERC enter into financial derivative contracts containing material adverse change provisions. These provisions could require CenterPoint Energy or CERC to post additional collateral if the S&P or Moody’s credit ratings of CenterPoint Energy, Inc. or its subsidiaries, including CERC Corp., are downgraded. The total fair value of the derivative instruments that contain credit risk contingent features that are in a net liability position as of both June 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 June 30, 2017 or December 31, 2016. If all derivative contracts (in a net liability position) containing credit risk contingent features were triggered as of June 30, 2017 and December 31, 2016, $1 million and $-0-, respectively, of additional assets would be required to be posted as collateral.CERC
|
| | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | (in millions) |
Aggregate fair value of derivatives containing material adverse change provisions in a net liability position | | $ | 2 |
| | $ | 2 |
|
Fair value of collateral already posted | | — |
| | — |
|
Additional collateral required to be posted if credit risk contingent features triggered | | 1 |
| | 2 |
|
(7) (8) Fair Value Measurements
Assets and liabilities that are recorded at fair value in the Registrants’ Condensed Consolidated Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined below and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value generally are exchange-traded derivatives and equity securities, as well as natural gas inventory that has been designated as the hedged item in a fair value hedge.
Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets. A market approach is utilized to value CenterPoint Energy’sthe Registrants’ Level 2 assets or liabilities.
Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Unobservable inputs reflect CenterPoint Energy’sthe Registrants’ judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. CenterPoint Energy developsThe Registrants develop these inputs based on the best information available, including CenterPoint Energy’sthe Registrants’ own data. A market approach is utilized to value CenterPoint Energy’sthe Registrants’ Level 3 assets or liabilities. As of June 30, 2017,2018, CenterPoint Energy’s and CERC’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options and itsCenterPoint Energy’s indexed debt securities. Level 3 physical natural gas forward contracts and options are valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $1.18$1.04 to $6.01$3.31 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 80%) as an unobservable input. CenterPoint Energy’s and CERC’s Level 3 physical natural gas forward contracts and options derivative assets and liabilities consist of both long and short positions (forwards and options) and their fair value is sensitive to forward prices and volatilities.prices. If forward prices decrease, CenterPoint Energy’s and CERC’s long forwards lose value whereas its short forwards gain in value. If volatility decreases, CenterPoint Energy’s longand options lose value whereas itstheir short forwards and options gain in value. CenterPoint Energy’s Level 3 indexed debt securities arederivative is valued using a Black-Scholesan option model and a discounted cash flow model, which use option volatility (12.5%)uses projected dividends on the ZENS-Related Securities and a projected dividend growthdiscount rate (7%) as unobservable inputs. An increase and a decrease in either volatilities or projected dividendsthe unobservable inputs will generally decrease and 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.derivative, respectively.
CenterPoint Energy determinesThe Registrants determine the appropriate level for each financial asset and liability on a quarterly basis and recognizesrecognize transfers between levels at the end of the reporting period. For the six months ended June 30, 2017,2018, there were no transfers between Level 1 and 2. CenterPoint EnergyThe Registrants also recognizesrecognize purchases of Level 3 financial assets and liabilities at their fair market value at the end of the reporting period.
The following tables present information about CenterPoint Energy’sthe Registrants’ assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016, and indicate the fair value hierarchy of the valuation techniques utilized by CenterPoint Energythe Registrants to determine such fair value.
|
| | | | | | | | | | | | | | | | | | | |
| June 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 | $ | 1,023 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,023 |
|
Investments, including money market funds (2) | 66 |
| | — |
| | — |
| | — |
| | 66 |
|
Natural gas derivatives (3) | 2 |
| | 125 |
| | 33 |
| | (47 | ) | | 113 |
|
Hedged portion of natural gas inventory | 107 |
| | — |
| | — |
| | — |
| | 107 |
|
Total assets | $ | 1,198 |
| | $ | 125 |
| | $ | 33 |
| | $ | (47 | ) | | $ | 1,309 |
|
Liabilities | |
| | |
| | |
| | |
| | |
|
Indexed debt securities derivative | $ | — |
| | $ | — |
| | $ | 740 |
| | $ | — |
| | $ | 740 |
|
Natural gas derivatives (3) | 2 |
| | 74 |
| | 5 |
| | (57 | ) | | 24 |
|
Total liabilities | $ | 2 |
| | $ | 74 |
| | $ | 745 |
| | $ | (57 | ) | | $ | 764 |
|
| |
(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 $10 million posted with the same counterparties. |
CenterPoint Energy
| |
(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 | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| (in millions) |
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total | |
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total |
Assets | | | | | | | | | | (in millions) |
Corporate equities | $ | 956 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 956 |
| $ | 586 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 586 |
| | $ | 963 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 963 |
|
Investments, including money market funds (2) | 77 |
| | — |
| | — |
| | — |
| | 77 |
| 70 |
| | — |
| | — |
| | — |
| | 70 |
| | 68 |
| | — |
| | — |
| | — |
| | 68 |
|
Natural gas derivatives (3) | 11 |
| | 74 |
| | 20 |
| | (35 | ) | | 70 |
| — |
| | 142 |
| | 18 |
| | (40 | ) | | 120 |
| | — |
| | 161 |
| | 57 |
| | (64 | ) | | 154 |
|
Hedged portion of natural gas inventory | | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | — |
| | — |
| | 14 |
|
Total assets | $ | 1,044 |
| | $ | 74 |
| | $ | 20 |
| | $ | (35 | ) | | $ | 1,103 |
| $ | 656 |
| | $ | 142 |
| | $ | 18 |
| | $ | (40 | ) | | $ | 776 |
| | $ | 1,045 |
| | $ | 161 |
| | $ | 57 |
| | $ | (64 | ) | | $ | 1,199 |
|
Liabilities | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | | | | | | | | | |
Indexed debt securities derivative | $ | — |
| | $ | — |
| | $ | 717 |
| | $ | — |
| | $ | 717 |
| $ | — |
| | $ | — |
| | $ | 641 |
| | $ | — |
| | $ | 641 |
| | $ | — |
| | $ | — |
| | $ | 668 |
| | $ | — |
| | $ | 668 |
|
Natural gas derivatives (3) | 4 |
| | 56 |
| | 7 |
| | (21 | ) | | 46 |
| — |
| | 105 |
| | 5 |
| | (72 | ) | | 38 |
| | — |
| | 96 |
| | 11 |
| | (83 | ) | | 24 |
|
Hedged portion of natural gas inventory | | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total liabilities | $ | 4 |
| | $ | 56 |
| | $ | 724 |
| | $ | (21 | ) | | $ | 763 |
| $ | 1 |
| | $ | 105 |
| | $ | 646 |
| | $ | (72 | ) | | $ | 680 |
| | $ | — |
| | $ | 96 |
| | $ | 679 |
| | $ | (83 | ) | | $ | 692 |
|
Houston Electric
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2018 | | December 31, 2017 |
|
Level 1 | | Level 2 | | Level 3 | | Netting | | Total | |
Level 1 | | Level 2 | | Level 3 | | Netting | | Total |
Assets | (in millions) |
Investments, including money market funds (2) | $ | 52 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 52 |
| | $ | 51 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 51 |
|
Total assets | $ | 52 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 52 |
| | $ | 51 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 51 |
|
CERC
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2018 | | December 31, 2017 |
|
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total | |
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total |
Assets | (in millions) |
Corporate equities | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
|
Investments, including money market funds (2) | 11 |
| | — |
| | — |
| | — |
| | 11 |
| | 11 |
| | — |
| | — |
| | — |
| | 11 |
|
Natural gas derivatives (3) | — |
| | 142 |
| | 18 |
| | (40 | ) | | 120 |
| | — |
| | 161 |
| | 57 |
| | (64 | ) | | 154 |
|
Hedged portion of natural gas inventory | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | — |
| | — |
| | 14 |
|
Total assets | $ | 13 |
| | $ | 142 |
| | $ | 18 |
| | $ | (40 | ) | | $ | 133 |
| | $ | 28 |
| | $ | 161 |
| | $ | 57 |
| | $ | (64 | ) | | $ | 182 |
|
Liabilities | |
| | |
| | |
| | |
| | |
| | | | | | | | | | |
Natural gas derivatives (3) | $ | — |
| | $ | 105 |
| | $ | 5 |
| | $ | (72 | ) | | $ | 38 |
| | $ | — |
| | $ | 96 |
| | $ | 11 |
| | $ | (83 | ) | | $ | 24 |
|
Hedged portion of natural gas inventory | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total liabilities | $ | 1 |
| | $ | 105 |
| | $ | 5 |
| | $ | (72 | ) | | $ | 39 |
| | $ | — |
| | $ | 96 |
| | $ | 11 |
| | $ | (83 | ) | | $ | 24 |
|
| |
(1) | Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy and CERC to settle positive and negative positions and also include cash collateral of $14$32 million held by CES fromand $19 million as of June 30, 2018 and December 31, 2017, respectively, posted with the same counterparties. |
| |
(2) | Amounts are included in Prepaid Expensesexpenses and Other Current Assetsother current assets in the Condensed Consolidated Balance Sheets. |
| |
(3) | Natural gas derivatives include no material amounts related to physical forward transactions with Enable. |
The following table presents additional information about assets or liabilities, including derivatives that are measured at fair value on a recurring basis for which CenterPoint Energy hasand CERC have utilized Level 3 inputs to determine fair value:
| | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | | | | | | | | | | | | | | | | | |
| Derivative assets and liabilities, net | Three Months Ended June 30, | | Six Months Ended June 30, |
| Three Months Ended June 30, | | Six Months Ended June 30, | 2018 | | 2017 | | 2018 | | 2017 |
| 2017 | | 2016 | | 2017 | | 2016 | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) | (in millions) |
Beginning balance | $ | (700 | ) | | $ | 15 |
| | $ | (704 | ) | | $ | 12 |
| $ | (662 | ) | | $ | 12 |
| | $ | (700 | ) | | $ | 27 |
| | $ | (622 | ) | | $ | 46 |
| | $ | (704 | ) | | $ | 13 |
|
Purchases (1) | — |
| | 12 |
| | — |
| | 12 |
| |
Total gains (losses) | (6 | ) | | — |
| | — |
| | 4 |
| (11 | ) | | 1 |
| | (6 | ) | | 7 |
| | (16 | ) | | 3 |
| | — |
| | 23 |
|
Total settlements | — |
| | (11 | ) | | (4 | ) | | (16 | ) | 44 |
| | (1 | ) | | — |
| | — |
| | 11 |
| | (35 | ) | | (4 | ) | | (4 | ) |
Transfers into Level 3 | 1 |
| | — |
| | 2 |
| | 5 |
| 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 2 |
| | 2 |
|
Transfers out of Level 3 | (7 | ) | | — |
| | (6 | ) | | (1 | ) | — |
| | — |
| | (7 | ) | | (7 | ) | | (2 | ) | | (2 | ) | | (6 | ) | | (6 | ) |
Ending balance (2) | $ | (712 | ) | | $ | 16 |
| | $ | (712 | ) | | $ | 16 |
| |
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) | $ | (9 | ) | | $ | 3 |
| | $ | (2 | ) | | $ | 11 |
| |
Ending balance (1) | | $ | (628 | ) | | $ | 13 |
| | $ | (712 | ) | | $ | 28 |
| | $ | (628 | ) | | $ | 13 |
| | $ | (712 | ) | | $ | 28 |
|
| | | | | | | | | | | | | | | | |
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date: | | The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date: |
| | $ | (9 | ) | | $ | 3 |
| | $ | (9 | ) | | $ | 4 |
| | $ | (23 | ) | | $ | (4 | ) | | $ | (2 | ) | | $ | 21 |
|
| |
(1) | Mark-to-market value of Level 3 derivative assets acquired through the purchase of AEM was less than $1 million at the acquisition date. |
| |
(2) | CenterPoint Energy and CERC did not have significant Level 3 sales or purchases during either of the three or six months ended June 30, 20172018 or 2016.2017. |
| |
(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 June 30, 2017, the indexed debt securities liability |
was $740 million. During the three and six months ended June 30, 2017, there was a loss of $13 million and $23 million, respectively, on the indexed debt securities.
Estimated Fair Value of Financial Instruments
The fair values of cash and cash equivalents, investments in debt and equity securities classified as “trading” and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s ZENS indexed debt securities derivative are stated at fair value and are excluded from the table below. The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by the market price.a combination of historical trading prices and comparable issue data. These assets and liabilities, which are not measured at fair value in the Registrants’ Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 1 or Level 2 in the fair value hierarchy.
|
| | | | | | | | | | | | | | | |
| June 30, 2017 | | December 31, 2016 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (in millions) |
Financial liabilities: | | | | | | | |
Long-term debt | $ | 8,559 |
| | $ | 9,051 |
| | $ | 8,443 |
| | $ | 8,846 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2018 | | December 31, 2017 |
| CenterPoint Energy (1) | | Houston Electric (1) | | CERC | | CenterPoint Energy (1) | | Houston Electric (1) | | CERC |
Long-term debt, including current maturities | (in millions) |
Carrying amount | $ | 8,256 |
| | $ | 4,919 |
| | $ | 2,722 |
| | $ | 8,679 |
| | $ | 4,753 |
| | $ | 2,457 |
|
Fair value | 8,470 |
| | 4,991 |
| | 2,876 |
| | 9,220 |
| | 5,034 |
| | 2,708 |
|
| |
(1) | Includes Securitization Bond debt. |
(8)(9) Unconsolidated Affiliate (CenterPoint Energy and CERC)
CenterPoint Energy hasand CERC have the ability to significantly influence the operating and financial policies of Enable, a publicly traded MLP, and, accordingly, accountsaccount for itsthe investment in Enable’s common and subordinated units using the equity method of accounting.accounting for in-substance real estate. Upon the adoption of ASU 2014-09 and ASU 2017-05 on January 1, 2018, CenterPoint Energy and CERC evaluated transactions in the investment in Enable that occurred prior to January 1, 2018 (the effective date) and concluded a cumulative effect adjustment to the opening balance of retained earnings was not required. See Note 2 for further discussion.
CenterPoint Energy’s and CERC’s maximum exposure to loss related to Enable, a VIE in which CenterPoint Energy isand CERC are not the primary beneficiary,beneficiaries, is limited to itsthe equity investment, andthe Series A Preferred Unit investment as presented in the Condensed Consolidated Balance Sheets as of June 30, 2017 and outstanding current accounts receivable from Enable.
Transactions with
Limited Partner Interest and Units Held in Enable:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Reimbursement of transition services (1) | $ | 1 |
| | $ | 2 |
| | $ | 3 |
| | $ | 5 |
|
Natural gas expenses, including transportation and storage costs | 24 |
| | 24 |
| | 57 |
| | 57 |
|
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. |
|
| | | | | | | |
| June 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):
|
| | |
| June 30, 2017 |
CenterPoint Energy | 54.1 | % |
OGE | 25.7 | % |
|
| | | | | | | | |
| June 30, 2018 |
| Limited Partner Interest (1) | | Common Units | | Series A Preferred Units (2) |
CERC Corp. | 54.0 | % | | 233,856,623 |
| | — |
|
OGE | 25.6 | % | | 110,982,805 |
| | — |
|
Public unitholders | 20.4 | % | | 88,225,208 |
| | — |
|
CenterPoint Energy | — |
| | — |
| | 14,520,000 |
|
Total units outstanding | 100.0 | % | | 433,064,636 |
| | 14,520,000 |
|
| |
(1) | Excluding the Series A Preferred Units owned by CenterPoint Energy. |
In November 2016, Enable completed a public offering of 11,500,000 common units of which 1,424,281 were sold by ArcLight Capital Partners, LLC. The common units issued and sold by Enable resulted in dilution of both CenterPoint Energy’s and OGE’s limited partner interest in Enable.
Enable Common, Subordinated and Series A Preferred Units Held:
|
| | | | | | | | |
| June 30, 2017 |
| Common | | Subordinated | | Series A Preferred |
CenterPoint Energy | 94,151,707 |
| | 139,704,916 |
| | 14,520,000 |
|
OGE | 42,832,291 |
| | 68,150,514 |
| | — |
|
| |
(2) | The carrying amount of the Series A Preferred Units, reflected as Preferred units - unconsolidated affiliate on CenterPoint Energy’s Condensed Consolidated Balance Sheets, was $363 million as of both June 30, 2018 and December 31, 2017. No impairment charges or adjustment due to observable price changes were made during the current or prior reporting periods. See Note 2 for further discussion. |
Generally, sales to any person or entity (including a series of sales to the same person or entity) of more than 5% of the aggregate of the common units and subordinated units CenterPoint EnergyCERC Corp. owns in Enable or sales to any person or entity (including a series of sales to the same person or entity) by OGE of more than 5% of the aggregate of the common units and subordinated units it owns in Enable are subject to mutual rights of first offer and first refusal.refusal set forth in Enable’s Agreement of Limited Partnership.
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’sCERC Corp.’s or OGE’s ownership interests in Enable’s general partner to a third party is subject to mutual rights of first offer and first refusal, and CenterPoint EnergyCERC Corp. is not permitted to dispose of less than all of its interest in Enable’s general partner.
Summarized unaudited consolidated income information for Enable is as follows:Distributions Received from Enable:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 |
| 2016 |
| | (in millions) |
Operating revenues | | $ | 626 |
| | $ | 529 |
| | $ | 1,292 |
| | $ | 1,038 |
|
Cost of sales, excluding depreciation and amortization | | 279 |
| | 254 |
| | 587 |
| | 449 |
|
Operating income | | 122 |
| | 57 |
| | 262 |
| | 160 |
|
Net income attributable to Enable | | 86 |
| | 35 |
| | 197 |
| | 121 |
|
Reconciliation of Equity in Earnings, net: | | | | | | | | |
CenterPoint Energy’s interest | | $ | 47 |
| | $ | 19 |
| | $ | 107 |
| | $ | 67 |
|
Basis difference amortization (1) | | 12 |
| | 12 |
| | 24 |
| | 24 |
|
CenterPoint Energy’s equity in earnings, net | | $ | 59 |
| | $ | 31 |
| | $ | 131 |
| | $ | 91 |
|
| |
(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 Enable and its underlying equity in Enable’s net assets. The basis difference is amortized over approximately 33 years, the average life of the assets to which the basis difference is attributed. |
Summarized unaudited consolidated balance sheet information for Enable is as follows:
|
| | | | | | | | |
| | June 30, 2017 |
| December 31, 2016 |
| | (in millions) |
Current assets | | $ | 351 |
| | $ | 396 |
|
Non-current assets | | 10,780 |
| | 10,816 |
|
Current liabilities | | 298 |
| | 362 |
|
Non-current liabilities | | 3,111 |
| | 3,056 |
|
Non-controlling interest | | 12 |
| | 12 |
|
Preferred equity | | 362 |
| | 362 |
|
Enable partners’ equity | | 7,348 |
| | 7,420 |
|
Reconciliation of Equity Method Investment in Enable: | | | | |
CenterPoint Energy’s ownership interest in Enable partners’ capital | | $ | 4,025 |
| | $ | 4,067 |
|
CenterPoint Energy’s basis difference | | (1,538 | ) | | (1,562 | ) |
CenterPoint Energy’s equity method investment in Enable | | $ | 2,487 |
| | $ | 2,505 |
|
Distributions Received from Unconsolidated Affiliate:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Investment in Enable’s common and subordinated units | $ | 75 |
| | $ | 75 |
| | $ | 149 |
| | $ | 149 |
|
Investment in Enable’s Series A Preferred Units | 9 |
| | 4 |
| | 18 |
| | 4 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Investment in Enable common units | $ | 75 |
| | $ | 75 |
| | $ | 149 |
| | $ | 149 |
|
Total CERC | 75 |
| | 75 |
| | 149 |
| | 149 |
|
Investment in Enable Series A Preferred Units | 9 |
| | 9 |
| | 18 |
| | 18 |
|
Total CenterPoint Energy | $ | 84 |
| | $ | 84 |
| | $ | 167 |
| | $ | 167 |
|
As of June 30, 2017,2018, CERC Corp. and OGE also ownowned 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 (other than the Series A Preferred 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 (other than the Series A Preferred Units) 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.
Transactions with Enable (CenterPoint Energy and CERC):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Reimbursement of transition services (1) | $ | 1 |
| | $ | 1 |
| | $ | 3 |
| | $ | 3 |
|
Natural gas expenses, including transportation and storage costs | 29 |
| | 24 |
| | 66 |
| | 57 |
|
| |
(1) | Represents amounts billed under the Transition Agreements for certain support services provided to Enable. Actual transition services costs are recorded net of reimbursement. |
|
| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
| (in millions) |
Accounts receivable for amounts billed for transition services | $ | 3 |
| | $ | 1 |
|
Accounts payable for natural gas purchases from Enable | 8 |
| | 13 |
|
Summarized unaudited consolidated income information for Enable is as follows:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 |
| 2017 |
| | (in millions) |
Operating revenues | | $ | 805 |
| | $ | 626 |
| | $ | 1,553 |
| | $ | 1,292 |
|
Cost of sales, excluding depreciation and amortization | | 444 |
| | 279 |
| | 819 |
| | 587 |
|
Operating income | | 126 |
| | 122 |
| | 265 |
| | 262 |
|
Net income attributable to Enable | | 86 |
| | 86 |
| | 191 |
| | 197 |
|
Reconciliation of Equity in Earnings, net: | | | | | | | | |
CenterPoint Energy’s and CERC’s interest | | $ | 46 |
| | $ | 47 |
| | $ | 103 |
| | $ | 107 |
|
Basis difference amortization (1) | | 12 |
| | 12 |
| | 24 |
| | 24 |
|
CenterPoint Energy’s and CERC’s equity in earnings, net | | $ | 58 |
| | $ | 59 |
| | $ | 127 |
| | $ | 131 |
|
| |
(1) | Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s and CERC’s share of Enable’s earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s and CERC’s original investment in Enable and their underlying equity in Enable’s net assets. The basis difference is amortized over approximately 31 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, 2018 |
| December 31, 2017 |
| | (in millions) |
Current assets | | $ | 432 |
| | $ | 416 |
|
Non-current assets | | 11,360 |
| | 11,177 |
|
Current liabilities | | 1,258 |
| | 1,279 |
|
Non-current liabilities | | 2,963 |
| | 2,660 |
|
Non-controlling interest | | 11 |
| | 12 |
|
Preferred equity | | 362 |
| | 362 |
|
Enable partners’ equity | | 7,198 |
| | 7,280 |
|
Reconciliation of Investment in Enable: | | | | |
CenterPoint Energy’s and CERC’s ownership interest in Enable partners’ equity | | $ | 3,887 |
| | $ | 3,935 |
|
CenterPoint Energy’s and CERC’s basis difference | | (1,436 | ) | | (1,463 | ) |
CenterPoint Energy’s and CERC’s equity method investment in Enable | | $ | 2,451 |
| | $ | 2,472 |
|
(9) (10) Goodwill and Other Intangibles (CenterPoint Energy and CERC)
GoodwillCenterPoint Energy’s and CERC’s goodwill by reportable business segment as of both June 30, 2018 and December 31, 2016 and changes in the carrying amount of goodwill as of June 30, 2017 areis as follows:
| | | December 31, 2016 | | AEM Acquisition (1) | | June 30, 2017 | | | | |
| (in millions) | | (in millions) |
Natural Gas Distribution | $ | 746 |
| | $ | — |
| | $ | 746 |
| | $ | 746 |
|
Energy Services | 105 |
| (2) | 5 |
| | 110 |
| (2) | |
Energy Services (1) | | 110 |
|
Other Operations | 11 |
| | — |
| | 11 |
| | 11 |
|
Total | $ | 862 |
| | $ | 5 |
| | $ | 867 |
| | $ | 867 |
|
(1) See Note 3.
(2) Amount presented is net of the accumulated goodwill impairment charge of $252 million recorded in 2012.
The tables below present information on CenterPoint Energy’s and CERC’s other intangible assets recorded in Other non-current assets on the Condensed Consolidated Balance Sheets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2018 | | December 31, 2017 |
| Useful Lives | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance |
| (in years) | | (in millions) |
Customer relationships | 15 | | $ | 86 |
| | $ | (25 | ) | | $ | 61 |
| | $ | 86 |
| | $ | (21 | ) | | $ | 65 |
|
Covenants not to compete | 4 | | 4 |
| | (2 | ) | | 2 |
| | 4 |
| | (2 | ) | | 2 |
|
Other | Various | | 15 |
| | (9 | ) | | 6 |
| | 15 |
| | (8 | ) | | 7 |
|
Total | | | $ | 105 |
| | $ | (36 | ) | | $ | 69 |
| | $ | 105 |
| | $ | (31 | ) | | $ | 74 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Amortization expense of intangible assets | $ | 2 |
| | $ | 1 |
| | $ | 5 |
| | $ | 3 |
|
(10)(11) Indexed Debt Securities (ZENS) and Securities Related to ZENS (CenterPoint Energy)
(a) Investment in Securities Related to ZENS
In 1995, CenterPoint Energy sold a cable television subsidiary to TW and received certain TW securities as partial consideration. A subsidiary of CenterPoint Energy now holds 7.1 million shares of TW Common, 0.9 million shares of Time Common and 0.9 million shares of Charter Common,certain securities detailed in the table below, which are classified as trading securities and are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS. Unrealized gains and losses resulting from changes in the market value of the TWZENS-Related Securities are recorded in CenterPoint Energy’s Condensed Statements of Consolidated Income.
|
| | | | | | |
| | Shares Held |
| | June 30, 2018 | | December 31, 2017 |
AT&T Common | | 10,212,945 |
| | — |
|
Charter Common | | 872,503 |
| | 872,503 |
|
Time Common | | — |
| | 888,392 |
|
TW Common | | — |
| | 7,107,130 |
|
(b) ZENS
In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1 billion of which $828 million remain outstanding as of June 30, 2017.2018. Each ZENS was originally exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares of TW Common attributable to such note. The number and identity of the reference shares attributable to each ZENS are adjusted for certain corporate events. As of June 30, 2017, the reference shares for each ZENS consisted of 0.5 share of TW Common, 0.0625 share of Time Common and 0.061382 share of Charter Common, and the contingent principal balance was $510 million.
On October 22, 2016, AT&T announced that it had entered into a definitive agreement to acquire TW in a stock and cash transaction. On February 15, 2017, TW shareholders approved the announced transaction with AT&T. The merger closed on June 14, 2018. CenterPoint Energy received $53.75 and 1.437 shares of AT&T Common for each share of TW Common held, resulting in cash proceeds of $382 million and 10,212,945 shares of AT&T Common. In accordance with the terms of the ZENS, CenterPoint Energy remitted $382 million to ZENS note holders in July 2018, which reduced the contingent principal amount.
On November 26, 2017, Meredith announced that it had entered into a definitive merger agreement with Time. Pursuant to the merger agreement, upon closing of the merger, TW shareholdersa subsidiary of Meredith would receivepurchase for cash all outstanding Time Common shares for $18.50 per share. The transaction was consummated on January 31, 2018. CenterPoint Energy elected to make a reference share offer adjustment and distribute additional interest, if any, in accordance with the terms of its ZENS rather than electing to increase the early exchange ratio to 100%. CenterPoint Energy’s distribution of additional interest in connection with the reference share offer was proportionate to the percentage of eligible shares that were validly tendered by Time stockholders in Meredith’s tender offer. CenterPoint Energy received $18.50 for each share of their shares of TWTime Common an estimated
implied value of $107.50, comprised of $53.75 per shareheld, resulting in cash and $53.75 per share in AT&T Common. The stock portion will be subject to a collar such that TW shareholders will receive 1.437 sharesproceeds of AT&T Common if AT&T Common’s average stock price is below $37.411 at closing and 1.3 sharesapproximately $16 million. In accordance with the terms of AT&T Common if AT&T Common’s average stock price is above $41.349 at closing. Cash received for the TW Common reference shares would subsequently beZENS, CenterPoint Energy distributed additional interest of approximately $16 million to ZENS holders on March 6, 2018, which is expected to reducereduced the contingent principal balance, andamount.
As a result, CenterPoint Energy recorded the following during the six months ended June 30, 2018:
|
| | | | | | | | |
| Meredith/Time | | | AT&T/TW |
| (in millions) | | | (in millions) |
Cash payment to ZENS note holders | $ | 16 |
| | Due to ZENS note holders (1) | $ | 382 |
|
Indexed debt – reduction | (4 | ) | | Indexed debt – reduction | (95 | ) |
Indexed debt securities derivative – reduction | (1 | ) | | Indexed debt securities derivative – reduction | (45 | ) |
Loss on indexed debt securities | $ | 11 |
| | Loss on indexed debt securities | $ | 242 |
|
(1)Cash of approximately $382 million was paid to ZENS note holders in July 2018.
CenterPoint Energy’s reference shares would consistfor each ZENS consisted of Charter Common, Time Common and AT&T Common. AT&T has publicly announced that the merger is expected to close byfollowing:
|
| | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | (in shares) |
AT&T Common | | 0.7185 |
| | — |
|
Charter Common | | 0.061382 |
| | 0.061382 |
|
Time Common | | — |
| | 0.0625 |
|
TW Common | | — |
| | 0.5 |
|
As of June 30, 2018, the endcontingent principal amount of 2017.the ZENS was $484 million.
(11) (12) Short-term Borrowings and Long-term Debt
| |
(a) | Short-term Borrowings (CenterPoint Energy and CERC) |
Inventory Financing. NGD currently has AMAs associated with its utility distribution service in Arkansas, northLouisiana, Mississippi, Oklahoma and Texas. In March 2018, NGD’s third party AMAs in Arkansas, Louisiana and Oklahoma that extend through 2020.expired, and NGD entered into new AMAs with CES effective April 1, 2018 in these states. The AMAs have varying terms, the longest of which expires in 2021. Pursuant to the provisions of the agreements, NGD sells natural gas and agrees to repurchase an equivalent amount of natural gas during the winter heating seasons at the same cost, plus a financing charge. These transactions are accounted for as an inventory financing and had an associated principal obligation of $24 million$ -0- and $35$39 million as of June 30, 20172018 and December 31, 2016,2017, respectively.
Debt Retirements. In February 2017, CenterPoint Energy retired $250 million aggregate principal amount of its 5.95% senior notes at their maturity. The retirement of senior notes was financed by the issuance of commercial paper.
Debt Issuances. During the six months ended June 30, 2017, Houston Electric issued2018, the following general mortgage bonds:debt instruments were issued:
|
| | | | | | | | |
Issuance Date | | Aggregate Principal Amount | | Interest Rate | | Maturity Date |
| | (in millions) | | | | |
January 2017 | | $ | 300 |
| | 3.00% | | 2027 |
|
| | | | | | | | | | | | |
| | Issuance Date | | Debt Instrument | | Aggregate Principal Amount | | Interest Rate | | Maturity Date |
| | | | | | (in millions) | | | | |
Houston Electric | | February 2018 | | General mortgage bonds | | $ | 400 |
| | 3.95% | | 2048 |
CERC Corp. | | March 2018 | | Unsecured senior notes | | 300 |
| | 3.55% | | 2023 |
CERC Corp. | | March 2018 | | Unsecured senior notes | | 300 |
| | 4.00% | | 2028 |
The proceeds from the issuance of these bondsissuances were used to repay short-term debt and for general limited liability company purposes.and corporate purposes, as applicable, including to repay portions of outstanding commercial paper and borrowings under CenterPoint Energy’s money pool.
Credit Facilities. Facility. In June 2017,May 2018, CenterPoint Energy Houston Electric and CERC Corp. each entered into amendmentsan amendment to their respectiveits revolving credit facilities to extend the termination date thereof from March 3, 2021 to March 3, 2022 and to terminate the swingline loan subfacility thereunder. The amendments to the CenterPoint Energy and CERC Corp. revolving credit facilities also increased the aggregate commitments by $100 million and $300 million, respectively, to $1.7 billion and $900 million under their respective revolving credit facilities. No changes were made to the aggregate commitments under the Houston Electric revolving credit facility. In connection with the amendments tofacility that will increase the aggregate commitments from $1.7 billion to $3.3 billion effective the earlier of (i) the termination of all commitments by certain lenders to provide the Bridge Facility and (ii) the payment in full of all obligations (other than contingent obligations) under their respectivethe Bridge Facility and termination of all commitments to advance additional credit thereunder, and in each case, so long as the Merger Agreement has not been terminated pursuant to the terms thereof without consummation of the Merger. This increase to CenterPoint Energy’s revolving credit facilities, CenterPoint Energyfacility will automatically expire on the earlier of the (a) termination date of the revolving credit facility and CERC Corp. each increased(b) if the sizeMerger Agreement is terminated without consummation of their respective commercial paper programsthe Merger, the date that is 90 days after such termination. In addition, the amendment provides for a temporary increase on the maximum ratio of debt for borrowed money to permitcapital from 65% to 75% until the issuanceearlier of commercial paper notes(i) June 30, 2019 and (ii) the termination of all commitments in an aggregate principal amount not to exceed $1.7 billion and $900 million, respectively, atrespect of the Bridge Facility without any time outstanding.borrowing thereunder.
As of June 30, 2017 and December 31, 2016, CenterPoint Energy, Houston Electric and CERC Corp.The Registrants had the following revolving credit facilities and utilization of such facilities:
| | | June 30, 2017 | | December 31, 2016 | | | | June 30, 2018 | | December 31, 2017 |
| Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | | Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | | Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | | Weighted Average Interest Rate | | Loans | | Letters of Credit | | Commercial Paper | | Weighted Average Interest Rate |
| (in millions) | | (in millions, except weighted average interest rate) |
CenterPoint Energy | $ | 1,700 |
| | $ | — |
| | $ | 6 |
| | $ | 970 |
| (1) | $ | 1,600 |
| | $ | — |
| | $ | 6 |
| | $ | 835 |
| (1) | $ | 1,700 |
| (1) | $ | — |
| | $ | 6 |
| | $ | — |
| | — | % | | $ | — |
| | $ | 6 |
| | $ | 855 |
| | 1.88 | % |
Houston Electric | 300 |
| | — |
| | 4 |
| | — |
| | 300 |
| | — |
| | 4 |
| | — |
| | 300 |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | — |
|
CERC Corp. | 900 |
| | — |
| | — |
| | 718 |
| (2) | 600 |
| | — |
| | 4 |
| | 569 |
| (2) | 900 |
| | — |
| | 1 |
| | 565 |
| | 2.37 | % | | — |
| | 1 |
| | 898 |
| | 1.72 | % |
Total | $ | 2,900 |
| | $ | — |
| | $ | 10 |
| | $ | 1,688 |
| | $ | 2,500 |
| | $ | — |
| | $ | 14 |
| | $ | 1,404 |
| | $ | 2,900 |
| | $ | — |
| | $ | 11 |
| | $ | 565 |
| | | | $ | — |
| | $ | 11 |
| | $ | 1,753 |
| | |
| |
(1) | Weighted average interest rate was 1.42% and 1.04% asPursuant to the amendment entered into in May 2018, the aggregate commitments under the CenterPoint Energy revolving credit facility will increase to $3.3 billion upon the satisfaction of June 30, 2017 and December 31, 2016, respectively.certain conditions described above. |
| |
(2) | Weighted average interest rate was 1.41% and 1.03% as of June 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 June 30, 2017 (3) | | Termination Date (5) | | Company | | Size of Facility | | Draw Rate of LIBOR plus (1) | | Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio | | Debt for Borrowed Money to Capital Ratio as of June 30, 2018 (2) | | Termination Date |
| | (in millions) | | | (in millions) | |
March 3, 2016 | | CenterPoint Energy | | $ | 1,700 |
| (1) | 1.250% | | 65% | (4) | 56.7% | | March 3, 2022 | | CenterPoint Energy | | $ | 1,700 |
| (3) | 1.250% | | 75% | (4) (5) | 52.1% | | March 3, 2022 |
March 3, 2016 | | Houston Electric | | 300 |
| | 1.125% | | 65% | (4) | 49.7% | | March 3, 2022 | | Houston Electric | | 300 |
| | 1.125% | | 65% | (5) | 50.7% | | March 3, 2022 |
March 3, 2016 | | CERC Corp. | | 900 |
| (1) | 1.250% | | 65% | | 37.1% | | March 3, 2022 | | CERC Corp. | | 900 |
| | 1.250% | | 65% | | 37.8% | | March 3, 2022 |
| |
(1) | Amended on June 16, 2017 to increase the aggregate commitment size as noted above. |
| |
(2) | Based on current credit ratings. |
| |
(3)(2) | As defined in the revolving credit facility agreement, excluding Securitization Bonds. |
| |
(3) | Pursuant to the amendment entered into in May 2018, the aggregate commitments under the CenterPoint Energy revolving credit facility will increase to $3.3 billion upon the satisfaction of certain conditions described above. |
| |
(4) | TheCenterPoint Energy’s financial covenant limit will return to 65% upon the earlier of (i) June 30, 2019 or (ii) the termination of all commitments in respect of the Bridge Facility without any borrowing thereunder. |
| |
(5) | For CenterPoint Energy (whenever its financial covenant limit is 65%) and Houston Electric, the financial covenant limit will temporarily increase from 65% to 70% if Houston Electric experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive twelve-month12-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.The Registrants were in compliance with all financial debt covenants as of June 30, 2017.2018.
Other. As of both June 30, 2018 and December 31, 2017, Houston Electric had issued $118 million of general mortgage bonds as collateral for long-term debt of CenterPoint Energy. These bonds are not reflected in Houston Electric’s consolidated financial statements because of the contingent nature of the obligations.
(12) (13) Income Taxes
The Registrants reported the following effective tax rate reported for the three months ended June 30, 2017 was 36% compared to 125% for the same period in 2016. The higherrates:
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
CenterPoint Energy | 15 | % | | 36 | % | | 27 | % | | 36 | % |
Houston Electric | 21 | % | | 36 | % | | 22 | % | | 36 | % |
CERC | 22 | % | | 35 | % | | 22 | % | | 37 | % |
CenterPoint Energy’s lower effective tax rate for the three months ended June 30, 2016 was primarily due to a Louisiana state tax law change resulting in an increase to CenterPoint Energy’s deferred tax liability, the effect of which was compounded by lower earnings.
The effective tax rate reported for theand six months ended June 30, 2018 compared to the same periods for 2017 was 36% comparedprimarily due to 39%the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA, and partially offset by the impact of state tax law changes which resulted in re-measurement of state deferred taxes. The state tax law changes combined with the lower earnings for the same period result in 2016. The higherthe lower than expected effective tax rate for the current quarter and higher than expected six-month effective tax rate.
Houston Electric’s and CERC’s lower effective tax rate for the three and six months ended June 30, 20162018 compared to the same periods for 2017 was primarily due to the Louisiana statereduction in the federal corporate income tax law change discussed above.rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA.
CenterPoint EnergyThe Registrants reported no uncertain tax liability as of June 30, 20172018 and expectsexpect no significant changechanges to the uncertain tax liability over the next twelve months. Tax years through 20152016 have been audited and settled with the IRS. For the 20162017 and 20172018 tax years, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process.
(13) (14) Commitments and Contingencies
| |
(a) | Natural Gas Supply Commitments (CenterPoint Energy and CERC) |
Natural gas supply commitments include natural gas contracts related to CenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services business segments, which have various quantity requirements and durations, that are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets as of June 30, 20172018 and December 31, 20162017 as these contracts meet an exception as “normal purchases contracts” or do not meet the definition of a derivative. Natural gas supply commitments also include natural gas transportation contracts that do not meet the definition of a derivative.
As of June 30, 2017,2018, minimum payment obligations for natural gas supply commitments are approximately:
| | | (in millions) | (in millions) |
Remaining six months of 2017 | $ | 227 |
| |
2018 | 488 |
| |
Remaining six months of 2018 | | $ | 185 |
|
2019 | 334 |
| 264 |
|
2020 | 167 |
| 168 |
|
2021 | 75 |
| 82 |
|
2022 and beyond | 82 |
| |
2022 | | 51 |
|
2023 and beyond | | 123 |
|
| |
(b) | Legal, Environmental and Other Matters |
Legal Matters
Gas Market Manipulation Cases. CenterPoint Energy, Houston Electric or their predecessor, Reliant Energy, and certain of their former subsidiaries have been named as defendants in certain lawsuits described below. Under a master separation agreement between CenterPoint Energy and a former subsidiary, RRI, CenterPoint Energy and its subsidiaries are entitled to be indemnified by RRI and its successors for any losses, including certain attorneys’ fees and other costs, arising out of these lawsuits. In May 2009, RRI sold its Texas retail business to a subsidiary of NRG and RRI changed its name to RRI Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly-owned subsidiary of RRI, and RRI changed its name to GenOn. In December 2012, NRG acquired GenOn through a merger in which GenOn became a wholly-owned subsidiary of NRG. None of the sale of the retail business, the merger with Mirant Corporation, or the acquisition of GenOn by NRG alters RRI’s (now GenOn’s) contractual obligations to indemnify CenterPoint Energy and its subsidiaries, including Houston Electric, for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation.
A large number of lawsuits were filed against numerous gas market participants in a number of federal and western state courts in connection with the operation of the natural gas markets in 2000–2002. CenterPoint Energy and its affiliates have since been released or dismissed from all such cases. CES, a subsidiary of CERC Corp., was a defendant in a case now pending in federal court in Nevada alleging a conspiracy to inflate Wisconsin natural gas prices in 2000–2002. On May 24, 2016, the district court granted CES’s motion for summary judgment, dismissing CES from the case. The plaintiffs have appealed that ruling. CenterPoint Energy and CES intend to continue vigorously defending against the plaintiffs’ claims. In June 2017, GenOn and various affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In December 2017, GenOn received court approval of a restructuring plan and is expected to emerge from Chapter 11 in 2018. CenterPoint Energy, CERC, and CES submitted proofs of claim in the bankruptcy proceedings to protect their indemnity rights. 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 (CenterPoint Energy and CERC). On August 2, 2017, a natural gas explosion occurred at the Minnehaha Academy in Minneapolis, Minnesota, resulting in the deaths of two school employees, serious injuries to others and significant property damage to the school. CenterPoint Energy, certain of its subsidiaries, including CERC, and the contractor company working in the school have been named in litigation arising out of this incident. CenterPoint Energy has reached confidential settlement agreements with some claimants. Additionally, CenterPoint Energy is cooperating with the ongoing investigation conducted by the National Transportation Safety Board. Further, CenterPoint Energy is contesting approximately $200,000 in fines imposed by the Minnesota Office of Pipeline Safety. In early 2018, the Minnesota Occupational Safety and Health Administration concluded its investigation without any adverse findings against CenterPoint Energy. CenterPoint Energy’s general and excess liability insurance policies provide coverage for third party bodily injury and property damage claims.
Environmental Matters
MGP Sites.Sites (CenterPoint Energy and CERC). CERC and its predecessors operated MGPs in the past. With respect to certain Minnesota MGP sites, CERC has completed state-ordered remediation and continues state-ordered monitoring and water treatment. As of June 30, 2017,2018, CERC had a recorded liability of $7 million for continued monitoring and any future remediation required by regulators in Minnesota. The estimated range of possible remediation costs for the sites for which CERC believes it may have responsibility was $4 million to $30 million based on remediation continuing for 30 to 50 years. The cost estimates are based on studies of a site or industry average costs for remediation of sites of similar size. The actual remediation costs will depend on the number of sites to be remediated, the participation of other PRPs, if any, and the remediation methods used.
In addition to the Minnesota sites, the Environmental Protection AgencyEPA and other regulators have investigated MGP sites that were owned or operated by CERC or may have been owned by one of its former affiliates. CenterPoint Energy doesand CERC do not expect the ultimate outcome of these matters to have a material adverse effect on the financial condition, results of operations or cash flows of either CenterPoint Energy or CERC.
Asbestos. Some facilities owned by CenterPoint Energythe Registrants or itstheir predecessors in interest contain or have contained asbestos insulation and other asbestos-containing materials. CenterPoint Energy and its subsidiariesThe Registrants are from time to time named, along with numerous others, as defendants in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos, and CenterPoint Energy anticipatesthe Registrants anticipate that additional claims may be asserted in the future. Although their ultimate outcome cannot be predicted at this time, CenterPoint Energy doesthe Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’stheir financial condition, results of operations or cash flows.
Other Environmental. From time to time, CenterPoint Energy identifiesthe Registrants identify the presence of environmental contaminants during its operations or on property where its predecessor companies have conducted operations. Other such sites involving contaminants may be identified in the future. CenterPoint Energy hasThe Registrants have and expectsexpect to continue to remediate any identified sites consistent with itsstate and federal legal obligations. From time to time, CenterPoint Energy hasthe Registrants have received notices, and may receive notices in the future, from regulatory authorities or others regarding its status as a PRP in connection with sites found to require remediation due to the presence of environmental contaminants. In addition, CenterPoint Energy hasthe Registrants have been, or may be, named from time to time as a defendantdefendants in litigation related to such sites. Although the ultimate outcome of such matters cannot be predicted at this time, CenterPoint Energy doesthe Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’stheir financial condition, results of operations or cash flows.
Other Proceedings
CenterPoint Energy isThe Registrants are involved in other legal, environmental, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. From time to time, CenterPoint Energy isthe Registrants are also a defendantdefendants in legal proceedings with respect to claims brought by various plaintiffs against broad groups of participants in the energy industry. Some of these proceedings involve substantial amounts. CenterPoint EnergyThe Registrants regularly analyzesanalyze current information and, as necessary, providesprovide accruals for probable and reasonably estimable liabilities on the eventual disposition of these matters. CenterPoint Energy doesThe Registrants do not expect the disposition of these matters to have a material adverse effect on CenterPoint Energy’sthe Registrants’ financial condition, results of operations or cash flows.
(14) (15) Earnings Per Share (CenterPoint Energy)
The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings (loss) per share calculations:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
| (in millions, except share and per share amounts) | (in millions, except share and per share amounts) |
Net income (loss) | $ | 135 |
| | $ | (2 | ) | | $ | 327 |
| | $ | 152 |
| $ | (75 | ) | | $ | 135 |
| | $ | 90 |
| | $ | 327 |
|
| | | | | | | | | | | | | | |
Basic weighted average shares outstanding | 430,996,000 |
| | 430,653,000 |
| | 430,896,000 |
| | 430,530,000 |
| 431,523,000 |
| | 430,996,000 |
| | 431,378,000 |
| | 430,896,000 |
|
Plus: Incremental shares from assumed conversions: | | | | | | | | | | | | | | |
Restricted stock(1) | 2,801,000 |
| | — |
| (1) | 2,801,000 |
| | 2,443,000 |
| — |
| | 2,801,000 |
| | 3,029,000 |
| | 2,801,000 |
|
Diluted weighted average shares | 433,797,000 |
| | 430,653,000 |
| | 433,697,000 |
| | 432,973,000 |
| 431,523,000 |
| | 433,797,000 |
| | 434,407,000 |
| | 433,697,000 |
|
| | | | | | | | |
Basic earnings (loss) per share | | | | | | | | | | | | | | |
Net income (loss) | $ | 0.31 |
| | $ | (0.01 | ) | | $ | 0.76 |
| | $ | 0.35 |
| $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.76 |
|
| | | | | | | | |
Diluted earnings (loss) per share | | | | | | | | | | | | | | |
Net income (loss) | $ | 0.31 |
| | $ | (0.01 | ) | | $ | 0.75 |
| | $ | 0.35 |
| $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.75 |
|
| |
(1) | 2,443,000 incremental shares from assumed conversions of restricted stock have not been included in the computation of diluted earnings (loss) per share for the three months months ended June 30, 2016, as their inclusion would be anti-dilutive. |
(1)3,029,000 incremental shares from assumed conversions of restricted stock have not been included in the computation of diluted earnings (loss) per share for the three months ended June 30, 2018 as their inclusion would be anti-dilutive.
(15) (16) Reportable Business Segments
CenterPoint Energy’sThe Registrants’ determination of reportable business segments considers the strategic operating units under which CenterPoint Energy managesthe Registrants manage sales, allocatesallocate resources and assessesassess performance of various products and services to wholesale
or retail customers in differing regulatory environments. CenterPoint Energy usesThe Registrants use operating income as the measure of profit or loss for itsthe business segments other than Midstream Investments, where it uses equity in earnings of unconsolidated affiliates.is used.
CenterPoint Energy’s reportableReportable business segments include the following: by Registrant are as follows:
|
| | | | | | | | | | |
| | Electric Transmission & Distribution | | Natural Gas Distribution | | Energy Services | | Midstream Investments | | Other Operations |
CenterPoint Energy | | X | | X | | X | | X | | X |
Houston Electric | | X | | | | | | | | |
CERC | | | | X | | X | | X | | X |
Electric Transmission & Distribution Natural Gas Distribution, Energy Services, Midstream Investments and Other Operations. Theconsists of the electric transmission and distribution function (Houston Electric) is reported in the Electric Transmission & Distribution business segment.function. Natural Gas Distribution consists of intrastate natural gas sales to, and natural gas transportation and distribution for, residential, commercial, industrial and institutional customers. Energy Services represents CenterPoint Energy’sconsists of non-rate regulated natural gas sales and services operations. Midstream Investments consists of CenterPoint Energy’sthe equity investment in Enable (excluding the Series A Preferred Units). Other Operations consists primarily of other corporate operations which support all of CenterPoint Energy’sthe business operations.
Houston Electric consists of a single reportable business segment and therefore is not included in the tabular business segment presentation below. Operating income (loss) amounts for 2017 have been recast to reflect the adoption of ASU 2017-07 (see Note 2 for further information).
Financial data for business segments is as follows:
|
| | | | | | | | | | | |
| For the Three Months Ended June 30, 2017 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income |
| (in millions) |
Electric Transmission & Distribution | $ | 752 |
| (1) | $ | — |
| | $ | 164 |
|
Natural Gas Distribution | 470 |
| | 7 |
| | 37 |
|
Energy Services | 918 |
| | 13 |
| | 16 |
|
Midstream Investments (2) | — |
| | — |
| | — |
|
Other Operations | 3 |
| | — |
| | 6 |
|
Eliminations | — |
| | (20 | ) | | — |
|
Consolidated | $ | 2,143 |
| | $ | — |
| | $ | 223 |
|
CenterPoint Energy | | | | | | | | | | | | | | Three Months Ended June 30, |
| For the Three Months Ended June 30, 2016 | 2018 | | 2017 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) | | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income |
| (in millions) | (in millions) |
Electric Transmission & Distribution | $ | 763 |
| (1) | $ | — |
| | $ | 158 |
| $ | 854 |
| (1) | $ | — |
| | $ | 181 |
| | $ | 752 |
| (1) | $ | — |
| | $ | 171 |
|
Natural Gas Distribution | 414 |
| | 7 |
| | 20 |
| 487 |
| | 8 |
| | 7 |
| | 470 |
| | 7 |
| | 42 |
|
Energy Services | 393 |
| | 4 |
| | — |
| 841 |
| | 19 |
| | 15 |
| | 918 |
| | 13 |
| | 16 |
|
Midstream Investments (2) | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other Operations | 4 |
| | — |
| | 4 |
| 4 |
| | — |
| | (16 | ) | | 3 |
| | — |
| | 11 |
|
Eliminations | — |
| | (11 | ) | | — |
| — |
| | (27 | ) | | — |
| | — |
| | (20 | ) | | — |
|
Consolidated | $ | 1,574 |
| | $ | — |
| | $ | 182 |
| $ | 2,186 |
| | $ | — |
| | $ | 187 |
| | $ | 2,143 |
| | $ | — |
| | $ | 240 |
|
|
| | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, 2017 | | | |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income | | Total Assets as of June 30, 2017 | |
| (in millions) | |
Electric Transmission & Distribution | $ | 1,391 |
| (1) | $ | — |
| | $ | 242 |
| | $ | 10,319 |
| |
Natural Gas Distribution | 1,377 |
| | 16 |
| | 201 |
| | 6,022 |
| |
Energy Services | 2,103 |
| | 24 |
| | 51 |
| | 1,388 |
| |
Midstream Investments (2) | — |
| | — |
| | — |
| | 2,487 |
| |
Other Operations | 7 |
| | — |
| | 3 |
| | 2,703 |
| (3) |
Eliminations | — |
| | (40 | ) | | — |
| | (874 | ) | |
Consolidated | $ | 4,878 |
| | $ | — |
| | $ | 497 |
| | $ | 22,045 |
| |
| | | | | | | | | | | | | | | | | | | Six Months Ended June 30, |
| For the Six Months Ended June 30, 2016 | | | | 2018 | | 2017 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income | | Total Assets as of December 31, 2016 | | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) | | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income |
| (in millions) | | (in millions) |
Electric Transmission & Distribution | $ | 1,423 |
| (1) | $ | — |
| | $ | 241 |
| | $ | 10,211 |
| | $ | 1,605 |
| (1) | $ | — |
| | $ | 296 |
| | $ | 1,391 |
| (1) | $ | — |
| | $ | 257 |
|
Natural Gas Distribution | 1,302 |
| | 14 |
| | 180 |
| | 6,099 |
| | 1,630 |
| | 18 |
| | 163 |
| | 1,377 |
| | 16 |
| | 210 |
|
Energy Services | 825 |
| | 11 |
| | 6 |
| | 1,102 |
| | 2,098 |
| | 47 |
| | (11 | ) | | 2,103 |
| | 24 |
| | 51 |
|
Midstream Investments (2) | — |
| | — |
| | — |
| | 2,505 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other Operations | 8 |
| | — |
| | 5 |
| | 2,681 |
| (3) | 8 |
| | — |
| | (10 | ) | | 7 |
| | — |
| | 13 |
|
Eliminations | — |
| | (25 | ) | | — |
| | (769 | ) | | — |
| | (65 | ) | | — |
| | — |
| | (40 | ) | | — |
|
Consolidated | $ | 3,558 |
| | $ | — |
| | $ | 432 |
| | $ | 21,829 |
| | $ | 5,341 |
| | $ | — |
| | $ | 438 |
| | $ | 4,878 |
| | $ | — |
| | $ | 531 |
|
| |
(1) | CenterPoint Energy’s and Houston Electric’s Electric Transmission & Distribution revenues from major customers are as follows: |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) | | (in millions) |
Affiliates of NRG | | $ | 167 |
| | $ | 159 |
| | $ | 319 |
| | $ | 304 |
| | $ | 169 |
| | $ | 167 |
| | $ | 330 |
| | $ | 319 |
|
Affiliates of Vistra Energy Corp. | | $ | 53 |
| | $ | 50 |
| | 100 |
| | 95 |
| | 59 |
| | 53 |
| | 113 |
| | 100 |
|
CERC
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2018 | | 2017 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income | | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income |
| (in millions) |
Natural Gas Distribution | $ | 487 |
| | $ | 8 |
| | $ | 7 |
| | $ | 470 |
| | $ | 7 |
| | $ | 42 |
|
Energy Services | 841 |
| | 19 |
| | 15 |
| | 918 |
| | 13 |
| | 16 |
|
Midstream Investments (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other Operations | — |
| | — |
| | — |
| | (1 | ) | | — |
| | 1 |
|
Eliminations | — |
| | (27 | ) | | — |
| | — |
| | (20 | ) | | — |
|
Consolidated | $ | 1,328 |
| | $ | — |
| | $ | 22 |
| | $ | 1,387 |
| | $ | — |
| | $ | 59 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2018 | | 2017 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) | | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) |
| (in millions) |
Natural Gas Distribution | $ | 1,630 |
| | $ | 18 |
| | $ | 163 |
| | $ | 1,377 |
| | $ | 16 |
| | $ | 210 |
|
Energy Services | 2,098 |
| | 47 |
| | (11 | ) | | 2,103 |
| | 24 |
| | 51 |
|
Midstream Investments (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other Operations | — |
| | — |
| | 1 |
| | — |
| | — |
| | (3 | ) |
Eliminations | — |
| | (65 | ) | | — |
| | — |
| | (40 | ) | | — |
|
Consolidated | $ | 3,728 |
| | $ | — |
| | $ | 153 |
| | $ | 3,480 |
| | $ | — |
| | $ | 258 |
|
| |
(2) | CenterPoint Energy’s and CERC’s Midstream Investments’ equity earnings, net are as follows: |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Enable | | $ | 59 |
| | $ | 31 |
| | $ | 131 |
| | $ | 91 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) |
Enable | | $ | 58 |
| | $ | 59 |
| | $ | 127 |
| | $ | 131 |
|
CenterPoint Energy and CERC
|
| | | | | | | | | | | | | | | |
| Total Assets |
| June 30, 2018 | | December 31, 2017 |
| CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) |
Electric Transmission & Distribution | $ | 10,430 |
| | $ | — |
| | $ | 10,292 |
| | $ | — |
|
Natural Gas Distribution | 6,501 |
| | 6,501 |
| | 6,608 |
| | 6,608 |
|
Energy Services | 1,256 |
| | 1,256 |
| | 1,521 |
| | 1,521 |
|
Midstream Investments | 2,451 |
| | 2,451 |
| | 2,472 |
| | 2,472 |
|
Other Operations | 2,311 |
| (3) | 89 |
| | 2,497 |
| (3) | 70 |
|
Eliminations | (841 | ) | | (655 | ) | | (654 | ) | | (559 | ) |
Consolidated | $ | 22,108 |
| | $ | 9,642 |
| | $ | 22,736 |
| | $ | 10,112 |
|
| |
(3) | Included in total assets of Other Operations as of June 30, 2017 and December 31, 2016 areIncludes pension and other postemployment-related regulatory assets of $730$577 million and $759$600 million, respectively.respectively, as of June 30, 2018 and December 31, 2017. |
(16) (17) Supplemental Disclosure of Cash Flow Information
The table below provides supplemental disclosure of cash flow information:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Cash Payments/Receipts: | | | | | | | | | | | |
Interest, net of capitalized interest | $ | 167 |
| | $ | 90 |
| | $ | 50 |
| | $ | 182 |
| | $ | 94 |
| | $ | 56 |
|
Income taxes, net | 88 |
| | 120 |
| | 3 |
| | 11 |
| | 76 |
| | 3 |
|
Non-cash transactions: | | | | | | | | | |
| | |
Accounts payable related to capital expenditures | 133 |
| | 75 |
| | 69 |
| | 106 |
| | 75 |
| | 44 |
|
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, 2018 | | December 31, 2017 |
| CenterPoint Energy | | Houston Electric | | CenterPoint Energy | | Houston Electric |
| (in millions) |
Cash and cash equivalents | $ | 328 |
| | $ | 253 |
| | $ | 260 |
| | $ | 238 |
|
Restricted cash included in Prepaid expenses and other current assets | 37 |
| | 37 |
| | 35 |
| | 35 |
|
Restricted cash included in Other | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Total cash, cash equivalents and restricted cash shown in Condensed Statements of Consolidated Cash Flows | $ | 366 |
| | $ | 291 |
| | $ | 296 |
| | $ | 274 |
|
CERC does not have restricted cash and therefore was not included in the table above.
(18) Related Party Transactions(Houston Electric and CERC)
Houston Electric and CERC participate in a money pool through which they can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings under CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper.
The table below summarizes money pool activity:
|
| | | | | | | | | | | | | | | |
| June 30, 2018 | | December 31, 2017 |
| Houston Electric | | CERC | | Houston Electric | | CERC |
| (in millions) |
Money pool investments (borrowings) (1) | $ | 26 |
| | $ | — |
| | $ | (60 | ) | | $ | (570 | ) |
Weighted average interest rate | 2.00 | % | | — | % | | 1.90 | % | | 1.90 | % |
| |
(1) | Included in Accounts and notes receivable (payable)–affiliated companies in the Condensed Consolidated Balance Sheets. |
Affiliate related net interest income (expense) was not material for either the three or six months ended June 30, 2018 or 2017.
CenterPoint Energy provides some corporate services to Houston Electric and CERC. The costs of services have been charged directly to Houston Electric and CERC using methods that management believes are reasonable. These methods include negotiated usage rates, dedicated asset assignment and proportionate corporate formulas based on operating expenses, assets, gross margin, employees and a composite of assets, gross margin and employees. Houston Electric provides a number of services to CERC. These services are billed at actual cost, either directly or as an allocation and include fleet services, shop services, geographic services, surveying and right-of-way services, radio communications, data circuit management and field operations. Additionally, CERC provides certain services to Houston Electric. These services are billed at actual cost, either directly or as an allocation and include line locating and other miscellaneous services. These charges are not necessarily indicative of what would have been incurred had 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, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC |
| | (in millions) |
Corporate service charges | | $ | 47 |
| | $ | 35 |
| | $ | 44 |
| | $ | 32 |
| | $ | 91 |
| | $ | 69 |
| | $ | 86 |
| | $ | 63 |
|
Net affiliate service charges (billings) | | (3 | ) | | 3 |
| | (4 | ) | | 4 |
| | (5 | ) | | 5 |
| | (5 | ) | | 5 |
|
Houston Electric and CERC paid dividends on their common shares and stock, respectively, to Utility Holding, LLC as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC |
| | (in millions) |
Dividends paid | | $ | 31 |
| | $ | 125 |
| | $ | 10 |
| | $ | 140 |
| | $ | 63 |
| | $ | 211 |
| | $ | 42 |
| | $ | 248 |
|
(19) Subsequent Events (CenterPoint Energy and CERC)
CenterPoint Energy Dividend Declaration
On July 27, 2017,26, 2018, CenterPoint Energy’s boardBoard of directorsDirectors declared a regular quarterly cash dividend of $0.2675$0.2775 per share of common stock payable on September 8, 2017,13, 2018 to shareholders of record as of the close of business on August 16, 2017.2018.
Enable Distributions Declarations
On July 31, 2017,August 1, 2018, Enable declared a quarterly cash distribution of $0.318 per unit on all of its outstanding common and subordinated units for the quarter ended June 30, 2017.2018. Accordingly, CERC Corp. expects to receive a cash distribution of approximately $74 million from Enable in the third quarter of 20172018 to be made with respect to CERC Corp.’s investment in common and subordinated units of Enable for the second quarter of 2017. The subordination period will end on the first day after Enable’s second quarter distribution payment is made and the subordinated units held by CERC Corp. will be converted to common units on a one-for-one basis. At conversion, holders of common units resulting from the conversion of subordinated units will 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.2018.
On July 31, 2017,August 1, 2018, Enable declared a quarterly cash distribution of $0.625 per Series A Preferred Unit for the quarter ended June 30, 2017.2018. Accordingly, CenterPoint Energy expects to receive a cash distribution of approximately $9 million from Enable in the third quarter of 20172018 to be made with respect to CenterPoint Energy’s investment in Series A Preferred Units of Enable for the second quarter of 2017.2018.
| |
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES |
No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.
The following combined discussion and analysis should be read in combination with ourthe Interim Condensed Financial Statements contained in this Form 10-Q and our 2016each Registrants’ 2017 Form 10-K. When discussing CenterPoint Energy’s consolidated financial information, it includes the results of Houston Electric and CERC, which, along with CenterPoint Energy, are collectively referred to as the Registrants. Where appropriate, information relating to a specific Registrant has been segregated and labeled as such. In this Form 10-Q, the terms “our,” “we” and “us” are used as abbreviated references to CenterPoint Energy, Inc. together with its consolidated subsidiaries.
RECENT EVENTS
Freeport Project.Proposed Merger with Vectren. On April 21, 2018, CenterPoint Energy entered into the Merger Agreement. Under the terms of the Merger Agreement, CenterPoint Energy will acquire Vectren for approximately $6 billion in cash. For more information about the proposed merger with Vectren, see Note 3 to the Interim Condensed Financial Statements.
AT&T Merger. In April 2017, Houston Electric submitted a proposal to ERCOT for an approximately $250 million transmission project in Freeport, Texas.June 2018, AT&T’s merger with TW closed. For further detailsinformation regarding the AT&T merger and its impact on the Freeport Project,ZENS, see “—Liquidity and Capital Resources —Regulatory Matters — Freeport Project” below.Note 11 to the Interim Condensed Financial Statements.
Regulatory Proceedings. In June 2017, a settlement agreement was reached in Houston Electric’s DCRF filing. For details related to our pending and completed regulatory proceedings and orders related to the TCJA to date in 2017,2018, see “—Liquidity and Capital Resources —Regulatory Matters” below.
Credit Facilities.Facility Amendment. In June 2017,May 2018, CenterPoint Energy Houston Electric and CERC Corp. each entered into amendmentsan amendment to their respectiveits revolving credit facilities to (a) extend the termination date and terminate the swingline loan subfacility under each facility and (b) for the CenterPoint Energy and CERC Corp. facilities,that will increase the aggregate commitments from $1.7 billion to $3.3 billion under such facilities.certain conditions. For furthermore information about our 2017 credit facilities amendments,the amendment, see Note 1112 to ourthe Interim Condensed Financial Statements.
CENTERPOINT ENERGY CONSOLIDATED RESULTS OF OPERATIONS
For information regarding factors that may affect the future results of our consolidated operations, please read “Risk Factors” in Item 1A of Part I of CenterPoint Energy’s 2017 Form 10-K and “Risk Factors” in Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q and this Form 10-Q.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
| (in millions, except per share amounts) | (in millions, except per share amounts) |
Revenues | $ | 2,143 |
| | $ | 1,574 |
| | $ | 4,878 |
| | $ | 3,558 |
| $ | 2,186 |
| | $ | 2,143 |
| | $ | 5,341 |
| | $ | 4,878 |
|
Expenses | 1,920 |
| | 1,392 |
| | 4,381 |
| | 3,126 |
| 1,999 |
| | 1,903 |
| | 4,903 |
| | 4,347 |
|
Operating Income | 223 |
| | 182 |
| | 497 |
| | 432 |
| 187 |
| | 240 |
| | 438 |
| | 531 |
|
Interest and Other Finance Charges | (77 | ) | | (86 | ) | | (155 | ) | | (173 | ) | (91 | ) | | (77 | ) | | (169 | ) | | (155 | ) |
Interest on Securitization Bonds | (20 | ) | | (23 | ) | | (40 | ) | | (47 | ) | (14 | ) | | (20 | ) | | (30 | ) | | (40 | ) |
Equity in Earnings of Unconsolidated Affiliate, net | 59 |
| | 31 |
| | 131 |
| | 91 |
| 58 |
| | 59 |
| | 127 |
| | 131 |
|
Other Income, net | 26 |
| | (96 | ) | | 77 |
| | (55 | ) | (228 | ) | | 9 |
| | (242 | ) | | 43 |
|
Income Before Income Taxes | 211 |
| | 8 |
| | 510 |
| | 248 |
| |
Income Tax Expense | 76 |
| | 10 |
| | 183 |
| | 96 |
| |
Income (Loss) Before Income Taxes | | (88 | ) | | 211 |
| | 124 |
| | 510 |
|
Income Tax Expense (Benefit) | | (13 | ) | | 76 |
| | 34 |
| | 183 |
|
Net Income (Loss) | $ | 135 |
| | $ | (2 | ) | | $ | 327 |
| | $ | 152 |
| $ | (75 | ) | | $ | 135 |
| | $ | 90 |
| | $ | 327 |
|
| | | | | | | | |
Basic Earnings (Loss) Per Share | $ | 0.31 |
| | $ | (0.01 | ) | | $ | 0.76 |
| | $ | 0.35 |
| $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.76 |
|
| | | | | | | | |
Diluted Earnings (Loss) Per Share | $ | 0.31 |
| | $ | (0.01 | ) | | $ | 0.75 |
| | $ | 0.35 |
| $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.75 |
|
Three months ended June 30, 20172018 compared to three months ended June 30, 20162017
We reported a net loss of $75 million ($(0.17) per diluted share) for the three months ended June 30, 2018 compared to net income of $135 million ($0.31 per diluted share) for the three months ended June 30, 2017 compared to a net loss of $2 million ($(0.01) per diluted share) for the three months ended June 30, 2016.same period in 2017.
The increasedecrease in net income of $137$210 million was primarily due to the following key factors:
a $117$241 million decreaseincrease in the losslosses on indexed debt securities related to the ZENS included in Other Income, net shown above, resulting from a loss of $117$242 million from AT&T’s acquisition of TW in June 2018, partially offset by increased gains of $1 million in the Charter merger in 2016;underlying value of the indexed debt securities;
a $41$53 million increasedecrease in operating income discussed below by segment;
a $28$14 million increase in interest expense due to higher outstanding other long-term debt and the amortization of Bridge Facility fees of $7 million;
a $1 million decrease in equity earnings from our investment in Enable, discussed further in Note 89 to our Interim Condensed Financial Statements; and
a $9$1 million decrease in interest expense due to lower weighted average interest rates on outstanding debt;
a $5 million increase in cash distributions on Series A Preferred Units included in Other Income, net shown above;
a $3 million increase in the gaingains on marketable securities included in Other Income, net shown above;above.
These decreases in net income were partially offset by the following:
an $89 million decrease in income tax expense due to lower net income and a reduction in the corporate income tax rate resulting from the TCJA, partially offset by re-measurement of state deferred taxes discussed below;
a $3$6 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:
a $66 million increase in income tax expense due to higher net income;Bonds; and
a $3$5 million decreaseincrease in miscellaneous other non-operating income included in Other Income, net shown above.above, primarily due to lower non-service cost components of net periodic pension and postretirement costs.
Six months ended June 30, 20172018 compared to six months ended June 30, 20162017
We reported net income of $327$90 million ($0.750.21 per diluted share) for the six months ended June 30, 20172018 compared to net income of $152$327 million ($0.350.75 per diluted share) for the six months ended June 30, 2016.2017.
The increasedecrease in net income of $175$237 million was primarily due to the following key factors:
a $163$249 million decreaseincrease in the losslosses on indexed debt securities related to the ZENS included in Other Income, net shown above, resulting from decreased lossesa loss of $46$11 million from Meredith’s acquisition of Time in March 2018 and a loss of $242 million from AT&T’s acquisition of TW in June 2018, partially offset by increased gains of $4 million in the underlying value of the indexed debt securities and a loss of $117 million from the Charter merger in 2016;securities;
a $65$93 million increasedecrease in operating income discussed below by segment;
a $40$44 million decrease in gains on marketable securities included in Other Income, net shown above;
a $14 million increase in interest expense due to higher outstanding other long-term debt and the amortization of Bridge Facility fees of $7 million; and
a $4 million decrease in equity earnings from our investment in Enable, discussed further in Note 89 to our Interim Condensed Financial Statements;Statements.
an $18These decreases in net income were partially offset by the following:
a $149 million decrease in interestincome tax expense due to lower weighted average interest rates on outstanding debt;net income and a reduction in the corporate income tax rate resulting from the TCJA, partially offset by re-measurement of state deferred taxes discussed below;
a $14 million increase in cash distributions on Series A Preferred Units included in Other Income, net shown above; and
a $7$10 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:Bonds; and
an $87$8 million increase in income tax expense due to higher net income;
a $43 million decrease in the gain on marketable securities included in Other Income, net shown above; and
a $2 million decrease in miscellaneous other non-operating income included in Other Income, net shown above.above, primarily due to lower non-service cost components of net periodic pension and postretirement costs.
Income Tax Expense
Our effective tax rate reported for the three months ended June 30, 20172018 was 36%15% compared to 125%36% for the same period in 2016. The higher effective tax rate for the three months ended June 30, 2016 was primarily due to a Louisiana state tax law change resulting in an increase to our deferred tax liability, the effect of which was compounded by lower earnings.2017. The effective tax rate reported for the six months ended June 30, 20172018 was 36%27% compared to 39%36% for the same period in 2016.2017. The higherlower effective tax rates for the three and six months ended June 30, 2018 were primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA, and partially offset by the impact of state tax law changes which resulted in re-measurement of state deferred taxes. The state tax law changes combined with the lower earnings for the period result in the lower than expected effective tax rate for the six months ended June 30, 2016 was primarily due to the Louisiana statecurrent quarter and higher than expected six-month effective tax law change discussed above.rate. We expect our annual effective tax rate for the fiscal year ending December 31, 20172018 to be approximately 36%23%.
HOUSTON ELECTRIC’S MANAGEMENT’S NARRATIVE ANALYSIS
OF CONSOLIDATED RESULTS OF OPERATIONS
Houston Electric’s results of operations are affected by seasonal fluctuations in the demand for electricity. Houston Electric’s results of operations are also affected by, among other things, the actions of various governmental authorities having jurisdiction over rates Houston Electric charges, debt service costs, income tax expense, Houston Electric’s ability to collect receivables from REPs and Houston Electric’s ability to recover its regulatory assets. For more information regarding factors that may affect the future results of operations of Houston Electric’s business, please read “Risk Factors” in Item 1A of Part I of Houston Electric’s 2017 Form 10-K.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions, except throughput and customer data) |
Revenues | $ | 854 |
|
| $ | 752 |
|
| $ | 1,609 |
|
| $ | 1,390 |
|
Expenses | 673 |
|
| 581 |
|
| 1,309 |
|
| 1,134 |
|
Operating income | 181 |
|
| 171 |
|
| 300 |
|
| 256 |
|
Interest and other finance charges | (36 | ) | | (32 | ) | | (69 | ) | | (65 | ) |
Interest on Securitization Bonds | (14 | ) | | (20 | ) | | (30 | ) | | (40 | ) |
Other income, net | (3 | ) | | (2 | ) | | (6 | ) | | (6 | ) |
Income before income taxes | 128 |
|
| 117 |
|
| 195 |
|
| 145 |
|
Income tax expense | 27 |
| | 42 |
| | 42 |
| | 52 |
|
Net income | $ | 101 |
|
| $ | 75 |
|
| $ | 153 |
|
| $ | 93 |
|
Three months ended June 30, 2018 compared to three months ended June 30, 2017
Houston Electric reported net income of $101 million for the three months ended June 30, 2018 compared to net income of $75 million for the same period in 2017.
Net income increased $26 million due to the following key factors:
a $16 million increase in TDU operating income as discussed further below in Results of Operations by Business Segment; and
a $15 million decrease in income tax expense due to a reduction in the corporate income tax rate resulting from the TCJA.
These increases to net income were partially offset by the following:
a $4 million increase in interest expense due to higher outstanding other long-term debt; and
a $1 million decrease in miscellaneous other non-operating income included in Other income, net shown above.
Six months ended June 30, 2018 compared to six months ended June 30, 2017
Houston Electric reported net income of $153 million for the six months ended June 30, 2018 compared to net income of $93 million for the six months ended June 30, 2017.
Net income increased $60 million, primarily due to the following key factors:
a $54 million increase in TDU operating income resulting from the $49 million increase discussed further below in Results of Operations by Business Segment and increased usage of $5 million, primarily due to a return to more normal weather, which was not offset by the weather hedge loss recorded on CenterPoint Energy; and
a $10 million decrease in income tax expense due to a reduction in the corporate income tax rate resulting from the TCJA.
These increases to net income were partially offset by a $4 million increase in interest expense due to higher outstanding other long-term debt.
Income Tax Expense
Houston Electric’s effective tax rate reported for the three months ended June 30, 2018 was 21% compared to 36% for the same period in 2017. The effective tax rate reported for the six months ended June 30, 2018 was 22% compared to 36% for the same period in 2017. The lower effective tax rate for both the three and six months ended June 30, 2018 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA.
CERC’S MANAGEMENT’S NARRATIVE ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS
CERC’s results of operations are affected by seasonal fluctuations in the demand for natural gas and price movements of energy commodities as well as natural gas basis differentials. CERC’s results of operations are also affected by, among other things, the actions of various federal, state and local governmental authorities having jurisdiction over rates CERC charges, competition in CERC’s various business operations, the effectiveness of CERC’s risk management activities, debt service costs and income tax expense. For more information regarding factors that may affect the future results of operations for CERC’s business, please read “Risk Factors” in Item 1A of Part I of CERC’s 2017 Form 10-K.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Revenues | $ | 1,328 |
| | $ | 1,387 |
| | $ | 3,728 |
| | $ | 3,480 |
|
Expenses | 1,306 |
| | 1,328 |
| | 3,575 |
| | 3,222 |
|
Operating Income | 22 |
| | 59 |
| | 153 |
| | 258 |
|
Interest and other finance charges | (33 | ) | | (31 | ) | | (62 | ) | | (60 | ) |
Equity in earnings of unconsolidated affiliate, net | 58 |
| | 59 |
| | 127 |
| | 131 |
|
Other expense, net | (1 | ) | | (4 | ) | | (5 | ) | | (9 | ) |
Income Before Income Taxes | 46 |
| | 83 |
| | 213 |
| | 320 |
|
Income tax expense | 10 |
| | 29 |
| | 47 |
| | 119 |
|
Net Income | $ | 36 |
| | $ | 54 |
| | $ | 166 |
| | $ | 201 |
|
Three months ended June 30, 2018 compared to three months ended June 30, 2017
CERC reported net income of $36 million for the three months ended June 30, 2018 compared to net income of $54 million for the same period in 2017.
The decrease in net income of $18 million was primarily due to the following key factors:
a $37 million decrease in operating income discussed below by segment in Results of Operations by Business Segment;
a $2 million increase in interest expense due to higher outstanding long-term debt; and
a $1 million decrease in equity earnings from our investment in Enable, discussed further in Note 9 to the Interim Condensed Financial Statements.
These decreases were partially offset by the following:
a $19 million decrease in income tax expense due to lower net income and a reduction in the corporate income tax rate resulting from the TCJA; and
a $3 million increase in miscellaneous other non-operating income included in Other expense, net shown above.
Six months ended June 30, 2018 compared to six months ended June 30, 2017
CERC reported net income of $166 million for the six months ended June 30, 2018 compared to net income of $201 million for the six months ended June 30, 2017.
The decrease in net income of $35 million was primarily due to the following key factors:
a $105 million decrease in operating income discussed below by segment in Results of Operations by Business Segment;
a $4 million decrease in equity earnings from our investment in Enable, discussed further in Note 9 to the Interim Condensed Financial Statements; and
a $2 million increase in interest expense due to higher outstanding long-term debt.
These decreases were partially offset by the following:
a $72 million decrease in income tax expense due to lower net income and a reduction in the corporate income tax rate resulting from the TCJA; and
a $4 million increase in miscellaneous other non-operating income included in Other expense, net shown above.
Income Tax Expense
CERC’s effective tax rate reported for the three months ended June 30, 2018 was 22% compared to 35% for the same period in 2017. CERC’s effective tax rate reported for the six months ended June 30, 2018 was 22% compared to 37% for the same period in 2017. The lower effective tax rates for both the three and six months ended June 30, 2018 were primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA.
RESULTS OF OPERATIONS BY BUSINESS SEGMENT
The following table presents operating income (loss) for each of our business segments for the three and six months ended June 30, 2017 and 2016.segment. Included in revenues are intersegment sales. We accountsales, which are accounted for intersegment sales as if the sales were to third parties at current market prices. See Note 16 to the Interim Condensed Financial Statements for details of business segments by Registrant.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) | (in millions) |
Electric Transmission & Distribution | $ | 164 |
| | $ | 158 |
| | $ | 242 |
| | $ | 241 |
| $ | 181 |
| | $ | 171 |
| | $ | 296 |
| | $ | 257 |
|
Natural Gas Distribution | 37 |
| | 20 |
| | 201 |
| | 180 |
| 7 |
| | 42 |
| | 163 |
| | 210 |
|
Energy Services | 16 |
| | — |
| | 51 |
| | 6 |
| 15 |
| | 16 |
| | (11 | ) | | 51 |
|
Other Operations | 6 |
| | 4 |
| | 3 |
| | 5 |
| (16 | ) | | 11 |
| | (10 | ) | | 13 |
|
Total Consolidated Operating Income | $ | 223 |
| | $ | 182 |
| | $ | 497 |
| | $ | 432 |
| $ | 187 |
| | $ | 240 |
| | $ | 438 |
| | $ | 531 |
|
Electric Transmission & Distribution
For information regarding factors that may affect the future results of operations of ourthe Electric Transmission & Distribution business segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Electric Transmission & Distribution Business” and “— Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP” in Item 1A of Part I of our 2016CenterPoint Energy’s 2017 Form 10-K.
The following table provides summary data of our Electric Transmission & Distribution business segment for the three and six months ended June 30, 2017 and 2016:segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
| (in millions, except throughput and customer data) | (in millions, except throughput and customer data) |
Revenues: | | | | | | | | | | | | | | |
TDU | $ | 653 |
| | $ | 616 |
| | $ | 1,215 |
| | $ | 1,156 |
| $ | 676 |
| | $ | 653 |
| | $ | 1,274 |
| | $ | 1,215 |
|
Bond Companies | 99 |
| | 147 |
| | 176 |
| | 267 |
| 178 |
| | 99 |
| | 331 |
| | 176 |
|
Total revenues | 752 |
| | 763 |
| | 1,391 |
| | 1,423 |
| 854 |
| | 752 |
| | 1,605 |
| | 1,391 |
|
Expenses: | | | | | | | | | | | | | | |
Operation and maintenance, excluding Bond Companies | 348 |
| | 330 |
| | 696 |
| | 659 |
| 349 |
| | 341 |
| | 689 |
| | 681 |
|
Depreciation and amortization, excluding Bond Companies | 103 |
| | 94 |
| | 199 |
| | 189 |
| 100 |
| | 103 |
| | 198 |
| | 199 |
|
Taxes other than income taxes | 58 |
| | 57 |
| | 118 |
| | 114 |
| 60 |
| | 58 |
| | 121 |
| | 118 |
|
Bond Companies | 79 |
| | 124 |
| | 136 |
| | 220 |
| 164 |
| | 79 |
| | 301 |
| | 136 |
|
Total expenses | 588 |
| | 605 |
| | 1,149 |
| | 1,182 |
| 673 |
| | 581 |
| | 1,309 |
| | 1,134 |
|
Operating Income | $ | 164 |
| | $ | 158 |
| | $ | 242 |
| | $ | 241 |
| $ | 181 |
| | $ | 171 |
| | $ | 296 |
| | $ | 257 |
|
Operating Income: | | | | | | | | | | | | | | |
TDU | $ | 144 |
| | $ | 135 |
| | $ | 202 |
| | $ | 194 |
| $ | 167 |
| | $ | 151 |
| | $ | 266 |
| | $ | 217 |
|
Bond Companies (1) | 20 |
| | 23 |
| | 40 |
| | 47 |
| 14 |
| | 20 |
| | 30 |
| | 40 |
|
Total segment operating income | $ | 164 |
| | $ | 158 |
| | $ | 242 |
| | $ | 241 |
| $ | 181 |
| | $ | 171 |
| | $ | 296 |
| | $ | 257 |
|
Throughput (in GWh): | | | | | | | | | | | | | | |
Residential | 7,940 |
| | 7,632 |
| | 13,092 |
| | 12,651 |
| 8,327 |
| | 7,940 |
| | 13,932 |
| | 13,092 |
|
Total | 22,750 |
| | 22,190 |
| | 41,504 |
| | 40,321 |
| 23,688 |
| | 22,750 |
| | 43,332 |
| | 41,504 |
|
Number of metered customers at end of period: | | | | | | | | | | | | | | |
Residential | 2,152,655 |
| | 2,106,396 |
| | 2,152,655 |
| | 2,106,396 |
| 2,179,048 |
| | 2,152,655 |
| | 2,179,048 |
| | 2,152,655 |
|
Total | 2,429,403 |
| | 2,377,352 |
| | 2,429,403 |
| | 2,377,352 |
| 2,463,500 |
| | 2,429,403 |
| | 2,463,500 |
| | 2,429,403 |
|
| |
(1) | Represents the amount necessary to pay interest on the Securitization Bonds. |
Three months ended June 30, 20172018 compared to three months ended June 30, 20162017
Our Electric Transmission & Distribution business segment reported operating income of $164$181 million for the three months ended June 30, 2017,2018, consisting of $144$167 million from the TDU and $20$14 million related to the Bond Companies. For the three months ended June 30, 2016,2017, operating income totaled $158$171 million, consisting of $135$151 million from the TDU and $23$20 million related to the Bond Companies.
TDU operating income increased $9$16 million, primarily due to the following key factors:
higher equity return of $14 million, primarily related to the annual true-up of transition charges correcting for under-collections that occurred during the preceding 12 months;
higher transmission-related revenues of $7 million, exclusive of the TCJA discussed below, and lower transmission costs billed by transmission providers of $7 million;
rate increases of $11$12 million related to distribution capital investments;
customer growth of $9 million from the addition of over 52,000 new customers; and
higher usage of $2$9 million, primarily due to a return to more normal weather.weather; and
customer growth of $8 million from the addition of over 34,000 customers.
These increases to operating income were partially offset by the following:
lower equity returnrevenues of $12 million due to the recording of a regulatory liability and a corresponding decrease to revenue reflecting the difference in revenues collected under existing customer rates and the revenues that would have been collected had existing rates been set using the lower corporate tax rate from the TCJA;
increased operation and maintenance expenses of $15 million, primarily due to increased contract services and corporate support services;
lower revenues of $7 million primarily relateddue to lower transmission rate filings as a result of the annual true-up of transition charges correcting for over-collections that occurred during 2016;TCJA; and
higher depreciation and amortization expense, primarily because of ongoing additions to plant-in-service,plant in service, and other taxes of $4 million; and
higher operation and maintenance expenses of $4$6 million.
HigherLower depreciation and amortization expenseexpenses related to AMS of $6 million and lower operation and maintenance expenses of $1$7 million were offset by a corresponding increasedecrease in related revenues.
Six months ended June 30, 20172018 compared to six months ended June 30, 20162017
Our Electric Transmission & Distribution business segment reported operating income of $242$296 million for the six months ended June 30, 2017,2018, consisting of $202$266 million from the TDU and $40$30 million related to the Bond Companies. For the six months ended June 30, 2016,2017, operating income totaled $241$257 million, consisting of $194$217 million from the TDU and $47$40 million related to the Bond Companies.
TDU operating income increased $8$49 million, primarily due to the following key factors:
higher equity return of $28 million, primarily related to the annual true-up of transition charges correcting for under-collections that occurred during the preceding 12 months;
higher transmission-related revenues of $15 million, exclusive of the TCJA discussed below, and lower transmission costs billed by transmission providers of $13 million;
rate increases of $27$21 million related to distribution capital investments;
higher usage of $17 million, primarily due to a return to more normal weather; and
customer growth of $17$14 million from the addition of over 52,000 new34,000 customers.
These increases to operating income were partially offset by the following:
lower revenues of $24 million due to the recording of a regulatory liability and a corresponding decrease to revenue reflecting the difference in revenues collected under existing customer rates and the revenues that would have been collected had existing rates been set using the lower corporate tax rate from the TCJA;
increased operation and maintenance expenses of $21 million primarily due to an increase in labor and benefits, contract services and corporate support services;
lower revenues of $7 million due to lower transmission rate filings as a result of the TCJA; and
higher depreciation and amortization expense, primarily because of ongoing additions to plant-in-service,plant in service, and other taxes of $13 million;
lower equity return of $13 million, primarily related to the annual true-up of transition charges correcting for over-collections that occurred during 2016;
higher operation and maintenance expenses of $6 million;
lower miscellaneous revenues of $2 million; and
increased transmission costs billed by transmission providers of $33 million, which were partially offset by higher transmission-related revenues of $31 million.
HigherLower depreciation and amortization expenseexpenses related to AMS of $1 million and lower operation and maintenance expenses of $2$4 million were offset by a corresponding decrease in related revenues.
Natural Gas Distribution
For information regarding factors that may affect the future results of operations of ourthe Natural Gas Distribution business segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Natural Gas Distribution and Energy Services Businesses” and “— Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP” in Item 1A of Part I of our 2016CenterPoint Energy’s 2017 Form 10-K.
The following table provides summary data of our Natural Gas Distribution business segment for the three and six months ended June 30, 2017 and 2016:segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
| (in millions, except throughput and customer data) | (in millions, except throughput and customer data) |
Revenues | $ | 477 |
| | $ | 421 |
| | $ | 1,393 |
| | $ | 1,316 |
| $ | 495 |
| | $ | 477 |
| | $ | 1,648 |
| | $ | 1,393 |
|
Expenses: | | | | | | | | | | | | | | |
Natural gas | 164 |
| | 130 |
| | 625 |
| | 575 |
| 185 |
| | 164 |
| | 852 |
| | 625 |
|
Operation and maintenance | 175 |
| | 178 |
| | 368 |
| | 367 |
| 196 |
| | 170 |
| | 409 |
| | 359 |
|
Depreciation and amortization | 65 |
| | 60 |
| | 128 |
| | 119 |
| 69 |
| | 65 |
| | 137 |
| | 128 |
|
Taxes other than income taxes | 36 |
| | 33 |
| | 71 |
| | 75 |
| 38 |
| | 36 |
| | 87 |
| | 71 |
|
Total expenses | 440 |
| | 401 |
| | 1,192 |
| | 1,136 |
| 488 |
| | 435 |
| | 1,485 |
| | 1,183 |
|
Operating Income | $ | 37 |
| | $ | 20 |
| | $ | 201 |
| | $ | 180 |
| $ | 7 |
| | $ | 42 |
| | $ | 163 |
| | $ | 210 |
|
Throughput (in Bcf): | | | | | | | | | | | | | | |
Residential | 19 |
| | 20 |
| | 81 |
| | 93 |
| 23 |
| | 19 |
| | 110 |
| | 81 |
|
Commercial and industrial | 57 |
| | 56 |
| | 139 |
| | 142 |
| 61 |
| | 57 |
| | 155 |
| | 139 |
|
Total Throughput | 76 |
| | 76 |
| | 220 |
| | 235 |
| 84 |
| | 76 |
| | 265 |
| | 220 |
|
Number of customers at end of period: | | | | | | | | | | | | | | |
Residential | 3,176,953 |
| | 3,145,655 |
| | 3,176,953 |
| | 3,145,655 |
| 3,204,897 |
| | 3,176,953 |
| | 3,204,897 |
| | 3,176,953 |
|
Commercial and industrial | 253,559 |
| | 252,172 |
| | 253,559 |
| | 252,172 |
| 255,115 |
| | 253,559 |
| | 255,115 |
| | 253,559 |
|
Total | 3,430,512 |
| | 3,397,827 |
| | 3,430,512 |
| | 3,397,827 |
| 3,460,012 |
| | 3,430,512 |
| | 3,460,012 |
| | 3,430,512 |
|
Three months ended June 30, 20172018 compared to three months ended June 30, 20162017
Our Natural Gas Distribution business segment reported operating income of $37$7 million for the three months ended June 30, 20172018 compared to $20$42 million for the three months ended June 30, 2016.2017.
Operating income increased $17decreased $35 million as a result of the following key factors:
lower revenues of $16 million due to the timing of a decoupling normalization accrual recorded in the second quarter of 2017 primarily for the impact of weather not recovered by weather normalization adjustments during the 2016-2017 winter season;
higher labor and benefits were favorable by $14costs of $17 million, resulting primarily from the recording of a regulatory asset (and a corresponding reduction in expense) to recover $16 million of prior postretirement expenses in future rates established in the Texas Gulf rate order;order in 2017;
usage was favorable by $8higher operation and maintenance expenses of $5 million, primarily due to higher support services expense and bad debt expense of $11 million, partially offset by a timing-related adjustment associated with the timingTexas Gulf rate order of $6 million;
lower revenue of $5 million, associated with the recording of a decoupling normalization adjustment;regulatory liability and a corresponding decrease to revenue in certain jurisdictions of $5 million reflecting the difference in revenues collected under existing customer rates and the revenues that would have been collected had existing rates been set using the lower corporate tax rate from the TCJA; and
increased depreciation and amortization expense of $4 million, primarily due to ongoing additions to plant-in-service.
These decreases were partially offset by the following:
rate relief increases of $6$7 million, primarily fromin the Arkansas rate case filingTexas and Minnesota jurisdictions, exclusive of $3 million and Texas jurisdictions of $3 million;
higher other revenue of $4 million;the TCJA impact discussed above; and
a $1$2 million increase associated with customer growth from the addition of over 32,000 new29,000 customers.
These increases were partially offset by the following:
higher operation and maintenance expenses of $9 million primarily resulting from an adjustment associated with the Texas Gulf rate order of $6 million, which is timing related; and
increased depreciation and amortization expense, primarily due to ongoing additions to plant-in-service, and other taxes of $7 million.
Increased operation and maintenance expenses related to energy efficiency programs of $2$4 million and increased gross receipts taxes of $1$2 million were offset by corresponding increases in the related revenues.
Six months ended June 30, 20172018 compared to six months ended June 30, 20162017
Our Natural Gas Distribution business segment reported operating income of $201$163 million for the six months ended June 30, 20172018 compared to $180$210 million for the six months ended June 30, 2016.2017.
Operating income increased $21decreased $47 million as a result of the following key factors:
rate increases of $19 million, primarily from the Arkansas rate case filing of $9 million, the Texas GRIP filing of $5 million and Texas jurisdictions of $3 million;
higher labor and benefits were favorable by $11costs of $23 million, resulting primarily from the recording of a regulatory asset (and a corresponding reduction in expense) to recover $16 million of prior postretirement expenses in future rates established in the Texas Gulf rate order;order in 2017;
lower revenue of $20 million, associated with the recording of a regulatory liability and a corresponding decrease to revenue in certain jurisdictions of $11 million reflecting the difference in revenues collected under existing customer rates and the revenues that would have been collected had existing rates been set using the lower corporate tax rate from the TCJA and lower rate filings in Minnesota and South Texas of $9 million associated with the lower corporate tax rate as a result of the TCJA;
higher operation and maintenance expenses of $15 million, primarily due to higher support services expense, contract services expense and bad debt expense of $21 million, partially offset by a timing-related adjustment associated with the Texas Gulf rate order of $6 million;
lower revenues of $12 million due to the timing of a decoupling normalization accrual recorded in the second quarter of 2017 primarily for the impact of weather not recovered by weather normalization adjustments during the 2016-2017 winter season;
higher other taxes of $10 million, primarily due to the 2017 Minnesota property tax refund of $9 million; and
higher other revenuesincreased depreciation and amortization expense of $7 million;$8 million, primarily due to ongoing additions to plant-in-service.
These decreases were partially offset by the following:
rate increases of $29 million, primarily in the Texas, Minnesota and Arkansas jurisdictions, exclusive of the TCJA impact discussed above; and
a $3$5 million increase associated with customer growth from the addition of over 32,000 new29,000 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 $12 million;
lower usage of $9 million primarily due to milder weather effects, partially mitigated by decoupling and weather normalization adjustments; and
higher operation and maintenance expenses of $7 million primarily resulting from an adjustment associated with the Texas Gulf rate order of $6 million, which is timing related.
Increased operation and maintenance expenses related to energy efficiency programs of $5$12 million and increased gross receipts taxes of $3$6 million were offset by corresponding increases in the related revenues. Decreased expense related to rate case amortization of $1 million was offset by a corresponding decrease in the related revenues.
Energy Services
For information regarding factors that may affect the future results of operations of ourthe Energy Services business segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Natural Gas Distribution and Energy Services Businesses” and “— Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP” in Item 1A of Part I of our 2016CenterPoint Energy’s 2017 Form 10-K.
The following table provides summary data of our Energy Services business segment for the three and six months ended June 30, 2017 and 2016:segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
| (in millions, except throughput and customer data) | (in millions, except throughput and customer data) |
Revenues | $ | 931 |
| | $ | 397 |
| | $ | 2,127 |
| | $ | 836 |
| $ | 860 |
| | $ | 931 |
| | $ | 2,145 |
| | $ | 2,127 |
|
Expenses: | | | | | | | | | | | | | | |
Natural gas | 889 |
| | 377 |
| | 2,026 |
| | 798 |
| 820 |
| | 889 |
| | 2,101 |
| | 2,026 |
|
Operation and maintenance | 22 |
| | 17 |
| | 43 |
| | 27 |
| 21 |
| | 22 |
| | 46 |
| | 43 |
|
Depreciation and amortization | 3 |
| | 3 |
| | 6 |
| | 4 |
| 3 |
| | 3 |
| | 8 |
| | 6 |
|
Taxes other than income taxes | 1 |
| | — |
| | 1 |
| | 1 |
| 1 |
| | 1 |
| | 1 |
| | 1 |
|
Total expenses | 915 |
| | 397 |
| | 2,076 |
| | 830 |
| 845 |
| | 915 |
| | 2,156 |
| | 2,076 |
|
Operating Income | $ | 16 |
| | $ | — |
| | $ | 51 |
| | $ | 6 |
| |
Operating Income (Loss) | | $ | 15 |
| | $ | 16 |
| | $ | (11 | ) | | $ | 51 |
|
| | | | | | | | | | | | | | |
Timing impacts related to mark-to-market gain (loss) (1) | $ | 6 |
| | $ | (7 | ) | | $ | 21 |
| | $ | (16 | ) | $ | 8 |
| | $ | 6 |
| | $ | (72 | ) | | $ | 21 |
|
| | | | | | | | |
Throughput (in Bcf) | 273 |
| | 199 |
| | 592 |
| | 370 |
| 311 |
| | 273 |
| | 686 |
| | 592 |
|
| | | | | | | | |
Number of customers at end of period (2) | 31,275 |
| | 30,675 |
| | 31,275 |
| | 30,675 |
| |
Approximate number of customers at end of period (2) | | 30,000 |
| | 31,000 |
| | 30,000 |
| | 31,000 |
|
| |
(1) | Includes the change in unrealized mark-to-market value and the impact from derivative assets and liabilities acquired through the purchase of Continuum and AEM. |
| |
(2) | Does not include approximately 61,10071,000 and 61,000 natural gas customers as of June 30, 2018 and 2017, respectively, that are under residential and small commercial choice programs invoiced by their host utility. |
Three months ended June 30, 20172018 compared to three months ended June 30, 20162017
Our Energy Services business segment reported operating income of $15 million for the three months ended June 30, 2018 compared to $16 million for the three months ended June 30, 2017 compared2017.
Operating income decreased $1 million, primarily due to $-0- for the threetiming impacts related to natural gas storage activity. This decrease in operating income was partially offset by decreases to operation and maintenance expenses.
Six months ended June 30, 2016. The increase in2018 compared to six months ended June 30, 2017
Our Energy Services business segment reported an operating loss of $11 million for the six months ended June 30, 2018 compared to operating income of $16$51 million was primarily due tofor the six months ended June 30, 2017.
Operating income decreased $62 million as a $13result of the following key factors:
a $93 million increasedecrease from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. The remainingmargins;
a $3 million increase in operating income wasoperation and maintenance expenses, primarily due to higher contract and services expense related to pipeline integrity testing, higher bad debt expense and higher support services expense; and
a $2 million increase in depreciation and amortization, primarily due to the increased throughput and number of customers related to the acquisitionamortization of AEM in 2017.acquired intangibles.
Six months ended June 30, 2017 compared to six months ended June 30, 2016
Our Energy Services business segment reported operating income of $51 million for the six months ended June 30, 2017 compared to $6 million for the six months ended June 30, 2016. The increaseThese decreases in operating income of $45were partially offset by a $36 million was primarilyincrease in margin due to a $37 million increaseincremental volumes from mark-to-market accounting for derivatives associated with certain natural gas purchasescustomers and sales usedimproved margin rates, resulting from realized commercial opportunities attributable to lockthe Continuum and AEM acquisitions and colder than normal weather in economic margins. Operating incomeseveral regions of the United States, primarily in the first six monthsquarter of 2017 also included $1 million of expenses related to the acquisition and integration of AEM. The remaining increase in operating income was primarily due to the increased throughput and number of customers related to the acquisition of AEM in 2017.
2018.
Midstream Investments
For information regarding factors that may affect the future results of operations of ourthe Midstream Investments business segment, please read “Risk Factors — Risk Factors Affecting Our Interests in Enable Midstream Partners, LP” and “— Other Risk Factors Affecting Our Businesses or Our Interests in Enable Midstream Partners, LP” in Item 1A of Part I of our 2016CenterPoint Energy’s 2017 Form 10-K.
The following table provides pre-tax equity income of ourthe Midstream Investments business segment for the three and six months ended June 30, 2017 and 2016:segment:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in millions) |
Enable | | $ | 59 |
| | $ | 31 |
| | $ | 131 |
| | $ | 91 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) |
Equity earnings from Enable, net | | $ | 58 |
| | $ | 59 |
| | $ | 127 |
| | $ | 131 |
|
Other Operations
The following table shows the operating income (loss) of ourCenterPoint Energy’s Other Operations business segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Revenues | $ | 4 |
| | $ | 3 |
| | $ | 8 |
| | $ | 7 |
|
Expenses | 20 |
| | (8 | ) | | 18 |
| | (6 | ) |
Operating Income (Loss) | $ | (16 | ) | | $ | 11 |
| | $ | (10 | ) | | $ | 13 |
|
Three months ended June 30, 2018 compared to three months ended June 30, 2017
Our Other Operations business segment reported an operating loss of $16 million for the three andmonths ended June 30, 2018 compared to operating income of $11 million for the three months ended June 30, 2017. Operating income decreased $27 million, primarily due to transaction costs related to the Merger.
Six months ended June 30, 2018 compared to six months ended June 30, 2017 and 2016:
Our Other Operations business segment reported an operating loss of $10 million for the three months ended June 30, 2018 compared to operating income of $13 million for the three months ended June 30, 2017. Operating income decreased $23 million, primarily due to transaction costs related to the Merger.
The following table shows the operating income (loss) of CERC’s Other Operations business segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) | (in millions) |
Revenues | $ | 3 |
| | $ | 4 |
| | $ | 7 |
| | $ | 8 |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Expenses | (3 | ) | | — |
| | 4 |
| | 3 |
| — |
| | (1 | ) | | (1 | ) | | 3 |
|
Operating Income | $ | 6 |
| | $ | 4 |
| | $ | 3 |
| | $ | 5 |
| |
Operating Income (Loss) | | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | (3 | ) |
CERTAIN FACTORS AFFECTING FUTURE EARNINGS
For information on other developments, factors and trends that may have an impact on ourthe Registrants’ future earnings, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Factors Affecting Future Earnings” in Item 7 of Part II of our 2016CenterPoint Energy’s 2017 Form 10-K, “Risk Factors” in Item 1A of Part I of our 2016each of the Registrants’
2017 Form 10-K and in Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q and “Cautionary Statement Regarding Forward-Looking Information” in this Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
Historical Cash Flows
The following table summarizes the net cash provided by (used in) operating, investing and financing activities:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Cash provided by (used in): | | | | | | | | | | | |
Operating activities | $ | 1,093 |
| | $ | 443 |
| | $ | 746 |
| | $ | 677 |
| | $ | 279 |
| | $ | 278 |
|
Investing activities | (267 | ) | | (468 | ) | | (197 | ) | | (640 | ) | | (418 | ) | | (205 | ) |
Financing activities | (756 | ) | | 42 |
| | (560 | ) | | (138 | ) | | 35 |
| | (73 | ) |
Operating Activities. The following items contributed to increased (decreased) net cash provided by operating activities for the six months ended June 30, 2017 and 2016:2018 compared to the same period of 2017:
|
| | | | | | | |
| Six Months Ended June 30, |
| 2017 | | 2016 |
| (in millions) |
Cash provided by (used in): | | | |
Operating activities | $ | 680 |
| | $ | 1,061 |
|
Investing activities | (635 | ) | | (467 | ) |
Financing activities | (138 | ) | | (587 | ) |
|
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Changes in net income after adjusting for non-cash items | $ | 132 |
| | $ | 162 |
| | $ | (97 | ) |
Changes in working capital | 187 |
| | 10 |
| | 403 |
|
Change in equity in earnings from Enable, net of distributions (1) | 122 |
| | — |
| | 122 |
|
Higher pension contribution | (46 | ) | | — |
| | — |
|
Other | 21 |
| | (8 | ) | | 40 |
|
| $ | 416 |
| | $ | 164 |
| | $ | 468 |
|
Cash Provided by Operating Activities
| |
(1) | This change is partially offset by the change in distributions from Enable in excess of cumulative earnings in investing activities noted in the table below. |
Net cash provided by operating activities in the first six months of 2017Investing Activities.The following items contributed to (increased) decreased $381 million compared to the first six months of 2016 due tochanges inworking capital ($352 million) and lower net income after adjusting for non-cash and non-operating items ($43 million; primarily depreciation and amortization and deferred income taxes), partially offset by increased cash from other non-current items ($14 million). The changes in working capital items in the first six months of 2017 primarily related to decreased cash provided by taxes receivable; margin deposits, net; inventory; non-trading derivatives, net; and net other current assets and liabilities, partially offset by increased cash provided by interest and taxes accrued and net accounts receivable/payable.
Cash Used in Investing Activities
Net cash used in investing activities infor the first six months of 2017 increased $168 millionended June 30, 2018 compared to the first six monthssame period of 2016 primarily due to decreased cash received for the repayment of notes receivable from Enable ($363 million), decreased proceeds from the sale of marketable securities associated with the Charter merger ($178 million) and increased cash used for acquisitions ($34 million), which were partially offset by decreased cash used for the purchase of Series A Preferred Units ($363 million), decreased capital expenditures ($33 million) and decreased restricted cash ($10 million). In 2017, we acquired AEM for cash of $132 million and, in 2016, we acquired Continuum for cash of $98 million.2017:
Cash Used in Financing Activities |
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Proceeds from the sale of marketable securities | $ | 398 |
| | $ | — |
| | $ | — |
|
AEM acquisition in 2017 | 132 |
| | — |
| | 132 |
|
Higher capital expenditures | (48 | ) | | (27 | ) | | (7 | ) |
Net change in notes receivable from unconsolidated affiliates | — |
| | (31 | ) | | — |
|
Change in distributions from Enable in excess of cumulative earnings | (119 | ) | | — |
| | (119 | ) |
Other | 10 |
| | 8 |
| | 2 |
|
| $ | 373 |
| | $ | (50 | ) | | $ | 8 |
|
Net
FinancingActivities. The following items contributed to (increased) decreased net cash used in financing activities infor the first six months of 2017 decreased $449 millionended June 30, 2018 compared to the first six monthssame period of 2016 due to decreased payments of long-term debt ($266 million), decreased distributions to ZENS holders ($178 million), decreased short-term borrowings ($12 million) and increased net proceeds from commercial paper ($6 million), which were offset by increased payments of common stock dividends ($9 million).2017:
|
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Net changes in commercial paper outstanding | $ | (1,472 | ) | | $ | — |
| | $ | (482 | ) |
Net changes in long-term debt outstanding, excluding commercial paper | 938 |
| | 89 |
| | 599 |
|
Net changes in debt issuance costs | (29 | ) | | (1 | ) | | (4 | ) |
Net changes in short-term borrowings | (28 | ) | | — |
| | (28 | ) |
Distributions to ZENS note holders | (16 | ) | | — |
| | — |
|
Increased payment of common stock dividends | (10 | ) | | — |
| | — |
|
Net change in notes payable from affiliated companies | — |
| | (60 | ) | | (570 | ) |
Contribution from parent | — |
| | — |
| | (38 | ) |
Dividend to parent | — |
| | (21 | ) | | 37 |
|
Other | (1 | ) | | — |
| | (1 | ) |
| $ | (618 | ) | | $ | 7 |
| | $ | (487 | ) |
Future Sources and Uses of Cash
OurThe liquidity and capital requirements of the Registrants, other than in connection with the proposed Merger with Vectren (see Note 3 to the Interim Condensed Financial Statements), are affected primarily by our results of operations, capital expenditures, debt service requirements, tax payments, working capital needs and various regulatory actions. Our capitalCapital expenditures are expected to be used for investment in infrastructure for our electric transmission and distribution operations and our natural gas distribution operations. These capital expenditures are anticipated to maintain reliability and safety, as well asincrease resiliency and expand our systems through value-added projects. OurIn addition to dividend payments on CenterPoint Energy’s common stock and interest payments on debt, the Registrants’ principal anticipated cash requirements for the remaining six months of 20172018 include the following:
capital expenditures of approximately $831 million; |
| | | | | | | | | | | | |
| | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) |
Estimated capital expenditures | | $ | 972 |
| | $ | 532 |
| | $ | 407 |
|
Maturing collateralized pollution control bonds | | 50 |
| | — |
| | — |
|
Scheduled principal payments on Securitization Bonds | | 204 |
| | 204 |
| | — |
|
Distribution to ZENS note holders | | 382 |
| | — |
| | — |
|
maturing senior notes of $250 million;
scheduled principal payments on Securitization Bonds of $193 million;
dividend payments on CenterPoint Energy, Inc. common stock; and
interest payments on debt.
WeThe Registrants expect that borrowings under our credit facilities, proceeds from commercial paper and anticipated bond offerings, anticipated cash flows from operations and distributions on our investments in common and subordinated units and Series A Preferred Units from Enable will be sufficient to meet our anticipated cash needs for the remaining six months of 2017.2018 will be met with borrowings under their credit facilities, proceeds from the issuance of long-term debt, anticipated cash flows from operations and, with respect to CenterPoint Energy and CERC, proceeds from commercial paper and distributions from Enable. In addition, if CenterPoint Energy and CERC decide to sell all or a portion of the Enable common units that they own in the public equity markets or otherwise in 2018 (reducing the amount of future distributions CenterPoint Energy and CERC receives from Enable to the extent of any such sales), any net proceeds received from such sales could provide a source for CenterPoint Energy’s and CERC’s remaining 2018 cash needs. Discretionary financing or refinancing may result in the issuance of equity securities of CenterPoint Energy or debt securities of the Registrants in the capital markets or the arrangement of additional credit facilities.facilities or term bank loans. Issuances of equity or debt in the capital markets, funds raised in the commercial paper markets, and additional credit facilities and any sales of CenterPoint Energy’s and CERC’s Enable common units may not, however, be available to us on acceptable terms.
For more information on CenterPoint Energy’s acquisition financing plan with respect to the proposed Merger with Vectren, see Note 3 to the Interim Condensed Financial Statements.
Off-Balance Sheet Arrangements
Other than Houston Electric’s first mortgage bonds and general mortgage bonds issued as collateral for tax-exempt long-term debt of CenterPoint Energy as discussed below and operating leases, we have no off-balance sheet arrangements.
Regulatory Matters
Brazos Valley Connection Project (CenterPoint Energy and Houston Electric)
Construction beganHouston Electric completed construction on and energized the Brazos Valley Connection in February 2017 and is proceeding as scheduled. Houston Electric filed its updated capital costs estimates withMarch 2018, ahead of the PUCT in February 2017, projecting theoriginal June 1, 2018 energization date. The final capital costs of the project will be $310were approximately $285 million, in line withwhich was within the estimated range of approximately $270-$310 million in the PUCT’s original order. The actual capitalHouston Electric applied for interim recovery of project costs not already included in rates in a filing with the PUCT in May 2018 and received approval for interim recovery in July 2018. Final approval by the PUCT of the project costs will depend on final land acquisition costs, construction costs and other factors.occur in Houston Electric expects to complete construction and energize the Brazos Valley Connection by June 2018. Houston Electric is able to file for recovery of various project costs through interim TCOS updates in advance of project completion.Electric’s next base rate case.
Freeport Master Plan Project (CenterPoint Energy and Houston Electric)
In April 2017, Houston Electric submitted a proposal to ERCOT requesting its endorsement of Houston Electric’s approximately $250 milliona transmission project in the greater Freeport, Texas area, which includes enhancements to two existing substations and the construction of a new 345 kvkV double-circuit transmission line. Capital expenditures forline located in Brazoria, Matagorda and Wharton counties. On December 12, 2017, Houston Electric received approval from ERCOT. Houston Electric expects to file in September 2018 an application with the PUCT seeking approval to build the project at a current estimated cost of as much as $630 million (previously estimated at $250 million) and anticipates that the PUCT will be incremental to its previously disclosed five-year capital plan. Houston Electric anticipatesprovide a decision from ERCOT in the fourththird quarter of 2017,2019 regarding the need for and if approved, will makeroute of the necessary filingsproject. The revised preliminary project cost includes additional costs associated with the PUCT.line routing to mitigate environmental and other land use impacts and structure design to address soil and coastal wind conditions.
Rate Change Applications
Houston Electric and CERC are routinely involved in rate change applications before state regulatory authorities. Those applications include general rate cases, where the entire cost of service of the utility is assessed and reset. In addition, Houston Electric is periodically involved in proceedings to adjust its capital tracking mechanisms (TCOS and DCRF) and annually files to adjust its EECRF. CERC is periodically involved in proceedings to adjust its capital tracking mechanisms in Texas (GRIP), its cost of service adjustments in Arkansas, Louisiana, Mississippi and Oklahoma (FRP, RSP, RRA and PBRC)PBRC, respectively), its decoupling mechanism in Minnesota, and its energy efficiency cost trackers in Arkansas, Minnesota, Mississippi and Oklahoma (EECR, CIP, EECR and EECR)EECR, respectively). The table below reflects significant applications pending or completed since our 20162017 Form 10-K was filed with the SEC.
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Mechanism | | Annual Increase (Decrease) (1) (in millions) | | Filing Date | | Effective Date | | Approval Date | | Additional Information |
Houston Electric (PUCT) |
AMSTCOS | | N/A | | February 2018 | | April 2018 | | April 2018 | | Revised TCOS annual revenue application approved in November 2017 by a reduction of $41.6 million to recognize decrease in the federal income tax rate, amortize certain EDIT balances and adjust rate base by EDIT attributable to new plant since the last rate case, all of which are related to the TCJA. |
TCOS | | $40.8 | | May 2018 | | July 2018 | | July 2018 | | Requested an increase of $285 million to rate base and reflects a $40.8 million annual increase in current revenues. Also reflects a one-time refund of $6.6 million in excess federal income tax collected from January to April 2018. |
EECRF | | 8.4 | | June 20172018
| | TBD | | TBD | | Final reconciliationRevised application requests recovery of AMS surcharge proposing2019 EECRF of $41.7 million, including a $28.7$8.4 million refund for AMS revenue in excess of expenses, for which a reserve has been recorded.performance bonus. |
EECRF (2)DCRF | | $11.030.9 | | JuneApril
20172018
| | September 2018 | | TBD | | TBD | | Annual reconciliation filing for program year 2016 and includes proposed performance bonusUnanimous settlement agreement results in incremental annual revenue of $11$30.9 million. Anticipated effective date of March 2018. |
DCRF | | 41.8 | | April
2017
| | September
2017
| | July
2017
| | Based on an increase in eligible distribution-invested capital for 2016 of $479 million. Unanimous Stipulation and Settlement Agreement wasThe agreement filed with the PUCT in June 2017 for $86.8 million (a $41.82018 recommends a $120.6 million annual increase).revenue requirement effective September 1, 2018. The settlement agreement also includedreflects an approximately $39 million decrease in the AMS refund referenced above.federal income tax rate, a $20 million decrease to return to customers the reserve recorded recognizing this decrease in the federal income tax rate from January 25, 2018 through August 31, 2018 and a $19.2 million decrease related to the unprotected EDIT. Effective September 1, 2019, the reserve amount returned to customers ends. |
TCOSCERC - South Texas (Railroad Commission) |
Rate Case | | 7.8(1.0) | | December 2016November 2017 | | FebruaryMay
20172018
| | FebruaryMay
20172018 | | Based onUnanimous settlement agreement approved by the Railroad Commission in May 2018 that provides for a $1 million annual decrease in current revenues. The settlement agreement also reflects an incremental increaseapproximately $2 million decrease in totalthe federal income tax rate baseand amortization of $109.6 million.certain EDIT balances and establishing a 9.8% ROE for future GRIP filings for the South Texas jurisdiction. |
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South Texas and | | | | | | | | | | |
Mechanism | | Annual Increase (Decrease) (1) (in millions) | | Filing Date | | Effective Date | | Approval Date | | Additional Information |
CERC - Beaumont/East Texas, Houston and Texas Coast (Railroad Commission) |
GRIP | | 7.614.7 | | March 2017 2018 | | July 20172018
| | June 20172018
| | Based on net change in invested capital of $46.5 million.$70.0 million and reflects a $14.7 million annual increase in current revenues. Also reflects an approximately $1.0 million decrease in the federal income tax rate. |
Houston and Texas Coast (Railroad Commission) |
Rate CaseAdministrative 104.111 | | 16.5 | | November 2016 | | May
2017
| | May
2017
| | The Railroad Commission approved a unanimous settlement agreement establishing parameters for future GRIP filings, including a 9.6% ROE on a 55.15% equity ratio. |
Texarkana, Texas Service Area (Multiple City Jurisdictions) |
Rate Case | | 1.1N/A | | July 2017
| | September
20172018
| | TBD | | Proposed rates are consistent with Arkansas rates approved in 2016. |
Arkansas (APSC) |
EECR (2) | | 0.5 | | May
2017
| | January 2018 | | TBD | | Recovers $11.5Beaumont/East Texas, Houston and Texas Coast propose to decrease base rates by $12.9 million including an incentiveto reflect the change in the federal income tax rate. In addition, Beaumont/East Texas proposed to decrease the GRIP charge to reflect the change in the federal income tax rate. The impact of $0.5 million based on 2016 program performance.deferred taxes is expected to be reflected in the next rate case. |
CERC - Arkansas (APSC) |
FRP | | 9.313.2 | | April
2017August 2018 | | October
2017 2018 | | TBD | | Based on ROE of 9.5% as approved in the last rate case. Unanimous Settlement Agreement was filedcase and reflects a $13.2 million annual increase in July 2017 for $7.6current revenues, excluding the effects of the recently enacted TCJA. With TCJA impacts considered, the annual increase is reduced by approximately $8.1 million, which include the effects of a lower federal income tax rate and is subject to approval.amortization of EDIT balances. |
BDA | | 3.9 | | March
2017
| | June
2017
| | June
2017
| | For the evaluation period between January 2016 and August 2016. Amounts are recorded during the evaluation period. |
CERC - 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 expected to bereflecting an annual increase of $47.8 million were effective October 1, 2017. A unanimous settlement agreement was filed in March 2018, which is subject to MPUC approval. The settlement agreement increases base rates by $3.9 million, makes decoupling a permanent part of the tariff, incorporates the impact of the decrease in the federal income tax rate and amortization of EDIT balances (approximately $20 million) and establishes or continues tracker recovery mechanisms that account for approximately $13.3 million in the initial filing. The MPUC voted to approve the settlement and a formal order was issued on July 20, 2018. Final rates (and the refund of interim rates that exceed final rates) are expected to be implemented later this year after required compliance filings are approved. |
CIP (2)CERC - Mississippi (MPSC) |
RRA | | 13.85.7 | | May 20172018
| | TBD | | TBD | | Annual reconciliation filing for program year 2016 and includes proposed performance bonus of $13.8 million. |
Decoupling | | 26.2 | | September 2016 | | February
2017
| | March
2017
| | Reflects revenue under recovery for the period July 1, 2015 through June 30, 2016, adjusted for final rates from the 2015 rate case. $24.6 million was recognized in 2016. |
Mississippi (MPSC) |
RRA | | 2.3 | | May
2017
| | July
2017
| | July
2017
| | AuthorizedBased on authorized ROE of 9.59%9.144% and a capital structure of 50% debt and 50% equity.equity and reflects a $5.7 million annual increase in revenues, excluding the effects of the recently enacted TCJA. With the impact of the lower federal income tax rate considered, the annual increase is reduced by approximately $1.7 million. |
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. |
CERC - Oklahoma (OCC) |
EECR (2) | | 0.4 | | March 2017 | | TBD | | TBD | | Recovers $2.6 million, including an incentive of $0.4 million based on 2016 program performance. |
PBRC | | 2.26.7 | | March 20172018
| | TBD | | TBD | | Based on ROE of 10% and reflects a $6.7 million annual increase in revenues, excluding the effects of the recently enacted TCJA . With TCJA impacts considered, the annual increase is reduced by approximately $1.2 million, which includes the effects of a lower federal income tax rate and amortization of certain EDIT balances. |
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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. |
Tax Reform
For Houston Electric and CERC’s NGD, federal income tax expense is included in the rates approved by state commissions and local municipalities and charged by those utilities to consumers. As Houston Electric and NGD file general rate cases and other periodic rate adjustments, the impacts of the TCJA (including the lower tax rate and the calculation and amortization of EDIT), along with other increases and decreases in our revenue requirements, will be incorporated into Houston Electric’s and NGD’s future rates as allowed by IRS rules. The effect of any potential return of tax savings resulting from the TCJA to consumers may differ depending on how each regulatory body requires us to return such savings. Regulatory commissions across most of Houston Electric’s and NGD’s jurisdictions have issued accounting orders to track or record a regulatory liability for (1) the difference between revenues collected under existing rates and revenues that would have been collected had the existing rates been set using the recently approved federal income tax rates and (2) the balance of EDIT that now exists because of the reduction in federal income tax rates.
On January 25, 2018, the PUCT issued an accounting order in Project No. 47945 directing electric utilities, including Houston Electric, to record as a regulatory liability (1) the difference between revenues collected under existing rates and revenues that would have been collected had the existing rates been set using the recently approved federal income tax rates and (2) the balance of EDIT that now exists because of the reduction in federal income tax rates. On February 13, 2018, Houston Electric and other likely parties to a future rate case announced a settlement that requires Houston Electric to make (i) a TCOS filing by February 20, 2018 to reflect the change in the federal income tax rate for Houston Electric’s transmission rate base through July 31, 2017
and account for certain EDIT (and such filing was timely submitted), (ii) a DCRF filing in April 2018 to reflect the change in the federal income tax rate for Houston Electric’s distribution rate base through December 31, 2017 (and such filing was timely submitted) and (iii) a full rate case filing by April 30, 2019. The settlement was presented to the PUCT during its open meeting on February 15, 2018. In response to the settlement, the PUCT did not proceed with a prior proposal to require Houston Electric to file a rate case in the summer of 2018. The PUCT also amended its prior accounting order to remove the requirement that utilities include carrying costs in the new regulatory liability. Additional information related to tax reform for Houston Electric is described in the table above.
On January 12, 2018, the APSC issued an order in Docket No. 18-006-U opening an investigatory docket into the TCJA and directing utilities, including CERC, to record as a regulatory liability the current and deferred impacts of the TCJA. On July 26, 2018, the APSC issued an order in the investigatory docket requiring CERC to (1) Include the reduction in tax expense due to the January 1, 2018 change in the tax rate from 35% to 21% in the utility’s FRP as a reduction to the revenue requirement; this reduction will be reflected in the utility’s historical year netting process in the 2019 FRP filing; (2) File and include all unprotected EDIT, including plant-related unprotected EDIT, in a separate rider within 30 days and refund the entire balance before December 31, 2019; (3) Include protected EDIT in the FRP and amortize such amount using the ARAM method; and (4) Adjust all other riders impacted by the TCJA changes and apply carrying charges calculated using the pre-tax cost of capital of 6.44% for the amounts related to the TCJA within 30 days of the July 26, 2018 order.
FERC Revised Policy Statement and NOPR (CenterPoint Energy and CERC)
On March 15, 2018, the FERC addressed treatment of federal income tax allowances in FERC-regulated pipeline rates. The FERC issued a Revised Policy Statement stating that it will no longer permit pipelines organized as MLPs to recover an income tax allowance in their cost-of-service rates. The FERC issued the Revised Policy Statement in response to a remand from the U.S. Court of Appeals for the D.C. Circuit in United Airlines v. FERC. On July 18, 2018, the FERC issued an order denying requests for rehearing of its Revised Policy Statement because it is a non-binding policy and parties will have the opportunity to address the policy as applied in future cases. Accordingly, the impacts that such changes may have on the rates Enable can charge for transportation services are unknown at this time.
On March 15, 2018, the FERC also proposed, in a NOPR, the method by which it would apply the Revised Policy Statement to FERC-jurisdictional natural gas pipeline rates, as well as account for the corporate income tax rate reduction in the TCJA. On July 18, 2018, the FERC issued a final rule requiring all FERC-regulated natural gas pipelines that have cost-based rates to make a filing providing certain cost and revenue information and then either propose to reduce or support current cost-based rates, or take no further action. At this time, we cannot predict the outcome of the final rule, but the FERC’s adoption of the regulation could adversely impact the rates Enable is permitted to charge its customers.
Other Matters
Credit Facilities
OurThe Registrants may draw on their respective revolving credit facilities may be drawn on by the companies from time to time to provide funds used for general corporate and limited liability company purposes, including to backstop the companies’CenterPoint Energy’s and CERC’s commercial paper programs. The facilities may also be utilized to obtain letters of credit. For further details related to ourthe Registrants’ revolving credit facilities, and the 2017 amendments, please see Note 1112 to ourthe Interim Condensed Financial Statements.
As of July 27, 2017, we23, 2018, the Registrants had the following facilities:
| | Company | | Size of Facility | | Amount Utilized at July 27, 2017 (1) | | Termination Date | |
Registrant | | | Size of Facility | | Amount Utilized (1) | | Termination Date |
(in millions) | CenterPoint Energy | | $ | 1,700 |
| | $ | 955 |
| (2) | March 3, 2022 | | $ | 1,700 |
| (2) | $ | 309 |
| (3) | March 3, 2022 |
Houston Electric | | 300 |
| | 4 |
| (3) | March 3, 2022 | | 300 |
| | 4 |
| (4) | March 3, 2022 |
CERC Corp. | | 900 |
| | 778 |
| (4) | March 3, 2022 | | 900 |
| | 513 |
| (5) | 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 June 30, 2017.2018. |
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(2) | Pursuant to the amendment entered into in May 2018, the aggregate commitments under the CenterPoint Energy revolving credit facility will increase to $3.3 billion upon the satisfaction of certain conditions. For further information, see Note 12 to the Interim Condensed Financial Statements. |
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(2)(3) | Represents outstanding commercial paper of $949$303 million and outstanding letters of credit of $6 million. |
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(3)(4) | Represents outstanding letters of credit. |
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(4)(5) | Represents outstanding commercial paper.paper of $512 million and outstanding letters of credit of $1 million. |
Borrowings under each of the three revolving credit facilities are subject to customary terms and conditions. However, there is no requirement that the borrower makemakes representations prior to borrowingsborrowing as to the absence of material adverse changes or litigation that could be expected to have a material adverse effect. Borrowings under each of the revolving credit facilities are subject to acceleration upon the occurrence of events of default that we consider customary. The revolving credit facilities also provide for customary fees, including commitment fees, administrative agent fees, fees in respect of letters of credit and other fees. In each of the three revolving credit facilities, the spread to LIBOR and the commitment fees fluctuate based on the borrower’s credit rating. The borrowers are currently in compliance with the various business and financial covenants in the three revolving credit facilities.
For more information on the Bridge Facility relating to the proposed Merger with Vectren, see Note 3 to the Interim Condensed Financial Statements.
Long-term Debt Financing Transactions
In January 2017,February 2018, Houston Electric issued $300$400 million aggregate principal amount of general mortgage bonds. In February 2017, CenterPoint Energy retired $250March 2018, CERC Corp. issued $600 million aggregate principal amount of its 5.95%unsecured senior notes at their maturity.notes. For further information about our 20172018 debt transactions,issuances, see Note 1112 to ourthe Interim Condensed Financial Statements.
As of June 30, 2018, Houston Electric’s outstanding first mortgage bonds and general mortgage bonds aggregated approximately $3.4 billion, of which $118 million is not reflected in its consolidated financial statements because of the contingent nature of the obligation.
The lien of the general mortgage indenture is junior to that of the mortgage pursuant to which the first mortgage bonds are issued. Houston Electric may issue additional general mortgage bonds on the basis of retired bonds, 70% of property additions or cash deposited with the trustee. Approximately $4.1 billion of additional first mortgage bonds and general mortgage bonds could be issued on the basis of retired bonds and 70% of property additions as of June 30, 2018. Houston Electric has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions.
Houston Electric’s long-term debt consists of its obligations and the obligations of its subsidiaries, including Securitization Bonds issued by its wholly-owned subsidiaries. As of June 30, 2018, the Bond Companies had the following aggregate principal amount, exclusive of debt issuance costs, of Securitization Bonds outstanding.
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Company | | Aggregate Principal Amount Outstanding |
| | (in millions) |
Bond Company II | | $ | 296 |
|
Bond Company III | | 110 |
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Bond Company IV | | 955 |
|
Restoration Bond Company | | 281 |
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Total | | $ | 1,642 |
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The Securitization Bonds are paid through the imposition of “transition” or “system restoration” charges, as defined in the Texas Public Utility Regulatory Act, which are irrevocable, non-bypassable charges to provide recovery of authorized qualified costs. The Securitization Bonds are reported as our long-term debt, although the holders of these bonds have no recourse to any of our assets or revenues, and our creditors have no recourse to any assets or revenues (including, without limitation, the transition or system restoration charges) of the Bond Companies. Houston Electric has no payment obligations with respect to the Securitization Bonds except to remit collections of transition and system restoration charges as set forth in servicing agreements between Houston Electric and the Bond Companies and in an intercreditor agreement among Houston Electric, the Bond Companies and other parties.
Securities Registered with the SEC
On January 31, 2017, CenterPoint Energy, Houston Electric and CERC Corp.the Registrants filed a joint shelf registration statement with the SEC 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, shares of preferred stock, as well as stock purchase contracts and equity units. The joint shelf registration statement will expire on January 31, 2020.
Temporary Investments
As of July 27, 2017, we23, 2018, the Registrants had no temporary external investments.
Money Pool (Houston Electric and CERC)
We have a money pool through which the holding company and participating subsidiaries can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings under our revolving credit facility or the sale of our commercial paper. The money pool may not provide sufficient funds to meet our subsidiaries’ cash needs. As of July 23, 2018, Houston Electric and CERC had borrowings from the money pool of $63 million and $-0-, respectively.
Impact on Liquidity of a Downgrade in Credit Ratings
The interest on borrowings under ourthe Registrants’ credit facilities is based on ourtheir credit rating.ratings. As of July 27, 2017,23, 2018, Moody’s, S&P and Fitch had assigned the following credit ratings to senior debt of CenterPoint Energy and certain subsidiaries: the Registrants:
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| | Moody’s | | S&P | | Fitch |
Company/Instrument | | Rating | | Outlook (1) | | Rating | | OutlookCreditWatch (2) | | Rating | | Outlook (3) |
CenterPoint Energy Senior Unsecured Debt | | Baa1 | | StableNegative | | BBB+ | | DevelopingNegative | | BBB | | Stable |
Houston Electric Senior Secured Debt | | A1 | | Stable | | A | | DevelopingNegative | | AA+ | | Stable |
CERC Corp. Senior Unsecured Debt | | Baa2 | | Stable | | A- | | DevelopingNegative | | BBB | | StablePositive |
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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 outlookCreditWatch assesses the potential direction of a short-term or long-term credit rating over the intermediate to longer term.rating. |
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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 cannot assure that the ratings set forth above will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. We note that these credit ratings are included for informational purposes and are not recommendations to buy, sell or hold our securities and may be revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. Any future reduction or withdrawal of one or more of our credit ratings could have a material adverse impact on our ability to obtain short- and long-term financing, the cost of such financings and the execution of our commercial strategies.
A decline in credit ratings could increase borrowing costs under ourthe Registrants’ revolving credit facilities. If ourthe Registrants’ credit ratings or those of Houston Electric or CERC Corp. had been downgraded one notch by each of the three principal credit rating agencies from the ratings that existed as of June 30, 2017,2018, the impact on the borrowing costs under the three revolving credit facilities would have been immaterial. A decline in credit ratings would also increase the interest rate on long-term debt to be issued in the capital markets and could negatively impact ourthe Registrants’ ability to complete capital market transactions and to access the commercial paper market. Additionally, a decline in credit ratings could increase cash collateral requirements and reduce earnings of ourCenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services business segments.
CES, a wholly-owned subsidiary of CERC Corp. operating in our Energy Services business segment, provides natural gas sales and services primarily to commercial and industrial customers and electric and natural gas utilities throughout the United States. To economically hedge its exposure to natural gas prices, CES uses derivatives with provisions standard for the industry, including those pertaining to credit thresholds. Typically, the credit threshold negotiated with each counterparty defines the amount of unsecured credit that such counterparty will extend to CES. To the extent that the credit exposure that a counterparty has to CES at a particular time does not exceed that credit threshold, CES is not obligated to provide collateral. Mark-to-market exposure
in excess of the credit threshold is routinely collateralized or settled-to-market by CES. Similarly, mark-to-market exposure offsetting and exceeding the credit threshold may cause the counterparty to provide collateral to CES. As of June 30, 2017,2018, the amountsamount posted by CES as collateral and settled-to-market aggregated approximately $29$50 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 June 30, 2017,2018, unsecured credit limits extended to CES by counterparties aggregated $348 million, and less than $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 $198$184 million as of June 30, 2017.2018. The amount of collateral will depend on seasonal variations in transportation levels.
ZENS and Securities Related to ZENS (CenterPoint Energy)
If our creditworthiness were to drop such that ZENS holders thought our liquidity was adversely affected or the market for the ZENS were to become illiquid, some ZENS holders might decide to exchange their ZENS for cash. Funds for the payment of cash upon exchange could be obtained from the sale of the shares of TWZENS-Related Securities that we own or from other sources. We own shares of TWZENS-Related Securities equal to approximately 100% of the reference shares used to calculate our obligation to the holders of the ZENS. ZENS exchanges result in a cash outflow because tax deferrals related to the ZENS and TWZENS-Related Securities shares would typically cease when ZENS are exchanged or otherwise retired and TWZENS-Related Securities shares are sold. The ultimate tax liability related to the ZENS continues to increase by the amount of the tax benefit realized each year, and there could be a significant cash outflow when the taxes are paid as a result of the retirement of the ZENS. If all ZENS had been exchanged for cash on June 30, 2017,2018, deferred taxes of approximately $468$408 million would have been payable in 2017.2018. If all the TWZENS-Related Securities had been sold on June 30, 2017,2018, capital gains taxes of approximately $318$100 million would have been payable in 2017.2018.
For additional information about ZENS, see Note 1011 to ourthe Interim Condensed Financial Statements.
Cross Defaults
Under ourCenterPoint Energy’s revolving credit facility, a payment default on, or a non-payment default that permits acceleration of, any indebtedness for borrowed money and certain other specified types of obligations (including guarantees) exceeding $125 million by usit or any of ourits significant subsidiaries will cause a default. A default by CenterPoint Energy would not trigger a default under ourits subsidiaries’ debt instruments or revolving credit facilities.
Possible Acquisitions, Divestitures and Joint Ventures
From time to time, we consider the acquisition or the disposition of assets or businesses or possible joint ventures, strategic initiatives or other joint ownership arrangements with respect to assets or businesses. Any determination to take action in this regard will be based on market conditions and opportunities existing at the time, and accordingly, the timing, size or success of any efforts and the associated potential capital commitments are unpredictable. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances. Debt or equity financing may not, however, be available to us at that time due to a variety of events, including, among others, maintenance of our credit ratings, industry conditions, general economic conditions, market conditions and market perceptions.
In February 2016, we announced that we were evaluating strategic alternatives for our investment in Enable, including a sale or spin-off qualifying under Section 355 of the U.S. Internal Revenue Code. We have determineddecided that we will no longernot pursue a spin option. Shouldoption at this time. In the sale optionfourth quarter of 2017, we announced that late-stage discussions with a third party regarding a transaction involving our investment in Enable had terminated because an agreement on mutually acceptable terms could not be viable, we intend toreached. We may reduce our ownership in Enable over time through a sale of the common units we holdsales in the public equity markets, or otherwise, of the Enable common units we hold, subject to market conditions. Although a transaction for all our interests in Enable is not viable at this time, we may pursue such a transaction if it is viable in the future. There can be no assurances that these evaluationswe will resultengage in any specific action or that any sale transaction or any sale of Enable common units in the public equity markets or otherwise will be completed, and we do not intend to disclose further developments on these initiatives unless and until our boardBoard of directorsDirectors approves a specific actiontransaction or as otherwise required.required by applicable law or NYSE regulations. Any sale transaction or sale of common units in the public equity markets or otherwise may involve significant costs and expenses, including, in connection with any public offering, a significant underwriting discount. We may not realize any or all of the anticipated strategic, financial, operational or other benefits from any completed sale or reduction in our investment in Enable.
Enable Midstream Partners (CenterPoint Energy and CERC)
We receive quarterly cash distributions from Enable on its common and subordinated units we own. We also receive quarterly cash distributions from Enable on theand 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 89 and 1619 to ourthe Interim Condensed Financial Statements.
Hedging of Interest Expense for Future Debt Issuances
During the first and second quarters of 2017,From time to time, we enteredmay enter into forward interest rate agreements to hedge, in part, volatility in the U.S. treasury rates by reducing variability in cash flows related to interest payments. For further information, see Note 6(a)7(a) to ourthe Interim Condensed Financial Statements.
Weather Hedge (CenterPoint Energy and CERC)
We have historically entered into partial weather hedges for certain NGD jurisdictions and Houston Electric’selectric operations’ service territory to mitigate the impact of fluctuations from normal weather. We remain exposed to some weather risk as a result of the partial hedges. For more information about our weather hedges, see Note 6(a)7(a) to ourthe Interim Condensed Financial Statements.
Collection of Receivables from REPs (CenterPoint Energy and Houston Electric)
Houston Electric’s receivables from the distribution of electricity are collected from REPs that supply the electricity Houston Electric distributes to their customers. Before conducting business, a REP must register with the PUCT and must meet certain financial qualifications. Nevertheless, adverse economic conditions, structural problems in the market served by ERCOT or financial difficulties of one or more REPs could impair the ability of these REPs to pay for Houston Electric’s services or could cause them to delay such payments. Houston Electric depends on these REPs to remit payments on a timely basis, and any delay or default in payment by REPs could adversely affect Houston Electric’s cash flows. In the event of a REP’s default, Houston Electric’s tariff provides a number of remedies, including the option for Houston Electric to request that the PUCT suspend or revoke the certification of the REP. Applicable regulatory provisions require that customers be shifted to another REP or a provider of last resort if a REP cannot make timely payments. However, Houston Electric remains at risk for payments related to services provided prior to the shift to the replacement REP or the provider of last resort. If a REP were unable to meet its obligations, it could consider, among various options, restructuring under the bankruptcy laws, in which event such REP might seek to avoid honoring its obligations and claims might be made against Houston Electric involving payments it had received from such REP. If a REP were to file for bankruptcy, Houston Electric may not be successful in recovering accrued receivables owed by such REP that are unpaid as of the date the REP filed for bankruptcy. However, PUCT regulations authorize utilities, such as Houston Electric, to defer bad debts resulting from defaults by REPs for recovery in future rate cases, subject to a review of reasonableness and necessity.
Other Factors that Could Affect Cash Requirements
In addition to the above factors, our liquidity and capital resources could be affected by:
cash collateral requirements that could exist in connection with certain contracts, including our weather hedging arrangements, and natural gas purchases, natural gas price and natural gas storage activities of ourthe Natural Gas Distribution and Energy Services business segments;
acceleration of payment dates on certain gas supply contracts, under certain circumstances, as a result of increased natural gas prices and concentration of natural gas suppliers;
increased costs related to the acquisition of natural gas;
increases in interest expense in connection with debt refinancings and borrowings under credit facilities;
various legislative or regulatory actions;
incremental collateral, if any, that may be required due to regulation of derivatives;
the ability of GenOn and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations in respect of GenOn’s indemnity obligations to us and our subsidiaries;us;
the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to usCenterPoint Energy and our subsidiaries;Houston Electric;
slower customer payments and increased write-offs of receivables due to higher natural gas prices or changing economic conditions;
the outcome of litigation brought by or against us;litigation;
contributions to pension and postretirement benefit plans;
restoration costs and revenue losses resulting from future natural disasters such as hurricanes and the timing of recovery of such restoration costs; and
various other risks identified in “Risk Factors” in Item 1A of Part I of our 2016each of the Registrants’ 2017 Form 10-K.10-K and Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q.
Certain Contractual Limits on Our Ability to Issue Securities and Borrow Money
Houston Electric has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions. For information about the total debt to capitalization financial covenants in our revolving credit facilities, see Note 1112 to ourthe Interim Condensed Financial Statements.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to ourthe Interim Condensed Financial Statements, incorporated herein by reference, for a discussion of new accounting pronouncements that affect us.
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Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk (CenterPoint Energy)
As of June 30, 2017,2018, we had outstanding long-term debt, lease obligations and obligations under our ZENS that subject us to the risk of loss associated with movements in market interest rates.
Our floating rate obligations aggregated $1.7 billion$565 million and $1.4$1.8 billion as of June 30, 20172018 and December 31, 2016,2017, respectively. If the floating interest rates were to increase by 10% from June 30, 20172018 rates, our combined interest expense would increase by approximately $2.4$1 million annually.
As of June 30, 20172018 and December 31, 2016,2017, we had outstanding fixed-rate debt (excluding indexed debt securities) aggregating $6.9$7.8 billion and $7.1$7.0 billion, respectively, in principal amount and having a fair value of $7.48.0 billion and $7.5 billion, respectively. Because these instruments are fixed-rate, they do not expose us to the risk of loss in earnings due to changes in market interest rates. However, the fair value of these instruments would increase by approximately $201$266 million if interest rates were to decline by 10% from levels at June 30, 2017.2018. In general, such an increase in fair value would impact earnings and cash flows only if we were to reacquire all or a portion of these instruments in the open market prior to their maturity.
The ZENS obligation is bifurcated into a debt component and a derivative component. The debt component of $11826 million as of June 30, 20172018 was a fixed-rate obligation and, therefore, did not expose us to the risk of loss in earnings due to changes in market interest rates. However, the fair value of the debt component would increase by approximately $18 million if interest rates were to decline by 10% from levels at June 30, 2017.2018. Changes in the fair value of the derivative component, a $740$641 million recorded liability at June 30, 2017,2018, are recorded in our Condensed Statements of Consolidated Income and, therefore, we are exposed to changes in the fair value of the derivative component as a result of changes in the underlying risk-free interest rate. If the risk-free interest rate were to increase by 10% from June 30, 20172018 levels, the fair value of the derivative component liability would increasedecrease by approximately $52 million, which would be recorded as an unrealized lossgain in our Condensed Statements of Consolidated Income.
Equity Market Value Risk (CenterPoint Energy)
We are exposed to equity market value risk through our ownership of 7.1 million shares of TW Common, 0.910.2 million shares of TimeAT&T Common and 0.9 million shares of Charter Common, which we hold to facilitate our ability to meet our obligations under the ZENS. Changes in the fair value of the ZENS-Related Securities held by CenterPoint Energy are expected to substantially offset changes in the fair value of the derivative component of the ZENS. A decrease of 10% from the June 30, 20172018 aggregate market value of these shares would
result in a net loss of approximately less than $1 million, which would be recorded as an unrealized loss in our Condensed Statements of Consolidated Income.
Commodity Price Risk From Non-Trading Activities (CenterPoint Energy and CERC)
We use derivative instruments as economic hedges to offset the commodity price exposure inherent in our businesses. The commodity risk created by these instruments, including the offsetting impact on the market value of natural gas inventory, is described below. We measure this commodity risk using a sensitivity analysis. For purposes of this analysis, we estimate commodity price risk by applying a $0.50 change in the forward NYMEX price to our net open fixed price position (including forward fixed price physical contracts, natural gas inventory and fixed price financial contracts) at the end of each period. As of June 30, 2017,2018, the recorded fair value of our non-trading energy derivatives was a net asset of $79$50 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 less than $1$8 million on our non-trading energy derivatives net asset and the market value of natural gas inventory.
Commodity price risk is not limited to changes in forward NYMEX prices. Variation of commodity pricing between the different indices used to mark to market portions of our natural gas inventory (Gas Daily) and the related fair value hedge (NYMEX) can result in volatility to our net income. Over time, any gains or losses on the sale of storage gas inventory would be offset by gains or losses on the fair value hedges.
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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 June 30, 20172018 to provide assurance that information required to be disclosed in ourthe reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to our management, including ourthe principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.
There has been no change in ourthe Registrants’ internal controls over financial reporting that occurred during the three months ended June 30, 20172018 that has materially affected, or is reasonably likely to materially affect, ourthe Registrants’ internal controls over financial reporting.
PART II. OTHER INFORMATION
For a description of certain legal and regulatory proceedings, affecting CenterPoint Energy, please read Note 14(b) to ourthe Interim Condensed Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Future Sources and Uses of Cash” and “— Regulatory Matters,” each of which is incorporated herein by reference. See also “Business — Regulation” and “— Environmental Matters” in Item 1 and “Legal Proceedings” in Item 3 of our 2016each of the Registrants’ 2017 Form 10-K.
There have been no material changes from the risk factors disclosed in our 2016each of the Registrants’ 2017 Form 10-K.10-K and CenterPoint Energy’s First Quarter 2018 Form 10-Q.
Ratio of Earnings to Fixed Charges. The ratio of earnings to fixed charges for the six months ended June 30, 2017 and 2016 was 3.61 and 2.35, respectively. WeRegistrants do not believe that the ratios for these six-month periods are necessarily indicative of the ratios for the twelve-month12-month periods due to the seasonal nature of ourtheir business. The ratios were calculated pursuant to applicable rules of the SEC.
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| | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2018 | | 2017 |
| | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
Ratio of earnings to fixed charges | | 1.69 | | 2.88 | | 4.64 | | 3.61 | | 2.31 | | 6.35 |
The following exhibits areExhibits filed herewith:
Exhibits not incorporated by reference to a prior filingherewith are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing as indicated.
Agreements included as exhibits are included only to provide information to investors regarding their terms. Agreements listed below may contain representations, warranties and other provisions that were made, among other things, to provide the parties thereto with specified rights and obligations and to allocate risk among them, and no such agreement should be relied upon as constituting or providing any factual disclosures about CenterPoint Energy, Inc.,the Registrants, any other persons, any state of affairs or other matters.
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, CenterPoint Energy hasthe Registrants have not filed as exhibits to this Form 10-Q certain long-term debt instruments, including indentures, under which the total amount of securities authorized does not exceed 10% of the total assets of CenterPoint Energythe Registrants and its subsidiaries on a consolidated basis. CenterPoint EnergyThe Registrants hereby agreesagree to furnish a copy of any such instrument to the SEC upon request.
| | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
2.1* | | | | | CenterPoint Energy’s Form 8-K dated April 21, 2018 | | 1-31447 | | 2.1 | | x | |
3.1 | | | | CenterPoint Energy’s Form 8-K dated July 24, 2008 | | 1-31447 | | 3.2 | | | | CenterPoint Energy’s Form 8-K dated July 24, 2008 | | 1-31447 | | 3.2 | | x | |
3.2 | | | | CenterPoint Energy’s Form 8-K dated February 21, 2017 | | 1-31447 | | 3.1 | | | | 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) | | Certificate of Incorporation of RERC Corp.
| | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(1) | | x |
4.1 | | | | CenterPoint Energy’s Registration Statement on Form S-4 | | 3-69502 | | 4.1 | |
4.2 | | | | CenterPoint Energy’s Form 8-K dated March 3, 2016 | | 1-31447 | | 4.1 | |
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 | |
3.4 | | | Certificate of Merger merging former NorAm Energy Corp. with and into HI Merger, Inc. dated August 6, 1997 | | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(2) | | x |
3.5 | | | Certificate of Amendment changing the name to Reliant Energy Resources Corp. | | CERC Form 10-K for the year ended December 31, 1998 | | 1-13265 | | 3(a)(3) | | x |
3.6 | | | | | CERC Form 10-Q for the quarter ended June 30, 2003 | | 1-13265 | | 3(a)(4) | | x |
3.7 | | | | | CenterPoint Energy’s Form 8-K dated February 21, 2017 | | 1-31447 | | 3.1 | | x | |
3.8 | | | | | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | | 1-3187 | | 3.2 | | x | |
3.9 | | | Bylaws of RERC Corp. | | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(b) | | x |
3.10 | | | | | CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 | | 1-31447 | | 3(c) | | x | |
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Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference |
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 |
10.1 | | | | CenterPoint Energy’s Form 8-K dated April 27, 2017
| | 1-31447 | | 10.1 |
+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 |
4.1 | | | | 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 | | x | | | | |
4.3 | | | | CenterPoint Energy’s Form 8-K dated March 3, 2016 | | 1-31447 | | 4.2 | | x | | x | | |
4.4 | | | | CenterPoint Energy’s Form 8-K dated March 3, 2016 | | 1-31447 | | 4.3 | | x | | | | x |
4.5 | | | | CenterPoint Energy’s Form 8-K dated June 16, 2017 | | 1-31447 | | 4.1 | | x | | | | |
4.6 | | | | CenterPoint Energy’s Form 8-K dated May 25, 2018 | | 1-31447 | | 4.1 | | x | | | | |
4.7 | | | | CenterPoint Energy’s Form 8-K dated June 16, 2017 | | 1-31447 | | 4.2 | | x | | x | | |
4.8 | | | | CenterPoint Energy’s Form 8-K dated June 16, 2017 | | 1-31447 | | 4.3 | | x | | | | x |
10.1 | | | | CenterPoint Energy’s Form 8-K dated April 21, 2018 | | 1-31447 | | 10.1 | | x | | | | |
+12.1 | | | | | | | | | | x | | | | |
+12.2 | | | | | | | | | | | | x | | |
+12.3 | | | | | | | | | | | | | | 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 | | XBRL Instance 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.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | x | | x | | x |
+101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | x | | x | | x |
+101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | x | | x | | x |
+101.LAB | | XBRL Taxonomy Extension Labels Linkbase Document | | | | | | | | x | | x | | x |
+101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | x | | x | | x |
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* | Schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, theeach registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CENTERPOINT ENERGY, INC. |
| CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC |
| CENTERPOINT ENERGY RESOURCES CORP. |
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By: | /s/ Kristie L. Colvin |
| Kristie L. Colvin |
| Senior Vice President and Chief Accounting Officer |
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Date: August 3, 20172018
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