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 |
| FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018MARCH 31, 2019 |
OR
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| FOR THE TRANSITION PERIOD FROM __________________ TO __________________ |
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| Registrant, State or Other Jurisdiction of Incorporation or 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) | |
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1-3187 | CenterPoint Energy Houston Electric, LLC | 22-3865106 |
| (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.
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CenterPoint Energy, Inc. | Yes þ | CenterPoint Energy, Inc. Yes þNo o
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CenterPoint Energy Houston Electric, LLC | Yes þ | No o |
CenterPoint Energy Resources Corp. | 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 every Interactive Data File required to be submitted 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 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 |
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CenterPoint Energy, Inc. | Yes þ | No o |
CenterPoint Energy Houston Electric, LLC | Yes þ | No o |
CenterPoint Energy Resources Corp. | Yes þ | No o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,���” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company |
CenterPoint Energy, Inc. | Large accelerated filer þ
| Accelerated filer o
| Non-accelerated filer o
| Smaller reporting company o
| Emerging growth company o
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CenterPoint Energy Houston Electric, LLC | Large accelerated filer o
| Accelerated filer o
| Non-accelerated filer þ
| Smaller reporting company o
| Emerging growth company o
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CenterPoint Energy Resources Corp. | Large accelerated filer o
| Accelerated filer o
| Non-accelerated filer þ
| Smaller reporting company o
| Emerging growth company o
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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).
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CenterPoint Energy, Inc. | CenterPoint Energy, Inc. Yes o No þ
| CenterPoint Energy Houston Electric, LLC Yes o No þ
CenterPoint Energy Resources Corp. Yes oNo þ
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CenterPoint Energy Houston Electric, LLC | Yes o | No þ |
CenterPoint Energy Resources Corp. | Yes o | No þ |
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Securities registered pursuant to Section 12(b) of the Act: |
Registrant | Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
CenterPoint Energy, Inc. | Common Stock, $0.01 par value | CNP | New York Stock Exchange Chicago Stock Exchange |
CenterPoint Energy, Inc. | Depositary shares, each representing a 1/20th interest in a share of 7.00% Series B Mandatory Convertible Preferred Stock, $0.01 par value | CNP/PB | New York Stock Exchange |
CenterPoint Energy Houston Electric, LLC | 9.15% First Mortgage Bonds due 2021 | n/a | New York Stock Exchange |
CenterPoint Energy Houston Electric, LLC | 6.95% General Mortgage Bonds due 2033 | n/a | New York Stock Exchange |
CenterPoint Energy Resources Corp. | 6.625% Senior Notes due 2037 | n/a | New York Stock Exchange |
Indicate the number of shares outstanding of each of the issuers’ classes of common stock as of July 23, 2018:April 25, 2019:
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CenterPoint Energy, Inc. | | 431,553,691502,173,861 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.
TABLE OF CONTENTS
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PART I. | | FINANCIAL INFORMATION | |
Item 1. | | | |
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Item 2. | | | |
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Item 3. | | | |
Item 4. | | | |
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PART II. | | OTHER INFORMATION | |
Item 1. | | | |
Item 1A. | | | |
Item 5. | | | |
Item 6. | | | |
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GLOSSARY |
AEMACE | | AtmosAffordable Clean Energy Marketing, LLC, previously a wholly-owned subsidiary of Atmos Energy Holdings, Inc., a wholly-owned subsidiary of Atmos Energy Corporation |
AFUDC | | Allowance for funds used during construction |
AMA | | Asset Management Agreement |
AMS | | Advanced Metering System |
APSC | | Arkansas Public Service Commission |
ARO | | Asset retirement obligation |
ARAM | | Average rate assumption method |
ARP | | Alternative revenue program |
ASC | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
AT&T Common | | AT&T Inc. |
AT&T Common | | AT&T common stock |
Bcf | | Billion cubic feet |
Bond Companies | | Bond 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 property 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 FacilityCCR | | A $5 billion 364-day senior unsecured bridge term loan facilityCoal Combustion Residuals |
CECA | | Clean Energy Cost Adjustment |
CECL | | Current expected credit losses |
CenterPoint Energy | | CenterPoint Energy, Inc., and its subsidiaries |
CERC Corp. | | CenterPoint Energy Resources Corp. |
CERC | | CERC Corp., together with its subsidiaries |
CERC Corp. | | CenterPoint Energy Resources Corp. |
CES | | CenterPoint Energy Services, Inc., a wholly-owned subsidiary of CERC Corp. |
Charter Common | | Charter Communications, Inc. common stock |
CIP | | Conservation Improvement Program |
CME | | Chicago Mercantile Exchange |
CNP Midstream | | CenterPoint Energy Midstream, Inc., a wholly-owned subsidiary of CenterPoint Energy |
COLI | | Corporate-owned life insurance |
ContinuumCommon Stock | | The retail energy services businessCenterPoint Energy, Inc. common stock, par value $0.01 per share |
CPCN | | Certificate of Continuum Retail Energy Services, LLC, including its wholly-owned subsidiary Lakeshore Energy Services, LLCPublic Convenience and the natural gas wholesale assets of Continuum Energy Services, LLCNecessity |
CPP | | Clean Power Plan |
CSIA | | Compliance and System Improvement Adjustment |
DCRF | | Distribution Cost Recovery Factor |
DRR | | Distribution Replacement Rider |
DSMA | | Demand Side Management Adjustment |
ECA | | Environmental Cost Adjustment |
EDIT | | Excess deferred income taxes |
EECR | | Energy Efficiency Cost Recovery |
EECRF | | Energy Efficiency Cost Recovery Factor |
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GLOSSARY |
EEFC | | Energy Efficiency Funding Component |
EEFR | | Energy Efficiency Funding Rider |
ELG | | Effluent Limitation Guidelines |
Enable | | Enable Midstream Partners, LP |
Enable GP | | Enable GP, LLC, Enable’s general partner |
Enable Series A Preferred Units | | Enable’s 10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units, representing limited partner interests in Enable |
EPA | | Environmental Protection Agency |
ERCOT | | Electric Reliability Council of Texas |
FCCESG | | Federal Communications CommissionEnergy Systems Group, LLC, a wholly-owned subsidiary of Vectren |
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 | | Platts gas daily indices |
GenOn | | GenOn Energy, Inc. |
GHG | | Greenhouse gases |
GMES | | Government Mandated Expenditure Surcharge |
GRIP | | Gas Reliability Infrastructure Program |
GWh | | Gigawatt-hours |
Houston Electric | | CenterPoint Energy Houston Electric, LLC and its subsidiaries |
HSRIDEM | | Hart-Scott-RodinoIndiana Department of Environmental Management |
Indiana Electric | | Operations of SIGECO’s electric transmission and distribution services, and includes its power generating and wholesale power operations |
Indiana Gas | | Indiana Gas Company, Inc., a wholly-owned subsidiary of Vectren |
Indiana North | | Gas operations of Indiana Gas |
Indiana South | | Gas operations of SIGECO |
Indiana Utilities | | The combination of Indiana Electric, Indiana North and Indiana South |
Interim Condensed Financial Statements | | Unaudited condensed consolidated interim financial statements and combined notes |
Internal Spin | | The series of internal transactions consummated on September 4, 2018 whereby CERC (i) contributed its equity investment in Enable consisting of Enable common units and its interests in Enable GP to CNP Midstream and (ii) transferred all of its interest in CNP Midstream to CenterPoint Energy |
IRP | | Integrated Resource Plan |
IRS | | Internal Revenue Service |
IURC | | Indiana Utility Regulatory Commission |
kV | | Kilovolt |
LIBOR | | London Interbank Offered Rate |
MeredithLPSC | | Meredith CorporationLouisiana Public Service Commission |
MATS | | Mercury and Air Toxics Standards |
Merger | | The merger of Merger Sub with and into Vectren on the terms and subject to the conditions set forth in the Merger Agreement, with Vectren continuing as the surviving corporation and as a wholly-owned subsidiary of CenterPoint Energy, Inc. |
Merger Agreement | | Agreement and Plan of Merger, dated as of April 21, 2018, among CenterPoint Energy, Vectren and Merger Sub |
Merger Date | | February 1, 2019 |
Merger Sub | | Pacer Merger Sub, Inc., an Indiana corporation and wholly-owned subsidiary of CenterPoint Energy |
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GLOSSARY |
MGP | | Manufactured gas plant |
MISO | | Midcontinent Independent System Operator |
MLP | | Master Limited Partnership |
MMBtu | | One million British thermal units |
Moody’s | | Moody’s Investors Service, Inc. |
MPSC | | Mississippi Public Service Commission |
MPUC | | Minnesota Public Utilities Commission |
MRT | | Enable Mississippi River Transmission, LLC |
MW | | Megawatts |
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 |
PUCO | | Public Utilities Commission of Ohio |
PUCT | | Public Utility Commission of Texas |
Railroad Commission | | Railroad Commission of Texas |
RCRA | | Resource Conservation and Recovery Act of 1976 |
Registrants | | CenterPoint Energy, Houston Electric and CERC, collectively |
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 |
ROU | | Right of use |
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 UnitsStock | | Enable’s 10%CenterPoint Energy’s Series A Fixed-to-Floating Non-CumulativeRate Cumulative Redeemable Perpetual Preferred Units, representing limited partner interests in EnableStock, par value $0.01 per share, with a liquidation preference of $1,000 per share |
Series B Preferred Stock | | CenterPoint Energy’s 7.00% Series B Mandatory Convertible Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share |
SERP | | Supplemental Executive Retirement Plan |
SIGECO | | Southern Indiana Gas and Electric Company, a wholly-owned subsidiary of Vectren |
S&P | | Standard & Poor’sS&P Global Ratings Services, a division of The McGraw-Hill Companies |
SRC | | Sales Reconciliation Component |
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 |
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GLOSSARY |
TCJA | | Tax reform legislation informally called the Tax Cuts and Jobs Act of 2017 |
TCOS | | Transmission Cost of Service |
TDSIC | | Transmission, Distribution and Storage System Improvement Charge |
TDU | | Transmission and distribution utility |
Time | | Time Inc. |
Time Common | | Time common stock |
Transition Agreements | | Services Agreement, Employee Transition Agreement, Transitional Seconding Agreement and other agreements entered into in connection with the formation of Enable |
TWTSCR | | Time Warner Inc.Tax Savings Credit Rider |
TW CommonUtility Holding | | TW common stockUtility Holding, LLC, a wholly-owned subsidiary of CenterPoint Energy |
VCC | | Vectren Capital Corp., a wholly-owned subsidiary of Vectren |
Vectren | | Vectren Corporation, an Indiana corporationa wholly-owned subsidiary of CenterPoint Energy as of the Merger Date |
VEDO | | Vectren Energy Delivery of Ohio, Inc., a wholly-owned subsidiary of Vectren |
VIE | | Variable interest entity |
Vistra Energy Corp. | | Texas-based energy company focused on the competitive energy and power generation markets |
VRP | | Voluntary Remediation Program |
VUHI | | Vectren Utility Holdings, Inc., a wholly-owned subsidiary of Vectren |
ZENS | | 2.0% Zero-Premium Exchangeable Subordinated Notes due 2029 |
ZENS-Related Securities | | As of June 30,both March 31, 2019 and December 31, 2018, consisted of AT&T Common and Charter Common and as of December 31, 2017, consisted of Charter Common, Time Common and TW Common |
20172018 Form 10-K | | Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time the Registrants make statements concerning their 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 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.
The Registrants have based their forward-looking statements on management’s beliefs and assumptions based on information reasonably available to management at the time the statements are made. The Registrants caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, the Registrants cannot assure you that actual results will not differ materially from those expressed or implied by the 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.subsidiaries, including Houston Electric, CERC and Vectren.
The following are some of the factors that could cause actual results to differ from those expressed or implied by the Registrants’ forward-looking statements and apply to all Registrants unless otherwise indicated:
the performance of Enable, the amount of cash distributions CenterPoint Energy and CERC receivereceives from Enable, Enable’s ability to redeem the Enable Series A Preferred Units in certain circumstances and the value of CenterPoint 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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◦ | changes in tax status; and |
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◦ | access to debt and equity capital; and |
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◦ | the availability and prices of raw materials and services for current and future construction projects; |
the expected benefits of the Merger and integration, including the outcome of shareholder litigation filed against Vectren that could reduce anticipated benefits of the Merger, as well as the ability to successfully integrate the Vectren businesses and to realize anticipated benefits and commercial opportunities;
industrial, commercial and residential growth in our service territories and changes in market demand, including the demand for our non-rate regulatednon-utility products and services and effects of energy efficiency measures and demographic patterns;
the outcome of the pending Houston Electric rate case;
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;
CenterPoint Energy’s expected timing, likelihood and 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 coal, 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, legislative actions, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or cancellation or in cost overruns that cannot be recouped in rates;
the availability and prices of raw materials and services and changes in labor for current and future construction projects;
local, state and federal legislative and regulatory actions or developments relating to the environment, including, among others, those related to global climate change;change, air emissions, carbon, waste water discharges and the handling and disposal of CCR that could impact the continued operation, and/or cost recovery of generation plant costs and related assets;
the impact of unplanned facility outages;outages or other closures;
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, ice, earthquakes, explosions, leaks, floods, droughts, hurricanes, tornadoes, pandemic health events or other occurrences;
our ability to invest planned capital and the timely recovery of our investment in capital;investments, including those related to Indiana Electric’s generation transition plan;
our ability to successfully construct and operate electric generating facilities, including complying with applicable environmental standards and the implementation of a well-balanced energy and resource mix, as appropriate;
our ability to control operation and maintenance costs;
the sufficiency of our insurance coverage, including availability, cost, coverage and terms and ability to recover claims;
the investment performance of CenterPoint 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 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 financial and weather hedges and commodity risk management activities;
timely and appropriate regulatory actions, which include actions allowing securitization, for any future hurricanes or natural disasters or other recovery of costs, including costs associated with Hurricane Harvey;
CenterPoint Energy, CERCEnergy’s or Enable’s potential business strategies and strategic initiatives, including restructurings, joint ventures and acquisitions or dispositions of assets or businesses (including a reduction of CenterPoint Energy’s and CERC’s interestsinterest in Enable, if any, whether through theirits decision to sell all or a portion of the Enable common units they ownit owns in the public equity markets or otherwise, subject to certain limitations), which CenterPoint Energy CERC and Enable cannot assure you will be completed or will have the anticipated benefits to usCenterPoint Energy or Enable;
the performance of projects undertaken by our non-utility businesses and the success of efforts to realize value from, invest in and develop new opportunities and other factors affecting those non-utility businesses, including, but not limited to, the level of success in bidding contracts, fluctuations in volume and mix of contracted work, mix of projects received under blanket contracts, failure to properly estimate cost to construct projects or unanticipated cost increases in completion of the contracted work, changes in energy prices that affect demand for construction services and projects and cancellation and/or reductions in the scope of projects by customers and obligations related to warranties and guarantees;
acquisition and merger activities involving us or our 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;
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 discussed in “Risk Factors” in Item 1A of Part I of each of the Registrants’ 2017 Form 10-K and in Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q,
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 the 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 |
| June 30, | | June 30, | | March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
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Revenues: | | | | | | | | | | | |
Utility revenues | $ | 1,341 |
| | $ | 1,222 |
| | $ | 3,235 |
| | $ | 2,768 |
| | $ | 2,161 |
| | $ | 1,894 |
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Non-utility revenues | 845 |
| | 921 |
| | 2,106 |
| | 2,110 |
| | 1,370 |
| | 1,261 |
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Total | 2,186 |
| | 2,143 |
| | 5,341 |
| | 4,878 |
| | 3,531 |
| | 3,155 |
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Expenses: | | | | | | | | | | | |
Utility natural gas | 188 |
| | 150 |
| | 825 |
| | 600 |
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Non-utility natural gas | 790 |
| | 882 |
| | 2,063 |
| | 2,011 |
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Utility natural gas, fuel and purchased power | | | 735 |
| | 637 |
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Non-utility cost of revenues, including natural gas | | | 1,251 |
| | 1,273 |
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Operation and maintenance | 578 |
| | 518 |
| | 1,147 |
| | 1,061 |
| | 861 |
| | 569 |
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Depreciation and amortization | 342 |
| | 254 |
| | 656 |
| | 480 |
| | 313 |
| | 314 |
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Taxes other than income taxes | 101 |
| | 99 |
| | 212 |
| | 195 |
| | 126 |
| | 111 |
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Total | 1,999 |
| | 1,903 |
| | 4,903 |
| | 4,347 |
| | 3,286 |
| | 2,904 |
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Operating Income | 187 |
| | 240 |
| | 438 |
| | 531 |
| | 245 |
| | 251 |
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Other Income (Expense): | | | | | | | | | | | |
Gain on marketable securities | 22 |
| | 23 |
| | 23 |
| | 67 |
| | 83 |
| | 1 |
|
Loss on indexed debt securities | (254 | ) | | (13 | ) | | (272 | ) | | (23 | ) | | (86 | ) | | (18 | ) |
Interest and other finance charges | (91 | ) | | (77 | ) | | (169 | ) | | (155 | ) | | (121 | ) | | (78 | ) |
Interest on Securitization Bonds | (14 | ) | | (20 | ) | | (30 | ) | | (40 | ) | | (12 | ) | | (16 | ) |
Equity in earnings of unconsolidated affiliate, net | 58 |
| | 59 |
| | 127 |
| | 131 |
| | 62 |
| | 69 |
|
Other, net | 4 |
| | (1 | ) | | 7 |
| | (1 | ) | |
Other income, net | | | 20 |
| | 3 |
|
Total | (275 | ) | | (29 | ) | | (314 | ) | | (21 | ) | | (54 | ) | | (39 | ) |
Income Before Income Taxes | | | 191 |
| | 212 |
|
Income tax expense | | | 22 |
| | 47 |
|
Net Income | | | 169 |
| | 165 |
|
Preferred stock dividend requirement | | | 29 |
| | — |
|
Income Available to Common Shareholders | | | $ | 140 |
| | $ | 165 |
|
| | | | | | | | | | | |
Income (Loss) Before Income Taxes | (88 | ) | | 211 |
| | 124 |
| | 510 |
| |
Income tax expense (benefit) | (13 | ) | | 76 |
| | 34 |
| | 183 |
| |
Net Income (Loss) | $ | (75 | ) | | $ | 135 |
| | $ | 90 |
| | $ | 327 |
| |
| | | | | | | | |
Basic Earnings (Loss) Per Share | $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.76 |
| |
| | | | | | | | |
Diluted Earnings (Loss) Per Share | $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.75 |
| |
| | | | | | | | |
Dividends Declared Per Share | $ | 0.2775 |
| | $ | 0.2675 |
| | $ | 0.2775 |
| | $ | 0.5350 |
| |
| | | | | | | | |
Weighted Average Shares Outstanding, Basic | 432 |
| | 431 |
| | 431 |
| | 431 |
| |
| | | | | | | | |
Weighted Average Shares Outstanding, Diluted | 432 |
| | 434 |
| | 434 |
| | 434 |
| |
Basic Earnings Per Common Share | | | $ | 0.28 |
| | $ | 0.38 |
|
Diluted Earnings Per Common Share | | | $ | 0.28 |
| | $ | 0.38 |
|
Weighted Average Common Shares Outstanding, Basic | | | 502 |
| | 431 |
|
Weighted Average Common Shares Outstanding, Diluted | | | 504 |
| | 434 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(In Millions)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net income (loss) | $ | (75 | ) | | $ | 135 |
| | $ | 90 |
| | $ | 327 |
|
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 |
| | 1 |
| | 6 |
| | 1 |
|
Comprehensive income (loss) | $ | (74 | ) | | $ | 136 |
| | $ | 96 |
| | $ | 328 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
(Unaudited)
ASSETS
|
| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
Current Assets: | | | |
Cash and cash equivalents ($253 and $230 related to VIEs, respectively) | $ | 328 |
| | $ | 260 |
|
Investment in marketable securities | 584 |
| | 960 |
|
Accounts receivable ($112 and $73 related to VIEs, respectively), less bad debt reserve of $21 and $19, respectively | 958 |
| | 1,000 |
|
Accrued unbilled revenues | 207 |
| | 427 |
|
Natural gas inventory | 152 |
| | 222 |
|
Materials and supplies | 192 |
| | 175 |
|
Non-trading derivative assets | 74 |
| | 110 |
|
Taxes receivable | 39 |
| | — |
|
Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively) | 167 |
| | 241 |
|
Total current assets | 2,701 |
| | 3,395 |
|
| | | |
Property, Plant and Equipment: | | | |
Property, plant and equipment | 19,585 |
| | 19,031 |
|
Less: accumulated depreciation and amortization | 6,188 |
| | 5,974 |
|
Property, plant and equipment, net | 13,397 |
| | 13,057 |
|
| | | |
Other Assets: | | | |
Goodwill | 867 |
| | 867 |
|
Regulatory assets ($1,293 and $1,590 related to VIEs, respectively) | 2,067 |
| | 2,347 |
|
Non-trading derivative assets | 46 |
| | 44 |
|
Investment in unconsolidated affiliate | 2,451 |
| | 2,472 |
|
Preferred units – unconsolidated affiliate | 363 |
| | 363 |
|
Other | 216 |
| | 191 |
|
Total other assets | 6,010 |
| | 6,284 |
|
| | | |
Total Assets | $ | 22,108 |
| | $ | 22,736 |
|
|
| | | | | | | | |
| | Three Months Ended |
| | March 31, |
| | 2019 | | 2018 |
| | (in millions) |
Net income | | $ | 169 |
| | $ | 165 |
|
Other comprehensive income (loss): | | | | |
Adjustment to pension and other postretirement plans (net of tax of $1 and $1) | | 1 |
| | 1 |
|
Net deferred gain (loss) from cash flow hedges (net of tax of $-0- and $1) | | (1 | ) | | 4 |
|
Reclassification of deferred loss from cash flow hedges realized in net income (net of tax of $-0- and $-0-) | | 1 |
| | — |
|
Total | | 1 |
| | 5 |
|
Comprehensive income | | $ | 170 |
| | $ | 170 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
| (in millions) |
Current Assets: | | | |
Cash and cash equivalents ($242 and $335 related to VIEs, respectively) | $ | 255 |
| | $ | 4,231 |
|
Investment in marketable securities | 623 |
| | 540 |
|
Accounts receivable ($56 and $56 related to VIEs, respectively), less bad debt reserve of $29 and $18, respectively | 1,415 |
| | 1,190 |
|
Accrued unbilled revenues | 451 |
| | 378 |
|
Natural gas inventory | 115 |
| | 194 |
|
Materials and supplies | 256 |
| | 200 |
|
Non-trading derivative assets | 63 |
| | 100 |
|
Prepaid expenses and other current assets ($33 and $34 related to VIEs, respectively) | 241 |
| | 192 |
|
Total current assets | 3,419 |
| | 7,025 |
|
Property, Plant and Equipment: | | | |
Property, plant and equipment | 29,011 |
| | 20,267 |
|
Less: accumulated depreciation and amortization | 9,499 |
| | 6,223 |
|
Property, plant and equipment, net | 19,512 |
| | 14,044 |
|
Other Assets: | | | |
Goodwill | 5,129 |
| | 867 |
|
Regulatory assets ($977 and $1,059 related to VIEs, respectively) | 2,229 |
| | 1,967 |
|
Non-trading derivative assets | 33 |
| | 38 |
|
Investment in unconsolidated affiliates | 2,471 |
| | 2,482 |
|
Preferred units – unconsolidated affiliate | 363 |
| | 363 |
|
Intangible assets, net | 460 |
| | 65 |
|
Other | 286 |
| | 158 |
|
Total other assets | 10,971 |
| | 5,940 |
|
Total Assets | $ | 33,902 |
| | $ | 27,009 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
(In Millions, except share amounts)
(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
| | | | | | | March 31, 2019 | | December 31, 2018 |
| June 30, 2018 | | December 31, 2017 | (in millions, except share amounts) |
Current Liabilities: | | | | | | |
Short-term borrowings | $ | — |
| | $ | 39 |
| |
Current portion of VIE Securitization Bonds long-term debt | 446 |
| | 434 |
| $ | 347 |
| | $ | 458 |
|
Indexed debt, net | 26 |
| | 122 |
| 23 |
| | 24 |
|
Current portion of other long-term debt | 50 |
| | 50 |
| 32 |
| | — |
|
Indexed debt securities derivative | 641 |
| | 668 |
| 687 |
| | 601 |
|
Accounts payable | 706 |
| | 963 |
| 1,181 |
| | 1,240 |
|
Taxes accrued | 103 |
| | 181 |
| 214 |
| | 204 |
|
Interest accrued | 118 |
| | 104 |
| 127 |
| | 121 |
|
Dividends accrued | — |
| | 120 |
| — |
| | 187 |
|
Customer deposits | | 142 |
| | 86 |
|
Non-trading derivative liabilities | 26 |
| | 20 |
| 48 |
| | 126 |
|
Due to ZENS note holders | 382 |
| | — |
| |
Other | 344 |
| | 368 |
| 338 |
| | 255 |
|
Total current liabilities | 2,842 |
| | 3,069 |
| 3,139 |
| | 3,302 |
|
| | | | |
Other Liabilities: | |
| | |
| |
| | |
|
Deferred income taxes, net | 3,168 |
| | 3,174 |
| 3,824 |
| | 3,239 |
|
Non-trading derivative liabilities | 12 |
| | 4 |
| 18 |
| | 5 |
|
Benefit obligations | 723 |
| | 785 |
| 888 |
| | 796 |
|
Regulatory liabilities | 2,521 |
| | 2,464 |
| 3,449 |
| | 2,525 |
|
Other | 412 |
| | 357 |
| 609 |
| | 402 |
|
Total other liabilities | 6,836 |
| | 6,784 |
| 8,788 |
| | 6,967 |
|
| | | | |
Long-term Debt: | |
| | |
| |
| | |
|
VIE Securitization Bonds, net | 1,193 |
| | 1,434 |
| 914 |
| | 977 |
|
Other long-term debt, net | 6,567 |
| | 6,761 |
| 12,845 |
| | 7,705 |
|
Total long-term debt, net | 7,760 |
| | 8,195 |
| 13,759 |
| | 8,682 |
|
| | | | |
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, 431,547,782 shares and 431,044,845 shares outstanding, respectively | 4 |
| | 4 |
| |
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized | |
|
| |
|
|
Series A Preferred Stock, $0.01 par value, $800 aggregate liquidation preference, 800,000 shares outstanding | | 790 |
| | 790 |
|
Series B Preferred Stock, $0.01 par value, $978 aggregate liquidation preference, 977,500 shares outstanding | | 950 |
| | 950 |
|
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 502,168,182 shares and 501,197,784 shares outstanding, respectively | | 5 |
| | 5 |
|
Additional paid-in capital | 4,215 |
| | 4,209 |
| 6,060 |
| | 6,072 |
|
Retained earnings | 513 |
| | 543 |
| 518 |
| | 349 |
|
Accumulated other comprehensive loss | (62 | ) | | (68 | ) | (107 | ) | | (108 | ) |
Total shareholders’ equity | 4,670 |
| | 4,688 |
| 8,216 |
| | 8,058 |
|
| | | | |
Total Liabilities and Shareholders’ Equity | $ | 22,108 |
| | $ | 22,736 |
| $ | 33,902 |
| | $ | 27,009 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Millions)
| | | | | | | Three Months Ended March 31, |
| Six Months Ended June 30, | 2019 | | 2018 |
| 2018 | | 2017 | (in millions) |
Cash Flows from Operating Activities: | | | | | | |
Net income | $ | 90 |
| | $ | 327 |
| $ | 169 |
| | $ | 165 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 656 |
| | 480 |
| 313 |
| | 314 |
|
Amortization of deferred financing costs | 18 |
| | 12 |
| 7 |
| | 6 |
|
Amortization of intangible assets in non-utility cost of revenues | | 9 |
| | — |
|
Deferred income taxes | (12 | ) | | 95 |
| (14 | ) | | (17 | ) |
Unrealized gain on marketable securities | (23 | ) | | (67 | ) | (83 | ) | | (1 | ) |
Loss on indexed debt securities | 272 |
| | 23 |
| 86 |
| | 18 |
|
Write-down of natural gas inventory | 1 |
| | — |
| 1 |
| | 1 |
|
Equity in earnings of unconsolidated affiliate, net of distributions | (9 | ) | | (131 | ) | 12 |
| | (9 | ) |
Pension contributions | (64 | ) | | (18 | ) | (2 | ) | | (62 | ) |
Changes in other assets and liabilities, excluding acquisitions: | | | | | | |
Accounts receivable and unbilled revenues, net | 232 |
| | 234 |
| 138 |
| | 39 |
|
Inventory | 52 |
| | (20 | ) | 120 |
| | 139 |
|
Taxes receivable | (39 | ) | | 30 |
| |
Accounts payable | (246 | ) | | (158 | ) | (332 | ) | | (209 | ) |
Fuel cost recovery | 69 |
| | (12 | ) | 58 |
| | 64 |
|
Non-trading derivatives, net | 64 |
| | (49 | ) | (40 | ) | | 64 |
|
Margin deposits, net | (9 | ) | | (43 | ) | 19 |
| | (28 | ) |
Interest and taxes accrued | (64 | ) | | (17 | ) | (116 | ) | | (32 | ) |
Net regulatory assets and liabilities | 57 |
| | (34 | ) | (3 | ) | | 42 |
|
Other current assets | (4 | ) | | 10 |
| 16 |
| | (15 | ) |
Other current liabilities | (13 | ) | | (29 | ) | (101 | ) | | 1 |
|
Other assets | (3 | ) | | (1 | ) | 58 |
| | (3 | ) |
Other liabilities | 60 |
| | 27 |
| (39 | ) | | 5 |
|
Other, net | 8 |
| | 18 |
| |
Other operating activities, net | | (5 | ) | | 2 |
|
Net cash provided by operating activities | 1,093 |
| | 677 |
| 271 |
| | 484 |
|
Cash Flows from Investing Activities: | | | | | | |
Capital expenditures | (697 | ) | | (649 | ) | (537 | ) | | (362 | ) |
Acquisitions, net of cash acquired | — |
| | (132 | ) | (5,987 | ) | | — |
|
Distributions from unconsolidated affiliate in excess of cumulative earnings | 30 |
| | 149 |
| — |
| | 14 |
|
Proceeds from sale of marketable securities | 398 |
| | — |
| — |
| | 16 |
|
Other, net | 2 |
| | (8 | ) | |
Other investing activities, net | | (15 | ) | | 1 |
|
Net cash used in investing activities | (267 | ) | | (640 | ) | (6,539 | ) | | (331 | ) |
Cash Flows from Financing Activities: | | | | | | |
Decrease in short-term borrowings, net | (39 | ) | | (11 | ) | |
Increase (decrease) in short-term borrowings, net | | — |
| | (39 | ) |
Proceeds from (payments of) commercial paper, net | (1,188 | ) | | 284 |
| 2,692 |
| | (837 | ) |
Proceeds from long-term debt, net | 997 |
| | 298 |
| 721 |
| | 997 |
|
Payments of long-term debt | (230 | ) | | (469 | ) | (994 | ) | | (165 | ) |
Long-term revolving credit facility | | 135 |
| | — |
|
Debt issuance costs | (35 | ) | | (6 | ) | (8 | ) | | (7 | ) |
Payment of dividends on common stock | (240 | ) | | (230 | ) | |
Payment of dividends on Common Stock | | (144 | ) | | (120 | ) |
Payment of dividends on Preferred Stock | | (43 | ) | | — |
|
Distribution to ZENS note holders | (16 | ) | | — |
| — |
| | (16 | ) |
Other, net | (5 | ) | | (4 | ) | |
Net cash used in financing activities | (756 | ) | | (138 | ) | |
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 70 |
| | (101 | ) | |
Other financing activities, net | | (14 | ) | | (5 | ) |
Net cash provided by (used in) financing activities | | 2,345 |
| | (192 | ) |
Net Decrease in Cash, Cash Equivalents and Restricted Cash | | (3,923 | ) | | (39 | ) |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 296 |
| | 381 |
| 4,278 |
| | 296 |
|
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 366 |
| | $ | 280 |
| $ | 355 |
| | $ | 257 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY
(Unaudited)
|
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| Shares | | Amount | | Shares | | Amount |
| (in millions of dollars and shares, except per share amounts) |
Cumulative Preferred Stock, $0.01 par value; authorized 20,000,000 shares | | | | | | | |
Balance, beginning of period | 2 |
| | $ | 1,740 |
| | — |
| | $ | — |
|
Balance, end of period | 2 |
| | 1,740 |
| | — |
| | — |
|
Common Stock, $0.01 par value; authorized 1,000,000,000 shares | |
| | |
| | |
| | |
|
Balance, beginning of period | 501 |
| | 5 |
| | 431 |
| | 4 |
|
Issuances related to benefit and investment plans | 1 |
| | — |
| | — |
| | — |
|
Balance, end of period | 502 |
| | 5 |
| | 431 |
| | 4 |
|
Additional Paid-in-Capital | | | | | |
| | |
|
Balance, beginning of period | | | 6,072 |
| | |
| | 4,209 |
|
Issuances related to benefit and investment plans | | | (12 | ) | | |
| | (1 | ) |
Balance, end of period | | | 6,060 |
| | |
| | 4,208 |
|
Retained Earnings | | | |
| | |
| | |
|
Balance, beginning of period | | | 349 |
| | |
| | 543 |
|
Net income | | | 169 |
| | |
| | 165 |
|
Balance, end of period | | | 518 |
| | |
| | 708 |
|
Accumulated Other Comprehensive Loss | | | |
| | |
| | |
|
Balance, beginning of period | | | (108 | ) | | |
| | (68 | ) |
Other comprehensive income | | | 1 |
| | |
| | 5 |
|
Balance, end of period | | | (107 | ) | | |
| | (63 | ) |
Total Shareholders’ Equity | | | $ | 8,216 |
| | |
| | $ | 4,857 |
|
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, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| | (in millions) |
Revenues | $ | 854 |
| | $ | 752 |
| | $ | 1,609 |
| | $ | 1,390 |
| $ | 686 |
| | $ | 755 |
|
| | | | | | | | |
Expenses: | |
| | |
| | |
| | |
| |
| | |
|
Operation and maintenance | 351 |
| | 343 |
| | 693 |
| | 684 |
| 368 |
| | 342 |
|
Depreciation and amortization | 262 |
| | 180 |
| | 495 |
| | 332 |
| 175 |
| | 233 |
|
Taxes other than income taxes | 60 |
| | 58 |
| | 121 |
| | 118 |
| 62 |
| | 61 |
|
Total | 673 |
| | 581 |
| | 1,309 |
| | 1,134 |
| 605 |
| | 636 |
|
Operating Income | 181 |
| | 171 |
| | 300 |
| | 256 |
| 81 |
| | 119 |
|
| | | | | | | | |
Other Income (Expense): | |
| | |
| | |
| | |
| |
| | |
|
Interest and other finance charges | (36 | ) | | (32 | ) | | (69 | ) | | (65 | ) | (40 | ) | | (33 | ) |
Interest on Securitization Bonds | (14 | ) | | (20 | ) | | (30 | ) | | (40 | ) | (12 | ) | | (16 | ) |
Other, net | (3 | ) | | (2 | ) | | (6 | ) | | (6 | ) | |
Other income (expense), net | | 4 |
| | (3 | ) |
Total | (53 | ) | | (54 | ) | | (105 | ) | | (111 | ) | (48 | ) | | (52 | ) |
Income Before Income Taxes | 128 |
| | 117 |
| | 195 |
| | 145 |
| 33 |
| | 67 |
|
Income tax expense | 27 |
| | 42 |
| | 42 |
| | 52 |
| 6 |
| | 15 |
|
Net Income | $ | 101 |
| | $ | 75 |
| | $ | 153 |
| | $ | 93 |
| $ | 27 |
| | $ | 52 |
|
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 COMPREHENSIVE INCOME
(Millions of Dollars)
(Unaudited)
| | | | | | | | | | | | Three Months Ended March 31, |
| Three Months Ended June 30, | | Six Months Ended June 30, | 2019 | | 2018 |
| 2018 | | 2017 | | 2018 | | 2017 | (in millions) |
Net income | $ | 101 |
| | $ | 75 |
| | $ | 153 |
| | $ | 93 |
| $ | 27 |
| | $ | 52 |
|
Other comprehensive income: | | | | | | | | | | |
Net deferred gain (loss) from cash flow hedges (net of tax of $-0-, $-0-, $1 and $-0-) | — |
| | — |
| | 4 |
| | (1 | ) | |
Net deferred gain (loss) from cash flow hedges (net of tax of $-0- and $1) | | (1 | ) | | 4 |
|
Total | — |
| | — |
| | 4 |
| | (1 | ) | (1 | ) | | 4 |
|
Comprehensive income | $ | 101 |
| | $ | 75 |
| | $ | 157 |
| | $ | 92 |
| $ | 26 |
| | $ | 56 |
|
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
| | | | | | | March 31, 2019 | | December 31, 2018 |
| June 30, 2018 | | December 31, 2017 | (in millions) |
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 |
| |
Cash and cash equivalents ($242 and $335 related to VIEs, respectively) | | $ | 243 |
| | $ | 335 |
|
Accounts and notes receivable ($56 and $56 related to VIEs, respectively), less bad debt reserve of $1 and $1, respectively | | 286 |
| | 283 |
|
Accounts and notes receivable–affiliated companies | 32 |
| | 7 |
| 991 |
| | 20 |
|
Accrued unbilled revenues | 122 |
| | 120 |
| 86 |
| | 110 |
|
Materials and supplies | 125 |
| | 119 |
| 134 |
| | 135 |
|
Taxes receivable | 23 |
| | — |
| — |
| | 5 |
|
Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively) | 59 |
| | 62 |
| |
Prepaid expenses and other current assets ($33 and $34 related to VIEs, respectively) | | 46 |
| | 61 |
|
Total current assets | 1,003 |
| | 830 |
| 1,786 |
| | 949 |
|
| | | | |
Property, Plant and Equipment: | | | | | | |
Property, plant and equipment | 11,812 |
| | 11,496 |
| 12,287 |
| | 12,148 |
|
Less: accumulated depreciation and amortization | 3,741 |
| | 3,633 |
| 3,743 |
| | 3,746 |
|
Property, plant and equipment, net | 8,071 |
| | 7,863 |
| 8,544 |
| | 8,402 |
|
| | | | |
Other Assets: | |
| | |
| |
| | |
|
Regulatory assets ($1,293 and $1,590 related to VIEs, respectively) | 1,321 |
| | 1,570 |
| |
Regulatory assets ($977 and $1,059 related to VIEs, respectively) | | 1,056 |
| | 1,124 |
|
Other | 35 |
| | 29 |
| 34 |
| | 32 |
|
Total other assets | 1,356 |
| | 1,599 |
| 1,090 |
| | 1,156 |
|
| | | | |
Total Assets | $ | 10,430 |
| | $ | 10,292 |
| $ | 11,420 |
| | $ | 10,507 |
|
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
| | | | | | | March 31, 2019 | | December 31, 2018 |
| June 30, 2018 | | December 31, 2017 | (in millions) |
Current Liabilities: | |
| | |
| |
| | |
|
Current portion of VIE Securitization Bonds long-term debt | $ | 446 |
| | $ | 434 |
| $ | 347 |
| | $ | 458 |
|
Accounts payable | 208 |
| | 243 |
| 238 |
| | 262 |
|
Accounts and notes payable–affiliated companies | 121 |
| | 104 |
| 37 |
| | 78 |
|
Taxes accrued | 61 |
| | 116 |
| 65 |
| | 115 |
|
Interest accrued | 75 |
| | 65 |
| 56 |
| | 64 |
|
Non-trading derivative liabilities | | — |
| | 24 |
|
Other | 93 |
| | 120 |
| 76 |
| | 89 |
|
Total current liabilities | 1,004 |
| | 1,082 |
| 819 |
| | 1,090 |
|
Other Liabilities: | |
| | |
| |
| | |
|
Deferred income taxes, net | 1,025 |
| | 1,059 |
| 1,015 |
| | 1,023 |
|
Benefit obligations | 143 |
| | 146 |
| 88 |
| | 91 |
|
Regulatory liabilities | 1,265 |
| | 1,263 |
| 1,272 |
| | 1,298 |
|
Other | 56 |
| | 54 |
| 68 |
| | 65 |
|
Total other liabilities | 2,489 |
| | 2,522 |
| 2,443 |
| | 2,477 |
|
Long-term Debt: | |
| | |
| |
| | |
|
VIE Securitization Bonds, net | 1,193 |
| | 1,434 |
| 914 |
| | 977 |
|
Other, net | 3,280 |
| | 2,885 |
| 3,970 |
| | 3,281 |
|
Total long-term debt, net | 4,473 |
| | 4,319 |
| 4,884 |
| | 4,258 |
|
| | | | |
Commitments and Contingencies (Note 14) |
| |
|
| |
|
| | | | |
Member’s Equity: | | | | | | |
Common stock | — |
| | — |
| — |
| | — |
|
Paid-in capital | 1,697 |
| | 1,696 |
| |
Additional paid-in capital | | 2,486 |
| | 1,896 |
|
Retained earnings | 763 |
| | 673 |
| 803 |
| | 800 |
|
Accumulated other comprehensive income | 4 |
| | — |
| |
Accumulated other comprehensive loss | | (15 | ) | | (14 | ) |
Total member’s equity | 2,464 |
| | 2,369 |
| 3,274 |
| | 2,682 |
|
| | | | |
Total Liabilities and Member’s Equity | $ | 10,430 |
| | $ | 10,292 |
| $ | 11,420 |
| | $ | 10,507 |
|
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)
| | | | | | | Three Months Ended March 31, |
| Six Months Ended June 30, | 2019 | | 2018 |
| 2018 | | 2017 | (in millions) |
Cash Flows from Operating Activities: | | | | | | |
Net income | $ | 153 |
| | $ | 93 |
| $ | 27 |
| | $ | 52 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
| | |
|
Depreciation and amortization | 495 |
| | 332 |
| 175 |
| | 233 |
|
Amortization of deferred financing costs | 6 |
| | 6 |
| 3 |
| | 3 |
|
Deferred income taxes | (38 | ) | | 23 |
| (15 | ) | | (20 | ) |
Changes in other assets and liabilities: | |
| | |
| |
| | |
|
Accounts and notes receivable, net | (107 | ) | | (63 | ) | 21 |
| | 9 |
|
Accounts receivable/payable–affiliated companies | 78 |
| | (35 | ) | (32 | ) | | (5 | ) |
Inventory | (6 | ) | | (1 | ) | 1 |
| | 4 |
|
Accounts payable | (6 | ) | | 57 |
| 2 |
| | (16 | ) |
Taxes receivable | (23 | ) | | (38 | ) | 5 |
| | — |
|
Interest and taxes accrued | (45 | ) | | (41 | ) | (58 | ) | | (54 | ) |
Non-trading derivatives, net | | (25 | ) | | — |
|
Net regulatory assets and liabilities | (59 | ) | | (59 | ) | (44 | ) | | (26 | ) |
Other current assets | 4 |
| | 2 |
| 13 |
| | 2 |
|
Other current liabilities | (11 | ) | | (7 | ) | (7 | ) | | (2 | ) |
Other assets | 2 |
| | 4 |
| 3 |
| | 1 |
|
Other liabilities | 2 |
| | 1 |
| (1 | ) | | (2 | ) |
Other, net | (2 | ) | | 5 |
| |
Other operating activities, net | | (2 | ) | | 1 |
|
Net cash provided by operating activities | 443 |
| | 279 |
| 66 |
| | 180 |
|
Cash Flows from Investing Activities: | |
| | |
| |
| | |
|
Capital expenditures | (441 | ) | | (414 | ) | (258 | ) | | (230 | ) |
Decrease (increase) in notes receivable–affiliated companies | (26 | ) | | 5 |
| |
Other, net | (1 | ) | | (9 | ) | |
Increase in notes receivable–affiliated companies | | (979 | ) | | (133 | ) |
Other investing activities, net | | — |
| | (1 | ) |
Net cash used in investing activities | (468 | ) | | (418 | ) | (1,237 | ) | | (364 | ) |
Cash Flows from Financing Activities: | |
| | |
| |
| | |
|
Proceeds from long-term debt, net | 398 |
| | 298 |
| 696 |
| | 398 |
|
Payments of long-term debt | (230 | ) | | (219 | ) | (175 | ) | | (165 | ) |
Decrease in notes payable–affiliated companies | (60 | ) | | — |
| (1 | ) | | (60 | ) |
Dividend to parent | (63 | ) | | (42 | ) | (24 | ) | | (32 | ) |
Contribution from parent | | 590 |
| | — |
|
Debt issuance costs | (4 | ) | | (3 | ) | (7 | ) | | (3 | ) |
Other, net | 1 |
| | 1 |
| |
Other financing activities, net | | (1 | ) | | 1 |
|
Net cash provided by financing activities | 42 |
| | 35 |
| 1,078 |
| | 139 |
|
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 17 |
| | (104 | ) | |
Net Decrease in Cash, Cash Equivalents and Restricted Cash | | (93 | ) | | (45 | ) |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 274 |
| | 381 |
| 370 |
| | 274 |
|
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 291 |
| | $ | 277 |
| $ | 277 |
| | $ | 229 |
|
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 CHANGES IN EQUITY
(Unaudited)
|
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| Shares | | Amount | | Shares | | Amount |
| (in millions, except share amounts) |
Common Stock | |
| | |
| | |
| | |
|
Balance, beginning of period | 1,000 |
| | $ | — |
| | 1,000 |
| | $ | — |
|
Balance, end of period | 1,000 |
| | — |
| | 1,000 |
| | — |
|
Additional Paid-in-Capital | | | |
| | |
| | |
|
Balance, beginning of period | | | 1,896 |
| | |
| | 1,696 |
|
Contribution from Parent | | | 590 |
| | | | — |
|
Other | | | — |
| | | | 1 |
|
Balance, end of period | | | 2,486 |
| | |
| | 1,697 |
|
Retained Earnings | | | |
| | |
| | |
|
Balance, beginning of period | | | 800 |
| | |
| | 673 |
|
Net income | | | 27 |
| | |
| | 52 |
|
Dividend to parent | | | (24 | ) | | | | (32 | ) |
Balance, end of period | | | 803 |
| | |
| | 693 |
|
Accumulated Other Comprehensive Income (Loss) | | | | | | | |
Balance, beginning of period | | | (14 | ) | | | | — |
|
Other comprehensive income (loss) | | | (1 | ) | | | | 4 |
|
Balance, end of period | | | (15 | ) | | | | 4 |
|
Total Member’s Equity | | | $ | 3,274 |
| | |
| | $ | 2,394 |
|
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 |
|
|
| | | | | | | | |
| | Three Months Ended |
| | March 31, |
| | 2019 | | 2018 |
| | (in millions) |
Revenues: | | | | |
Utility revenues | | $ | 1,185 |
| | $ | 1,143 |
|
Non-utility revenues | | 1,183 |
| | 1,257 |
|
Total | | 2,368 |
| | 2,400 |
|
Expenses: | | |
| | |
|
Utility natural gas | | 625 |
| | 637 |
|
Non-utility cost of revenues, including natural gas | | 1,171 |
| | 1,273 |
|
Operation and maintenance | | 250 |
| | 238 |
|
Depreciation and amortization | | 77 |
| | 73 |
|
Taxes other than income taxes | | 49 |
| | 48 |
|
Total | | 2,172 |
| | 2,269 |
|
Operating Income | | 196 |
| | 131 |
|
Other Income (Expense): | | |
| | |
|
Interest and other finance charges | | (29 | ) | | (29 | ) |
Other expense, net | | (3 | ) | | (4 | ) |
Total | | (32 | ) | | (33 | ) |
Income From Continuing Operations Before Income Taxes | | 164 |
| | 98 |
|
Income tax expense | | 26 |
| | 20 |
|
Income From Continuing Operations | | 138 |
| | 78 |
|
Income from discontinued operations (net of tax of $-0- and $17, respectively) | | — |
| | 52 |
|
Net Income | | $ | 138 |
| | $ | 130 |
|
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 | | Three Months Ended |
| June 30, | | June 30, | | March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | | | | | | | | (in millions) |
Net income | $ | 36 |
| | $ | 54 |
| | $ | 166 |
| | $ | 201 |
| | $ | 138 |
| | $ | 130 |
|
Comprehensive income | $ | 36 |
| | $ | 54 |
| | $ | 166 |
| | $ | 201 |
| | $ | 138 |
| | $ | 130 |
|
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
| | | | | | | March 31, 2019 | | December 31, 2018 |
| June 30, 2018 | | December 31, 2017 | (in millions) |
Current Assets: | | | | | | |
Cash and cash equivalents | $ | 1 |
| | $ | 12 |
| $ | 1 |
| | $ | 14 |
|
Accounts receivable, less bad debt reserve of $20 and $18, respectively | 566 |
| | 713 |
| |
Accounts receivable, less bad debt reserve of $22 and $17, respectively | | 856 |
| | 894 |
|
Accrued unbilled revenues | 85 |
| | 307 |
| 191 |
| | 268 |
|
Accounts and notes receivable–affiliated companies | 15 |
| | 6 |
| 232 |
| | 120 |
|
Materials and supplies | 67 |
| | 56 |
| 67 |
| | 65 |
|
Natural gas inventory | 152 |
| | 222 |
| 72 |
| | 194 |
|
Non-trading derivative assets | 74 |
| | 110 |
| 63 |
| | 100 |
|
Prepaid expenses and other current assets | 80 |
| | 166 |
| 65 |
| | 115 |
|
Total current assets | 1,040 |
| | 1,592 |
| 1,547 |
| | 1,770 |
|
| | | | |
Property, Plant and Equipment: | | | | | | |
Property, plant and equipment | 7,104 |
| | 6,888 |
| 7,533 |
| | 7,431 |
|
Less: accumulated depreciation and amortization | 2,136 |
| | 2,036 |
| 2,260 |
| | 2,205 |
|
Property, plant and equipment, net | 4,968 |
| | 4,852 |
| 5,273 |
| | 5,226 |
|
| | | | |
Other Assets: | |
| | |
| |
| | |
|
Goodwill | 867 |
| | 867 |
| 867 |
| | 867 |
|
Regulatory assets | 173 |
| | 181 |
| 180 |
| | 181 |
|
Non-trading derivative assets | 46 |
| | 44 |
| 33 |
| | 38 |
|
Investment in unconsolidated affiliate | 2,451 |
| | 2,472 |
| |
Other | 97 |
| | 104 |
| 165 |
| | 132 |
|
Total other assets | 3,634 |
| | 3,668 |
| 1,245 |
| | 1,218 |
|
| | | | |
Total Assets | $ | 9,642 |
| | $ | 10,112 |
| $ | 8,065 |
| | $ | 8,214 |
|
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
| | | | | | | March 31, 2019 | | December 31, 2018 |
| June 30, 2018 | | December 31, 2017 | (in millions) |
Current Liabilities: | |
| | |
| |
| | |
|
Short-term borrowings | $ | — |
| | $ | 39 |
| |
Accounts payable | 434 |
| | 669 |
| $ | 570 |
| | $ | 856 |
|
Accounts and notes payable–affiliated companies | 36 |
| | 611 |
| 38 |
| | 50 |
|
Taxes accrued | 48 |
| | 75 |
| 81 |
| | 82 |
|
Interest accrued | 38 |
| | 32 |
| 31 |
| | 38 |
|
Customer deposits | 75 |
| | 76 |
| 76 |
| | 75 |
|
Non-trading derivative liabilities | 26 |
| | 20 |
| 47 |
| | 102 |
|
Other | 152 |
| | 137 |
| 136 |
| | 137 |
|
Total current liabilities | 809 |
| | 1,659 |
| 979 |
| | 1,340 |
|
| | | | |
Other Liabilities: | |
| | |
| |
| | |
|
Deferred income taxes, net | 1,330 |
| | 1,289 |
| 443 |
| | 406 |
|
Non-trading derivative liabilities | 12 |
| | 4 |
| 9 |
| | 5 |
|
Benefit obligations | 98 |
| | 97 |
| 94 |
| | 93 |
|
Regulatory liabilities | 1,256 |
| | 1,201 |
| 1,233 |
| | 1,227 |
|
Other | 352 |
| | 297 |
| 362 |
| | 329 |
|
Total other liabilities | 3,048 |
| | 2,888 |
| 2,141 |
| | 2,060 |
|
| | | | |
Long-Term Debt | 2,722 |
| | 2,457 |
| 2,384 |
| | 2,371 |
|
| | | | |
Commitments and Contingencies (Note 14) |
|
| |
|
|
|
| |
|
|
| | | | |
Stockholder’s Equity: | | | | | | |
Common stock | — |
| | — |
| — |
| | — |
|
Paid-in capital | 2,528 |
| | 2,528 |
| |
Additional paid-in capital | | 2,015 |
| | 2,015 |
|
Retained earnings | 529 |
| | 574 |
| 541 |
| | 423 |
|
Accumulated other comprehensive income | 6 |
| | 6 |
| 5 |
| | 5 |
|
Total stockholder’s equity | 3,063 |
| | 3,108 |
| 2,561 |
| | 2,443 |
|
| | | | |
Total Liabilities and Stockholder’s Equity | $ | 9,642 |
| | $ | 10,112 |
| $ | 8,065 |
| | $ | 8,214 |
|
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)
| | | | | | | Three Months Ended March 31, |
| Six Months Ended June 30, | 2019 | | 2018 |
| 2018 | | 2017 | (in millions) |
Cash Flows from Operating Activities: | | | | | | |
Net income | $ | 166 |
| | $ | 201 |
| $ | 138 |
| | $ | 130 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
Less: Income from discontinued operations, net of tax | | — |
| | 52 |
|
Income from continuing operations | | 138 |
| | 78 |
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | 145 |
| | 134 |
| 77 |
| | 73 |
|
Amortization of deferred financing costs | 4 |
| | 4 |
| 3 |
| | 2 |
|
Deferred income taxes | 41 |
| | 115 |
| 21 |
| | 14 |
|
Write-down of natural gas inventory | 1 |
| | — |
| 1 |
| | 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 |
| 102 |
| | 29 |
|
Accounts receivable/payable–affiliated companies | (14 | ) | | (1 | ) | (18 | ) | | (4 | ) |
Inventory | 58 |
| | (18 | ) | 119 |
| | 135 |
|
Accounts payable | (248 | ) | | (203 | ) | (255 | ) | | (173 | ) |
Fuel cost recovery | 69 |
| | (12 | ) | 58 |
| | 64 |
|
Interest and taxes accrued | (21 | ) | | (27 | ) | (8 | ) | | (10 | ) |
Non-trading derivatives, net | 61 |
| | (49 | ) | (26 | ) | | 60 |
|
Margin deposits, net | (9 | ) | | (43 | ) | 19 |
| | (28 | ) |
Net regulatory assets and liabilities | 92 |
| | (1 | ) | 19 |
| | 55 |
|
Other current assets | 7 |
| | 12 |
| 7 |
| | 3 |
|
Other current liabilities | 8 |
| | (14 | ) | (8 | ) | | 19 |
|
Other assets | 4 |
| | 5 |
| (12 | ) | | 3 |
|
Other liabilities | 52 |
| | 10 |
| 10 |
| | 4 |
|
Other, net | — |
| | 1 |
| |
Other operating activities, net | | 1 |
| | 1 |
|
Net cash provided by operating activities from continuing operations | | 248 |
| | 326 |
|
Net cash provided by operating activities from discontinued operations | | — |
| | 60 |
|
Net cash provided by operating activities | 746 |
| | 278 |
| 248 |
| | 386 |
|
Cash Flows from Investing Activities: | |
| | |
| |
| | |
|
Capital expenditures | (230 | ) | | (223 | ) | (146 | ) | | (114 | ) |
Distributions from unconsolidated affiliate in excess of cumulative earnings | 30 |
| | 149 |
| |
Acquisitions, net of cash acquired | — |
| | (132 | ) | |
Other, net | 3 |
| | 1 |
| |
Increase in notes receivable–affiliated companies | | (106 | ) | | — |
|
Other investing activities, net | | 2 |
| | 3 |
|
Net cash used in investing activities from continuing operations | | (250 | ) | | (111 | ) |
Net cash provided by investing activities from discontinued operations | | — |
| | 14 |
|
Net cash used in investing activities | (197 | ) | | (205 | ) | (250 | ) | | (97 | ) |
Cash Flows from Financing Activities: | |
| | |
| |
| | |
|
Decrease in short-term borrowings, net | (39 | ) | | (11 | ) | |
Increase (decrease) in short-term borrowings, net | | — |
| | (39 | ) |
Proceeds from (payments of) commercial paper, net | (333 | ) | | 149 |
| 11 |
| | (172 | ) |
Proceeds from long-term debt | 599 |
| | — |
| — |
| | 599 |
|
Dividends to parent | (211 | ) | | (248 | ) | (20 | ) | | (86 | ) |
Debt issuance costs | (5 | ) | | (1 | ) | — |
| | (4 | ) |
Decrease in notes payable–affiliated companies | (570 | ) | | — |
| — |
| | (570 | ) |
Contribution from parent | — |
| | 38 |
| |
Other, net | (1 | ) | | — |
| |
Other financing activities, net | | (2 | ) | | (2 | ) |
Net cash used in financing activities from continuing operations | | (11 | ) | | (274 | ) |
Net cash provided by financing activities from discontinued operations | | — |
| | — |
|
Net cash used in financing activities | (560 | ) | | (73 | ) | (11 | ) | | (274 | ) |
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 |
| |
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | | (13 | ) | | 15 |
|
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | | 25 |
| | 12 |
|
Cash, Cash Equivalents and Restricted Cash at End of Period | | $ | 12 |
| | $ | 27 |
|
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 CHANGES IN EQUITY
(Unaudited)
|
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| Shares | | Amount | | Shares | | Amount |
| (in millions, except share amounts) |
Common Stock | | | | | | | |
Balance, beginning of period | 1,000 |
| | $ | — |
| | 1,000 |
| | $ | — |
|
Balance, end of period | 1,000 |
| | — |
| | 1,000 |
| | — |
|
Additional Paid-in-Capital | | | |
| | |
| | |
|
Balance, beginning of period | | | 2,015 |
| | |
| | 2,528 |
|
Other | | | — |
| | | | (1 | ) |
Balance, end of period | | | 2,015 |
| | |
| | 2,527 |
|
Retained Earnings | | | |
| | |
| | |
|
Balance, beginning of period | | | 423 |
| | |
| | 574 |
|
Net income | | | 138 |
| | |
| | 130 |
|
Dividend to parent | | | (20 | ) | | |
| | (86 | ) |
Balance, end of period | | | 541 |
| | |
| | 618 |
|
Accumulated Other Comprehensive Income | | | |
| | |
| | |
|
Balance, beginning of period | | | 5 |
| | |
| | 6 |
|
Balance, end of period | | | 5 |
| | |
| | 6 |
|
Total Stockholder’s Equity | | | $ | 2,561 |
| | |
| | $ | 3,151 |
|
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 RegistrantGeneral. 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 any representationsno representation as to information relating exclusively to the information related solely to CenterPoint Energyother Registrants or the subsidiaries of CenterPoint Energy other than itself.itself or its subsidiaries.
General.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.
Included in this combined Form 10-Q are the Interim Condensed Financial Statements of CenterPoint 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 and specific references to Houston Electric and CERC herein also pertain to CenterPoint Energy, unless otherwise indicated. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with each of the Registrants’ 2017combined 2018 Form 10-K.
Background. CenterPoint Energy, Inc. is a public utility holding company. CenterPoint Energy’s operating subsidiaries, Houston Electriccompany 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 ownowns interests in Enable as described below. On the Merger Date, pursuant to the Merger Agreement, CenterPoint Energy consummated the previously announced Merger and acquired Vectren for approximately $6 billion in cash. On the Merger Date, Vectren became a wholly-owned subsidiary of CenterPoint Energy.
As of March 31, 2019, CenterPoint Energy’s operating subsidiaries were as follows:
Houston Electric engages in theowns and operates electric transmission and distribution businessfacilities in the Texas Gulf Coast area that includes the city of Houston; and
CERC Corp. (i) owns and operates natural gas distribution systems in six states and (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 33over 30 states through its wholly-owned subsidiary, CES.
Vectren holds three public utilities through its wholly-owned subsidiary, VUHI, a public utility holding company:
Indiana Gas provides energy delivery services to natural gas customers located in central and southern Indiana;
SIGECO provides energy delivery services to electric and natural gas customers located near Evansville in southwestern Indiana and owns and operates electric generation assets to serve its electric customers and optimizes those assets in the wholesale power market; and
VEDO provides energy delivery services to natural gas customers located near Dayton in west-central Ohio.
Vectren performs non-utility activities through:
Infrastructure Services provides underground pipeline construction and repair services through wholly-owned subsidiaries Miller Pipeline, LLC and Minnesota Limited, LLC and serves natural gas utilities across the United States, focusing on recurring integrity, station and maintenance work and opportunities for large transmission pipeline construction projects; and
ESG provides energy performance contracting and sustainable infrastructure services, such as renewables, distributed generation and combined heat and power projects.
As of June 30, 2018, CERC Corp.March 31, 2019, CenterPoint Energy, indirectly through CNP Midstream, owned approximately 54.0%53.8% of the common units representing limited partner interests in Enable, which50% of the management rights and 40% of the incentive distribution rights in Enable GP and also directly owned an aggregate of 14,520,000 Enable Series A Preferred Units. Enable owns, operates and develops natural gas and crude oil infrastructure assets.
As of June 30, 2018, CenterPoint Energy also owned an aggregate of 14,520,000 Series A Preferred Units in Enable.
As of June 30, 2018,March 31, 2019, CenterPoint Energy and Houston Electric had VIEs consisting of the Bond Companies, which are consolidated. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed specificallysolely for the purpose of securitizing transition and system restoration-related property. Creditors of CenterPoint Energy and Houston Electric have no recourse to any assets or revenues of the Bond Companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property, and the bondholders have no recourse to the general credit of CenterPoint Energy 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.
The 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 the Condensed Statements of Consolidated Income are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy and energy services, (b) changes in energy commodity prices, (c) timing of maintenance and other expenditures and (d) acquisitions and dispositions of businesses, assets and other interests. Certain prior year amounts have been reclassified to conform to the current year presentation. See Note 9 for further discussion.
Concurrent with the completion of the Merger, CenterPoint Energy added two new reportable segments, Indiana Electric Integrated and Infrastructure Services, to its five reportable segments disclosed in the Registrants’ combined 2018 Form 10-K. Additionally, CenterPoint Energy’s Natural Gas Distribution reportable segment now includes the gas operations of SIGECO (Indiana South), Indiana Gas and VEDO and CenterPoint Energy’s Corporate and Other reportable segment now includes ESG. Houston Electric’s and CERC’s reportable segments were not impacted by the Merger. For a description of the Registrants’ reportable business segments, see Note 16.
Significant Accounting Policies. In addition to the significant accounting policies disclosed in the Registrants’ combined 2018 Form 10-K, CenterPoint Energy has adopted the following new or enhanced significant accounting policies following the consummation of the Merger:
Principles of Consolidation. Businesses within the Infrastructure Services reportable segment provide underground pipeline construction and repair services for customers that include NGD utilities. In accordance with consolidation guidance in ASC 980—Regulated Operations, costs incurred by NGD utilities for these pipeline construction and repair services are not eliminated in consolidation when capitalized and included in rate base by the NGD utility.
Guarantees. CenterPoint Energy recognizes guarantee obligations at fair value. CenterPoint Energy discloses parent company guarantees of a subsidiary’s obligation when that guarantee results in the exposure of a material obligation of the parent company even if the probability of fulfilling such obligation is considered remote. See Note 14(b).
Income Taxes. Investment tax credits are deferred and amortized to income over the approximate lives of the related property.
MISO Transactions. Indiana Electric is a member of MISO. MISO-related purchase and sale transactions are recorded using settlement information provided by the MISO. These purchase and sale transactions are accounted for on at least a net hourly position, meaning net purchases within that interval are recorded on CenterPoint Energy’s Condensed Statements of Consolidated Income in Utility natural gas, fuel and purchased power, and net sales within that interval are recorded on CenterPoint Energy’s Condensed Statements of Consolidated Income in Utility revenues. On occasion, prior period transactions are resettled outside the routine process due to a change in the MISO’s tariff or a material interpretation thereof. Expenses associated with resettlements are recorded once the resettlement is probable and the resettlement amount can be estimated. Revenues associated with resettlements are recognized when the amount is determinable and collectability is reasonably assured.
(2) New Accounting Pronouncements
The following table provides an overview of certain recently adopted or issued accounting pronouncements applicable to all the Registrants, 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 Customers2016-02- Leases (Topic 606)842) and related amendments | | This standardASU 2016-02 provides a comprehensive new revenue recognitionlease model that requires revenuelessees to be recognized in a manner that depicts the transferrecognize assets and liabilities for most leases and would change certain aspects 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.
lessor accounting. 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, 20182019 | | The adoptionRegistrants adopted the standard and recognized a right-of-use asset and lease liability on their statement of this standard did not have anfinancial position with no material impact on the Registrants’ financial position,their results of operations orand 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 919 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.information. |
|
| | | | | | |
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 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 |
|
|
| | | | | | |
Issued, Not Yet Effective Accounting Standards |
ASU Number and Name | | Description | | Effective Date of Adoption | | Financial Statement Impact upon Adoption |
ASU 2016-02- Leases2016-13- Financial Instruments-Credit Losses (Topic 842) and related amendments
ASU 2018-01- Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842 326): Measurement of Credit Losses on Financial Instruments | | ASU 2016-02 providesThis standard, including standards amending this standard, requires a comprehensive new lease model thatcalled CECL to estimate credit losses for (1) financial assets subject to credit losses and measured at amortized cost and (2) certain off-balance sheet credit exposures. Upon initial recognition of the exposure, the CECL model requires lesseesan entity to recognize assetsestimate the credit losses expected over the life of an exposure based on historical information, current information and liabilities for most leasesreasonable and would change certain aspectssupportable forecasts, including estimates of lessor accounting.prepayments.
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 2020 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 assessassessing the impact that adoption of these standardsthis standard will have on their financial position, results of operations, cash flows and disclosures. |
ASU 2017-12- Derivatives and Hedging2018-13- Fair Value Measurement (Topic 815)820): Targeted ImprovementsDisclosure Framework-Changes to Accountingthe Disclosure Requirements for Hedging ActivitiesFair Value Measurement | | This standard expands an entity’s ability to hedge nonfinancialeliminates, modifies and financial risk components and reduce complexity inadds certain disclosure requirements for 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. measurements. Transition method:method cumulative-effect adjustment for elimination of the separate measurement of ineffectiveness;: prospective for presentationadditions and disclosureone modification and retrospective for all other amendments | | Adoption of eliminations and modifications as of September 30, 2018; Additions will be adopted January 1, 2019 2020 | | The adoption of this standard did not impact the Registrants’ financial position, results of operations or cash flows. Note 8 reflects the disclosures modified upon adoption. |
ASU 2018-15- Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract | | This standard aligns accounting for implementation costs incurred in a cloud computing arrangement that is accounted for as a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. Transition method: retrospective or prospective | | January 1, 2020 Early adoption is permitted | | The adoption of this standard will allow the Registrants to capitalize certain implementation costs incurred in cloud computing arrangements that are accounted for as service contracts. The Registrants are currently assessing the impact that adoption of this standard will have on their financial position, results of operations, cash flows and disclosures. |
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 that are not yet effective will not have a material impact on the Registrants’ financial position, results of operations or cash flows upon adoption.
(3) Proposed Merger with VectrenMergers and Acquisitions (CenterPoint Energy)
Merger with Vectren. On April 21, 2018, CenterPoint Energy entered into the Merger Agreement. Under the terms ofDate, pursuant to the Merger Agreement, CenterPoint Energy will acquireconsummated the previously announced Merger and acquired Vectren for approximately $6 billion in cash. Upon closing, Vectren will become a wholly-owned subsidiary of CenterPoint Energy.
Pursuant to the Merger Agreement, upon the closing of the Merger, eachEach share of Vectren common stock issued and outstanding immediately prior to the closing will bewas canceled and converted automatically into the right to receive $72.00 in cash per share.share, without interest. At the closing, each stock unit payable in Vectren common stock or whose value is determined with reference to the value of Vectren common stock, whether vested or unvested, was canceled with cash consideration paid in accordance with the terms of the Merger Agreement. These amounts did not include a stub period cash dividend of $0.41145 per share, which was declared, with CenterPoint Energy’s consent, by Vectren’s board of directors on January 16, 2019, and paid to Vectren stockholders as of the record date of February 1, 2019.
Pursuant to the Merger Agreement and immediately subsequent to the close of the Merger, CenterPoint Energy expectscash settled $78 million in outstanding share-based awards issued prior to finance the Merger withDate by Vectren to its employees. As a combinationresult of debt, equity-linkedthe Merger, CenterPoint Energy assumed a liability for these share-based awards of $41 million and equity issuancesrecorded an incremental cost of $37 million in Operation and has obtained commitments by lenders for a Bridge Facility to provide flexibilitymaintenance expenses on its Condensed Statements of Consolidated Income for the timingthree months ended March 31, 2019 for the accelerated vesting of the long-term acquisition financing and fund,awards in part, amounts payable byaccordance with the Merger Agreement.
Subsequent to the close of the Merger, CenterPoint Energy recognized severance totaling $61 million to employees terminated immediately subsequent to the Merger close, inclusive of change of control severance payments to executives of Vectren under existing agreements, and which is included in Operation and maintenance expenses on its Condensed Statements of Consolidated Income for the three months ended March 31, 2019.
In connection with the Merger, VUHI and VCC made offers to prepay certain outstanding guaranteed senior notes as required pursuant to certain note purchase agreements previously entered into by VUHI and VCC. See Note 12 for further details.
Following the closing, shares of Vectren common stock, which previously traded under the ticker symbol “VVC” on the NYSE, ceased trading on and were delisted from the NYSE.
The Merger is being accounted for in accordance with ASC 805, Business Combinations, with CenterPoint Energy as the accounting acquirer of Vectren. Identifiable assets acquired and liabilities assumed have been recorded at their estimated fair values on the Merger Date.
Vectren’s regulated operations, comprised of electric generation and electric and natural gas energy delivery services, are subject to the rate-setting authority of the FERC, the IURC and the PUCO, and are accounted for pursuant to U.S. generally accepted accounting principles for regulated operations. The rate-setting and cost-recovery provisions currently in place for Vectren’s regulated operations provide revenues derived from costs including a return on investment of assets and liabilities included in rate base. Thus, the fair values of Vectren’s tangible and intangible assets and liabilities subject to these rate-setting provisions approximate their carrying values. Accordingly, neither the assets and liabilities acquired, nor the unaudited pro forma financial information, reflect any adjustments related to these amounts. The fair value of regulatory assets not earning a return have been determined using the income approach and are considered Level 3 fair value measurements due to the use of significant judgmental and unobservable inputs.
The fair value of Vectren’s assets acquired and liabilities assumed that are not subject to the rate-setting provisions, including identifiable intangibles, have been determined using the income approach and the market approach. The valuation of Vectren’s long-term debt is primarily considered a Level 2 fair value measurement. All other valuations are considered Level 3 fair value measurements due to the use of significant judgmental and unobservable inputs, including projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future market prices.
The following table presents the preliminary purchase price allocation as of March 31, 2019 (in millions):
|
| | | | |
Cash and cash equivalents | | $ | 16 |
|
Other current assets | | 601 |
|
Property, plant and equipment, net | | 5,147 |
|
Identifiable intangibles | | 402 |
|
Regulatory assets | | 335 |
|
Other assets | | 151 |
|
Total assets acquired | | 6,652 |
|
Current liabilities | | 690 |
|
Regulatory liabilities | | 944 |
|
Other liabilities | | 891 |
|
Long-term debt | | 2,401 |
|
Total liabilities assumed | | 4,926 |
|
Net assets acquired | | 1,726 |
|
Goodwill | | 4,256 |
|
Total purchase price consideration | | $ | 5,982 |
|
CenterPoint Energy has not completed a final valuation analysis necessary to determine the fair market values of all of Vectren’s assets and liabilities or the allocation of its purchase price. The final allocation could differ materially from this preliminary purchase price allocation and, as such, no assurances can be provided regarding the preliminary purchase accounting. The final allocation may include changes in the fair value of (1) property, plant and equipment, (2) intangible assets and goodwill, (3) deferred taxes, (4) regulatory assets and liabilities, (5) long-term debt and (6) other assets and liabilities.
The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed is recognized as goodwill, which is primarily attributable to significant potential strategic benefits to CenterPoint Energy, including growth opportunities for more rate-regulated investment, more customers for existing products and services and additional products and services for existing customers. Additionally, CenterPoint Energy believes the Merger will increase geographic and business diversity as well as scale in attractive jurisdictions and economies. CenterPoint Energy is currently determining the allocation of goodwill to reportable units. CenterPoint Energy anticipates that the value assigned to goodwill will not be deductible for tax purposes.
The estimated fair value of the identifiable intangible assets and related useful lives as included in the preliminary purchase price allocation include:
|
| | | | | | |
| | Weighted Average Useful Lives | | Estimated Fair Value |
| | (in years) | | (in millions) |
Operation and maintenance agreements | | 24 | | $ | 48 |
|
Customer relationships | | 19 | | 229 |
|
Construction backlog | | 1 | | 54 |
|
Trade names | | 10 | | 71 |
|
Total | | | | $ | 402 |
|
Amortization expense related to the operation and maintenance agreements and construction backlog was $9 million for the period from February 1, 2019 to March 31, 2019 and is included in Non-utility cost of revenues, including natural gas on CenterPoint Energy’s Condensed Statements of Consolidated Income. Amortization expense related to customer relationships and trade names was $3 million for the period from February 1, 2019 to March 31, 2019 and is included in Depreciation and amortization expense on CenterPoint Energy’s Condensed Statements of Consolidated Income.
The results of operations for Vectren have been included in CenterPoint Energy’s Interim Condensed Financial Statements from the Merger Date and consist of operating revenues of $473 million and a net loss of $31 million for the period ended March 31, 2019.
The following unaudited pro forma financial information reflects the consolidated results of operations of CenterPoint Energy, assuming the Merger had taken place on January 1, 2018. Pro forma net income for 2019 was adjusted to exclude $37 million of Vectren Merger-related transaction costs incurred in 2019; interest income of $9 million resulting from temporary investment of Merger financing funds prior to the consummation of the Merger; and $4 million of intangible assets amortization. Pro forma net income for 2018 was adjusted to include $56 million of Vectren Merger-related transaction costs and $28 million of CenterPoint Energy Merger-related transaction costs incurred from April 1, 2018 to March 31, 2019; additional interest expense of $10 million from the Merger financings; and $18 million of intangible assets amortization.
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 Merger taken place on the dates indicated or the future consolidated results of operations of the combined company.
|
| | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2019 | | 2018 |
| | (in millions) |
Operating revenues | | | $ | 3,780 |
| | $ | 3,618 |
|
Net income | | | 185 |
| | 100 |
|
CenterPoint Energy incurred integration costs of $8 million in connection with the Merger. All outstanding debt held by VectrenMerger for the three months ended March 31, 2019, which were included in Operation and its subsidiaries will be assumedmaintenance expenses in CenterPoint Energy’s Condensed Statements of Consolidated Income.
Acquisition of Utility Pipeline Construction Company. Another acquisition was made during the three months ended March 31, 2019 by CenterPoint Energy atEnergy’s Infrastructure Services reportable segment resulting in goodwill and intangible assets of approximately $6 million and $8 million, respectively. The intangible assets primarily relate to backlog and customer relationships. The initial purchase price of $21 million is subject to change due to a working capital adjustment clause, and the closingpurchase price allocation also is preliminary and subject to change. The results of operations for the acquired company have been included in the consolidated financial statements from the date of acquisition and are not significant to the consolidated financial results of
CenterPoint Energy. Pro forma results of operations have not been presented for the acquisition because the effects 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,acquisition were not significant to 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 SECEnergy’s consolidated financial results for a special meeting of its shareholders to be held on August 28, 2018 in connection with the Merger.
The Merger Agreement contains termination rights for both CenterPoint Energy and Vectren, and provides that, upon termination of the Merger Agreement under specified circumstances, CenterPoint Energy would be required to pay a termination fee of $210 million to Vectren and Vectren would be required to pay CenterPoint Energy a termination fee of $150 million. Subject
to receipt of required regulatory and statutory approvals and satisfaction and/or waiver of the closing conditions, CenterPoint Energy continues to anticipate closing the Merger in the first quarter of 2019.all periods presented.
(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 March 31, 2019 |
| | Houston Electric T&D (1) | | Indiana Electric Integrated (1) (4) | | Natural Gas Distribution (1) (4) | | Energy Services (2) | | Infrastructure Services (2) (4) | | Corporate and Other (2) (4) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 690 |
| | $ | 83 |
| | $ | 1,406 |
| | $ | 173 |
| | $ | 146 |
| | $ | 41 |
| | $ | 2,539 |
|
Derivatives income | | 3 |
| | — |
| | — |
| | 1,073 |
| | — |
| | — |
| | 1,076 |
|
Other (3) | | (4 | ) | | — |
| | (7 | ) | | — |
| | — |
| | 1 |
| | (10 | ) |
Eliminations | | — |
| | — |
| | (10 | ) | | (64 | ) | | — |
| | — |
| | (74 | ) |
Total revenues | | $ | 689 |
| | $ | 83 |
| | $ | 1,389 |
| | $ | 1,182 |
| | $ | 146 |
| | $ | 42 |
| | $ | 3,531 |
|
|
| | | | | | | | | | | | | | | | |
| | 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 | | Three Months Ended March 31, 2018 |
| | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total | | Houston Electric T&D (1) | | Indiana Electric Integrated (1) | | Natural Gas Distribution (1) | | Energy Services (2) | | Infrastructure Services (2) | | Corporate and Other (2) | | Total |
| | (in millions) | | (in millions) |
Revenue from contracts | | $ | 509 |
| | $ | 78 |
| | $ | — |
| | $ | 587 |
| | $ | 463 |
| | $ | 116 |
| | $ | — |
| | $ | 579 |
| | $ | 761 |
| | $ | — |
| | $ | 1,186 |
| | $ | 178 |
| | $ | — |
| | $ | 1 |
| | $ | 2,126 |
|
Derivatives income | | — |
| | 782 |
| | — |
| | 782 |
| | — |
| | 815 |
| | — |
| | 815 |
| | (4 | ) | | — |
| | — |
| | 1,107 |
| | — |
| | — |
| | 1,103 |
|
Other (3) | | (14 | ) | | — |
| | — |
| | (14 | ) | | 14 |
| | — |
| | (1 | ) | | 13 |
| | (6 | ) | | — |
| | (33 | ) | | — |
| | — |
| | 3 |
| | (36 | ) |
Eliminations | | (8 | ) | | (19 | ) | | — |
| | (27 | ) | | (7 | ) | | (13 | ) | | — |
| | (20 | ) | | — |
| | — |
| | (10 | ) | | (28 | ) | | — |
| | — |
| | (38 | ) |
Total revenues | | $ | 487 |
| | $ | 841 |
| | $ | — |
| | $ | 1,328 |
| | $ | 470 |
| | $ | 918 |
| | $ | (1 | ) | | $ | 1,387 |
| | $ | 751 |
| | $ | — |
| | $ | 1,143 |
| | $ | 1,257 |
| | $ | — |
| | $ | 4 |
| | $ | 3,155 |
|
| | | | | | | | | | | | | | | | | |
| | 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. |
| |
(4) | Reflects revenues from Vectren subsidiaries for the period from February 1, 2019 to March 31, 2019. |
Houston Electric
|
| | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2019 | | 2018 |
| | (in millions) |
Revenue from contracts | | | $ | 690 |
| | $ | 761 |
|
Other (1) | | | (4 | ) | | (6 | ) |
Total revenues | | | $ | 686 |
| | $ | 755 |
|
| |
(1) | 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.
CERC
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
| | Natural Gas Distribution (1) | | Energy Services (2) | | Corporate and Other (2) | | Total | | Natural Gas Distribution (1) | | Energy Services (2) | | Corporate and Other (2) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 1,198 |
| | $ | 173 |
| | $ | 1 |
| | $ | 1,372 |
| | $ | 1,186 |
| | $ | 178 |
| | $ | — |
| | $ | 1,364 |
|
Derivatives income | | — |
| | 1,073 |
| | — |
| | 1,073 |
| | — |
| | 1,107 |
| | — |
| | 1,107 |
|
Other (3) | | (3 | ) | | — |
| | — |
| | (3 | ) | | (33 | ) | | — |
| | — |
| | (33 | ) |
Eliminations | | (10 | ) | | (64 | ) | | — |
| | (74 | ) | | (10 | ) | | (28 | ) | | — |
| | (38 | ) |
Total revenues | | $ | 1,185 |
| | $ | 1,182 |
| | $ | 1 |
| | $ | 2,368 |
| | $ | 1,143 |
| | $ | 1,257 |
| | $ | — |
| | $ | 2,400 |
|
| |
(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
Houston Electric Transmission & Distribution.T&D (CenterPoint Energy and Houston Electric). 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,state regulators, 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.state regulators. 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.state regulators. Payments are received on a monthly basis.
Indiana Electric Integrated (Centerpoint Energy).Indiana Electric generates, distributes and transmits electricity to customers over time, and customers consume the electricity when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by state regulators, is recognized as electricity is delivered and represents amounts both billed and unbilled. Customers are billed monthly and payment terms, set by the regulator, require payment within a month of billing.
Natural Gas Distribution.Distribution (CenterPoint Energy and CERC). CERC distributesNatural gas isdistributed and transports natural gastransported 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.Services (CenterPoint Energy and CERC). 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.
Infrastructure Services (CenterPoint Energy). Infrastructure Services provides underground pipeline construction and repair services. The contracts are generally less than one year in duration and consist of fixed price, unit, and time and material customer contracts. Under unit or time and material contracts, Infrastructure Services performs construction and repair services under specific work-orders at prices established by master service agreements. The performance obligation is defined at the work-order level. These services are billed to customers monthly or more frequently for work completed based on units completed or the costs of time and material incurred and generally require payment within 30 days of billing. Infrastructure Services has the right to consideration from customers in an amount that corresponds directly with the performance obligation satisfied, and therefore recognizes revenue at a point in time in the amount to which it has the right to invoice, which results in accrued unbilled revenuesat the end of each accounting period.
Under fixed price contracts, Infrastructure Services performs larger scale construction and repair services. Each contract is typically viewed as a single performance obligation. Services performed under fixed price contracts are typically billed per the terms of the contract, which can range from completion of specific milestones to scheduled billing intervals. Billings occur monthly or more frequently for work completed and generally require payment within 30 days of billing. Revenue for fixed price contracts is recognized over time as control is transferred using the input method, considering costs incurred relative to total expected cost. Total expected cost is therefore a significant judgment affecting the amount and timing of revenue recognition. Infrastructure Services’ revenues are not subject to significant returns, refunds or warranty obligations.
Remaining Performance Obligations (CenterPoint Energy).The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts and (2) when CenterPoint Energy expects to recognize this revenue. Such contracts include fixed price contracts in the Infrastructure Services reportable segment.
|
| | | | | | | | | | | |
| Rolling 12 Months | | Thereafter | | Total |
| (in millions) |
Revenue expected to be recognized on contracts in place as of February 1, 2019: | | | | | |
Fixed price (bid) | $ | 455 |
| | $ | — |
| | $ | 455 |
|
| $ | 455 |
| | $ | — |
| | $ | 455 |
|
Practical Expedients and Exemption. Sales taxes and other similar taxes collected from customers are excluded from the transaction price.
(5) Employee Benefit Plans
As a result of the Merger, CenterPoint Energy now maintains three additional qualified defined benefit pension plans which are closed to new participants, a non-qualified SERP and a postretirement benefit plan. The defined benefit pension plans cover eligible full-time regular employees and are primarily non-contributory. The postretirement benefit plan provides health care and life insurance benefits, which are a combination of self-insured and fully insured programs, to eligible retirees on both a contributory and non-contributory basis.
CenterPoint Energy, through its Infrastructure Services reportable segment, participates in several industry wide multi-employer pension plans for its collective bargaining employees which provide for monthly benefits based on length of service. The risks of participating in multi-employer pension plans are different from the risks of participating in single-employer pension plans in the following respects: (1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers, (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan allocable to such withdrawing employer may be borne by the remaining participating employers and (3) if CenterPoint
Energy stops participation in some of its multi-employer pension plans, CenterPoint Energy may be required to pay those plans an amount based on its allocable share of the underfunded status of the plan, referred to as a withdrawal liability.
CenterPoint Energy, through Vectren, also acquired additional defined contribution retirement savings plans qualified under sections 401(a) and 401(k) of the Internal Revenue Code.
The 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, | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | (in millions) | (in millions) |
Service cost (1) | | $ | 9 |
| | $ | 9 |
| | $ | 18 |
| | $ | 18 |
| | $ | 10 |
| | $ | 9 |
|
Interest cost (2) | | 19 |
| | 22 |
| | 39 |
| | 44 |
| | 23 |
| | 20 |
|
Expected return on plan assets (2) | | (26 | ) | | (24 | ) | | (53 | ) | | (48 | ) | | (25 | ) | | (27 | ) |
Amortization of prior service cost (2) | | 2 |
| | 3 |
| | 4 |
| | 5 |
| | 2 |
| | 2 |
|
Amortization of net loss (2) | | 11 |
| | 15 |
| | 22 |
| | 29 |
| | 13 |
| | 11 |
|
Curtailment gain (3) | | | (1 | ) | | — |
|
Net periodic cost | | $ | 15 |
| | $ | 25 |
| | $ | 30 |
| | $ | 48 |
| | $ | 22 |
| | $ | 15 |
|
| | | Three Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) | (in millions) |
Service cost (1) | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost (2) | 4 |
| | 2 |
| | 1 |
| | 4 |
| | 2 |
| | 1 |
| 4 |
| | 2 |
| | 1 |
| | 3 |
| | 2 |
| | 1 |
|
Expected return on plan assets (2) | (2 | ) | | (1 | ) | | (1 | ) | | (2 | ) | | (1 | ) | | — |
| (2 | ) | | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | — |
|
Amortization of prior service cost (credit) (2) | (1 | ) | | (2 | ) | | 1 |
| | (1 | ) | | (1 | ) | | 1 |
| |
Amortization of prior service credit (2) | | (1 | ) | | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | — |
|
Net periodic cost | $ | 2 |
| | $ | (1 | ) | | $ | 1 |
| | $ | 2 |
| | $ | — |
| | $ | 2 |
| $ | 2 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| | | | | | | | | | | | |
| 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) | IncludedAmounts presented in the tables above are included in Operation and maintenance expense in each of the Registrants’ respective Condensed Statements of Consolidated Income.Income, net of amounts capitalized and regulatory deferrals. |
| |
(2) | IncludedAmounts presented in the tables above are included in Other income (expense), net in each of the Registrants’ respective Condensed Statements of Consolidated Income.Income, net of regulatory deferrals. |
Changes 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, |
| 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)(3) | These accumulated other comprehensive componentsA curtailment gain or loss is required when the expected future services of a significant number of employees are included inreduced or eliminated for the computationaccrual of net periodic cost.benefits. In February of 2019, CenterPoint Energy recognized a pension curtailment gain of $1 million related to Vectren employees whose employment was terminated after the Merger closed. |
The table below reflects the expected contributions to be made to the pension plans and postretirement benefit planplans during 2018:2019:
|
| | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Expected minimum contribution to pension plans during 2019 | $ | 94 |
| | $ | — |
| | $ | — |
|
Expected contribution to postretirement benefit plans in 2019 | 20 |
| | 10 |
| | 4 |
|
The table below reflects the contributions made to the pension plans and postretirement benefit planplans during 2018:2019:
| | | | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 | | Three Months Ended March 31, 2019 |
| | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) | (in millions) |
Pension plans | | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | 64 |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | — |
|
Postretirement benefit plan | | 3 |
| | 2 |
| | 1 |
| | 7 |
| | 4 |
| | 2 |
| |
Postretirement benefit plans | | | 5 |
| | 3 |
| | 1 |
|
(6) Regulatory Accounting
The following is a list of regulatory assets and liabilities reflected on the Registrants’ respective Condensed Consolidated Balance Sheets:
| | | June 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
Regulatory Assets: | (in millions) | (in millions) |
Current regulatory assets (1) | $ | 55 |
| | $ | — |
| | $ | 55 |
| | $ | 130 |
| | $ | — |
| | $ | 130 |
| $ | 36 |
| | $ | — |
| | $ | 36 |
| | $ | 77 |
| | $ | — |
| | $ | 77 |
|
Non-current regulatory assets: | | | | | | | | | | | | | | | | | | | | | | |
Securitized regulatory assets | 1,293 |
| | 1,293 |
| | — |
| | 1,590 |
| | 1,590 |
| | — |
| 977 |
| | 977 |
| | — |
| | 1,059 |
| | 1,059 |
| | — |
|
Unrecognized equity return (2) | (242 | ) | | (242 | ) | | — |
| | (287 | ) | | (287 | ) | | — |
| (202 | ) | | (202 | ) | | — |
| | (213 | ) | | (213 | ) | | — |
|
Unamortized loss on reacquired debt | 72 |
| | 72 |
| | — |
| | 75 |
| | 75 |
| | — |
| 66 |
| | 66 |
| | — |
| | 68 |
| | 68 |
| | — |
|
Pension and postretirement-related regulatory asset (3) | 623 |
| | 32 |
| | 18 |
| | 646 |
| | 31 |
| | 20 |
| 711 |
| | 34 |
| | 29 |
| | 725 |
| | 33 |
| | 30 |
|
Hurricane Harvey restoration costs (4) | 63 |
| | 56 |
| | 7 |
| | 64 |
| | 58 |
| | 6 |
| |
Hurricane Harvey restoration costs-not earning a return | | 68 |
| | 64 |
| | 4 |
| | 68 |
| | 64 |
| | 4 |
|
Regulatory assets related to TCJA (5)(4) | 48 |
| | 33 |
| | 15 |
| | 48 |
| | 33 |
| | 15 |
| 29 |
| | 23 |
| | 6 |
| | 33 |
| | 23 |
| | 10 |
|
Other long-term regulatory assets (6) | 210 |
| | 77 |
| | 133 |
| | 211 |
| | 70 |
| | 140 |
| |
Other regulatory assets-not earning a return (5) | | 114 |
| | 57 |
| | 26 |
| | 81 |
| | 55 |
| | 26 |
|
Other regulatory assets | | 466 |
| | 37 |
| | 115 |
| | 146 |
| | 35 |
| | 111 |
|
Total non-current regulatory assets | 2,067 |
| | 1,321 |
| | 173 |
| | 2,347 |
| | 1,570 |
| | 181 |
| 2,229 |
| | 1,056 |
| | 180 |
| | 1,967 |
| | 1,124 |
| | 181 |
|
Total regulatory assets | 2,122 |
| | 1,321 |
| | 228 |
| | 2,477 |
| | 1,570 |
| | 311 |
| 2,265 |
| | 1,056 |
| | 216 |
| | 2,044 |
| | 1,124 |
| | 258 |
|
Regulatory Liabilities: | | | | | | | | | | | | | | | | | | | | | | |
Current regulatory liabilities (7) | 43 |
| | 6 |
| | 37 |
| | 24 |
| | 22 |
| | 2 |
| |
Current regulatory liabilities (6) | | 67 |
| | 11 |
| | 38 |
| | 38 |
| | 17 |
| | 21 |
|
Non-current regulatory liabilities: | | | | | | | | | | | | | | | | | | | | | | |
Regulatory liabilities related to TCJA (5) | 1,389 |
| | 885 |
| | 504 |
| | 1,354 |
| | 862 |
| | 492 |
| |
Regulatory liabilities related to TCJA (4) | | 1,628 |
| | 841 |
| | 456 |
| | 1,323 |
| | 847 |
| | 476 |
|
Estimated removal costs | 885 |
| | 279 |
| | 606 |
| | 878 |
| | 285 |
| | 593 |
| 1,404 |
| | 271 |
| | 624 |
| | 886 |
| | 269 |
| | 617 |
|
Other long-term regulatory liabilities | 247 |
| | 101 |
| | 146 |
| | 232 |
| | 116 |
| | 116 |
| |
Other regulatory liabilities | | 417 |
| | 160 |
| | 153 |
| | 316 |
| | 182 |
| | 134 |
|
Total non-current regulatory liabilities | 2,521 |
| | 1,265 |
| | 1,256 |
| | 2,464 |
| | 1,263 |
| | 1,201 |
| 3,449 |
| | 1,272 |
| | 1,233 |
| | 2,525 |
| | 1,298 |
| | 1,227 |
|
Total regulatory liabilities | 2,564 |
| | 1,271 |
| | 1,293 |
| | 2,488 |
| | 1,285 |
| | 1,203 |
| 3,516 |
| | 1,283 |
| | 1,271 |
| | 2,563 |
| | 1,315 |
| | 1,248 |
|
Total regulatory assets and liabilities, net | $ | (442 | ) | | $ | 50 |
| | $ | (1,065 | ) | | $ | (11 | ) | | $ | 285 |
| | $ | (892 | ) | $ | (1,251 | ) | | $ | (227 | ) | | $ | (1,055 | ) | | $ | (519 | ) | | $ | (191 | ) | | $ | (990 | ) |
| |
(1) | Current regulatory assets are included in Prepaid expenses and other current assets in the Registrants’ respective 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,March 31, 2019 and 2018, and 2017, CenterPoint Energy and Houston Electric recognized approximately $24$11 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$21 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 Houston Electric’s and CERC’s 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$34 million and $7$3 million as of June 30, 2018March 31, 2019, respectively, and $33 million and $4 million as of December 31, 2017,2018, 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)(5) | Other long-term regulatoryRegulatory assets that areacquired in the Merger and not earning a return were not materialrecorded at fair value as of June 30, 2018 and December 31, 2017.the Merger Date. Such fair value adjustments are recognized over time until the regulatory asset is recovered. |
| |
(7)(6) | Current regulatory liabilities are included in Other current liabilities in each of the Registrants’ respective Condensed Consolidated Balance Sheets. |
(7) Derivative Instruments
The Registrants are exposed to various market risks. These risks arise from transactions entered into in the normal course of business. The 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 the Registrants’ Condensed Consolidated Balance Sheets at their fair value unless the 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 the Registrants’ marketing, risk management services and hedging activities. The committee’s duties are to establish the Registrants’ commodity risk policies, allocate board-approved commercial risk limits, approve the use of new products and commodities, monitor positions and ensure compliance with the Registrants’ commercial risk management policy and procedures and limits established by CenterPoint Energy’s Board of Directors.
The Registrants’ policies prohibit the use of leveraged financial instruments. A leveraged financial instrument, for this purpose, is a transaction involving a derivative whose financial impact will be based on an amount other than the notional amount or volume of the instrument.
| |
(a) | Non-Trading Activities |
Commodity Derivative Instruments. CenterPoint Energy, through its Indiana Utilities, and 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 businessreportable segment are designated as fair value hedges for accounting purposes. Outstanding derivative instruments designated as economic hedges at the acquired Indiana Utilities hedge long-term variable rate natural gas purchases. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging natural gas purchases, and thus the gains and losses on derivatives are deferred in a regulatory liability or asset. All other financial instruments do not qualify or are not designated as cash flow or fair value hedges.
Interest Rate Risk Derivative Instruments. From time to time, the Registrants may enter into interest rate derivatives that are designated as economic or cash flow hedges. The objective of these hedges is to offset risk associated with interest rates borne by the Registrants in connection with an anticipated future fixed rate debt offering or other exposure to variable rate debt. The Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging financing activity, and thus the gains and losses on derivatives are deferred in a regulatory liability or asset. For the impacts of cash flow hedges to Accumulated other comprehensive income, see Note 20.
The table below summarizes the Registrants’ outstanding interest rate hedging activity:
|
| | | | | | | | | | |
| | | | March 31, 2019 | | December 31, 2018 |
Registrant | | Hedging Classification | | Notional Principal |
| | | | (in millions) |
CenterPoint Energy (1) | | Economic hedge | | $ | 84 |
| | $ | — |
|
Houston Electric | | Cash flow hedge | | — |
| | 450 |
|
| |
(1) | Relates to interest rate derivative instruments at SIGECO. |
Weather Hedges. CenterPoint Energy and CERC have weather normalization or other rate mechanisms that largely mitigate the impact of weather on NGD in Arkansas, Indiana, Louisiana, Mississippi, Minnesota, Ohio and Oklahoma. CenterPoint Energy’s and CERC’s NGD in Texas and CenterPoint Energy’s electric operations in Texas and Indiana do not have such mechanisms, although fixed customer charges are historically higher in Texas for NGD compared to its other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on CenterPoint Energy’s and CERC’s NGD’s results in Texas and on CenterPoint Energy’s electric operations’ results in its Texas service territory.
CenterPoint Energy and CERC, as applicable, enter into winter season weather hedges from time to time for certain NGD jurisdictions and electric operations’ service territory to mitigate the effect of fluctuations from normal weather on results of operations and cash flows. These weather hedges are based on heating degree days at 10-year normal weather. Houston Electric does not enter into weather hedges.
The table below summarizes CenterPoint Energy’s and CERC’s current weather hedge gain (loss) activity:
| | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
Jurisdiction | | Winter Season | | Bilateral Cap | | 2018 | | 2017 | | 2018 | | 2017 | | Winter Season | | Bilateral Cap | | 2019 | | 2018 |
| | (in millions) | | | | | | (in millions) |
Certain NGD jurisdictions | | 2018 – 2019 | | $ | 9 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | 2018 – 2019 | | $ | 9 |
| | $ | — |
| | $ | — |
|
Certain NGD jurisdictions | | 2017 – 2018 | | 8 |
| | — |
| | — |
| | — |
| | — |
| | 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 |
| |
Electric operations’ Texas service territory | | | 2018 – 2019 | | 8 |
| | 3 |
| | — |
|
Electric operations’ Texas service territory | | | 2017 – 2018 | | 9 |
| | — |
| | (4 | ) |
Total CenterPoint Energy (1) | | | | $ | — |
|
| $ | — |
|
| $ | (4 | ) |
| $ | 1 |
| | |
| $ | 3 |
|
| $ | (4 | ) |
| |
(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 and February 2018, Houston Electric entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $200 million. These agreements were executed to hedge, in part, volatility in the 30-year U.S. treasury rate by reducing Houston Electric’s exposure to variability in cash flows related to interest payments of Houston Electric’s $400 million issuance of fixed rate debt in 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 less than $1 million, is a component of accumulated other comprehensive income in 2018 and will be amortized over the life of the fixed rate debt.
| |
(b) | Derivative Fair Values and Income Statement Impacts |
The following tables present information about derivative instruments and hedging activities. The first twothree tables provide a balance sheet overview of Derivative Assets and Liabilities, while the last table providestwo tables provide a breakdown of the related income statement impacts.
Fair Value of Derivative Instruments (CenterPoint Energy and CERC)Hedged Items
| | | | June 30, 2018 | | December 31, 2017 | | March 31, 2019 | | December 31, 2018 |
| | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | | (in millions) |
Derivatives designated as cash flow hedges: | | Derivatives designated as cash flow hedges: | | | | | | | | |
Interest rate derivatives | | | Current Liabilities: Non-trading derivative liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
|
Total Houston Electric | | Total Houston Electric | | — |
| | — |
| | — |
| | 24 |
|
Derivatives designated as fair value hedges: | Derivatives designated as fair value hedges: | | (in millions) | Derivatives designated as fair value hedges: | | | | | | | | |
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | $ | — |
| | $ | 3 |
| | $ | 13 |
| | $ | 1 |
| | Current Liabilities: Non-trading derivative liabilities | | 1 |
| | — |
| | 1 |
| | 7 |
|
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | 76 |
| | 2 |
| | 114 |
| | 4 |
| | Current Assets: Non-trading derivative assets | | 66 |
| | 3 |
| | 103 |
| | 3 |
|
Natural gas derivatives (1) (2) (3) | | Other Assets: Non-trading derivative assets | | 46 |
| | — |
| | 44 |
| | — |
| | Other Assets: Non-trading derivative assets | | 47 |
| | 14 |
| | 38 |
| | — |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 23 |
| | 64 |
| | 38 |
| | 78 |
| | Current Liabilities: Non-trading derivative liabilities | | 36 |
| | 86 |
| | 62 |
| | 173 |
|
Natural gas derivatives (1) (2) (3) | | Other Liabilities: Non-trading derivative liabilities | | 15 |
| | 41 |
| | 9 |
| | 24 |
| | Other Liabilities: Non-trading derivative liabilities | | — |
| | 9 |
| | 16 |
| | 25 |
|
Total CERC | Total CERC | | 160 |
| | 110 |
| | 218 |
| | 107 |
| Total CERC | | 150 |
| | 112 |
| | 220 |
| | 208 |
|
Natural gas derivatives (2) (3) | | | Current Liabilities: Non-trading derivative liabilities | | — |
| | 1 |
| | — |
| | — |
|
Natural gas derivatives (2) (3) | | | Other Liabilities: Non-trading derivative liabilities | | — |
| | 9 |
| | — |
| | — |
|
Interest rate derivatives | | | Other Liabilities | | — |
| | 3 |
| | — |
| | — |
|
Indexed debt securities derivative | | Current Liabilities | | — |
| | 641 |
| | — |
| | 668 |
| | Current Liabilities | | — |
| | 687 |
| | — |
| | 601 |
|
Total CenterPoint Energy | Total CenterPoint Energy | | $ | 160 |
| | $ | 751 |
| | $ | 218 |
| | $ | 775 |
| Total CenterPoint Energy | | $ | 150 |
| | $ | 812 |
| | $ | 220 |
| | $ | 833 |
|
| |
(1) | The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,8622,198 Bcf or a net 268495 Bcf long position and 1,7951,674 Bcf or a net 224140 Bcf long position as of June 30, 2018March 31, 2019 and December 31, 2017,2018, 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 $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 asis detailed in the Offsetting of Natural Gas Derivative Assets and Liabilities table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above, impacted by collateral netting of $32 million and $19 million, respectively.below. |
| |
(3) | Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable. |
Cumulative Basis Adjustment for Fair Value Hedges (CenterPoint Energy and CERC)
|
| | | | | | | | | | | | | | | | | | |
| | | | March 31, 2019 | | December 31, 2018 |
| | Balance Sheet Location | | Carrying Amount of Hedged Assets/(Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Item | | Carrying Amount of Hedged Assets/(Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Item |
| | | | (in millions) |
Hedged items in fair value hedge relationship: | | | | | | | | |
Natural gas inventory | | Current Assets: Natural gas inventory | | $ | 36 |
| | $ | (6 | ) | | $ | 57 |
| | $ | 1 |
|
Borrowed natural gas | | Current Liabilities: Other | | (6 | ) | | 1 |
| | — |
| | — |
|
Total CenterPoint Energy and CERC | | $ | 30 |
| | $ | (5 | ) | | $ | 57 |
| | $ | 1 |
|
Offsetting of Natural Gas Derivative Assets and Liabilities (CenterPoint Energy and CERC)
| | | | June 30, 2018 | | December 31, 2017 | | March 31, 2019 | | December 31, 2018 |
| | 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) | | 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 | | $ | 99 |
| | $ | (25 | ) | | $ | 74 |
| | $ | 165 |
| | $ | (55 | ) | | $ | 110 |
| | $ | 103 |
| | $ | (40 | ) | | $ | 63 |
| | $ | 166 |
| | $ | (66 | ) | | $ | 100 |
|
Other Assets: Non-trading derivative assets | | 61 |
| | (15 | ) | | 46 |
| | 53 |
| | (9 | ) | | 44 |
| | 47 |
| | (14 | ) | | 33 |
| | 54 |
| | (16 | ) | | 38 |
|
Current Liabilities: Non-trading derivative liabilities | | (69 | ) | | 43 |
| | (26 | ) | | (83 | ) | | 63 |
| | (20 | ) | | (89 | ) | | 42 |
| | (47 | ) | | (183 | ) | | 81 |
| | (102 | ) |
Other Liabilities: Non-trading derivative liabilities | | (41 | ) | | 29 |
| | (12 | ) | | (24 | ) | | 20 |
| | (4 | ) | | (23 | ) | | 14 |
| | (9 | ) | | (25 | ) | | 20 |
| | (5 | ) |
Total | | $ | 50 |
| | $ | 32 |
| | $ | 82 |
| | $ | 111 |
| | $ | 19 |
| | $ | 130 |
| |
Total CERC | | | 38 |
| | 2 |
| | 40 |
| | 12 |
| | 19 |
| | 31 |
|
Current Liabilities: Non-trading derivative | | | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Other Liabilities: Non-trading derivative liabilities | | | (9 | ) | | — |
| | (9 | ) | | — |
| | — |
| | — |
|
Total CenterPoint Energy | | | $ | 28 |
| | $ | 2 |
| | $ | 30 |
| | $ | 12 |
| | $ | 19 |
| | $ | 31 |
|
| |
(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 DerivativeHedge Accounting Activity (CenterPoint Energy and CERC)
|
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | Income Statement Location | | 2018 | | 2017 | | 2018 | | 2017 |
Derivatives designated as fair value hedges: | | (in millions) |
Natural gas derivatives | | Gains (Losses) in Non-utility natural gas expense | | $ | 13 |
| | $ | 3 |
| | $ | 13 |
| | $ | 12 |
|
Natural gas inventory | | Gains (Losses) in Non-utility natural gas expense | | (12 | ) | | (4 | ) | | (14 | ) | | (14 | ) |
Total CenterPoint Energy and CERC (1) | | $ | 1 |
| | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) |
Derivatives not designated as hedging instruments: | | | | | | | | |
Natural gas derivatives | | Gains (Losses) in Non-utility revenues | | $ | 11 |
| | $ | 36 |
| | $ | 68 |
| | $ | 132 |
|
Natural gas derivatives | | Gains (Losses) in Non-utility natural gas expense | | (9 | ) | | (9 | ) | | (78 | ) | | (82 | ) |
Total CERC | | 2 |
| | 27 |
| | (10 | ) | | 50 |
|
Indexed debt securities derivative | | Gains (Losses) in Other Income (Expense) | | (254 | ) | | (13 | ) | | (272 | ) | | (23 | ) |
Total CenterPoint Energy | | $ | (252 | ) | | $ | 14 |
| | $ | (282 | ) | | $ | 27 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 | | 2019 | | 2018 |
| Location and Amount of Gain (Loss) recognized in Income on Hedging Relationship (1) |
| Non-utility cost of revenues, including natural gas |
| CenterPoint Energy | | CERC |
| (in millions) |
Total amounts presented in the statements of income in which the effects of hedges are recorded | $ | 1,251 |
| | $ | 1,273 |
| | $ | 1,171 |
| | $ | 1,273 |
|
Gain (loss) on fair value hedging relationships: | | | | | | | |
Commodity contracts: | | | | | | | |
Hedged items - Natural gas inventory | (6 | ) | | (2 | ) | | (6 | ) | | (2 | ) |
Derivatives designated as hedging instruments | 6 |
| | 2 |
| | 6 |
| | 2 |
|
Amounts excluded from effectiveness testing recognized in earnings immediately | (14 | ) | | (71 | ) | | (14 | ) | | (71 | ) |
| |
(1) | Hedge ineffectiveness resultsIncome statement impact associated with cash flow hedge activity is related to gains and losses reclassified from the basis ineffectiveness discussed above, and excludes the impact to natural gas expense from timing ineffectiveness. Timing ineffectiveness arises due to changesAccumulated other comprehensive income into income. Amounts are immaterial for each Registrant in the difference between the spot pricethree months ended March 31, 2019 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.2018, respectively. |
|
| | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | Income Statement Location | | 2019 | | 2018 |
| | | (in millions) |
Effects of derivatives not designated as hedging instruments on the income statement: | | | | |
Commodity contracts | | Gains (losses) in Non-utility revenues | | $ | 4 |
| | $ | 57 |
|
Total CERC | | 4 |
| | 57 |
|
Indexed debt securities derivative | | Loss on indexed debt securities | | (86 | ) | | (18 | ) |
Total CenterPoint Energy | | $ | (82 | ) | | $ | 39 |
|
| |
(c) | Credit Risk Contingent Features |
CenterPoint Energy and 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.
CenterPoint Energy and CERC
| | | | June 30, 2018 | | December 31, 2017 | | March 31, 2019 | | December 31, 2018 |
| | (in millions) | | (in millions) |
Aggregate fair value of derivatives containing material adverse change provisions in a net liability position | | $ | 2 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
|
Fair value of collateral already posted | | — |
| | — |
| | — |
| | — |
|
Additional collateral required to be posted if credit risk contingent features triggered | | 1 |
| | 2 |
| | — |
| | — |
|
(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, andquoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability.liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets. A market approach is utilized to value the Registrants’ Level 2 natural gas derivative assets or liabilities. CenterPoint Energy’s Level 2 indexed debt securities derivative is valued using an option model and a discounted cash flow model, which uses projected dividends on the ZENS-Related Securities and a discount rate as observable inputs.
Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Unobservable inputs reflect the Registrants’ judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Registrants develop these inputs based on the best information available, including the Registrants’ own data. A market approach is utilized to value the Registrants’ Level 3 assets or liabilities. As of June 30, 2018,March 31, 2019, CenterPoint Energy’s and CERC’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options and CenterPoint Energy’s indexed debt securities.options. 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 $1.04$0.03 to $3.31$6.23 per MMBtu) 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. If forward prices decrease, CenterPoint Energy’s and CERC’s. Forward price decreases
(increases) as of March 31, 2019 would have resulted in lower (higher) values, respectively, for long forwards and options lose value whereas theirand higher (lower) values, respectively, for short forwards and options gain in value. CenterPoint Energy’s Level 3 indexed debt securities derivative is valued using an option model and a discounted cash flow model, which uses projected dividends on the ZENS-Related Securities and a discount rate as unobservable inputs. An increase and a decrease in the unobservable inputs will generally decrease and increase the value of the indexed debt securities derivative, respectively.options.
The Registrants determine the appropriate level for each financial asset and liability on a quarterly basis and recognize transfers between levels at the end of the reporting period. For the six months ended June 30, 2018, there were no transfers between Level 1 and 2.basis. The Registrants also recognize 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 the Registrants’ assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, and indicate the fair value hierarchy of the valuation techniques utilized by the Registrants to determine such fair value.
CenterPoint Energy
| | | June 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
|
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total | |
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total |
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total | |
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total |
Assets | (in millions) | (in millions) |
Corporate equities | $ | 586 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 586 |
| | $ | 963 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 963 |
| $ | 625 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 625 |
| | $ | 542 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 542 |
|
Investments, including money market funds (2) | 70 |
| | — |
| | — |
| | — |
| | 70 |
| | 68 |
| | — |
| | — |
| | — |
| | 68 |
| 66 |
| | — |
| | — |
| | — |
| | 66 |
| | 66 |
| | — |
| | — |
| | — |
| | 66 |
|
Natural gas derivatives (3) | — |
| | 142 |
| | 18 |
| | (40 | ) | | 120 |
| | — |
| | 161 |
| | 57 |
| | (64 | ) | | 154 |
| — |
| | 124 |
| | 26 |
| | (54 | ) | | 96 |
| | — |
| | 173 |
| | 47 |
| | (82 | ) | | 138 |
|
Hedged portion of natural gas inventory | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | — |
| | — |
| | 14 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Hedged portion of borrowed natural gas (4) | | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total assets | $ | 656 |
| | $ | 142 |
| | $ | 18 |
| | $ | (40 | ) | | $ | 776 |
| | $ | 1,045 |
| | $ | 161 |
| | $ | 57 |
| | $ | (64 | ) | | $ | 1,199 |
| $ | 692 |
| | $ | 124 |
| | $ | 26 |
| | $ | (54 | ) | | $ | 788 |
| | $ | 609 |
| | $ | 173 |
| | $ | 47 |
| | $ | (82 | ) | | $ | 747 |
|
Liabilities | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | |
| | |
| | |
| | |
| | |
| | | | | | | | | | |
Indexed debt securities derivative | $ | — |
| | $ | — |
| | $ | 641 |
| | $ | — |
| | $ | 641 |
| | $ | — |
| | $ | — |
| | $ | 668 |
| | $ | — |
| | $ | 668 |
| $ | — |
| | $ | 687 |
| | $ | — |
| | $ | — |
| | $ | 687 |
| | $ | — |
| | $ | 601 |
| | $ | — |
| | $ | — |
| | $ | 601 |
|
Interest rate derivatives | | — |
| | 3 |
| | — |
| | — |
| | 3 |
| | 24 |
| | — |
| | — |
| | — |
| | 24 |
|
Natural gas derivatives (3) | — |
| | 105 |
| | 5 |
| | (72 | ) | | 38 |
| | — |
| | 96 |
| | 11 |
| | (83 | ) | | 24 |
| — |
| | 109 |
| | 13 |
| | (56 | ) | | 66 |
| | — |
| | 191 |
| | 17 |
| | (101 | ) | | 107 |
|
Hedged portion of natural gas inventory | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| 6 |
| | — |
| | — |
| | — |
| | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total liabilities | $ | 1 |
| | $ | 105 |
| | $ | 646 |
| | $ | (72 | ) | | $ | 680 |
| | $ | — |
| | $ | 96 |
| | $ | 679 |
| | $ | (83 | ) | | $ | 692 |
| $ | 6 |
| | $ | 799 |
| | $ | 13 |
| | $ | (56 | ) | | $ | 762 |
| | $ | 24 |
| | $ | 792 |
| | $ | 17 |
| | $ | (101 | ) | | $ | 732 |
|
Houston Electric
| | | June 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
|
Level 1 | | Level 2 | | Level 3 | | Netting | | Total | |
Level 1 | | Level 2 | | Level 3 | | Netting | | Total |
Level 1 | | Level 2 | | Level 3 | | Netting | | Total | |
Level 1 | | Level 2 | | Level 3 | | Netting | | Total |
Assets | (in millions) | (in millions) |
Investments, including money market funds (2) | $ | 52 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 52 |
| | $ | 51 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 51 |
| $ | 48 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 48 |
| | $ | 48 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 48 |
|
Total assets | $ | 52 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 52 |
| | $ | 51 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 51 |
| $ | 48 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 48 |
| | $ | 48 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 48 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | |
Interest rate derivatives | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
|
Total liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
|
CERC
| | | June 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
|
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total | |
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total |
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total | |
Level 1 | | Level 2 | | Level 3 | | Netting (1) | | Total |
Assets | (in millions) | (in millions) |
Corporate equities | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
| $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
|
Investments, including money market funds (2) | 11 |
| | — |
| | — |
| | — |
| | 11 |
| | 11 |
| | — |
| | — |
| | — |
| | 11 |
| 11 |
| | — |
| | — |
| | — |
| | 11 |
| | 11 |
| | — |
| | — |
| | — |
| | 11 |
|
Natural gas derivatives (3) | — |
| | 142 |
| | 18 |
| | (40 | ) | | 120 |
| | — |
| | 161 |
| | 57 |
| | (64 | ) | | 154 |
| |
Natural gas derivatives (3)(5) | | — |
|
| 124 |
|
| 26 |
|
| (54 | ) | | 96 |
| | — |
| | 173 |
| | 47 |
| | (82 | ) | | 138 |
|
Hedged portion of natural gas inventory | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | — |
| | — |
| | 14 |
| — |
|
| — |
|
| — |
|
| — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Hedged portion of borrowed natural gas (4) | | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total assets | $ | 13 |
| | $ | 142 |
| | $ | 18 |
| | $ | (40 | ) | | $ | 133 |
| | $ | 28 |
| | $ | 161 |
| | $ | 57 |
| | $ | (64 | ) | | $ | 182 |
| $ | 14 |
| | $ | 124 |
| | $ | 26 |
| | $ | (54 | ) | | $ | 110 |
| | $ | 14 |
| | $ | 173 |
| | $ | 47 |
| | $ | (82 | ) | | $ | 152 |
|
Liabilities | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | |
| | |
| | |
| | |
| | |
| | | | | | | | | | |
Natural gas derivatives (3) | $ | — |
| | $ | 105 |
| | $ | 5 |
| | $ | (72 | ) | | $ | 38 |
| | $ | — |
| | $ | 96 |
| | $ | 11 |
| | $ | (83 | ) | | $ | 24 |
| |
Natural gas derivatives (3)(5) | | $ | — |
|
| $ | 99 |
|
| $ | 13 |
|
| $ | (56 | ) | | $ | 56 |
| | $ | — |
| | $ | 191 |
| | $ | 17 |
| | $ | (101 | ) | | $ | 107 |
|
Hedged portion of natural gas inventory | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| 6 |
| | — |
| | — |
| | — |
| | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total liabilities | $ | 1 |
| | $ | 105 |
| | $ | 5 |
| | $ | (72 | ) | | $ | 39 |
| | $ | — |
| | $ | 96 |
| | $ | 11 |
| | $ | (83 | ) | | $ | 24 |
| $ | 6 |
| | $ | 99 |
| | $ | 13 |
| | $ | (56 | ) | | $ | 62 |
| | $ | — |
| | $ | 191 |
| | $ | 17 |
| | $ | (101 | ) | | $ | 107 |
|
| |
(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 $32$2 million and $19 million as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, posted with the same counterparties. |
| |
(2) | Amounts are included in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. |
| |
(3) | Natural gas derivatives include no material amounts related to physical forward transactions with Enable. |
| |
(4) | Amounts are included in Other current liabilities in the Condensed Consolidated Balance Sheets. |
| |
(5) | Level 1 natural gas derivatives include exchange-traded derivatives cleared by the CME, which deems that financial instruments cleared by the CME are settled daily in connection with posted cash payments. As a result of this exchange rule, CME-related derivatives are considered to have no fair value at the balance sheet date for financial reporting purposes and are presented in Level 1 net of posted cash; however, the derivatives remain outstanding and subject to future commodity price fluctuations until they are settled in accordance with their contractual terms. Derivative transactions cleared on exchanges other than the CME (e.g., the Intercontinental Exchange or ICE) continue to be reported on a gross basis. |
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 and CERC have utilized Level 3 inputs to determine fair value:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) | (in millions) |
Beginning balance | $ | (662 | ) | | $ | 12 |
| | $ | (700 | ) | | $ | 27 |
| | $ | (622 | ) | | $ | 46 |
| | $ | (704 | ) | | $ | 13 |
| $ | 30 |
| | $ | 30 |
| | $ | (622 | ) | | $ | 46 |
|
Total gains (losses) | (11 | ) | | 1 |
| | (6 | ) | | 7 |
| | (16 | ) | | 3 |
| | — |
| | 23 |
| (1 | ) | | (1 | ) | | (4 | ) | | 2 |
|
Total settlements | 44 |
| | (1 | ) | | — |
| | — |
| | 11 |
| | (35 | ) | | (4 | ) | | (4 | ) | (15 | ) | | (15 | ) | | (34 | ) | | (34 | ) |
Transfers into Level 3 | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 2 |
| | 2 |
| 1 |
| | 1 |
| | — |
| | — |
|
Transfers out of Level 3 | — |
| | — |
| | (7 | ) | | (7 | ) | | (2 | ) | | (2 | ) | | (6 | ) | | (6 | ) | (2 | ) | | (2 | ) | | (2 | ) | | (2 | ) |
Ending balance (1) | $ | (628 | ) | | $ | 13 |
| | $ | (712 | ) | | $ | 28 |
| | $ | (628 | ) | | $ | 13 |
| | $ | (712 | ) | | $ | 28 |
| $ | 13 |
| | $ | 13 |
| | $ | (662 | ) | | $ | 12 |
|
| | | | | | | | | | | | | | | | | | | | | | |
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date: | | $ | (9 | ) | | $ | 3 |
| | $ | (9 | ) | | $ | 4 |
| | $ | (23 | ) | | $ | (4 | ) | | $ | (2 | ) | | $ | 21 |
| $ | (2 | ) | | $ | (2 | ) | | $ | (5 | ) | | $ | (4 | ) |
| |
(1) | CenterPoint Energy and CERC did not have significant Level 3 sales or purchases during either of the three or six months ended June 30, 2018March 31, 2019 or 2017.2018. |
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 and hedging instruments are stated at fair value and are excluded from the table below. The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by a combination of historical trading prices and comparable issue data. These liabilities, which are not measured at fair value in the Registrants’ Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 2 in the fair value hierarchy.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 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 |
|
|
| | | | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (in millions) |
CenterPoint Energy | | | | | | | |
Long-term debt, including current maturities (1) | $ | 14,138 |
| | $ | 14,693 |
| | $ | 9,140 |
| | $ | 9,308 |
|
Houston Electric | | | | | | | |
Long-term debt, including current maturities (1) | $ | 5,231 |
| | $ | 5,494 |
| | $ | 4,717 |
| | $ | 4,770 |
|
CERC
| | | | | | | |
Long-term debt, including current maturities | $ | 2,384 |
| | $ | 2,560 |
| | $ | 2,371 |
| | $ | 2,488 |
|
| |
(1) | Includes Securitization BondBonds debt. |
(9) Unconsolidated AffiliateAffiliates (CenterPoint Energy and CERC)
CenterPoint Energy and CERC havehas the ability to significantly influence the operating and financial policies of Enable, a publicly traded MLP, and, accordingly, accountaccounts for theits investment in Enable’s common units using the equity method of accounting for in-substance real estate. Uponaccounting. Enable is considered to be a VIE because the adoptionpower to direct the activities that most significantly impact Enable’s economic performance does not reside with the holders of ASU 2014-09 and ASU 2017-05 on January 1, 2018,equity investment at risk. However, CenterPoint Energy and CERC evaluated transactions inis not considered the investment inprimary beneficiary of Enable since it does not have the power to direct the activities of Enable that occurred prior to January 1, 2018 (the effective date) and concluded a cumulative effect adjustmentare considered most significant to the opening balanceeconomic performance of retained earnings was not required. See Note 2 for further discussion.
Enable. As of March 31, 2019, CenterPoint Energy’s and CERC’s maximum exposure to loss related to Enable a VIE in which CenterPoint Energy and CERC are not the primary beneficiaries, is limited to the equityits investment thein unconsolidated affiliate, its investment in Enable Series A Preferred Unit investmentUnits and outstanding current accounts receivable from Enable.
Investment in Unconsolidated Affiliates (CenterPoint Energy):
|
| | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
| | (in millions) |
Enable | | $ | 2,470 |
| | $ | 2,482 |
|
Other (1) | | 1 |
| | — |
|
Total | | $ | 2,471 |
| | $ | 2,482 |
|
| |
(1) | Represents the equity investment in ProLiance Holdings, LLC related primarily to an investment in LA Storage, LLC, a joint venture in a development project for salt-cavern natural gas storage, which was acquired in the Merger. This presentation reflects preliminary fair value of the equity investment and is subject to change. See Note 3. |
Limited Partner Interest and Units Held in Enable:Enable (CenterPoint Energy):
| | | June 30, 2018 | March 31, 2019 |
| Limited Partner Interest (1) | | Common Units | | Series A Preferred Units (2) | Limited Partner Interest (1) | | Common Units (2) | | Enable Series A Preferred Units (3) |
CERC Corp. | 54.0 | % | | 233,856,623 |
| | — |
| |
CenterPoint Energy | | 53.8 | % | | 233,856,623 |
| | 14,520,000 |
|
OGE | 25.6 | % | | 110,982,805 |
| | — |
| 25.5 | % | | 110,982,805 |
| | — |
|
Public unitholders | 20.4 | % | | 88,225,208 |
| | — |
| 20.7 | % | | 90,231,807 |
| | — |
|
CenterPoint Energy | — |
| | — |
| | 14,520,000 |
| |
Total units outstanding | 100.0 | % | | 433,064,636 |
| | 14,520,000 |
| 100.0 | % | | 435,071,235 |
| | 14,520,000 |
|
| |
(1) | ExcludingExcludes the Enable Series A Preferred Units owned by CenterPoint Energy. |
| |
(2) | Held indirectly through CNP Midstream by CenterPoint Energy. |
| |
(3) | The carrying amount of the Enable Series A Preferred Units, reflected as Preferred units - unconsolidated affiliate on CenterPoint Energy’s Condensed Consolidated Balance Sheets, was $363 million as of both June 30, 2018March 31, 2019 and December 31, 2017.2018. 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 CERC Corp.CenterPoint Energy owns in Enable or sales to any person or entity (including a series of sales to the same person or entity) by OGE of more than 5% of the aggregate of the common units it owns in Enable are subject to mutual rights of first offer and first refusal set forth in Enable’s Agreement of Limited Partnership.
Interests Held in Enable is controlled jointly by CERC Corp. and OGE, and each own 50% of the management rights in the general partner of Enable. Sale of CERC Corp.’s or OGE’s ownership interests in Enable’s general partner to a third party is subject to mutual rights of first offer and first refusal, and CERC Corp. is not permitted to dispose of less than all of its interest in Enable’s general partner.GP (CenterPoint Energy):
|
| | | | | |
| March 31, 2019 |
| Management Rights (1) | | Incentive Distribution Rights (2) |
CenterPoint Energy (3) | 50 | % | | 40 | % |
OGE | 50 | % | | 60 | % |
| |
(1) | Enable is controlled jointly by CenterPoint Energy and OGE. Sale of CenterPoint Energy’s or OGE’s ownership interests in Enable GP to a third party is subject to mutual rights of first offer and first refusal, and CenterPoint Energy is not permitted to dispose of less than all of its interest in Enable GP. |
| |
(2) | Enable is expected to pay a minimum quarterly distribution of $0.2875 per common unit on its outstanding common units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to Enable GP and its affiliates, within 60 days after the end of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per common unit in any quarter, Enable GP will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances Enable GP will have the right to reset the minimum quarterly distribution and the target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable’s cash distributions at the time of the exercise of this reset election. To date, no incentive distributions have been made. |
| |
(3) | Held indirectly through CNP Midstream. |
Distributions Received from Enable:Enable (CenterPoint Energy and CERC):
|
| | | | | | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | |
| 2019 | | 2018 | |
| Per Unit | | Cash Distribution | | Per Unit | | Cash Distribution | |
| (in millions, except per unit amounts) | |
Enable common units | $ | 0.3180 |
| | $ | 74 |
| | $ | 0.3180 |
| | $ | 74 |
| (1) |
Enable Series A Preferred Units | 0.6250 |
| | 9 |
| | 0.6250 |
| | 9 |
| |
Total CenterPoint Energy | | | $ | 83 |
| | | | $ | 83 |
| |
As of June 30, 2018, CERC Corp. and OGE also owned 40% and 60%, respectively, of the incentive distribution rights held by the general partner of Enable. Enable is expected to pay a minimum quarterly distribution of $0.2875 per common unit on its outstanding common units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates, within 60 days after the end of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per common unit in any quarter, the general partner will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances the general partner of Enable will have the right to reset the minimum quarterly distribution and the target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable’s cash distributions at the time of the exercise of this reset election. To date, no incentive distributions have been made.
| |
(1) | Prior to the Internal Spin in September 2018, distributions from Enable were received by CERC. After such date, distributions from Enable were received by CenterPoint Energy. |
Transactions with Enable (CenterPoint Energy and CERC):
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (in millions) | (in millions) |
Reimbursement of transition services (1) | $ | 1 |
| | $ | 1 |
| | $ | 3 |
| | $ | 3 |
| |
CenterPoint Energy and CERC | | | | |
Natural gas expenses, including transportation and storage costs(1) | 29 |
| | 24 |
| | 66 |
| | 57 |
| $ | 35 |
| | $ | 37 |
|
CenterPoint Energy | | | | |
Reimbursement of transition services (2) | | $ | 2 |
| | $ | 2 |
|
| |
(1) | Included in Non-utility costs of revenues, including natural gas on CenterPoint Energy’s and CERC’s respective Condensed Statements of Consolidated Income. |
| |
(2) | 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 | March 31, 2019 | | December 31, 2018 |
| (in millions) | (in millions) |
CenterPoint Energy and CERC | | | | |
Accounts payable for natural gas purchases from Enable | | $ | 11 |
| | $ | 11 |
|
CenterPoint Energy | | | | |
Accounts receivable for amounts billed for transition services | $ | 3 |
| | $ | 1 |
| $ | 2 |
| | $ | 2 |
|
Accounts payable for natural gas purchases from Enable | 8 |
| | 13 |
| |
CERC’s continuing involvement with Enable subsequent to the Internal Spin described below is limited to its natural gas purchases from Enable.
Summarized unaudited consolidated income information for Enable is as follows:
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| | 2018 | | 2017 | | 2018 |
| 2017 | 2019 |
| 2018 |
| | (in millions) | (in millions) |
Operating revenues | | $ | 805 |
| | $ | 626 |
| | $ | 1,553 |
| | $ | 1,292 |
| $ | 795 |
| | $ | 748 |
|
Cost of sales, excluding depreciation and amortization | | 444 |
| | 279 |
| | 819 |
| | 587 |
| 378 |
| | 375 |
|
Depreciation and amortization | | 105 |
| | 96 |
|
Operating income | | 126 |
| | 122 |
| | 265 |
| | 262 |
| 165 |
| | 139 |
|
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 |
| |
Net income attributable to Enable common units | | 113 |
| | 105 |
|
Reconciliation of Equity in Earnings (Losses), net: | | | | |
CenterPoint Energy’s interest | | $ | 61 |
| | $ | 57 |
|
Basis difference amortization (1) | | 12 |
| | 12 |
| | 24 |
| | 24 |
| 12 |
| | 12 |
|
CenterPoint Energy’s and CERC’s equity in earnings, net | | $ | 58 |
| | $ | 59 |
| | $ | 127 |
| | $ | 131 |
| |
Loss on dilution, net of proportional basis difference recognition | | (11 | ) | | — |
|
CenterPoint Energy’s equity in earnings, net | | $ | 62 |
| | $ | 69 |
|
| |
(1) | Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s and CERC’s share of Enable’sEnable earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s and CERC’s original investment in Enable and theirits underlying equity in Enable’s net assets.assets of Enable. The basis difference is being amortized over approximately 31 years,through the average life of the assets to which the basis difference is attributed.year 2048. |
Summarized unaudited consolidated balance sheet information for Enable is as follows:
| | | | June 30, 2018 |
| December 31, 2017 | | March 31, 2019 |
| December 31, 2018 |
| | (in millions) | | (in millions) |
Current assets | | $ | 432 |
| | $ | 416 |
| | $ | 402 |
| | $ | 449 |
|
Non-current assets | | 11,360 |
| | 11,177 |
| | 12,045 |
| | 11,995 |
|
Current liabilities | | 1,258 |
| | 1,279 |
| | 1,941 |
| | 1,615 |
|
Non-current liabilities | | 2,963 |
| | 2,660 |
| | 2,924 |
| | 3,211 |
|
Non-controlling interest | | 11 |
| | 12 |
| | 37 |
| | 38 |
|
Preferred equity | | 362 |
| | 362 |
| | 362 |
| | 362 |
|
Enable partners’ equity | | 7,198 |
| | 7,280 |
| | 7,183 |
| | 7,218 |
|
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 |
| |
CenterPoint Energy’s ownership interest in Enable partners’ equity | | | $ | 3,861 |
| | $ | 3,896 |
|
CenterPoint Energy’s basis difference | | | (1,391 | ) | | (1,414 | ) |
CenterPoint Energy’s equity method investment in Enable | | | $ | 2,470 |
| | $ | 2,482 |
|
Discontinued Operations (CERC):
On September 4, 2018, CERC completed the Internal Spin. CERC executed the Internal Spin to, among other things, enhance the access of CERC and CenterPoint Energy to low cost debt and equity through increased transparency and understandability of the financial statements, improve CERC’s credit quality by eliminating the exposure to Enable’s midstream business and provide clarity of internal reporting and performance metrics to enhance management’s decision making for CERC and CNP Midstream.
The Internal Spin represents a significant strategic shift that has a material effect on CERC’s operations and financial results and, as a result, CERC’s distribution of its equity investment in Enable met the criteria for discontinued operations classification. CERC has no continuing involvement in the equity investment of Enable. Therefore, CERC’s equity in earnings and related income taxes have been classified as Income from discontinued operations, net of tax, in CERC’s Condensed Statements of Consolidated Income for the periods presented. The following table presents amounts included in Income from discontinued operations, net of tax in CERC’s Condensed Statements of Consolidated Income.
|
| | | |
| Three Months Ended March 31, |
| 2018 |
| (in millions) |
Equity in earnings of unconsolidated affiliate, net | $ | 69 |
|
Income tax expense | 17 |
|
Income from discontinued operations, net of tax | $ | 52 |
|
(10) Goodwill and Other Intangibles (CenterPoint Energy and CERC)
CenterPoint Energy’s and CERC’s goodwill by reportable business segment as of both June 30,December 31, 2018 and Decemberchanges in the carrying amount of goodwill as of March 31, 20172019 is as follows:
| | | (in millions) | December 31, 2018 | | Additions | | March 31, 2019 | |
| | (in millions) | |
Indiana Electric Integrated | | $ | — |
| | $ | — |
| | $ | — |
| |
Natural Gas Distribution | $ | 746 |
| 746 |
| | — |
| | 746 |
| |
Energy Services (1) | 110 |
| |
Other Operations | 11 |
| |
Energy Services | | 110 |
| (2) | — |
| | 110 |
| (2) |
Infrastructure Services | | — |
| | 6 |
| | 6 |
| |
Corporate and Other | | 11 |
| | — |
| | 11 |
| |
Merger (1) | | — |
| | 4,256 |
| | 4,256 |
| |
Total | $ | 867 |
| $ | 867 |
| | $ | 4,262 |
| | $ | 5,129 |
| |
| |
(1) | CenterPoint Energy is currently assessing its reporting units subsequent to the Merger and the allocation of goodwill from the Merger to those reporting units. See Note 3. |
| |
(2) | Amount presented is net of the accumulated goodwill impairment charge of $252 million recorded in 2012. |
CERC’s goodwill by reportable segment as of both March 31, 2019 and December 31, 2018 is as follows:
|
| | | |
| (in millions) |
Natural Gas Distribution | $ | 746 |
|
Energy Services (1) | 110 |
|
Corporate and Other | 11 |
|
Total | $ | 867 |
|
(1) 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 other intangible assets recorded in Intangible assets, net on CenterPoint Energy’s Condensed Consolidated Balance Sheets and the related amortization expense included in Depreciation and amortization on CenterPoint Energy’s Condensed Statements of Consolidated Income, unless otherwise indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance |
| | (in millions) |
Customer relationships (1) | | $ | 315 |
| | $ | (31 | ) | | $ | 284 |
| | $ | 86 |
| | $ | (27 | ) | | $ | 59 |
|
Covenants not to compete | | 4 |
| | (3 | ) | | 1 |
| | 4 |
| | (3 | ) | | 1 |
|
Trade names (1) | | 71 |
| | (1 | ) | | 70 |
| | — |
| | — |
| | — |
|
Construction backlog (1) (2) | | 54 |
| | (8 | ) | | 46 |
| | — |
| | — |
| | — |
|
Operation and maintenance agreements (1) (2) | | 48 |
| | (1 | ) | | 47 |
| | — |
| | — |
| | — |
|
Other | | 24 |
| | (12 | ) | | 12 |
| | 16 |
| | (11 | ) | | 5 |
|
Total | | $ | 516 |
| | $ | (56 | ) | | $ | 460 |
| | $ | 106 |
| | $ | (41 | ) | | $ | 65 |
|
| |
(1) | The fair value of intangible assets acquired through acquisitions is preliminary and subject to change. See Note 3. |
| |
(2) | Amortization expense related to the operation and maintenance agreements and construction backlog is included in Non-utility cost of revenues, including natural gas on CenterPoint Energy’s Condensed Statements of Consolidated Income. |
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
| (in millions) |
Amortization expense of intangible assets recorded in Depreciation and amortization (1) | | $ | 6 |
| | $ | 3 |
|
Amortization expense of intangible assets recorded in Non-utility cost of revenues, including natural gas (2) | | 9 |
| | — |
|
| |
(1) | Includes $3 million of amortization expense related to intangibles acquired in the Merger. The fair value of intangible assets, and related amortization assumptions, acquired through acquisitions during the three months ended March 31, 2019, is preliminary and subject to change. See Note 3. |
| |
(2) | Includes $9 million of amortization expense related to the operation and maintenance agreements and construction backlog intangibles acquired in the Merger. The fair value of intangible assets, and related amortization assumptions, acquired through acquisitions during the three months ended March 31, 2019, is preliminary and subject to change. See Note 3. |
The tables below present information on CERC’s other intangible assets recorded in Other non-current assets on theCERC’s Condensed Consolidated Balance Sheets.Sheets and the related amortization expense included in Depreciation and amortization on CERC’s Condensed Statements of Consolidated Income, unless otherwise indicated.
| | | | | June 30, 2018 | | December 31, 2017 | | March 31, 2019 | | December 31, 2018 |
| Useful Lives | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance |
| (in years) | | (in millions) | | (in millions) |
Customer relationships | 15 | | $ | 86 |
| | $ | (25 | ) | | $ | 61 |
| | $ | 86 |
| | $ | (21 | ) | | $ | 65 |
| | $ | 86 |
| | (29 | ) | | 57 |
| | $ | 86 |
| | $ | (27 | ) | | $ | 59 |
|
Covenants not to compete | 4 | | 4 |
| | (2 | ) | | 2 |
| | 4 |
| | (2 | ) | | 2 |
| | 4 |
| | (3 | ) | | 1 |
| | 4 |
| | (3 | ) | | 1 |
|
Other | Various | | 15 |
| | (9 | ) | | 6 |
| | 15 |
| | (8 | ) | | 7 |
| | 16 |
| | (12 | ) | | 4 |
| | 16 |
| | (11 | ) | | 5 |
|
Total | | $ | 105 |
| | $ | (36 | ) | | $ | 69 |
| | $ | 105 |
| | $ | (31 | ) | | $ | 74 |
| | $ | 106 |
| | $ | (44 | ) | | $ | 62 |
| | $ | 106 |
| | $ | (41 | ) | | $ | 65 |
|
|
| | | | | | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
| (in millions) |
Amortization expense of intangible assets recorded in Depreciation and amortization | | $ | 3 |
| | $ | 3 |
|
CenterPoint Energy and CERC estimate that amortization expense of intangible assets with finite lives for the next five years will be as follows: |
| | | | | | | |
| Amortization Expense |
| CenterPoint Energy | | CERC |
| (in millions) |
Remaining nine months of 2019 | $ | 61 |
| | $ | 8 |
|
2020 | 39 |
| | 6 |
|
2021 | 34 |
| | 6 |
|
2022 | 35 |
| | 6 |
|
2023 | 36 |
| | 5 |
|
2024 | 29 |
| | 5 |
|
(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 holds shares of 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 ZENS-Related Securities are recorded in CenterPoint Energy’s Condensed Statements of Consolidated Income.
| | | | Shares Held | | Shares Held |
| | June 30, 2018 | | December 31, 2017 | | March 31, 2019 | | December 31, 2018 |
AT&T Common | | 10,212,945 |
| | — |
| | 10,212,945 |
| | 10,212,945 |
|
Charter Common | | 872,503 |
| | 872,503 |
| | 872,503 |
| | 872,912 |
|
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$1.0 billion of which $828 million remainremained outstanding as of June 30, 2018.March 31, 2019. Each ZENS was originallyis exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares of TW Common attributable to such note. The number and identity of the reference shares attributable to each ZENS are adjusted for certain corporate events.
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, a subsidiary of Meredith would purchase for cash all outstanding Time Common shares for $18.50 per share. The transaction was consummated on January 31, 2018. CenterPoint Energy elected to make a reference share offer adjustment and distribute additional interest, if any, in accordance with the terms of its ZENS rather than electing to increase the early exchange ratio to 100%. 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 Time Common held, resulting in cash proceeds of approximately $16 million. In accordance with the terms of the ZENS, CenterPoint Energy distributed additional interest of approximately $16 million to ZENS holders on March 6, 2018, which reduced the contingent principal amount.
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 for each ZENS consisted of the following:
| | | | June 30, 2018 | | December 31, 2017 | | March 31, 2019 | | December 31, 2018 |
| | (in shares) | | (in shares) |
AT&T Common | | 0.7185 |
| | — |
| | 0.7185 |
| | 0.7185 |
|
Charter Common | | 0.061382 |
| | 0.061382 |
| | 0.061382 |
| | 0.061382 |
|
Time Common | | — |
| | 0.0625 |
| |
TW Common | | — |
| | 0.5 |
| |
As of June 30, 2018,March 31, 2019, the contingent principal amount of the ZENS was $484$89 million.
(12) Short-term Borrowings and Long-term Debt
| |
(a) | Short-term Borrowings (CenterPoint Energy and CERC) |
Inventory Financing. NGD has AMAs associated with its utility distribution service in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. In March 2018, NGD’s third party AMAs in Arkansas, Louisiana and Oklahoma expired, and NGD entered into new AMAs with CES effective April 1, 2018 in these states. The AMAs have varying terms, the longest of which expires in 2021. Pursuant to the provisions of the agreements, NGD sells natural gas and agrees to repurchase an equivalent amount of natural gas during the winter heating seasons at the same cost, plus a financing charge.cost. These transactions are accounted for as an inventory financing and had anfinancing. There were no associated principal obligation of $ -0- and $39 millionobligations outstanding as of June 30, 2018 andeither March 31, 2019 or December 31, 2017, respectively.2018.
Debt Issuances. During the sixthree months ended June 30, 2018,March 31, 2019, the following debt instruments were issued:
|
| | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | |
| | Issuance Date | | Debt Instrument | | Aggregate Principal Amount | | Interest Rate | | Maturity Date |
| | | | | | (in millions) | | | | |
Houston Electric | | January 2019 | | General mortgage bonds | | $ | 700 |
| | 4.25 | % | | 2049 |
CenterPoint Energy (1) | | February 2019 | | Variable rate term loan | | 25 |
| | 3.21 | % | | 2020 |
| |
(1) | Draw down by VCC on its variable rate term loan. |
The proceeds
Proceeds from these issuancesHouston Electric’s debt issuance were used for general limited liability company purposes, including capital expenditures. Proceeds from VCC’s draw down of its term loan were used for general corporate purposes.
Acquired Debt (CenterPoint Energy). The table below summarizes the long-term debt of Vectren and corporate purposes,its subsidiaries that remained outstanding as applicable, including to repay portions of outstanding commercial paperMarch 31, 2019:
|
| | | |
| (in millions) |
Long-term debt: | |
|
Senior notes 3.33% to 7.08% due 2020 to 2045 (1) | $ | 637 |
|
Variable rate term loan due 2020 (2) | 300 |
|
Variable rate term loan due 2020 (3) | 200 |
|
First mortgage bonds 2.375% to 6.72% due 2022 to 2055 (4) | 293 |
|
Commercial paper (5) | 175 |
|
Bank revolver (6) | 135 |
|
Total Vectren debt | $ | 1,740 |
|
| |
(1) | Consists of $532 million of senior notes issued by VUHI, $96 million of senior notes issues by Indiana Gas, and $9 million of senior notes issued by VCC. The senior notes issued by VUHI are guaranteed by SIGECO, Indiana Gas and VEDO. The senior notes issued by VCC are guaranteed by Vectren. Immediately subsequent to the Merger, two of CenterPoint Energy’s acquired wholly-owned subsidiaries, VUHI and VCC, made offers to prepay certain outstanding guaranteed senior notes as required pursuant to certain note purchase agreements previously entered into by VUHI and VCC. In turn, VUHI and VCC borrowed $568 million and $191 million, respectively, from CenterPoint Energy to fund note redemptions effected pursuant to these prepayment offers. To fund these prepayments and payments of approximately $5 million of accrued interest, CenterPoint Energy issued approximately $764 million of commercial paper. |
| |
(2) | Issued by VUHI and guaranteed by SIGECO, Indiana Gas and VEDO. As of March 31, 2019, the term loan was fully drawn upon. The term loan’s interest rate is currently priced at one-month LIBOR, plus a credit spread ranging from 70 to 90 basis points depending on credit rating. |
| |
(3) | Issued by VCC and guaranteed by Vectren. As of March 31, 2019, the term loan was fully drawn upon, exclusive of any potential incremental term loans under the related facility’s accordion feature. The term loan’s interest rate is currently priced at one-month LIBOR, plus a credit spread of 70 basis points. |
| |
(4) | The first mortgage bonds issued by SIGECO subject SIGECO’s properties to a lien under the related mortgage indenture. |
| |
(5) | Issued by VUHI with maturities up to 30 days. |
| |
(6) | Represents borrowings under the VCC credit facility, which is guaranteed by Vectren. |
Maturities (CenterPoint Energy). As of March 31, 2019, maturities of CenterPoint Energy’s money pool.long-term debt were as follows:
|
| | | |
| (in millions) |
Remaining nine months of 2019 | $ | 283 |
|
2020 | 831 |
|
2021 | 1,761 |
|
2022 | 4,241 |
|
2023 | 713 |
|
2024 | 684 |
|
2025 and thereafter | 5,757 |
|
Credit FacilityFacilities. In May 2018, CenterPoint Energy entered into an amendment to its revolving credit facility 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 the 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 facility will automatically expire on the earlier of the (a) termination date of the revolving credit facility and (b) if the Merger Agreement is terminated without consummation of the Merger, the date that is 90 days after such termination. In addition, the amendment provides for a temporary increase on the maximum ratio of debt for borrowed money to capital from 65% to 75% until the earlier of (i) June 30, 2019 and (ii) the termination of all commitments in respect of the Bridge Facility without any borrowing thereunder.
The Registrants had the following revolving credit facilities and utilizationas of such facilities:March 31, 2019:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2018 | | December 31, 2017 |
| 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, except weighted average interest rate) |
CenterPoint Energy | $ | 1,700 |
| (1) | $ | — |
| | $ | 6 |
| | $ | — |
| | — | % | | $ | — |
| | $ | 6 |
| | $ | 855 |
| | 1.88 | % |
Houston Electric | 300 |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | — |
|
CERC Corp. | 900 |
| | — |
| | 1 |
| | 565 |
| | 2.37 | % | | — |
| | 1 |
| | 898 |
| | 1.72 | % |
Total | $ | 2,900 |
| | $ | — |
| | $ | 11 |
| | $ | 565 |
| | | | $ | — |
| | $ | 11 |
| | $ | 1,753 |
| | |
| |
(1) | 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. |
| | Execution Date | | 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 | | Registrant | | Size of Facility | | Draw Rate of LIBOR plus (1) | | Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio | | Debt for Borrowed Money to Capital Ratio as of March 31, 2019 (2) | | Termination Date |
| | (in millions) | | | (in millions) | |
March 3, 2016 | | CenterPoint Energy | | $ | 1,700 |
| (3) | 1.250% | | 75% | (4) (5) | 52.1% | | March 3, 2022 | | CenterPoint Energy | | $ | 3,300 |
| | 1.500% | | 65% | (3) | 57.2% | | March 3, 2022 |
July 14, 2017 | | | CenterPoint Energy (4) | | 400 |
| | 1.125% | | 65% | | 29.3% | | July 14, 2022 |
July 14, 2017 | | | CenterPoint Energy (5) | | 200 |
| | 1.250% | | 65% | | 29.6% | | July 14, 2022 |
March 3, 2016 | | Houston Electric | | 300 |
| | 1.125% | | 65% | (5) | 50.7% | | March 3, 2022 | | Houston Electric | | 300 |
| | 1.125% | | 65% | (3) | 49.9% | | March 3, 2022 |
March 3, 2016 | | CERC Corp. | | 900 |
| | 1.250% | | 65% | | 37.8% | | March 3, 2022 | | CERC (6) | | 900 |
| | 1.250% | | 65% | | 45.9% | | March 3, 2022 |
| | | $ | 5,100 |
| |
| |
(1) | Based on current credit ratings. |
| |
(2) | As defined in the revolving credit facility agreement,agreements, 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) | CenterPoint 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 12-month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification. |
| |
(4) | This credit facility was issued by VUHI, is guaranteed by SIGECO, Indiana Gas and VEDO and includes a $10 million swing line sublimit and a $20 million letter of credit sublimit. This credit facility backstops VUHI’s commercial paper program. |
| |
(5) | This credit facility was issued by VCC, is guaranteed by Vectren and includes a $40 million swing line sublimit and an $80 million letter of credit sublimit. |
| |
(6) | This credit facility was issued by CERC Corp. |
The Registrants, including the subsidiaries of CenterPoint Energy discussed above, were in compliance with all financial debt covenants as of June 30, 2018.March 31, 2019.
The table below reflects the utilization of the Registrants’ respective revolving credit facilities:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
Registrant | | Loans | | Letters of Credit | | Commercial Paper | | Weighted Average Interest Rate | | Loans | | Letters of Credit | | Commercial Paper | | Weighted Average Interest Rate |
| |
CenterPoint Energy (1) | | $ | — |
| | $ | 6 |
| | $ | 2,683 |
| | 2.83 | % | | $ | — |
| | $ | 6 |
| | $ | — |
| | — | % |
CenterPoint Energy (2) | | — |
| | — |
| | 175 |
| | 2.71 | % | | — |
| | — |
| | — |
| | — |
|
CenterPoint Energy (3) | | 135 |
| | — |
| | — |
| | 3.74 | % | | — |
| | — |
| | — |
| | — |
|
Houston Electric | | — |
| | 4 |
| | — |
| | — | % | | — |
| | 4 |
| | — |
| | — |
|
CERC (4) | | — |
| | 1 |
| | 221 |
| | 2.64 | % | | — |
| | 1 |
| | 210 |
| | 2.93 | % |
Total | | $ | 135 |
| | $ | 11 |
| | $ | 3,079 |
| | | | $ | — |
| | $ | 11 |
| | $ | 210 |
| | |
| |
(1) | CenterPoint Energy’s outstanding commercial paper generally has maturities of 60 days or less. Approximately $1.7 billion was issued to refinance commercial paper used to fund a portion of the cash consideration for the Merger, pay |
related fees and expenses, pay Vectren’s stub period cash dividend and long-term incentive payments and repay indebtedness of Vectren subsidiaries redeemed at the option of the holder as a result of the closing of the Merger.
| |
(2) | This credit facility was issued by VUHI and is guaranteed by SIGECO, Indiana Gas and VEDO. |
| |
(3) | This credit facility was issued by VCC and is guaranteed by Vectren. |
| |
(4) | This credit facility was issued by CERC Corp. |
Other. As of March 31, 2019, certain financial institutions had agreed to issue, from time to time, up to $50 million of letters of credit on behalf of Vectren and certain of its subsidiaries in exchange for customary fees. These agreements to issue letters of credit expire on December 31, 2019. As of March 31, 2019, such financial institutions had issued $23 million of letters of credit on behalf of Vectren and certain of its subsidiaries.
As of both June 30, 2018March 31, 2019 and December 31, 2017,2018, Houston Electric had issued $118$68 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.
(13) Income Taxes
The Registrants reported the following effective tax rates:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
CenterPoint Energy(1) | 15 | % | | 36 | % | | 27 | % | | 36 | % | | 12 | % | | 22 | % |
Houston Electric(2) | 21 | % | | 36 | % | | 22 | % | | 36 | % | | 18 | % | | 22 | % |
CERC | 22 | % | | 35 | % | | 22 | % | | 37 | % | |
CERC - Continuing operations (3) | | | 16 | % | | 20 | % |
CERC - Discontinued operations (4) | | | — | % | | 25 | % |
CenterPoint Energy’s lower effective tax rate for the three and six months ended June 30, 2018 compared to the same periods for 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA, 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 current quarter and higher than expected six-month effective tax rate.
| |
(1) | CenterPoint Energy’s lower effective tax rate for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 was primarily due to remeasurement of state tax liability for changes in apportionment and filing methodologies resulting from the Merger and an increase in the amount of amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions. |
| |
(2) | Houston Electric’s lower effective tax rate for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 was primarily due to an increase in the amount of amortization of the net regulatory EDIT liability as decreed by regulators. |
Houston Electric’s and CERC’s lower effective tax rate for the three and six months ended June 30, 2018 compared to the same periods for 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA.
| |
(3) | CERC’s lower effective tax rate on income from continuing operations for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 was primarily due to an increase in the amount of amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions. |
| |
(4) | CERC’s effective tax rate from discontinued operations for the three months ended March 31, 2018 was a result of the 21% federal income tax rate plus allocable state income taxes. There is no comparable period in 2019 since the Internal Spin was completed in the third quarter of 2018. |
The Registrants reported noa net uncertain tax liability asinclusive of June 30, 2018interest and expect nopenalties of $1 million for the three months ended March 31, 2019. No significant changes to the uncertain tax liability are expected over the next twelve months. TaxFor Vectren, the 2016 tax year is currently under audit by the IRS. For CenterPoint Energy, tax years through 2016 have been audited and settled with the IRS, however, during 2018, CenterPoint Energy filed an amended 2014 tax return to claim additional tax credits that is currently under review by the IRS. For the 2017 and 2018– 2019 tax years, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process.
(14) Commitments and Contingencies
| |
(a) | Natural Gas Supply CommitmentsPurchase Obligations (CenterPoint Energy and CERC) |
Natural gas supply commitmentsCommitments include natural gas contractsminimum purchase obligations related to CenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services businessreportable segments whichand CenterPoint Energy’s Indiana Electric Integrated reportable segment. Contracts with minimum payment provisions have various quantity requirements and durations thatand are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets as of June 30, 2018March 31, 2019 and December 31, 2017 as these2018. These contracts meet an exception as “normal purchases contracts” or do not meet the definition of a derivative. Natural gas and coal supply commitments also include natural gas transportation contracts that do not meet the definition of a derivative.
As of June 30, 2018,March 31, 2019, minimum paymentpurchase obligations for natural gas supply commitments are approximately:
| | | (in millions) | CenterPoint Energy | | CERC |
Remaining six months of 2018 | $ | 185 |
| |
2019 | 264 |
| |
| | (in millions) |
Remaining nine months of 2019 | | $ | 427 |
| | $ | 282 |
|
2020 | 168 |
| 620 |
| | 420 |
|
2021 | 82 |
| 531 |
| | 351 |
|
2022 | 51 |
| 406 |
| | 232 |
|
2023 and beyond | 123 |
| |
2023 | | 308 |
| | 155 |
|
2024 | | 328 |
| | 231 |
|
2025 and beyond | | 1,445 |
| | 1,083 |
|
Indiana Electric also has other purchased power agreements that do not have minimum thresholds but do require payment when energy is generated by the provider. Costs arising from certain of these commitments are pass-through costs, generally collected dollar-for-dollar from retail customers through regulator-approved cost recovery mechanisms.
| |
(b) | Guarantees and Product Warranties (CenterPoint Energy) |
In the normal course of business, ESG enters into contracts requiring it to timely install infrastructure, operate facilities, pay vendors and subcontractors and support warranty obligations and, at times, issue payment and performance bonds and other forms of assurance in connection with these contracts.
Specific to ESG’s role as a general contractor in the performance contracting industry, as of March 31, 2019, there were 63 open surety bonds supporting future performance with an aggregate face amount of approximately $600 million. ESG’s exposure is less than the face amount of the surety bonds and is limited to the level of uncompleted work under the contracts. As of March 31, 2019, approximately 35% of the work was yet to be completed on projects with open surety bonds. Further, various subcontractors issue surety bonds to ESG. In addition to these performance obligations, ESG also warrants the functionality of certain installed infrastructure generally for one year and the associated energy savings over a specified number of years. Since ESG’s inception in 1994, based on a history of generally meeting its performance obligations and energy savings guarantees and its installed products operating effectively, CenterPoint Energy assessed the fair value of its obligation for such guarantees as of March 31, 2019 and no amounts were recorded on CenterPoint Energy’s Condensed Consolidated Balance Sheets. The Merger purchase price allocation, including the fair value of liabilities for guarantees on the Merger Date, remains preliminary (see Note 3).
CenterPoint Energy issues parent company level guarantees to certain vendors, customers and other commercial counterparties of ESG. These guarantees do not represent incremental consolidated obligations, but rather, represent guarantees of subsidiary obligations to allow those subsidiaries to conduct business without posting other forms of assurance. As of March 31, 2019, CenterPoint Energy, primarily through Vectren, has issued parent company level guarantees supporting ESG’s obligations. For those obligations where potential exposure can be estimated, management estimates the maximum exposure under these guarantees to be approximately $473 million. This exposure primarily relates to energy savings guarantees on federal energy savings performance contracts. Other parent company level guarantees, certain of which do not contain a cap on potential liability, have been issued in support of federal operations and maintenance projects for which a maximum exposure cannot be estimated based on the nature of the projects. While there can be no assurance that performance under any of these parent company guarantees will not be required in the future, CenterPoint Energy considers the likelihood of a material amount being incurred as remote.
| |
(c) | Legal, Environmental and Other Matters |
Legal Matters
Gas Market Manipulation Cases.Cases (CenterPoint Energy and CERC). CenterPoint Energy, Houston Electric or theirits predecessor, Reliant Energy, and certain of their former subsidiaries have beenwere named as defendants in certaina large number of lawsuits filed against numerous gas market participants in a number of federal and western state courts in connection with the operation of the natural gas markets in 2000-2002. CenterPoint Energy and its affiliates were released or dismissed from all such cases, except for one case pending in federal court in Nevada in which CES, a subsidiary of CERC, is a defendant. Plaintiffs in that case allege a conspiracy to inflate Wisconsin natural gas prices in 2000-2002. In May 2016, the district court granted CES’s motion for summary judgment, dismissing CES from the case. In August 2018, the Ninth Circuit Court of Appeals reversed that ruling, and CES requested further appellate review of that decision (which review has been stayed pending approval of the settlement agreement described below. 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,Through a series of transactions, RRI sold its Texas retail business to a subsidiary of NRGbecame known as GenOn and RRI changed its name to RRI Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly-owned subsidiary of RRI, and RRI changed its name to GenOn. In December 2012, NRG acquired GenOn through a merger in which GenOn became a wholly-owned subsidiary of NRG. None of the sale of the retail business, the merger with Mirant Corporation, or the acquisition of GenOn by NRGthose transactions alters RRI’s (now GenOn’s)GenOn’s contractual obligations to indemnify CenterPoint Energy and its subsidiaries including Houston Electric, for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation.
A large number of lawsuits were filed against numerous gas market participants in a number of federal and western state courts in connection with the operation of the natural gas markets in 2000–2002. CenterPoint Energy and its affiliates have since been released or dismissed from all such cases. CES, a subsidiary of CERC Corp., was a defendant in a case now pending in federal court in Nevada alleging a conspiracy to inflate Wisconsin natural gas prices in 2000–2002. On May 24, 2016, the district court granted CES’s motion for summary judgment, dismissing CES from the case. The plaintiffs have appealed that ruling. CenterPoint Energy and CES intend to continue vigorously defending against the plaintiffs’ claims. In June 2017, however, GenOn and various affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In December 2017,2018, GenOn received court approval of a restructuring plancompleted its reorganization and is expected to emergeemerged from Chapter 11 in 2018.11. CenterPoint Energy, CERC, and CES submitted proofs of claim in the bankruptcy proceedings to protect their indemnity rights. In October 2018, CES, GenOn, and the plaintiffs reached an agreement to settle all claims against CES and CES’s indemnity claims against GenOn, subject to approvals by the bankruptcy court and the federal district court. In January 2019, the bankruptcy court approved the settlement between CES and GenOn, and in March 2019, the federal district court issued preliminary approval and set a final approval hearing for August 2019. If the settlement agreement between CES, GenOn were unable to meet its indemnity obligations or satisfy a liability that has been assumed inand the gas market manipulation litigation, then CenterPoint Energy, Houston Electric or CERCplaintiffs is not ultimately approved by the federal district court, CES could incur liability and be responsible for satisfying the liability.it. CenterPoint Energy does not expect the ultimate outcome of the case against CESthis matter to have a material adverse effect on its financial condition, results of operations or cash flows.
Minnehaha Academy (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 hasand CERC have reached confidential settlement agreements with some claimants. Additionally, CenterPoint Energy isand CERC are cooperating with the ongoing investigation conducted by the National Transportation Safety Board. Further, CenterPoint Energy isand CERC are 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.Energy or CERC. CenterPoint Energy’s and CERC’s general and excess liability insurance policies provide coverage for third party bodily injury and property damage claims.
Litigation Related to the Merger (CenterPoint Energy). With respect to the Merger, in July 2018, seven separate lawsuits were filed against Vectren and the individual directors of Vectren’s Board of Directors in the U.S. District Court for the Southern District of Indiana. These lawsuits allege violations of Sections 14(a) of the Exchange Act and SEC Rule 14a-9 on the grounds that the Vectren Proxy Statement filed on June 18, 2018 was materially incomplete because it omitted material information concerning the Merger. The lawsuits also seek certification as class actions. In August 2018, the seven lawsuits were consolidated, and the Court denied the plaintiffs’ request for a preliminary injunction. The plaintiffs filed their Consolidated Amended Class Action Complaint in October 2018, which the defendants have moved to dismiss and which motion remains pending. The plaintiffs filed their response in opposition to the motion to dismiss in January 2019, and Vectren filed its reply in support of the motion to dismiss in February 2019. In December 2018, two plaintiffs voluntarily dismissed their lawsuits, for which the Court entered an order approving the voluntary dismissal and dismissed without prejudice in January 2019. The defendants believe that the allegations asserted are without merit and intend to vigorously defend themselves against the claims raised. CenterPoint Energy does not expect the ultimate outcome of this matter to have a material adverse effect on its financial condition, results of operations or cash flows.
Environmental Matters
MGP Sites (CenterPointSites. CenterPoint Energy, and CERC). CERC and its predecessors operated MGPs in the past. With respect toIn addition, certain Minnesota MGP sites, CERC has completed state-ordered remediation and continues state-ordered monitoring and water treatment. As of June 30, 2018, CERC had a recorded liability of $7 million for continued monitoring and any future remediation required by regulatorsCenterPoint Energy’s subsidiaries acquired through the Merger operated MGPs 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. past.
| |
(i) | Minnesota MGPs (CenterPoint Energy and CERC). With respect to certain Minnesota MGP sites, CenterPoint Energy and CERC have completed state-ordered remediation and continue state-ordered monitoring and water treatment. As of March 31, 2019, CenterPoint Energy and 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 CenterPoint Energy and CERC believe they may have responsibility was $5 million to $32 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
| |
(ii) | Indiana MGPs (CenterPoint Energy). In the Indiana Gas service territory, the existence, location and certain general characteristics of 26 gas manufacturing and storage sites have been identified for which CenterPoint Energy may have some remedial responsibility. A remedial investigation/feasibility study was completed at one of the sites under an agreed upon order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. The remaining sites have been submitted to the IDEM’s Voluntary Remediation Program. CenterPoint Energy has also identified its involvement in five manufactured gas plant sites in SIGECO’s service territory, all of which are currently enrolled in the IDEM’s VRP. CenterPoint Energy is currently conducting some level of remedial activities, including groundwater monitoring at certain sites. |
The costs CenterPoint Energy expects to incur to fulfill its obligations are estimated by management using assumptions based on actual costs incurred, the Minnesotatiming of expected future payments and inflation factors, among others. While CenterPoint Energy has recorded all costs which it presently expects to incur in connection with activities at these sites, it is possible that future events may require remedial activities which are not presently foreseen and those costs may not be subject to PRP or insurance recovery. As of March 31, 2019, approximately $3 million of accrued costs related to these sites are included in Other liabilities on CenterPoint Energy’s Condensed Consolidated Balance Sheets. Total costs that may be incurred in connection with addressing these sites cannot be determined at this time. The estimated accrued costs are limited to CenterPoint Energy’s share of the EPAremediation efforts and are therefore net of exposures of other regulators have investigated MGP sites that were owned or operated by CERC or may have been owned by one of its former affiliates. PRPs.
| |
(iii) | Other MGPs(CenterPoint Energy and CERC). In addition to the Minnesota and Indiana sites, the EPA and other regulators have investigated MGP sites that were owned or operated by CenterPoint Energy or CERC or may have been owned by one of their former affiliates. |
CenterPoint Energy and 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 the Registrants or their predecessors in interest contain or have contained asbestos insulation and other asbestos-containing materials. The 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 the Registrants anticipate that additional claims may be asserted in the future. Although their ultimate outcome cannot be predicted at this time, the Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on their financial condition, results of operations or cash flows.
CCR Rule (CenterPoint Energy). In April 2015, the EPA finalized its CCR Rule, which regulates ash as non-hazardous material under the RCRA. The final rule allows beneficial reuse of ash, and the majority of the ash generated by Indiana Electric’s generating plants will continue to be reused. In July 2018, the EPA released its final CCR Rule Phase I Reconsideration which extended the deadline to October 31, 2020 for ceasing placement of ash in ponds that exceed groundwater protections standards or fails to meet location restrictions. While the EPA Phase I Reconsideration moves forward, the existing CCR compliance obligations remain in effect.
Under the existing CCR Rule, Indiana Electric is required to perform integrity assessments, including ground water monitoring, at its F.B. Culley and A.B. Brown generating stations. The ground water studies are necessary to determine the remaining service life of the ponds and whether a pond must be retrofitted with liners or closed in place, with bottom ash handling conversions completed. Indiana Electric’s Warrick generating unit is not included in the scope of the CCR Rule as this unit has historically been part of a larger generating station that predominantly serves an adjacent industrial facility. In March 2018, Indiana Electric began posting ground water data monitoring reports annually to its public website in accordance with the requirements of the CCR Rule. This data preliminarily indicates potential groundwater impacts very close to Indiana Electric’s ash impoundments, and further analysis is ongoing. The CCR Rule required companies to complete location restriction determinations by October 18, 2018. Indiana Electric completed its evaluation and determined that one F.B. Culley pond and the A.B. Brown pond fail the aquifer placement location restriction. As a result of this failure, Indiana Electric is required to cease disposal of new ash in the ponds and commence closure of the ponds by October 31, 2020. CenterPoint Energy plans to seek extensions available under the CCR
Rule that would allow Indiana Electric to continue to use the ponds through December 31, 2023. The inability to take these extensions may result in increased and potentially significant operational costs in connection with the accelerated implementation of an alternative ash disposal system or adversely impact Indiana Electric’s future operations. Failure to comply with these requirements could also result in an enforcement proceeding including the imposition of fines and penalties. On April 24, 2019, Indiana Electric received an order from the IURC approving recovery in rates of costs associated with the closure of one of the ponds at F.B. Culley. CenterPoint Energy believes the language in the IURC order is favorable for future recovery of closure costs for Indiana Electric’s remaining ponds.
Indiana Electric continues to refine site specific estimates of closure costs. In March 2019, Indiana Electric entered into agreements with third parties for the excavation and beneficial reuse of the ash at the A.B. Brown ash pond. Ongoing analysis and refinement of estimates of the F.B. Culley ponds continues. In July 2018, Indiana Electric filed a Complaint for Damages and Declaratory Relief against its insurers seeking reimbursement of defense, investigation and pond closure costs incurred to comply with the CCR Rule. Any proceeds received would offset costs that have been and will be incurred to close the ponds.
As of March 31, 2019, CenterPoint Energy has recorded an approximate $46 million ARO, which represents the discounted value of future cash flow estimates to close the ponds at A.B. Brown and F.B Culley. The fair value of the ARO assumed on the Merger Date is preliminary. This estimate is also subject to change in the near term due to the contractual arrangements; continued assessments of the ash, closure methods, and the timing of closure; implications of Indiana Electric’s generation transition plan; changing environmental regulations; and the anticipated outcome of the aforementioned insurance proceeding. In addition to these removal costs, Indiana Electric also anticipates equipment purchases of between $45 million and $65 million to complete the A.B. Brown closure project.
Other Environmental. From time to time, the Registrants identify the presence of environmental contaminants during operations or on property where predecessor companies have conducted operations. Other such sites involving contaminants may be identified in the future. The Registrants have and expect to continue to remediate any identified sites consistent with state and federal legal obligations. From time to time, the Registrants have received notices, and may receive notices in the future, from regulatory authorities or others regarding status as a PRP in connection with sites found to require remediation due to the presence of environmental contaminants. In addition, the Registrants have been, or may be, named from time to time as defendants in litigation related to such sites. Although the ultimate outcome of such matters cannot be predicted at this time, the Registrants do not expect these matters, either individually or in the aggregate, to have a material adverse effect on their financial condition, results of operations or cash flows.
Other Proceedings
The 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, the Registrants are also defendants 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. The Registrants regularly analyze current information and, as necessary, provide accruals for probable and reasonably estimable liabilities on the eventual disposition of these matters. The Registrants do not expect the disposition of these matters to have a material adverse effect on the Registrants’ financial condition, results of operations or cash flows.
(15) Earnings Per Share (CenterPoint Energy)
The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings (loss) per common share. Basic earnings per common share calculations:is determined by dividing Income available to common shareholders - basic by the Weighted average common shares outstanding - basic for the applicable period. Diluted earnings per common share is determined by the inclusion of potentially dilutive common stock equivalent shares that may occur if securities to issue Common Stock were exercised or converted into Common Stock.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions, except share and per share amounts) |
Net income (loss) | $ | (75 | ) | | $ | 135 |
| | $ | 90 |
| | $ | 327 |
|
| | | | | | | |
Basic weighted average shares outstanding | 431,523,000 |
| | 430,996,000 |
| | 431,378,000 |
| | 430,896,000 |
|
Plus: Incremental shares from assumed conversions: | | | | | | | |
Restricted stock (1) | — |
| | 2,801,000 |
| | 3,029,000 |
| | 2,801,000 |
|
Diluted weighted average shares | 431,523,000 |
| | 433,797,000 |
| | 434,407,000 |
| | 433,697,000 |
|
Basic earnings (loss) per share | | | | | | | |
Net income (loss) | $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.76 |
|
Diluted earnings (loss) per share | | | | | | | |
Net income (loss) | $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.75 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| (in millions, except share and per share amounts) |
Numerator: | | | |
Income available to common shareholders - basic | $ | 140 |
| | $ | 165 |
|
Add back: Series B Preferred Stock dividend | — |
| | — |
|
Income available to common shareholders - diluted | $ | 140 |
| | $ | 165 |
|
| | | |
Denominator: | | | |
Weighted average common shares outstanding - basic | 501,521,000 |
| | 431,231,000 |
|
Plus: Incremental shares from assumed conversions: | | | |
Restricted stock (1) | 2,423,000 |
| | 2,777,000 |
|
Series B Preferred Stock (2) | — |
| | — |
|
Weighted average common shares outstanding - diluted | 503,944,000 |
| | 434,008,000 |
|
| | | |
Earnings per common share: | | | |
Basic earnings per common share | $ | 0.28 |
| | $ | 0.38 |
|
Diluted earnings per common share | $ | 0.28 |
| | $ | 0.38 |
|
| |
(1) | The potentially dilutive impact from restricted stock awards applies the treasury stock method. Under this method, an increase in the average fair market value of Common Stock can result in a greater dilutive impact from these securities. |
(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.
| |
(2) | The potentially dilutive impact from Series B Preferred Stock applies the if-converted method in calculating diluted earnings per common share. Under this method, diluted earnings per common share is adjusted for the more dilutive effect of the Series B Preferred Stock as a result of either its accumulated dividend for the period in the numerator or the assumed-converted common share equivalent in the denominator. The computation of diluted earnings per common share outstanding for the three months ended March 31, 2019 excludes 34,354,000 potentially dilutive shares because to include them would be anti-dilutive. However, these shares could be potentially dilutive in the future. |
(16) Reportable Business Segments
The Registrants’ determination of reportable business segments considers the strategic operating units under which the Registrants manage sales, allocate resources and assess performance of various products and services to wholesale or retail customers in differing regulatory environments. The Registrants use operating income as the measure of profit or loss for the businessreportable segments other than Midstream Investments, where equity in earnings is used.
Reportable businessAs of March 31, 2019, reportable segments by Registrant arewere as follows:
|
| | | | | | | | | | | | | | |
Registrants | | Houston Electric Transmission & DistributionT&D | | Indiana Electric Integrated | | Natural Gas Distribution | | Energy Services | | Infrastructure Services | | Midstream Investments | | Corporate and Other Operations |
CenterPoint Energy | | X | | X | | X | | X | | X | | X | | X |
Houston Electric | | X | | | | | | | | | | | | |
CERC | | | | | | X | | X | | X | | | | X |
The Houston Electric Transmission & DistributionT&D reportable segment consists of the electric transmission and distribution function.services in the Texas Gulf Coast area.
The Indiana Electric Integrated reportable segment consists of electric transmission and distribution services primarily to southwestern Indiana and includes power generation and wholesale power operations.
CenterPoint Energy’s Natural Gas Distribution reportable segment consists of intrastate natural gas sales to, and natural gas transportation and distribution for, residential, commercial, industrial and institutional customers.customers in Arkansas, Indiana, Louisiana, Minnesota, Mississippi, Ohio, Oklahoma and Texas.
CERC’s Natural Gas Distribution reportable segment consists of intrastate natural gas sales to, and natural gas transportation and distribution for, residential, commercial, industrial and institutional customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas.
•The Energy Services reportable segment consists of non-rate regulated natural gas sales and services operations.
•The Infrastructure Services reportable segment consists of underground pipeline construction and repair services.
The Midstream Investments reportable segment consists of the equity investment in Enable (excluding the Enable Series A Preferred Units).
CenterPoint Energy’s Corporate and Other Operationsreportable segment consists primarily of energy performance contracting and sustainable infrastructure services through ESG and other corporate operations which support all of the business operations.operations of CenterPoint Energy.
Houston ElectricCERC’s Corporate and Other reportable segment consists primarily of a single reportablecorporate operations which support all of the 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 adoptionoperations of ASU 2017-07 (see Note 2 for further information).CERC.
Financial data for businessreportable segments is as follows:
CenterPoint Energy
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three 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 |
| (in millions) |
Electric Transmission & Distribution | $ | 854 |
| (1) | $ | — |
| | $ | 181 |
| | $ | 752 |
| (1) | $ | — |
| | $ | 171 |
|
Natural Gas Distribution | 487 |
| | 8 |
| | 7 |
| | 470 |
| | 7 |
| | 42 |
|
Energy Services | 841 |
| | 19 |
| | 15 |
| | 918 |
| | 13 |
| | 16 |
|
Midstream Investments (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other Operations | 4 |
| | — |
| | (16 | ) | | 3 |
| | — |
| | 11 |
|
Eliminations | — |
| | (27 | ) | | — |
| | — |
| | (20 | ) | | — |
|
Consolidated | $ | 2,186 |
| | $ | — |
| | $ | 187 |
| | $ | 2,143 |
| | $ | — |
| | $ | 240 |
|
| | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) | | 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 (Loss) |
| (in millions) | (in millions) |
Electric Transmission & Distribution | $ | 1,605 |
| (1) | $ | — |
| | $ | 296 |
| | $ | 1,391 |
| (1) | $ | — |
| | $ | 257 |
| |
Houston Electric T&D | | $ | 689 |
| (1) | $ | — |
| | $ | 84 |
| | $ | 751 |
| (1) | $ | — |
| | $ | 115 |
|
Indiana Electric Integrated | | 83 |
| | — |
| | (9 | ) | | — |
| | — |
| | — |
|
Natural Gas Distribution | 1,630 |
| | 18 |
| | 163 |
| | 1,377 |
| | 16 |
| | 210 |
| 1,389 |
| | 10 |
| | 167 |
| | 1,143 |
| | 10 |
| | 156 |
|
Energy Services | 2,098 |
| | 47 |
| | (11 | ) | | 2,103 |
| | 24 |
| | 51 |
| 1,182 |
| | 64 |
| | 33 |
| | 1,257 |
| | 28 |
| | (26 | ) |
Infrastructure Services | | 146 |
| | — |
| | (16 | ) | | — |
| | — |
| | — |
|
Midstream Investments (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other Operations | 8 |
| | — |
| | (10 | ) | | 7 |
| | — |
| | 13 |
| |
Corporate and Other | | 42 |
| | — |
| | (14 | ) | | 4 |
| | — |
| | 6 |
|
Eliminations | — |
| | (65 | ) | | — |
| | — |
| | (40 | ) | | — |
| — |
| | (74 | ) | | — |
| | — |
| | (38 | ) | | — |
|
Consolidated | $ | 5,341 |
| | $ | — |
| | $ | 438 |
| | $ | 4,878 |
| | $ | — |
| | $ | 531 |
| $ | 3,531 |
| | $ | — |
| | $ | 245 |
| | $ | 3,155 |
| | $ | — |
| | $ | 251 |
|
| |
(1) | CenterPoint Energy’s and Houston Electric’s Electric Transmission & DistributionT&D revenues from major customers are as follows: |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) |
Affiliates of NRG | | $ | 169 |
| | $ | 167 |
| | $ | 330 |
| | $ | 319 |
|
Affiliates of Vistra Energy Corp. | | 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 |
|
|
| | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2019 | | 2018 |
| | (in millions) |
Affiliates of NRG | | | $ | 151 |
| | $ | 161 |
|
Affiliates of Vistra Energy Corp. | | | 54 |
| | 54 |
|
| |
(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, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) |
Enable | | $ | 58 |
| | $ | 59 |
| | $ | 127 |
| | $ | 131 |
|
|
| | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2019 | | 2018 |
| | (in millions) |
Enable | | | $ | 62 |
| | $ | 69 |
|
Houston Electric consists of a single reportable segment; therefore, a tabular reportable segment presentation has not been included.
CERC
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| 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 | $ | 1,185 |
| | $ | 10 |
| | $ | 164 |
| | $ | 1,143 |
| | $ | 10 |
| | $ | 156 |
|
Energy Services | 1,182 |
| | 64 |
| | 33 |
| | 1,257 |
| | 28 |
| | (26 | ) |
Corporate and Other | 1 |
| | — |
| | (1 | ) | | — |
| | — |
| | 1 |
|
Eliminations | — |
| | (74 | ) | | — |
| | — |
| | (38 | ) | | — |
|
Consolidated | $ | 2,368 |
| | $ | — |
| | $ | 196 |
| | $ | 2,400 |
| | $ | — |
| | $ | 131 |
|
CenterPoint Energy and CERC
| | | Total Assets | Total Assets |
| June 30, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
| CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) | (in millions) |
Electric Transmission & Distribution | $ | 10,430 |
| | $ | — |
| | $ | 10,292 |
| | $ | — |
| |
Natural Gas Distribution | 6,501 |
| | 6,501 |
| | 6,608 |
| | 6,608 |
| |
Houston Electric T&D | | $ | 11,420 |
| | $ | — |
| | $ | 10,509 |
| | $ | — |
|
Indiana Electric Integrated (1) | | 1,953 |
| | — |
| | — |
| | — |
|
Natural Gas Distribution (1) | | 10,492 |
| | 6,904 |
| | 6,956 |
| | 6,956 |
|
Energy Services | 1,256 |
| | 1,256 |
| | 1,521 |
| | 1,521 |
| 1,370 |
| | 1,370 |
| | 1,558 |
| | 1,558 |
|
Infrastructure Services (1) | | 814 |
| | — |
| | — |
| | — |
|
Midstream Investments | 2,451 |
| | 2,451 |
| | 2,472 |
| | 2,472 |
| 2,839 |
| | — |
| | 2,482 |
| | — |
|
Other Operations | 2,311 |
| (3) | 89 |
| | 2,497 |
| (3) | 70 |
| |
Corporate and Other (1) | | 3,515 |
| (3) | 80 |
| | 6,156 |
| (3) | 66 |
|
Unallocated Merger goodwill (2) | | 4,256 |
| | — |
| | — |
| | — |
|
Eliminations | (841 | ) | | (655 | ) | | (654 | ) | | (559 | ) | (2,757 | ) | | (289 | ) | | (652 | ) | | (366 | ) |
Consolidated | $ | 22,108 |
| | $ | 9,642 |
| | $ | 22,736 |
| | $ | 10,112 |
| $ | 33,902 |
| | $ | 8,065 |
| | $ | 27,009 |
| | $ | 8,214 |
|
| |
(1) | Total assets by reportable segment include assets acquired in the Merger, which are based on preliminary estimates and are subject to change. See Note 3. |
| |
(2) | CenterPoint Energy is currently assessing its reporting units subsequent to the Merger and the allocation of goodwill from the Merger to those reporting units. See Note 3. |
| |
(3) | Includes pension and other postemployment-related regulatory assets of $577$652 million and $600$665 million, respectively, as of June 30, 2018March 31, 2019 and December 31, 2017.2018. Additionally, total assets as of December 31, 2018 included $3.9 billion of temporary investments included in Cash and cash equivalents on CenterPoint Energy’s Consolidated Balance Sheets. |
(17) Supplemental Disclosure of Cash Flow Information
The table below provides supplemental disclosure of cash flow information:
| | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) | (in millions) |
Cash Payments/Receipts: | | | | | | | | | | | | | | | | | | | | | | |
Interest, net of capitalized interest | $ | 167 |
| | $ | 90 |
| | $ | 50 |
| | $ | 182 |
| | $ | 94 |
| | $ | 56 |
| $ | 154 |
| | $ | 86 |
| | $ | 35 |
| | $ | 116 |
| | $ | 61 |
| | $ | 39 |
|
Income taxes, net | 88 |
| | 120 |
| | 3 |
| | 11 |
| | 76 |
| | 3 |
| |
Income taxes (refunds), net | | (4 | ) | | — |
| | — |
| | (4 | ) | | 16 |
| | — |
|
Non-cash transactions: | | | | | | | | | |
| | | | | | | | | | | |
| | |
Accounts payable related to capital expenditures | 133 |
| | 75 |
| | 69 |
| | 106 |
| | 75 |
| | 44 |
| 166 |
| | 98 |
| | 49 |
| | 102 |
| | 78 |
| | 39 |
|
ROU assets obtained in exchange for lease liabilities | | 29 |
| | 1 |
| | 26 |
| | — |
| | — |
| | — |
|
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 | March 31, 2019 | | December 31, 2018 |
| CenterPoint Energy | | Houston Electric | | CenterPoint Energy | | Houston Electric | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) | (in millions) |
Cash and cash equivalents | $ | 328 |
| | $ | 253 |
| | $ | 260 |
| | $ | 238 |
| $ | 255 |
| | $ | 243 |
| | $ | 1 |
| | $ | 4,231 |
| | $ | 335 |
| | $ | 14 |
|
Restricted cash included in Prepaid expenses and other current assets | 37 |
| | 37 |
| | 35 |
| | 35 |
| 99 |
| | 33 |
| | 11 |
| | 46 |
| | 34 |
| | 11 |
|
Restricted cash included in Other | 1 |
| | 1 |
| | 1 |
| | 1 |
| 1 |
| | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
|
Total cash, cash equivalents and restricted cash shown in Condensed Statements of Consolidated Cash Flows | $ | 366 |
| | $ | 291 |
| | $ | 296 |
| | $ | 274 |
| $ | 355 |
| | $ | 277 |
| | $ | 12 |
| | $ | 4,278 |
| | $ | 370 |
| | $ | 25 |
|
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 | March 31, 2019 |
| December 31, 2018 |
| Houston Electric | | CERC | | Houston Electric | | CERC | Houston Electric |
| CERC |
| Houston Electric |
| CERC |
| (in millions) | (in millions) |
Money pool investments (borrowings) (1) | $ | 26 |
| | $ | — |
| | $ | (60 | ) | | $ | (570 | ) | $ | 979 |
| | $ | 220 |
| | $ | (1 | ) | | $ | 114 |
|
Weighted average interest rate | 2.00 | % | | — | % | | 1.90 | % | | 1.90 | % | 2.87 | % | | 2.87 | % | | 2.42 | % | | 2.42 | % |
| |
(1) | Included in Accounts and notes receivable (payable)–affiliated companies in theon Houston Electric’s and CERC’s respective Condensed Consolidated Balance Sheets. |
Affiliate
Houston Electric and CERC affiliate related net interest income (expense) was not material for either the three or six months ended June 30, 2018 or 2017.were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| Houston Electric | | CERC | | Houston Electric | | CERC |
| (in millions) |
Interest income (expense) (1) | $ | 3 |
| | $ | 1 |
| | $ | — |
| | $ | (2 | ) |
| |
(1) | Interest income is included in Other income (expense), net and interest expense is included in Interest and other finance charges on Houston Electric’s and CERC’s respective Condensed Statements of Consolidated Income. |
CenterPoint Energy provides some corporate services to Houston Electric and CERC. The costs of services have been charged directly to Houston Electric and CERC using methods that management believes are reasonable. These methods include negotiated usage rates, dedicated asset assignment and proportionate corporate formulas based on operating expenses, assets, gross margin, employees and a composite of assets, gross margin and employees. Houston Electric provides a number ofcertain 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, | | Three Months Ended March 31, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 |
| | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC |
| | (in millions) | (in millions) |
Corporate service charges | | $ | 47 |
| | $ | 35 |
| | $ | 44 |
| | $ | 32 |
| | $ | 91 |
| | $ | 69 |
| | $ | 86 |
| | $ | 63 |
| | $ | 52 |
| | $ | 43 |
| | $ | 44 |
| | $ | 34 |
|
Net affiliate service charges (billings) | | (3 | ) | | 3 |
| | (4 | ) | | 4 |
| | (5 | ) | | 5 |
| | (5 | ) | | 5 |
| | (2 | ) | | 2 |
| | (2 | ) | | 2 |
|
Infrastructure Services provides pipeline construction and repair services to CERC. Amounts charged for operation and maintenance expenses by Infrastructure Services to CERC were not significant from February 1, 2019 to March 31, 2019. Additionally, CERC, through CES, sells natural gas to Indiana Electric for use in electric generation activities. Amounts charged by CERC to Indiana Electric were not significant from February 1, 2019 to March 31, 2019.
The table below presents transactions among Houston Electric, CERC and CERC paid dividends on their common shares and stock, respectively, toparent, Utility Holding, LLC as follows:Holding.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
| | Houston Electric | | CERC | | Houston Electric | | CERC |
| (in millions) |
Cash dividends paid to parent | | $ | 24 |
| | $ | 20 |
| | $ | 32 |
| | $ | 86 |
|
Cash contribution from parent | | 590 |
| | — |
| | — |
| | — |
|
(19) Leases
The Registrants adopted ASC 842 and all related amendments on January 1, 2019 using the modified retrospective transition method and elected not to recast comparative periods in the year of adoption as permitted by the standard. There was no adjustment to retained earnings as a result of transition. As a result, disclosures for periods prior to adoption will be presented in accordance with accounting standards in effect for those periods. The Registrants also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed them to carry forward the historical lease classification. Additionally, the Registrants elected the practical expedient related to land easements, which allows the carry forward of the accounting treatment for land easements on existing agreements. The total ROU assets obtained in exchange for new operating lease liabilities at transition were $30 million, $1 million and $27 million for CenterPoint Energy, Houston Electric and CERC, respectively. The Merger was completed on February 1, 2019, and as such the amounts are exclusive of Vectren’s leases.
An arrangement is determined to be a lease at inception based on whether the Registrant has the right to control the use of an identified asset. ROU assets represent the Registrants’ right to use the underlying asset for the lease term and lease liabilities represent the Registrants’ obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. Most leases in which the Registrants are the lessee do not have a readily determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. Each Registrant uses the implicit rate for agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases.
The Registrants have lease agreements with lease and non-lease components and have elected the practical expedient to combine lease and non-lease components for certain classes of leases, such as office buildings. For classes of leases in which lease and non-lease components are not combined, consideration is allocated between components based on the stand-alone prices. Variable payments are not significant to the Registrants.
The Registrants’ lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. There are no material lease transactions with related parties. Agreements in which the Registrants are lessors do not include provisions for the lessee to purchase the assets. Because risk is minimal, the Registrants do not take any significant actions to manage risk associated with the residual value of their leased assets.
The Registrants’ lease agreements are primarily equipment and real property leases, including land and office facility leases. The Registrants’ lease terms may include options to extend or terminate a lease when it is reasonably certain that those options will be exercised. The Registrants have elected an accounting policy that exempts leases with terms of one year or less from the recognition requirements of ASU 842—Leases.
The components of lease cost, included in Operation and maintenance expense on the Registrants’ respective Condensed Statements of Consolidated Income, are as follows:
|
| | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 |
| | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating lease cost | | $ | 4 |
| | $ | — |
| | $ | 1 |
|
Short-term lease cost | | 5 |
| | 2 |
| | — |
|
Total lease cost | | $ | 9 |
| | $ | 2 |
| | $ | 1 |
|
Supplemental balance sheet information related to leases was as follows:
|
| | | | | | | | | | | | |
| | March 31, 2019 |
| | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions, except lease term and discount rate) |
Assets: | | | | | | |
Operating ROU assets (1) | | $ | 67 |
| | $ | 1 |
| | $ | 26 |
|
Total leased assets | | $ | 67 |
| | $ | 1 |
| | $ | 26 |
|
Liabilities: | | | | | | |
Current operating lease liability (2) | | $ | 18 |
| | $ | — |
| | $ | 4 |
|
Non-current operating lease liability (3) | | 49 |
| | 1 |
| | 22 |
|
Total leased liabilities | | $ | 67 |
| | $ | 1 |
| | $ | 26 |
|
| | | | | | |
Weighted-average remaining lease term (in years) - operating leases | | 5.6 |
| | 5.6 |
| | 8.2 |
|
Weighted-average discount rate - operating leases | | 3.45 | % | | 3.50 | % | | 3.67 | % |
| |
(1) | Reported within Other assets in the Condensed Consolidated Balance Sheets. |
| |
(2) | Reported within Current other liabilities in the Condensed Consolidated Balance Sheets. |
| |
(3) | Reported within Other liabilities in the Condensed Consolidated Balance Sheets. |
As of March 31, 2019, maturities of operating lease liabilities were as follows:
|
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Remaining nine months of 2019 | $ | 19 |
| | $ | 1 |
| | $ | 4 |
|
2020 | 18 |
| | — |
| | 5 |
|
2021 | 12 |
| | — |
| | 4 |
|
2022 | 7 |
| | — |
| | 4 |
|
2023 | 6 |
| | — |
| | 3 |
|
2024 | 3 |
| | — |
| | 2 |
|
2025 and beyond | 9 |
| | — |
| | 9 |
|
Total lease payments | 74 |
| | 1 |
| | 31 |
|
Less: Interest | 7 |
| | — |
| | 5 |
|
Present value of lease liabilities | $ | 67 |
| | $ | 1 |
| | $ | 26 |
|
The following table sets forth information concerning the Registrants’ obligations under non-cancelable long-term operating leases as of December 31, 2018:
|
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
2019 | $ | 6 |
| | $ | 1 |
| | $ | 5 |
|
2020 | 6 |
| | — |
| | 5 |
|
2021 | 5 |
| | — |
| | 4 |
|
2022 | 4 |
| | — |
| | 4 |
|
2023 | 3 |
| | — |
| | 3 |
|
2024 and beyond | 12 |
| | — |
| | 11 |
|
Total (1) | $ | 36 |
| | $ | 1 |
| | $ | 32 |
|
| |
(1) | The Merger was completed on February 1, 2019. As such, these amounts are exclusive of Vectren’s leases. |
As of March 31, 2019, maturities of undiscounted operating lease payments to be received are as follows:
|
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Remaining nine months of 2019 | $ | 3 |
| | $ | — |
| | $ | — |
|
2020 | 1 |
| | 1 |
| | — |
|
2021 | 2 |
| | — |
| | — |
|
2022 | 2 |
| | — |
| | — |
|
2023 | 2 |
| | — |
| | — |
|
2024 | 2 |
| | — |
| | — |
|
2025 and beyond | 10 |
| | — |
| | — |
|
Total lease payments to be received | $ | 22 |
| | $ | 1 |
| | $ | — |
|
Other information related to leases is as follows:
|
| | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 |
| | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Operating cash flows from operating leases included in the measurement of lease liabilities | | $ | 5 |
| | $ | 1 |
| | $ | 1 |
|
(20) Equity
Dividends Declared and Paid (CenterPoint Energy)
CenterPoint Energy declared no dividends on its Common Stock during the three months ended March 31, 2019 or 2018. CenterPoint Energy paid dividends on its Common Stock during the three months ended March 31, 2019 and 2018 as presented in the table below:
|
| | | | | | | | | | | | |
Declaration Date | | Record Date | | Payment Date | | Per Share | | Total (in millions) |
December 12, 2018 | | February 21, 2019 | | March 14, 2019 | | $ | 0.2875 |
| | $ | 144 |
|
Total 2019 | | | | | | $ | 0.2875 |
| | $ | 144 |
|
| | | | | | | | |
December 13, 2017 | | February 15, 2018 | | March 8, 2018 | | $ | 0.2775 |
| | $ | 120 |
|
Total 2018 | | | | | | $ | 0.2775 |
| | $ | 120 |
|
CenterPoint Energy declared no dividends on its Series A Preferred Stock or Series B Preferred Stock during the three months ended March 31, 2019.
CenterPoint Energy paid dividends on its Series A Preferred Stock during the three months ended March 31, 2019 as presented in the table below:
|
| | | | | | | | | | | | |
Declaration Date | | Record Date | | Payment Date | | Per Share | | Total (in millions) |
December 12, 2018 | | February 15, 2019 | | March 1, 2019 | | $ | 32.1563 |
| | $ | 26 |
|
Total 2019 | | | | | | $ | 32.1563 |
| | $ | 26 |
|
CenterPoint Energy paid dividends on its Series B Preferred Stock during the three months ended March 31, 2019 as presented in the table below:
|
| | | | | | | | | | | | |
Declaration Date | | Record Date | | Payment Date | | Per Share | | Total (in millions) |
December 12, 2018 | | February 15, 2019 | | March 1, 2019 | | $ | 17.5000 |
| | $ | 17 |
|
Total 2019 | | | | | | $ | 17.5000 |
| | $ | 17 |
|
Dividend Requirement on Preferred Stock (CenterPoint Energy)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| (in millions) |
Series A Preferred Stock | $ | 12 |
| | $ | — |
|
Series B Preferred Stock | 17 |
| | — |
|
Total preferred stock dividend requirement | $ | 29 |
| | $ | — |
|
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated comprehensive income (loss) are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Beginning Balance | $ | (108 | ) | | $ | (14 | ) | | $ | 5 |
| | $ | (68 | ) | | $ | — |
| | $ | 6 |
|
Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | |
Deferred gain (loss) from interest rate derivatives (1) | (1 | ) | | (1 | ) | | — |
| | 5 |
| | 5 |
| | — |
|
Amounts reclassified from accumulated other comprehensive loss: | | | | | | | | | | | |
Actuarial losses (2) | 2 |
| | — |
| | — |
| | 2 |
| | — |
| | — |
|
Reclassification of deferred loss from cash flow hedges realized in net income | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Tax expense | (1 | ) | | — |
| | — |
| | (2 | ) | | (1 | ) | | — |
|
Net current period other comprehensive income (loss) | 1 |
| | (1 | ) | | — |
| | 5 |
| | 4 |
| | — |
|
Ending Balance | $ | (107 | ) | | $ | (15 | ) | | $ | 5 |
| | $ | (63 | ) | | $ | 4 |
| | $ | 6 |
|
| |
(1) | Gains and losses are reclassified from Accumulated other comprehensive income into income when the hedged transactions affect earnings. The reclassification amounts are included in Interest and other finance charges in each of the Registrants’ respective Statements of Consolidated Income. Over the next twelve months estimated amortization from Accumulated Comprehensive Income into income is expected to be immaterial. |
| |
(2) | Amounts are included in the computation of net periodic cost and are reflected in Other income (expense), net in each of the Registrants’ respective Statements of Consolidated Income. |
(21) Subsequent Events (CenterPoint Energy and CERC)Energy)
CenterPoint Energy Dividend DeclarationDeclarations
On July 26, 2018, CenterPoint Energy’s Board of Directors declared a regular quarterly cash dividend of $0.2775 per share of common stock payable on September 13, 2018 to shareholders of record as of the close of business on August 16, 2018.
|
| | | | | | | | | | |
Equity Instrument | | Declaration Date | | Record Date | | Payment Date | | Per Share |
Common Stock | | April 25, 2019 | | May 16, 2019 | | June 13, 2019 | | $ | 0.2875 |
|
Series B Preferred Stock | | April 25, 2019 | | May 15, 2019 | | June 3, 2019 | | 17.5000 |
|
Enable Distributions Declarations (CenterPoint Energy)
|
| | | | | | | | | | | | | | |
Equity Instrument | | Declaration Date | | Record Date | | Payment Date | | Per Unit Distribution | | Expected Cash Distribution (in millions) |
Enable common units | | April 29, 2019 | | May 21, 2019 | | May 29, 2019 | | $ | 0.318 |
| | $ | 74 |
|
Enable Series A Preferred Units | | April 29, 2019 | | April 29, 2019 | | May 15, 2019 | | 0.625 |
| | 9 |
|
On August 1, 2018, Enable declared a quarterly cash distribution of $0.318 per unit on all of its outstanding common units for the quarter ended June 30, 2018. Accordingly, CERC Corp. expects to receive a cash distribution of approximately $74 million from Enable in the third quarter of 2018 to be made with respect to CERC Corp.’s investment in common units of Enable for the second quarter of 2018.
On August 1, 2018, Enable declared a quarterly cash distribution of $0.625 per Series A Preferred Unit for the quarter ended June 30, 2018. Accordingly, CenterPoint Energy expects to receive a cash distribution of approximately $9 million from Enable in the third quarter of 2018 to be made with respect to CenterPoint Energy’s investment in Series A Preferred Units of Enable for the second quarter of 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 the Interim Condensed Financial Statements contained in this Form 10-Q and eachthe Registrants’ 2017combined 2018 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
Proposed Merger with Vectren. On April 21, 2018, CenterPoint Energy entered into the Merger Agreement. Under the terms ofFebruary 1, 2019, pursuant to the Merger Agreement, CenterPoint Energy will acquireconsummated the previously announced Merger and acquired Vectren for approximately $6 billion in cash. For more information about the proposed mergerMerger, see Notes 1 and 3 to the Interim Condensed Financial Statements. Concurrent with Vectren,the completion of the Merger, CenterPoint Energy added two new reportable segments, Indiana Electric Integrated and Infrastructure Services, to its five reportable segments disclosed in CenterPoint Energy’s 2018 Form 10-K. For a description of the Registrants’ reportable segments, see Note 316 to the Interim Condensed Financial Statements.
AT&T Merger.Debt Issuances. In June 2018, AT&T’s merger with TW closed.January 2019, Houston Electric issued $700 million aggregate principal amount of general mortgage bonds. For furthermore information regardingabout the AT&T merger and its impact on the ZENS,2019 debt issuance, see Note 1112 to the Interim Condensed Financial Statements.
Regulatory Proceedings. For details related to our pending and completed regulatory proceedings and orders related to the TCJA to date in 2018,2019, see “—Liquidity and Capital Resources —Regulatory Matters” below.
Credit Facility Amendment. In May 2018, CenterPoint Energy entered into an amendment to its revolving credit facility that will increase the aggregate commitments from $1.7 billion to $3.3 billion under certain conditions. For more information about the amendment, see Note 12 to the 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 Quarterthe Registrants’ combined 2018 Form 10-Q and this Form 10-Q.10-K.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (in millions, except per share amounts) | (in millions, except per share amounts) |
Revenues | $ | 2,186 |
| | $ | 2,143 |
| | $ | 5,341 |
| | $ | 4,878 |
| $ | 3,531 |
| | $ | 3,155 |
|
Expenses | 1,999 |
| | 1,903 |
| | 4,903 |
| | 4,347 |
| 3,286 |
| | 2,904 |
|
Operating Income | 187 |
| | 240 |
| | 438 |
| | 531 |
| 245 |
| | 251 |
|
Interest and Other Finance Charges | (91 | ) | | (77 | ) | | (169 | ) | | (155 | ) | (121 | ) | | (78 | ) |
Interest on Securitization Bonds | (14 | ) | | (20 | ) | | (30 | ) | | (40 | ) | (12 | ) | | (16 | ) |
Equity in Earnings of Unconsolidated Affiliate, net | 58 |
| | 59 |
| | 127 |
| | 131 |
| 62 |
| | 69 |
|
Other Income, net | (228 | ) | | 9 |
| | (242 | ) | | 43 |
| |
Income (Loss) Before Income Taxes | (88 | ) | | 211 |
| | 124 |
| | 510 |
| |
Income Tax Expense (Benefit) | (13 | ) | | 76 |
| | 34 |
| | 183 |
| |
Net Income (Loss) | $ | (75 | ) | | $ | 135 |
| | $ | 90 |
| | $ | 327 |
| |
Basic Earnings (Loss) Per Share | $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.76 |
| |
Diluted Earnings (Loss) Per Share | $ | (0.17 | ) | | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.75 |
| |
Other Income (Expense), net | | 17 |
| | (14 | ) |
Income Before Income Taxes | | 191 |
| | 212 |
|
Income Tax Expense | | 22 |
| | 47 |
|
Net Income | | 169 |
| | 165 |
|
Preferred Stock Dividend Requirement | | 29 |
| | — |
|
Income Available to Common Shareholders | | $ | 140 |
| | $ | 165 |
|
Basic Earnings Per Common Share | | $ | 0.28 |
| | $ | 0.38 |
|
Diluted Earnings Per Common Share | | $ | 0.28 |
| | $ | 0.38 |
|
Three months ended June 30, 2018March 31, 2019 compared to three months ended June 30, 2017March 31, 2018
WeCenterPoint Energy reported a net lossincome available to common shareholders of $75$140 million ($(0.17)0.28 per diluted share) for the three months ended March 31, 2019 compared to $165 million ($0.38 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 same period in 2017.March 31, 2018.
The decrease of $25 million in net income of $210 millionavailable to common shareholders was primarily due to the following key factors:
a $241$68 million increase in losses on indexed debt securities related to the ZENS included in Other Income, net shown above, resulting from a loss of $242 million from AT&T’s acquisition of TW in June 2018, partially offset by increased gains of $1 million in the underlying value of the indexed debt securities;securities related to the ZENS;
a $53 million decrease in operating income discussed below by segment;
a $14$43 million increase in interest expense, due toprimarily as a result of higher outstanding other long-term debt used to finance the Merger and additional long-term debt acquired through the amortization of Bridge Facility fees of $7 million;Merger, discussed further in Notes 3 and 12 to the Interim Condensed Financial Statements;
a $1$29 million increase in preferred stock dividend requirements;
a $7 million decrease in equity in earnings from ourthe investment in Enable, discussed further in Note 9 to ourthe Interim Condensed Financial Statements; and
a $1$6 million decrease in gains on marketable securities includedoperating income discussed below in Other Income, net shown above.Results of Operations by Reportable Segment.
These decreases in net income available to common shareholders were partially offset by the following:
an $89$82 million increase in gain on marketable securities included in Other Income (Expense), net shown above;
a $25 million decrease inof 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 further below;
a $6$10 million decreaseincrease in interest expense relatedincome resulting from the temporary investment of Merger financing funds prior to lower outstanding balancesthe consummation of our Securitization Bonds; andthe Merger included in Other Income (Expense), net shown above;
a $5 million increase in miscellaneous other non-operating income included in Other Income net shown above, primarily due to lower non-service cost components of net periodic pension and postretirement costs.
Six months ended June 30, 2018 compared to six months ended June 30, 2017
We reported net income of $90 million ($0.21 per diluted share) for the six months ended June 30, 2018 compared to net income of $327 million ($0.75 per diluted share) for the six months ended June 30, 2017.
The decrease in net income of $237 million was primarily due to the following key factors:
a $249 million increase in losses on indexed debt securities related to the ZENS included in Other Income, net shown above, resulting from a loss of $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;
a $93 million decrease in operating income discussed below by segment;
a $44 million decrease in gains on marketable securities included in Other Income,(Expense), 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 9 to our Interim Condensed Financial Statements.
These decreases in net income were partially offset by the following:
a $149 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 $10 million decrease in interest expense related to lower outstanding balances of ourthe Securitization Bonds; and
an $8a $2 million increase in miscellaneous other non-operatingdividend income on CenterPoint Energy’s ZENS-Related Securities included in Other Income (Expense), net shown above, primarily due to lower non-service cost components of net periodic pension and postretirement costs.above.
Income Tax Expense
OurCenterPoint Energy’s effective tax rate reported for the three months ended June 30, 2018March 31, 2019 was 15%12% compared to 36%22% for the same period in 2017. The effective tax rate reported for the sixthree months ended June 2018 was 27% compared to 36% for the same period in 2017.March 31, 2018. The lower effective tax rates for the three and six months ended June 30, 2018 wererate 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, and partially offset by the impactremeasurement of state tax lawliability for changes which resulted in re-measurement of state deferred taxes. The state tax law changes combined withapportionment and filing methodologies resulting from the lower earnings for the period resultMerger and an increase in the lower than expected effective tax rate foramount of amortization of the current quarter and higher than expected six-month effective tax rate. We expect our annual effective tax rate for the fiscal year ending December 31, 2018 to be approximately 23%.net regulatory EDIT liability as decreed by regulators in certain jurisdictions.
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”Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Electric Generation, Transmission and Distribution Businesses” and “— Other Risk Factors Affecting Our Businesses or CenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of Houston Electric’s 2017the Registrants’ combined 2018 Form 10-K.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (in millions, except throughput and customer data) | (in millions) |
Revenues | $ | 854 |
|
| $ | 752 |
|
| $ | 1,609 |
|
| $ | 1,390 |
| $ | 686 |
|
| $ | 755 |
|
Expenses | 673 |
|
| 581 |
|
| 1,309 |
|
| 1,134 |
| 605 |
|
| 636 |
|
Operating income | 181 |
|
| 171 |
|
| 300 |
|
| 256 |
| 81 |
|
| 119 |
|
Interest and other finance charges | (36 | ) | | (32 | ) | | (69 | ) | | (65 | ) | (40 | ) | | (33 | ) |
Interest on Securitization Bonds | (14 | ) | | (20 | ) | | (30 | ) | | (40 | ) | (12 | ) | | (16 | ) |
Other income, net | (3 | ) | | (2 | ) | | (6 | ) | | (6 | ) | |
Other income (expense), net | | 4 |
| | (3 | ) |
Income before income taxes | 128 |
|
| 117 |
|
| 195 |
|
| 145 |
| 33 |
|
| 67 |
|
Income tax expense | 27 |
| | 42 |
| | 42 |
| | 52 |
| 6 |
| | 15 |
|
Net income | $ | 101 |
|
| $ | 75 |
|
| $ | 153 |
|
| $ | 93 |
| $ | 27 |
|
| $ | 52 |
|
Three months ended June 30, 2018March 31, 2019 compared to three months ended June 30, 2017March 31, 2018
Houston Electric reported net income of $101$27 million for the three months ended June 30, 2018March 31, 2019 compared to net income of $75$52 million for the same period in 2017.three months ended March 31, 2018.
Net income increased $26The decrease of $25 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,was primarily due to the following key factors:
a $54$32 million increasedecrease in TDU operating income resulting from the $49a $25 million increasedecrease discussed further below in Results of Operations by BusinessReportable Segment and increaseddecreased usage of $5$7 million, primarily due to a return to more normal weather, which was not offset by the weather hedge lossgain 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$7 million increase in interest expense due to higher outstanding other long-term debt.
These decreases to net income were partially offset by the following:
a $9 million decrease in income tax expense primarily due to lower net income, partially offset by increased amortization of EDIT;
a $2 million increase in interest income included in Other income (expense), net shown above; and
a $3 million increase in miscellaneous other non-operating income included in Other income (expense), net shown above.
Income Tax Expense
Houston Electric’s effective tax rate reported for the three months ended June 30, 2018March 31, 2019 was 21%18% compared to 36%22% for the same period in 2017. The effective tax rate reported for the sixthree months ended June 30, 2018 was 22% compared to 36% for the same period in 2017.March 31, 2018. The lower effective tax rate for both the three and six months ended June 30, 2018 was primarily due to the reductiondriven by an increase in the federal corporate income tax rate from 35% to 21% effective January 1, 2018amount of amortization of the net regulatory EDIT liability as prescribeddecreed by the TCJA.regulators.
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”Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Natural Gas Distribution and Competitive Energy Services Businesses” and “— Other Risk Factors Affecting Our Businesses or CenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of CERC’s 2017the Registrants’ combined 2018 Form 10-K.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (in millions) | (in millions) |
Revenues | $ | 1,328 |
| | $ | 1,387 |
| | $ | 3,728 |
| | $ | 3,480 |
| $ | 2,368 |
| | $ | 2,400 |
|
Expenses | 1,306 |
| | 1,328 |
| | 3,575 |
| | 3,222 |
| 2,172 |
| | 2,269 |
|
Operating Income | 22 |
| | 59 |
| | 153 |
| | 258 |
| |
Operating Income (Loss) | | 196 |
| | 131 |
|
Interest and other finance charges | (33 | ) | | (31 | ) | | (62 | ) | | (60 | ) | (29 | ) | | (29 | ) |
Equity in earnings of unconsolidated affiliate, net | 58 |
| | 59 |
| | 127 |
| | 131 |
| |
Other expense, net | (1 | ) | | (4 | ) | | (5 | ) | | (9 | ) | (3 | ) | | (4 | ) |
Income Before Income Taxes | 46 |
| | 83 |
| | 213 |
| | 320 |
| |
Income tax expense | 10 |
| | 29 |
| | 47 |
| | 119 |
| |
Income (loss) from continuing operations before income taxes | | 164 |
| | 98 |
|
Income tax expense (benefit) | | 26 |
| | 20 |
|
Income (loss) from continuing operations | | 138 |
| | 78 |
|
Income from discontinued operations, net of tax | | — |
| | 52 |
|
Net Income | $ | 36 |
| | $ | 54 |
| | $ | 166 |
| | $ | 201 |
| $ | 138 |
| | $ | 130 |
|
Three months ended June 30, 2018March 31, 2019 compared to three months ended June 30, 2017March 31, 2018
CERC reported net income of $36$138 million for the three months ended June 30, 2018March 31, 2019 compared to net income of $54$130 million for the same period in 2017.three months ended March 31, 2018.
The decreaseincrease of $8 million in net income of $18 million was primarily due to the following key factors:
a $37$65 million decreaseincrease in operating income discussed below by segment in Results of Operations by BusinessReportable 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 investmentmiscellaneous other non-operating expenses included in Enable, discussed further in Note 9 to the Interim Condensed Financial Statements.Other expense, net shown above.
These decreasesincreases to net income were partially offset by the following:
a $19$52 million decrease in income tax expense due to lowerfrom discontinued operations, net income and a reduction in the corporate incomeof 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 NoteNotes 9 and 13 to the Interim Condensed Financial Statements; and
a $2$6 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 nethigher 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.continuing operations, partially offset by increased amortization of EDIT.
Income Tax Expense - Continuing Operations
CERC’s effective tax rate reportedon income from continuing operations for the three months ended June 30, 2018March 31, 2019 was 22%16% compared to 35%20% for the same period in 2017. CERC’s effective tax rate reported for the sixthree months ended June 30, 2018 was 22% compared to 37% for the same period in 2017.March 31, 2018. The lower effective tax rates for both the three and six months ended June 30, 2018 wererate on income from continuing operations was primarily due to the reductiondriven by an increase in the federal corporate income tax rate from 35% to 21% effective January 1, 2018amount of amortization of the net regulatory EDIT liability as prescribeddecreed by the TCJA.regulators in certain jurisdictions.
RESULTS OF OPERATIONS BY BUSINESSREPORTABLE SEGMENT
As of March 31, 2019, reportable segments by Registrant were as follows:
|
| | | | | | | | | | | | | | |
Registrants | | Houston Electric T&D | | Indiana Electric Integrated | | Natural Gas Distribution | | Energy Services | | Infrastructure Services | | Midstream Investments | | Corporate and Other |
CenterPoint Energy | | X | | X | | X | | X | | X | | X | | X |
Houston Electric | | X | | | | | | | | | | | | |
CERC | | | | | | X | | X | | | | | | X |
The following table presentsMidstream Investments reportable segment consists of CenterPoint Energy’s equity investment in Enable and is therefore not included in the operating income (loss) for each business segment.table below. Included in revenues are intersegment sales, which are accounted for as if the sales were to third parties at current market prices. See Note 16 to the Interim Condensed Financial Statements for details of businessreportable segments by Registrant.
The following table presents operating income (loss) for each reportable segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (in millions) | (in millions) |
Electric Transmission & Distribution | $ | 181 |
| | $ | 171 |
| | $ | 296 |
| | $ | 257 |
| |
CenterPoint Energy | | | | |
Houston Electric T&D | | $ | 84 |
| | $ | 115 |
|
Indiana Electric Integrated | | (9 | ) | | — |
|
Natural Gas Distribution | | 167 |
| | 156 |
|
Energy Services | | 33 |
| | (26 | ) |
Infrastructure Services | | (16 | ) | | — |
|
Corporate and Other | | (14 | ) | | 6 |
|
Total CenterPoint Energy Consolidated Operating Income | | $ | 245 |
| | $ | 251 |
|
Houston Electric | | | | |
Houston Electric T&D (1) | | $ | 81 |
| | $ | 119 |
|
CERC | | | | |
Natural Gas Distribution | 7 |
| | 42 |
| | 163 |
| | 210 |
| $ | 164 |
| | $ | 156 |
|
Energy Services | 15 |
| | 16 |
| | (11 | ) | | 51 |
| 33 |
| | (26 | ) |
Other Operations | (16 | ) | | 11 |
| | (10 | ) | | 13 |
| (1 | ) | | 1 |
|
Total Consolidated Operating Income | $ | 187 |
| | $ | 240 |
| | $ | 438 |
| | $ | 531 |
| |
Total CERC Consolidated Operating Income | | $ | 196 |
| | $ | 131 |
|
| |
(1) | Excludes weather hedge gain (loss) of $3 million and $(4) million recorded in Utility revenues on CenterPoint Energy’s Condensed Statements of Consolidated Income for the three months ended March 31, 2019 and 2018, respectively. See Note 7(a) to the Interim Condensed Financial Statements for more information on the weather hedge. |
Houston Electric Transmission & DistributionT&D (CenterPoint Energy and Houston Electric)
For information regarding factors that may affect the future results of operations of the Houston Electric Transmission & Distribution businessT&D reportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Electric Generation, Transmission &and Distribution Business”Businesses” and “— Other Risk Factors Affecting Our Businesses or OurCenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of CenterPoint Energy’s 2017the Registrants’ combined 2018 Form 10-K.
The following table provides summary data of ourthe Houston Electric Transmission & Distribution businessT&D reportable segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (in millions, except throughput and customer data) | (in millions, except throughput and customer data) |
Revenues: | | | | | | | | | | |
TDU(1) | $ | 676 |
| | $ | 653 |
| | $ | 1,274 |
| | $ | 1,215 |
| $ | 595 |
| | $ | 598 |
|
Bond Companies | 178 |
| | 99 |
| | 331 |
| | 176 |
| 94 |
| | 153 |
|
Total revenues | 854 |
| | 752 |
| | 1,605 |
| | 1,391 |
| 689 |
| | 751 |
|
Expenses: | | | | | | | | | | |
Operation and maintenance, excluding Bond Companies | 349 |
| | 341 |
| | 689 |
| | 681 |
| 366 |
| | 340 |
|
Depreciation and amortization, excluding Bond Companies | 100 |
| | 103 |
| | 198 |
| | 199 |
| 93 |
| | 98 |
|
Taxes other than income taxes | 60 |
| | 58 |
| | 121 |
| | 118 |
| 62 |
| | 61 |
|
Bond Companies | 164 |
| | 79 |
| | 301 |
| | 136 |
| 84 |
| | 137 |
|
Total expenses | 673 |
| | 581 |
| | 1,309 |
| | 1,134 |
| 605 |
| | 636 |
|
Operating Income(1) | $ | 181 |
| | $ | 171 |
| | $ | 296 |
| | $ | 257 |
| $ | 84 |
| | $ | 115 |
|
Operating Income: | | | | | | | | | | |
TDU | $ | 167 |
| | $ | 151 |
| | $ | 266 |
| | $ | 217 |
| $ | 74 |
| | $ | 99 |
|
Bond Companies (1)(2) | 14 |
| | 20 |
| | 30 |
| | 40 |
| 10 |
| | 16 |
|
Total segment operating income | $ | 181 |
| | $ | 171 |
| | $ | 296 |
| | $ | 257 |
| $ | 84 |
| | $ | 115 |
|
Throughput (in GWh): | | | | | | | | | | |
Residential | 8,327 |
| | 7,940 |
| | 13,932 |
| | 13,092 |
| 5,183 |
| | 5,605 |
|
Total | 23,688 |
| | 22,750 |
| | 43,332 |
| | 41,504 |
| 19,019 |
| | 19,644 |
|
Number of metered customers at end of period: | | | | | | | | | | |
Residential | 2,179,048 |
| | 2,152,655 |
| | 2,179,048 |
| | 2,152,655 |
| 2,206,563 |
| | 2,171,715 |
|
Total | 2,463,500 |
| | 2,429,403 |
| | 2,463,500 |
| | 2,429,403 |
| 2,494,761 |
| | 2,453,844 |
|
| |
(1) | RepresentsIncludes weather hedge gain (loss) of $3 million and $(4) million recorded in Utility revenues on CenterPoint Energy’s Condensed Statements of Consolidated Income for the amountthree months ended March 31, 2019 and 2018, respectively. See Note 7(a) to the Interim Condensed Financial Statements for more information on the weather hedge. |
| |
(2) | Operating income from the Bond Companies, together with $2 million and $-0- of interest income for the three months ended March 31, 2019 and 2018, respectively, are necessary to pay interest on the Securitization Bonds. |
Three months ended June 30, 2018March 31, 2019 compared to three months ended June 30, 2017March 31, 2018
OurThe Houston Electric Transmission & Distribution businessT&D reportable segment reported operating income of $181$84 million for the three months ended June 30, 2018,March 31, 2019, consisting of $167$74 million from the TDU and $14$10 million related to the Bond Companies. For the three months ended June 30, 2017,March 31, 2018, operating income totaled $171$115 million, consisting of $151$99 million from the TDU and $20$16 million related to the Bond Companies.
TDU operating income increased $16decreased $25 million, primarily due to the following key factors:
higherlower usage of $15 million primarily due to a return to more normal weather mainly during January 2019;
lower equity return of $14$10 million, primarily related to the annual true-up of transition charges correcting for under-collectionsover-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 $12 million related to distribution capital investments;
higher usage of $9 million, primarily due to a return to more normal 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 revenues 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$10 million primarily due to increased contract services and corporate support services;
lower revenues of $7 million due to lower transmission rate filings as a result of the TCJA; andfor Merger-related severance costs;
higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $6 million.$7 million;
Lower depreciationincreased operation and amortizationmaintenance expenses related to AMS of $7 million were offset by a corresponding decrease in related revenues.
Six months ended June 30, 2018 compared to six months ended June 30, 2017
Our Electric Transmission & Distribution business segment reported operating income of $296 million for the six months ended June 30, 2018, consisting of $266 million from the TDU and $30 million related to the Bond Companies. For the six months ended June 30, 2017, operating income totaled $257 million, consisting of $217 million from the TDU and $40 million related to the Bond Companies.
TDU operating income increased $49$6 million, primarily due to increased labor costs and support services expense; and
•lower revenue related to TCJA of $6 million.
These decreases to operating income were partially offset by the following key factors:following:
higher equity returnmiscellaneous revenues of $28$11 million primarily related to right-of-way revenues;
•customer growth of $6 million from the annual true-upaddition of transition charges correcting for under-collections that occurred during the preceding 12 months;almost 41,000 customers;
higher transmission-related revenues of $15 million, exclusive of the TCJA discussed below, and lowermentioned above, partially offset by higher transmission costs billed by transmission providers of $13$9 million; and
rate increases of $21$5 million related to distribution capital investments;
higher usage of $17 million, primarily due to a return to more normal weather; and
customer growth of $14 million from the addition of over 34,000 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 resultinvestments, exclusive of the TCJA; and
higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $6 million.TCJA mentioned above.
Lower depreciation and amortization expenses related to AMS of $4$11 million were offset by a corresponding decrease in related revenues.
Natural Gas DistributionIndiana Electric Integrated (CenterPoint Energy)
For information regarding factors that may affect the future results of operations of the Natural Gas Distribution businessIndiana Electric Integrated reportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Natural GasElectric Generation, Transmission and Distribution and Energy Services Businesses” and “— Other Risk Factors Affecting Our Businesses or OurCenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of CenterPoint Energy’s 2017the Registrants’ combined 2018 Form 10-K.
The following table provides summary data of our Natural Gas Distribution businessCenterPoint Energy’s Indiana Electric Integrated reportable segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | |
| 2018 | | 2017 | | 2018 | | 2017 | Three Months Ended March 31, 2019 (1) |
| (in millions, except throughput and customer data) | (in millions, except throughput and customer data) |
Revenues | $ | 495 |
| | $ | 477 |
| | $ | 1,648 |
| | $ | 1,393 |
| $ | 83 |
|
Expenses: | | | | | | | | |
Natural gas | 185 |
| | 164 |
| | 852 |
| | 625 |
| |
Utility natural gas, fuel and purchased power | | 26 |
|
Operation and maintenance | 196 |
| | 170 |
| | 409 |
| | 359 |
| 48 |
|
Depreciation and amortization | 69 |
| | 65 |
| | 137 |
| | 128 |
| 16 |
|
Taxes other than income taxes | 38 |
| | 36 |
| | 87 |
| | 71 |
| 2 |
|
Total expenses | 488 |
| | 435 |
| | 1,485 |
| | 1,183 |
| 92 |
|
Operating Income | $ | 7 |
| | $ | 42 |
| | $ | 163 |
| | $ | 210 |
| |
Throughput (in Bcf): | | | | | | | | |
Operating Loss | | $ | (9 | ) |
Throughput (in GWh): | | |
Retail | | 704 |
|
Wholesale | | 58 |
|
Total | | 762 |
|
Number of metered customers at end of period: | | |
Residential | 23 |
| | 19 |
| | 110 |
| | 81 |
| 128,194 |
|
Commercial and industrial | 61 |
| | 57 |
| | 155 |
| | 139 |
| |
Total Throughput | 84 |
| | 76 |
| | 265 |
| | 220 |
| |
Number of customers at end of period: | | | | | | | | |
Residential | 3,204,897 |
| | 3,176,953 |
| | 3,204,897 |
| | 3,176,953 |
| |
Commercial and industrial | 255,115 |
| | 253,559 |
| | 255,115 |
| | 253,559 |
| |
Total | 3,460,012 |
| | 3,430,512 |
| | 3,460,012 |
| | 3,430,512 |
| 147,047 |
|
| |
(1) | Represents February 1, 2019 through March 31, 2019 results only due to the Merger. |
Three months ended June 30,March 31, 2019
The Indiana Electric Integrated reportable segment reported an operating loss of $9 million for the period ended March 31, 2019, which includes operation and maintenance expense of $20 million for Merger-related severance and incentive compensation costs. These results are not comparable to the prior year as this reportable segment was acquired in the Merger as discussed in Note 3 to the Interim Condensed Financial Statements.
Natural Gas Distribution (CenterPoint Energy)
For information regarding factors that may affect the future results of operations of CenterPoint Energy’s Natural Gas Distribution reportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Natural Gas Distribution and Competitive Energy Services Businesses” and “— Other Risk Factors Affecting Our Businesses or CenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of the Registrants’ combined 2018 Form 10-K.
The following table provides summary data of CenterPoint Energy’s Natural Gas Distribution reportable segment:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| (in millions, except throughput and customer data) |
Revenues | $ | 1,399 |
| | $ | 1,153 |
|
Expenses: | | | |
Utility natural gas, fuel and purchased power | 771 |
| | 667 |
|
Operation and maintenance | 307 |
| | 213 |
|
Depreciation and amortization | 95 |
| | 68 |
|
Taxes other than income taxes | 59 |
| | 49 |
|
Total expenses | 1,232 |
| | 997 |
|
Operating Income | $ | 167 |
| | $ | 156 |
|
Throughput (in Bcf): | | | |
Residential | 114 |
| | 87 |
|
Commercial and industrial | 136 |
| | 94 |
|
Total Throughput | 250 |
| | 181 |
|
Number of customers at end of period: | | | |
Residential | 4,219,795 |
| | 3,220,262 |
|
Commercial and industrial | 350,419 |
| | 257,806 |
|
Total | 4,570,214 |
| | 3,478,068 |
|
Three months ended March 31, 2019 compared to three months ended June 30, 2017March 31, 2018
OurCenterPoint Energy’s Natural Gas Distribution businessreportable segment reported operating income of $7$167 million for the three months ended June 30, 2018March 31, 2019 compared to $42$156 million for the three months ended June 30, 2017.March 31, 2018.
Operating income decreased $35increased $11 million primarily 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 costs 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 in 2017;
higher 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 Texas Gulf rate order of $6 million;
lower revenue of $5 million, associated with the recording of a 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 increases of $7$21 million, primarily in the Texas and Minnesota jurisdictions, exclusive of the TCJA impact discussed above;below, primarily from rate filings in Texas, Louisiana, Arkansas and
a $2 million increase associated with customer growth from the addition of over 29,000 customers.
Increased operation and maintenance expenses related to energy efficiency programs of $4 million and increased gross receipts taxes of $2 million were offset by corresponding increases in the related revenues. Minnesota;
Six months ended June 30, 2018 compared to six months ended June 30, 2017
Our Natural Gas Distribution business segment reported operating income of $163 million for the •six months ended June 30, 2018 compared to $210 million for the six months ended June 30, 2017.
Operating income decreased $47 million as a result of the following key factors:
higher laborfavorable weather and benefits costs 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 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 expensesusage of $15 million, primarily due to higher support services expense, contract services expense and bad debt expense of $21 million, partially offsetdriven 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 recordedmechanism 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
increased depreciation and amortization expense of $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; andMinnesota;
a $5 million increase associated with customer growth from the addition of over 29,000 customers.45,000 new customers in CERC’s service territories;
a $3 million increase in operating income associated with the natural gas businesses acquired in the Merger for the period from February 1, 2019 through March 31, 2019, which includes operation and maintenance expense of $43 million for Merger-related severance and incentive compensation costs, as well as the addition of over 1 million customers in Indiana and Ohio; and
•lower other taxes of $2 million, primarily due to the Minnesota property tax tracking mechanism.
These increases were partially offset by the following:
lower revenue of $12 millionrelated to the TCJA in CERC’s service territories;
higher operation and maintenance expenses of $18 million in CERC’s service territories, primarily due to Merger-related severance costs, higher support services expense driven by technology projects, bad debt expense and insurance expense; and
increased depreciation and amortization expense of $5 million, primarily due to ongoing additions to plant-in-service, in CERC’s service territories.
Increased operation and maintenance expenses related to increased gross receipts taxes of $1 million were offset by corresponding increases in the related revenues in CERC’s service territories. Decreased operation and maintenance expenses related to energy efficiency programs of $8 million and rate case amortization of $1 million were offset by corresponding decreases in the related revenues in CERC’s service territories.
Natural Gas Distribution (CERC)
For information regarding factors that may affect the future results of operations of CERC’s Natural Gas Distribution reportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Natural Gas Distribution and Competitive Energy Services Businesses” and “— Other Risk Factors Affecting Our Businesses or CenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of the Registrants’ combined 2018 Form 10-K.
The following table provides summary data of CERC’s Natural Gas Distribution reportable segment:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| (in millions, except throughput and customer data) |
Revenues | $ | 1,195 |
| | $ | 1,153 |
|
Expenses: | | | |
Utility natural gas | 688 |
| | 667 |
|
Operation and maintenance | 223 |
| | 213 |
|
Depreciation and amortization | 72 |
| | 68 |
|
Taxes other than income taxes | 48 |
| | 49 |
|
Total expenses | 1,031 |
| | 997 |
|
Operating Income | $ | 164 |
| | $ | 156 |
|
Throughput (in Bcf): | | | |
Residential | 91 |
| | 87 |
|
Commercial and industrial | 98 |
| | 94 |
|
Total Throughput | 189 |
| | 181 |
|
Number of customers at end of period: | | | |
Residential | 3,261,669 |
| | 3,220,262 |
|
Commercial and industrial | 261,709 |
| | 257,806 |
|
Total | 3,523,378 |
| | 3,478,068 |
|
Three months ended March 31, 2019 compared to three months ended March 31, 2018
CERC’s Natural Gas Distribution reportable segment reported operating income of $164 million for the three months ended March 31, 2019 compared to $156 million for the three months ended March 31, 2018.
Operating income increased $8 million primarily as a result of the following key factors:
rate increases of $21 million, exclusive of the TCJA impact discussed below, primarily from rate filings in Texas, Louisiana, Arkansas and Minnesota;
•favorable weather and usage of $15 million, driven by timing of a decoupling mechanism in Minnesota; and
•a $5 million increase associated with customer growth from the addition of over 45,000 new customers.
These increases were partially offset by the following:
•lower revenue of $12 million related to the TCJA;
•higher operation and maintenance expenses of $10 million for Merger-related severance costs;
higher operation and maintenance expenses of $8 million, primarily due to higher support services expense driven by technology projects, bad debt expense and insurance expense; and
•increased depreciation and amortization expense of $5 million, primarily due to additions to plant-in-service.
Increased operation and maintenance expenses related to increased gross receipts taxes of $6$1 million were offset by corresponding increases in the related revenues.
Decreased operation and maintenance expenses related to energy efficiency programs of $8 million and rate case amortization of $1 million were offset by corresponding decreases in the related revenues.
Energy Services (CenterPoint Energy and CERC)
For information regarding factors that may affect the future results of operations of the Energy Services businessreportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Our Natural Gas Distribution and Competitive Energy Services Businesses” and “— Other Risk Factors Affecting Our Businesses or OurCenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of CenterPoint Energy’s 2017the Registrants’ combined 2018 Form 10-K.
The following table provides summary data of ourthe Energy Services businessreportable segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (in millions, except throughput and customer data) | (in millions, except throughput and customer data) |
Revenues | $ | 860 |
| | $ | 931 |
| | $ | 2,145 |
| | $ | 2,127 |
| $ | 1,246 |
| | $ | 1,285 |
|
Expenses: | | | | | | | | | | |
Natural gas | 820 |
| | 889 |
| | 2,101 |
| | 2,026 |
| |
Non-utility cost of revenues, including natural gas | | 1,182 |
| | 1,281 |
|
Operation and maintenance | 21 |
| | 22 |
| | 46 |
| | 43 |
| 25 |
| | 25 |
|
Depreciation and amortization | 3 |
| | 3 |
| | 8 |
| | 6 |
| 5 |
| | 5 |
|
Taxes other than income taxes | 1 |
| | 1 |
| | 1 |
| | 1 |
| 1 |
| | — |
|
Total expenses | 845 |
| | 915 |
| | 2,156 |
| | 2,076 |
| 1,213 |
| | 1,311 |
|
Operating Income (Loss) | $ | 15 |
| | $ | 16 |
| | $ | (11 | ) | | $ | 51 |
| $ | 33 |
| | $ | (26 | ) |
| | | | | | | | | | |
Timing impacts related to mark-to-market gain (loss) (1) | $ | 8 |
| | $ | 6 |
| | $ | (72 | ) | | $ | 21 |
| $ | 19 |
| | $ | (80 | ) |
Throughput (in Bcf) | 311 |
| | 273 |
| | 686 |
| | 592 |
| 379 |
| | 375 |
|
Approximate number of customers at end of period (2)(1) | 30,000 |
| | 31,000 |
| | 30,000 |
| | 31,000 |
| 30,000 |
| | 30,000 |
|
| |
(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 71,00065,000 and 61,00071,000 natural gas customers as of June 30,March 31, 2019 and 2018, and 2017, respectively, that are under residential and small commercial choice programs invoiced by their host utility. |
Three months ended June 30, 2018March 31, 2019 compared to three months ended June 30, 2017March 31, 2018
OurThe Energy Services businessreportable segment reported operating income of $15$33 million for the three months ended March 31, 2019 compared to an operating loss of $26 million for the three months ended June 30, 2018 compared to $16 million for the three months ended June 30, 2017.March 31, 2018.
Operating income decreased $1 million, primarily due to timing 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, 2018 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 $51 million for the six months ended June 30, 2017.
Operating income decreased $62increased $59 million as a result of the following key factors:
a $93$99 million decreaseincrease from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins;margins. This increase was partially offset by a $40 million decrease in margin due to fewer opportunities to optimize natural gas costs relative to last year. Specifically, the unusually cold weather in various regions of the continental United States during the three months ended March 31, 2018 allowed Energy Services to increase its margins. Decreased margins during the three months ended March 31, 2019 were only partially offset by improved core customer counts and volumes.
a $3Infrastructure Services (CenterPoint Energy)
For information regarding factors that may affect the future results of operations of the Infrastructure Services reportable segment, please read “Risk Factors — Risk Factors Associated with Our Consolidated Financial Condition,” “— Risk Factors Affecting Natural Gas Distribution and Competitive Energy Services Businesses” and “— Other Risk Factors Affecting Our Businesses or CenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of the Registrants’ combined 2018 Form 10-K.
The following table provides summary data of the Infrastructure Services reportable segment:
|
| | | | |
| | Three Months Ended March 31, 2019 (1) |
| (in millions) |
Revenues | | $ | 146 |
|
Expenses: | | |
Non-utility cost of revenues, including natural gas | | 43 |
|
Operation and maintenance | | 110 |
|
Depreciation and amortization | | 9 |
|
Total expenses | | 162 |
|
Operating Loss | | $ | (16 | ) |
Backlog (2): | | |
Blanket contracts (3) | | $ | 541 |
|
Bid contracts (4) | | 455 |
|
Total | | $ | 996 |
|
| |
(1) | Represents February 1, 2019 through March 31, 2019 results only due to the Merger. |
| |
(2) | Backlog represents the amount of revenue Infrastructure Services expects to realize from work to be performed on uncompleted contracts in the next twelve months, including new contractual agreements on which work has not begun. Infrastructure Services operates primarily under two types of contracts, blanket contracts and bid contracts. |
| |
(3) | Using blanket contracts, customers are not contractually committed to specific volumes of services; however, Infrastructure Services expects to be chosen to perform work needed by a customer in a given time frame. These contracts are typically awarded on an annual or multi-year basis. For blanket work, backlog represents an estimate of the amount of revenue that Infrastructure Services expects to realize from work to be performed in the next twelve months on existing contracts or contracts management expects to be renewed or awarded. |
| |
(4) | Under bid contracts, customers are contractually committed to a specific service to be performed for a specific price, whether in total for a project or on a per unit basis. |
Three months ended March 31, 2019
The Infrastructure Services reportable segment reported an operating loss of $16 million increase infor the period ended March 31, 2019, which includes operation and maintenance expenses primarily due to higher contractof $13 million for Merger-related severance and services expense related to pipeline integrity testing, higher bad debt expense and higher support services expense; and
aincentive compensation costs, non-utility cost of revenues, including natural gas of $2 million increase infor Merger-related amortization of intangibles for construction backlog and depreciation and amortization primarily dueof $2 million for additional intangibles amortization. These results are not comparable to the amortization of AEMprior year as this reportable segment was acquired intangibles.in the Merger as discussed in Note 3 to the Interim Condensed Financial Statements.
These decreases in operating income were partially offset by a $36 million increase in margin due to incremental volumes from customers and improved margin rates, resulting from realized commercial opportunities attributable to the Continuum and AEM acquisitions and colder than normal weather in several regions of the United States, primarily in the first quarter of 2018.
Midstream Investments (CenterPoint Energy)
For information regarding factors that may affect the future results of operations of the Midstream Investments businessreportable segment, please read “Risk Factors — Risk Factors Affecting OurCenterPoint Energy’s Interests in Enable Midstream Partners, LP” and “— Other Risk Factors Affecting Our Businesses or OurCenterPoint Energy’s Interests in Enable Midstream Partners, LP” in Item 1A of Part I of CenterPoint Energy’s 2017the Registrants’ combined 2018 Form 10-K.
The following table provides pre-tax equity income of the Midstream Investments businessreportable segment:
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
| (in millions) |
Equity earnings from Enable, net | $ | 62 |
| | $ | 69 |
|
Corporate and Other Operations(CenterPoint Energy)
The following table shows the operating income (loss) of CenterPoint Energy’s Corporate and Other Operations businessreportable segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (in millions) | (in millions) |
Revenues | $ | 4 |
| | $ | 3 |
| | $ | 8 |
| | $ | 7 |
| $ | 42 |
| | $ | 4 |
|
Expenses | 20 |
| | (8 | ) | | 18 |
| | (6 | ) | |
Expenses: | | | | |
Non-utility cost of revenues, including natural gas | | 37 |
| | — |
|
Operation and maintenance | | 4 |
| | (12 | ) |
Depreciation and amortization | | 13 |
| | 8 |
|
Taxes other than income taxes | | 2 |
| | 2 |
|
Total | | 56 |
| | (2 | ) |
Operating Income (Loss) | $ | (16 | ) | | $ | 11 |
| | $ | (10 | ) | | $ | 13 |
| $ | (14 | ) | | $ | 6 |
|
Three months ended June 30, 2018March 31, 2019 compared to three months ended June 30, 2017March 31, 2018
OurCenterPoint Energy’s Corporate and Other Operations businessreportable segment reported an operating loss of $16$14 million for the three months ended June 30, 2018March 31, 2019 compared to operating income of $11$6 million for the three months ended June 30, 2017. March 31, 2018.
Operating income decreased $27$20 million, primarily due to transaction costs related to the Merger.following factors:
Six months ended June 30, 2018 compared to six months ended June 30, 2017a $12 million operating loss associated with ESG acquired in the Merger for the period from February 1, 2019 through March 31, 2019, including operation and maintenance expenses of $2 million for Merger-related severance and incentive compensation costs and non-utility cost of revenues, including natural gas of $6 million for Merger-related amortization of intangibles for construction backlog; and
Our Other Operations business segment reported an operating lossincrease in operation and maintenance expenses 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$8 million, primarily due to transaction costs related to the Merger.for Merger-related integration costs.
Corporate and Other (CERC)
The following table shows the operating income (loss) of CERC’s Corporate and Other Operations businessreportable segment:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 |
| (in millions) | (in millions) |
Revenues | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | 1 |
| | $ | — |
|
Expenses | — |
| | (1 | ) | | (1 | ) | | 3 |
| 2 |
| | (1 | ) |
Operating Income (Loss) | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | (3 | ) | $ | (1 | ) | | $ | 1 |
|
CERTAIN FACTORS AFFECTING FUTURE EARNINGS
For information on other developments, factors and trends that may have an impact on the 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 CenterPoint Energy’s 2017 Form 10-K,and “Risk Factors” in Item 1A of Part I of each of the Registrants’
2017 Form 10-K and in Item 1A of Part II of CenterPoint Energy’s First Quarter combined 2018 Form 10-Q10-K 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, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) | (in millions) |
Cash provided by (used in): | | | | | | | | | | | | | | | | | | | | | | |
Operating activities | $ | 1,093 |
| | $ | 443 |
| | $ | 746 |
| | $ | 677 |
| | $ | 279 |
| | $ | 278 |
| $ | 271 |
| | $ | 66 |
| | $ | 248 |
| | $ | 484 |
| | $ | 180 |
| | $ | 386 |
|
Investing activities | (267 | ) | | (468 | ) | | (197 | ) | | (640 | ) | | (418 | ) | | (205 | ) | (6,539 | ) | | (1,237 | ) | | (250 | ) | | (331 | ) | | (364 | ) | | (97 | ) |
Financing activities | (756 | ) | | 42 |
| | (560 | ) | | (138 | ) | | 35 |
| | (73 | ) | 2,345 |
| | 1,078 |
| | (11 | ) | | (192 | ) | | 139 |
| | (274 | ) |
Operating Activities. The following items contributed to increased (decreased) net cash provided by operating activities for the sixthree months ended June 30, 2018March 31, 2019 compared to the same period of 2017:2018:
| | | CenterPoint Energy | | Houston Electric | | CERC | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) | (in millions) |
Changes in net income after adjusting for non-cash items | $ | 132 |
| | $ | 162 |
| | $ | (97 | ) | $ | 2 |
| | $ | (78 | ) | | $ | 72 |
|
Changes in working capital | 187 |
| | 10 |
| | 403 |
| (306 | ) | | (36 | ) | | (141 | ) |
Change in equity in earnings from Enable, net of distributions (1) | 122 |
| | — |
| | 122 |
| 21 |
| | — |
| | — |
|
Higher pension contribution | (46 | ) | | — |
| | — |
| |
Changes related to discontinued operations | | — |
| | — |
| | (60 | ) |
Lower pension contribution | | 60 |
| | — |
| | — |
|
Other | 21 |
| | (8 | ) | | 40 |
| 10 |
| | — |
| | (9 | ) |
| $ | 416 |
| | $ | 164 |
| | $ | 468 |
| $ | (213 | ) | | $ | (114 | ) | | $ | (138 | ) |
| |
(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. |
Investing Activities. The following items contributed to (increased) decreased net cash used in investing activities for the sixthree months ended June 30, 2018March 31, 2019 compared to the same period of 2017:2018:
| | | CenterPoint Energy | | Houston Electric | | CERC | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) | (in millions) |
Proceeds from the sale of marketable securities | $ | 398 |
| | $ | — |
| | $ | — |
| |
AEM acquisition in 2017 | 132 |
| | — |
| | 132 |
| |
Proceeds from the sale of marketable securities in 2018 | | $ | (16 | ) | | $ | — |
| | $ | — |
|
2019 mergers and acquisitions, net of cash acquired (See Note 3 to the Interim Condensed Financial Statements) | | (5,987 | ) | | — |
| | — |
|
Higher capital expenditures | (48 | ) | | (27 | ) | | (7 | ) | (175 | ) | | (28 | ) | | (32 | ) |
Net change in notes receivable from unconsolidated affiliates | — |
| | (31 | ) | | — |
| |
Net change in notes receivable from affiliated companies | | — |
| | (846 | ) | | (106 | ) |
Change in distributions from Enable in excess of cumulative earnings | (119 | ) | | — |
| | (119 | ) | (14 | ) | | — |
| | — |
|
Changes related to discontinued operations | | — |
| | — |
| | (14 | ) |
Other | 10 |
| | 8 |
| | 2 |
| (16 | ) | | 1 |
| | (1 | ) |
| $ | 373 |
| | $ | (50 | ) | | $ | 8 |
| $ | (6,208 | ) | | $ | (873 | ) | | $ | (153 | ) |
Financing Activities. The following items contributed to (increased) decreased net cash used in financing activities for the sixthree months ended June 30, 2018March 31, 2019 compared to the same period of 2017:2018:
| | | CenterPoint Energy | | Houston Electric | | CERC | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) | (in millions) |
Net changes in commercial paper outstanding | $ | (1,472 | ) | | $ | — |
| | $ | (482 | ) | $ | 3,529 |
| | $ | — |
| | $ | 183 |
|
Net changes in long-term debt outstanding, excluding commercial paper | 938 |
| | 89 |
| | 599 |
| (1,105 | ) | | 288 |
| | (599 | ) |
Net changes in long-term revolving credit facilities | | 135 |
| | — |
| | — |
|
Net changes in debt issuance costs | (29 | ) | | (1 | ) | | (4 | ) | (1 | ) | | (4 | ) | | 4 |
|
Net changes in short-term borrowings | (28 | ) | | — |
| | (28 | ) | 39 |
| | — |
| | 39 |
|
Distributions to ZENS note holders | (16 | ) | | — |
| | — |
| |
Increased payment of common stock dividends | (10 | ) | | — |
| | — |
| |
Distributions to ZENS note holders in 2018 | | 16 |
| | — |
| | — |
|
Increased payment of Common Stock dividends | | (24 | ) | | — |
| | — |
|
Increased payment of preferred stock dividends | | (43 | ) | | — |
| | — |
|
Net change in notes payable from affiliated companies | — |
| | (60 | ) | | (570 | ) | — |
| | 59 |
| | 570 |
|
Contribution from parent | — |
| | — |
| | (38 | ) | — |
| | 590 |
| | — |
|
Dividend to parent | — |
| | (21 | ) | | 37 |
| — |
| | 8 |
| | 66 |
|
Other | (1 | ) | | — |
| | (1 | ) | (9 | ) | | (2 | ) | | — |
|
| $ | (618 | ) | | $ | 7 |
| | $ | (487 | ) | $ | 2,537 |
| | $ | 939 |
| | $ | 263 |
|
Future Sources and Uses of Cash
The 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 results of operations, capital expenditures, debt service requirements, tax payments, working capital needs and various regulatory actions. Capital expenditures are expected to be used for investment in infrastructure for electric transmission and distribution operations and natural gas distribution operations.infrastructure. These capital expenditures are anticipated to maintain reliability and safety, increase resiliency and expand our systems through value-added projects. In addition to dividend payments on CenterPoint Energy’s common stockSeries A Preferred Stock, Series B Preferred Stock and Common Stock, and in addition to interest payments on debt, the Registrants’ principal anticipated cash requirements for the remaining sixnine months of 20182019 include the following:
| | | | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) | | (in millions) |
Estimated capital expenditures(1) | | $ | 972 |
| | $ | 532 |
| | $ | 407 |
| | $ | 1,904 |
| | $ | 744 |
| | $ | 598 |
|
Maturing collateralized pollution control bonds | | 50 |
| | — |
| | — |
| |
Scheduled principal payments on Securitization Bonds | | 204 |
| | 204 |
| | — |
| | 283 |
| | 283 |
| | — |
|
Distribution to ZENS note holders | | 382 |
| | — |
| | — |
| |
| |
(1) | Represents remaining capital expenditures based on anticipated 2019 capital expenditures as previously disclosed in the Registrants’ combined 2018 Form 10-K. |
For an update on CenterPoint Energy’s contractual obligations following the Merger, see Notes 12, 14 and 19 to the Interim Condensed Financial Statements.
The Registrants expect that anticipated cash needs for the remaining sixnine months of 20182019 will be met with borrowings under their credit facilities, bank loans, 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 with respect to CenterPoint Energy, distributions from Enable. In addition, if CenterPoint Energy and CERC decidedecides to sell all or a portion of the Enable common units that they ownit owns in the public equity markets or otherwise in 20182019 (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 20182019 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 or term bank loans. Issuances of equity or debt in the capital markets, funds raised in the commercial paper markets, 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 belowin Note 12, guarantees as discussed in Note 14(b) to the Interim Condensed Financial Statements and operating leases, we have no off-balance sheet arrangements.
Regulatory Matters
Brazos Valley Connection Project (CenterPoint Energy and Houston Electric)
Houston Electric completed construction on and energized the Brazos Valley Connection in March 2018, ahead of the original June 1, 2018 energization date. The final capital costs of the project reported to the PUCT in December 2018 were approximately $285$281 million, which was within the estimated range of approximately $270-$310 million in the PUCT’s original order. Houston Electric applied for interim recovery of project costs incurred through July 31, 2018, which were not already included in rates in a filing with the PUCT in MaySeptember 2018 and received approval for interim recovery in JulyNovember 2018. Final approval by the PUCT of the project costs willis expected to occur in Houston Electric’s nextpending base rate case.case, which was filed in April 2019.
Freeport Master PlanBailey to Jones Creek Project (CenterPoint Energy and Houston Electric)
In April 2017, Houston Electric submitted a proposal to ERCOT requesting its endorsement of a transmission project in the greater Freeport, Texas area, which includes enhancements to two existing substations and the construction of a new 345 kV double-circuit transmission line to be located in the counties of Brazoria, Matagorda and Wharton counties.Wharton. On December 12, 2017, Houston Electric received approval from ERCOT. In September 2018, Houston Electric expects to file in September 2018 anfiled a certificate of convenience and necessity application with the PUCT seeking approval to buildthat included capital cost estimates for the project at a current estimatedthat ranged from approximately $482-$695 million, which were higher than the initial cost of as much as $630 million (previously estimated at $250 million) and anticipates that the PUCT will provide a decision in the third quarter of 2019 regarding the need for and route of the project.estimates. The revised preliminary project cost includesestimates include additional costs associated with the routing of the line routing to mitigate environmental and other land use impacts and structure design to address soil and coastal wind conditions. The actual capital costs of the project will depend on those factors as well as other factors, including land acquisition costs, construction costs and the ultimate route approved by the PUCT. On the request of the PUCT, ERCOT intervened in the proceeding and performed a re-evaluation of the cost-effectiveness of the proposed project. Based on that re-evaluation, ERCOT reaffirmed the recommended transmission option for the project. Houston Electric anticipates that the PUCT will issue a final decision on the certificate of convenience and necessity application in the fourth quarter of 2019.
Indiana Electric Generation Project (CenterPoint Energy)
Indiana Electric must make substantial investments in its generation resources in the near term to comply with environmental regulations. On February 20, 2018, Indiana Electric filed a petition seeking authorization from the IURC to construct a new 700-850 MW natural gas combined cycle generating facility to replace the baseload capacity of its existing generating fleet at an approximate cost of $900 million, which includes the cost of a new natural gas pipeline to serve the plant.
As a part of this same proceeding, Indiana Electric also sought recovery under Indiana Senate Bill 251 of costs to be incurred for environmental investments to be made at its F.B. Culley generating plant to comply with ELG and CCR rules. The F.B. Culley investments, estimated to be approximately $95 million, will begin in 2019 and will allow the F.B. Culley Unit 3 generating facility to comply with environmental requirements and continue to provide generating capacity to Indiana Electric’s customers. Under Indiana Senate Bill 251, Indiana Electric sought authority to recover 80% of the approved costs, including a return, using a tracking mechanism, with the remaining 20% of the costs deferred for recovery in Indiana Electric’s next base rate proceeding.
On April 24, 2019, the IURC issued an order approving the environmental investments proposed for the F.B. Culley generating facility, along with recovery of prior pollution control investments made in 2014. The order denied the proposed gas combined cycle generating facility. Indiana Electric will conduct a new IRP, expected to be completed in mid-2020, to identify an appropriate investment of capital in its generation fleet to satisfy the needs of its customers and comply with environmental regulations.
Indiana Electric Solar Project (CenterPoint Energy)
On February 20, 2018, Indiana Electric announced it was finalizing details to install an additional 50 MW of universal solar energy, consistent with its IRP, with a petition seeking authority to recover costs associated with the project pursuant to Indiana Senate Bill 29. Indiana Electric filed a settlement agreement with the intervening parties which provided for a rate recovery approach whereby the energy produced by the solar farm would be recovered via a fixed rate over the life of the investment within Indiana Electric’s CECA mechanism. On March 20, 2019, the IURC approved the settlement. Construction will commence, with expected completion of the project and inclusion in rates by January 2021.
Rate Change Applications
Houston Electric and CERCThe Registrants are routinely involved in rate change applications before state regulatory authorities. Those applications include general rate cases, where the entire cost of service of the utility is assessed and reset. In addition, Houston Electric is periodically involved in proceedings to adjust its capital tracking mechanisms (TCOS and DCRF) and annually files to adjust its
EECRF. CERC is periodically involved in proceedings to adjust its capital tracking mechanisms in Texas (GRIP), its cost of service adjustments in Arkansas, Louisiana, Mississippi and Oklahoma (FRP, RSP, RRA and PBRC, respectively), its decoupling mechanism in Minnesota, and its energy efficiency cost trackers in Arkansas, Minnesota, Mississippi and Oklahoma (EECR, CIP, EECR and EECR, respectively). CenterPoint Energy is periodically involved in proceedings to adjust its capital tracking mechanisms in Indiana (CSIA for gas and TDSIC for Electric) and Ohio (DRR), its decoupling mechanism in Indiana (SRC for gas), and its energy efficiency cost trackers in Indiana (EEFC for gas and DSMA for electric) and Ohio (EEFR).
The table below reflects significant applications pending or completed since our 2017the Registrants’ combined 2018 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 |
CenterPoint Energy and Houston Electric (PUCT) |
TCOSRate Case (1) | | N/A | | February
2018 $161.0 | | 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
20182019
| | TBD | | TBD | | RevisedOn April 5, 2019, Houston Electric filed its base rate application requestswith the PUCT and the cities in its service area to change its rates, seeking approval for base rate increases of approximately $154 million for service to retail customers and approximately $6.8 million for wholesale transmission service based on a test year ending December 31, 2018. This rate filing is based on a rate base of $6.5 billion and a 10.4% ROE. Houston Electric last filed for a base rate increase on June 30, 2010, with a test year ending December 31, 2009. Houston Electric also requested a prudency determination on all capital investments made since January 1, 2010, the establishment of a rider to refund to its customers approximately $97 million of unprotected EDIT resulting from the TCJA, updated depreciation rates, approval to clarify and update various non-rate tariff provisions, permission to install voltage regulation battery assets; and recovery of all reasonable and necessary rate case expenses. A procedural schedule was issued on May 1, 2019 EECRF of $41.7 million, includingscheduling a $8.4 million performance bonus.hearing in June 2019 and a final order to be issued in October 2019. |
DCRFCenterPoint Energy and CERC - Beaumont/East Texas, South Texas, Houston and Texas Coast (Railroad Commission) |
GRIP (1) | | 30.920.2 | | March 2019 | | July 2019 | | TBD | | Based on net change in invested capital of $123.8 million. |
CenterPoint Energy and CERC - Arkansas (APSC) |
FRP (1) | | 13.5 | | April 2019 | | October 2019 | | TBD | | Based on ROE of 9.5% approved in the last rate case. |
CenterPoint Energy and CERC - Mississippi (MPSC) |
RRA | | 2.0 | | May 2019 | | TBD | | TBD | | Based on ROE of 9.26%. |
CenterPoint Energy and CERC - Oklahoma (OCC) |
PBRC (1) | | 2.0 | | March 2019 | | TBD | | TBD | | Based on ROE of 10%. |
CenterPoint Energy - Indiana South-Gas (IURC) |
CSIA | | 2.7 | | October 2018 | | January 2019 | | January 2019 | | Requested an increase of $16.2 million to rate base, which reflects a $2.7 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase ($2.1 million) and 20% is deferred until next rate case ($0.5 million). Mechanism also includes refunds associated with the TCJA - change of $(2.1) million annually. Change in (over)/under-recovery variance of $(3.6) million annually also included in rates. |
CSIA (1) | | 5.2 | | April 2018 | | SeptemberJuly
20182019
| | TBD | | Unanimous settlement agreement resultsRequested an increase of $22.2 million to rate base, which reflects a $5.2 million annual increase in incremental annualcurrent revenues. 80% of revenue of $30.9 million.requirement is included in requested rate increase ($4.1 million) and 20% is deferred until next rate case ($1.0 million). The agreement filedmechanism also includes refunds associated with the PUCTTCJA - change of $1.1 million annually. Change in June 2018 recommends a $120.6(over)/under-recovery variance of $2.9 million annual revenue requirement effective September 1, 2018. The settlement agreementannually also reflects an approximately $39 million decreaseincluded in the 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.rates. |
CERCCenterPoint Energy - South Texas (Railroad Commission)Indiana North - Gas (IURC) |
Rate CaseCSIA | | (1.0)2.8 | | November 2017 | | May
2018
| | MayOctober 2018 | | Unanimous settlement agreement approved by the Railroad Commission in May 2018 that provides forJanuary 2019 | | January 2019 | | Requested an increase of $54.3 million to rate base, which reflects a $1$2.8 million annual decreaseincrease in current revenues. 80% of revenue requirement is included in requested rate increase ($2.3 million) and 20% is deferred until next rate case ($0.6 million). The settlement agreementmechanism also includes refunds associated with the TCJA - change of $(9.5) million annually. Change in (over)/under-recovery variance of $(17.3) million annually also included in rates. |
CSIA (1) | | 13.0 | | April 2018 | | July 2019 | | TBD | | Requested an increase of $57.8 million to rate base, which reflects an approximately $2a $13.0 million decreaseannual increase in current revenues. 80% of revenue requirement is included in requested rate increase ($10.4 million) and 20% is deferred until next rate case ($2.6 million). Mechanism also includes refunds associated with the federal income tax rate and amortizationTCJA - change of certain EDIT balances and establishing a 9.8% ROE for future GRIP filings for the South Texas jurisdiction.$(1.9) million annually. Change in (over)/under-recovery variance of $12.2 million annually also included in rates. |
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| | | | | | | | | | |
Mechanism | | Annual Increase (Decrease) (1) (in millions) | | Filing Date | | Effective Date | | Approval Date | | Additional Information |
CERCCenterPoint Energy - Beaumont/East Texas, Houston and Texas Coast (Railroad Commission)Ohio (PUCO) |
GRIPDRR (1) | | 14.710.6 | | MarchMay
20182019
| | JulySeptember
20182019
| | June
2018 TBD | | Based on net changeRequested an increase of $78.3 million to rate base for investment made in invested capital of $70.0 million and2018, which reflects a $14.7$10.6 million annual increase in current revenues. Also reflects an approximately $1.0Change in (over)/under-recovery variance of $(2.9) million decreaseannually also included in the federal income tax rate.rates. All pre-2018 investments are included in rate case request. |
Administrative 104.111 | | N/A | | July
2018Rate Case (1)
| | TBD | | TBD | | Beaumont/East Texas, Houston and Texas Coast propose to decrease base rates by $12.9 million to 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 deferred taxes is expected to be reflected in the next rate case. |
CERC - Arkansas (APSC) |
FRP | | 13.2 | | August
2018
| | October 2018 | | TBD | | Based on ROE of 9.5% as approved in the last rate case and reflects a $13.2 million annual increase in current 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 amortization of EDIT balances. |
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 reflecting 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. |
CERC - Mississippi (MPSC) |
RRA | | 5.7 | | May
2018
| | TBD | | TBD | | Based on authorized ROE of 9.144% and a capital structure of 50% debt and 50% 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. |
CERC - Oklahoma (OCC) |
PBRC | | 6.722.7 | | March 2018 | | TBD | | TBD | | Based on ROE of 10% and reflectsSettlement agreement awaiting approval by PUCO that provides for a $6.7$22.7 million annual increase in revenues, excludingcurrent revenues. Settlement agreement also includes $622 million of total rate base, a 7.48% overall rate of return, and extension of conservation and DRR programs. Order expected mid-year 2019. |
TSCR (1) | | (18.2) | | January 2019 | | TBD | | TBD | | Application to flow back to customers certain benefits from the effectsTCJA. Initial impact reflects credits for 2018 ($(10.2) million) and 2019 ($(8.0) million), with mechanism to begin in conjunction with new base rates. |
CenterPoint Energy - Indiana Electric (IURC) |
TDSIC (1) | | 2.7 | | February 2019 | | May 2019 | | TBD | | Requested an increase of the recently enacted TCJA . With TCJA impacts considered, the$24.4 million to rate base, which reflects a $2.7 million annual increase in current revenues. 80% of revenue requirement is reduced by approximately $1.2included in requested rate increase ($2.1 million) and 20% is deferred until next rate case ($0.5 million). Mechanism also includes refunds associated with the TCJA - change of $4.5 million annually. Change in (over)/under-recovery variance of $4.7million annually also included in rates. |
ECA - MATS (1) | | 12.5 | | February 2018 | | January 2019 | | April 2019 | | Requested an increase of $58.3 million to rate base, which reflects a $12.5 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase ($10.0 million) and 20% is deferred until next rate case ($2.5 million). Mechanism includes the effectsrecovery of prior accounting deferrals associated with investment (depreciation, carrying costs, operating expenses). |
CECA (1) | | 2.0 | | February 2019 | | June 2019 | | TBD | | Requested an increase of $13.0 million to rate base related to solar pilot investments, which reflects a lower federal income tax rate$2.0 million annual increase in current revenues. Additional solar investment to supply 50MW of solar capacity is approved and amortization of certain EDIT balances.will be included for recovery once completed in 2021. |
| |
(1) | Represents proposed increases (decreases) when effective date and/or approval date is not yet determined. Approved rates could differ materially from proposed rates. |
Tax Reform
ForTCJA-related 2018 tax expense refunds are currently included in the Registrants’ existing rates and are therefore reducing the Registrants’ current annual revenue. The TCJA-related 2018 tax expense refunds for Houston Electric are expected to be completed in September 2019. However, in Houston Electric’s rate case filed in April 2019, Houston Electric is proposing to continue returning other benefits of the TCJA through a separate rider that will return approximately $119 million to customers over the next three years. The TCJA is also expected to continue to return benefits to customers through Houston Electric’s base rates by approximately $73 million per year.
CenterPoint Energy’s electric and CERC’s NGD, federalnatural gas utilities in Indiana and Ohio, which were acquired during the Merger, currently recover corporate income tax expense is included in approved rates charged to customers. The IURC and the rates approved by state commissions and local municipalities and charged by those utilitiesPUCO both issued orders which initiated proceedings to consumers. As Houston Electric and NGD file general rate cases and other periodic rate adjustments,investigate the impactsimpact of the TCJA (includingon utility companies and customers within Indiana and Ohio, respectively. In addition, the lower tax rateIURC 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 returnPUCO have ordered each utility to establish regulatory liabilities to record all estimated impacts of tax savings resulting fromreform starting January 1, 2018 until the TCJAdate when rates are adjusted to consumers may differ depending on how each regulatory body requires uscapture these impacts. In Indiana, in response to return such savings. Regulatory commissions across most of Houston Electric’s and NGD’s jurisdictions have issued accounting ordersVectren’s pre-Merger filing for proposed changes to track or record a regulatory liability for (1) the difference between revenues collected under existingits rates and revenues that would have been collected hadcharges to consider the existing rates been set usingimpact of the recently approvedlower federal income tax rates, the IURC approved an initial reduction to current rates and (2)charges, effective June 1, 2018, to capture the balance of EDIT that now exists becauseimmediate impact of the reduction inlower corporate federal income tax rates.rate. The refund of excess deferred taxes and regulatory liabilities commenced in November 2018 for Indiana electric customers and in January 2019 for Indiana gas customers. In Ohio, the initial rate reduction to current rates and charges will be effective upon conclusion of its pending base rate case filed on March 30, 2018. In January 2019, an application was filed with PUCO in compliance with its October 2018 order requiring utilities to file for a request to adjust rates to reflect the impact of the TCJA, requesting authority to implement a rider to flow back to customers the tax benefits realized under the TCJA, including the refund of excess deferred taxes and regulatory liabilities. CenterPoint Energy expects this proceeding to be approved in conjunction with the pending base rate case.
ELG (CenterPoint Energy)
Under the Clean Water Act, the EPA sets technology-based guidelines for water discharges from new and existing electric generation facilities. In September 2015, the EPA finalized revisions to the existing steam electric ELG setting stringent technology-
based water discharge limits for the electric power industry. The EPA focused this rulemaking on wastewater generated primarily by pollution control equipment necessitated by the comprehensive air regulations, specifically setting strict water discharge limits for arsenic, mercury and selenium for scrubber waste waters. The ELG will be implemented when existing water discharge permits for the plants are renewed. In the case of Indiana Electric’s water discharge permits, in 2017 the IDEM issued final renewals for the F.B. Culley and A.B. Brown power plants. IDEM agreed that units identified for retirement by December 2023 would not be required to install new treatment technology to meet ELG, and approved a 2020 compliance date for dry bottom ash and a 2023 compliance date for flue gas desulfurization wastewater treatment standards for the remaining coal-fired unit at F.B. Culley.
On January 25,April 13, 2017, as part of the U.S. President’s Administration’s regulatory reform initiative, which is focused on the number and nature of regulations, the EPA granted petitions to reconsider the ELG rule, and indicated it would stay the current implementation deadlines in the rule during the pendency of the reconsideration. On September 13, 2017, EPA finalized a rule postponing certain interim compliance dates by two years, but did not postpone the final compliance deadline of December 31, 2023. In April 2018, the PUCT issuedEPA published an accounting ordereffluent guidelines program plan that anticipated a December 2019 rule revising the effluent limitations and pre-treatment standards for existing sources in Project No. 47945 directing electric utilities, including Houston Electric, to record as a regulatory liability (1) the difference between revenues collected under existing rates2015 rule. On April 12, 2019, the U.S. Court of Appeals for the Fifth Circuit vacated 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 becauseremanded portions of the reductionELG rule that selected impoundment as the best available technology for legacy wastewater and leachate. It is not clear what revisions to the ELG rule the EPA will implement, or what effect those revisions may have. As Indiana Electric does not currently have short-term ELG implementation deadlines in federal income tax rates. On February 13, 2018, Houston Electricits recently renewed wastewater discharge permits, it does not anticipate immediate impacts from the EPA’s two-year extension of preliminary implementation deadlines due to the longer compliance time frames granted by IDEM and other likely partieswill continue to a future rate case announced a settlement that requires Houston Electricwork with IDEM 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, 2017evaluate further implementation plans.
CPP 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.ACE Rule (CenterPoint Energy)
On January 12,August 3, 2015, the EPA released its final CPP Rule, which required a 32% reduction in carbon emissions from 2005 levels. The final rule was published in the Federal Register on October 23, 2015, and that action was immediately followed by litigation ultimately resulting in the U.S. Supreme Court staying implementation of the rule. On August 31, 2018, the APSC issuedEPA published its proposed CPP replacement rule, the ACE Rule, which if finalized, would require that each state set unit by unit heat rate performance standards, considering such factors as remaining useful life. Under the ACE Rule, a state would have three years to finalize its program and the EPA would have 18 months to approve, making compliance likely in 2023 or 2024. Comments to the ACE Rule proposal were due October 31, 2018. Indiana Electric filed comments which largely support the EPA’s ACE proposal. The EPA has not yet finalized the ACE Rule.
Impact of Legislative Actions & Other Initiatives (CenterPoint Energy)
At this time, compliance costs and other effects associated with reductions in GHG emissions or obtaining renewable energy sources remain uncertain. From 2005 through 2017, Indiana Electric has achieved reduced emissions of CO2 by an order in Docket No. 18-006-U opening an investigatory docket intoaverage of 35% (on a tonnage basis) and expects to be above the TCJA32% reduction that would be required under the CPP Rule. While the litigation and directing utilities, including CERC, to record as a regulatory liability the current and deferred impactsEPA’s reconsideration of the TCJA. On July 26, 2018, the APSC issued an order in the investigatory docket requiring CERCCPP Rule remains uncertain, Indiana Electric will continue 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.monitor regulatory activity regarding GHG emission standards that may affect its electric generating units.
FERC Revised Policy Statement and NOPR (CenterPoint Energy and CERC)
OnThe regulation of midstream energy infrastructure assets has a significant impact on Enable’s business. For example, Enable’s interstate natural gas transportation and storage assets are subject to regulation by the FERC under the Natural Gas Act. In March 15, 2018, the FERC addressed treatment of federal income tax allowances in FERC-regulated pipeline rates. The FERC issuedannounced a Revised Policy Statement stating that it willwould no longer permitallow pipelines organized as MLPsa master limited partnership to recover an income tax allowance in their cost-of-service rates. TheIn July 2018, the FERC issued new regulations which required all FERC-regulated natural gas pipelines to make a one-time Form No. 501-G filing providing certain financial information. In October 2018, Enable Gas Transmission, LLC filed its Form No. 501-G and filed a statement that it intended to take no other action. On March 8, 2019, the Revised Policy StatementFERC terminated the 501-G proceeding and required no other action. MRT did not file a FERC Form No. 501-G because it had filed a general rate case in response to a remand from the U.S. Court of Appeals for the D.C. Circuit in United Airlines v. FERC. OnJune 2018. In July 18, 2018, the FERC issued an order denying requestsaccepting MRT’s proposed rate increases subject to refund upon a final determination of MRT’s rates and ordering MRT to refile its rate case to reflect the elimination of an income tax allowance in its cost-of-service rates. On August 30, 2018, MRT submitted a supplemental filing to comply with the FERC’s order. MRT has appealed the FERC’s order to eliminate the income tax allowance in its cost-of-service rates. On February 19, 2019, the FERC set MRT’s refiled rate case for rehearing of its Revised Policy Statement because it is a non-binding policy and parties will have the opportunityhearing set to address the policy as appliedbegin 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.November 2019.
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
The Registrants may draw on their respective revolving credit facilities from time to time to provide funds used for general corporate and limited liability company purposes, including to backstop 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 the Registrants’ revolving credit facilities, please see Note 12 to the Interim Condensed Financial Statements.
Based on the consolidated debt to capitalization covenant in the Registrants’ revolving credit facilities, the Registrants would have been permitted to utilize the full capacity of such revolving credit facilities, which aggregated approximately $5.1 billion as of March 31, 2019. As of July 23, 2018,April 25, 2019, the Registrants had the following revolving credit facilities and utilization of such facilities:
|
| | | | | | | | | | |
Registrant | | Size of Facility | | Amount Utilized (1) | | Termination Date |
(in millions) |
CenterPoint Energy | | $ | 1,700 |
| (2) | $ | 309 |
| (3) | March 3, 2022 |
Houston Electric | | 300 |
| | 4 |
| (4) | March 3, 2022 |
CERC Corp. | | 900 |
| | 513 |
| (5) | March 3, 2022 |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Amount Utilized as of April 25, 2019 | | | | |
Registrant | | Size of Facility | | Loans | | Letters of Credit | | Commercial Paper | | Weighted Average Interest Rate | | Termination Date |
| | (in millions) | | | | |
CenterPoint Energy (1) | | $ | 3,300 |
| | $ | — |
| | $ | 6 |
| | $ | 2,783 |
| | 2.82% | | March 3, 2022 |
CenterPoint Energy (2) | | 400 |
| | — |
| | — |
| | 143 |
| | 2.67% | | July 14, 2022 |
CenterPoint Energy (3) | | 200 |
| | 135 |
| | — |
| | — |
| | 3.73% | | July 14, 2022 |
Houston Electric | | 300 |
| | — |
| | 4 |
| | — |
| | —% | | March 3, 2022 |
CERC (4) | | 900 |
| | — |
| | 1 |
| | 313 |
| | 2.64% | | March 3, 2022 |
Total | | $ | 5,100 |
| | $ | 135 |
| | $ | 11 |
| | $ | 3,239 |
| | | | |
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(1) | Based onApproximately $1.7 billion of outstanding commercial paper was issued to refinance commercial paper used to fund a portion of the consolidated debtcash consideration for the Merger, pay related fees and expenses, pay Vectren’s stub period cash dividend and long-term incentive payments and repay indebtedness of Vectren subsidiaries redeemed at the option of the holder as a result of the closing of the Merger. CenterPoint Energy expects to capitalization covenantrefinance or otherwise fund the repayment of maturing commercial paper through its sources of cash described in our revolving credit facility“—Liquidity and the revolving credit facilityCapital Resources—Future Sources and Uses 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, 2018.Cash.” |
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(2) | Pursuant to the amendment entered into in May 2018, the aggregate commitments under the CenterPoint Energy revolvingThe 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.was issued by VUHI and is guaranteed by SIGECO, Indiana Gas and VEDO. |
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(3) | Represents outstanding commercial paper of $303 millionThe credit facility was issued by VCC and outstanding letters of credit of $6 million.is guaranteed by Vectren. |
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(4) | Represents outstanding letters of credit. |
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(5) | Represents outstanding commercial paper of $512 million and outstanding letters ofThe credit of $1 million.facility was issued by CERC Corp. |
Borrowings under each of the three revolving credit facilities are subject to customary terms and conditions. However, there is no requirement that the borrower makes representations prior to borrowing 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
In February 2018, Houston Electric issued $400 million aggregate principal amount of general mortgage bonds. In March 2018, CERC Corp. issued $600 million aggregate principal amount of unsecured senior notes. For furtherdetailed information about our 2018the Registrants’ debt issuances and redemptions in 2019, see Note 12 to the 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 |
|
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, the Registrants filed a joint shelf registration statement with the SEC, as amended on September 24, 2018, registering indeterminate principal amounts of Houston Electric’s general mortgage bonds, CERC Corp.’s senior debt securities and CenterPoint Energy’s senior debt securities and junior subordinated debt securities and an indeterminate number of CenterPoint Energy’s shares of common stock,Common Stock, shares of preferred stock, depositary shares, as well as stock purchase contracts and equity units. The joint shelf registration statement will expire on January 31, 2020. For information related to the Registrants’ debt securities issuances to date in 2019, see Note 12 to the Interim Condensed Financial Statements.
Temporary Investments
As of July 23, 2018,April 25, 2019, the Registrants had no temporary external investments.
Money Pool (Houston Electric and CERC)
We haveThe Registrants participate in a money pool through which the holding companythey and participatingcertain of their subsidiaries can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings under ourCenterPoint Energy’s revolving credit facility or the sale of ourCenterPoint Energy’s commercial paper. The money pool may not provide sufficient funds to meet our subsidiaries’the Registrants’ cash needs. As of July 23, 2018, Houston Electric and CERC had borrowings from the
The table below summarizes money pool activity by Registrant as of $63 million and $-0-, respectively.April 25, 2019:
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| | | | | | | | | |
| Weighted Average Interest Rate | | Houston Electric | | CERC |
| | | (in millions) |
Money pool investments | 2.86% | | $ | 952 |
| | $ | 299 |
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Impact on Liquidity of a Downgrade in Credit Ratings
The interest on borrowings under the Registrants’ credit facilities is based on theireach respective borrower’s credit ratings. As of July 23, 2018,April 25, 2019, Moody’s, S&P and Fitch had assigned the following credit ratings to senior debt of the Registrants:borrowers:
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| | | | Moody’s | | S&P | | Fitch |
Company/Registrant | | Borrower/Instrument | | Rating | | Outlook (1) | | Rating | | CreditWatchOutlook (2) | | Rating | | Outlook (3) |
CenterPoint Energy | | CenterPoint Energy Senior Unsecured Debt | | Baa1Baa2 | | Stable | | BBB | | Stable | | BBB | | Stable |
CenterPoint Energy | | Vectren Corp. Issuer Rating | | n/a | | n/a | | BBB+ | | Stable | | n/a | | n/a |
CenterPoint Energy | | VUHI Senior Unsecured Debt | | A2 | | Negative | | BBB+ | | Stable | | n/a | | n/a |
CenterPoint Energy | | Indiana Gas Senior Unsecured Debt | | A2 | | Negative | | BBBBBB+ | | Stable | | n/a | | n/a |
CenterPoint Energy | | SIGECO Senior Secured Debt | | Aa3 | | Negative | | A | | Stable | | n/a | | n/a |
Houston Electric | | Houston Electric Senior Secured Debt | | A1 | | Stable | | A | | NegativeStable | | A+ | | Stable |
CERC | | CERC Corp. Senior Unsecured Debt | | Baa2Baa1 | | Positive | | BBB+ | | Stable | | A-BBB+ | | Negative | | BBB | | PositiveStable |
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(1) | A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’s rating over the medium term. |
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(2) | An S&P CreditWatchoutlook assesses the potential direction of a short-term or long-term credit rating.rating over the intermediate to longer term. |
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(3) | A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-year period. |
We
The Registrants cannot assure that the ratings set forth above will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. WeThe Registrants note that these credit ratings are included for informational purposes and are not recommendations to buy, sell or hold ourthe Registrants’ securities and may be revised or withdrawn at any time by the rating agency. Each rating should be evaluated independently of any other rating. Any future reduction or withdrawal of one or more of ourthe Registrants’ credit ratings could have a material adverse impact on ourthe Registrants’ ability to obtain short- and long-term financing, the cost of such financings and the execution of ourthe Registrants’ commercial strategies.
A decline in credit ratings could increase borrowing costs under the Registrants’ revolving credit facilities. If the Registrants’ credit ratings had been downgraded one notch by each of the three principal credit rating agencies from the ratings that existed as of June 30, 2018,March 31, 2019, the impact on the borrowing costs under the threefive 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 the 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 CenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services businessreportable segments.
CES, a wholly-owned subsidiary of CERC Corp. operating in ourthe Energy Services businessreportable 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 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, 2018,March 31, 2019, the amount posted by CES as collateral aggregated approximately $50$18 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. WeCenterPoint Energy and CERC estimate that as of June 30, 2018,March 31, 2019, unsecured credit limits extended to CES by counterparties aggregated $348$268 million, and less than $1 millionnone of such amount was utilized.
Pipeline tariffs and contracts typically provide that if the credit ratings of a shipper or the shipper’s guarantor drop below a threshold level, which is generally investment grade ratings from both Moody’s and S&P, cash or other collateral may be demanded from the shipper in an amount equal to the sum of three months’ charges for pipeline services plus the unrecouped cost of any lateral built for such shipper. If the credit ratings of CERC Corp. decline below the applicable threshold levels, CERC Corp. might need to provide cash or other collateral of as much as $184$195 million as of June 30, 2018.March 31, 2019. The amount of collateral will depend on seasonal variations in transportation levels.
ZENS and Securities Related to ZENS (CenterPoint Energy)
If ourCenterPoint Energy’s creditworthiness were to drop such that ZENS holders thought ourits liquidity was adversely affected or the market for the ZENS were to become illiquid, some ZENS holders might decide to exchange their ZENS for cash. Funds for the payment of cash upon exchange could be obtained from the sale of the shares of ZENS-Related Securities that we ownCenterPoint Energy owns or from other sources. We ownCenterPoint Energy owns shares of ZENS-Related Securities equal to approximately 100% of the reference shares used to calculate ourits obligation to the holders of the ZENS. ZENS exchanges result in a cash outflow because tax deferrals related to the ZENS and shares of ZENS-Related Securities shares would typically cease when ZENS are exchanged or otherwise retired and shares of ZENS-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 or exchange of the ZENS. If all ZENS had been exchanged for cash on June 30, 2018,March 31, 2019, deferred taxes of approximately $408$433 million would have been payable in 2018.2019. If all the ZENS-Related Securities had been sold on June 30, 2018,March 31, 2019, capital gains taxes of approximately $100$107 million would have been payable in 2018.
2019 based on 2019 tax rates in effect. For additional information about ZENS, see Note 11 to the Interim Condensed Financial Statements.
Cross Defaults
Under CenterPoint 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 it or any of its significant subsidiaries will cause a default. A default by CenterPoint Energy would not trigger a default under its subsidiaries’ debt instruments or revolving credit facilities.
Possible Acquisitions, Divestitures and Joint Ventures
From time to time, wethe Registrants consider the acquisition or the disposition of assets or businesses or possible joint ventures, strategic initiatives or other joint ownership arrangements with respect to assets or businesses. Any determination to take action in this regard will be based on market conditions and opportunities existing at the time, and accordingly, the timing, size or success of any efforts and the associated potential capital commitments are unpredictable. WeThe Registrants may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances. Debt or equity financing may not, however, be available to usthe Registrants at that time due to a variety of events, including, among others, maintenance of our credit ratings, industry conditions, general economic conditions, market conditions and market perceptions.
In February 2016, we 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 decided that we will not pursue a spin option at this time. In the fourth 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 reached. WeAdditionally, CenterPoint Energy may also reduce ourits ownership in Enable over time through sales in the public equity markets, or otherwise, of the Enable common units we hold,it holds, subject to market conditions. AlthoughCenterPoint Energy’s ability to execute any sale of Enable common units is subject to a transactionnumber of uncertainties, including the timing, pricing and terms of any such sale. Any sales of Enable common units CenterPoint Energy owns could have an adverse impact on the price of Enable common units or on any trading market for Enable common units. Further, CenterPoint Energy’s sales of Enable common units may have an adverse impact on Enable’s ability to issue equity on satisfactory terms, or at all, our interestswhich may limit its ability to expand operations or make future acquisitions. Any reduction in CenterPoint Energy’s interest in Enable is not viable at this time, wewould result in decreased distributions from Enable and decrease income, which may pursue suchadversely impact its ability to meet its payment obligations and pay dividends on its Common Stock. Further, any sales of Enable common units would result in a transaction if it is viable in the future.significant amount of taxes due. There can be no assurances that we will engage 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 unless and until our Board of Directors approves a specific transaction or as otherwise required by applicable law or NYSE regulations.completed. Any sale transaction or sale of Enable 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. WeCenterPoint Energy may not realize any or all of the anticipated strategic, financial, operational or other benefits from any completed sale or reduction in ourits investment in Enable.
Enable Midstream Partners (CenterPoint(CenterPoint Energy and CERC)
We receiveIn September 2018, CERC completed the Internal Spin, after which CERC’s equity investment in Enable met the criteria for discontinued operations classification. As a result, the operations have been classified as Income from discontinued operations, net of tax, in CERC’s Condensed Statements of Consolidated Income for the periods presented. For further information, see Note 9 to the Interim Condensed Financial Statements.
CenterPoint Energy receives quarterly cash distributions from Enable on its common units and Enable Series A Preferred Units we own.Units. A reduction in the cash distributions we receiveCenterPoint Energy receives from Enable could significantly impact ourCenterPoint Energy’s liquidity. For additional information about cash distributions from Enable, see Notes 9 and 1921 to the Interim Condensed Financial Statements.
Hedging of Interest Expense for Future Debt Issuances
From time to time, wethe Registrants may enter into forward interest rate agreements to hedge, in part, volatility in the U.S. treasury rates by reducing variability in cash flows related to interest payments. For further information, see Note 7(a) to the Interim Condensed Financial Statements.
Weather Hedge (CenterPoint Energy and CERC)
WeCenterPoint Energy and CERC have historically entered into partial weather hedges for certain NGD jurisdictions and electric operations’ Texas service territory to mitigate the impact of fluctuations from normal weather. WeCenterPoint Energy and CERC remain exposed to some weather risk as a result of the partial hedges. For more information about our weather hedges, see Note 7(a) to the 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, ourthe Registrants’ liquidity and capital resources could be affected by:
cash collateral requirements that could exist in connection with certain contracts, including weather hedging arrangements, and natural gas purchases, natural gas price and natural gas storage activities of theCenterPoint Energy’s and CERC’s Natural Gas Distribution and Energy Services businessreportable 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;suppliers (CenterPoint Energy and CERC);
increased costs related to the acquisition of natural gas;gas (CenterPoint Energy and CERC);
increases in interest expense in connection with debt refinancings and borrowings under credit facilities;
various legislative or regulatory actions;
incremental collateral, if any, that may be required due to regulation of derivatives;
the ability of GenOnderivatives (CenterPoint Energy and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations in respect of GenOn’s indemnity obligations to us;
CERC);
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;
slower customer payments and increased write-offs of receivables due to higher natural gas prices or changing economic conditions; conditions (CenterPoint Energy and CERC);
the satisfaction of any obligations pursuant to guarantees;
the outcome of litigation;
contributions to pension and postretirement benefit plans;plans (CenterPoint Energy);
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 each of the Registrants’ 2017 Form 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 ourthe Registrants’ and certain of CenterPoint Energy’s subsidiaries’ revolving credit facilities, see Note 12 to the Interim Condensed Financial Statements.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Interim Condensed Financial Statements, incorporated herein by reference, for a discussion of new accounting pronouncements that affect us.the Registrants.
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Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Houston Electric and CERC meet the conditions specified in General Instruction H(1)(a) and (b) to Form 10-Q and are therefore permitted to use the reduced disclosure format for wholly-owned subsidiaries of reporting companies. Accordingly, Houston Electric and CERC have omitted from this report the information called for by Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I of the Form 10-Q.
Interest Rate Risk (CenterPoint Energy)
As of June 30, 2018, weMarch 31, 2019, CenterPoint Energy had outstanding long-term debt, lease obligations and obligations under ourits ZENS that subject usit to the risk of loss associated with movements in market interest rates.
OurCenterPoint Energy’s floating rate obligations aggregated $565$3.9 billion and $210 million and $1.8 billion as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. If the floating interest rates were to increase by 10% from June 30, 2018March 31, 2019 rates, ourCenterPoint Energy’s combined interest expense would increase by approximately $1$11 million annually.
As of June 30, 2018March 31, 2019 and December 31, 2017, we2018, CenterPoint Energy had outstanding fixed-rate debt (excluding indexed debt securities) aggregating $7.8$10.3 billion and $7.0$9.0 billion, respectively, in principal amount and having a fair value of $8.010.9 billion and $7.5$9.2 billion, respectively. Because these instruments are fixed-rate, they do not expose usCenterPoint Energy to the risk of loss in earnings due to changes in market interest rates. However, the fair value of these instruments would increase by approximately $266$350 million if interest rates were to decline by 10% from levels at June 30, 2018.March 31, 2019. In general, such an increase in fair value would impact earnings and cash flows only if weCenterPoint Energy were to reacquire all or a portion of these instruments in the open market prior to their maturity.
The ZENS obligation is bifurcated into a debt component and a derivative component. The debt component of $2623 million as of June 30, 2018March 31, 2019 was a fixed-rate obligation and, therefore, did not expose usCenterPoint Energy to the risk of loss in earnings due to changes in market interest rates. However, the fair value of the debt component would increase by approximately $183 million if interest rates were to decline by 10% from levels at June 30, 2018.March 31, 2019. Changes in the fair value of the derivative component, a $641$687 million recorded liability at June 30, 2018,March 31, 2019, are recorded in ourCenterPoint Energy’s Condensed Statements of Consolidated Income and, therefore, we areit is exposed to changes in the fair value of the derivative component as a result of changes in the underlying risk-free interest rate. If the risk-free interest rate were to increase by 10% from June 30, 2018March 31, 2019 levels, the fair value of the derivative component liability would decrease by approximately $21 million, which would be recorded as an unrealized gain in ourCenterPoint Energy’s Condensed Statements of Consolidated Income.
Equity Market Value Risk (CenterPoint Energy)
We areCenterPoint Energy is exposed to equity market value risk through ourits ownership of 10.2 million shares of AT&T Common and 0.9 million shares of Charter Common, which we holdCenterPoint Energy holds to facilitate ourits ability to meet ourits obligations under the ZENS. See Note 11 to the condensed consolidated financial statements for a discussion of CenterPoint Energy’s ZENS obligation. Changes in the fair value of the ZENS-Related Securities held by CenterPoint Energy are expected to substantially offset changes in the fair value of the derivative component of the ZENS. A decrease of 10% from the June 30, 2018March 31, 2019 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 ourCenterPoint Energy’s Condensed Statements of Consolidated Income.
Commodity Price Risk From Non-Trading Activities (CenterPoint Energy and CERC)Energy)
We useCenterPoint Energy uses derivative instruments as economic hedges to offset the commodity price exposure inherent in our businesses.its Energy Services business. The commodity risk created by these instruments, including the offsetting impact on the market value of natural gas inventory, is described below. We measureCenterPoint Energy measures this commodity risk using a sensitivity analysis. For purposes of this analysis, we estimateCenterPoint Energy estimates commodity price risk by applying a $0.50 change in the forward NYMEX price to ourits 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, 2018,March 31, 2019, the recorded fair value of ourCenterPoint Energy’s non-trading energy derivatives was a net asset of $50$38 million (before collateral), all of which is related to ourthe Energy Services businessreportable segment. A $0.50 change in the forward NYMEX price would have had a combined impact of $8$9 million on ourCenterPoint Energy’s 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 ourEnergy Services’ natural gas inventory (Gas Daily) and the related fair value hedge (NYMEX) can result in volatility to ourCenterPoint Energy’s 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.
CenterPoint Energy’s regulated operations in Indiana have limited exposure to commodity price risk for transactions involving purchases and sales of natural gas, coal and purchased power for the benefit of retail customers due to current state regulations, which, subject to compliance with those regulations, allow for recovery of the cost of such purchases through natural gas and fuel cost adjustment mechanisms. CenterPoint Energy’s utility natural gas operations in Indiana have regulatory authority to lock in pricing for up to 50% of annual natural gas purchases using arrangements with an original term of up to 10 years. This authority has been utilized to secure fixed price natural gas using both physical purchases and financial derivatives. As of March 31, 2019, the recorded fair value of non-trading energy derivative liabilities was $10 million for CenterPoint Energy’s utility natural gas operations in Indiana, which is offset by a regulatory asset.
Although CenterPoint Energy’s regulated operations are exposed to limited commodity price risk, natural gas and coal prices have other effects on working capital requirements, interest costs, and some level of price-sensitivity in volumes sold or delivered. Constructive regulatory orders, such as those authorizing lost margin recovery, other innovative rate designs and recovery of unaccounted for natural gas and other natural gas-related expenses, also mitigate the effect natural gas costs may have on CenterPoint Energy’s financial condition. In 2008, the PUCO approved an exit of the merchant function in CenterPoint Energy’s Ohio natural gas service territory, allowing Ohio customers to purchase substantially all natural gas directly from retail marketers rather than from CenterPoint Energy.
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Item 4. | CONTROLS AND PROCEDURES |
In accordance with Exchange Act Rules 13a-15 and 15d-15, the Registrants carried out separate evaluations, under the supervision and with the participation of each company’s management, including the principal executive officer and principal financial officer, of the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based on those evaluations, the principal executive officer and principal financial officer, in each case, concluded that the disclosure controls and procedures were effective as of June 30, 2018March 31, 2019 to provide assurance that information required to be disclosed in the 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 management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.
ThereOn the Merger Date, CenterPoint Energy completed the acquisition of Vectren. CenterPoint Energy is currently in the process of evaluating the control environment and implementing CenterPoint Energy’s internal control structure over the acquired operations. This effort is expected to continue through 2019. With the exception of the implementation of the Vectren acquisition into CenterPoint Energy’s control structure, there has been no change in the Registrants’ internal controls over financial reporting that occurred during the three months ended June 30, 2018March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Registrants’ internal controls over financial reporting.
PART II. OTHER INFORMATION
For a description of certain legal and regulatory proceedings, please read Note 14(b)14(c) to the Interim Condensed Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Future Sources and Uses of Cash” and “— Regulatory Matters,” each of which is incorporated herein by reference. See also “Business“Business — Regulation” and “— Environmental Matters”Matters” in Item 1 and “Legal Proceedings”“Legal Proceedings” in Item 3 of each of the Registrants’ 2017combined 2018 Form 10-K.
There have been no material changes from the risk factors disclosed in each of the Registrants’ 2017 Form 10-K and CenterPoint Energy’s First Quartercombined 2018 Form 10-Q.10-K.
Ratio of Earnings to Fixed Charges. The Registrants do not believe that the ratios for these six-month periods are necessarily indicative of the ratios for the 12-month periods due to the seasonal nature of their 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 |
Exhibits filed herewith are designated by a cross (+); all exhibits not so designated are incorporated by reference to a prior filing as indicated. Agreements included as exhibits are included only to provide information to investors regarding their terms. Agreements listed below may contain representations, warranties and other provisions that were made, among other things, to provide the parties thereto with specified rights and obligations and to allocate risk among them, and no such agreement should be relied upon as constituting or providing any factual disclosures about the Registrants, any other persons, any state of affairs or other matters.
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrants have not filed as exhibits to this Form 10-Q certain long-term debt instruments, including indentures, under which the total amount of securities authorized does not exceed 10% of the total assets of the Registrants and its subsidiaries on a consolidated basis. The Registrants hereby agree to furnish a copy of any such instrument to the SEC upon request.
| | Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC | | 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 | | | | | 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 | | x | | | | | CenterPoint Energy’s Form 8-K dated July 24, 2008 | | 1-31447 | | 3.2 | | x | |
3.2 | | | | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | | 1-3187 | | 3.1 | | x | | | | | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | | 1-3187 | | 3.1 | | x | |
3.3 | | Certificate of Incorporation of RERC Corp.
| | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(1) | | x | | Certificate of Incorporation of RERC Corp.
| | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(a)(1) | | x |
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 | | 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 | | 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 | | | | 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 | | | | | 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 | | | | | 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 | | 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 | | | | | CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 | | 1-31447 | | 3(c) | | x | |
3.11 | | | | | CenterPoint Energy’s Form 8-K dated August 22, 2018 | | 1-31447 | | 3.1 | | x | |
3.12 | | | | | CenterPoint Energy’s Form 8-K dated September 25, 2018 | | 1-31447 | | 3.1 | | x | |
4.1 | | | | | CenterPoint Energy’s Registration Statement on Form S-4 | | 3-69502 | | 4.1 | | x | |
4.2 | | | | | CenterPoint Energy’s Form 8-K dated August 22, 2018 | | 1-31447 | | 4.1 | | x | |
|
| | | | | | | | | | | | | | |
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 |
|
| | | | | | | | | | | | | | |
Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
4.3 | | | | CenterPoint Energy’s Form 8-K dated September 25, 2018 | | 1-31447 | | 4.1 | | x | | | | |
4.4 | | | | CenterPoint Energy’s Form 8-K dated September 25, 2018 | | 1-31447 | | 4.2 | | x | | | | |
4.5 | | | | CenterPoint Energy’s Form 8-K dated September 25, 2018 | | 1-31447 | | 4.3 | | x | | | | |
4.6 | | | | CenterPoint Energy’s Form 8-K dated March 3, 2016 | | 1-31447 | | 4.1 | | x | | | | |
4.7 | | | | CenterPoint Energy’s Form 8-K dated March 3, 2016 | | 1-31447 | | 4.2 | | x | | x | | |
4.8 | | | | CenterPoint Energy’s Form 8-K dated March 3, 2016 | | 1-31447 | | 4.3 | | x | | | | x |
4.9 | | | | CenterPoint Energy’s Form 8-K dated June 16, 2017 | | 1-31447 | | 4.1 | | x | | | | |
4.10 | | | | CenterPoint Energy’s Form 8-K dated May 25, 2018 | | 1-31447 | | 4.1 | | x | | | | |
4.11 | | | | CenterPoint Energy’s Form 8-K dated June 16, 2017 | | 1-31447 | | 4.2 | | x | | x | | |
4.12 | | | | CenterPoint Energy’s Form 8-K dated June 16, 2017 | | 1-31447 | | 4.3 | | x | | | | x |
4.13 | | | | Vectren’s Form 8-K dated July 17, 2017 | | 1-15467 | | 10.1 | | x | | | | |
4.14 | | | | Vectren’s Form 8-K dated July 17, 2017 | | 1-15467 | | 10.2 | | x | | | | |
4.15 | | | | Vectren’s Form 8-K dated July 30, 2018 | | 1-15467 | | 10.1 | | x | | | | |
4.16 | | | | Vectren’s Form 8-K dated September 18, 2018 | | 1-15467 | | 10.1 | | x | | | | |
4.17 | | Mortgage and Deed of Trust dated as of April 1, 1932 between SIGECO and Bankers Trust Company, as Trustee, as amended and supplemented by 28 Supplemental Indentures thereto | | Post-Effective Amendment No. 1
Form 8-K dated June 1, 1984
Form 8-K dated March 24, 1986 Form 8-K dated June 3, 1986 | | 2-2536 2-62032
2-88923 1-3553
1-3553 1-3553 | | B-1, B-2 (b)(4)(ii)
4(b)(2) 4
4-A 4 | | x x
x x
x x | | | | |
|
| | | | | | | | | | | | | | |
Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
4.18 | | Additional Supplemental Indentures to Exhibit 4.17: | | | | | | | | x | | | | |
| | Date as of | | File Reference | | Exhibit No. | | | | | | | | |
| | July 1, 1985 | | 1-3553, SIGECO’s Form 10-K for the fiscal year 1985 | | 4-A | | | | | | | | |
| | November 1, 1985 | | 1-3553, SIGECO’s Form 10-K for the fiscal year 1985 | | 4-A | | | | | | | | |
| | November 15, 1986 | | 1-3553, SIGECO’s Form 10-K for the fiscal year 1986 | | 4-A | | | | | | | | |
| | January 15, 1987 | | 1-3553, SIGECO’s Form 10-K for the fiscal year 1986 | | 4-A | | | | | | | | |
| | December 15, 1987 | | 1-3553, SIGECO’s Form 10-K for the fiscal year 1987 | | 4-A | | | | | | | | |
| | December 13, 1990 | | 1-3553, SIGECO’s Form 10-K for the fiscal year 1990 | | 4-A | | | | | | | | |
| | April 1, 1993 | | 1-3553, SIGECO’s Form 8-K dated April 13, 1993 | | 4 | | | | | | | | |
| | June 1, 1993 | | 1-3553, SIGECO’s Form 8-K dated June 14, 1993 | | 4 | | | | | | | | |
| | | | 1-3553, SIGECO’s Form 10-K for the fiscal year 1993 | | 4(a) | | | | | | | | |
| | | | 1-3553, SIGECO’s Form 10-Q for the quarter ended June 30, 1999 | | 4(a) | | | | | | | | |
| | | | 1-15467, Vectren’s Form 10-K for the year ended December 31, 2001 | | 4.1 | | | | | | | | |
| | | | 1-15467, Vectren’s Form 10-K for the year ended December 31, 2004 | | 4.1 | | | | | | | | |
| | | | 1-15467, Vectren’s Form 10-K for the year ended December 31, 2004 | | 4.2 | | | | | | | | |
| | | | 1-15467, Vectren’s Form 10-K for the year ended December 31, 2007 | | 4.1 | | | | | | | | |
| | | | 1-15467, Vectren’s Form 10-K for the year ended December 31, 2007 | | 4.2 | | | | | | | | |
| | | | 1-15467, Vectren’s Form 10-K for the year ended December 31, 2007 | | 4.3 | | | | | | | | |
|
| | | | | | | | | | | | | | |
Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
| | Date as of | | File Reference | | Exhibit No. | | | | | | | | |
| | | | 1-15467, Vectren’s Form 10-K for the year ended December 31, 2009 | | 4.1 | | | | | | | | |
| | | | 1-15467, Vectren’s Form 8-K dated April 30, 2013 | | 4.1 | | | | | | | | |
| | | | 1-15467, Vectren’s Form 8-K dated September 25, 2014 | | 4.1 | | | | | | | | |
| | | | 1-15467, Vectren’s Form 8-K dated September 10, 2015 | | 4.1 | | | | | | | | |
4.19 | | Indenture dated February 1, 1991 between Indiana Gas Company, Inc. and U.S Bank Trust National Association (formerly known as First Trust National Association, which was formerly known as Bank of America Illinois, which was formerly known as Continental Bank, National Association) | | Indiana Gas’s Form 8-K filed February 15, 1991 | | 1-6494 | | 4(a) | | x | | | | |
4.20 | | First Supplemental Indenture to Exhibit 4.19, dated as of February 15, 1991 | | Indiana Gas’s Form 8-K filed February 15, 1991 | | 1-6494 | | 4(b) | | x | | | | |
4.21 | | Second Supplemental Indenture to Exhibit 4.19, dated as of September 15, 1991 | | Indiana Gas’s Form 8-K filed September 25, 1991 | | 1-6494 | | 4(b) | | x | | | | |
4.22 | | Third Supplemental Indenture to Exhibit 4.19, dated as of September 15, 1991 | | Indiana Gas’s Form 8-K filed September 25, 1991 | | 1-6494 | | 4(c) | | x | | | | |
4.23 | | Fourth Supplemental Indenture to Exhibit 4.19, dated as of December 2, 1992 | | Indiana Gas’s Form 8-K filed December 8, 1992 | | 1-6494 | | 4(b) | | x | | | | |
4.24 | | | | Indiana Gas’s Form 8-K filed December 27, 2000 | | 1-6494 | | 4 | | x | | | | |
4.25 | | | | VUHI’s Form 8-K dated October 19, 2001 | | 1-16739 | | 4.1 | | x | | | | |
4.26 | | | | VUHI’s Form 8-K dated October 19, 2001 | | 1-16739 | | 4.2 | | x | | | | |
4.27 | | | | VUHI’s Form 8-K dated November 29, 2001 | | 1-16739 | | 4.1 | | x | | | | |
4.28 | | | | VUHI’s Form 8-K dated July 24, 2003 | | 1-16739 | | 4.1 | | x | | | | |
4.29 | | | | VUHI’s Form 8-K dated November 18, 2005 | | 1-16739 | | 4.1 | | x | | | | |
4.30 | | | | VUHI’s Form 8-K dated October 16, 2006 | | 1-16739 | | 4.1 | | x | | | | |
4.31 | | | | VUHI’s Form 8-K dated March 10, 2008 | | 1-16739 | | 4.1 | | x | | | | |
4.32 | | | | Vectren’s Form 8-K dated March 16, 2009 | | 1-15467 | | 4.5 | | x | | | | |
4.33 | | | | Vectren’s Form 8-K dated April 7, 2009 | | 1-15467 | | 4.5 | | x | | | | |
4.34 | | | | Vectren’s Form 8-K dated September 10, 2010 | | 1-15467 | | 4.1 | | x | | | | |
|
| | | | | | | | | | | | | | |
Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
4.35 | | | | Vectren’s Form 8-K dated April 8, 2011 | | 1-15467 | | 4.1 | | x | | | | |
4.36 | | | | Vectren’s Form 8-K dated November 17, 2011 | | 1-15467 | | 4.1 | | x | | | | |
4.37 | | | | Vectren’s Form 8-K dated December 21, 2012 | | 1-15467 | | 4.1 | | x | | | | |
4.38 | | | | Vectren’s Form 8-K dated June 12, 2015 | | 1-15467 | | 4.1 | | x | | | | |
4.39 | | | | Vectren’s Form 8-K dated June 12, 2015 | | 1-15467 | | 4.2 | | x | | | | |
4.40 | | | | Vectren’s Form 8-K dated July 17, 2017 | | 1-15467 | | 4.1 | | x | | | | |
4.41 | | | | Vectren’s Form 8-K dated September 25, 2017 | | 1-15467 | | 4.1 | | x | | | | |
4.42 | | | | Vectren’s Form 8-K dated May 3, 2018 | | 1-15467 | | 4.1 | | x | | | | |
4.43 | | | | Vectren’s Form 8-K dated May 3, 2018 | | 1-15467 | | 4.2 | | x | | | | |
+10.1 | | | | | | | | | | x | | | | |
10.2 | | | | Vectren’s Form 10-K for the year end December 31, 2001 | | 1-15467 | | 10.32 | | x | | | | |
10.3 | | | | Vectren’s Form 8-K dated September 29, 2008 | | 1-15467 | | 10.3 | | x | | | | |
10.4 | | | | Vectren’s Form 8-K dated December 17, 2008 | | 1-15467 | | 10.2 | | x | | | | |
10.5 | | | | Vectren’s Form 8-K dated January 5, 2012 | | 1-15467 | | 10.1 | | x | | | | |
10.6 | | | | Vectren’s Form 10-K for the year end December 31, 2012 | | 1-15467 | | 10.1 | | x | | | | |
10.7 | | | | Vectren’s Form 8-K dated December 17, 2008 | | 1-15467 | | 10.1 | | x | | | | |
10.8 | | | | Vectren’s Form 10-Q for the quarter ended September 30, 2013 | | 1-15467 | | 10.1 | | x | | | | |
+31.1.1 | | | | | | | | | | x | | | | |
+31.1.2 | | | | | | | | | | | | x | | |
+31.1.3 | | | | | | | | | | | | | | x |
|
| | | | | | | | | | | | | | |
Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
+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 |
+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, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| |
| CENTERPOINT ENERGY, INC. |
| CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC |
| CENTERPOINT ENERGY RESOURCES CORP. |
| |
| |
By: | /s/ Kristie L. Colvin |
| Kristie L. Colvin |
| Senior Vice President and Chief Accounting Officer |
| |
Date: August 3, 2018May 9, 2019