0001130310 cnp:OGEMember 2019-01-01 2019-06-30
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 SEPTEMBER 30, 2018 |
For the quarterly period ended June 30, 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 __________________ |
Commission file number 1-31447
CenterPoint Energy, Inc.
(Exact name of registrant as specified in its charter)
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Texas | | 74-0694415 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1111 Louisiana | Houston | Texas | 77002 |
(Address of Principal Executive Offices) | | (Zip Code) |
(713) 207-1111
Registrant's telephone number, including area code
Commission file number 1-3187
CenterPoint Energy Houston Electric, LLC
(Exact name of registrant as specified in its charter)
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Texas | | 22-3865106 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1111 Louisiana | Houston | Texas | 77002 |
(Address of Principal Executive Offices) | | (Zip Code) |
(713) 207-1111
Registrant's telephone number, including area code
Commission file number 1-13265
CenterPoint Energy Resources Corp.
(Exact name of registrant as specified in its charter)
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Delaware | | 76-0511406 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1111 Louisiana | Houston | Texas | 77002 |
(Address of Principal Executive Offices) | | (Zip Code) |
(713) 207-1111
Registrant's telephone number, including area code
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| Registrant, State or Other Jurisdiction of Incorporation or Organization | |
Commission file numberSecurities registered pursuant to Section 12(b) of the Act: |
Registrant | AddressTitle of Principal Executive Offices, Zip Code and Telephone Numbereach class | I.R.S. Employer Identification No.Trading Symbol(s) | Name of each exchange on which registered |
CenterPoint Energy, Inc. | Common Stock, $0.01 par value | CNP | The New York Stock Exchange |
| | | Chicago Stock Exchange, Inc. |
1-31447 | CenterPoint Energy, Inc. | 74-0694415Depositary Shares for 1/20 of 7.00% Series B Mandatory Convertible Preferred Stock, $0.01 par value | CNP/PB | The New York Stock Exchange |
| (a Texas corporation) | |
| 1111 Louisiana | |
| Houston, Texas 77002 | |
| (713-207-1111) | |
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1-3187 | CenterPoint Energy Houston Electric, LLC | 22-38651069.15% First Mortgage Bonds due 2021 | n/a | The New York Stock Exchange |
CenterPoint Energy Houston Electric, LLC | (a Texas limited liability company)6.95% General Mortgage Bonds due 2033 | n/a | The New York Stock Exchange |
| 1111 Louisiana | |
| Houston, Texas 77002 | |
| (713-207-1111) | |
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1-13265 | CenterPoint Energy Resources Corp. | 76-0511406 |
6.625% Senior Notes due 2037 | (n/a Delaware corporation) | |
| 1111 Louisiana | |
| Houston, Texas 77002 | |
| (713-207-1111) | The New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
CenterPoint Energy, Inc. 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 |
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 |
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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 |
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 ☐ |
CenterPoint Energy Houston Electric, LLC | Large accelerated filer o
| Accelerated filer o
| Non-accelerated filer þ
| Smaller reporting company o ☐ | Emerging growth company o ☐ |
CenterPoint Energy Resources Corp. | Large accelerated filer o
| Accelerated filer o
| Non-accelerated filer þ
| Smaller reporting company o ☐ | Emerging growth company o ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
CenterPoint Energy, Inc. Yes o No þ |
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CenterPoint Energy, Inc. | Yes | ☐ | | No | þ |
CenterPoint Energy Houston Electric, LLC | Yes | ☐ | | No | þ |
CenterPoint Energy Resources Corp. | Yes | ☐ | | No | þ |
CenterPoint Energy Houston Electric, LLC Yes o No þ
CenterPoint Energy Resources Corp. Yes o No þ
Indicate the number of shares outstanding of each of the issuers’ classes of common stock as of October 22, 2018:July 26, 2019:
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CenterPoint Energy, Inc. | | 501,191,387 502,218,696 | 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 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 |
ALJ | | Administrative Law Judge |
AMA | | Asset Management Agreement |
AMS | | Advanced Metering System |
APSC | | Arkansas Public Service Commission |
ARAMARO | | Average rate assumption methodAsset retirement obligation |
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 |
Common Stock | | CenterPoint Energy, Inc. common stock, par value $0.01 per share |
ContinuumCPCN | | The retail energy services businessCertificate 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 |
EEFC | | Energy Efficiency Funding Component |
EEFR | | Energy Efficiency Funding Rider |
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GLOSSARY |
ELG | | Effluent Limitation Guidelines |
EMV | | Evaluation, measurement and valuation |
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 |
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GLOSSARY |
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 |
FTC | | Federal Trade Commission |
Gas Daily | | Platts gas daily indices |
GenOn | | GenOn Energy, Inc. |
GMESGHG | | Government Mandated Expenditure SurchargeGreenhouse gases |
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 |
LPSCMATS | | Louisiana Public Service Commission |
Meredith | | Meredith CorporationMercury 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 |
MGP | | Manufactured gas plant |
MISO | | Midcontinent Independent System Operator |
MLP | | Master Limited Partnership |
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GLOSSARY |
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 |
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GLOSSARY |
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 |
Securitization Bonds | | Transition and system restoration bonds |
Series A Preferred Stock | | CenterPoint Energy’s 6.125% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share |
Series B Preferred Stock | | CenterPoint Energy’s 7.00% Series B Mandatory Convertible Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share |
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 |
TCJA | | Tax reform legislation informally called the Tax Cuts and Jobs Act of 2017 |
TCOS | | Transmission Cost of Service |
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GLOSSARY |
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. |
TW Common | | TW common stockTax Savings Credit Rider |
Utility Holding | | Utility 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 |
WACCVRP | | Weighted average costVoluntary Remediation Program |
VUHI | | Vectren Utility Holdings, Inc., a wholly-owned subsidiary of capitalVectren |
ZENS | | 2.0% Zero-Premium Exchangeable Subordinated Notes due 2029 |
ZENS-Related Securities | | As of Septemberboth June 30, 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, including Houston Electric, CERC and CERC.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 receives from Enable, Enable’s ability to redeem the Enable Series A Preferred Units in certain circumstances and the value of CenterPoint Energy’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 regulatory agencies or the outcome of shareholder litigation filed against Vectren that could reduce anticipated benefits or cause the parties to delay or abandon the Merger, as well as the ability to successfully integrate the businesses and realize anticipated benefits and the risk that the credit ratings of the combined company or its subsidiaries may be different from what CenterPoint Energy expects;
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;
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• | 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; |
the ability of CenterPoint Energy’s and CERC’s non-utility business operating in the Energy Services reportable segment to effectively optimize opportunities related to natural gas price volatility and the effects of geographic and seasonal commodity price differentials on CERC and Enable;
storage activities, including weather-related impacts;
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 investments;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’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 interest in Enable, if any, whether through its decision to sell all or a portion of the Enable common units it owns in the public equity markets or otherwise, subject to certain limitations), which CenterPoint Energy and Enable cannot assure will be completed or will have the anticipated benefits to CenterPoint 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, which may be contested by GenOn;
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 transition to a replacement for the LIBOR benchmark interest rate;
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, which are incorporated herein by reference, and other reports the Registrants file from time to time with the SEC.
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and 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 | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
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Revenues: | | | | | | | | | | | | | | |
Utility revenues | $ | 1,299 |
| | $ | 1,233 |
| | $ | 4,534 |
| | $ | 4,001 |
| $ | 1,555 |
| | $ | 1,341 |
| | $ | 3,716 |
| | $ | 3,235 |
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Non-utility revenues | 913 |
| | 865 |
| | 3,019 |
| | 2,975 |
| 1,243 |
| | 845 |
| | 2,613 |
| | 2,106 |
|
Total | 2,212 |
| | 2,098 |
| | 7,553 |
| | 6,976 |
| 2,798 |
| | 2,186 |
| | 6,329 |
| | 5,341 |
|
| | | | | | | | |
Expenses: | | | | | | | | | | | | | | |
Utility natural gas | 134 |
| | 106 |
| | 959 |
| | 706 |
| |
Non-utility natural gas | 864 |
| | 832 |
| | 2,927 |
| | 2,843 |
| |
Utility natural gas, fuel and purchased power | | 264 |
| | 188 |
| | 999 |
| | 825 |
|
Non-utility cost of revenues, including natural gas | | 910 |
| | 790 |
| | 2,161 |
| | 2,063 |
|
Operation and maintenance | 567 |
| | 501 |
| | 1,714 |
| | 1,562 |
| 884 |
| | 578 |
| | 1,745 |
| | 1,147 |
|
Depreciation and amortization | 326 |
| | 269 |
| | 982 |
| | 749 |
| 340 |
| | 342 |
| | 653 |
| | 656 |
|
Taxes other than income taxes | 95 |
| | 93 |
| | 307 |
| | 288 |
| 113 |
| | 101 |
| | 239 |
| | 212 |
|
Total | 1,986 |
| | 1,801 |
| | 6,889 |
| | 6,148 |
| 2,511 |
| | 1,999 |
| | 5,797 |
| | 4,903 |
|
Operating Income | 226 |
| | 297 |
| | 664 |
| | 828 |
| 287 |
| | 187 |
| | 532 |
| | 438 |
|
| | | | | | | | |
Other Income (Expense): | | | | | | | | | | | | | | |
Gain on marketable securities | 43 |
| | 37 |
| | 66 |
| | 104 |
| 64 |
| | 22 |
| | 147 |
| | 23 |
|
Loss on indexed debt securities | (44 | ) | | (36 | ) | | (316 | ) | | (59 | ) | (68 | ) | | (254 | ) | | (154 | ) | | (272 | ) |
Interest and other finance charges | (90 | ) | | (80 | ) | | (259 | ) | | (235 | ) | (134 | ) | | (91 | ) | | (255 | ) | | (169 | ) |
Interest on Securitization Bonds | (16 | ) | | (18 | ) | | (46 | ) | | (58 | ) | (10 | ) | | (14 | ) | | (22 | ) | | (30 | ) |
Equity in earnings of unconsolidated affiliate, net | 81 |
| | 68 |
| | 208 |
| | 199 |
| |
Other, net | 9 |
| | (1 | ) | | 16 |
| | (2 | ) | |
Equity in earnings of unconsolidated affiliates, net | | 74 |
| | 58 |
| | 136 |
| | 127 |
|
Other income, net | | 11 |
| | 4 |
| | 31 |
| | 7 |
|
Total | (17 | ) | | (30 | ) | | (331 | ) | | (51 | ) | (63 | ) | | (275 | ) | | (117 | ) | | (314 | ) |
Income (Loss) Before Income Taxes | | 224 |
| | (88 | ) | | 415 |
| | 124 |
|
Income tax expense (benefit) | | 29 |
| | (13 | ) | | 51 |
| | 34 |
|
Net Income (Loss) | | 195 |
| | (75 | ) | | 364 |
| | 90 |
|
Preferred stock dividend requirement | | 30 |
| | — |
| | 59 |
| | — |
|
Income (Loss) Available to Common Shareholders | | $ | 165 |
| | $ | (75 | ) | | $ | 305 |
| | $ | 90 |
|
| | | | | | | | | | | | | | |
Income Before Income Taxes | 209 |
| | 267 |
| | 333 |
| | 777 |
| |
Income tax expense | 51 |
| | 98 |
| | 85 |
| | 281 |
| |
Net Income | 158 |
| | 169 |
| | 248 |
| | 496 |
| |
Series A Preferred Stock dividend requirement | 5 |
| | — |
| | 5 |
| | — |
| |
Income Available to Common Shareholders | $ | 153 |
| | $ | 169 |
| | $ | 243 |
| | $ | 496 |
| |
| | | | | | | | |
Basic Earnings Per Common Share | $ | 0.35 |
| | $ | 0.39 |
| | $ | 0.56 |
| | $ | 1.15 |
| |
| | | | | | | | |
Diluted Earnings Per Common Share | $ | 0.35 |
| | $ | 0.39 |
| | $ | 0.56 |
| | $ | 1.14 |
| |
| | | | | | | | |
Basic Earnings (Loss) Per Common Share | | $ | 0.33 |
| | $ | (0.17 | ) | | $ | 0.61 |
| | $ | 0.21 |
|
Diluted Earnings (Loss) Per Common Share | | $ | 0.33 |
| | $ | (0.17 | ) | | $ | 0.61 |
| | $ | 0.21 |
|
Weighted Average Common Shares Outstanding, Basic | 432 |
| | 431 |
| | 431 |
| | 431 |
| 502 |
| | 432 |
| | 502 |
| | 431 |
|
| | | | | | | | |
Weighted Average Common Shares Outstanding, Diluted | 435 |
| | 434 |
| | 435 |
| | 434 |
| 505 |
| | 432 |
| | 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 | | Nine Months Ended |
| September 30, | | September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net income | $ | 158 |
| | $ | 169 |
| | $ | 248 |
| | $ | 496 |
|
Other comprehensive income (loss): | | | | | | | |
Adjustment to pension and other postretirement plans (net of tax of $1, $2, $2 and $4) | 1 |
| | — |
| | 4 |
| | 2 |
|
Net deferred gain (loss) from cash flow hedges (net of tax of $1, $2, $2 and $2) | 3 |
| | (2 | ) | | 6 |
| | (3 | ) |
Total | 4 |
| | (2 | ) | | 10 |
| | (1 | ) |
Comprehensive income | $ | 162 |
| | $ | 167 |
| | $ | 258 |
| | $ | 495 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) |
Net income (loss) | $ | 195 |
| | $ | (75 | ) | | $ | 364 |
| | $ | 90 |
|
Other comprehensive income (loss): | | | | | | | |
Adjustment to pension and other postretirement plans (net of tax of $1, $-0-, $2 and $1) | 2 |
| | 2 |
| | 3 |
| | 3 |
|
Net deferred gain (loss) from cash flow hedges (net of tax of $-0-, $-0-, $-0- and $1) | — |
| | (1 | ) | | (1 | ) | | 3 |
|
Reclassification of deferred loss from cash flow hedges realized in net income (net of tax of $-0-, $-0-, $-0- and $-0-) | — |
| | — |
| | 1 |
| | — |
|
Total | 2 |
| | 1 |
| | 3 |
| | 6 |
|
Comprehensive income (loss) | $ | 197 |
| | $ | (74 | ) | | $ | 367 |
| | $ | 96 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
(Unaudited)
ASSETS
| | | | | | | June 30, 2019 | | December 31, 2018 |
| September 30, 2018 | | December 31, 2017 | (in millions) |
Current Assets: | | | | | | |
Cash and cash equivalents ($278 and $230 related to VIEs, respectively) | $ | 293 |
| | $ | 260 |
| |
Cash and cash equivalents ($260 and $335 related to VIEs, respectively) | | $ | 271 |
| | $ | 4,231 |
|
Investment in marketable securities | 627 |
| | 960 |
| 687 |
| | 540 |
|
Accounts receivable ($92 and $73 related to VIEs, respectively), less bad debt reserve of $15 and $19, respectively | 918 |
| | 1,000 |
| |
Accounts receivable ($77 and $56 related to VIEs, respectively), less bad debt reserve of $27 and $18, respectively | | 1,173 |
| | 1,190 |
|
Accrued unbilled revenues | 212 |
| | 427 |
| 365 |
| | 378 |
|
Natural gas inventory | 207 |
| | 222 |
| 212 |
| | 194 |
|
Materials and supplies | 198 |
| | 175 |
| 267 |
| | 200 |
|
Non-trading derivative assets | 76 |
| | 110 |
| 101 |
| | 100 |
|
Taxes receivable | 38 |
| | — |
| 69 |
| | — |
|
Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively) | 157 |
| | 241 |
| |
Prepaid expenses and other current assets ($33 and $34 related to VIEs, respectively) | | 181 |
| | 192 |
|
Total current assets | 2,726 |
| | 3,395 |
| 3,326 |
| | 7,025 |
|
| | | | |
Property, Plant and Equipment: | | | | | | |
Property, plant and equipment | 19,861 |
| | 19,031 |
| 29,552 |
| | 20,267 |
|
Less: accumulated depreciation and amortization | 6,208 |
| | 5,974 |
| 9,620 |
| | 6,223 |
|
Property, plant and equipment, net | 13,653 |
| | 13,057 |
| 19,932 |
| | 14,044 |
|
| | | | |
Other Assets: | | | | | | |
Goodwill | 867 |
| | 867 |
| 5,179 |
| | 867 |
|
Regulatory assets ($1,146 and $1,590 related to VIEs, respectively) | 1,934 |
| | 2,347 |
| |
Regulatory assets ($895 and $1,059 related to VIEs, respectively) | | 2,228 |
| | 1,967 |
|
Notes receivable – unconsolidated affiliate | | 4 |
| | — |
|
Non-trading derivative assets | 38 |
| | 44 |
| 44 |
| | 38 |
|
Investment in unconsolidated affiliate | 2,457 |
| | 2,472 |
| |
Investment in unconsolidated affiliates | | 2,470 |
| | 2,482 |
|
Preferred units – unconsolidated affiliate | 363 |
| | 363 |
| 363 |
| | 363 |
|
Intangible assets, net | | 370 |
| | 65 |
|
Other | 190 |
| | 191 |
| 273 |
| | 158 |
|
Total other assets | 5,849 |
| | 6,284 |
| 10,931 |
| | 5,940 |
|
| | | | |
Total Assets | $ | 22,228 |
| | $ | 22,736 |
| $ | 34,189 |
| | $ | 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
| | | | | | | June 30, 2019 | | December 31, 2018 |
| September 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 | 456 |
| | 434 |
| $ | 349 |
| | $ | 458 |
|
Indexed debt, net | 25 |
| | 122 |
| 22 |
| | 24 |
|
Current portion of other long-term debt | 50 |
| | 50 |
| 117 |
| | — |
|
Indexed debt securities derivative | 685 |
| | 668 |
| 755 |
| | 601 |
|
Accounts payable | 708 |
| | 963 |
| 936 |
| | 1,240 |
|
Taxes accrued | 152 |
| | 181 |
| 158 |
| | 204 |
|
Interest accrued | 80 |
| | 104 |
| 157 |
| | 121 |
|
Dividends accrued | — |
| | 120 |
| — |
| | 187 |
|
Customer deposits | | 126 |
| | 86 |
|
Non-trading derivative liabilities | 33 |
| | 20 |
| 33 |
| | 126 |
|
Other | 392 |
| | 368 |
| 343 |
| | 255 |
|
Total current liabilities | 2,581 |
| | 3,069 |
| 2,996 |
| | 3,302 |
|
| | | | |
Other Liabilities: | |
| | |
| |
| | |
|
Deferred income taxes, net | 3,220 |
| | 3,174 |
| 3,805 |
| | 3,239 |
|
Non-trading derivative liabilities | 6 |
| | 4 |
| 18 |
| | 5 |
|
Benefit obligations | 722 |
| | 785 |
| 872 |
| | 796 |
|
Regulatory liabilities | 2,506 |
| | 2,464 |
| 3,467 |
| | 2,525 |
|
Other | 433 |
| | 357 |
| 653 |
| | 402 |
|
Total other liabilities | 6,887 |
| | 6,784 |
| 8,815 |
| | 6,967 |
|
| | | | |
Long-term Debt: | |
| | |
| |
| | |
|
VIE Securitization Bonds, net | 1,045 |
| | 1,434 |
| 845 |
| | 977 |
|
Other long-term debt, net | 6,207 |
| | 6,761 |
| 13,276 |
| | 7,705 |
|
Total long-term debt, net | 7,252 |
| | 8,195 |
| 14,121 |
| | 8,682 |
|
| | | | |
Commitments and Contingencies (Note 14) |
|
| |
|
|
|
| |
|
|
| | | | |
Shareholders’ Equity: | |
| | |
| |
| | |
|
Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized |
|
| |
|
|
|
| |
|
|
Series A Preferred Stock, $0.01 par value, $800,000 aggregate liquidation preference, 800,000 shares outstanding | 790 |
| | — |
| |
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 431,555,853 shares and 431,044,845 shares outstanding, respectively | 4 |
| | 4 |
| |
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, 502,214,639 shares and 501,197,784 shares outstanding, respectively | | 5 |
| | 5 |
|
Additional paid-in capital | 4,221 |
| | 4,209 |
| 6,065 |
| | 6,072 |
|
Retained earnings | 551 |
| | 543 |
| 552 |
| | 349 |
|
Accumulated other comprehensive loss | (58 | ) | | (68 | ) | (105 | ) | | (108 | ) |
Total shareholders’ equity | 5,508 |
| | 4,688 |
| 8,257 |
| | 8,058 |
|
| | | | |
Total Liabilities and Shareholders’ Equity | $ | 22,228 |
| | $ | 22,736 |
| $ | 34,189 |
| | $ | 27,009 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Millions)
| | | | | | | Six Months Ended June 30, |
| Nine Months Ended September 30, | 2019 | | 2018 |
| 2018 | | 2017 | (in millions) |
Cash Flows from Operating Activities: | | | | | | |
Net income | $ | 248 |
| | $ | 496 |
| $ | 364 |
| | $ | 90 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 982 |
| | 749 |
| 653 |
| | 656 |
|
Amortization of deferred financing costs | 34 |
| | 18 |
| 14 |
| | 18 |
|
Amortization of intangible assets in non-utility cost of revenues | | 12 |
| | — |
|
Deferred income taxes | 33 |
| | 185 |
| (21 | ) | | (12 | ) |
Unrealized gain on marketable securities | (66 | ) | | (104 | ) | (147 | ) | | (23 | ) |
Loss on indexed debt securities | 316 |
| | 59 |
| 154 |
| | 272 |
|
Write-down of natural gas inventory | 2 |
| | — |
| 3 |
| | 1 |
|
Equity in earnings of unconsolidated affiliate, net of distributions | (15 | ) | | (199 | ) | |
Equity in earnings of unconsolidated affiliates, net of distributions | | 12 |
| | (9 | ) |
Pension contributions | (67 | ) | | (46 | ) | (29 | ) | | (64 | ) |
Changes in other assets and liabilities, excluding acquisitions: | | | | | | |
Accounts receivable and unbilled revenues, net | 355 |
| | 216 |
| 463 |
| | 232 |
|
Inventory | (10 | ) | | (52 | ) | 10 |
| | 52 |
|
Taxes receivable | (38 | ) | | 30 |
| (69 | ) | | (39 | ) |
Accounts payable | (262 | ) | | (137 | ) | (594 | ) | | (246 | ) |
Fuel cost recovery | 53 |
| | (30 | ) | 78 |
| | 69 |
|
Non-trading derivatives, net | 63 |
| | (53 | ) | (71 | ) | | 64 |
|
Margin deposits, net | 2 |
| | (49 | ) | (12 | ) | | (9 | ) |
Interest and taxes accrued | (53 | ) | | 2 |
| (88 | ) | | (64 | ) |
Net regulatory assets and liabilities | 44 |
| | (135 | ) | (77 | ) | | 57 |
|
Other current assets | 11 |
| | 18 |
| 20 |
| | (4 | ) |
Other current liabilities | 16 |
| | 19 |
| (156 | ) | | (13 | ) |
Other assets | (3 | ) | | (3 | ) | 76 |
| | (3 | ) |
Other liabilities | 24 |
| | 28 |
| (30 | ) | | 60 |
|
Other, net | 10 |
| | 16 |
| |
Other operating activities, net | | 9 |
| | 8 |
|
Net cash provided by operating activities | 1,679 |
| | 1,028 |
| 574 |
| | 1,093 |
|
Cash Flows from Investing Activities: | | | | | | |
Capital expenditures | (1,121 | ) | | (994 | ) | (1,169 | ) | | (697 | ) |
Acquisitions, net of cash acquired | — |
| | (132 | ) | (5,987 | ) | | — |
|
Increase in notes receivable – unconsolidated affiliate | | (4 | ) | | — |
|
Distributions from unconsolidated affiliate in excess of cumulative earnings | 30 |
| | 223 |
| — |
| | 30 |
|
Proceeds from sale of marketable securities | 398 |
| | — |
| — |
| | 398 |
|
Other, net | 19 |
| | 6 |
| |
Other investing activities, net | | 11 |
| | 2 |
|
Net cash used in investing activities | (674 | ) | | (897 | ) | (7,149 | ) | | (267 | ) |
Cash Flows from Financing Activities: | | | | | | |
Increase (decrease) in short-term borrowings, net | (39 | ) | | 13 |
| |
Payments of commercial paper, net | (1,551 | ) | | (428 | ) | |
Decrease in short-term borrowings, net | | — |
| | (39 | ) |
Proceeds from (payments of) commercial paper, net | | 2,221 |
| | (1,188 | ) |
Proceeds from long-term debt, net | 997 |
| | 1,096 |
| 1,721 |
| | 997 |
|
Payments of long-term debt | (368 | ) | | (597 | ) | (1,077 | ) | | (230 | ) |
Long-term revolving credit facility | | 135 |
| | — |
|
Debt issuance costs | (36 | ) | | (13 | ) | (9 | ) | | (35 | ) |
Payment of dividends on Common Stock | (360 | ) | | (346 | ) | (288 | ) | | (240 | ) |
Proceeds from issuance of Series A Preferred Stock, net | 790 |
| | — |
| |
Payment of dividends on Preferred Stock | | (60 | ) | | — |
|
Distribution to ZENS note holders | (398 | ) | | — |
| — |
| | (16 | ) |
Other, net | (5 | ) | | (4 | ) | |
Net cash used in financing activities | (970 | ) | | (279 | ) | |
Other financing activities, net | | (14 | ) | | (5 | ) |
Net cash provided by (used in) financing activities | | 2,629 |
| | (756 | ) |
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 35 |
| | (148 | ) | (3,946 | ) | | 70 |
|
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 | $ | 331 |
| | $ | 233 |
| $ | 332 |
| | $ | 366 |
|
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 June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| Shares | | Amount | | Shares | | Amount | | 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 |
| | — |
| | $ | — |
| | 2 |
| | $ | 1,740 |
| | — |
| | $ | — |
|
Balance, end of period | 2 |
| | 1,740 |
| | — |
| | — |
| | 2 |
| | 1,740 |
| | — |
| | — |
|
Common Stock, $0.01 par value; authorized 1,000,000,000 shares | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Balance, beginning of period | 502 |
| | 5 |
| | 431 |
| | 4 |
| | 501 |
| | 5 |
| | 431 |
| | 4 |
|
Issuances related to benefit and investment plans | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Balance, end of period | 502 |
| | 5 |
| | 431 |
| | 4 |
| | 502 |
| | 5 |
| | 431 |
| | 4 |
|
Additional Paid-in-Capital | | | | | |
| | |
| | | | | | |
| | |
|
Balance, beginning of period | | | 6,060 |
| | |
| | 4,208 |
| | | | 6,072 |
| | |
| | 4,209 |
|
Issuances related to benefit and investment plans | | | 5 |
| | |
| | 7 |
| | | | (7 | ) | | |
| | 6 |
|
Balance, end of period | | | 6,065 |
| | |
| | 4,215 |
| | | | 6,065 |
| | |
| | 4,215 |
|
Retained Earnings | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance, beginning of period | | | 518 |
| | |
| | 708 |
| | | | 349 |
| | |
| | 543 |
|
Net income | | | 195 |
| | |
| | (75 | ) | | | | 364 |
| | |
| | 90 |
|
Common Stock dividends declared ($0.2875, $0.2775, $0.2875 and $0.2775 per share, respectively) | | | (144 | ) | | |
| | (120 | ) | | | | (144 | ) | | |
| | (120 | ) |
Series B Preferred Stock dividends declared ($17.5000, $-0-, $17.5000, and $-0- per share, respectively) | | | (17 | ) | | | | — |
| | | | (17 | ) | | | | — |
|
Balance, end of period | | | 552 |
| | |
| | 513 |
| | | | 552 |
| | |
| | 513 |
|
Accumulated Other Comprehensive Loss | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance, beginning of period | | | (107 | ) | | |
| | (63 | ) | | | | (108 | ) | | |
| | (68 | ) |
Other comprehensive income | | | 2 |
| | |
| | 1 |
| | | | 3 |
| | |
| | 6 |
|
Balance, end of period | | | (105 | ) | | |
| | (62 | ) | | | | (105 | ) | | |
| | (62 | ) |
Total Shareholders’ Equity | | | $ | 8,257 |
| | |
| | $ | 4,670 |
| | | | $ | 8,257 |
| | |
| | $ | 4,670 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Millions of Dollars)
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| | (in millions) |
Revenues | $ | 897 |
| | $ | 843 |
| | $ | 2,506 |
| | $ | 2,233 |
| $ | 765 |
| | $ | 854 |
| | $ | 1,451 |
| | $ | 1,609 |
|
| | | | | | | | |
Expenses: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Operation and maintenance | 369 |
| | 337 |
| | 1,062 |
| | 1,021 |
| 359 |
| | 351 |
| | 727 |
| | 693 |
|
Depreciation and amortization | 242 |
| | 193 |
| | 737 |
| | 525 |
| 176 |
| | 262 |
| | 351 |
| | 495 |
|
Taxes other than income taxes | 59 |
| | 59 |
| | 180 |
| | 177 |
| 61 |
| | 60 |
| | 123 |
| | 121 |
|
Total | 670 |
| | 589 |
| | 1,979 |
| | 1,723 |
| 596 |
| | 673 |
| | 1,201 |
| | 1,309 |
|
Operating Income | 227 |
| | 254 |
| | 527 |
| | 510 |
| 169 |
| | 181 |
| | 250 |
| | 300 |
|
| | | | | | | | |
Other Income (Expense): | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Interest and other finance charges | (32 | ) | | (32 | ) | | (101 | ) | | (97 | ) | (42 | ) | | (36 | ) | | (82 | ) | | (69 | ) |
Interest on Securitization Bonds | (16 | ) | | (18 | ) | | (46 | ) | | (58 | ) | (10 | ) | | (14 | ) | | (22 | ) | | (30 | ) |
Other, net | — |
| | (3 | ) | | (6 | ) | | (9 | ) | |
Other income (expense), net | | 6 |
| | (3 | ) | | 10 |
| | (6 | ) |
Total | (48 | ) | | (53 | ) | | (153 | ) | | (164 | ) | (46 | ) | | (53 | ) | | (94 | ) | | (105 | ) |
Income Before Income Taxes | 179 |
| | 201 |
| | 374 |
| | 346 |
| 123 |
| | 128 |
| | 156 |
| | 195 |
|
Income tax expense | 36 |
| | 71 |
| | 78 |
| | 123 |
| 23 |
| | 27 |
| | 29 |
| | 42 |
|
Net Income | $ | 143 |
| | $ | 130 |
| | $ | 296 |
| | $ | 223 |
| $ | 100 |
| | $ | 101 |
| | $ | 127 |
| | $ | 153 |
|
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 June 30, | | Six Months Ended June 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, | 2019 | | 2018 | | 2019 | | 2018 |
| 2018 | | 2017 | | 2018 | | 2017 | (in millions) |
Net income | $ | 143 |
| | $ | 130 |
| | $ | 296 |
| | $ | 223 |
| $ | 100 |
| | $ | 101 |
| | $ | 127 |
| | $ | 153 |
|
Other comprehensive income: | | | | | | | | | | | | | | |
Net deferred gain (loss) from cash flow hedges (net of tax of $1, $-0-, $2 and $-0-) | 3 |
| | — |
| | 7 |
| | (1 | ) | |
Net deferred gain (loss) from cash flow hedges (net of tax of $-0-, $-0-, $-0- and $1) | | — |
| | — |
| | (1 | ) | | 4 |
|
Total | 3 |
| | — |
| | 7 |
| | (1 | ) | — |
| | — |
| | (1 | ) | | 4 |
|
Comprehensive income | $ | 146 |
| | $ | 130 |
| | $ | 303 |
| | $ | 222 |
| $ | 100 |
| | $ | 101 |
| | $ | 126 |
| | $ | 157 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
ASSETS
| | | | | | | June 30, 2019 | | December 31, 2018 |
| September 30, 2018 | | December 31, 2017 | (in millions) |
Current Assets: | | | | | | |
Cash and cash equivalents ($278 and $230 related to VIEs, respectively) | $ | 279 |
| | $ | 238 |
| |
Accounts and notes receivable ($92 and $73 related to VIEs, respectively), less bad debt reserve of $1 and $1, respectively | 389 |
| | 284 |
| |
Cash and cash equivalents ($260 and $335 related to VIEs, respectively) | | $ | 260 |
| | $ | 335 |
|
Accounts and notes receivable ($77 and $56 related to VIEs, respectively), less bad debt reserve of $1 and $1, respectively | | 327 |
| | 283 |
|
Accounts and notes receivable–affiliated companies | 13 |
| | 7 |
| 831 |
| | 20 |
|
Accrued unbilled revenues | 122 |
| | 120 |
| 122 |
| | 110 |
|
Materials and supplies | 129 |
| | 119 |
| 142 |
| | 135 |
|
Taxes receivable | 9 |
| | — |
| 13 |
| | 5 |
|
Non-trading derivative assets | 3 |
| | — |
| |
Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively) | 50 |
| | 62 |
| |
Prepaid expenses and other current assets ($33 and $34 related to VIEs, respectively) | | 41 |
| | 61 |
|
Total current assets | 994 |
| | 830 |
| 1,736 |
| | 949 |
|
| | | | |
Property, Plant and Equipment: | | | | | | |
Property, plant and equipment | 11,962 |
| | 11,496 |
| 12,457 |
| | 12,148 |
|
Less: accumulated depreciation and amortization | 3,742 |
| | 3,633 |
| 3,762 |
| | 3,746 |
|
Property, plant and equipment, net | 8,220 |
| | 7,863 |
| 8,695 |
| | 8,402 |
|
| | | | |
Other Assets: | |
| | |
| |
| | |
|
Regulatory assets ($1,146 and $1,590 related to VIEs, respectively) | 1,202 |
| | 1,570 |
| |
Regulatory assets ($895 and $1,059 related to VIEs, respectively) | | 1,016 |
| | 1,124 |
|
Other | 20 |
| | 29 |
| 31 |
| | 32 |
|
Total other assets | 1,222 |
| | 1,599 |
| 1,047 |
| | 1,156 |
|
| | | | |
Total Assets | $ | 10,436 |
| | $ | 10,292 |
| $ | 11,478 |
| | $ | 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
| | | | | | | June 30, 2019 | | December 31, 2018 |
| September 30, 2018 | | December 31, 2017 | (in millions) |
Current Liabilities: | |
| | |
| |
| | |
|
Current portion of VIE Securitization Bonds long-term debt | $ | 456 |
| | $ | 434 |
| $ | 349 |
| | $ | 458 |
|
Accounts payable | 220 |
| | 243 |
| 226 |
| | 262 |
|
Accounts and notes payable–affiliated companies | 113 |
| | 104 |
| 59 |
| | 78 |
|
Taxes accrued | 88 |
| | 116 |
| 63 |
| | 115 |
|
Interest accrued | 43 |
| | 65 |
| 82 |
| | 64 |
|
Non-trading derivative liabilities | | — |
| | 24 |
|
Other | 111 |
| | 120 |
| 73 |
| | 89 |
|
Total current liabilities | 1,031 |
| | 1,082 |
| 852 |
| | 1,090 |
|
Other Liabilities: | |
| | |
| |
| | |
|
Deferred income taxes, net | 1,044 |
| | 1,059 |
| 1,010 |
| | 1,023 |
|
Benefit obligations | 142 |
| | 146 |
| 87 |
| | 91 |
|
Regulatory liabilities | 1,265 |
| | 1,263 |
| 1,286 |
| | 1,298 |
|
Other | 79 |
| | 54 |
| 69 |
| | 65 |
|
Total other liabilities | 2,530 |
| | 2,522 |
| 2,452 |
| | 2,477 |
|
Long-term Debt: | |
| | |
| |
| | |
|
VIE Securitization Bonds, net | 1,045 |
| | 1,434 |
| 845 |
| | 977 |
|
Other, net | 3,281 |
| | 2,885 |
| 3,971 |
| | 3,281 |
|
Total long-term debt, net | 4,326 |
| | 4,319 |
| 4,816 |
| | 4,258 |
|
| | | | |
Commitments and Contingencies (Note 14) |
| |
|
| |
|
| | | | |
Member’s Equity: | | | | | | |
Common stock | — |
| | — |
| — |
| | — |
|
Paid-in capital | 1,696 |
| | 1,696 |
| |
Additional paid-in capital | | 2,486 |
| | 1,896 |
|
Retained earnings | 846 |
| | 673 |
| 887 |
| | 800 |
|
Accumulated other comprehensive income | 7 |
| | — |
| |
Accumulated other comprehensive loss | | (15 | ) | | (14 | ) |
Total member’s equity | 2,549 |
| | 2,369 |
| 3,358 |
| | 2,682 |
|
| | | | |
Total Liabilities and Member’s Equity | $ | 10,436 |
| | $ | 10,292 |
| $ | 11,478 |
| | $ | 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)
| | | | | | | Six Months Ended June 30, |
| Nine Months Ended September 30, | 2019 | | 2018 |
| 2018 | | 2017 | (in millions) |
Cash Flows from Operating Activities: | | | | | | |
Net income | $ | 296 |
| | $ | 223 |
| $ | 127 |
| | $ | 153 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
| | |
|
Depreciation and amortization | 737 |
| | 525 |
| 351 |
| | 495 |
|
Amortization of deferred financing costs | 8 |
| | 10 |
| 5 |
| | 6 |
|
Deferred income taxes | (24 | ) | | 29 |
| (27 | ) | | (38 | ) |
Changes in other assets and liabilities: | |
| | |
| |
| | |
|
Accounts and notes receivable, net | (95 | ) | | (131 | ) | (56 | ) | | (107 | ) |
Accounts receivable/payable–affiliated companies | (12 | ) | | (49 | ) | (35 | ) | | 78 |
|
Inventory | (10 | ) | | (3 | ) | (7 | ) | | (6 | ) |
Accounts payable | (6 | ) | | 105 |
| 2 |
| | (6 | ) |
Taxes receivable | (9 | ) | | 6 |
| (8 | ) | | (23 | ) |
Interest and taxes accrued | (50 | ) | | (28 | ) | (34 | ) | | (45 | ) |
Non-trading derivatives, net | | (25 | ) | | — |
|
Net regulatory assets and liabilities | (66 | ) | | (149 | ) | (69 | ) | | (59 | ) |
Other current assets | 13 |
| | 8 |
| 18 |
| | 4 |
|
Other current liabilities | (9 | ) | | 25 |
| (4 | ) | | (11 | ) |
Other assets | 4 |
| | 1 |
| 10 |
| | 2 |
|
Other liabilities | 16 |
| | (1 | ) | (3 | ) | | 2 |
|
Other, net | (5 | ) | | (4 | ) | |
Other operating activities, net | | (5 | ) | | (2 | ) |
Net cash provided by operating activities | 788 |
| | 567 |
| 240 |
| | 443 |
|
Cash Flows from Investing Activities: | |
| | |
| |
| | |
|
Capital expenditures | (678 | ) | | (603 | ) | (514 | ) | | (441 | ) |
Decrease in notes receivable–affiliated companies | — |
| | 29 |
| |
Other, net | 15 |
| | 5 |
| |
Increase in notes receivable–affiliated companies | | (794 | ) | | (26 | ) |
Other investing activities, net | | (3 | ) | | (1 | ) |
Net cash used in investing activities | (663 | ) | | (569 | ) | (1,311 | ) | | (468 | ) |
Cash Flows from Financing Activities: | |
| | |
| |
| | |
|
Proceeds from long-term debt, net | 398 |
| | 298 |
| 696 |
| | 398 |
|
Payments of long-term debt | (368 | ) | | (347 | ) | (242 | ) | | (230 | ) |
Decrease in notes payable–affiliated companies | 15 |
| | — |
| (1 | ) | | (60 | ) |
Dividend to parent | (123 | ) | | (87 | ) | (40 | ) | | (63 | ) |
Contribution from parent | | 590 |
| | — |
|
Debt issuance costs | (4 | ) | | (3 | ) | (8 | ) | | (4 | ) |
Other, net | — |
| | — |
| |
Net cash used in financing activities | (82 | ) | | (139 | ) | |
Other financing activities, net | | (1 | ) | | 1 |
|
Net cash provided by financing activities | | 994 |
| | 42 |
|
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | 43 |
| | (141 | ) | (77 | ) | | 17 |
|
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 274 |
| | 381 |
| 370 |
| | 274 |
|
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 317 |
| | $ | 240 |
| $ | 293 |
| | $ | 291 |
|
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 June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| (in millions, except share amounts) |
Common Stock | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Balance, beginning of period | 1,000 |
| | $ | — |
| | 1,000 |
| | $ | — |
| | 1,000 |
| | $ | — |
| | 1,000 |
| | $ | — |
|
Balance, end of period | 1,000 |
| | — |
| | 1,000 |
| | — |
| | 1,000 |
| | — |
| | 1,000 |
| | — |
|
Additional Paid-in-Capital | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance, beginning of period | | | 2,486 |
| | |
| | 1,697 |
| | | | 1,896 |
| | |
| | 1,696 |
|
Contribution from Parent | | | — |
| | | | — |
| | | | 590 |
| | | | — |
|
Other | | | — |
| | | | — |
| | | | — |
| | | | 1 |
|
Balance, end of period | | | 2,486 |
| | |
| | 1,697 |
| | | | 2,486 |
| | |
| | 1,697 |
|
Retained Earnings | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance, beginning of period | | | 803 |
| | |
| | 693 |
| | | | 800 |
| | |
| | 673 |
|
Net income | | | 100 |
| | |
| | 101 |
| | | | 127 |
| | |
| | 153 |
|
Dividend to parent | | | (16 | ) | | | | (31 | ) | | | | (40 | ) | | | | (63 | ) |
Balance, end of period | | | 887 |
| | |
| | 763 |
| | | | 887 |
| | |
| | 763 |
|
Accumulated Other Comprehensive Income (Loss) | | | | | | | | | | | | | | | |
Balance, beginning of period | | | (15 | ) | | | | 4 |
| | | | (14 | ) | | | | — |
|
Other comprehensive income (loss) | | | — |
| | | | — |
| | | | (1 | ) | | | | 4 |
|
Balance, end of period | | | (15 | ) | | | | 4 |
| | | | (15 | ) | | | | 4 |
|
Total Member’s Equity | | | $ | 3,358 |
| | |
| | $ | 2,464 |
| | | | $ | 3,358 |
| | |
| | $ | 2,464 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Millions of Dollars)
(Unaudited)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | (in millions) |
Revenues: | | | | | | | | | | | | | | |
Utility revenues | $ | 402 |
| | $ | 390 |
| | $ | 2,032 |
| | $ | 1,767 |
| $ | 503 |
| | $ | 487 |
| | $ | 1,688 |
| | $ | 1,630 |
|
Non-utility revenues | 910 |
| | 861 |
| | 3,008 |
| | 2,964 |
| 839 |
| | 841 |
| | 2,022 |
| | 2,098 |
|
Total | 1,312 |
| | 1,251 |
| | 5,040 |
| | 4,731 |
| 1,342 |
| | 1,328 |
| | 3,710 |
| | 3,728 |
|
| | | | | | | | |
Expenses: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Utility natural gas | 134 |
| | 106 |
| | 959 |
| | 706 |
| 190 |
| | 188 |
| | 815 |
| | 825 |
|
Non-utility natural gas | 864 |
| | 832 |
| | 2,927 |
| | 2,843 |
| |
Non-utility cost of revenues, including natural gas | | 769 |
| | 790 |
| | 1,940 |
| | 2,063 |
|
Operation and maintenance | 211 |
| | 182 |
| | 666 |
| | 587 |
| 211 |
| | 217 |
| | 461 |
| | 455 |
|
Depreciation and amortization | 77 |
| | 68 |
| | 222 |
| | 202 |
| 76 |
| | 72 |
| | 153 |
| | 145 |
|
Taxes other than income taxes | 33 |
| | 32 |
| | 120 |
| | 104 |
| 38 |
| | 39 |
| | 87 |
| | 87 |
|
Total | 1,319 |
| | 1,220 |
| | 4,894 |
| | 4,442 |
| 1,284 |
| | 1,306 |
| | 3,456 |
| | 3,575 |
|
Operating Income (Loss) | (7 | ) | | 31 |
| | 146 |
| | 289 |
| |
| | | | | | | | |
Operating Income | | 58 |
| | 22 |
| | 254 |
| | 153 |
|
Other Income (Expense): | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Interest and other finance charges | (30 | ) | | (32 | ) | | (92 | ) | | (92 | ) | (30 | ) | | (33 | ) | | (59 | ) | | (62 | ) |
Other, net | — |
| | (4 | ) | | (5 | ) | | (13 | ) | |
Other expense, net | | — |
| | (1 | ) | | (3 | ) | | (5 | ) |
Total | (30 | ) | | (36 | ) | | (97 | ) | | (105 | ) | (30 | ) | | (34 | ) | | (62 | ) | | (67 | ) |
Income (Loss) From Continuing Operations Before Income Taxes | (37 | ) | | (5 | ) | | 49 |
| | 184 |
| 28 |
| | (12 | ) | | 192 |
| | 86 |
|
Income tax expense (benefit) | (2 | ) | | (1 | ) | | 14 |
| | 69 |
| — |
| | (4 | ) | | 26 |
| | 16 |
|
Income (Loss) From Continuing Operations | (35 | ) | | (4 | ) | | 35 |
| | 115 |
| 28 |
| | (8 | ) | | 166 |
| | 70 |
|
Income from discontinued operations (net of tax of $13, $26, $44 and $75, respectively) | 44 |
| | 42 |
| | 140 |
| | 124 |
| |
Income from discontinued operations (net of tax of $-0-, $14, $-0- and $31, respectively) | | — |
| | 44 |
| | — |
| | 96 |
|
Net Income | $ | 9 |
| | $ | 38 |
| | $ | 175 |
| | $ | 239 |
| $ | 28 |
| | $ | 36 |
| | $ | 166 |
| | $ | 166 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Millions of Dollars)
(Unaudited)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | (in millions) |
Net income | $ | 9 |
| | $ | 38 |
| | $ | 175 |
| | $ | 239 |
| $ | 28 |
| | $ | 36 |
| | $ | 166 |
| | $ | 166 |
|
Comprehensive income | $ | 9 |
| | $ | 38 |
| | $ | 175 |
| | $ | 239 |
| $ | 28 |
| | $ | 36 |
| | $ | 166 |
| | $ | 166 |
|
See Combined Notes to Unaudited Condensed Consolidated Financial Statements
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
ASSETS
| | | | | | | June 30, 2019 | | December 31, 2018 |
| September 30, 2018 | | December 31, 2017 | (in millions) |
Current Assets: | | | | | | |
Cash and cash equivalents | $ | 1 |
| | $ | 12 |
| $ | 1 |
| | $ | 14 |
|
Accounts receivable, less bad debt reserve of $14 and $18, respectively | 527 |
| | 713 |
| |
Accounts receivable, less bad debt reserve of $21 and $17, respectively | | 506 |
| | 894 |
|
Accrued unbilled revenues | 90 |
| | 307 |
| 90 |
| | 268 |
|
Accounts and notes receivable–affiliated companies | 9 |
| | 6 |
| 192 |
| | 120 |
|
Materials and supplies | 69 |
| | 56 |
| 71 |
| | 65 |
|
Natural gas inventory | 206 |
| | 222 |
| 159 |
| | 194 |
|
Non-trading derivative assets | 73 |
| | 110 |
| 101 |
| | 100 |
|
Prepaid expenses and other current assets | 85 |
| | 166 |
| 39 |
| | 115 |
|
Total current assets | 1,060 |
| | 1,592 |
| 1,159 |
| | 1,770 |
|
| | | | |
Property, Plant and Equipment: | | | | | | |
Property, plant and equipment | 7,260 |
| | 6,888 |
| 7,710 |
| | 7,431 |
|
Less: accumulated depreciation and amortization | 2,185 |
| | 2,036 |
| 2,306 |
| | 2,205 |
|
Property, plant and equipment, net | 5,075 |
| | 4,852 |
| 5,404 |
| | 5,226 |
|
| | | | |
Other Assets: | |
| | |
| |
| | |
|
Goodwill | 867 |
| | 867 |
| 867 |
| | 867 |
|
Regulatory assets | 170 |
| | 181 |
| 187 |
| | 181 |
|
Non-trading derivative assets | 38 |
| | 44 |
| 44 |
| | 38 |
|
Investment in unconsolidated affiliate - discontinued operations | — |
| | 2,472 |
| |
Other | 95 |
| | 104 |
| 154 |
| | 132 |
|
Total other assets | 1,170 |
| | 3,668 |
| 1,252 |
| | 1,218 |
|
| | | | |
Total Assets | $ | 7,305 |
| | $ | 10,112 |
| $ | 7,815 |
| | $ | 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
| | | | | | | June 30, 2019 | | December 31, 2018 |
| September 30, 2018 | | December 31, 2017 | (in millions) |
Current Liabilities: | |
| | |
| |
| | |
|
Short-term borrowings | $ | — |
| | $ | 39 |
| |
Accounts payable | 429 |
| | 669 |
| $ | 406 |
| | $ | 856 |
|
Accounts and notes payable–affiliated companies | 44 |
| | 611 |
| 45 |
| | 50 |
|
Taxes accrued | 64 |
| | 75 |
| 51 |
| | 82 |
|
Interest accrued | 31 |
| | 32 |
| 38 |
| | 38 |
|
Customer deposits | 74 |
| | 76 |
| 74 |
| | 75 |
|
Non-trading derivative liabilities | 33 |
| | 20 |
| 28 |
| | 102 |
|
Other | 171 |
| | 137 |
| 132 |
| | 137 |
|
Total current liabilities | 846 |
| | 1,659 |
| 774 |
| | 1,340 |
|
| | | | |
Other Liabilities: | |
| | |
| |
| | |
|
Deferred income taxes, net | 370 |
| | 362 |
| 446 |
| | 406 |
|
Deferred income taxes, net - discontinued operations | — |
| | 927 |
| |
Non-trading derivative liabilities | 6 |
| | 4 |
| 7 |
| | 5 |
|
Benefit obligations | 98 |
| | 97 |
| 94 |
| | 93 |
|
Regulatory liabilities | 1,241 |
| | 1,201 |
| 1,234 |
| | 1,227 |
|
Other | 350 |
| | 297 |
| 357 |
| | 329 |
|
Total other liabilities | 2,065 |
| | 2,888 |
| 2,138 |
| | 2,060 |
|
| | | | |
Long-Term Debt | 2,257 |
| | 2,457 |
| 2,397 |
| | 2,371 |
|
| | | | |
Commitments and Contingencies (Note 14) |
|
| |
|
|
|
| |
|
|
| | | | |
Stockholder’s Equity: | | | | | | |
Common stock | — |
| | — |
| — |
| | — |
|
Paid-in capital | 1,668 |
| | 2,528 |
| |
Retained earnings (accumulated deficit) | 463 |
| | 574 |
| |
Additional paid-in capital | | 2,015 |
| | 2,015 |
|
Retained earnings | | 486 |
| | 423 |
|
Accumulated other comprehensive income | 6 |
| | 6 |
| 5 |
| | 5 |
|
Total stockholder’s equity | 2,137 |
| | 3,108 |
| 2,506 |
| | 2,443 |
|
| | | | |
Total Liabilities and Stockholder’s Equity | $ | 7,305 |
| | $ | 10,112 |
| $ | 7,815 |
| | $ | 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)
| | | | | | | Six Months Ended June 30, |
| Nine Months Ended September 30, | 2019 | | 2018 |
| 2018 | | 2017 | (in millions) |
Cash Flows from Operating Activities: | | | | | | |
Net income | $ | 175 |
| | $ | 239 |
| $ | 166 |
| | $ | 166 |
|
Less: Income from discontinued operations, net of tax | 140 |
| | 124 |
| — |
| | 96 |
|
Income from continuing operations | 35 |
| | 115 |
| 166 |
| | 70 |
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | |
| | |
| |
| | |
|
Depreciation and amortization | 222 |
| | 202 |
| 153 |
| | 145 |
|
Amortization of deferred financing costs | 7 |
| | 7 |
| 4 |
| | 4 |
|
Deferred income taxes | 6 |
| | 69 |
| 20 |
| | 9 |
|
Write-down of natural gas inventory | 2 |
| | — |
| 3 |
| | 1 |
|
Changes in other assets and liabilities, excluding acquisitions: | |
| | |
| |
Changes in other assets and liabilities: | | |
| | |
|
Accounts receivable and unbilled revenues, net | 449 |
| | 346 |
| 554 |
| | 339 |
|
Accounts receivable/payable–affiliated companies | — |
| | (1 | ) | (11 | ) | | (14 | ) |
Inventory | 1 |
| | (49 | ) | 26 |
| | 58 |
|
Accounts payable | (261 | ) | | (227 | ) | (442 | ) | | (248 | ) |
Fuel cost recovery | 53 |
| | (30 | ) | 78 |
| | 69 |
|
Interest and taxes accrued | (9 | ) | | (13 | ) | (31 | ) | | (20 | ) |
Non-trading derivatives, net | 60 |
| | (51 | ) | (62 | ) | | 61 |
|
Margin deposits, net | 2 |
| | (49 | ) | (12 | ) | | (9 | ) |
Net regulatory assets and liabilities | 73 |
| | (28 | ) | 15 |
| | 92 |
|
Other current assets | 7 |
| | 16 |
| 7 |
| | 7 |
|
Other current liabilities | 24 |
| | (5 | ) | (21 | ) | | 8 |
|
Other assets | 5 |
| | 5 |
| (2 | ) | | 4 |
|
Other liabilities | (2 | ) | | 4 |
| 3 |
| | 52 |
|
Other, net | — |
| | 1 |
| |
Other operating activities, net | | 1 |
| | — |
|
Net cash provided by operating activities from continuing operations | 674 |
| | 312 |
| 449 |
| | 628 |
|
Net cash provided by operating activities from discontinued operations | 176 |
| | — |
| — |
| | 118 |
|
Net cash provided by operating activities | 850 |
| | 312 |
| 449 |
| | 746 |
|
Cash Flows from Investing Activities: | |
| | |
| |
| | |
|
Capital expenditures | (411 | ) | | (373 | ) | (322 | ) | | (230 | ) |
Acquisitions, net of cash acquired | — |
| | (132 | ) | |
Other, net | 5 |
| | 2 |
| |
Increase in notes receivable–affiliated companies | | (66 | ) | | — |
|
Other investing activities, net | | 2 |
| | 3 |
|
Net cash used in investing activities from continuing operations | (406 | ) | | (503 | ) | (386 | ) | | (227 | ) |
Net cash provided by investing activities from discontinued operations | 47 |
| | 223 |
| — |
| | 30 |
|
Net cash used in investing activities | (359 | ) | | (280 | ) | (386 | ) | | (197 | ) |
Cash Flows from Financing Activities: | |
| | |
| |
| | |
|
Increase (decrease) in short-term borrowings, net | (39 | ) | | 13 |
| |
Payments of commercial paper, net | (800 | ) | | (40 | ) | |
Decrease in short-term borrowings, net | | — |
| | (39 | ) |
Proceeds from (payments of) commercial paper, net | | 22 |
| | (333 | ) |
Proceeds from long-term debt | 599 |
| | 298 |
| — |
| | 599 |
|
Dividends to parent | (286 | ) | | (337 | ) | (103 | ) | | (211 | ) |
Debt issuance costs | (5 | ) | | (4 | ) | — |
| | (5 | ) |
Decrease in notes payable–affiliated companies | (570 | ) | | — |
| — |
| | (570 | ) |
Contribution from parent | 600 |
| | 38 |
| |
Other, net | (1 | ) | | — |
| |
Other financing activities, net | | (2 | ) | | (1 | ) |
Net cash used in financing activities from continuing operations | (502 | ) | | (32 | ) | (83 | ) | | (560 | ) |
Net cash provided by financing activities from discontinued operations | — |
| | — |
| — |
| | — |
|
Net cash used in financing activities | (502 | ) | | (32 | ) | (83 | ) | | (560 | ) |
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 Decrease in Cash, Cash Equivalents and Restricted Cash | | (20 | ) | | (11 | ) |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | | 25 |
| | 12 |
|
Cash, Cash Equivalents and Restricted Cash at End of Period | | $ | 5 |
| | $ | 1 |
|
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 June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| (in millions, except share amounts) |
Common Stock | | | | | | | | | | | | | | | |
Balance, beginning of period | 1,000 |
| | $ | — |
| | 1,000 |
| | $ | — |
| | 1,000 |
| | $ | — |
| | 1,000 |
| | $ | — |
|
Balance, end of period | 1,000 |
| | — |
| | 1,000 |
| | — |
| | 1,000 |
| | — |
| | 1,000 |
| | — |
|
Additional Paid-in-Capital | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance, beginning of period | | | 2,015 |
| | |
| | 2,527 |
| | | | 2,015 |
| | |
| | 2,528 |
|
Other | | | — |
| | | | 1 |
| | | | — |
| | | | — |
|
Balance, end of period | | | 2,015 |
| | |
| | 2,528 |
| | | | 2,015 |
| | |
| | 2,528 |
|
Retained Earnings | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance, beginning of period | | | 541 |
| | |
| | 618 |
| | | | 423 |
| | |
| | 574 |
|
Net income | | | 28 |
| | |
| | 36 |
| | | | 166 |
| | |
| | 166 |
|
Dividend to parent | | | (83 | ) | | |
| | (125 | ) | | | | (103 | ) | | |
| | (211 | ) |
Balance, end of period | | | 486 |
| | |
| | 529 |
| | | | 486 |
| | |
| | 529 |
|
Accumulated Other Comprehensive Income | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance, beginning of period | | | 5 |
| | |
| | 6 |
| | | | 5 |
| | |
| | 6 |
|
Balance, end of period | | | 5 |
| | |
| | 6 |
| | | | 5 |
| | |
| | 6 |
|
Total Stockholder’s Equity | | | $ | 2,506 |
| | |
| | $ | 3,063 |
| | | | $ | 2,506 |
| | |
| | $ | 3,063 |
|
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 and owns 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 June 30, 2019, CenterPoint Energy’s operating subsidiaries were as follows:
Houston Electric owns and CERC, own and operateoperates electric transmission and distribution and natural gas distribution facilities and supply natural gas to commercial and industrial customers and electric and natural gas utilities.
Houston Electric engages in the electric transmission and distribution business 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, which 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, which provides energy performance contracting and sustainable infrastructure services, such as renewables, distributed generation and combined heat and power projects.
As of SeptemberJune 30, 2018,2019, CenterPoint Energy, indirectly through CNP Midstream, owned approximately 54.0%53.8% of the common units representing limited partner interests in Enable, 50% of the management rights and 40% of the incentive distribution rights in Enable GP and also directly owned an aggregate of 14,520,000 Enable Series A Preferred Units. Enable owns, operates and develops natural gas and crude oil infrastructure assets.
On September 4, 2018, CERC entered into a Contribution Agreement, by and between CERC and CNP Midstream, a new subsidiary formed by CERC in June 2018, pursuant to which CERC contributed its equity investment in Enable consisting of Enable common units and its interests in Enable GP, to CNP Midstream (collectively, the Enable Contribution). Immediately following the Enable Contribution, CERC distributed all of its interest in CNP Midstream to Utility Holding, CERC’s sole stockholder and a wholly-owned subsidiary of CenterPoint Energy. Utility Holding then distributed all of its interest in CNP Midstream to CenterPoint Energy, its sole member (collectively with the Enable Contribution, the Internal Spin). CERC executed the Internal Spin to, among other things, enhance the access of CERC and CenterPoint Energy to low cost debt and equity through increased transparency and understandability of the 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.
As a result of the Internal Spin, CERC’s equity in earnings in Enable and related income taxes have been classified as discontinued operations in CERC’s Interim Condensed Financial Statements. For further information regarding the Internal Spin and CERC’s presentation of discontinued operations, see Note 9.
As of SeptemberJune 30, 2018,2019, 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 payable 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 Notes 2 andNote 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 subsequent to 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 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 Enable Series A Preferred Units owned by CenterPoint Energy, 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 nine months ended September 30, 2018 and 2017, respectively, due to the requirement that cash proceeds from COLI policies be classified as cash inflows from investing activity.more information. |
|
| | | | | | |
Recently Adopted Accounting Standards |
ASU Number and Name | | Description | | Date of Adoption | | Financial Statement Impact
upon Adoption
|
ASU 2016-18- Statement of Cash Flows (Topic 230): Restricted Cash | | This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet.
Transition method: retrospective
| | January 1, 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 nine months ended September 30, 2018 and 2017, respectively. See Note 17 for further discussion. |
ASU 2017-01- Business Combinations (Topic 805): Clarifying the Definition of a Business | | This standard revises the definition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then under ASU 2017-01, the asset or group of assets is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs to be more closely aligned with how outputs are described in ASC 606.
Transition method: prospective
| | January 1, 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. |
ASU 2017-12- Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities | | This standard expands an entity’s ability to hedge and account for risk components, reduces the complexity of applying certain aspects of hedge accounting and updates the presentation and disclosure requirements. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness.
Transition method: cumulative-effect adjustment for elimination of the separate measurement of ineffectiveness; prospective for presentation and disclosure
| | July 1, 2018
Applicable January 1, 2018
| | The adoption of this standard did not have a material impact on the Registrants’ financial position, results of operations or cash flows. As a result of the adoption, the Registrants will no longer recognize ineffectiveness for derivatives designated as cash flow hedges; all changes in fair value will flow through other comprehensive income. As the Registrants did not have existing cash flow hedges as of the initial application date and the adoption date, no cumulative effective adjustment was recorded. Note 7 reflects disclosures modified upon adoption. |
ASU 2018-13- Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement | | This standard eliminates, modifies and adds certain disclosure requirements for fair value measurements.
Transition method: prospective for additions and one modification and retrospective for all other amendments
| | Adoption of eliminations and modifications as of September 30, 2018; Additions will be adopted January 1, 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. |
The table below reflects the impact of adoption of ASU 2017-07:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Increase to operating income | $ | 9 |
| | $ | 3 |
| | $ | — |
| | $ | 18 |
| | $ | 7 |
| | $ | 5 |
|
Decrease to other income | 9 |
| | 3 |
| | — |
| | 18 |
| | 7 |
| | 5 |
|
| Nine Months Ended September 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Increase to operating income | $ | 38 |
| | $ | 18 |
| | $ | 8 |
| | $ | 52 |
| | $ | 22 |
| | $ | 16 |
|
Decrease to other income | 38 |
| | 18 |
| | 8 |
| | 52 |
| | 22 |
| | 16 |
|
|
| | | | | | |
Issued, Not Yet Effective Accounting Standards |
ASU Number and Name | | Description | | Effective Date of Adoption | | Financial Statement Impact upon Adoption |
ASU 2016-02- Leases (Topic 842) and related amendments
ASU 2018-01- Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842
ASU 2018-10 - Codification Improvements to Topic 842, Leases
ASU 2018-11- Leases (Topic 842)-Targeted Improvements
| | ASU 2016-02 provides a comprehensive new lease model that requires lessees to recognize assets and liabilities for most leases and would change certain aspects of lessor accounting.
Transition method: modified retrospective
ASU 2018-01 allows entities to elect not to assess whether existing land easements that were not previously accounted for in accordance with ASC 840 Leases under ASC 842 Leases when transitioning to the new leasing standard.
ASU 2018-10 makes sixteen narrow-scope amendments to ASC 842 Leases.
ASU 2018-11 allows entities the transition option to not apply the new lease standards in the comparative financial statements presented in the year of adoption. It also gives lessors the practical expedient to not separate non-lease and lease components when certain criteria are met.
| | January 1, 2019 Early adoption is permitted | | The Registrants will elect the practical expedient on existing easements provided by ASU 2018-01, and the transition option to not apply the new lease standards in the comparative financial statements presented in the year of adoption provided by ASU 2018-11. The Registrants are evaluating other available transitional practical expedients. The Registrants are in the process of reviewing contracts to identify leases as defined in ASU 2016-02 and expect to recognize on the statements of financial position right-of-use assets and lease liabilities for the majority of their respective leases that are currently classified as operating leases. The Registrants are continuing to assess the impact that adoption of these standards will have on their financial position, results of operations, cash flows and disclosures. |
ASU 2016-13- Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments | | This standard, including standards amending this standard, requires a new model called CECL to estimate credit losses for (1) financial assets subject to credit losses and measured at amortized cost and (2) certain off-balance sheet credit exposures. Upon initial recognition of the exposure, the CECL model requires an entity to estimate the credit losses expected over the life of an exposure based on historical information, current information and reasonable and supportable forecasts, including estimates of prepayments.
Transition method: modified retrospective | | January 1, 2020
Early adoption is permitted starting January 1, 2019 | | The Registrants are currently assessing the impact that this standard will have on their financial position, results of operations, cash flows and disclosures. |
ASU 2018-02-Income Statement-Reporting Comprehensive Income2018-13- Fair Value Measurement (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. |
|
| | | | | | |
Issued, Not Yet Effective Accounting Standards |
ASU Number and Name | | Description | | Date of Adoption | | Financial Statement Impact
upon Adoption
|
ASU 2018-14-Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20)820): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit PlansFair Value Measurement | | This standard eliminates, modifies and adds certain disclosure requirements for employers that sponsor defined benefit pension orfair value measurements. Transition method: prospective for additions and one modification and retrospective for all other postretirement plans.
Transition method: retrospectiveamendments | | Adoption of eliminations and modifications as of September 30, 2018; Additions will be adopted January 1, 2021
Early adoption is permitted2020 | | The adoption of this standard willdid not impact the Registrants’ annual disclosures and is not expected to have an impact on their financial position, results of operations andor cash flows. The Registrants are currently assessingNote 8 reflects the standard’s impact on the Stock-Based Incentive Compensation Plans and Employee Benefit Plans footnote.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. |
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) Pending 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. During August and October 2018, CenterPoint Energy completed its permanent financing forshare, without interest. At the Merger through offeringsclosing, 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 Series A Preferred Stock, depositary shares, each representing a 1/20th interest in a share of Series B Preferred Stock, Common Stock and unsecured senior notes. See Notes 12 and 19 for further details regarding the Merger financings. As of September 30, 2018, Vectren and its subsidiaries had outstanding $325 million of short-term debt and $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.
Consummationterms of the Merger is conditioned upon approvalAgreement. These amounts did not include a stub period cash dividend of $0.41145 per share, which was declared, with CenterPoint Energy’s consent, by federal regulatory commissions, orders from state regulatory commissions, expiration or terminationVectren’s board of directors on January 16, 2019, and paid to Vectren stockholders as of the applicable HSR waiting periodrecord date of February 1, 2019.
Pursuant to the Merger Agreement and approvalimmediately subsequent to the close of the Merger, CenterPoint Energy cash settled $78 million in outstanding share-based awards issued prior to the Merger Date by Vectren shareholders. In June 2018,to its employees. As a result of the Merger, CenterPoint Energy assumed a liability for these share-based awards of $41 million and Vectren (i) submitted their filingsrecorded an incremental cost of $37 million in Operation and maintenance expenses on its Condensed Statements of Consolidated Income during the six months ended June 30, 2019 for the accelerated vesting of the awards in accordance with the FERC and the FCC, (ii) submitted their filings with the FTC pursuantMerger Agreement.
Subsequent to the HSR Act and (iii) initiated informational proceedings with regulators in Indiana and Ohio. On June 26, 2018,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 Vectren received notice fromwhich is included in Operation and maintenance expenses on its Condensed Statements of Consolidated Income during the FTC granting early termination of the waiting period under the HSR Act insix months ended June 30, 2019.
In connection with the Merger. On August 28, 2018, shareholdersMerger, 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 during a special shareholders’ meeting, approvedcommon stock, which previously traded under the Merger. ticker symbol “VVC” on the NYSE, ceased trading on and were delisted from the NYSE.
The FCC granted approvalsMerger 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 July 20the Merger Date.
Vectren’s regulated operations, comprised of electric generation and 24, 2018,electric and on October 5, 2018,natural gas energy delivery services, are subject to the rate-setting authority of the FERC, authorized the Merger. A hearing beforeIURC and the Indiana Utility Regulatory Commission was heldPUCO, 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 October 17, 2018 with respectinvestment 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 Merger. 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 June 30, 2019 (in millions):
|
| | | | |
Cash and cash equivalents | | $ | 16 |
|
Other current assets | | 598 |
|
Property, plant and equipment, net | | 5,146 |
|
Identifiable intangibles | | 322 |
|
Regulatory assets | | 338 |
|
Other assets | | 151 |
|
Total assets acquired | | 6,571 |
|
Current liabilities | | 690 |
|
Regulatory liabilities | | 944 |
|
Other liabilities | | 860 |
|
Long-term debt | | 2,401 |
|
Total liabilities assumed | | 4,895 |
|
Net assets acquired | | 1,676 |
|
Goodwill | | 4,306 |
|
Total purchase price consideration | | $ | 5,982 |
|
CenterPoint Energy has requestednot completed a final order forvaluation 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 proceeding bypreliminary purchase price allocation and, as such, no assurances can be provided regarding the endpreliminary purchase accounting. The final allocation may include changes in the fair value of January or early February 2019.
The Merger Agreement contains termination rights for both CenterPoint Energy(1) property, plant and Vectren,equipment, (2) intangible assets and provides that, upon termination ofgoodwill, (3) deferred taxes, (4) regulatory assets and liabilities, (5) long-term debt and (6) other assets and liabilities. Changes in the Merger Agreement under specified circumstances, CenterPoint Energy would be required to pay a termination fee of $210 million to Vectren or 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 ofpreliminary purchase price allocation since the closing conditions, CenterPoint Energy continues to anticipate closing the Mergerinitial estimates reported in the first quarter of 2019.
(4) Revenue Recognition2019 primarily included additional information obtained related to intangible assets.
The Registrants adopted ASC 606excess of the purchase price over the estimated fair values of the assets acquired and allliabilities 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 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 amendmentsuseful 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 | | $ | 12 |
|
Customer relationships | | 18 | | 220 |
|
Construction backlog | | 1 | | 28 |
|
Trade names | | 10 | | 62 |
|
Total | | | | $ | 322 |
|
Amortization expense related to the operation and maintenance agreements and construction backlog was $3 million and $12 million, inclusive of a $4 million benefit related to a cumulative catch-up for remeasurement of the purchase price allocation, for the three and six months ended June 30, 2019, respectively, 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 $5 million and $8 million for the three and six months ended June 30, 2019, respectively, and is included in Depreciation and amortization expense on CenterPoint Energy’s Condensed Statements of Consolidated Income.
The results of operations for Vectren included in CenterPoint Energy’s Interim Condensed Financial Statements from the Merger Date are as follows:
|
| | | | | | | | |
| | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
| | (in millions) |
Operating revenues | | $ | 688 |
| | $ | 1,161 |
|
Net income | | 38 |
| | 19 |
|
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 using2018. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the modified retrospective methodconsolidated results of operations that would have been achieved had the Merger taken place on the dates indicated or of the future consolidated results of operations of the combined company.
|
| | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | (in millions) | |
Operating revenues | | $ | 2,798 |
| | $ | 2,830 |
| | $ | 6,575 |
| | $ | 6,644 |
| |
Net income (loss) | | 199 |
| | (24 | ) | (1) | 371 |
| (2) | 83 |
| (3) |
| |
(1) | Pro forma net income was adjusted to exclude $10 million and $27 million, respectively, of Vectren and CenterPoint Energy Merger-related transaction costs incurred in 2018 and reflected in the historical income statements. |
| |
(2) | Pro forma net income was adjusted to exclude $37 million of Vectren Merger-related transaction costs incurred in 2019. |
| |
(3) | Pro forma net income was adjusted to include $46 million and $1 million, respectively, of Vectren and CenterPoint Energy Merger-related transaction costs incurred from July 1, 2018 to June 30, 2019. |
CenterPoint Energy incurred integration costs in connection with the Merger of $40 million and $48 million for those contracts thatthe three and six months ended June 30, 2019, respectively, which were not completed asincluded in Operation and maintenance expenses in CenterPoint Energy’s Condensed Statements of Consolidated Income.
Acquisition of Utility Pipeline Construction Company. An acquisition was made during the six months ended June 30, 2019 by CenterPoint Energy’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 purchase 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 adoption. Application of the new revenue standard didacquisition and are not result in a cumulative effect adjustmentsignificant to the opening balanceconsolidated financial results 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,CenterPoint Energy. Pro forma results of operations or cash flows.have not been presented for the acquisition because the effects of the acquisition were not significant to CenterPoint Energy’s consolidated financial results for all periods presented.
(4) Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Registrants expect to be entitled to receive in exchange for these goods or services. 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, 2019 |
| | 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) |
Revenue from contracts | | $ | 768 |
| | $ | 140 |
| | $ | 657 |
| | $ | 87 |
| | $ | 326 |
| | $ | 78 |
| | $ | 2,056 |
|
Derivatives income | | — |
| | — |
| | — |
| | 768 |
| | — |
| | — |
| | 768 |
|
Other (3) | | (3 | ) | | — |
| | 3 |
| | — |
| | — |
| | 2 |
| | 2 |
|
Eliminations | | — |
| | — |
| | (10 | ) | | (17 | ) | | (1 | ) | | — |
| | (28 | ) |
Total revenues | | $ | 765 |
| | $ | 140 |
| | $ | 650 |
| | $ | 838 |
| | $ | 325 |
| | $ | 80 |
| | $ | 2,798 |
|
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, 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 | | $ | 1,458 |
| | $ | 223 |
| | $ | 2,063 |
| | $ | 260 |
| | $ | 472 |
| | $ | 119 |
| | $ | 4,595 |
|
Derivatives income | | 3 |
| | — |
| | — |
| | 1,841 |
| | — |
| | — |
| | 1,844 |
|
Other (3) | | (7 | ) | | — |
| | (4 | ) | | — |
| | — |
| | 3 |
| | (8 | ) |
Eliminations | | — |
| | — |
| | (20 | ) | | (81 | ) | | (1 | ) | | — |
| | (102 | ) |
Total revenues | | $ | 1,454 |
| | $ | 223 |
| | $ | 2,039 |
| | $ | 2,020 |
| | $ | 471 |
| | $ | 122 |
| | $ | 6,329 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2018 | | 2017 |
| | Electric Transmission & Distribution (1) | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total | | Electric Transmission & Distribution (1) | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 904 |
| | $ | 398 |
| | $ | 82 |
| | $ | 1 |
| | $ | 1,385 |
| | $ | 852 |
| | $ | 396 |
| | $ | 97 |
| | $ | 2 |
| | $ | 1,347 |
|
Derivatives income | | — |
| | — |
| | 838 |
| | — |
| | 838 |
| | — |
| | — |
| | 774 |
| | — |
| | 774 |
|
Other (3) | | (7 | ) | | 12 |
| | — |
| | 2 |
| | 7 |
| | (9 | ) | | 2 |
| | — |
| | 2 |
| | (5 | ) |
Eliminations | | — |
| | (8 | ) | | (10 | ) | | — |
| | (18 | ) | | — |
| | (8 | ) | | (10 | ) | | — |
| | (18 | ) |
Total revenues | | $ | 897 |
| | $ | 402 |
| | $ | 910 |
| | $ | 3 |
| | $ | 2,212 |
| | $ | 843 |
| | $ | 390 |
| | $ | 861 |
| | $ | 4 |
| | $ | 2,098 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2018 | | 2017 |
| | Electric Transmission & Distribution (1) | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total | | Electric Transmission & Distribution (1) | | Natural Gas Distribution (1) | | Energy Services (2) | | Other Operations (2) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 2,525 |
| | $ | 2,093 |
| | $ | 338 |
| | $ | 4 |
| | $ | 4,960 |
| | $ | 2,254 |
| | $ | 1,784 |
| | $ | 355 |
| | $ | 4 |
| | $ | 4,397 |
|
Derivatives income | | (4 | ) | | — |
| | 2,727 |
| | — |
| | 2,723 |
| | 1 |
| | — |
| | 2,643 |
| | — |
| | 2,644 |
|
Other (3) | | (19 | ) | | (35 | ) | | — |
| | 7 |
| | (47 | ) | | (21 | ) | | 7 |
| | — |
| | 7 |
| | (7 | ) |
Eliminations | | — |
| | (26 | ) | | (57 | ) | | — |
| | (83 | ) | | — |
| | (24 | ) | | (34 | ) | | — |
| | (58 | ) |
Total revenues | | $ | 2,502 |
| | $ | 2,032 |
| | $ | 3,008 |
| | $ | 11 |
| | $ | 7,553 |
| | $ | 2,234 |
| | $ | 1,767 |
| | $ | 2,964 |
| | $ | 11 |
| | $ | 6,976 |
|
Houston Electric
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, 2018 |
| | 2018 | | 2017 | | 2018 | | 2017 | | 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 | | $ | 904 |
| | $ | 852 |
| | $ | 2,525 |
| | $ | 2,254 |
| | $ | 860 |
| | $ | — |
| | $ | 509 |
| | $ | 78 |
| | $ | — |
| | $ | 2 |
| | $ | 1,449 |
|
Derivatives income | | | — |
| | — |
| | — |
| | 782 |
| | — |
| | — |
| | 782 |
|
Other (3) | | (7 | ) | | (9 | ) | | (19 | ) | | (21 | ) | | (6 | ) | | — |
| | (14 | ) | | — |
| | — |
| | 2 |
| | (18 | ) |
Eliminations | | | — |
| | — |
| | (8 | ) | | (19 | ) | | — |
| | — |
| | (27 | ) |
Total revenues | | | $ | 854 |
| | $ | — |
| | $ | 487 |
| | $ | 841 |
| | $ | — |
| | $ | 4 |
| | $ | 2,186 |
|
| | $ | 897 |
| | $ | 843 |
| | $ | 2,506 |
| | $ | 2,233 |
| | | | | | | | | | | | | | |
| | | Six Months Ended June 30, 2018 |
| | | 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) |
Revenue from contracts | | | $ | 1,621 |
| | $ | — |
| | $ | 1,695 |
| | $ | 256 |
| | $ | — |
| | $ | 3 |
| | $ | 3,575 |
|
Derivatives income | | | (4 | ) | | — |
| | — |
| | 1,889 |
| | — |
| | — |
| | 1,885 |
|
Other (3) | | | (12 | ) | | — |
| | (47 | ) | | — |
| | — |
| | 5 |
| | (54 | ) |
Eliminations | | | — |
| | — |
| | (18 | ) | | (47 | ) | | — |
| | — |
| | (65 | ) |
Total revenues | | | $ | 1,605 |
| | $ | — |
| | $ | 1,630 |
| | $ | 2,098 |
| | $ | — |
| | $ | 8 |
| | $ | 5,341 |
|
CERC
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2018 | | 2017 |
| | Natural Gas Distribution (1) | | Energy Services (2) | | Total | | Natural Gas Distribution (1) | | Energy Services (2) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 398 |
| | $ | 82 |
| | $ | 480 |
| | $ | 396 |
| | $ | 97 |
| | $ | 493 |
|
Derivatives income | | — |
| | 838 |
| | 838 |
| | — |
| | 774 |
| | 774 |
|
Other (3) | | 12 |
| | — |
| | 12 |
| | 2 |
| | — |
| | 2 |
|
Eliminations | | (8 | ) | | (10 | ) | | (18 | ) | | (8 | ) | | (10 | ) | | (18 | ) |
Total revenues | | $ | 402 |
| | $ | 910 |
| | $ | 1,312 |
| | $ | 390 |
| | $ | 861 |
| | $ | 1,251 |
|
| | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2018 | | 2017 |
| | Natural Gas Distribution (1) | | Energy Services (2) | | Total | | Natural Gas Distribution (1) | | Energy Services (2) | | Total |
| | (in millions) |
Revenue from contracts | | $ | 2,093 |
| | $ | 338 |
| | $ | 2,431 |
| | $ | 1,784 |
| | $ | 355 |
| | $ | 2,139 |
|
Derivatives income | | — |
| | 2,727 |
| | 2,727 |
| | — |
| | 2,643 |
| | 2,643 |
|
Other (3) | | (35 | ) | | — |
| | (35 | ) | | 7 |
| | — |
| | 7 |
|
Eliminations | | (26 | ) | | (57 | ) | | (83 | ) | | (24 | ) | | (34 | ) | | (58 | ) |
Total revenues | | $ | 2,032 |
| | $ | 3,008 |
| | $ | 5,040 |
| | $ | 1,767 |
| | $ | 2,964 |
| | $ | 4,731 |
|
| |
(1) | Reflected in Utility revenues in the Condensed Statements of Consolidated Income. |
| |
(2) | Reflected in Non-utility revenues in the Condensed Statements of Consolidated Income. |
| |
(3) | Primarily consists of income from ARPs and leases. ARPs are contracts between the utility and its regulators, not between the utility and a customer. The Registrants recognize ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation in rates charged for utility service to customers, ARP revenue is reversed and recorded as revenue from contracts with customers. The recognition of ARP revenues and the reversal of ARP revenues upon recovery through rates charged for utility service may not occur in the same period. |
| |
(4) | Reflects revenues from Vectren subsidiaries for the period from February 1, 2019 to June 30, 2019. |
Houston Electric
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (in millions) |
Revenue from contracts | | $ | 768 |
| | $ | 860 |
| | $ | 1,458 |
| | $ | 1,621 |
|
Other (1) | | (3 | ) | | (6 | ) | | (7 | ) | | (12 | ) |
Total revenues | | $ | 765 |
| | $ | 854 |
| | $ | 1,451 |
| | $ | 1,609 |
|
| |
(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 June 30, |
| | 2019 | | 2018 |
| | 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 | | $ | 510 |
| | $ | 87 |
| | $ | — |
| | $ | 597 |
| | $ | 509 |
| | $ | 78 |
| | $ | — |
| | $ | 587 |
|
Derivatives income | | — |
| | 768 |
| | — |
| | 768 |
| | — |
| | 782 |
| | — |
| | 782 |
|
Other (3) | | 3 |
| | — |
| | — |
| | 3 |
| | (14 | ) | | — |
| | — |
| | (14 | ) |
Eliminations | | (10 | ) | | (16 | ) | | — |
| | (26 | ) | | (8 | ) | | (19 | ) | | — |
| | (27 | ) |
Total revenues | | $ | 503 |
| | $ | 839 |
| | $ | — |
| | $ | 1,342 |
| | $ | 487 |
| | $ | 841 |
| | $ | — |
| | $ | 1,328 |
|
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 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 | | $ | 1,708 |
| | $ | 260 |
| | $ | 1 |
| | $ | 1,969 |
| | $ | 1,695 |
| | $ | 256 |
| | $ | — |
| | $ | 1,951 |
|
Derivatives income | | — |
| | 1,841 |
| | — |
| | 1,841 |
| | — |
| | 1,889 |
| | — |
| | 1,889 |
|
Other (3) | | — |
| | — |
| | — |
| | — |
| | (47 | ) | | — |
| | — |
| | (47 | ) |
Eliminations | | (20 | ) | | (80 | ) | | — |
| | (100 | ) | | (18 | ) | | (47 | ) | | — |
| | (65 | ) |
Total revenues | | $ | 1,688 |
| | $ | 2,021 |
| | $ | 1 |
| | $ | 3,710 |
| | $ | 1,630 |
| | $ | 2,098 |
| | $ | — |
| | $ | 3,728 |
|
| |
(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. CERC distributesDistribution (CenterPoint Energy and transports naturalCERC). Natural gas isdistributed and transported 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 accounted for 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.
Contract Balances. When the timing of delivery of service is different from the timing of the payments made by customers and when the right to consideration is conditioned on something other than the passage of time, the Registrants recognize either a contract asset (performance precedes billing) or a contract liability (customer payment precedes performance). Those customers that prepay are represented by contract liabilities until the performance obligations are satisfied. The Registrants’ contract assets are included in Accrued unbilled revenues in their Condensed Consolidated Balance Sheets. On an aggregate basis as of June 30, 2019, the Registrants’ contract assets primarily relate to contracts in the Infrastructure Services segment where revenue is recognized using the input method. The Registrants’ contract liabilities are included in Accounts payable and Other current liabilitiesin their Condensed Consolidated Balance Sheets. On an aggregate basis as of June 30, 2019, the Registrants’ contract liabilities primarily relate to ESG contracts where revenue is recognized using the input method.
The opening and closing balances of accounts receivable, other accrued unbilled revenue, contract assets and contract liabilities from contracts with customers for the six months ended June 30, 2019 are as follows:
CenterPoint Energy
|
| | | | | | | | | | | | | | | |
| Accounts Receivable | | Other Accrued Unbilled Revenues | | Contract Assets | | Contract Liabilities |
| (in millions) |
Opening balance as of December 31, 2018 (1) | $ | 763 |
| | $ | 575 |
| | $ | 37 |
| | $ | 47 |
|
Closing balance as of June 30, 2019 | 831 |
| | 362 |
| | 56 |
| | 54 |
|
Increase (decrease) | $ | 68 |
| | $ | (213 | ) | | $ | 19 |
| | $ | 7 |
|
| |
(1) | Opening balances related to Vectren are as of February 1, 2019. |
The amount of revenue recognized in the six-month period ended June 30, 2019 that was included in the opening contract liability was $38 million. The difference between the opening and closing balances of the contract liabilities primarily results from the timing difference between CenterPoint Energy’s performance and the customer’s payment.
Houston Electric
|
| | | | | | | | | | | |
| Accounts Receivable | | Other Accrued Unbilled Revenues | | Contract Liabilities |
| (in millions) |
Opening balance as of December 31, 2018 | $ | 234 |
| | $ | 110 |
| | $ | 3 |
|
Closing balance as of June 30, 2019 | 305 |
| | 122 |
| | 5 |
|
Increase | $ | 71 |
| | $ | 12 |
| | $ | 2 |
|
The amount of revenue recognized in the six-month period ended June 30, 2019 that was included in the opening contract liability was $2 million. The difference between the opening and closing balances of the contract liabilities primarily results from the timing difference between Houston Electric’s performance and the customer’s payment.
CERC
|
| | | | | | | |
| Accounts Receivable | | Other Accrued Unbilled Revenues |
| (in millions) |
Opening balance as of December 31, 2018 | $ | 282 |
| | $ | 263 |
|
Closing balance as of June 30, 2019 | 191 |
| | 87 |
|
Decrease | $ | (91 | ) | | $ | (176 | ) |
CERC does not have any opening or closing contract asset or contract liability balances.
Remaining Performance Obligations (CenterPoint Energy).The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts and (2) when CenterPoint Energy expects to recognize this revenue. Such contracts include 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 June 30, 2019: | | | | | |
Fixed price (bid) | $ | 317 |
| | $ | — |
| | $ | 317 |
|
| $ | 317 |
| | $ | — |
| | $ | 317 |
|
Practical Expedients and Exemption. Sales taxes and other similar taxes collected from customers are excluded from the transaction price.For contracts for which revenue from the satisfaction of the performance obligations is recognized in the amount invoiced, the practical expedient was elected and revenue expected to be recognized on these contracts has not been disclosed.
(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 of Vectren and are primarily non-contributory. The postretirement benefit plan provides health care and life insurance benefits to certain Vectren retirees, 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | (in millions) | | (in millions) |
Service cost (1) | | $ | 10 |
| | $ | 9 |
| | $ | 28 |
| | $ | 27 |
| | $ | 10 |
| | $ | 9 |
| | $ | 20 |
| | $ | 18 |
|
Interest cost (2) | | 20 |
| | 22 |
| | 59 |
| | 66 |
| | 25 |
| | 19 |
| | 48 |
| | 39 |
|
Expected return on plan assets (2) | | (27 | ) | | (24 | ) | | (80 | ) | | (72 | ) | | (27 | ) | | (26 | ) | | (52 | ) | | (53 | ) |
Amortization of prior service cost (2) | | 3 |
| | 2 |
| | 7 |
| | 7 |
| | 2 |
| | 2 |
| | 4 |
| | 4 |
|
Amortization of net loss (2) | | 10 |
| | 14 |
| | 32 |
| | 43 |
| | 13 |
| | 11 |
| | 26 |
| | 22 |
|
Settlement cost (3) | | | 1 |
| | — |
| | 1 |
| | — |
|
Curtailment gain (4) | | | — |
| | — |
| | (1 | ) | | — |
|
Net periodic cost | | $ | 16 |
| | $ | 23 |
| | $ | 46 |
| | $ | 71 |
| | $ | 24 |
| | $ | 15 |
| | $ | 46 |
| | $ | 30 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Service cost (1) | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Interest cost (2) | 3 |
| | 2 |
| | 1 |
| | 4 |
| | 3 |
| | 1 |
|
Expected return on plan assets (2) | (1 | ) | | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | (1 | ) |
Amortization of prior service credit (2) | (1 | ) | | (1 | ) | | — |
| | (1 | ) | | (2 | ) | | — |
|
Net periodic cost | $ | 1 |
| | $ | — |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | 1 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2018 | | 2017 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Service cost (1) | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
Interest cost (2) | 10 |
| | 6 |
| | 3 |
| | 12 |
| | 7 |
| | 3 |
|
Expected return on plan assets (2) | (4 | ) | | (3 | ) | | (1 | ) | | (4 | ) | | (3 | ) | | (1 | ) |
Amortization of prior service cost (credit) (2) | (3 | ) | | (4 | ) | | 1 |
| | (3 | ) | | (4 | ) | | 1 |
|
Net periodic cost (credit) | $ | 4 |
| | $ | (1 | ) | | $ | 4 |
| | $ | 6 |
| | $ | — |
| | $ | 4 |
|
| |
(1) | Amounts presented in the table above are included in Operation and maintenance expense in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of amounts capitalized and regulatory deferrals. |
| |
(2) | Amounts presented in the table above are included in Other income (expense), net in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of regulatory deferrals. |
| |
(3) | A one-time, non-cash settlement cost is required when the total lump sum distributions or other settlements of plan benefit obligations during a plan year exceed the service cost and interest cost components of the net periodic cost for that year. In June 2019, CenterPoint Energy recognized a non-cash settlement cost of $1 million due to lump sum settlement payments from Vectren pension plans. |
Changes in accumulated other comprehensive loss related to defined benefit and postretirement plans are as follows:
| |
(4) | A curtailment gain or loss is required when the expected future services of a significant number of employees are reduced or eliminated for the accrual of benefits. In February 2019, CenterPoint Energy recognized a pension curtailment gain of $1 million related to Vectren employees whose employment was terminated after the Merger closed. |
CenterPoint EnergyPostretirement Benefits |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2019 | | 2018 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Service cost (1) | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Interest cost (2) | 4 |
| | 2 |
| | 1 |
| | 4 |
| | 2 |
| | 1 |
|
Expected return on plan assets (2) | (1 | ) | | (1 | ) | | (1 | ) | | (2 | ) | | (1 | ) | | (1 | ) |
Amortization of prior service cost (credit) (2) | (1 | ) | | (2 | ) | | — |
| | (1 | ) | | (2 | ) | | 1 |
|
Net periodic cost (income) | $ | 2 |
| | $ | (1 | ) | | $ | 1 |
| | $ | 2 |
| | $ | (1 | ) | | $ | 1 |
|
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Service cost (1) | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Interest cost (2) | 8 |
| | 4 |
| | 2 |
| | 7 |
| | 4 |
| | 2 |
|
Expected return on plan assets (2) | (3 | ) | | (2 | ) | | (1 | ) | | (3 | ) | | (2 | ) | | (1 | ) |
Amortization of prior service cost (credit) (2) | (2 | ) | | (3 | ) | | — |
| | (2 | ) | | (3 | ) | | 1 |
|
Net periodic cost (income) | $ | 4 |
| | $ | (1 | ) | | $ | 2 |
| | $ | 3 |
| | $ | (1 | ) | | $ | 2 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Beginning Balance | $ | (63 | ) | | $ | (70 | ) | | $ | (66 | ) | | $ | (72 | ) |
Amounts reclassified from accumulated other comprehensive loss: | | | | | | | |
Prior service cost (1) | — |
| | — |
| | 1 |
| | 1 |
|
Actuarial losses (1) | 2 |
| | 2 |
| | 5 |
| | 5 |
|
Tax expense | (1 | ) | | (2 | ) | | (2 | ) | | (4 | ) |
Net current period other comprehensive income | 1 |
| | — |
| | 4 |
| | 2 |
|
Ending Balance | $ | (62 | ) | | $ | (70 | ) | | $ | (62 | ) | | $ | (70 | ) |
| |
(1) | These accumulated other comprehensive componentsAmounts presented in the tables above are included in Operation and maintenance expense in each of the computationRegistrants’ respective Condensed Statements of Consolidated Income, net periodic cost.of amounts capitalized and regulatory deferrals. |
| |
(2) | Amounts presented in the tables above are included in Other income (expense), net in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of regulatory deferrals. |
The table below reflects the expected contributions to be made to the pension 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, 2019 | | Six Months Ended June 30, 2019 |
| | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) |
Pension plans | | $ | 27 |
| | $ | — |
| | $ | — |
| | $ | 29 |
| | $ | — |
| | $ | — |
|
Postretirement benefit plans | | 3 |
| | 2 |
| | 1 |
| | 8 |
| | 5 |
| | 2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 |
| | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) |
Pension plans | | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 67 |
| | $ | — |
| | $ | — |
|
Postretirement benefit plan | | 4 |
| | 3 |
| | 1 |
| | 11 |
| | 7 |
| | 3 |
|
(6) Regulatory Accounting
The following is a list of regulatory assets and liabilities reflected on the Registrants’ respective Condensed Consolidated Balance Sheets:
| | | September 30, 2018 | | December 31, 2017 | June 30, 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) | $ | 60 |
| | $ | — |
| | $ | 60 |
| | $ | 130 |
| | $ | — |
| | $ | 130 |
| $ | 20 |
| | $ | — |
| | $ | 20 |
| | $ | 77 |
| | $ | — |
| | $ | 77 |
|
Non-current regulatory assets: | | | | | | | | | | | | | | | | | | | | | | |
Securitized regulatory assets | 1,146 |
| | 1,146 |
| | — |
| | 1,590 |
| | 1,590 |
| | — |
| 895 |
| | 895 |
| | — |
| | 1,059 |
| | 1,059 |
| | — |
|
Unrecognized equity return (2) | (225 | ) | | (225 | ) | | — |
| | (287 | ) | | (287 | ) | | — |
| (189 | ) | | (189 | ) | | — |
| | (213 | ) | | (213 | ) | | — |
|
Unamortized loss on reacquired debt(3) | 70 |
| | 70 |
| | — |
| | 75 |
| | 75 |
| | — |
| 65 |
| | 65 |
| | — |
| | 68 |
| | 68 |
| | — |
|
Pension and postretirement-related regulatory asset (3) | 609 |
| | 32 |
| | 15 |
| | 646 |
| | 31 |
| | 20 |
| 697 |
| | 34 |
| | 28 |
| | 725 |
| | 33 |
| | 30 |
|
Hurricane Harvey restoration costs (4)(3) | 67 |
| | 61 |
| | 6 |
| | 64 |
| | 58 |
| | 6 |
| 68 |
| | 64 |
| | 4 |
| | 68 |
| | 64 |
| | 4 |
|
Regulatory assets related to TCJA (5) | 48 |
| | 34 |
| | 14 |
| | 48 |
| | 33 |
| | 15 |
| |
Other long-term regulatory assets (6) | 219 |
| | 84 |
| | 135 |
| | 211 |
| | 70 |
| | 140 |
| |
Regulatory assets related to TCJA (3) (4) | | 30 |
| | 23 |
| | 7 |
| | 33 |
| | 23 |
| | 10 |
|
Asset retirement obligation (3) | | 140 |
| | 25 |
| | 90 |
| | 109 |
| | 24 |
| | 85 |
|
Other regulatory assets-not earning a return (5) | | 133 |
| | 74 |
| | 28 |
| | 81 |
| | 55 |
| | 26 |
|
Other regulatory assets | | 389 |
| | 25 |
| | 30 |
| | 37 |
| | 11 |
| | 26 |
|
Total non-current regulatory assets | 1,934 |
| | 1,202 |
| | 170 |
| | 2,347 |
| | 1,570 |
| | 181 |
| 2,228 |
| | 1,016 |
| | 187 |
| | 1,967 |
| | 1,124 |
| | 181 |
|
Total regulatory assets | 1,994 |
| | 1,202 |
| | 230 |
| | 2,477 |
| | 1,570 |
| | 311 |
| 2,248 |
| | 1,016 |
| | 207 |
| | 2,044 |
| | 1,124 |
| | 258 |
|
Regulatory Liabilities: | | | | | | | | | | | | | | | | | | | | | | |
Current regulatory liabilities (7) | 47 |
| | 22 |
| | 25 |
| | 24 |
| | 22 |
| | 2 |
| |
Current regulatory liabilities (6) | | 55 |
| | 5 |
| | 43 |
| | 38 |
| | 17 |
| | 21 |
|
Non-current regulatory liabilities: | | | | | | | | | | | | | | | | | | | | | | |
Regulatory liabilities related to TCJA (5) | 1,362 |
| | 858 |
| | 504 |
| | 1,354 |
| | 862 |
| | 492 |
| |
Regulatory liabilities related to TCJA (4) | | 1,616 |
| | 834 |
| | 453 |
| | 1,323 |
| | 847 |
| | 476 |
|
Estimated removal costs | 887 |
| | 275 |
| | 612 |
| | 878 |
| | 285 |
| | 593 |
| 1,415 |
| | 271 |
| | 629 |
| | 886 |
| | 269 |
| | 617 |
|
Other long-term regulatory liabilities | 257 |
| | 132 |
| | 125 |
| | 232 |
| | 116 |
| | 116 |
| |
Other regulatory liabilities | | 436 |
| | 181 |
| | 152 |
| | 316 |
| | 182 |
| | 134 |
|
Total non-current regulatory liabilities | 2,506 |
| | 1,265 |
| | 1,241 |
| | 2,464 |
| | 1,263 |
| | 1,201 |
| 3,467 |
| | 1,286 |
| | 1,234 |
| | 2,525 |
| | 1,298 |
| | 1,227 |
|
Total regulatory liabilities | 2,553 |
| | 1,287 |
| | 1,266 |
| | 2,488 |
| | 1,285 |
| | 1,203 |
| 3,522 |
| | 1,291 |
| | 1,277 |
| | 2,563 |
| | 1,315 |
| | 1,248 |
|
Total regulatory assets and liabilities, net | $ | (559 | ) | | $ | (85 | ) | | $ | (1,036 | ) | | $ | (11 | ) | | $ | 285 |
| | $ | (892 | ) | $ | (1,274 | ) | | $ | (275 | ) | | $ | (1,070 | ) | | $ | (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 September 30, 2018 and 2017, CenterPoint Energy and Houston Electric recognized approximately $17 million and $13 million, respectively, of the allowed equity return. During the nine months ended September 30, 2018 and 2017, CenterPoint Energy and Houston Electric recognized approximately $62 million and $30 million, respectively, of the allowed equity return. The timing of CenterPoint Energy’s and Houston Electric’s recognition of the equity return will vary each period based on amounts actually collected during the period. The actual amounts recognized are adjusted at least annually to correct any over-collections or under-collections during the preceding 12 months. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| CenterPoint Energy | | Houston Electric | | CenterPoint Energy | | Houston Electric | | CenterPoint Energy | | Houston Electric | | CenterPoint Energy | | Houston Electric |
| (in millions) |
Allowed equity return recognized | $ | 13 |
| | $ | 13 |
| | $ | 24 |
| | $ | 24 |
| | $ | 24 |
| | $ | 24 |
| | $ | 45 |
| | $ | 45 |
|
| |
(3) | Includes a portionSubstantially all of NGD’s actuarially determined pension and other postemployment expense in excess of the amount being recovered through rates that is being deferred for rate making purposes, of which $4 million and $7 million as of September 30, 2018 and December 31, 2017, respectively, werethese regulatory assets are 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. |
| |
(5) | Regulatory assets acquired in the Merger and not earning a return were recorded at fair value as of the Merger Date. Such fair value adjustments are recognized over time until the regulatory asset is recovered. |
| |
(6) | Other long-term regulatory assets that are not earning a return were not material as of September 30, 2018 and December 31, 2017. |
| |
(7) | Current regulatory liabilities are included in Other current liabilities in each of the Registrants’ respective Condensed Consolidated Balance Sheets. |
(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.Instruments (CenterPoint Energy and CERC). 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:
|
| | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
Hedging Classification | | Notional Principal |
| | CenterPoint Energy (1) | | Houston Electric | | CenterPoint Energy | | Houston Electric |
| | (in millions) |
Economic hedge | | $ | 84 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Cash flow hedge | | — |
| | — |
| | 450 |
| | 450 |
|
| |
(1) | Relates to interest rate derivative instruments at SIGECO. |
Weather Hedges.Hedges (CenterPoint Energy and CERC). 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.Oklahoma, as applicable. 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 and Indiana service territory.territories.
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 doesand Indiana Electric do not enter into weather hedges.
The tabletables below summarizessummarize CenterPoint Energy’s and CERC’s current weather hedge gain (loss) activity:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Jurisdiction | | Winter Season | | Bilateral Cap | | 2018 | | 2017 | | 2018 | | 2017 |
| | | | (in millions) |
Certain NGD jurisdictions | | 2018 – 2019 | | $ | 9 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Certain NGD jurisdictions | | 2017 – 2018 | | 8 |
| | — |
| | — |
| | — |
| | — |
|
Total CERC (1) | | | | | | — |
|
| — |
|
| — |
|
| — |
|
Electric operations’ service territory | | 2018 – 2019 | | 8 |
| | — |
| | — |
| | — |
| | — |
|
Electric operations’ service territory | | 2017 – 2018 | | 9 |
| | — |
| | — |
| | (4 | ) | | — |
|
Electric operations’ service territory | | 2016 – 2017 | | 9 |
| | — |
| | — |
| | — |
| | 1 |
|
Total CenterPoint Energy (1) | | | | | | $ | — |
|
| $ | — |
|
| $ | (4 | ) |
| $ | 1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2019 | | 2018 |
Texas Operations | | Winter Season | | Bilateral Cap | | CenterPoint Energy | | CERC | | Winter Season | | Bilateral Cap | | CenterPoint Energy | | CERC |
| | (in millions) |
NGD | | 2018 – 2019 | | $ | 9 |
| | $ | — |
| | $ | — |
| | 2017 – 2018 | | $ | 8 |
| | $ | — |
| | $ | — |
|
Electric operations | | 2018 – 2019 | | 8 |
| | — |
| | — |
| | 2017 – 2018 | | 9 |
| | — |
| | — |
|
Total (1) | | | | | | $ | — |
|
| $ | — |
|
| | | | | $ | — |
|
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2019 | | 2018 |
Texas Operations | | Winter Season | | Bilateral Cap | | CenterPoint Energy | | CERC | | Winter Season | | Bilateral Cap | | CenterPoint Energy | | CERC |
| | (in millions) |
NGD | | 2018 – 2019 | | $ | 9 |
| | $ | — |
| | $ | — |
| | 2017 – 2018 | | $ | 8 |
| | $ | — |
| | $ | — |
|
Electric operations | | 2018 – 2019 | | 8 |
| | 3 |
| | — |
| | 2017 – 2018 | | 9 |
| | (4 | ) | | — |
|
Total (1) | | | | | | $ | 3 |
| | $ | — |
| | | | | | $ | (4 | ) | | $ | — |
|
| |
(1) | Weather hedge gains (losses) are recorded in Revenues in the Condensed Statements of Consolidated Income. |
Cash Flow Hedging of Interest Expense. From time to time, the Registrants enter into forward interest rate agreements with certain counterparties designated as cash flow hedges. The objective of these cash flow hedges is to reduce exposure to variability in cash flows related to interest payments on anticipated future fixed rate debt offerings or other exposure to variable rate debt. In October 2018, Houston Electric entered into an additional $100 million of notional amount on forward interest rate agreements
classified as cash flow hedges. As of September 30, 2018 and December 31, 2017, the total outstanding notional amount of Houston Electric’s forward interest rate agreements related to cash flow hedges was $100 million and $-0-, respectively. The maximum length of time over which Houston Electric is exposed to the variability in future cash flows of the forecasted debt offerings is less than 12 months.
Economic Hedging of Interest Rate Risk. From time to time, the Registrants may enter into forward interest rate agreements with certain counterparties designated as economic hedges. The objective of these economic hedges is to offset any interest rate risk borne by one or more of the Registrants in connection with an anticipated future fixed rate debt offering or other exposure to variable rate debt. As of September 30, 2018 and December 31, 2017, the total outstanding notional amount of CenterPoint Energy’s forward interest rate agreements related to economic hedges in connection with the permanent financing for the Merger was $200 million and $-0-, respectively. As of September 30, 2018 and December 31, 2017, the fair value of interest rate derivatives was less than $1 million and therefore was not included in the tabular presentation below.
| |
(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 and Hedged Items
CenterPoint Energy
| | | | | | | | | | | | | | June 30, 2019 | | December 31, 2018 |
| | September 30, 2018 | | December 31, 2017 | | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | 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: | | (in millions) | Derivatives designated as cash flow hedges: | | | | | | | | |
Interest rate derivatives | | Current Assets: Non-trading derivative assets | | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | Current Liabilities: Non-trading derivative liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
|
Total Houston Electric | | 3 |
| | — |
| | — |
| | — |
| |
Derivatives designated as fair value hedges: | Derivatives designated as fair value hedges: | | | | | | | | | Derivatives designated as fair value hedges: | | | | | | | | |
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | — |
| | 2 |
| | 13 |
| | 1 |
| | Current Liabilities: Non-trading derivative liabilities | | 11 |
| | — |
| | 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 |
| | 3 |
| | 114 |
| | 4 |
| | Current Assets: Non-trading derivative assets | | 103 |
| | 2 |
| | 103 |
| | 3 |
|
Natural gas derivatives (1) (2) (3) | | Other Assets: Non-trading derivative assets | | 38 |
| | — |
| | 44 |
| | — |
| | Other Assets: Non-trading derivative assets | | 44 |
| | — |
| | 38 |
| | — |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 31 |
| | 72 |
| | 38 |
| | 78 |
| | Current Liabilities: Non-trading derivative liabilities | | 74 |
| | 148 |
| | 62 |
| | 173 |
|
Natural gas derivatives (1) (2) (3) | | Other Liabilities: Non-trading derivative liabilities | | 16 |
| | 33 |
| | 9 |
| | 24 |
| | Other Liabilities: Non-trading derivative liabilities | | 16 |
| | 41 |
| | 16 |
| | 25 |
|
Total CERC | | 161 |
| | 110 |
| | 218 |
| | 107 |
| |
Interest rate derivatives | | | Other Liabilities | | — |
| | 8 |
| | — |
| | — |
|
Indexed debt securities derivative | | Current Liabilities | | — |
| | 685 |
| | — |
| | 668 |
| | Current Liabilities | | — |
| | 755 |
| | — |
| | 601 |
|
Total CenterPoint Energy | Total CenterPoint Energy | | $ | 164 |
| | $ | 795 |
| | $ | 218 |
| | $ | 775 |
| Total CenterPoint Energy | | $ | 248 |
| | $ | 954 |
| | $ | 220 |
| | $ | 833 |
|
| |
(1) | The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,8652,186 Bcf or a net 310355 Bcf long position and 1,7951,674 Bcf or a net 224140 Bcf long position as of SeptemberJune 30, 20182019 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 theCenterPoint Energy’s 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 $72 million asset and a $130 million asset as of September 30, 2018 and December 31, 2017, respectively, as shown on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets (and as detailed in the Offsetting of Natural Gas Derivative Assets and Liabilities table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above, impacted by collateral netting of $21 million and $19 million, respectively. |
Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities is detailed in the Offsetting of Natural Gas Derivative Assets and Liabilities table below.
| |
(3) | Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable. |
Houston Electric
|
| | | | | | | | | | | | | | | | | | |
| | | | June 30, 2019 | | December 31, 2018 |
| | 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: | | | | | | | | |
Interest rate derivatives | | Current Liabilities: Non-trading derivative liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
|
Total Houston Electric | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
|
CERC
|
| | | | | | | | | | | | | | | | | | |
| | | | June 30, 2019 | | December 31, 2018 |
| | Balance Sheet Location | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value | | Derivative Assets Fair Value | | Derivative Liabilities Fair Value |
| | | | (in millions) |
Derivatives designated as fair value hedges: | | | | | | | | |
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | $ | 11 |
| | $ | — |
| | $ | 1 |
| | $ | 7 |
|
Derivatives not designated as hedging instruments: | | | | | | | | |
Natural gas derivatives (1) (2) (3) | | Current Assets: Non-trading derivative assets | | 103 |
| | 2 |
| | 103 |
| | 3 |
|
Natural gas derivatives (1) (2) (3) | | Other Assets: Non-trading derivative assets | | 44 |
| | — |
| | 38 |
| | — |
|
Natural gas derivatives (1) (2) (3) | | Current Liabilities: Non-trading derivative liabilities | | 74 |
| | 142 |
| | 62 |
| | 173 |
|
Natural gas derivatives (1) (2) (3) | | Other Liabilities: Non-trading derivative liabilities | | 16 |
| | 30 |
| | 16 |
| | 25 |
|
Total CERC | | $ | 248 |
| | $ | 174 |
| | $ | 220 |
| | $ | 208 |
|
| |
(1) | The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 2,186 Bcf or a net 355 Bcf long position and 1,674 Bcf or a net 140 Bcf long position as of June 30, 2019 and December 31, 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 CERC’s 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 CERC’s Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities is detailed in the Offsetting of Natural Gas Derivative Assets and Liabilities table 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)
|
| | | | | | | | | | | | | | | | | | |
| | | | June 30, 2019 |
| | Balance Sheet Location | | Carrying Amount of Hedged Assets/(Liabilities) | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Item |
| | | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| | | | (in millions) |
Hedged items in fair value hedge relationship: | | | | | | | | |
Natural gas inventory | | Current Assets: Natural gas inventory | | $ | 48 |
| | $ | 48 |
| | $ | (9 | ) | | $ | (9 | ) |
Total | | $ | 48 |
| | $ | 48 |
| | $ | (9 | ) | | $ | (9 | ) |
| | | | | 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 |
| | September 30, 2018 | | December 31, 2017 | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| | 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: | Hedged items in fair value hedge relationship: | | (in millions) | Hedged items in fair value hedge relationship: | | | | | | | | |
Natural gas inventory | | Current Assets: Natural gas inventory | | $ | 39 |
| | $ | 1 |
| | $ | 80 |
| | $ | 14 |
| | Current Assets: Natural gas inventory | | $ | 57 |
| | $ | 57 |
| | $ | 1 |
| | $ | 1 |
|
Total CenterPoint Energy and CERC | | $ | 39 |
| | $ | 1 |
| | $ | 80 |
| | $ | 14 |
| |
Total | | Total | | $ | 57 |
| | $ | 57 |
| | $ | 1 |
| | $ | 1 |
|
Offsetting of Natural Gas Derivative Assets and Liabilities (CenterPoint Energy and CERC)
CenterPoint Energy
| | | | September 30, 2018 | | December 31, 2017 | | June 30, 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 | | $ | 107 |
| | $ | (34 | ) | | $ | 73 |
| | $ | 165 |
| | $ | (55 | ) | | $ | 110 |
| | $ | 188 |
| | $ | (87 | ) | | $ | 101 |
| | $ | 166 |
| | $ | (66 | ) | | $ | 100 |
|
Other Assets: Non-trading derivative assets | | 54 |
| | (16 | ) | | 38 |
| | 53 |
| | (9 | ) | | 44 |
| | 60 |
| | (16 | ) | | 44 |
| | 54 |
| | (16 | ) | | 38 |
|
Current Liabilities: Non-trading derivative liabilities | | (77 | ) | | 44 |
| | (33 | ) | | (83 | ) | | 63 |
| | (20 | ) | | (149 | ) | | 116 |
| | (33 | ) | | (183 | ) | | 81 |
| | (102 | ) |
Other Liabilities: Non-trading derivative liabilities | | (33 | ) | | 27 |
| | (6 | ) | | (24 | ) | | 20 |
| | (4 | ) | | (41 | ) | | 23 |
| | (18 | ) | | (25 | ) | | 20 |
| | (5 | ) |
Total | | $ | 51 |
| | $ | 21 |
| | $ | 72 |
| | $ | 111 |
| | $ | 19 |
| | $ | 130 |
| |
Total CenterPoint Energy | | | $ | 58 |
| | $ | 36 |
| | $ | 94 |
| | $ | 12 |
| | $ | 19 |
| | $ | 31 |
|
CERC
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 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) |
| | (in millions) |
Current Assets: Non-trading derivative assets | | $ | 188 |
| | $ | (87 | ) | | $ | 101 |
| | $ | 166 |
| | $ | (66 | ) | | $ | 100 |
|
Other Assets: Non-trading derivative assets | | 60 |
| | (16 | ) | | 44 |
| | 54 |
| | (16 | ) | | 38 |
|
Current Liabilities: Non-trading derivative liabilities | | (144 | ) | | 116 |
| | (28 | ) | | (183 | ) | | 81 |
| | (102 | ) |
Other Liabilities: Non-trading derivative liabilities | | (30 | ) | | 23 |
| | (7 | ) | | (25 | ) | | 20 |
| | (5 | ) |
Total CERC | | $ | 74 |
| | $ | 36 |
| | $ | 110 |
| | $ | 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 Registrant’s respective 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. |
Income Statement Impact of Hedge Accounting Activity (CenterPoint Energy and CERC)
| | | | | | | | | | | | | Three Months Ended June 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | | 2018 |
| 2018 | | 2017 | | 2018 | | 2017 | | Location and Amount of Gain (Loss) recognized in Income on Hedging Relationship (1) |
| Location and Amount of Gain (Loss) recognized in Income on Hedging Relationship (2) | | Non-utility cost of revenues, including natural gas |
| Non-utility natural gas expense | | Non-utility natural gas expense | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) | | (in millions) |
Total amounts presented in the statements of income in which the effects of hedges are recorded | $ | 864 |
| | $ | 832 |
| | $ | 2,927 |
| | $ | 2,843 |
| | $ | 910 |
| | $ | 769 |
| | $ | 790 |
| | $ | 790 |
|
| | | | | | | | |
Gain (loss) on fair value hedging relationships: | | | | | | | | | | | | | | | |
Commodity contracts: | | | | | | | | | | | | | | | |
Hedged items - Natural gas inventory | 1 |
| | 4 |
| | (13 | ) | | (10 | ) | | (4 | ) | | (4 | ) | | (12 | ) | | (12 | ) |
Derivatives designated as hedging instruments | (1 | ) | | (4 | ) | | 13 |
| | 10 |
| | 4 |
| | 4 |
| | 12 |
| | 12 |
|
Amounts excluded from effectiveness testing recognized in earnings immediately (1) | 6 |
| | (9 | ) | | (73 | ) | | (93 | ) | | (65 | ) | | (65 | ) | | 69 |
| | 69 |
|
|
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 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 | | CenterPoint Energy | | CERC |
| | (in millions) |
Total amounts presented in the statements of income in which the effects of hedges are recorded | | $ | 2,161 |
| | $ | 1,940 |
| | $ | 2,063 |
| | $ | 2,063 |
|
Gain (loss) on fair value hedging relationships: | | | | | | | | |
Commodity contracts: | | | | | | | | |
Hedged items - Natural gas inventory | | (10 | ) | | (10 | ) | | (14 | ) | | (14 | ) |
Derivatives designated as hedging instruments | | 10 |
| | 10 |
| | 14 |
| | 14 |
|
Amounts excluded from effectiveness testing recognized in earnings immediately | | (79 | ) | | (79 | ) | | (2 | ) | | (2 | ) |
| |
(1) | As a result of the adoption of ASU 2017-12 effective January 1, 2018 (see Note 2 for additional information), CenterPoint Energy and CERC exclude from their assessment of hedge effectiveness the natural gas market price difference between locations of the hedged inventory and the delivery location specified in the hedge instruments. Prior to the adoption of this accounting guidance, the timing difference between the spot price and the futures price, as well as the difference between the timing of the settlement of the futures and the valuation of the underlying physical commodity, was excluded from the assessment of effectiveness for CenterPoint Energy’s and CERC’s existing fair value hedges and will continue to be excluded from the assessment of hedge effectiveness. CenterPoint Energy and CERC elected to continue to |
immediately recognize amounts excluded from hedge effectiveness in their respective Condensed Statements of Consolidated Income.
| |
(2) | Income statement impact associated with cash flow hedge activity is related to gains and losses reclassified from accumulatedAccumulated other comprehensive income into income. Amounts are immaterial for the Registrants for botheach Registrant in the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. |
|
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | Income Statement Location | | 2018 | | 2017 | | 2018 | | 2017 |
Effects of derivatives not designated as hedging instruments on the income statement: | | (in millions) |
Commodity contracts | | Gains (Losses) in Non-utility revenues | | $ | 2 |
| | $ | 30 |
| | $ | 70 |
| | $ | 162 |
|
Total CERC | | 2 |
| | 30 |
| | 70 |
| | 162 |
|
Indexed debt securities derivative | | Gains (Losses) in Other Income (Expense) | | (44 | ) | | (36 | ) | | (316 | ) | | (59 | ) |
Interest rate derivatives | | Gains (Losses) in Interest and other finance charges | | — |
| | — |
| | — |
| | — |
|
Total CenterPoint Energy | | $ | (42 | ) | | $ | (6 | ) | | $ | (246 | ) | | $ | 103 |
|
CenterPoint Energy |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | Income Statement Location | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | (in millions) |
Effects of derivatives not designated as hedging instruments on the income statement: | | | | | | | | |
Commodity contracts | | Gains (losses) in Non-utility revenues | | $ | 86 |
| | $ | 11 |
| | $ | 90 |
| | $ | 68 |
|
Indexed debt securities derivative | | Loss on indexed debt securities | | (68 | ) | | (254 | ) | | (154 | ) | | (272 | ) |
Total CenterPoint Energy | | $ | 18 |
| | $ | (243 | ) | | $ | (64 | ) | | $ | (204 | ) |
Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive IncomeCERC
|
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | Income Statement Location | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | (in millions) |
Effects of derivatives not designated as hedging instruments on the income statement: | | | | | | | | |
Commodity contracts | | Gains (losses) in Non-utility revenues | | $ | 86 |
| | $ | 11 |
| | $ | 90 |
| | $ | 68 |
|
Total CERC | | $ | 86 |
| | $ | 11 |
| | $ | 90 |
| | $ | 68 |
|
|
| | | | | | | | | | | | | | | |
| Amount of Gain (Loss) Recognized in Other Comprehensive Income, Net of Tax on Derivative |
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| (in millions) |
Effects of cash flow hedging | | | | | | | |
Interest rate derivatives (1) | $ | 3 |
| | $ | — |
| | $ | 7 |
| | $ | (1 | ) |
Total Houston Electric | 3 |
| | — |
| | 7 |
| | (1 | ) |
Interest rate derivatives (1) | — |
| | (1 | ) | | — |
| | (1 | ) |
Total CERC | — |
| | (1 | ) | | — |
| | (1 | ) |
Interest rate derivatives (1) | — |
| | (1 | ) | | (1 | ) | | (1 | ) |
Total CenterPoint Energy | $ | 3 |
| | $ | (2 | ) | | $ | 6 |
| | $ | (3 | ) |
| |
(1) | Gains and losses are reclassified from accumulated other comprehensive income into income when the hedged transactions affect earnings. The reclassification amounts are included in Interest and other finance charges in the Condensed Statements of Consolidated Income. Amounts are less than $1 million for each of the three and nine months ended September 30, 2018 and 2017. Over the next twelve months, estimated amortization of accumulated other comprehensive income into related income is expected to be immaterial. |
| |
(c) | Credit Risk Contingent Features (CenterPoint Energy and CERC) |
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.
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) |
Aggregate fair value of derivatives containing material adverse change provisions in a net liability position | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
Fair value of collateral already posted | — |
| | — |
| | — |
| | — |
|
Additional collateral required to be posted if credit risk contingent features triggered | 1 |
| | 1 |
| | — |
| | — |
|
CenterPoint Energy and CERC
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| | (in millions) |
Aggregate fair value of derivatives containing material adverse change provisions in a net liability position | | $ | 2 |
| | $ | 2 |
|
Fair value of collateral already posted | | — |
| | — |
|
Additional collateral required to be posted if credit risk contingent features triggered | | 1 |
| | 2 |
|
(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 SeptemberJune 30, 2018,2019, CenterPoint Energy’s and CERC’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options. Level 3 physical natural gas forward contracts and options includeare valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $1.28$1.62 to $6.88$5.64 per MMBtu)MMBtu for CenterPoint Energy and from $1.62 to $5.64 per MMBtu for CERC) 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). Forward price decreases (increases) as of SeptemberJune 30, 20182019 would have resulted in lower (higher) values, respectively, for long forwards and options and higher (lower) values, respectively, for short forwards and options.
The Registrants determine the appropriate level for each financial asset and liability on a quarterly 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 June 30, 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
| | | September 30, 2018 | | December 31, 2017 | June 30, 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 | $ | 630 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 630 |
| | $ | 963 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 963 |
| $ | 690 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 690 |
| | $ | 542 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 542 |
|
Investments, including money market funds (2) | 70 |
| | — |
| | — |
| | — |
| | 70 |
| | 68 |
| | — |
| | — |
| | — |
| | 68 |
| 63 |
| | — |
| | — |
| | — |
| | 63 |
| | 66 |
| | — |
| | — |
| | — |
| | 66 |
|
Interest rate derivatives | 3 |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Natural gas derivatives (3) | — |
| | 134 |
| | 27 |
| | (50 | ) | | 111 |
| | — |
| | 161 |
| | 57 |
| | (64 | ) | | 154 |
| |
Natural gas derivatives (3)(4) | | — |
| | 215 |
| | 33 |
| | (103 | ) | | 145 |
| | — |
| | 173 |
| | 47 |
| | (82 | ) | | 138 |
|
Hedged portion of natural gas inventory | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | 14 |
| | — |
| | — |
| | — |
| | 14 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Total assets | $ | 704 |
| | $ | 134 |
| | $ | 27 |
| | $ | (50 | ) | | $ | 815 |
| | $ | 1,045 |
| | $ | 161 |
| | $ | 57 |
| | $ | (64 | ) | | $ | 1,199 |
| $ | 753 |
| | $ | 215 |
| | $ | 33 |
| | $ | (103 | ) | | $ | 898 |
| | $ | 609 |
| | $ | 173 |
| | $ | 47 |
| | $ | (82 | ) | | $ | 747 |
|
Liabilities | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | |
| | |
| | |
| | |
| | |
| | | | | | | | | | |
Indexed debt securities derivative | $ | — |
| | $ | 685 |
| | $ | — |
| | $ | — |
| | $ | 685 |
| | $ | — |
| | $ | — |
| | $ | 668 |
| | $ | — |
| | $ | 668 |
| $ | — |
| | $ | 755 |
| | $ | — |
| | $ | — |
| | $ | 755 |
| | $ | — |
| | $ | 601 |
| | $ | — |
| | $ | — |
| | $ | 601 |
|
Natural gas derivatives (3) | — |
| | 105 |
| | 5 |
| | (71 | ) | | 39 |
| | — |
| | 96 |
| | 11 |
| | (83 | ) | | 24 |
| |
Interest rate derivatives | | — |
| | 8 |
| | — |
| | — |
| | 8 |
| | 24 |
| | — |
| | — |
| | — |
| | 24 |
|
Natural gas derivatives (3)(4) | | — |
| | 177 |
| | 13 |
| | (139 | ) | | 51 |
| | — |
| | 191 |
| | 17 |
| | (101 | ) | | 107 |
|
Hedged portion of natural gas inventory | | 9 |
| | — |
| | — |
| | — |
| | 9 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total liabilities | $ | — |
| | $ | 790 |
| | $ | 5 |
| | $ | (71 | ) | | $ | 724 |
| | $ | — |
| | $ | 96 |
| | $ | 679 |
| | $ | (83 | ) | | $ | 692 |
| $ | 9 |
| | $ | 940 |
| | $ | 13 |
| | $ | (139 | ) | | $ | 823 |
| | $ | 24 |
| | $ | 792 |
| | $ | 17 |
| | $ | (101 | ) | | $ | 732 |
|
Houston Electric
| | | September 30, 2018 | | December 31, 2017 | June 30, 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 |
| $ | 47 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 47 |
| | $ | 48 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 48 |
|
Total assets | | $ | 47 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 47 |
| | $ | 48 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 48 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | |
Interest rate derivatives | 3 |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
|
Total assets | $ | 55 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 55 |
| | $ | 51 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 51 |
| |
Total liabilities | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24 |
|
CERC
| | | September 30, 2018 | | December 31, 2017 | June 30, 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 | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
| $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
|
Investments, including money market funds (2) | 10 |
| | — |
| | — |
| | — |
| | 10 |
| | 11 |
| | — |
| | — |
| | — |
| | 11 |
| 11 |
| | — |
| | — |
| | — |
| | 11 |
| | 11 |
| | — |
| | — |
| | — |
| | 11 |
|
Natural gas derivatives (3) | — |
|
| 134 |
|
| 27 |
|
| (50 | ) | | 111 |
| | — |
| | 161 |
| | 57 |
| | (64 | ) | | 154 |
| |
Natural gas derivatives (3)(4) | | — |
|
| 215 |
|
| 33 |
|
| (103 | ) | | 145 |
| | — |
| | 173 |
| | 47 |
| | (82 | ) | | 138 |
|
Hedged portion of natural gas inventory | 1 |
|
| — |
|
| — |
|
| — |
| | 1 |
| | 14 |
| | — |
| | — |
| | — |
| | 14 |
| — |
|
| — |
|
| — |
|
| — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Total assets | $ | 14 |
| | $ | 134 |
| | $ | 27 |
| | $ | (50 | ) | | $ | 125 |
| | $ | 28 |
| | $ | 161 |
| | $ | 57 |
| | $ | (64 | ) | | $ | 182 |
| $ | 14 |
| | $ | 215 |
| | $ | 33 |
| | $ | (103 | ) | | $ | 159 |
| | $ | 14 |
| | $ | 173 |
| | $ | 47 |
| | $ | (82 | ) | | $ | 152 |
|
Liabilities | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | |
| | |
| | |
| | |
| | |
| | | | | | | | | | |
Natural gas derivatives (3) | $ | — |
|
| $ | 105 |
|
| $ | 5 |
|
| $ | (71 | ) | | $ | 39 |
| | $ | — |
| | $ | 96 |
| | $ | 11 |
| | $ | (83 | ) | | $ | 24 |
| |
Natural gas derivatives (3)(4) | | $ | — |
|
| $ | 161 |
|
| $ | 13 |
|
| $ | (139 | ) | | $ | 35 |
| | $ | — |
| | $ | 191 |
| | $ | 17 |
| | $ | (101 | ) | | $ | 107 |
|
Hedged portion of natural gas inventory | | 9 |
| | — |
| | — |
| | — |
| | 9 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total liabilities | $ | — |
| | $ | 105 |
| | $ | 5 |
| | $ | (71 | ) | | $ | 39 |
| | $ | — |
| | $ | 96 |
| | $ | 11 |
| | $ | (83 | ) | | $ | 24 |
| $ | 9 |
| | $ | 161 |
| | $ | 13 |
| | $ | (139 | ) | | $ | 44 |
| | $ | — |
| | $ | 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 $21 million and $19 million as of September 30, 2018 and December 31, 2017, respectively, posted with the same counterparties.counterparties as follows: |
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) |
Cash collateral posted with the same counterparties | $ | 36 |
| | $ | 36 |
| | $ | 19 |
| | $ | 19 |
|
| |
(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) | 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, |
| 2019 | | 2018 | | 2019 | | 2018 |
| CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) |
Beginning balance | $ | 13 |
| | $ | 13 |
| | $ | (662 | ) | | $ | 12 |
| | $ | 30 |
| | $ | 30 |
| | $ | (622 | ) | | $ | 46 |
|
Total gains (losses) | 13 |
| | 13 |
| | (11 | ) | | 1 |
| | 12 |
| | 12 |
| | (16 | ) | | 3 |
|
Total settlements | (2 | ) | | (2 | ) | | 44 |
| | (1 | ) | | (17 | ) | | (17 | ) | | 11 |
| | (35 | ) |
Transfers into Level 3 | (2 | ) | | (2 | ) | | 1 |
| | 1 |
| | (1 | ) | | (1 | ) | | 1 |
| | 1 |
|
Transfers out of Level 3 | (2 | ) | | (2 | ) | | — |
| | — |
| | (4 | ) | | (4 | ) | | (2 | ) | | (2 | ) |
Ending balance (1) | $ | 20 |
| | $ | 20 |
| | $ | (628 | ) | | $ | 13 |
| | $ | 20 |
| | $ | 20 |
| | $ | (628 | ) | | $ | 13 |
|
| | | | | | | | | | | | | | | |
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 |
| | $ | 9 |
| | $ | (9 | ) | | $ | 3 |
| | $ | 6 |
| | $ | 6 |
| | $ | (23 | ) | | $ | (4 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) |
Beginning balance | $ | (628 | ) | | $ | 13 |
| | $ | (712 | ) | | $ | 28 |
| | $ | (622 | ) | | $ | 46 |
| | $ | (704 | ) | | $ | 13 |
|
Total gains (losses) | 1 |
| | 1 |
| | (38 | ) | | (2 | ) | | 4 |
| | 4 |
| | (38 | ) | | 21 |
|
Total settlements | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | (36 | ) | | (36 | ) | | (5 | ) | | (5 | ) |
Transfers into Level 3 | — |
| | — |
| | 7 |
| | 7 |
| | (2 | ) | | (2 | ) | | 9 |
| | 9 |
|
Transfers out of Level 3 (1) | 650 |
| | 9 |
| | (6 | ) | | (6 | ) | | 678 |
| | 10 |
| | (12 | ) | | (12 | ) |
Ending balance (2) | $ | 22 |
| | $ | 22 |
| | $ | (750 | ) | | $ | 26 |
| | $ | 22 |
| | $ | 22 |
| | $ | (750 | ) | | $ | 26 |
|
| | | | | | | | | | | | | | | |
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date: |
| $ | 11 |
| | $ | 11 |
| | $ | (36 | ) | | $ | — |
| | $ | 9 |
| | $ | 9 |
| | $ | (42 | ) | | $ | 17 |
|
| |
(1) | As of September 30, 2018, CenterPoint Energy transferred its indexed debt securities derivative from Level 3 to Level 2 to reflect changes in the significance of the unobservable inputs used in the valuation. |
| |
(2) | CenterPoint Energy and CERC did not have significant Level 3 sales or purchases during either of the three or ninesix months ended SeptemberJune 30, 20182019 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.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2018 | | December 31, 2017 |
| CenterPoint Energy (1) | | Houston Electric (1) | | CERC | | CenterPoint Energy (1) | | Houston Electric (1) | | CERC |
Long-term debt, including current maturities | (in millions) |
Carrying amount | $ | 7,758 |
| | $ | 4,782 |
| | $ | 2,257 |
| | $ | 8,679 |
| | $ | 4,753 |
| | $ | 2,457 |
|
Fair value | 7,888 |
| | 4,813 |
| | 2,367 |
| | 9,220 |
| | 5,034 |
| | 2,708 |
|
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (in millions) |
CenterPoint Energy | | | | | | | |
Long-term debt, including current maturities (1) | $ | 14,587 |
| | $ | 15,438 |
| | $ | 9,140 |
| | $ | 9,308 |
|
Houston Electric | | | | | | | |
Long-term debt, including current maturities (1) | $ | 5,165 |
| | $ | 5,583 |
| | $ | 4,717 |
| | $ | 4,770 |
|
CERC | | | | | | | |
Long-term debt, including current maturities | $ | 2,397 |
| | $ | 2,641 |
| | $ | 2,371 |
| | $ | 2,488 |
|
| |
(1) | Includes Securitization BondBonds debt. |
(9) Unconsolidated AffiliateAffiliates (CenterPoint Energy and CERC)
CenterPoint Energy has the ability to significantly influence the operating and financial policies of Enable, a publicly traded MLP, and, accordingly, accountaccounts for theits investment in Enable’s common units using the equity method of accounting. UponEnable 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 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 June 30, 2019, CenterPoint Energy’s maximum exposure to loss related to Enable a VIE in which CenterPoint Energy is not the primary beneficiary, 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.
On September 4, 2018, CERC completed the Internal Spin of its equity investmentInvestment in Enable and Enable GP. The Internal Spin has been accounted for under the guidance for transactions between entities under common control. As of September 4, 2018, CERC derecognized its investment in Enable at carrying value on the date of distribution of $2.4 billion, net of deferred income taxes of $974 million, and CNP Midstream recorded the net asset contribution from CERC at CERC’s carrying value. Neither CERC nor CNP Midstream recognized a gain or loss upon the distribution or contribution, respectively, of net assets involved in the Internal Spin. In connection with the Internal Spin, CenterPoint Energy, through Utility Holding, made a $600 million capital contribution to CERC, which was used by CERC to repay outstanding indebtedness that historically supported CERC’s legacy midstream assets. See Note 18 for further discussion.Unconsolidated Affiliates (CenterPoint Energy):
|
| | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | (in millions) |
Enable | | $ | 2,469 |
| | $ | 2,482 |
|
Other (1) | | 1 |
| | — |
|
Total | | $ | 2,470 |
| | $ | 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 (CenterPoint Energy):
| | | September 30, 2018 | June 30, 2019 |
| Limited Partner Interest (1) | | Common Units | | Enable Series A Preferred Units (2) | Limited Partner Interest (1) | | Common Units (2) | | Enable Series A Preferred Units (3) |
CenterPoint Energy (3) | 54.0 | % | | 233,856,623 |
| | 14,520,000 |
| 53.8 | % | | 233,856,623 |
| | 14,520,000 |
|
OGE | 25.6 | % | | 110,982,805 |
| | — |
| 25.5 | % | | 110,982,805 |
| | — |
|
Public unitholders | 20.4 | % | | 88,376,728 |
| | — |
| 20.7 | % | | 90,233,873 |
| | — |
|
Total units outstanding | 100.0 | % | | 433,216,156 |
| | 14,520,000 |
| 100.0 | % | | 435,073,301 |
| | 14,520,000 |
|
| |
(1) | Excludes 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 SeptemberJune 30, 20182019 and $363 million as of 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. |
| |
(3) | Includes Enable Series A Preferred Units held directly by CenterPoint Energy and common units held indirectly through CNP Midstream. |
Generally, sales to any person or entity (including a series of sales to the same person or entity) of more than 5% of the aggregate of the common units CNP MidstreamCenterPoint 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 GP (CenterPoint Energy):
| | | September 30, 2018 | June 30, 2019 |
| Management Rights (1) | | Incentive Distribution Rights (2) | Management Rights (1) | | Incentive Distribution Rights (2) |
CenterPoint Energy (3) | 50 | % | | 40 | % | 50 | % | | 40 | % |
OGE | 50 | % | | 60 | % | 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) | Includes interests heldHeld indirectly through CNP Midstream. |
Distributions Received from Enable (CenterPoint Energy and CERC):
CenterPoint Energy
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| Per Unit | | Cash Distribution | | Per Unit | | Cash Distribution | | Per Unit | | Cash Distribution | | Per Unit | | Cash Distribution |
| (in millions, except per unit amounts) |
Enable common units (1) | $ | 0.3180 |
| | $ | 75 |
| | $ | 0.3180 |
| | $ | 75 |
| | $ | 0.6360 |
| | $ | 149 |
| | $ | 0.6360 |
| | $ | 149 |
|
Enable Series A Preferred Units | 0.6250 |
| | 9 |
| | 0.6250 |
| | 9 |
| | 1.2500 |
| | 18 |
| | 1.2500 |
| | 18 |
|
Total CenterPoint Energy | | | $ | 84 |
| | | | $ | 84 |
| | | | $ | 167 |
| | | | $ | 167 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Investment in Enable common units (1) | $ | 74 |
| | $ | 74 |
| | $ | 223 |
| | $ | 223 |
|
Total CERC (2) | 74 |
| | 74 |
| | 223 |
| | 223 |
|
Investment in Enable Series A Preferred Units (3) | 9 |
| | 9 |
| | 27 |
| | 27 |
|
Total CenterPoint Energy | $ | 83 |
| | $ | 83 |
| | $ | 250 |
| | $ | 250 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 |
| | Per Unit | | Cash Distribution | | Per Unit | | Cash Distribution |
Enable common units (1) | | $ | 0.3180 |
| | $ | 75 |
| | $ | 0.6360 |
| | $ | 149 |
|
Total CERC | | | | $ | 75 |
| | | | $ | 149 |
|
| |
(1) | Reflects cash distributions of $0.318 and $0.954 per common unit for the three and nine months ended September 30, 2018 and 2017, respectively. |
| |
(2) | On September 4, 2018, CERC completedPrior to the Internal Spin.Spin in September 2018, distributions from Enable were received by CERC. After such date, CNP Midstream owned thedistributions from Enable common units previously ownedwere received by CERC. |
| |
(3) | Reflects cash distributions of $0.625 and $1.875 per Enable Series A Preferred Unit for the three and nine months ended September 30, 2018 and 2017, respectively.CenterPoint Energy. |
Transactions with Enable (CenterPoint Energy and CERC):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Reimbursement of transition services (1) (CenterPoint Energy) | $ | 1 |
| | $ | — |
| | $ | 4 |
| | $ | 3 |
|
Natural gas expenses, including transportation and storage costs (CenterPoint Energy and CERC) | 23 |
| | 23 |
| | 89 |
| | 80 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) |
CenterPoint Energy | | | | | | | |
Natural gas expenses, including transportation and storage costs (1) | $ | 28 |
| | $ | 29 |
| | $ | 63 |
| | $ | 66 |
|
Reimbursement of support services (2) | 1 |
| | 1 |
| | 3 |
| | 3 |
|
CERC | | | | | | | |
Natural gas expenses, including transportation and storage costs (1) | 28 |
| | 29 |
| | 63 |
| | 66 |
|
Reimbursement of support services (2) | 1 |
| | 1 |
| | 3 |
| | 3 |
|
| |
(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 transitionsupport services costs are recorded net of reimbursement. |
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| (in millions) |
CenterPoint Energy | | | |
Accounts payable for natural gas purchases from Enable | $ | 9 |
| | $ | 11 |
|
Accounts receivable for amounts billed for services provided to Enable | 3 |
| | 2 |
|
CERC | | | |
Accounts payable for natural gas purchases from Enable | 9 |
| | 11 |
|
Accounts receivable for amounts billed for services provided to Enable | 3 |
| | 2 |
|
|
| | | | | | | |
| September 30, 2018 | | December 31, 2017 |
| (in millions) |
Accounts receivable for amounts billed for transition services (CenterPoint Energy) | $ | 3 |
| | $ | 1 |
|
Accounts payable for natural gas purchases from Enable (CenterPoint Energy and CERC) | 8 |
| | 13 |
|
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, |
| | 2019 | | 2018 | | 2019 |
| 2018 |
| | (in millions) |
Operating revenues | | $ | 735 |
| | $ | 805 |
| | $ | 1,530 |
| | $ | 1,553 |
|
Cost of sales, excluding depreciation and amortization | | 317 |
| | 444 |
| | 695 |
| | 819 |
|
Depreciation and amortization | | 110 |
| | 96 |
| | 215 |
| | 192 |
|
Operating income | | 167 |
| | 126 |
| | 332 |
| | 265 |
|
Net income attributable to Enable common units | | 115 |
| | 86 |
| | 228 |
| | 191 |
|
Reconciliation of Equity in Earnings (Losses), net: | | | | | | | | |
CenterPoint Energy’s interest | | $ | 62 |
| | $ | 46 |
| | $ | 123 |
| | $ | 103 |
|
Basis difference amortization (1) | | 12 |
| | 12 |
| | 24 |
| | 24 |
|
Loss on dilution, net of proportional basis difference recognition | | — |
| | — |
| | (11 | ) | | — |
|
CenterPoint Energy’s equity in earnings, net | | $ | 74 |
| | $ | 58 |
| | $ | 136 |
| | $ | 127 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 |
| 2017 |
| | (in millions) |
Operating revenues | | $ | 928 |
| | $ | 705 |
| | $ | 2,481 |
| | $ | 1,997 |
|
Cost of sales, excluding depreciation and amortization | | 516 |
| | 349 |
| | 1,335 |
| | 936 |
|
Depreciation and amortization | | 100 |
| | 90 |
| | 292 |
| | 267 |
|
Operating income | | 171 |
| | 137 |
| | 436 |
| | 399 |
|
Net income attributable to Enable common units | | 129 |
| | 104 |
| | 320 |
| | 301 |
|
Reconciliation of Equity in Earnings, net: | | | | | | | | |
CenterPoint Energy’s interest | | $ | 70 |
| | $ | 56 |
| | $ | 173 |
| | $ | 163 |
|
Basis difference amortization (1) | | 11 |
| | 12 |
| | 35 |
| | 36 |
|
CenterPoint Energy’s equity in earnings, net | | $ | 81 |
| | $ | 68 |
| | $ | 208 |
| | $ | 199 |
|
| |
(1) | Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s share of Enable’sEnable earnings adjusted for the amortization of the basis difference of CenterPoint Energy’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, 2019 |
| December 31, 2018 |
| | (in millions) |
Current assets | | $ | 376 |
| | $ | 449 |
|
Non-current assets | | 12,033 |
| | 11,995 |
|
Current liabilities | | 1,270 |
| | 1,615 |
|
Non-current liabilities | | 3,580 |
| | 3,211 |
|
Non-controlling interest | | 37 |
| | 38 |
|
Preferred equity | | 362 |
| | 362 |
|
Accumulated other comprehensive loss | | (3 | ) | | — |
|
Enable partners’ equity | | 7,163 |
| | 7,218 |
|
Reconciliation of Investment in Enable: | | | | |
CenterPoint Energy’s ownership interest in Enable partners’ equity | | $ | 3,850 |
| | $ | 3,896 |
|
CenterPoint Energy’s basis difference | | (1,381 | ) | | (1,414 | ) |
CenterPoint Energy’s equity method investment in Enable | | $ | 2,469 |
| | $ | 2,482 |
|
|
| | | | | | | | |
| | September 30, 2018 |
| December 31, 2017 |
| | (in millions) |
Current assets | | $ | 481 |
| | $ | 416 |
|
Non-current assets | | 11,454 |
| | 11,177 |
|
Current liabilities | | 1,403 |
| | 1,279 |
|
Non-current liabilities | | 2,964 |
| | 2,660 |
|
Non-controlling interest | | 11 |
| | 12 |
|
Preferred equity | | 362 |
| | 362 |
|
Enable partners’ equity | | 7,195 |
| | 7,280 |
|
Reconciliation of Investment in Enable: | | | | |
CenterPoint Energy’s ownership interest in Enable partners’ equity | | $ | 3,883 |
| | $ | 3,935 |
|
CenterPoint Energy’s basis difference | | (1,426 | ) | | (1,463 | ) |
CenterPoint Energy’s equity method investment in Enable | | $ | 2,457 |
| | $ | 2,472 |
|
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. CERC’s equity method investment and related deferred income tax liabilities have been classified as Investment in unconsolidated affiliate - discontinued operations and Deferred income taxes, net - discontinued operations, respectively, in CERC’s Condensed Consolidated Balance Sheets for the periods presented. The following table presents amounts included in Income from discontinued operations, net of tax in CERC’s Condensed Statements of Consolidated Income.
|
| | | | | | | |
| Three months ended June 30, 2018 | | Six months ended June 30, 2018 |
| (in millions) |
Equity in earnings of unconsolidated affiliate, net | $ | 58 |
| | $ | 127 |
|
Income tax expense | 14 |
| | 31 |
|
Income from discontinued operations, net of tax | $ | 44 |
| | $ | 96 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Equity in earnings of unconsolidated affiliate, net | $ | 57 |
| | $ | 68 |
| | $ | 184 |
| | $ | 199 |
|
Income tax expense | 13 |
| | 26 |
| | 44 |
| | 75 |
|
Income from discontinued operations, net of tax | $ | 44 |
| | $ | 42 |
| | $ | 140 |
| | $ | 124 |
|
(10) Goodwill and Other Intangibles (CenterPoint Energy and CERC)
CenterPoint Energy’s goodwill by reportable segment as of December 31, 2018 and changes in the carrying amount of goodwill as of June 30, 2019 is as follows:
|
| | | | | | | | | | | |
| December 31, 2018 | | Additions (1) | | June 30, 2019 |
| (in millions) |
Indiana Electric Integrated | $ | — |
| | $ | 1,008 |
| | $ | 1,008 |
|
Natural Gas Distribution | 746 |
| | 2,529 |
| | 3,275 |
|
Energy Services (2) | 110 |
| | — |
| | 110 |
|
Infrastructure Services | — |
| | 355 |
| | 355 |
|
Corporate and Other | 11 |
| | 420 |
| | 431 |
|
Total | $ | 867 |
| | $ | 4,312 |
| | $ | 5,179 |
|
| |
(1) | CenterPoint Energy is currently assessing the allocation of goodwill to reportable segments subsequent to the Merger. 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 business segment as of both SeptemberJune 30, 20182019 and December 31, 20172018 is as follows:
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| (in millions) |
Natural Gas Distribution | $ | 746 |
| | $ | 746 |
|
Energy Services (1) | 110 |
| | 110 |
|
Corporate and Other | 11 |
| | 11 |
|
Total | $ | 867 |
| | $ | 867 |
|
|
| | | |
| (in millions) |
Natural Gas Distribution | $ | 746 |
|
Energy Services (1) | 110 |
|
Other Operations | 11 |
|
Total | $ | 867 |
|
| |
(1) | Amount presented is net of the accumulated goodwill impairment charge of $252 million recorded in 2012. |
(1) Amount presented is net of the accumulated goodwill impairment charge of $252 million recorded in 2012.
CenterPoint Energy and CERC perform goodwill impairment tests at least annually and evaluate goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed by comparing the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. The estimated fair value of the reporting unit is primarily determined on the basis of discounted cash flows. If the carrying amount is in excess of the estimated fair value of the reporting unit, then the excess amount is the impairment charge that should be recorded, not to exceed the carrying amount of goodwill. See Note 2 for further discussion.
CenterPoint Energy and CERC performed the annual goodwill impairment test in the third quarter of 2018 and determined that no goodwill impairment charge was required for any reporting unit, which approximate the reportable segments.
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.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance |
| | (in millions) |
Customer relationships (1) | | $ | 306 |
| | $ | (36 | ) | | $ | 270 |
| | $ | 86 |
| | $ | (27 | ) | | $ | 59 |
|
Covenants not to compete | | 4 |
| | (3 | ) | | 1 |
| | 4 |
| | (3 | ) | | 1 |
|
Trade names (1) | | 62 |
| | (3 | ) | | 59 |
| | — |
| | — |
| | — |
|
Construction backlog (1) (2) | | 28 |
| | (11 | ) | | 17 |
| | — |
| | — |
| | — |
|
Operation and maintenance agreements (1) (2) | | 12 |
| | (1 | ) | | 11 |
| | — |
| | — |
| | — |
|
Other (1) | | 24 |
| | (12 | ) | | 12 |
| | 16 |
| | (11 | ) | | 5 |
|
Total | | $ | 436 |
| | $ | (66 | ) | | $ | 370 |
| | $ | 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 June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) |
Amortization expense of intangible assets recorded in Depreciation and amortization (1) | $ | 7 |
| | $ | 2 |
| | $ | 13 |
| | $ | 5 |
|
Amortization expense of intangible assets recorded in Non-utility cost of revenues, including natural gas (2) | 3 |
| | — |
| | 12 |
| | — |
|
| |
(1) | Includes $5 million and $8 million for the three and six months ended June 30, 2019, respectively, 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 six months ended June 30, 2019, is preliminary and subject to change. See Note 3. |
| |
(2) | Includes a $4 million benefit related to a cumulative catch-up for remeasurement of the purchase price allocation for the three months ended June 30, 2019 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 six months ended June 30, 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.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance |
| | (in millions) |
Customer relationships | | $ | 86 |
| | $ | (30 | ) | | $ | 56 |
| | $ | 86 |
| | $ | (27 | ) | | $ | 59 |
|
Covenants not to compete | | 4 |
| | (3 | ) | | 1 |
| | 4 |
| | (3 | ) | | 1 |
|
Other | | 16 |
| | (13 | ) | | 3 |
| | 16 |
| | (11 | ) | | 5 |
|
Total | | $ | 106 |
| | $ | (46 | ) | | $ | 60 |
| | $ | 106 |
| | $ | (41 | ) | | $ | 65 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2018 | | December 31, 2017 |
| Useful Lives | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance | | Gross Carrying Amount | | Accumulated Amortization | | Net Balance |
| (in years) | | (in millions) |
Customer relationships | 15 | | $ | 86 |
| | $ | (26 | ) | | $ | 60 |
| | $ | 86 |
| | $ | (21 | ) | | $ | 65 |
|
Covenants not to compete | 4 | | 4 |
| | (2 | ) | | 2 |
| | 4 |
| | (2 | ) | | 2 |
|
Other | Various | | 15 |
| | (10 | ) | | 5 |
| | 15 |
| | (8 | ) | | 7 |
|
Total | | | $ | 105 |
| | $ | (38 | ) | | $ | 67 |
| | $ | 105 |
| | $ | (31 | ) | | $ | 74 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) |
Amortization expense of intangible assets recorded in Depreciation and amortization | $ | 2 |
| | $ | 2 |
| | $ | 5 |
| | $ | 5 |
|
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 six months of 2019 | $ | 29 |
| | $ | 6 |
|
2020 | 32 |
| | 6 |
|
2021 | 31 |
| | 6 |
|
2022 | 32 |
| | 6 |
|
2023 | 31 |
| | 5 |
|
2024 | 29 |
| | 5 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Amortization expense of intangible assets | $ | 2 |
| | $ | 2 |
| | $ | 7 |
| | $ | 5 |
|
(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 |
| | June 30, 2019 | | December 31, 2018 |
AT&T Common | | 10,212,945 |
| | 10,212,945 |
|
Charter Common | | 872,503 |
| | 872,912 |
|
|
| | | | | | |
| | Shares Held |
| | September 30, 2018 | | December 31, 2017 |
AT&T Common | | 10,212,945 |
| | — |
|
Charter Common | | 872,503 |
| | 872,503 |
|
Time Common | | — |
| | 888,392 |
|
TW Common | | — |
| | 7,107,130 |
|
(b) ZENS
In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1$1.0 billion of which $828 million remainremained outstanding as of SeptemberJune 30, 2018.2019. 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 nine months ended September 30, 2018:
|
| | | | | | | |
| Meredith/Time | | AT&T/TW |
| (in millions) |
Cash payment to ZENS note holders | $ | 16 |
| | $ | 382 |
|
Indexed debt – reduction | (4 | ) | | (95 | ) |
Indexed debt securities derivative – reduction | (1 | ) | | (45 | ) |
Loss on indexed debt securities | $ | 11 |
| | $ | 242 |
|
CenterPoint Energy’s reference shares for each ZENS consisted of the following:
|
| | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | (in shares) |
AT&T Common | | 0.7185 |
| | 0.7185 |
|
Charter Common | | 0.061382 |
| | 0.061382 |
|
|
| | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| | (in shares) |
AT&T Common | | 0.7185 |
| | — |
|
Charter Common | | 0.061382 |
| | 0.061382 |
|
Time Common | | — |
| | 0.0625 |
|
TW Common | | — |
| | 0.5 |
|
AsCenterPoint Energy pays interest on the ZENS at an annual rate of September 30, 2018,2% plus the contingentamount of any quarterly cash dividends paid in respect of the ZENS-Related Securities. The principal amount of the ZENS was $98 million.is subject to increases or decreases to the extent that the annual yield from interest and cash dividends on the ZENS-Related Securities is less than or more than 2.309%. The adjusted principal amount is defined in the ZENS instrument as “contingent principal.” As of June 30, 2019, the ZENS, having an original principal amount of $828 million and a contingent principal amount of $84 million, were outstanding and were exchangeable at the option of the holders for cash equal to 95% of the market value of the ZENS-Related Securities.
(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. These transactions are accounted for as an inventory financingfinancing. CenterPoint Energy and CERC had an associated principal obligation of $ -0- and $39 millionno outstanding obligations related to the AMAs as of Septemberboth June 30, 20182019 and December 31, 2017, respectively.2018.
Debt Issuances. Transactions. During the ninesix months ended SeptemberJune 30, 2018,2019, the following debt instruments were issued:issued or incurred:
|
| | | | | | | | | | | | | |
| | Issuance Date | | Debt Instrument | | Aggregate Principal Amount | | Interest Rate as of June 30, 2019 | | 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 |
| | 3.14 | % | | 2020 |
CenterPoint Energy | | May 2019 | | Variable rate term loan | | 1,000 |
| | 3.17 | % | | 2021 |
|
| | | | | | | | | | | | |
| | 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 |
| |
(1) | Draw down by VCC on its variable rate term loan. |
The proceedsProceeds from these issuancesHouston Electric’s debt issuance were used for general limited liability company andpurposes, including capital expenditures. Proceeds from VCC’s draw down of its term loan were used for general corporate purposes. Proceeds from CenterPoint Energy’s term loan were used for general corporate purposes, including the repayment of commercial paper.
Acquired Debt (CenterPoint Energy). The table below summarizes the long-term external debt of Vectren and its subsidiaries that remained outstanding as applicable, including to repay portions of outstanding commercial paper and borrowings under CenterPoint Energy’s money pool.
Merger Financings. On October 5, 2018, the following debt instruments were issued:June 30, 2019:
|
| | | | | | | | | | |
| | Debt Instrument | | Aggregate Principal Amount | | Interest Rate | | Maturity Date |
| | | | (in millions) | | | | |
CenterPoint Energy | | Unsecured senior notes | | $ | 500 |
| | 3.60% | | 2021 |
CenterPoint Energy | | Unsecured senior notes | | 500 |
| | 3.85% | | 2024 |
CenterPoint Energy | | Unsecured senior notes | | 500 |
| | 4.25% | | 2028 |
|
| | | |
| (in millions) |
Long-term debt: | |
|
Senior notes 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 due 2022 to 2055 (4) | 293 |
|
Commercial paper (5) | 297 |
|
Bank revolver (6) | 135 |
|
Total Vectren debt | $ | 1,862 |
|
| |
(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 have stated interest rates that range from 3.33% to 7.08%. The senior notes issued by VUHI are guaranteed by SIGECO, Indiana Gas and VEDO. The senior notes issued by VCC are guaranteed by Vectren. In connection with 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 June 30, 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 June 30, 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. The first mortgage bonds have stated interest rates that range from 2.375% to 6.72%. |
| |
(5) | Issued by VUHI with maturities up to 30 days. |
| |
(6) | Represents borrowings under the VCC credit facility, which is guaranteed by Vectren. |
CenterPoint Energy intends to use the net proceeds from these debt issuances to fund a portionMaturities (CenterPoint Energy). As of the pending Merger and to pay related fees and expenses.
If CenterPoint Energy does not consummate the Merger on or prior to October 31, 2019, or if, on or prior to such date, the Merger Agreement is terminated, CenterPoint Energy will be required to redeem all of the outstanding notes at a redemption price equal to 101% of the principal amount of the notes plus accrued and unpaid interest, if any, to, but excluding, the date of such special mandatory redemption. The notes may also be redeemed at CenterPoint Energy’s option, in whole but not in part, at any time before October 31, 2019, at a redemption price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the date of such redemption, if CenterPoint Energy determines, in its reasonable judgment, that the Merger will not be consummated on or before close of business on October 31, 2019.
Credit Facility. In May 2018, CenterPoint Energy entered into an amendment to its revolving credit facility to 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 terminationmaturities of all commitments in respect of the Bridge Facility without any borrowing thereunder. On October 5, 2018, CenterPoint Energy terminated all remaining commitments by lenders to provide the Bridge Facility. As a result, the aggregate commitments under the revolving credit facility automatically increased from $1.7 billion to $3.3 billion and the maximum ratio ofEnergy’s long-term debt for borrowed money to capital reverted to 65%.were as follows:
|
| | | |
| (in millions) |
Remaining six months of 2019 | $ | 216 |
|
2020 | 831 |
|
2021 | 2,761 |
|
2022 | 3,769 |
|
2023 | 713 |
|
2024 | 684 |
|
2025 and thereafter | 5,752 |
|
Credit Facilities. The Registrants had the following revolving credit facilities and utilizationas of such facilities:June 30, 2019:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 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 |
| | $ | 104 |
| | 2.42 | % | | $ | — |
| | $ | 6 |
| | $ | 855 |
| | 1.88 | % |
Houston Electric | 300 |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | — |
|
CERC Corp. | 900 |
| | — |
| | 1 |
| | 98 |
| | 2.43 | % | | — |
| | 1 |
| | 898 |
| | 1.72 | % |
Total | $ | 2,900 |
| | $ | — |
| | $ | 11 |
| | $ | 202 |
| | | | $ | — |
| | $ | 11 |
| | $ | 1,753 |
| | |
|
| | | | | | | | | | | | | | |
Execution Date | | Registrant | | Size of Facility | | Draw Rate of LIBOR plus (1) | | Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio | | Debt for Borrowed Money to Capital Ratio as of June 30, 2019 (2) | | Termination Date |
| | | | (in millions) | | | | | | | | |
March 3, 2016 | | CenterPoint Energy | | $ | 3,300 |
| | 1.500% | | 65% | (3) | 58.1% | | March 3, 2022 |
July 14, 2017 | | CenterPoint Energy (4) | | 400 |
| | 1.125% | | 65% | | 52.0% | | July 14, 2022 |
July 14, 2017 | | CenterPoint Energy (5) | | 200 |
| | 1.250% | | 65% | | 58.0% | | July 14, 2022 |
March 3, 2016 | | Houston Electric | | 300 |
| | 1.125% | | 65% | (3) | 49.4% | | March 3, 2022 |
March 3, 2016 | | CERC | | 900 |
| | 1.250% | | 65% | | 46.5% | | March 3, 2022 |
| | Total | | $ | 5,100 |
| | | | | | | | |
| |
(1) | Pursuant to the amendment entered into in May 2018, the aggregate commitments under the CenterPoint Energy revolving credit facility increased to $3.3 billion on October 5, 2018 as a result of the satisfaction of certain conditions described above. |
|
| | | | | | | | | | | | | | |
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 September 30, 2018 (2) | | Termination Date |
| | | | (in millions) | | | | | | | | |
March 3, 2016 | | CenterPoint Energy | | $ | 1,700 |
| (3) | 1.250% | | 75% | (4) (5) | 47.5% | | March 3, 2022 |
March 3, 2016 | | Houston Electric | | 300 |
| | 1.125% | | 65% | (5) | 50.7% | | March 3, 2022 |
March 3, 2016 | | CERC Corp. | | 900 |
| | 1.125% | | 65% | | 48.6% | | March 3, 2022 |
| |
(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 increased to $3.3 billion on October 5, 2018 as a result of the satisfaction of certain conditions described above. |
| |
(4) | On October 5, 2018, CenterPoint Energy’s financial covenant limit returned to 65% due to the termination of all commitments in respect of the Bridge Facility without any borrowing thereunder. |
| |
(5) | For CenterPoint Energy (whenever its financial covenant limit is 65%) and Houston Electric, the financial covenant limit will temporarily increase from 65% to 70% if Houston Electric experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive 12-month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification. |
| |
(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. |
securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification.
| |
(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. |
The Registrants, including the subsidiaries of CenterPoint Energy discussed above, were in compliance with all financial debt covenants as of SeptemberJune 30, 2018.2019.
The table below reflects the utilization of the Registrants’ respective revolving credit facilities:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 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 |
| (in millions, except weighted average interest rates) |
CenterPoint Energy (1) | | $ | — |
| | $ | 6 |
| | $ | 2,078 |
| | 2.63 | % | | $ | — |
| | $ | 6 |
| | $ | — |
| | — | % |
CenterPoint Energy (2) | | — |
| | — |
| | 297 |
| | 2.58 | % | | — |
| | — |
| | — |
| | — |
|
CenterPoint Energy (3) | | 135 |
| | — |
| | — |
| | 3.65 | % | | — |
| | — |
| | — |
| | — |
|
Houston Electric | | — |
| | 4 |
| | — |
| | — | % | | — |
| | 4 |
| | — |
| | — |
|
CERC | | — |
| | 1 |
| | 232 |
| | 2.59 | % | | — |
| | 1 |
| | 210 |
| | 2.93 | % |
Total | | $ | 135 |
| | $ | 11 |
| | $ | 2,607 |
| | | | $ | — |
| | $ | 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. |
Other. As of both SeptemberJune 30, 20182019, certain financial institutions 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, 2017, 2019. As of June 30, 2019, such financial institutions had issued $21 million of letters of credit on behalf of Vectren and certain of its subsidiaries.
Houston Electric had issued $118$68 million and $68 million of general mortgage bonds as of June 30, 2019 and December 31, 2018, respectively, as collateral for long-term debt of CenterPoint Energy.Energy that matures in 2028. 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 September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
CenterPoint Energy (1) | 24 | % | | 37 | % | | 26 | % | | 36 | % | 13 | % | | 15 | % | | 12 | % | | 27 | % |
Houston Electric (2) | 20 | % | | 35 | % | | 21 | % | | 36 | % | 19 | % | | 21 | % | | 19 | % | | 22 | % |
CERC - Continuing operations (3) (4) | 5 | % | | 20 | % | | 29 | % | | 38 | % | |
CERC - Continuing operations (3) | | — | % | | 33 | % | | 14 | % | | 19 | % |
CERC - Discontinued operations (5)(4) | 23 | % | | 38 | % | | 24 | % | | 38 | % | n/a |
| | 24 | % | | n/a |
| | 24 | % |
| |
(1) | CenterPoint Energy’s lower effective tax rate for the three and ninesix months ended SeptemberJune 30, 20182019 compared to the same periods for 20172018 was primarily due to the reductionfollowing: an increase in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate decreased by 5% and 4%, respectively, for the three and nine months ended September 30, 2018 due to theamount of amortization of EDIT. These decreases were partially offsetthe net regulatory EDIT liability as decreed by an increase toregulators in certain jurisdictions; the effectiveimpact of state tax ratelaw changes that resulted in the remeasurement of 5% forstate deferred taxes; and the three-month period ended September 30, 2018 as a result of the establishmentrelease of a state valuation allowance on certain state net operating loss deferred tax assetslosses that are no longernow expected to be utilized prior to expiration after the Internal Spin. The effective tax rate increased by 7% for the nine-month period ended September 30, 2018 due to statea current period law changes and the state valuation allowance. See Note 9 for further discussion on the Internal Spin.change. |
| |
(2) | Houston Electric’s lower effective tax rate for the three and ninesix months ended SeptemberJune 30, 20182019 compared to the same periods for 20172018 was primarily due to the reductionan increase in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate was further reduced by 2% for both periods due to theamount of amortization of EDIT.the net regulatory EDIT liability as decreed by regulators. |
| |
(3) | CERC’s lower effective tax rate on the loss from continuing operations for the three months ended September 30, 2018 compared to the same period in 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate decreased by 18% due to state taxes as a result of the establishment of a state valuation allowance on certain net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. These decreases were partially offset by an increase to the effective tax rate of 15% due to the amortization of EDIT. See Note 9 for further discussion on the Internal Spin. |
| |
(4) | CERC’s lower effective tax rate on income from continuing operations for the ninethree and six months ended SeptemberJune 30, 20182019 compared to the same period in 2017periods for 2018 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate decreased by 20% due to the amortization of EDIT. These decreases were partially offset by an increase to the effective tax rate of 22% as a result offollowing: an increase in the amount of amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions; the impact of state tax rateslaw changes that resulted in the remeasurement of state deferred taxes; and the establishmentrelease of a state valuation allowance on certain state net operating loss deferred tax assetslosses that are no longernow expected to be utilized prior to expiration afterdue to a current period law change. The state law changes and valuation allowance release resulted in a lower than expected effective tax rate for the Internal Spin. See Note 9 for further discussion onthree months ended June 30, 2019 as compared to the Internal Spin.three months ended June 30, 2018. |
| |
(5)(4) | CERC’s lower effective tax rate on income from discontinued operations for the three and ninesix months ended SeptemberJune 30, 2018 compared towas a result of the same periods in 2017 was primarily due to the reduction in the21% federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. See Note 9 for further discussion onplus allocable state income taxes. There are no comparable periods in 2019 since the Internal Spin andwas completed in the associated discontinued operations presentation.third quarter of 2018. |
The Registrants reported noa net uncertain tax liability asinclusive of Septemberinterest and penalties of less than $1 million for the three months ended June 30, 2018 and expect no2019, which reflects a release of approximately $1 million following the anticipated completion of Vectren’s 2016 IRS audit. No significant changes to the uncertain tax liability are expected over the next twelve months. TaxFor legacy CenterPoint Energy, tax years through 2016 have been audited and settled with the IRS,IRS; however, during the
three months ended September 30, 2018, CenterPoint Energy filed an amended 2014 tax return to claim additional tax credits that is currently under review by the IRS. For the 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 SeptemberJune 30, 20182019 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 SeptemberJune 30, 2018,2019, minimum paymentpurchase obligations for natural gas supply commitments are approximately:
|
| | | | | | | |
| CenterPoint Energy | | CERC |
| (in millions) |
Remaining six months of 2019 | $ | 399 |
| | $ | 276 |
|
2020 | 658 |
| | 459 |
|
2021 | 488 |
| | 308 |
|
2022 | 576 |
| | 402 |
|
2023 | 350 |
| | 197 |
|
2024 | 228 |
| | 132 |
|
2025 and beyond | 1,639 |
| | 1,276 |
|
|
| | | |
| (in millions) |
Remaining three months of 2018 | $ | 88 |
|
2019 | 325 |
|
2020 | 303 |
|
2021 | 219 |
|
2022 | 183 |
|
2023 and beyond | 1,644 |
|
Indiana Electric Integrated 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 June 30, 2019, there were 68 open surety bonds supporting future performance with an aggregate face amount of approximately $705 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 June 30, 2019, approximately 40% 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, CenterPoint Energy believes ESG has had 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 June 30, 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 June 30, 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 $489 million as of June 30, 2019. 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.
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(b)(c) | Legal, Environmental and Other Matters |
Legal Matters
Gas Market Manipulation Cases (CenterPoint Energy and CERC). CenterPoint Energy, its predecessor, Reliant Energy, and certain of their former subsidiaries were named as defendants in a 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, Corp., is a defendant. Plaintiffs in that case allege a conspiracy to inflate Wisconsin natural gas prices in 2000-2002. In May 2016, the district court granted CES’s motion for summary judgment, dismissing CES from the case. In August 2018, the Ninth Circuit Court of Appeals reversed that ruling, and CES requested further appellate review of that decision.decision (which review has been stayed pending approval of the settlement agreement described below).
Under a master separation agreement between CenterPoint Energy and a former subsidiary, RRI, CenterPoint Energy and its subsidiaries are entitled to be indemnified by RRI and its successors for any losses, including certain attorneys’ fees and other costs, arising out of these lawsuits. Through a series of transactions, RRI became known as GenOn and a wholly-owned subsidiary of NRG. None of those transactions alters GenOn’s contractual obligations to indemnify CenterPoint Energy and its subsidiaries for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation. In June 2017, however, GenOn and various affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy CodeCode. In December 2018, GenOn completed its reorganization and are 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. IfIn January 2019, the bankruptcy court approved the settlement agreement isbetween CES and GenOn, and in August 2019, the federal district court issued final approval. CES will now complete the settlement payments, and the matter should be concluded later this year. This settlement did not approved and if GenOn’s bankruptcy proceedings result in it not being required to fulfill its indemnity obligations, CES could incur liability and be responsible for satisfying it. CenterPoint Energy does not expect the ultimate outcome of this matter to have a material adverse effect on itsCenterPoint Energy’s or CERC’s 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 is contestingand CERC contested and have since reached a settlement regarding 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 itstheir predecessors operated MGPs in the past. With respectIn addition, certain of CenterPoint Energy’s subsidiaries acquired through the Merger operated MGPs in the past. The costs CenterPoint Energy or CERC, as applicable, expect to certain Minnesota MGP sites, CERC has completed state-ordered remediation and continues state-ordered monitoring and water treatment. As of September 30, 2018, CERC had a recorded liability of $7 million for continued monitoring and any future remediation requiredincur to fulfill their respective obligations are estimated by regulators in Minnesota. The estimated range of possible remediation costs for the sites for which CERC believes it may have responsibility was $4 million to $30 millionmanagement using assumptions based on remediation continuing for 30actual costs incurred, the timing of expected future payments and inflation factors, among others. While CenterPoint Energy and CERC have recorded
all costs which they presently expect to 50 years. 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.
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(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. CenterPoint Energy and CERC recorded a liability as reflected in the table below 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 based on remediation continuing for the time frame given in the table below. |
|
| | | | | | | | |
| | June 30, 2019 |
| | CenterPoint Energy | | CERC |
| | (in millions, except years) |
Amount accrued for remediation | | $ | 7 |
| | $ | 7 |
|
Minimum estimated remediation costs | | 4 |
| | 4 |
|
Maximum estimated remediation costs | | 32 |
| | 32 |
|
Minimum years of remediation | | 30 |
| | 30 |
|
Maximum years of remediation | | 50 |
| | 50 |
|
The cost estimates are based on studies of a site or industry average costs for remediation of sites of similar size. The actual remediation costs will depend on the number of sites to be remediated, the participation of other PRPs, if any, and the remediation methods used.
| |
(ii) | Indiana MGPs (CenterPoint Energy). In the Indiana Gas service territory, the existence, location and certain general characteristics of 26 gas manufacturing and storage sites have been identified for which CenterPoint Energy may have some remedial responsibility. A remedial investigation/feasibility study was completed at one of the sites under an agreed upon order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. The remaining sites have been submitted to the IDEM’s VRP. CenterPoint Energy has also identified its involvement in 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. |
In additionAs of June 30, 2019, approximately $2 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 Minnesota sites, 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.
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(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 that fail 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. In July 2018, Indiana Electric filed a Complaint for Damages and Declaratory Relief against its insurers seeking reimbursement of defense, investigation and pond closure costs incurred to comply with the CCR Rule, and has since reached a confidential settlement agreement with one of the insurers. Any proceeds received will offset costs that have been and will be incurred to close the ponds.
As of June 30, 2019, CenterPoint Energy has recorded an approximate $90 million ARO, which represents the discounted value of future cash flow estimates to close the ponds at A.B. Brown and F.B. Culley. 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 $60 million and $80 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 companiestheir predecessors 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 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, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions, except share and per share amounts) |
Numerator: | | | | | | | |
Income (loss) available to common shareholders - basic | $ | 165 |
| | $ | (75 | ) | | $ | 305 |
| | $ | 90 |
|
Add back: Series B Preferred Stock dividend | — |
| | — |
| | — |
| | — |
|
Income (loss) available to common shareholders - diluted | $ | 165 |
| | $ | (75 | ) | | $ | 305 |
| | $ | 90 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average common shares outstanding - basic | 502,200,000 |
| | 431,523,000 |
| | 501,862,000 |
| | 431,378,000 |
|
Plus: Incremental shares from assumed conversions: | | | | | | | |
Restricted stock (1) | 2,631,000 |
| | — |
| | 2,631,000 |
| | 3,029,000 |
|
Series B Preferred Stock (2) | — |
| | — |
| | — |
| | — |
|
Weighted average common shares outstanding - diluted | 504,831,000 |
| | 431,523,000 |
| | 504,493,000 |
| | 434,407,000 |
|
| | | | | | | |
Earnings per common share: | | | | | | | |
Basic earnings (loss) per common share | $ | 0.33 |
| | $ | (0.17 | ) | | $ | 0.61 |
| | $ | 0.21 |
|
Diluted earnings (loss) per common share | $ | 0.33 |
| | $ | (0.17 | ) | | $ | 0.61 |
| | $ | 0.21 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions, except share and per share amounts) |
Income available to common shareholders | $ | 153 |
| | $ | 169 |
| | $ | 243 |
| | $ | 496 |
|
| | | | | | | |
Basic weighted average common shares outstanding | 431,554,000 |
| | 431,026,000 |
| | 431,437,000 |
| | 430,939,000 |
|
Plus: Incremental shares from assumed conversions: | | | | | | | |
Restricted stock | 3,337,000 |
| | 3,060,000 |
| | 3,337,000 |
| | 3,060,000 |
|
Diluted weighted average common shares | 434,891,000 |
| | 434,086,000 |
| | 434,774,000 |
| | 433,999,000 |
|
| | | | | | | |
Basic earnings per common share | $ | 0.35 |
| | $ | 0.39 |
| | $ | 0.56 |
| | $ | 1.15 |
|
Diluted earnings per common share | $ | 0.35 |
| | $ | 0.39 |
| | $ | 0.56 |
| | $ | 1.14 |
|
| |
(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. 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 and six months ended June 30, 2019 excludes 32,121,000 and 32,121,000 potentially dilutive shares, respectively, 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.
As of SeptemberJune 30, 2018,2019, reportable business 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 | | (1) | | | | X |
| |
(1) | In the three months ended September 30, 2018, CERC completed the Internal Spin. Previously, CERC’s equity method investment in Enable was included in the Midstream Investments segment. CERC’s equity in earnings in Enable, net of basis difference amortization and income tax, has been classified as discontinued operations for all periods presented. See Note 9 for further discussion on the Internal Spin and the associated discontinued operations presentation. |
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 September 30, | Three Months Ended June 30, |
| 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 |
| (in millions) | (in millions) |
Electric Transmission & Distribution | $ | 897 |
| (1) | $ | — |
| | $ | 227 |
| | $ | 843 |
| (1) | $ | — |
| | $ | 254 |
| |
Houston Electric T&D | | $ | 765 |
| (1) | $ | — |
| | $ | 169 |
| | $ | 854 |
| (1) | $ | — |
| | $ | 181 |
|
Indiana Electric Integrated | | 140 |
| | — |
| | 25 |
| | — |
| | — |
| | — |
|
Natural Gas Distribution | 402 |
| | 8 |
| | 3 |
| | 390 |
| | 8 |
| | 25 |
| 650 |
| | 10 |
| | 47 |
| | 487 |
| | 8 |
| | 7 |
|
Energy Services | 910 |
| | 10 |
| | (9 | ) | | 861 |
| | 10 |
| | 7 |
| 838 |
| | 17 |
| | 29 |
| | 841 |
| | 19 |
| | 15 |
|
Infrastructure Services | | 325 |
| | 1 |
| | 24 |
| | — |
| | — |
| | — |
|
Midstream Investments (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other Operations | 3 |
| | — |
| | 5 |
| | 4 |
| | — |
| | 11 |
| |
Corporate and Other | | 80 |
| | — |
| | (7 | ) | | 4 |
| | — |
| | (16 | ) |
Eliminations | — |
| | (18 | ) | | — |
| | — |
| | (18 | ) | | — |
| — |
| | (28 | ) | | — |
| | — |
| | (27 | ) | | — |
|
Consolidated | $ | 2,212 |
| | $ | — |
| | $ | 226 |
| | $ | 2,098 |
| | $ | — |
| | $ | 297 |
| $ | 2,798 |
| | $ | — |
| | $ | 287 |
| | $ | 2,186 |
| | $ | — |
| | $ | 187 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) | | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) |
| (in millions) |
Houston Electric T&D | $ | 1,454 |
| (1) | $ | — |
| | $ | 253 |
| | $ | 1,605 |
| (1) | $ | — |
| | $ | 296 |
|
Indiana Electric Integrated | 223 |
| | — |
| | 16 |
| | — |
| | — |
| | — |
|
Natural Gas Distribution | 2,039 |
| | 20 |
| | 214 |
| | 1,630 |
| | 18 |
| | 163 |
|
Energy Services | 2,020 |
| | 81 |
| | 62 |
| | 2,098 |
| | 47 |
| | (11 | ) |
Infrastructure Services | 471 |
| | 1 |
| | 8 |
| | — |
| | — |
| | — |
|
Midstream Investments (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Corporate and Other | 122 |
| | — |
| | (21 | ) | | 8 |
| | — |
| | (10 | ) |
Eliminations | — |
| | (102 | ) | | — |
| | — |
| | (65 | ) | | — |
|
Consolidated | $ | 6,329 |
| | $ | — |
| | $ | 532 |
| | $ | 5,341 |
| | $ | — |
| | $ | 438 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2018 | | 2017 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) | | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income |
| (in millions) |
Electric Transmission & Distribution | $ | 2,502 |
| (1) | $ | — |
| | $ | 523 |
| | $ | 2,234 |
| (1) | $ | — |
| | $ | 511 |
|
Natural Gas Distribution | 2,032 |
| | 26 |
| | 166 |
| | 1,767 |
| | 24 |
| | 235 |
|
Energy Services | 3,008 |
| | 57 |
| | (20 | ) | | 2,964 |
| | 34 |
| | 58 |
|
Midstream Investments (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other Operations | 11 |
| | — |
| | (5 | ) | | 11 |
| | — |
| | 24 |
|
Eliminations | — |
| | (83 | ) | | — |
| | — |
| | (58 | ) | | — |
|
Consolidated | $ | 7,553 |
| | $ | — |
| | $ | 664 |
| | $ | 6,976 |
| | $ | — |
| | $ | 828 |
|
| |
(1) | CenterPoint Energy’s and Houston Electric’s Electric Transmission & DistributionT&D revenues from major external customers are as follows: |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (in millions) |
Affiliates of NRG | | $ | 165 |
| | $ | 169 |
| | $ | 316 |
| | $ | 330 |
|
Affiliates of Vistra Energy Corp. | | 59 |
| | 59 |
| | 113 |
| | 113 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) |
Affiliates of NRG | | $ | 213 |
| | $ | 221 |
| | $ | 543 |
| | $ | 540 |
|
Affiliates of Vistra Energy Corp. | | 79 |
| | 72 |
| | 192 |
| | 172 |
|
| |
(2) | CenterPoint Energy’s Midstream Investments’ equity earnings, net are as follows: |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (in millions) |
Enable | | $ | 74 |
| | $ | 58 |
| | $ | 136 |
| | $ | 127 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) |
Enable | | $ | 81 |
| | $ | 68 |
| | $ | 208 |
| | $ | 199 |
|
Houston Electric
CERCHouston Electric consists of a single reportable segment; therefore, a tabular reportable segment presentation has not been
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2018 | | 2017 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) | | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) |
| (in millions) |
Natural Gas Distribution | $ | 402 |
| | $ | 8 |
| | $ | 3 |
| | $ | 390 |
| | $ | 8 |
| | $ | 25 |
|
Energy Services | 910 |
| | 10 |
| | (9 | ) | | 861 |
| | 10 |
| | 7 |
|
Other Operations | — |
| | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Eliminations | — |
| | (18 | ) | | — |
| | — |
| | (18 | ) | | — |
|
Consolidated | $ | 1,312 |
| | $ | — |
| | $ | (7 | ) | | $ | 1,251 |
| | $ | — |
| | $ | 31 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2018 | | 2017 |
| Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) | | Revenues from External Customers | | Net Intersegment Revenues | | Operating Income (Loss) |
| (in millions) |
Natural Gas Distribution | $ | 2,032 |
| | $ | 26 |
| | $ | 166 |
| | $ | 1,767 |
| | $ | 24 |
| | $ | 235 |
|
Energy Services | 3,008 |
| | 57 |
| | (20 | ) | | 2,964 |
| | 34 |
| | 58 |
|
Other Operations | — |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) |
Eliminations | — |
| | (83 | ) | | — |
| | — |
| | (58 | ) | | — |
|
Consolidated | $ | 5,040 |
| | $ | — |
| | $ | 146 |
| | $ | 4,731 |
| | $ | — |
| | $ | 289 |
|
CenterPoint Energy and CERC
|
| | | | | | | | | | | | | | | | |
| Total Assets | |
| September 30, 2018 | | December 31, 2017 | |
| CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC | |
| (in millions) | |
Electric Transmission & Distribution | $ | 10,436 |
| | $ | — |
| | $ | 10,292 |
| | $ | — |
| |
Natural Gas Distribution | 6,557 |
| | 6,557 |
| | 6,608 |
| | 6,608 |
| |
Energy Services | 1,253 |
| | 1,253 |
| | 1,521 |
| | 1,521 |
| |
Midstream Investments | 2,457 |
| | — |
| | 2,472 |
| | — |
| |
Assets of discontinued operations | — |
| | — |
| (1) | — |
| | 2,472 |
| (1) |
Other Operations | 2,206 |
| (2) | 110 |
| | 2,497 |
| (2) | 70 |
| |
Eliminations | (681 | ) | | (615 | ) | | (654 | ) | | (559 | ) | |
Consolidated | $ | 22,228 |
| | $ | 7,305 |
| | $ | 22,736 |
| | $ | 10,112 |
| |
included.
| |
(1) | On September 4, 2018, CERC completedHouston Electric T&D revenues from major external customers are as follows: |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (in millions) |
Affiliates of NRG | | $ | 165 |
| | $ | 169 |
| | $ | 316 |
| | $ | 330 |
|
Affiliates of Vistra Energy Corp. | | 59 |
| | 59 |
| | 113 |
| | 113 |
|
CERC
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 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 | $ | 503 |
| | $ | 10 |
| | $ | 28 |
| | $ | 487 |
| | $ | 8 |
| | $ | 7 |
|
Energy Services | 839 |
| | 16 |
| | 29 |
| | 841 |
| | 19 |
| | 15 |
|
Other Operations | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Eliminations | — |
| | (26 | ) | | — |
| | — |
| | (27 | ) | | — |
|
Consolidated | $ | 1,342 |
| | $ | — |
| | $ | 58 |
| | $ | 1,328 |
| | $ | — |
| | $ | 22 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 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 | $ | 1,688 |
| | $ | 20 |
| | $ | 192 |
| | $ | 1,630 |
| | $ | 18 |
| | $ | 163 |
|
Energy Services | 2,021 |
| | 80 |
| | 62 |
| | 2,098 |
| | 47 |
| | (11 | ) |
Corporate and Other | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Eliminations | — |
| | (100 | ) | | — |
| | — |
| | (65 | ) | | — |
|
Consolidated | $ | 3,710 |
| | $ | — |
| | $ | 254 |
| | $ | 3,728 |
| | $ | — |
| | $ | 153 |
|
CenterPoint Energy and CERC
|
| | | | | | | | | | | | | | | |
| Total Assets |
| June 30, 2019 | | December 31, 2018 |
| CenterPoint Energy | | CERC | | CenterPoint Energy | | CERC |
| (in millions) |
Houston Electric T&D | $ | 11,478 |
| | $ | — |
| | $ | 10,509 |
| | $ | — |
|
Indiana Electric Integrated (1) | 2,989 |
| | — |
| | — |
| | — |
|
Natural Gas Distribution (1) | 12,946 |
| | 6,843 |
| | 6,956 |
| | 6,956 |
|
Energy Services | 1,262 |
| | 1,262 |
| | 1,558 |
| | 1,558 |
|
Infrastructure Services (1) | 1,303 |
| | — |
| | — |
| | — |
|
Midstream Investments | 2,915 |
| | — |
| | 2,482 |
| | — |
|
Corporate and Other (1) | 4,278 |
| (2) | 108 |
| | 6,156 |
| (2) | 66 |
|
Eliminations | (2,982 | ) | | (398 | ) | | (652 | ) | | (366 | ) |
Consolidated | $ | 34,189 |
| | $ | 7,815 |
| | $ | 27,009 |
| | $ | 8,214 |
|
| |
(1) | Total assets by reportable segment include assets acquired in the Internal Spin. For further information regarding the Internal Spin, seeMerger, which are based on preliminary estimates and allocations and are subject to change. See Note 9.3. |
| |
(2) | Includes pension and other postemployment-related regulatory assets of $566$639 million and $600$665 million, respectively, as of SeptemberJune 30, 20182019 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:
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
| 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 | $ | 301 |
| | $ | 173 |
| | $ | 85 |
| | $ | 306 |
| | $ | 176 |
| | $ | 86 |
| $ | 231 |
| | $ | 113 |
| | $ | 55 |
| | $ | 167 |
| | $ | 90 |
| | $ | 50 |
|
Income taxes, net | 89 |
| | 122 |
| | 3 |
| | 14 |
| | 76 |
| | 4 |
| |
Income taxes (refunds), net | | 142 |
| | 73 |
| | 3 |
| | 88 |
| | 120 |
| | 3 |
|
Non-cash transactions: | | | | | | | | | |
| | | | | | | | | | | |
| | |
Accounts payable related to capital expenditures | 140 |
| | 87 |
| | 66 |
| | 111 |
| | 70 |
| | 53 |
| 173 |
| | 86 |
| | 72 |
| | 133 |
| | 75 |
| | 69 |
|
Capital distribution associated with the Internal Spin | — |
| | — |
| | 1,460 |
| | — |
| | — |
| | — |
| |
ROU assets obtained in exchange for lease liabilities (1) | | 42 |
| | 1 |
| | 28 |
| | — |
| | — |
| | — |
|
| |
(1) | Includes the transition impact of adoption of ASU 2016-02 Leases. |
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, 2019 | | December 31, 2018 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Cash and cash equivalents | $ | 271 |
| | $ | 260 |
| | $ | 1 |
| | $ | 4,231 |
| | $ | 335 |
| | $ | 14 |
|
Restricted cash included in Prepaid expenses and other current assets | 61 |
| | 33 |
| | 4 |
| | 46 |
| | 34 |
| | 11 |
|
Restricted cash included in Other | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
|
Total cash, cash equivalents and restricted cash shown in Condensed Statements of Consolidated Cash Flows | $ | 332 |
| | $ | 293 |
| | $ | 5 |
| | $ | 4,278 |
| | $ | 370 |
| | $ | 25 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2018 | | December 31, 2017 |
| CenterPoint Energy | | Houston Electric | | CenterPoint Energy | | Houston Electric |
| (in millions) |
Cash and cash equivalents | $ | 293 |
| | $ | 279 |
| | $ | 260 |
| | $ | 238 |
|
Restricted cash included in Prepaid expenses and other current assets | 37 |
| | 37 |
| | 35 |
| | 35 |
|
Restricted cash included in Other | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Total cash, cash equivalents and restricted cash shown in Condensed Statements of Consolidated Cash Flows | $ | 331 |
| | $ | 317 |
| | $ | 296 |
| | $ | 274 |
|
CERC does not have restricted cash and therefore was not included in the table above.
(18) Related Party Transactions(Houston Electric and CERC)
Houston Electric and CERC participate in a money pool through which they can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings under CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper.
The table below summarizes money pool activity:
| | | September 30, 2018 |
| December 31, 2017 | June 30, 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) | $ | (75 | ) | | $ | — |
| | $ | (60 | ) | | $ | (570 | ) | $ | 794 |
| | $ | 180 |
| | $ | (1 | ) | | $ | 114 |
|
Weighted average interest rate | 2.45 | % | | 2.45 | % | | 1.90 | % | | 1.90 | % | 2.67 | % | | 2.67 | % | | 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. |
Houston Electric and CERC affiliate related net interest income (expense) were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC |
| | | | | (in millions) | | | | |
Interest income (expense) (1) | $ | 1 |
| | $ | (2 | ) | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | (4 | ) | | $ | 3 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC |
| (in millions) |
Interest income (expense) (1) | $ | 6 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 9 |
| | $ | 2 |
| | $ | — |
| | $ | (2 | ) |
| |
(1) | Interest income is included in Other income (expense), net and interest expense is included in Interest and other finance charges on theHouston 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 certain services to CERC. These services are billed at actual cost, either directly or as an allocation and include fleet services, shop services, geographic services, surveying and right-of-way services, radio communications, data circuit management and field operations. Additionally, CERC provides certain services to Houston Electric. These services are billed at actual cost, either directly or as an allocation and include line locating and other miscellaneous services. These charges are not necessarily indicative of what would have been incurred had Houston Electric and CERC not been affiliates.
Amounts charged for these services were as follows and are included primarily in operation and maintenance expenses:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | Houston Electric | | CERC | | Houston Electric | | CERC | | 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 |
| | $ | 36 |
| | $ | 41 |
| | $ | 30 |
| | $ | 138 |
| | $ | 105 |
| | $ | 127 |
| | $ | 93 |
| | $ | 42 |
| | $ | 32 |
| | $ | 47 |
| | $ | 35 |
| | $ | 94 |
| | $ | 75 |
| | $ | 91 |
| | $ | 69 |
|
Net affiliate service charges (billings) | | (3 | ) | | 3 |
| | (1 | ) | | 1 |
| | (8 | ) | | 8 |
| | (6 | ) | | 6 |
| | (2 | ) | | 2 |
| | (3 | ) | | 3 |
| | (4 | ) | | 4 |
| | (5 | ) | | 5 |
|
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 June 30, 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 June 30, 2019.
The table below presents transactions among Houston Electric, CERC and their parent, Utility Holding.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC |
| | (in millions) |
Cash dividends paid to parent | | $ | 16 |
| | $ | 83 |
| | $ | 31 |
| | $ | 125 |
| | $ | 40 |
| | $ | 103 |
| | $ | 63 |
| | $ | 211 |
|
Cash contribution from parent | | — |
| | — |
| | — |
| | — |
| | 590 |
| | — |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC | | Houston Electric | | CERC |
| | (in millions) |
Cash dividends paid to parent | | $ | 60 |
| | $ | 75 |
| | $ | 45 |
| | $ | 89 |
| | $ | 123 |
| | $ | 286 |
| | $ | 87 |
| | $ | 337 |
|
Cash contribution from parent | | — |
| | 600 |
| | — |
| | — |
| | — |
| | 600 |
| | — |
| | 38 |
|
Capital distribution to parent associated with the Internal Spin | | — |
| | 1,460 |
| | — |
| | — |
| | — |
| | 1,460 |
| | — |
| | — |
|
(19) Equity (CenterPoint Energy)Leases
The Registrants adopted ASC 842, Leases, 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.
The components of lease cost, included in Operation and maintenance expense on the Registrants’ respective Condensed Statements of Consolidated Income, are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2019 |
| | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) |
Operating lease cost | | $ | 7 |
| | $ | — |
| | $ | 2 |
| | $ | 11 |
| | $ | — |
| | $ | 3 |
|
Short-term lease cost | | 18 |
| | 3 |
| | — |
| | 23 |
| | 5 |
| | — |
|
Total lease cost | | $ | 25 |
| | $ | 3 |
| | $ | 2 |
| | $ | 34 |
| | $ | 5 |
| | $ | 3 |
|
Supplemental balance sheet information related to leases was as follows:
|
| | | | | | | | | | | | |
| | June 30, 2019 |
| | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions, except lease term and discount rate) |
Assets: | | | | | | |
Operating ROU assets (1) | | $ | 72 |
| | $ | 1 |
| | $ | 26 |
|
Total leased assets | | $ | 72 |
| | $ | 1 |
| | $ | 26 |
|
Liabilities: | | | | | | |
Current operating lease liability (2) | | $ | 22 |
| | $ | — |
| | $ | 5 |
|
Non-current operating lease liability (3) | | 50 |
| | 1 |
| | 21 |
|
Total leased liabilities | | $ | 72 |
| | $ | 1 |
| | $ | 26 |
|
| | | | | | |
Weighted-average remaining lease term (in years) - operating leases | | 5.2 |
| | 5.5 |
| | 8.1 |
|
Weighted-average discount rate - operating leases | | 3.41 | % | | 3.51 | % | | 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 June 30, 2019, maturities of operating lease liabilities were as follows:
|
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Remaining six months of 2019 | $ | 14 |
| | $ | — |
| | $ | 3 |
|
2020 | 21 |
| | 1 |
| | 5 |
|
2021 | 15 |
| | — |
| | 4 |
|
2022 | 8 |
| | — |
| | 4 |
|
2023 | 7 |
| | — |
| | 3 |
|
2024 | 3 |
| | — |
| | 2 |
|
2025 and beyond | 12 |
| | — |
| | 9 |
|
Total lease payments | 80 |
| | 1 |
| | 30 |
|
Less: Interest | 8 |
| | — |
| | 4 |
|
Present value of lease liabilities | $ | 72 |
| | $ | 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 June 30, 2019, maturities of undiscounted operating lease payments to be received are as follows:
|
| | | | | | | | | | | |
| CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Remaining six months of 2019 | $ | 2 |
| | $ | — |
| | $ | — |
|
2020 | 2 |
| | 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 June 30, | | Six Months Ended June 30, |
| | 2019 | | 2019 |
| | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) |
Operating cash flows from operating leases included in the measurement of lease liabilities | | $ | 7 |
| | $ | — |
| | $ | 1 |
| | $ | 12 |
| | $ | 1 |
| | $ | 2 |
|
(20) Equity
Dividends Declared and Paid (CenterPoint Energy)
CenterPoint Energy declaredpaid dividends foron its Common Stock during the periodssix months ended June 30, 2019 and 2018 as presented in the table below:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Equity Instrument | | 2018 | | 2017 | | 2018 (1) | | 2017 |
| | (per share) |
Common Stock | | $ | 0.2775 |
| | $ | 0.2675 |
| | $ | 0.5550 |
| | $ | 0.8025 |
|
|
| | | | | | | | | | | | |
Declaration Date | | Record Date | | Payment Date | | Per Share | | Total (in millions) |
December 12, 2018 | | February 21, 2019 | | March 14, 2019 | | $ | 0.2875 |
| | $ | 144 |
|
April 25, 2019 | | May 16, 2019 | | June 13, 2019 | | 0.2875 |
| | 144 |
|
Total 2019 | | | | | | $ | 0.5750 |
| | $ | 288 |
|
| | | | | | | | |
December 13, 2017 | | February 15, 2018 | | March 8, 2018 | | $ | 0.2775 |
| | $ | 120 |
|
April 26, 2018 | | May 17, 2018 | | June 14, 2018 | | 0.2775 |
| | 120 |
|
Total 2018 | | | | | | $ | 0.5550 |
| | $ | 240 |
|
CenterPoint Energy declared no dividends on its Series A Preferred Stock or Series B Preferred Stock during the three or six months ended June 30, 2018.
CenterPoint Energy paid dividends on its Series A Preferred Stock during the six months ended June 30, 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 six months ended June 30, 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 |
|
April 25, 2019 | | May 15, 2019 | | June 3, 2019 | | 17.5000 |
| | 17 |
|
Total 2019 | | | | | | $ | 35.0000 |
| | $ | 34 |
|
Dividend Requirement on Preferred Stock (CenterPoint Energy)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) |
Series A Preferred Stock | $ | 13 |
| | $ | — |
| | $ | 25 |
| | $ | — |
|
Series B Preferred Stock | 17 |
| | — |
| | 34 |
| | — |
|
Total preferred stock dividend requirement | $ | 30 |
| | $ | — |
| | $ | 59 |
| | $ | — |
|
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated comprehensive income (loss) are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2019 | | 2018 |
| CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| (in millions) |
Beginning Balance | $ | (107 | ) | | $ | (15 | ) | | $ | 5 |
| | $ | (63 | ) | | $ | 4 |
| | $ | 6 |
|
Other comprehensive income (loss) before reclassifications: | | | | | | | | | | | |
Deferred gain (loss) from interest rate derivatives (1) | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
|
Amounts reclassified from accumulated other comprehensive loss: | | | | | | | | | | | |
Prior service cost (2) | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Actuarial losses (2) | 2 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Tax expense | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Net current period other comprehensive income | 2 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Ending Balance | $ | (105 | ) | | $ | (15 | ) | | $ | 5 |
| | $ | (62 | ) | | $ | 4 |
| | $ | 6 |
|
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 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 | ) | | — |
| | 4 |
| | 5 |
| | — |
|
Amounts reclassified from accumulated other comprehensive loss: | | | | | | | | | | | |
Prior service cost (2) | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Actuarial losses (2) | 4 |
| | — |
| | — |
| | 3 |
| | — |
| | — |
|
Reclassification of deferred loss from cash flow hedges realized in net income | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Tax expense | (2 | ) | | — |
| | — |
| | (2 | ) | | (1 | ) | | — |
|
Net current period other comprehensive income (loss) | 3 |
| | (1 | ) | | — |
| | 6 |
| | 4 |
| | — |
|
Ending Balance | $ | (105 | ) | | $ | (15 | ) | | $ | 5 |
| | $ | (62 | ) | | $ | 4 |
| | $ | 6 |
|
| |
(1) | On December 13, 2017, CenterPoint Energy’s Board of Directors declared a regular quarterly cash dividend of $0.2775 per share of Common Stock, payable on March 8, 2018 to shareholders of record asGains 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 closeRegistrants’ respective Statements of business on February 15, 2018.Consolidated Income. Over the next twelve months estimated amortization from Accumulated Comprehensive Income into income is expected to be immaterial. |
Series A Preferred Stock
On August 22, 2018, CenterPoint Energy completed the issuance of 800,000 shares of its Series A Preferred Stock, at a price of $1,000 per share, resulting in net proceeds of $790 million after issuance costs. The aggregate liquidation value of the Series A Preferred Stock is $800 million with a per share liquidation value of $1,000.
CenterPoint Energy intends to use the net proceeds from the Series A Preferred Stock offering to fund a portion of the pending Merger and to pay related fees and expenses.
Dividends. The Series A Preferred Stock accrue cumulative dividends, calculated as a percentage of the stated amount per share, at a fixed annual rate of 6.125% per annum to, but excluding, September 1, 2023, and at an annual rate of three-month LIBOR plus a spread of 3.270% thereafter to be paid in cash if, when and as declared. If declared, prior to September 1, 2023, dividends are payable semi-annually in arrears on each March 1 and September 1, beginning on March 1, 2019, and, for the period commencing on September 1, 2023, dividends are payable quarterly in arrears each March 1, June 1, September 1 and December 1, beginning on December 1, 2023. Cumulative dividends accrued during the applicable periods are presented on CenterPoint Energy’s Condensed Statements of Consolidated Income as Series A Preferred Stock dividend requirement.
Optional Redemption. On or after September 1, 2023, CenterPoint Energy may, at its option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $1,000 per share, plus any accumulated and unpaid dividends thereon to, but excluding, the redemption date.
At any time within 120 days after the conclusion of any review or appeal process instituted by CenterPoint Energy, if any, following the occurrence of a ratings event, CenterPoint Energy may, at its option, redeem the Series A Preferred Stock in whole, but not in part, at a redemption price in cash per share equal to $1,020 (102% of the liquidation value of $1,000) plus an amount equal to all accumulated and unpaid dividends thereon to, but excluding, the redemption date, whether or not declared.
Ranking. The Series A Preferred Stock, with respect to anticipated dividends and distributions upon CenterPoint Energy’s liquidation or dissolution, or winding-up of CenterPoint Energy’s affairs, ranks or will rank:
senior to Common Stock and to each other class or series of capital stock established after the initial issue date of the Series A Preferred Stock that is expressly made subordinated to the Series A Preferred Stock;
on a parity with any class or series of capital stock established after the initial issue date of the Series A Preferred Stock that is not expressly made senior or subordinated to the Series A Preferred Stock, including the Series B Preferred Stock;
junior to any class or series of capital stock established after the initial issue date of the Series A Preferred Stock that is expressly made senior to the Series A Preferred Stock;
junior to all existing and future indebtedness (including indebtedness outstanding under CenterPoint Energy’s credit facilities, senior notes and commercial paper) and other liabilities with respect to assets available to satisfy claims against CenterPoint Energy; and
structurally subordinated to any existing and future indebtedness and other liabilities of CenterPoint Energy’s subsidiaries and capital stock of CenterPoint Energy’s subsidiaries held by third parties.
Voting Rights. Holders of the Series A Preferred Stock generally will not have voting rights. Whenever dividends on shares of Series A Preferred Stock have not been declared and paid for the equivalent of three or more semi-annual or six or more quarterly dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the original issue date and ending on, but excluding, March 1, 2019), whether or not consecutive, the holders of such shares of Series A Preferred Stock, voting together as a single class with holders of any and all other series of voting preferred stock (as defined in the Statement of Resolution for the Series A Preferred Stock) then outstanding, will be entitled at CenterPoint Energy’s next annual or special meeting of shareholders to vote for the election of a total of two additional members of CenterPoint Energy’s Board of Directors, subject to certain limitations. This right will terminate if and when all accumulated dividends have been paid in full and, upon such termination, the term of office of each director so elected will terminate at such time and the number of directors on CenterPoint Energy’s Board of Directors will automatically decrease by two, subject to the revesting of such rights in the event of each subsequent nonpayment.
Series B Preferred Stock
On October 1, 2018, CenterPoint Energy completed the issuance of 19,550,000 depositary shares, each representing a 1/20th interest in a share of its Series B Preferred Stock, at a price of $50 per depositary share, resulting in net proceeds of $950 million after issuance costs. The aggregate liquidation value of Series B Preferred Stock is $978 million with a per share liquidation value of $1,000. The amount issued included 2,550,000 depositary shares issued pursuant to the exercise in full of the option granted to the underwriters to purchase additional depositary shares.
CenterPoint Energy intends to use the net proceeds from the offering of depositary shares, each representing a 1/20th interest in a share of Series B Preferred Stock, to fund a portion of the pending Merger and to pay related fees and expenses.
Dividends. Dividends on the Series B Preferred Stock will be payable on a cumulative basis when, as and if declared at an annual rate of 7.00% on the liquidation value of $1,000 per share. CenterPoint Energy may pay declared dividends in cash or, subject to certain limitations, in shares of Common Stock, or in any combination of cash and shares of Common Stock on March 1, June 1, September 1 and December 1 of each year, commencing on December 1, 2018 and ending on, and including, September 1, 2021.
Acquisition Termination Redemption. If the pending Merger has not closed at or prior to close of business on April 21, 2019 or if an acquisition termination event occurs, CenterPoint Energy may, at its option, give notice of an acquisition termination redemption to the holders of the Series B Preferred Stock. If CenterPoint Energy provides such notice, then, on the acquisition termination redemption date, CenterPoint Energy will be required to redeem the Series B Preferred Stock, in whole but not in part, at a redemption amount per share of the Series B Preferred Stock equal to the acquisition termination redemption amount. CenterPoint Energy will pay the acquisition termination redemption amount in cash unless the acquisition termination share price is greater than the initial price, in which case CenterPoint Energy will instead pay the acquisition termination redemption amount by delivering shares of Common Stock and cash; provided, that CenterPoint Energy may elect, subject to certain limitations, to pay cash or deliver shares of Common Stock in lieu of these amounts. If CenterPoint Energy redeems shares of the Series B Preferred Stock held by the depositary, the depositary will redeem, on the same acquisition termination redemption date, the number of the depositary shares representing the shares of the Series B Preferred Stock so redeemed.
Mandatory Conversion. Unless earlier converted or redeemed, each share of the Series B Preferred Stock will automatically convert on the mandatory conversion date, which is expected to be September 1, 2021, into not less than 30.5820 and not more than 36.6980 shares of Common Stock, subject to certain anti-dilution adjustments. Correspondingly, the conversion rate per depositary share will be not less than 1.5291 and not more than 1.8349 shares of Common Stock, subject to certain anti-dilution adjustments. The conversion rate will be determined based on a preceding 20-day volume-weighted-average-price of Common Stock.
The following table illustrates the conversion rate per share of the Series B Preferred Stock, subject to certain anti-dilution adjustments:
|
| | |
Applicable Market Value(2) | Amounts are included in the computation of net periodic cost and are reflected in Other income (expense), net in each of the Common Stock | | Conversion Rate per ShareRegistrants’ respective Statements of Series B Preferred Stock |
Greater than $32.6990 (threshold appreciation price) | | 30.5820 shares of Common Stock |
Equal to or less than $32.6990 but greater than or equal to $27.2494 | | Between 30.5820 and 36.6980 shares of Common Stock, determined by dividing $1,000 by the applicable market value |
Less than $27.2494 (initial price) | | 36.6980 shares of Common StockConsolidated Income. |
The following table illustrates the conversion rate per depositary share, subject to certain anti-dilution adjustments:
|
| | |
Applicable Market Value of the Common Stock | | Conversion Rate per Depository Share |
Greater than $32.6990 (threshold appreciation price) | | 1.5291 shares of Common Stock |
Equal to or less than $32.6990 but greater than or equal to $27.2494 | | Between 1.5291 and 1.8349 shares of Common Stock, determined by dividing $50 by the applicable market value |
Less than $27.2494 (initial price) | | 1.8349 shares of Common Stock |
Optional Conversion of the Holder. Other than during a fundamental change conversion period, and unless CenterPoint Energy has redeemed the Series B Preferred Stock, a holder of the Series B Preferred Stock may, at any time prior to September 1, 2021, elect to convert such holder’s shares of the Series B Preferred Stock, in whole or in part, at the minimum conversion rate of 30.5820 shares of Common Stock per share of the Series B Preferred Stock (equivalent to 1.5291 shares of Common Stock per depositary share), subject to certain anti-dilution and other adjustments. Because each depositary share represents a 1/20th fractional interest
in a share of the Series B Preferred Stock, a holder of depositary shares may convert its depositary shares only in lots of 20 depositary shares.
Fundamental Change Conversion. If a fundamental change occurs on or prior to September 1, 2021, holders of the Series B Preferred Stock will have the right to convert their shares of the Series B Preferred Stock, in whole or in part, into shares of Common Stock at the fundamental change conversion rate during the period beginning on, and including, the effective date of such fundamental change and ending on, and including, the date that is 20 calendar days after such effective date (or, if later, the date that is 20 calendar days after holders receive notice of such fundamental change, but in no event later than September 1, 2021). Holders who convert shares of the Series B Preferred Stock during that period will also receive a make-whole dividend amount comprised of a fundamental change dividend make-whole amount, and to the extent there is any, the accumulated dividend amount. Because each depositary share represents a 1/20th fractional interest in a share of the Series B Preferred Stock, a holder of depositary shares may convert its depositary shares upon a fundamental change only in lots of 20 depositary shares.
Ranking. The Series B Preferred Stock, with respect to anticipated dividends and distributions upon CenterPoint Energy’s liquidation or dissolution, or winding-up of CenterPoint Energy’s affairs, ranks or will rank:
senior to Common Stock and to each other class or series of capital stock established after the initial issue date of the Series B Preferred Stock that is expressly made subordinated to the Series B Preferred Stock;
on a parity with the Series A Preferred Stock and any class or series of capital stock established after the initial issue date that is not expressly made senior or subordinated to the Series B Preferred Stock;
junior to any class or series of capital stock established after the initial issue date that is expressly made senior to the Series B Preferred Stock;
junior to all existing and future indebtedness (including indebtedness outstanding under CenterPoint Energy’s credit facilities, senior notes and commercial paper) and other liabilities with respect to assets available to satisfy claims against CenterPoint Energy; and
structurally subordinated to any existing and future indebtedness and other liabilities of CenterPoint Energy’s subsidiaries and capital stock of CenterPoint Energy’s subsidiaries held by third parties.
Voting Rights. Holders of the Series B Preferred Stock generally will not have voting rights. Whenever dividends on shares of the Series B Preferred Stock have not been declared and paid for six or more dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the initial issue date and ending on, but excluding, December 1, 2018), whether or not consecutive, the holders of such shares of Series B Preferred Stock, voting together as a single class with holders of any and all other series of voting preferred stock then outstanding (as defined in the Statement of Resolution for the Series B Preferred Stock), will be entitled at CenterPoint Energy’s next annual or special meeting of shareholders to vote for the election of a total of two additional members of CenterPoint Energy’s Board of Directors, subject to certain limitations. This right will terminate if and when all accumulated and unpaid dividends have been paid in full and, upon such termination, the term of office of each director so elected will terminate at such time and the number of directors on CenterPoint Energy’s Board of Directors will automatically decrease by two, subject to the revesting of such rights in the event of each subsequent nonpayment.
Common Stock
On October 1, 2018, CenterPoint Energy completed the issuance of approximately 69,633,027 shares of Common Stock at a price of $27.25 per share, for net proceeds of $1,844 million after issuance costs. The amount issued included 9,082,568 shares of Common Stock issued pursuant to the exercise in full of the option granted to the underwriters to purchase additional shares of Common Stock.
CenterPoint Energy intends to use the net proceeds from the Common Stock offering to fund a portion of the pending Merger and to pay related fees and expenses.
(20) (21) Subsequent Events (CenterPoint Energy)
CenterPoint Energy Dividend Declarations
On October 23, 2018, CenterPoint Energy’s Board of Directors declared a regular quarterly cash dividend of $0.2775 per share of Common Stock payable on December 13, 2018 to shareholders of record as of the close of business on November 15, 2018. |
| | | | | | | | | | |
Equity Instrument | | Declaration Date | | Record Date | | Payment Date | | Per Share |
Common Stock | | July 31, 2019 | | August 15, 2019 | | September 12, 2019 | | $ | 0.2875 |
|
Series A Preferred Stock | | July 31, 2019 | | August 15, 2019 | | September 3, 2019 | | 30.6250 |
|
Series B Preferred Stock | | July 31, 2019 | | August 15, 2019 | | September 3, 2019 | | 17.5000 |
|
On October 23, 2018, CenterPoint Energy’s Board of Directors declared a regular quarterly cash dividend of $11.6667 per share of the newly issued Series B Preferred Stock ($0.5833 per depository share) payable on December 1, 2018 to shareholders of record as of the close of business on November 15, 2018. For more information about the Series B Preferred Stock, see Note 19.
Enable Distributions Declarations (CenterPoint Energy)
|
| | | | | | | | | | | | | | |
Equity Instrument | | Declaration Date | | Record Date | | Payment Date | | Per Unit Distribution | | Expected Cash Distribution (in millions) |
Enable common units | | August 2, 2019 | | August 20, 2019 | | August 27, 2019 | | $ | 0.3305 |
| | $ | 77 |
|
Enable Series A Preferred Units | | August 2, 2019 | | August 2, 2019 | | August 14, 2019 | | 0.6250 |
| | 9 |
|
On November 6, 2018, Enable declared a quarterly cash distribution of $0.318 per unit on all of its outstanding common units for the quarter ended September 30, 2018. Accordingly, CNP Midstream expects to receive a cash distribution of approximately $74 million from Enable in the fourth quarter of 2018 to be made with respect to CNP Midstream’s investment in common units of Enable.
On November 6, 2018, Enable declared a quarterly cash distribution of $0.625 per Series A Preferred Unit for the quarter ended September 30, 2018. Accordingly, CenterPoint Energy expects to receive a cash distribution of approximately $9 million from Enable in the fourth quarter of 2018 to be made with respect to CenterPoint Energy’s investment in Enable Series A Preferred Units.
Merger Financing Transactions
On October 1, 2018, CenterPoint Energy completed concurrent equity offerings of depositary shares, each representing a 1/20th interest in a share of Series B Preferred Stock, and Common Stock. For more information about the concurrent equity offerings, see Note 19.
On October 5, 2018, CenterPoint Energy issued $1.5 billion aggregate principal amount of senior notes. For more information about the senior notes offering, see Note 12.
| |
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES |
No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.
The following combined discussion and analysis should be read in combination with 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
Pending 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 pending Merger, see NoteNotes 1 and 3 to the Interim Condensed Financial Statements. 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 CenterPoint Energy’s 2018 Form 10-K. For a description of the Registrants’ reportable segments, see Note 16 to the Interim Condensed Financial Statements.
Series A Preferred Stock Offering. On August 22, 2018, we completed an offeringDebt Transactions. In January 2019, Houston Electric issued $700 million aggregate principal amount of our Series A Preferred Stock.general mortgage bonds, and in May 2019, CenterPoint Energy entered into a $1.0 billion variable rate term loan. For more information about the offering, see Note 19 to the Interim Condensed Financial Statements.
Enable Midstream Spin. On September 4, 2018, CERC completed the Internal Spin of its equity investment in Enable and Enable GP. For further information regarding the Internal Spin, see Note 9 to the Interim Condensed Financial Statements.
Concurrent Equity Offerings. On October 1, 2018, we completed concurrent equity offerings of depositary shares, each representing a 1/20th interest in a share of Series B Preferred Stock, and Common Stock. For more information about the concurrent equity offerings, see Note 19 to the Interim Condensed Financial Statements.
Senior Notes Offering. On October 5, 2018, we issued $1.5 billion aggregate principal amount of senior notes. For more information about the senior notes offering,2019 debt transactions, see Note 12 to the Interim Condensed Financial Statements.
Credit Facility. On October 5, 2018, we terminated all remaining commitments by lenders to provide the Bridge Facility, which resulted in increased aggregate commitments under our revolving credit facility. For further information, see Note 12 to the Interim Condensed Financial Statements.
Regulatory Proceedings. On April 5, 2019, and subsequently adjusted in errata filings in May and June 2019, Houston Electric filed its base rate application with the PUCT and the cities in its service area to change its rates.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.
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 September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| (in millions, except per share amounts) | (in millions, except per share amounts) |
Revenues | $ | 2,212 |
| | $ | 2,098 |
| | $ | 7,553 |
| | $ | 6,976 |
| $ | 2,798 |
| | $ | 2,186 |
| | $ | 6,329 |
| | $ | 5,341 |
|
Expenses | 1,986 |
| | 1,801 |
| | 6,889 |
| | 6,148 |
| 2,511 |
| | 1,999 |
| | 5,797 |
| | 4,903 |
|
Operating Income | 226 |
| | 297 |
| | 664 |
| | 828 |
| 287 |
| | 187 |
| | 532 |
| | 438 |
|
Interest and Other Finance Charges | (90 | ) | | (80 | ) | | (259 | ) | | (235 | ) | (134 | ) | | (91 | ) | | (255 | ) | | (169 | ) |
Interest on Securitization Bonds | (16 | ) | | (18 | ) | | (46 | ) | | (58 | ) | (10 | ) | | (14 | ) | | (22 | ) | | (30 | ) |
Equity in Earnings of Unconsolidated Affiliate, net | 81 |
| | 68 |
| | 208 |
| | 199 |
| 74 |
| | 58 |
| | 136 |
| | 127 |
|
Other Income (Expense), net | 8 |
| | — |
| | (234 | ) | | 43 |
| 7 |
| | (228 | ) | | 24 |
| | (242 | ) |
Income Before Income Taxes | 209 |
| | 267 |
| | 333 |
| | 777 |
| |
Income Tax Expense | 51 |
| | 98 |
| | 85 |
| | 281 |
| |
Net Income | 158 |
| | 169 |
| | 248 |
| | 496 |
| |
Series A Preferred Stock dividend requirement | 5 |
| | — |
| | 5 |
| | — |
| |
Income Available to Common Shareholders | $ | 153 |
| | $ | 169 |
| | $ | 243 |
| | $ | 496 |
| |
Basic Earnings Per Share | $ | 0.35 |
| | $ | 0.39 |
| | $ | 0.56 |
| | $ | 1.15 |
| |
Diluted Earnings Per Share | $ | 0.35 |
| | $ | 0.39 |
| | $ | 0.56 |
| | $ | 1.14 |
| |
Income (Loss) Before Income Taxes | | 224 |
| | (88 | ) | | 415 |
| | 124 |
|
Income Tax Expense (Benefit) | | 29 |
| | (13 | ) | | 51 |
| | 34 |
|
Net Income (Loss) | | 195 |
| | (75 | ) | | 364 |
| | 90 |
|
Preferred Stock Dividend Requirement | | 30 |
| | — |
| | 59 |
| | — |
|
Income (Loss) Available to Common Shareholders | | $ | 165 |
| | $ | (75 | ) | | $ | 305 |
| | $ | 90 |
|
Basic Earnings (Loss) Per Common Share | | $ | 0.33 |
| | $ | (0.17 | ) | | $ | 0.61 |
| | $ | 0.21 |
|
Diluted Earnings (Loss) Per Common Share | | $ | 0.33 |
| | $ | (0.17 | ) | | $ | 0.61 |
| | $ | 0.21 |
|
Three months ended SeptemberJune 30, 20182019 compared to three months ended SeptemberJune 30, 20172018
WeCenterPoint Energy reported income available to common shareholders of $153$165 million ($0.350.33 per diluted share) for the three months ended SeptemberJune 30, 20182019 compared to $169a net loss of $75 million ($0.39(0.17) per diluted share) for the same period in 2017.three months ended June 30, 2018.
The decrease of $16 millionincrease in income available to common shareholders of $240 million was primarily due to the following key factors:
a $71$186 million decrease in operating income discussed below by segment in Results of Operations by Business Segment;
a $10 million increase in interest expense primarily due to the amortization of Bridge Facility fees;
an $8 million increase in losses on the underlying value of the indexed debt securities related to the ZENS, included in Other Income (Expense), net shown above; andabove (losses recorded from AT&T Inc.’s acquisition of Time Warner Inc. in June 2018);
a $5$100 million increase in preferred dividend requirements on our Series A Preferred Stock.operating income discussed below in Results of Operations by Reportable Segment;
These decreases in income available to common shareholders were partially offset by the following:
a $47$42 million decreaseincrease in income tax expense due to lowergain on marketable securities, included in Other Income (Expense), net income and a reduction in the corporate income tax rate resulting from the TCJA;shown above;
a $13$16 million increase in equity earnings from ourthe investment in Enable, discussed further in Note 9 to the Interim Condensed Financial Statements;
a $9 million decrease in non-service cost components of net periodic pension and post-retirement costs included in Other Income (Expense), net shown above;
a $6 million increase in gains on marketable securities included in Other Income (Expense), net shown above;
a $2 million decrease in interest expense related to lower outstanding balances of our Securitization Bonds; and
a $1$7 million increase in miscellaneous other non-operating income, included in Other Income (Expense), net shown above.above; and
Ninea $4 million decrease in interest expense related to lower outstanding balances of the Securitization Bonds.
These increases were partially offset by the following:
a $43 million increase in interest expense, primarily as a result of higher outstanding other long-term debt used to finance the Merger and additional long-term debt acquired through the Merger, discussed further in Notes 3 and 12 to the Interim Condensed Financial Statements;
a $42 million increase in income tax expense due to higher income before income taxes that was partially offset by the lower effective tax rate as explained below; and
a $30 million increase in preferred stock dividend requirements.
Six months ended SeptemberJune 30, 20182019 compared to ninesix months ended SeptemberJune 30, 20172018
WeCenterPoint Energy reported income available to common shareholders of $243$305 million ($0.560.61 per diluted share) for the ninesix months ended SeptemberJune 30, 20182019 compared to $496$90 million ($1.140.21 per diluted share) for the ninesix months ended SeptemberJune 30, 2017.2018.
The decreaseincrease of $253$215 million in income available to common shareholders was primarily due to the following key factors:
a $257$124 million increase in losses on indexed debt securities related to the ZENS included in Other Income (Expense), net shown above, resulting from a loss of $11 million from Meredith’s acquisition of Time in March 2018, a loss of $242 million from AT&T’s acquisition of TW in June 2018 and increased losses of $4 million in the underlying value of the indexed debt securities;
a $164 million decrease in operating income discussed below by segment in Results of Operations by Business Segment;
a $38 million decrease in gainsgain on marketable securities, included in Other Income (Expense), net shown above;
a $118 million decrease in losses on the underlying value of indexed debt securities related to the ZENS, included in Other Income, net shown above (losses recorded from Meredith Corporation’s acquisition of Time Inc. in March 2018 and AT&T Inc.’s acquisition of Time Warner Inc. in June 2018);
a $94 million increase in operating income discussed below in Results of Operations by Reportable Segment;
a $24 million increase in interest expense due to higher outstanding other long-term debt and the amortization of Bridge Facility fees of $17 million; and
a $5 million increase in preferred dividend requirements on our Series A Preferred Stock.
These decreases inmiscellaneous non-operating income available to common shareholders were partially offset by the following:
a $196 million decrease in income tax expense due to lower net income and a reduction in the corporate income tax rate resulting from the TCJA;
a $14 million decrease in non-service cost components of net periodic pension and post-retirement costs included in Other Income (Expense), net shown above;above that included $14 million in higher interest income, a $5 million increase in dividend income and $5 million in additional income from miscellaneous items;
a $12 million decrease in interest expense related to lower outstanding balances of our Securitization Bonds;
a $9 million increase in equity earnings from ourthe investment in Enable, discussed further in Note 9 to the Interim Condensed Financial Statements; and
an $8 million decrease in interest expense related to lower outstanding balances of the Securitization Bonds.
These increases were partially offset by the following:
a $4$86 million increase in miscellaneousinterest expense, primarily as a result of higher outstanding other non-operatinglong-term debt used to finance the Merger and additional long-term debt acquired through the Merger, discussed further in Notes 3 and 12 to the Interim Condensed Financial Statements;
a $59 million increase in preferred stock dividend requirements; and
a $17 million increase in income included in Other Income (Expense), net shown above.tax expense due to higher income before income taxes that was partially offset by the lower effective tax rate as explained below.
Income Tax Expense
OurCenterPoint Energy’s effective tax rate reported for the three months ended SeptemberJune 30, 20182019 was 24%13% compared to 37%15% for the same period in 2017. Thethree months ended June 30, 2018. CenterPoint Energy’s effective tax rate reported for the ninesix months ended SeptemberJune 30, 20182019 was 26%12% compared to 36%27% for the same period in 2017.six months ended June 30, 2018. The lower effective tax ratesrate for the three and ninesix months ended SeptemberJune 30, 2018 were2019 was primarily due to the reductionfollowing: an increase in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate also decreased by 5% and 4%, respectively, for the three and nine months ended September 30, 2018 due to theamount of amortization of EDIT. These decreases were partially offsetthe net regulatory EDIT liability as decreed by an increase toregulators in certain jurisdictions; the effectiveimpact of state tax ratelaw changes that resulted in the remeasurement of 5% forstate deferred taxes; and the three-month period ended September 30, 2018 as a resultrelease of the establishment of a state valuation allowanceallowances on certain state net operating loss deferred tax assetslosses that are no longernow expected to be utilized prior to expiration after the Internal Spin. The effective tax rate was increased by 7% for the nine-month period ended September 30, 2018 due to statea current period law changes and the state valuation allowance. See Note 9 to the Interim Condensed Financial Statements for further discussion on the Internal Spin. We expect our annual effective tax rate for the fiscal year ending December 31, 2018 to be approximately 24%.change.
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, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) |
Revenues (1) | $ | 765 |
|
| $ | 854 |
|
| $ | 1,451 |
|
| $ | 1,609 |
|
Expenses | 596 |
|
| 673 |
|
| 1,201 |
|
| 1,309 |
|
Operating income | 169 |
|
| 181 |
|
| 250 |
|
| 300 |
|
Interest and other finance charges | (42 | ) | | (36 | ) | | (82 | ) | | (69 | ) |
Interest on Securitization Bonds | (10 | ) | | (14 | ) | | (22 | ) | | (30 | ) |
Other income (expense), net | 6 |
| | (3 | ) | | 10 |
| | (6 | ) |
Income before income taxes | 123 |
|
| 128 |
|
| 156 |
|
| 195 |
|
Income tax expense | 23 |
| | 27 |
| | 29 |
| | 42 |
|
Net income | $ | 100 |
|
| $ | 101 |
|
| $ | 127 |
|
| $ | 153 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions, except throughput and customer data) |
Revenues | $ | 897 |
|
| $ | 843 |
|
| $ | 2,506 |
|
| $ | 2,233 |
|
Expenses | 670 |
|
| 589 |
|
| 1,979 |
|
| 1,723 |
|
Operating income | 227 |
|
| 254 |
|
| 527 |
|
| 510 |
|
Interest and other finance charges | (32 | ) | | (32 | ) | | (101 | ) | | (97 | ) |
Interest on Securitization Bonds | (16 | ) | | (18 | ) | | (46 | ) | | (58 | ) |
Other expense, net | — |
| | (3 | ) | | (6 | ) | | (9 | ) |
Income before income taxes | 179 |
|
| 201 |
|
| 374 |
|
| 346 |
|
Income tax expense | 36 |
| | 71 |
| | 78 |
| | 123 |
|
Net income | $ | 143 |
|
| $ | 130 |
|
| $ | 296 |
|
| $ | 223 |
|
| |
(1) | Excludes weather hedge gain (loss) of $-0- and $3 million for the three and six months ended June 30, 2019, respectively, and $-0- and $(4) million for the three and six months ended June 30, 2018, respectively, recorded in Utility revenues on CenterPoint Energy’s Condensed Statements of Consolidated Income. See Note 7(a) to the Interim Condensed Financial Statements for more information on the weather hedge. |
Three months ended SeptemberJune 30, 20182019 compared to three months ended SeptemberJune 30, 20172018
Houston Electric reported net income of $143$100 million for the three months ended SeptemberJune 30, 20182019 compared to net income of $130$101 million for the same period in 2017.three months ended June 30, 2018.
The increasedecrease of $13 million in net income was primarily due to a $35 million decrease in income tax expense due to lower net income and a reduction in the corporate income tax rate resulting from the TCJA.
This increase in net income was partially offset by a $22 million decrease in TDU operating income as discussed below in Results of Operations by Business Segment.
Nine months ended September 30, 2018 compared to nine months ended September 30, 2017
Houston Electric reported net income of $296 million for the nine months ended September 30, 2018 compared to net income of $223 million for the nine months ended September 30, 2017.
The increase of $73$1 million in net income was primarily due to the following key factors:
a $45$7 million decrease in income tax expense due to lower net income and a reduction in the corporate income tax rate resulting from the TCJA; and
a $32 million increase in TDU operating income resulting from a $27 million increase discussed below in Results of Operations by Business Segment and increased usage of $5 million, primarily due to Reportable Segment;
a return to more normal weather, which was not offset by the weather hedge loss recorded on CenterPoint Energy.
These increases in net income were partially offset by a $4$6 million increase in interest expense due to higher outstanding other long-term debt.debt; and
a $5 million decrease in operating income from the Bond Companies.
These decreases were partially offset by the following:
a $9 million increase in Other income (expense), net that included $6 million of interest income on money pool investments and $3 million in miscellaneous other non-operating income;
a $4 million decrease in interest expense related to the Securitization Bonds; and
a $4 million reduction of income tax expense due to the lower effective tax rate as explained below.
Six months ended June 30, 2019 compared to six months ended June 30, 2018
Houston Electric reported net income of $127 million for the six months ended June 30, 2019 compared to net income of $153 million for the six months ended June 30, 2018.
The decrease of $26 million in net income was primarily due to the following key factors:
a $39 million decrease in TDU operating income discussed below in Results of Operations by Reportable Segment, exclusive of a $7 million gain from the weather hedge recorded at CenterPoint Energy;
a $13 million increase in interest expense due to higher outstanding other long-term debt; and
an $11 million decrease in operating income from the Bond Companies.
These decreases were partially offset by the following:
a $16 million increase in Other income (expense), net that included $9 million of interest income on money pool investments, $3 million in interest income related to the Securitization Bonds and $4 million in miscellaneous other non-operating income;
a $13 million decrease in income tax expense primarily due to lower income and the lower effective tax rate as explained below; and
an $8 million decrease in interest expense related to the Securitization Bonds.
Income Tax Expense
Houston Electric’s effective tax rate reported for the three months ended SeptemberJune 30, 20182019 was 20%19% compared to 35%21% for the same period in 2017. Thethree months ended June 30, 2018. Houston Electric’s effective tax rate reported for the ninesix months ended SeptemberJune 30, 20182019 was 21%19% compared to 36%22% for the same period in 2017.six months ended June 30, 2018. The lower effective tax rate for both the three and ninesix months ended SeptemberJune 30, 20182019 was primarily
due to the reductionan increase in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate also decreased by 2% for both periods due to theamount of amortization of EDIT.the net regulatory EDIT liability as decreed by 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 the optimization of margins through 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 September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) | (in millions) |
Revenues | $ | 1,312 |
| | $ | 1,251 |
| | $ | 5,040 |
| | $ | 4,731 |
| $ | 1,342 |
| | $ | 1,328 |
| | $ | 3,710 |
| | $ | 3,728 |
|
Expenses | 1,319 |
| | 1,220 |
| | 4,894 |
| | 4,442 |
| 1,284 |
| | 1,306 |
| | 3,456 |
| | 3,575 |
|
Operating Income (Loss) | (7 | ) | | 31 |
| | 146 |
| | 289 |
| 58 |
| | 22 |
| | 254 |
| | 153 |
|
Interest and other finance charges | (30 | ) | | (32 | ) | | (92 | ) | | (92 | ) | (30 | ) | | (33 | ) | | (59 | ) | | (62 | ) |
Other expense, net | — |
| | (4 | ) | | (5 | ) | | (13 | ) | — |
| | (1 | ) | | (3 | ) | | (5 | ) |
Income (loss) from continuing operations before income taxes | (37 | ) | | (5 | ) | | 49 |
| | 184 |
| 28 |
| | (12 | ) | | 192 |
| | 86 |
|
Income tax expense (benefit) | (2 | ) | | (1 | ) | | 14 |
| | 69 |
| — |
| | (4 | ) | | 26 |
| | 16 |
|
Income (loss) from continuing operations | (35 | ) | | (4 | ) | | 35 |
| | 115 |
| 28 |
| | (8 | ) | | 166 |
| | 70 |
|
Income from discontinued operations, net of tax | 44 |
| | 42 |
| | 140 |
| | 124 |
| — |
| | 44 |
| | — |
| | 96 |
|
Net Income | $ | 9 |
| | $ | 38 |
| | $ | 175 |
| | $ | 239 |
| $ | 28 |
| | $ | 36 |
| | $ | 166 |
| | $ | 166 |
|
Three months ended SeptemberJune 30, 20182019 compared to three months ended SeptemberJune 30, 20172018
CERC reported net income of $9$28 million for the three months ended SeptemberJune 30, 20182019 compared to net income of $38$36 million for the same period in 2017.three months ended June 30, 2018.
The decrease of $29$8 million in net income was primarily due to the following key factors:
a $38$44 million decrease in operating income discussed below by segment in Results of Operations by Business Segment.
The decrease to net income was partially offset by the following:
a $4 million increase in miscellaneous other non-operating income included in Other expense, net shown above, primarily due to lower non-service cost components of net periodic postretirement costs;
a $2 million decrease in interest expense due to lower outstanding long-term debt;
a $2 million increase in income from discontinued operations, net of tax, discussed further in Notes 9 and 13 to the Interim Condensed Financial Statements; and
a $1$4 million decreaseincrease in income tax expense due to lowerhigher income from continuing operations, and a reduction in the corporate income tax rate resulting from the TCJA, partially offset by anthe lower effective tax rate as explained below.
These decreases were partially offset by the following:
a $36 million increase in the state tax valuation allowance.operating income discussed below in Results of Operations by Reportable Segment; and
Ninea $3 million decrease in interest and other finance charges.
Six months ended SeptemberJune 30, 20182019 compared to ninesix months ended SeptemberJune 30, 20172018
CERC reported net income of $175$166 million for the ninesix months ended SeptemberJune 30, 20182019 compared to net income of $239$166 million for the ninesix months ended SeptemberJune 30, 2017.2018.
The decrease of $64 million in netNet income was primarily due to impacted by the following key factors:
a $143$101 million decreaseincrease in operating income discussed below by segment in Results of Operations by Business Segment.Reportable Segment;
The decrease to net income was partially offset by the following:
a $55$96 million decrease in income tax expense due to lower income from continuing operations and a reduction in the corporate income tax rate resulting from the TCJA, partially offset by an increase in the state tax valuation allowance;
a $16 million increase in income from discontinued operations, net of tax, discussed further in Notes 9 and 13 to the Interim Condensed Financial Statements; and
an $8a $10 million increase in miscellaneous other non-operating income included in Othertax expense net shown above, primarily due to higher income from continuing operations, partially offset by the lower non-service cost components of net periodic postretirement costs.effective tax rate as explained below; and
a $3 million decrease in interest and other finance charges.
Income Tax Expense - Continuing Operations
CERC’s effective tax rate on the loss from continuing operations for the three months ended September 30, 2018 was 5% compared to 20% for the same period in 2017. The lower effective tax rate on the loss from continuing operations for the three months ended September 30, 2018 compared to the same period in 2017 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate decreased by 18% due to state taxes as a result of the establishment of a state valuation allowance on certain net operating loss deferred tax assets that are no longer expected to be utilized prior to expiration after the Internal Spin. These decreases were partially offset by an increase to the effective tax rate of 15% due to the amortization of EDIT. See Note 9 to the Interim Condensed Financial Statements for further discussion on the Internal Spin.
CERC’s effective tax rate reported on income from continuing operations for the nine months ended September 30, 2018 was 29% compared to 38% for the same period in 2017. The lower effective tax rate on income from continuing operations for the ninethree months ended SeptemberJune 30, 20182019 was 0% compared to 33% for the same period in 2017three months ended June 30, 2018. CERC’s effective tax rate on income from continuing operations for the six months ended June 30, 2019 was 14% compared to 19% for the six months ended June 30, 2018. The lower effective tax rate for both the three and six months ended June 30, 2019 was primarily due to the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018 as prescribed by the TCJA. The effective tax rate also decreased by 20% due to the amortization of EDIT. These decreases were partially offset by an increase to the effective tax rate of 22% as a result offollowing: an increase in the amount of amortization of the net regulatory EDIT liability as decreed by regulators in certain jurisdictions; the impact of state tax rateslaw changes that resulted in the remeasurement of state deferred taxes; and the establishmentrelease of a state valuation allowance on certain state net operating loss deferred tax assetslosses that are no longernow expected to be utilized prior to expiration afterdue to a current period law change. The state law changes and valuation allowance release resulted in a lower than expected effective tax rate for the Internal Spin. See Note 9 to the Interim Condensed Financial Statements for further discussion on the Internal Spin.three months ended June 30, 2019.
RESULTS OF OPERATIONS BY BUSINESSREPORTABLE SEGMENT
As of June 30, 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 September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) | (in millions) |
Electric Transmission & Distribution | $ | 227 |
| | $ | 254 |
| | $ | 523 |
| | $ | 511 |
| |
CenterPoint Energy | | | | | | | | |
Houston Electric T&D | | $ | 169 |
| | $ | 181 |
| | $ | 253 |
| | $ | 296 |
|
Indiana Electric Integrated | | 25 |
| | — |
| | 16 |
| | — |
|
Natural Gas Distribution | | 47 |
| | 7 |
| | 214 |
| | 163 |
|
Energy Services | | 29 |
| | 15 |
| | 62 |
| | (11 | ) |
Infrastructure Services | | 24 |
| | — |
| | 8 |
| | — |
|
Corporate and Other | | (7 | ) | | (16 | ) | | (21 | ) | | (10 | ) |
Total CenterPoint Energy Consolidated Operating Income | | $ | 287 |
| | $ | 187 |
| | $ | 532 |
| | $ | 438 |
|
Houston Electric | | | | | | | | |
Houston Electric T&D | | $ | 169 |
| | $ | 181 |
| | $ | 250 |
| | $ | 300 |
|
CERC | | | | | | | | |
Natural Gas Distribution | 3 |
| | 25 |
| | 166 |
| | 235 |
| $ | 28 |
| | $ | 7 |
| | $ | 192 |
| | $ | 163 |
|
Energy Services | (9 | ) | | 7 |
| | (20 | ) | | 58 |
| 29 |
| | 15 |
| | 62 |
| | (11 | ) |
Other Operations | 5 |
| | 11 |
| | (5 | ) | | 24 |
| 1 |
| | — |
| | — |
| | 1 |
|
Total Consolidated Operating Income | $ | 226 |
| | $ | 297 |
| | $ | 664 |
| | $ | 828 |
| |
Total CERC Consolidated Operating Income | | $ | 58 |
| | $ | 22 |
| | $ | 254 |
| | $ | 153 |
|
Houston Electric T&D (CenterPoint Energy and Houston Electric)
Electric Transmission & Distribution
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 September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| (in millions, except throughput and customer data) | (in millions, except throughput and customer data) |
Revenues: | | | | | | | | | | | | | | |
TDU | $ | 735 |
| | $ | 729 |
| | $ | 2,009 |
| | $ | 1,944 |
| $ | 672 |
| | $ | 676 |
| | $ | 1,267 |
| | $ | 1,274 |
|
Bond Companies | 162 |
| | 114 |
| | 493 |
| | 290 |
| 93 |
| | 178 |
| | 187 |
| | 331 |
|
Total revenues | 897 |
| | 843 |
| | 2,502 |
| | 2,234 |
| 765 |
| | 854 |
| | 1,454 |
| | 1,605 |
|
Expenses: | | | | | | | | | | | | | | |
Operation and maintenance, excluding Bond Companies | 367 |
| | 337 |
| | 1,056 |
| | 1,018 |
| 357 |
| | 349 |
| | 723 |
| | 689 |
|
Depreciation and amortization, excluding Bond Companies | 95 |
| | 97 |
| | 293 |
| | 296 |
| 94 |
| | 100 |
| | 187 |
| | 198 |
|
Taxes other than income taxes | 59 |
| | 59 |
| | 180 |
| | 177 |
| 61 |
| | 60 |
| | 123 |
| | 121 |
|
Bond Companies | 149 |
| | 96 |
| | 450 |
| | 232 |
| 84 |
| | 164 |
| | 168 |
| | 301 |
|
Total expenses | 670 |
| | 589 |
| | 1,979 |
| | 1,723 |
| 596 |
| | 673 |
| | 1,201 |
| | 1,309 |
|
Operating Income | $ | 227 |
| | $ | 254 |
| | $ | 523 |
| | $ | 511 |
| $ | 169 |
| | $ | 181 |
| | $ | 253 |
| | $ | 296 |
|
Operating Income: | | | | | | | | | | | | | | |
TDU | $ | 214 |
| | $ | 236 |
| | $ | 480 |
| | $ | 453 |
| $ | 160 |
| | $ | 167 |
| | $ | 234 |
| | $ | 266 |
|
Bond Companies (1) | 13 |
| | 18 |
| | 43 |
| | 58 |
| 9 |
| | 14 |
| | 19 |
| | 30 |
|
Total segment operating income | $ | 227 |
| | $ | 254 |
| | $ | 523 |
| | $ | 511 |
| $ | 169 |
| | $ | 181 |
| | $ | 253 |
| | $ | 296 |
|
Throughput (in GWh): | | | | | | | | | | | | | | |
Residential | 10,555 |
| | 10,419 |
| | 24,486 |
| | 23,512 |
| 7,985 |
| | 8,327 |
| | 13,168 |
| | 13,932 |
|
Total | 27,015 |
| | 26,453 |
| | 70,347 |
| | 67,956 |
| 24,018 |
| | 23,688 |
| | 43,037 |
| | 43,332 |
|
Number of metered customers at end of period: | | | | | | | | | | | | | | |
Residential | 2,188,211 |
| | 2,156,624 |
| | 2,188,211 |
| | 2,156,624 |
| 2,217,326 |
| | 2,179,048 |
| | 2,217,326 |
| | 2,179,048 |
|
Total | 2,475,018 |
| | 2,435,558 |
| | 2,475,018 |
| | 2,435,558 |
| 2,506,124 |
| | 2,463,500 |
| | 2,506,124 |
| | 2,463,500 |
|
| |
(1) | TogetherOperating income from the Bond Companies, together with $1 million and $3 million of interest income for each of the three and ninesix months ended SeptemberJune 30, 2019, respectively, and $1 million of interest income for both the three and six months ended June 30, 2018, represents the amountare necessary to pay interest on the Securitization Bonds. |
Three months ended SeptemberJune 30, 20182019 compared to three months ended SeptemberJune 30, 20172018
OurThe Houston Electric Transmission & Distribution businessT&D reportable segment reported operating income of $227$169 million for the three months ended SeptemberJune 30, 2018,2019, consisting of $214$160 million from the TDU and $13$9 million related to the Bond Companies. For the three months ended SeptemberJune 30, 2017,2018, operating income totaled $254$181 million, consisting of $236$167 million from the TDU and $18$14 million related to the Bond Companies.
TDU operating income decreased $22$7 million, primarily due to the following key factors:
increased operation and maintenance expenses, excluding transmission costs billed by transmission providers,lower usage of $38$13 million primarily due to the following:a return to more normal weather;
| |
◦ | contract services of $10 million, largely due to increased vegetation management and preventative maintenance resiliency spend; |
| |
◦ | support services of $9 million, primarily related to technology projects; |
| |
◦ | other miscellaneous operation and maintenance expenses of $9 million; |
| |
◦ | labor and benefits costs of $6 million; and |
| |
◦ | damage claims from third parties of $4 million; |
lower revenuesequity return of $22$11 million, dueprimarily related to the recordingannual true-up of a regulatory liability and a corresponding decrease to revenue of $6 million reflectingtransition charges correcting for over-collections that occurred during the difference in revenues collected under existing customer rates and the revenues that would have been collected had existing rates been set using the lower corporate tax rate from the TCJA and lower revenues of $16 million due to lower transmission and distribution rate filings as a result of the TCJA; andpreceding 12 months;
higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $5 million.$6 million; and
lower revenue of $6 million related to the impact of the TCJA.
These decreases to operating income were partially offset by the following:
higher transmission-related revenues of $14$22 million, exclusive of the TCJA impact discussedmentioned above, and lowerpartially offset by higher transmission costs billed by transmission providers of $8$13 million;
customer growth of $9 million from the addition of over 39,000 customers;
rate increases of $8 million related to distribution capital investments, exclusive of the TCJA impact discussedmentioned above; and
higher equity return of $4 million, primarily related to the annual true-up of transition charges correcting for under-collections that occurred during the preceding 12 months.
Lower depreciation and amortization expenses related to AMS of $7 million were offset by a corresponding decrease in related revenues.
Nine months ended September 30, 2018 compared to nine months ended September 30, 2017
Our Electric Transmission & Distribution business segment reported operating income of $523 million for the nine months ended September 30, 2018, consisting of $480 million from the TDU and $43 million related to the Bond Companies. For the nine months ended September 30, 2017, operating income totaled $511 million, consisting of $453 million from the TDU and $58 million related to the Bond Companies.
TDU operating income increased $27 million, primarily due to the following key factors:
higher equity return of $33 million, primarily related to the annual true-up of transition charges correcting for under-collections that occurred during the preceding 12 months;
rate increases of $29 million related to distribution capital investments, exclusive of the TCJA impact discussed below;
higher transmission-related revenues of $28 million, exclusive of the TCJA impact discussed below, and lower transmission costs billed by transmission providers of $22 million;
•customer growth of $23$7 million from the addition of over 39,000almost 43,000 customers; and
higher usage of $12 million, primarily due to a return to more normal weather; and
increased miscellaneous revenues, including right-of-way, of $5 million.
These increases to operating income were partially offset by the following:
increaseddecreased operation and maintenance expenses excluding transmission costs billed by transmission providers, of $60 million primarily due to the following:
| |
◦ | support services of $17 million, primarily related to technology projects; |
| |
◦ | other miscellaneous operation and maintenance expenses of $14 million;
|
| |
◦ | contract services of $15 million, largely due to increase in vegetation management and preventative maintenance resiliency spend; |
| |
◦ | labor and benefits costs of $10 million; and |
| |
◦ | damage claims from third parties of $4 million; |
lower revenues of $53 million due to the recording of a regulatory liability and a corresponding decrease to revenue of $30 million reflecting the difference in revenues collected under existing customer rates and the revenues that would have been collected had existing rates been set using the lower corporate tax rate from the TCJA and lower revenues of $23 million due to lower transmission and distribution rate filings as a result of the TCJA; and
higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $11$3 million.
Lower depreciation and amortization expenses related to AMS of $11 million were offset by a corresponding decrease in related revenues.
Six months ended June 30, 2019 compared to six months ended June 30, 2018
The Houston Electric T&D reportable segment reported operating income of $253 million for the six months ended June 30, 2019, consisting of $234 million from the TDU and $19 million related to the Bond Companies. For the six months ended June 30, 2018, operating income totaled $296 million, consisting of $266 million from the TDU and $30 million related to the Bond Companies.
TDU operating income decreased $32 million, primarily due to the following key factors:
lower usage of $28 million primarily due to a return to more normal weather;
lower equity return of $21 million, primarily related to the annual true-up of transition charges correcting for over-collections that occurred during the preceding 12 months;
higher depreciation and amortization expense, primarily because of ongoing additions to plant in service, and other taxes of $13 million;
increased operation and maintenance expenses of $13 million, including $10 million of Merger-related severance costs; and
•lower revenue of $12 million related to the impact of the TCJA.
These decreases to operating income were partially offset by the following:
higher transmission-related revenues of $38 million, exclusive of the TCJA mentioned above, partially offset by higher transmission costs billed by transmission providers of $22 million;
•customer growth of $13 million from the addition of almost 43,000 customers;
rate increases of $13 million related to distribution capital investments, exclusive of the TCJA mentioned above; and
higher miscellaneous revenues of $10 million primarily related to right-of-way revenues.
Lower depreciation and amortization expenses related to AMS of $22 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 September 30, | | Nine Months Ended September 30, | | | | | |
| 2018 | | 2017 | | 2018 | | 2017 | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 (1) |
| (in millions, except throughput and customer data) | (in millions, except throughput and customer data) |
Revenues | $ | 410 |
| | $ | 398 |
| | $ | 2,058 |
| | $ | 1,791 |
| $ | 140 |
| | $ | 223 |
|
Expenses: | | | | | | | | | | |
Natural gas | 120 |
| | 117 |
| | 972 |
| | 742 |
| |
Utility natural gas, fuel and purchased power | | 40 |
| | 66 |
|
Operation and maintenance | 183 |
| | 157 |
| | 592 |
| | 516 |
| 46 |
| | 94 |
|
Depreciation and amortization | 73 |
| | 66 |
| | 210 |
| | 194 |
| 25 |
| | 41 |
|
Taxes other than income taxes | 31 |
| | 33 |
| | 118 |
| | 104 |
| 4 |
| | 6 |
|
Total expenses | 407 |
| | 373 |
| | 1,892 |
| | 1,556 |
| 115 |
| | 207 |
|
Operating Income | $ | 3 |
| | $ | 25 |
| | $ | 166 |
| | $ | 235 |
| $ | 25 |
| | $ | 16 |
|
Throughput (in Bcf): | | | | | | | | |
Throughput (in GWh): | | | | |
Retail | | 1,157 |
| | 1,861 |
|
Wholesale | | 94 |
| | 152 |
|
Total | | 1,251 |
| | 2,013 |
|
Number of metered customers at end of period: | | | | |
Residential | 13 |
| | 13 |
| | 123 |
| | 94 |
| 128,167 |
| | 128,167 |
|
Commercial and industrial | 53 |
| | 50 |
| | 208 |
| | 189 |
| |
Total Throughput | 66 |
| | 63 |
| | 331 |
| | 283 |
| |
Number of customers at end of period: | | | | | | | | |
Residential | 3,205,916 |
| | 3,179,284 |
| | 3,205,916 |
| | 3,179,284 |
| |
Commercial and industrial | 255,244 |
| | 253,041 |
| | 255,244 |
| | 253,041 |
| |
Total | 3,461,160 |
| | 3,432,325 |
| | 3,461,160 |
| | 3,432,325 |
| 147,076 |
| | 147,076 |
|
| |
(1) | Represents February 1, 2019 through June 30, 2019 results only due to the Merger. |
Three months ended SeptemberJune 30, 2018 compared to three months ended September 30, 20172019
Our Natural Gas Distribution businessThe Indiana Electric Integrated reportable segment reported operating income of $3 million for the three months ended September 30, 2018 compared to $25 million for the three months ended SeptemberJune 30, 2017.2019. 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.
Six months ended June 30, 2019
Operating
The Indiana Electric Integrated reportable segment reported operating income decreased $22of $16 million primarily as a result offor the following key factors:
higherperiod ended June 30, 2019, which includes operation and maintenance expenses of $25$20 million primarily consisting of: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.
| |
◦ | support services expense of $7 million, primarily related to technology projects; |
| |
◦ | contracts and services, materials and supplies and damage claims from third parties of $6 million; |
| |
◦ | labor and benefits costs of $6 million; and |
| |
◦ | other miscellaneous operation and maintenance expenses of $6 million;
|
increased depreciation and amortization expenses of $7 million, due to ongoing additions to plant-in-service; and
lower revenue of $6 million related to the lower corporate tax rate from the TCJA.
These decreases were partially offset by the following:
a $6 million increase from weather and usage, driven by the timing of the decoupling mechanism in Minnesota;
a $5 million increase in rate relief, primarily in the Texas, Arkansas, Mississippi and Minnesota jurisdictions, exclusive of the TCJA impact discussed above; and
a $2 million increase associated with customer growth from the addition of almost 29,000 customers.
Increased operation and maintenance expenses related to energy efficiency programs of $1 million and increased gross receipts taxes of $1 million were offset by corresponding increases in the related revenues.
Nine months ended September 30, 2018 compared to nine months ended September 30, 2017
Our Natural Gas Distribution business segment reported operating income of $166 million for the nine months ended September 30, 2018 compared to $235 million for the nine months ended September 30, 2017.(CenterPoint Energy)
Operating income decreased $69 million as a result of the following key factors:
higher operation and maintenance expenses of $35 million, primarily consisting of:
| |
◦ | contracts and services, materials and supplies, bad debt and damage claims from third parties of $19 million; |
| |
◦ | support services expenses of $12 million, primarily related to technology projects; and |
| |
◦ | other miscellaneous operation and maintenance expenses of $10 million; |
| |
◦ | which decreases were partially offset by a timing-related adjustment associated with the Texas Gulf rate order of $6 million; |
higher labor and benefits costs of $28 million, resulting primarily from the recording of regulatory assets (and a corresponding reduction in expense) to recover $16 million of prior post-retirement expenses in future rates established in the Texas Gulf rate order in 2017;
lower revenue of $26 million, associated with the recording of a regulatory liability and a corresponding decrease to revenue in certain jurisdictions of $15 million reflecting the difference in revenues collected under existing customer rates and the revenues that would have been collected had existing rates been set using the lower corporate tax rate from the TCJA and lower filing amounts in Minnesota and south Texas of $11 million associated with the lower corporate tax rate as a result of the TCJA;
increased depreciation and amortization expense of $16 million, primarily due to ongoing additions to plant-in-service; and
higher other taxes of $9 million, primarily due to the 2017 Minnesota property tax refund.
These decreases were partially offset by the following:
rate increases of $35 million, primarily in the Texas, Minnesota and Arkansas jurisdictions, exclusive of the TCJA impact discussed above;
an increase in non-volumetric revenues of $8 million; and
a $6 million increase associated with customer growth from the addition of almost 29,000 customers.
Increased operation and maintenance expenses related to energy efficiency programs of $13 million and increased gross receipts taxes of $6 million were offset by corresponding increases in the related revenues.
Energy Services
For information regarding factors that may affect the future results of operations of the Energy Services businessCenterPoint Energy’s Natural Gas Distribution reportable 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 the Registrants’ combined 2018 Form 10-K.
The following table provides summary data of CenterPoint Energy’s 2017Natural Gas Distribution reportable segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions, except throughput and customer data) |
Revenues | $ | 660 |
| | $ | 495 |
| | $ | 2,059 |
| | $ | 1,648 |
|
Expenses: | | | | | | | |
Utility natural gas, fuel and purchased power | 222 |
| | 185 |
| | 993 |
| | 852 |
|
Operation and maintenance | 239 |
| | 196 |
| | 546 |
| | 409 |
|
Depreciation and amortization | 105 |
| | 69 |
| | 200 |
| | 137 |
|
Taxes other than income taxes | 47 |
| | 38 |
| | 106 |
| | 87 |
|
Total expenses | 613 |
| | 488 |
| | 1,845 |
| | 1,485 |
|
Operating Income | $ | 47 |
| | $ | 7 |
| | $ | 214 |
| | $ | 163 |
|
Throughput (in Bcf): | | | | | | | |
Residential | 30 |
| | 23 |
| | 144 |
| | 110 |
|
Commercial and industrial | 102 |
| | 61 |
| | 238 |
| | 155 |
|
Total Throughput | 132 |
| | 84 |
| | 382 |
| | 265 |
|
Number of customers at end of period: | | | | | | | |
Residential | 4,195,222 |
| | 3,204,897 |
| | 4,195,222 |
| | 3,204,897 |
|
Commercial and industrial | 347,092 |
| | 255,115 |
| | 347,092 |
| | 255,115 |
|
Total | 4,542,314 |
| | 3,460,012 |
| | 4,542,314 |
| | 3,460,012 |
|
Three months ended June 30, 2019 compared to three months ended June 30, 2018
CenterPoint Energy’s Natural Gas Distribution reportable segment reported operating income of $47 million for the three months ended June 30, 2019 compared to $7 million for the three months ended June 30, 2018.
Operating income increased $40 million primarily as a result of the following key factors:
a $19 million increase in operating income associated with the natural gas businesses acquired in the Merger, which includes the addition of over 1 million customers in Indiana and Ohio;
an increase of $8 million primarily driven by the timing of a decoupling mechanism (a revenue stabilization mechanism used to adjust revenues impacted by changes in natural gas consumption, including usage and weather) in Minnesota in CERC’s NGD service territory;
rate increases of $7 million, exclusive of the TCJA impact discussed below, primarily from rate filings in Texas, Arkansas, Oklahoma, Louisiana and Mississippi in CERC’s NGD service territories;
a $3 million increase in revenues associated with customer growth from the addition of over 48,000 new customers in CERC’s NGD service territories; and
lower operation and maintenance expenses of $6 million primarily driven by lower support services cost and lower bad debt costs in CERC’s NGD service territories.
These increases were partially offset by the following:
increased depreciation and amortization expense of $4 million, primarily due to ongoing additions to plant-in-service, in CERC’s NGD service territories; and
lower revenue of $2 million related to the impact of the TCJA in CERC’s NGD service territories.
Decreased operation and maintenance expenses related to energy efficiency programs of $3 million were offset by corresponding decreases in the related revenues in CERC’s NGD service territories.
Six months ended June 30, 2019 compared to six months ended June 30, 2018
CenterPoint Energy’s Natural Gas Distribution reportable segment reported operating income of $214 million for the six months ended June 30, 2019 compared to $163 million for the six months ended June 30, 2018.
Operating income increased $51 million primarily as a result of the following key factors:
an increase of $28 million primarily driven by the timing of a decoupling mechanism explained above in Minnesota in CERC’s NGD territory;
a $22 million increase in operating income associated with the natural gas businesses acquired in the Merger for the period from February 1, 2019 through June 30, 2019, which includes operation and maintenance expenses 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;
rate increases of $22 million, exclusive of the TCJA impact discussed below, primarily from rate filings in the NGD service territories;
an $8 million increase in revenues associated with customer growth from the addition of over 48,000 new customers in CERC’s NGD service territories; 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 $14 million related to the impact of the TCJA in CERC’s NGD service territories;
higher operation and maintenance expenses of $12 million in CERC’s NGD service territories, primarily due to Merger-related severance costs; and
increased depreciation and amortization expense of $9 million, primarily due to ongoing additions to plant-in-service, in CERC’s NGD service territories.
Decreased operation and maintenance expenses related to energy efficiency programs of $11 million were offset by corresponding decreases in the related revenues in CERC’s NGD 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 June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions, except throughput and customer data) |
Revenues | $ | 513 |
| | $ | 495 |
| | $ | 1,708 |
| | $ | 1,648 |
|
Expenses: | | | | | | | |
Utility natural gas | 187 |
| | 185 |
| | 875 |
| | 852 |
|
Operation and maintenance | 187 |
| | 196 |
| | 410 |
| | 409 |
|
Depreciation and amortization | 73 |
| | 69 |
| | 145 |
| | 137 |
|
Taxes other than income taxes | 38 |
| | 38 |
| | 86 |
| | 87 |
|
Total expenses | 485 |
| | 488 |
| | 1,516 |
| | 1,485 |
|
Operating Income | $ | 28 |
| | $ | 7 |
| | $ | 192 |
| | $ | 163 |
|
Throughput (in Bcf): | | | | | | | |
Residential | 22 |
| | 23 |
| | 113 |
| | 110 |
|
Commercial and industrial | 63 |
| | 61 |
| | 161 |
| | 155 |
|
Total Throughput | 85 |
| | 84 |
| | 274 |
| | 265 |
|
Number of customers at end of period: | | | | | | | |
Residential | 3,248,679 |
| | 3,204,897 |
| | 3,248,679 |
| | 3,204,897 |
|
Commercial and industrial | 259,504 |
| | 255,115 |
| | 259,504 |
| | 255,115 |
|
Total | 3,508,183 |
| | 3,460,012 |
| | 3,508,183 |
| | 3,460,012 |
|
Three months ended June 30, 2019 compared to three months ended June 30, 2018
CERC’s Natural Gas Distribution reportable segment reported operating income of $28 million for the three months ended June 30, 2019 compared to $7 million for the three months ended June 30, 2018.
Operating income increased $21 million primarily as a result of the following key factors:
an increase of $8 million partially driven by the timing of a decoupling mechanism (a revenue stabilization mechanism used to adjust revenues impacted by changes in natural gas consumption, including usage and weather) in Minnesota;
rate increases of $7 million, exclusive of the TCJA impact discussed below, primarily from rate filings in Texas, Arkansas, Oklahoma, Louisiana and Mississippi;
lower operation and maintenance expenses of $6 million primarily driven by lower support services and lower bad debt costs; and
a $3 million increase in revenues associated with customer growth from the addition of over 48,000 new customers.
These increases were partially offset by the following:
increased depreciation and amortization expense of $4 million, primarily due to ongoing additions to plant-in-service; and
lower revenue of $2 million related to the impact of the TCJA.
Decreased operation and maintenance expenses related to energy efficiency programs of $3 million were offset by corresponding decreases in the related revenues.
Six months ended June 30, 2019 compared to six months ended June 30, 2018
CERC’s Natural Gas Distribution reportable segment reported operating income of $192 million for the six months ended June 30, 2019 compared to $163 million for the six months ended June 30, 2018.
Operating income increased $29 million primarily as a result of the following key factors:
an increase of $28 million primarily driven by the timing of a decoupling mechanism explained above in Minnesota;
rate increases of $22 million, exclusive of the TCJA impact discussed below;
an $8 million increase in revenues associated with customer growth from the addition of over 48,000 new customers; 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 $14 million related to the impact of the TCJA;
higher operation and maintenance expenses of $12 million, primarily due to Merger-related severance costs; and
increased depreciation and amortization expense of $9 million, primarily due to ongoing additions to plant-in-service.
Decreased operation and maintenance expenses related to energy efficiency programs of $11 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 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 ourthe Energy Services businessreportable segment:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| (in millions, except throughput and customer data) | (in millions, except throughput and customer data) |
Revenues | $ | 920 |
| | $ | 871 |
| | $ | 3,065 |
| | $ | 2,998 |
| $ | 855 |
| | $ | 860 |
| | $ | 2,101 |
| | $ | 2,145 |
|
Expenses: | | | | | | | | | | | | | | |
Natural gas | 897 |
| | 839 |
| | 2,998 |
| | 2,865 |
| |
Non-utility cost of revenues, including natural gas | | 798 |
| | 820 |
| | 1,980 |
| | 2,101 |
|
Operation and maintenance | 28 |
| | 22 |
| | 74 |
| | 65 |
| 25 |
| | 21 |
| | 50 |
| | 46 |
|
Depreciation and amortization | 4 |
| | 3 |
| | 12 |
| | 9 |
| 3 |
| | 3 |
| | 8 |
| | 8 |
|
Taxes other than income taxes | — |
| | — |
| | 1 |
| | 1 |
| — |
| | 1 |
| | 1 |
| | 1 |
|
Total expenses | 929 |
| | 864 |
| | 3,085 |
| | 2,940 |
| 826 |
| | 845 |
| | 2,039 |
| | 2,156 |
|
Operating Income (Loss) | $ | (9 | ) | | $ | 7 |
| | $ | (20 | ) | | $ | 58 |
| $ | 29 |
| | $ | 15 |
| | $ | 62 |
| | $ | (11 | ) |
| | | | | | | | | | | | | | |
Timing impacts related to mark-to-market gain (loss) (1) | $ | 1 |
| | $ | 2 |
| | $ | (71 | ) | | $ | 23 |
| $ | 30 |
| | $ | 8 |
| | $ | 49 |
| | $ | (72 | ) |
Throughput (in Bcf) | 307 |
| | 272 |
| | 993 |
| | 864 |
| 298 |
| | 311 |
| | 677 |
| | 686 |
|
Approximate number of customers at end of period (2)(1) | 30,000 |
| | 31,000 |
| | 30,000 |
| | 31,000 |
| 31,000 |
| | 30,000 |
| | 31,000 |
| | 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 67,00068,000 and 66,00071,000 natural gas customers as of SeptemberJune 30, 20182019 and 2017,2018, respectively, that are under residential and small commercial choice programs invoiced by their host utility. |
Three months ended SeptemberJune 30, 20182019 compared to three months ended SeptemberJune 30, 20172018
OurThe Energy Services businessreportable segment reported an operating lossincome of $9$29 million for the three months ended SeptemberJune 30, 20182019 compared to an operating income of $7$15 million for the three months ended SeptemberJune 30, 2017.2018.
Operating income decreased $16increased $14 million primarily as a result of the following key factors:
a $9 million decrease in margin due to reduced opportunities to optimize natural gas supply costs and timing impacts related to natural gas storage activity, which offset favorable margins from incremental sales volumes. Lower storage balances resulting from first quarter storage activity reduced opportunities to optimize natural gas supply costs in the third quarter;
a $6$22 million increase in operation and maintenance expenses, primarily due to higher legal, technology and support services expenses; and
a $1 million decrease from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins. This increase was partially offset by:
Ninea $5 million decrease in margin, primarily due to the impact of less price volatility on natural gas storage activity; and
a $3 million increase in operation and maintenance expenses, primarily due to higher employee benefit expenses, higher contract and services expenses related to pipeline integrity testing and higher facilities expenses.
Six months ended SeptemberJune 30, 20182019 compared to ninesix months ended SeptemberJune 30, 20172018
OurThe Energy Services businessreportable segment reported operating income of $62 million for the six months ended June 30, 2019 compared to an operating loss of $20$11 million for the ninesix months ended SeptemberJune 30, 2018 compared to operating income of $58 million for the nine months ended September 30, 2017. 2018.
Operating income decreased $78increased $73 million primarily as a result of the following key factors:
a $94$121 million decreaseincrease from mark-to-market accounting for derivatives associated with certain natural gas purchases and sales used to lock in economic margins; andmargins. This increase was partially offset by:
a $44 million decrease in margin due to fewer opportunities to optimize natural gas costs relative to last year, primarily in the first quarter of 2019. Specifically, weather-facilitated market impacts in various regions of the continental United
States during the three months ended March 31, 2018 allowed Energy Services to increase its margins in the first quarter of 2018; and
a $9$4 million increase in operation and maintenance expenses, attributableprimarily due to increased technologyhigher benefits expenses, higher contract and services expenseexpenses related to pipeline integrity testing and higher support servicesfacilities expenses.
Infrastructure 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 legal expenses.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 June 30, 2019 | | Six Months Ended June 30, 2019 (1) |
| (in millions) |
Revenues | $ | 326 |
| | $ | 472 |
|
Expenses: | | | |
Non-utility cost of revenues, including natural gas | 89 |
| | 132 |
|
Operation and maintenance | 197 |
| | 307 |
|
Depreciation and amortization | 15 |
| | 24 |
|
Taxes other than income taxes | 1 |
| | 1 |
|
Total expenses | 302 |
| | 464 |
|
Operating Income | $ | 24 |
| | $ | 8 |
|
Backlog at period end (2): | | | |
Blanket contracts (3) | $ | 616 |
| | $ | 616 |
|
Bid contracts (4) | 317 |
| | 317 |
|
Total | $ | 933 |
| | $ | 933 |
|
| |
(1) | Represents February 1, 2019 through June 30, 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) | Using 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 June 30, 2019
The Infrastructure Services reportable segment reported operating income of $24 million for the three months ended June 30, 2019, which includes $7 million of Merger-related amortization of intangibles for construction backlog recorded in non-utility cost of revenues, including natural gas and $5 million of Merger-related intangibles amortization recorded in depreciation and amortization. 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.
These decreases were partially offset by a $25Six months ended June 30, 2019
The Infrastructure Services reportable segment reported operating income of $8 million increasefor the six months ended June 30, 2019, which includes $13 million for Merger-related severance and incentive compensation costs, $9 million of Merger-related amortization of intangibles for construction backlog recorded in margin due to increased opportunities to optimizenon-utility cost of revenues, including natural gas supply costs through storage and transportation capacity, primarily$7 million of Merger-related intangibles amortization recorded in depreciation and amortization. These results are not comparable to the prior year as this reportable segment was acquired in the first quarter of 2018, and incremental volumes from customers. Realized commercial opportunities attributableMerger as discussed in Note 3 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, drove incremental sales volumes.Interim Condensed Financial Statements.
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 September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | (in millions) |
Equity earnings from Enable, net | | $ | 81 |
| | $ | 68 |
| | $ | 208 |
| | $ | 199 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (in millions) |
Equity earnings from Enable, net | | $ | 74 |
| | $ | 58 |
| | $ | 136 |
| | $ | 127 |
|
Corporate and Other Operations(CenterPoint Energy)
The following table shows the operating income (loss)loss of CenterPoint Energy’s Corporate and Other Operations businessreportable segment:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Revenues | $ | 3 |
| | $ | 4 |
| | $ | 11 |
| | $ | 11 |
|
Expenses | (2 | ) | | (7 | ) | | 16 |
| | (13 | ) |
Operating Income (Loss) | $ | 5 |
| | $ | 11 |
| | $ | (5 | ) | | $ | 24 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) |
Revenues | $ | 80 |
| | $ | 4 |
| | $ | 122 |
| | $ | 8 |
|
Expenses: | | | | | | | |
Non-utility cost of revenues, including natural gas | 53 |
| | — |
| | 90 |
| | — |
|
Operation and maintenance | 19 |
| | 11 |
| | 23 |
| | (1 | ) |
Depreciation and amortization | 15 |
| | 7 |
| | 28 |
| | 15 |
|
Taxes other than income taxes | — |
| | 2 |
| | 2 |
| | 4 |
|
Total | 87 |
| | 20 |
| | 143 |
| | 18 |
|
Operating Loss | $ | (7 | ) | | $ | (16 | ) | | $ | (21 | ) | | $ | (10 | ) |
Three months ended SeptemberJune 30, 20182019 compared to three months ended SeptemberJune 30, 20172018
OurCenterPoint Energy’s Corporate and Other Operations businessreportable segment reported an operating incomeloss of $5$7 million for the three months ended SeptemberJune 30, 20182019 compared to an operating incomeloss of $11$16 million for the three months ended SeptemberJune 30, 2017. Operating income2018.
The operating loss decreased $6$9 million, primarily due to coststhe following factors:
a $13 million increase in operating income, primarily from $9 million in operating income associated with ESG, which was acquired in the Merger, inclusive of a $5 million benefit related to a cumulative catch-up for remeasurement of the Merger.purchase price allocation related to amortization of intangibles for operation and maintenance agreements and construction backlog recorded in non-utility cost of revenues, including natural gas and $1 million of Merger-related intangibles amortization recorded in depreciation and amortization; and
•a $3 million property tax refund.
These decreases in the operating loss were partially offset by a $5 million increase in operation and maintenance expenses primarily for Merger-related transaction and integration costs.
NineSix months ended SeptemberJune 30, 20182019 compared to ninesix months ended SeptemberJune 30, 20172018
OurCenterPoint Energy’s Corporate and Other Operations businessreportable segment reported an operating loss of $5$21 million for the ninesix months ended SeptemberJune 30, 20182019 compared to an operating incomeloss of $24$10 million for the ninesix months ended SeptemberJune 30, 2017. Operating income decreased $292018.
The operating loss increased $11 million, primarily due to the following factors:
a $13 million increase in operation and maintenance expenses primarily for Merger-related transaction and integration costs; and
a $3 million operating loss associated with ESG, which was acquired in the Merger, for the period February 1, 2019 through June 30, 2019, including operation and maintenance expenses of $2 million for Merger-related severance and incentive compensation costs, related toMerger-related amortization of intangibles for operation and maintenance agreements and construction backlog recorded in non-utility cost of revenues, including natural gas of $2 million and Merger-related intangibles amortization recorded in depreciation and amortization of $1 million.
These increases in the Merger.operating loss were partially offset by a $3 million property tax refund.
Corporate and Other (CERC)
The following table shows the operating income (loss) of CERC’s Corporate and Other Operations businessreportable segment:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| (in millions) | (in millions) |
Revenues | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
|
Expenses | 1 |
| | 1 |
| | — |
| | 4 |
| (1 | ) | | — |
| | 1 |
| | (1 | ) |
Operating Income (Loss) | $ | (1 | ) | | $ | (1 | ) | | $ | — |
| | $ | (4 | ) | $ | 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’ 2017combined 2018 Form 10-K and in Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q and “Cautionary Statement Regarding Forward-Looking Information” in this Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
Historical Cash Flows
The following table summarizes the net cash provided by (used in) operating, investing and financing activities:
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
| 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 | $ | 1,679 |
| | $ | 788 |
| | $ | 850 |
| | $ | 1,028 |
| | $ | 567 |
| | $ | 312 |
| $ | 574 |
| | $ | 240 |
| | $ | 449 |
| | $ | 1,093 |
| | $ | 443 |
| | $ | 746 |
|
Investing activities | (674 | ) | | (663 | ) | | (359 | ) | | (897 | ) | | (569 | ) | | (280 | ) | (7,149 | ) | | (1,311 | ) | | (386 | ) | | (267 | ) | | (468 | ) | | (197 | ) |
Financing activities | (970 | ) | | (82 | ) | | (502 | ) | | (279 | ) | | (139 | ) | | (32 | ) | 2,629 |
| | 994 |
| | (83 | ) | | (756 | ) | | 42 |
| | (560 | ) |
Operating Activities. The following items contributed to increased (decreased) net cash provided by operating activities for the ninesix months ended SeptemberJune 30, 20182019 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 | $ | 146 |
| | $ | 230 |
| | $ | (121 | ) | $ | 30 |
| | $ | (160 | ) | | $ | 117 |
|
Changes in working capital | 352 |
| | (28 | ) | | 490 |
| (595 | ) | | (43 | ) | | (242 | ) |
Change in equity in earnings from Enable, net of distributions (1) | 184 |
| | — |
| | — |
| 21 |
| | — |
| | — |
|
Changes related to discontinued operations | — |
| | — |
| | 176 |
| — |
| | — |
| | (118 | ) |
Higher pension contribution | (21 | ) | | — |
| | — |
| |
Lower pension contribution | | 35 |
| | — |
| | — |
|
Other | (10 | ) | | 19 |
| | (7 | ) | (10 | ) | | — |
| | (54 | ) |
| $ | 651 |
| | $ | 221 |
| | $ | 538 |
| $ | (519 | ) | | $ | (203 | ) | | $ | (297 | ) |
| |
(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 ninesix months ended SeptemberJune 30, 20182019 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 | | $ | (398 | ) | | $ | — |
| | $ | — |
|
2019 mergers and acquisitions, net of cash acquired (See Note 3 to the Interim Condensed Financial Statements) | | (5,987 | ) | | — |
| | — |
|
Higher capital expenditures | (127 | ) | | (75 | ) | | (38 | ) | (472 | ) | | (73 | ) | | (92 | ) |
Net change in notes receivable from unconsolidated affiliates | — |
| | (29 | ) | | — |
| |
Net change in notes receivable from affiliated companies | | (4 | ) | | (768 | ) | | (66 | ) |
Change in distributions from Enable in excess of cumulative earnings | (193 | ) | | — |
| | — |
| (30 | ) | | — |
| | — |
|
Changes related to discontinued operations | — |
| | — |
| | (176 | ) | — |
| | — |
| | (30 | ) |
Other | 13 |
| | 10 |
| | 3 |
| 9 |
| | (2 | ) | | (1 | ) |
| $ | 223 |
| | $ | (94 | ) | | $ | (79 | ) | $ | (6,882 | ) | | $ | (843 | ) | | $ | (189 | ) |
FinancingActivities. The following items contributed to (increased) decreased net cash used in financing activities for the ninesix months ended SeptemberJune 30, 20182019 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 | $ | (1,123 | ) | | $ | — |
| | $ | (760 | ) | $ | 3,409 |
| | $ | — |
| | $ | 355 |
|
Increased proceeds from issuance of Series A Preferred Stock | 790 |
| | | | | |
Net changes in long-term debt outstanding, excluding commercial paper | 130 |
| | 79 |
| | 301 |
| (123 | ) | | 286 |
| | (599 | ) |
Net changes in long-term revolving credit facilities | | 135 |
| | — |
| | — |
|
Net changes in debt issuance costs | (23 | ) | | (1 | ) | | (1 | ) | 26 |
| | (4 | ) | | 5 |
|
Net changes in short-term borrowings | (52 | ) | | — |
| | (52 | ) | 39 |
| | — |
| | 39 |
|
Distributions to ZENS note holders | (398 | ) | | — |
| | — |
| |
Distributions to ZENS note holders in 2018 | | 16 |
| | — |
| | — |
|
Increased payment of Common Stock dividends | (14 | ) | | — |
| | — |
| (48 | ) | | — |
| | — |
|
Increased payment of preferred stock dividends | | (60 | ) | | — |
| | — |
|
Net change in notes payable from affiliated companies | — |
| | 15 |
| | (570 | ) | — |
| | 59 |
| | 570 |
|
Contribution from parent | — |
| | — |
| | 562 |
| — |
| | 590 |
| | — |
|
Dividend to parent | — |
| | (36 | ) | | 51 |
| — |
| | 23 |
| | 108 |
|
Other | (1 | ) | | — |
| | (1 | ) | (9 | ) | | (2 | ) | | (1 | ) |
| $ | (691 | ) | | $ | 57 |
| | $ | (470 | ) | $ | 3,385 |
| | $ | 952 |
| | $ | 477 |
|
Future Sources and Uses of Cash
The liquidity and capital requirements of the Registrants other than in connection with the pending Merger with Vectren (see Note 3 to the Interim Condensed Financial Statements), are affected primarily by 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 Series A Preferred Stock, Series B Preferred Stock and Common Stock, and in addition to interest payments on debt, the Registrants’ principal anticipated cash requirements for the remaining threesix months of 20182019 include the following:
| | | | CenterPoint Energy | | Houston Electric | | CERC | | CenterPoint Energy | | Houston Electric | | CERC |
| | (in millions) | | (in millions) |
Estimated capital expenditures (1) | | $ | 538 |
| | $ | 280 |
| | $ | 232 |
| | $ | 1,370 |
| | $ | 546 |
| | $ | 449 |
|
Maturing collateralized pollution control bonds | | 50 |
| | — |
| | — |
| |
Scheduled principal payments on Securitization Bonds | | 66 |
| | 66 |
| | — |
| | 216 |
| | 216 |
| | — |
|
| |
(1) | Represents remaining capital expenditures based on anticipated 2018 capital expenditures as previously disclosed in CenterPoint Energy’s 2017 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 threesix 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, with respect to CenterPoint Energy and CERC, proceeds from commercial paper and with respect to CenterPoint Energy, distributions from Enable. In addition, if CenterPoint Energy decides to sell all or a portion of the Enable common units that it owns in the public equity markets or otherwise in 2018 (reducing the amount of future distributions CenterPoint Energy receives from Enable to the extent of any such sales), any net proceeds received from such sales could provide a source for CenterPoint Energy’s remaining 2018 cash needs. Discretionary financing or refinancing may result in the issuance of equity securities of CenterPoint Energy or debt securities of the Registrants in the capital markets or the arrangement of additional credit facilities or term bank loans. Issuances of equity or debt in the capital markets, funds raised in the commercial paper markets and additional credit facilities and any sales of CenterPoint Energy’s Enable common units may not, however, be available on acceptable terms.
For more information on CenterPoint Energy’s completed financing transactions for the pending Merger, see Notes 12 and 19 to the Interim Condensed Financial Statements.
Off-Balance Sheet Arrangements
Other than Houston Electric’s first mortgage bonds and general mortgage bonds issued as collateral for tax-exempt long-term debt of CenterPoint Energy as discussed 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 September 2018 and is expected to receivereceived approval for interim recovery in November 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. A final order is expected in the fourth quarter of 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 line to be located in the counties of Brazoria, Matagorda and Wharton. On December 12, 2017, Houston Electric received approval from ERCOT. In September 2018, Houston Electric filed a certificate of convenience and necessity application with the PUCT that included capital cost estimates for the project that ranged from approximately $482-$695 million, which were higher than the initial cost estimates. The revised project cost estimates include additional costs associated with the routing of the line to mitigate environmental and other land use impacts and structure design to address soil and coastal wind conditions. The actual capital costs of the project will depend on those factors as well as other factors, including land acquisition costs, construction costs and the ultimate route approved by the PUCT. On the request of the PUCT, ERCOT has intervened in the proceeding and is in the processperformed a re-evaluation of reviewing 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 as early asin the third quartersecond half 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 generation 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 whereby the energy produced by the solar farm would be set at a fixed market rate over the life of the investment and recovered within Indiana Electric’s CECA mechanism. On March 20, 2019, the IURC approved the settlement. The project is expected to be completed 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.
|
| | | | | | | | | | |
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 $155 | | 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. |
TCOS | | 2.4 | | September 2018 | | TBD | | TBD | | Requested an increase of $15.4 million to rate base and reflects a $2.4 million annual increase in current revenues. |
EECRF | | 8.4 | | June
20182019
| | TBD | | TBD | | RevisedOn April 5, 2019, and subsequently adjusted in errata filings in May and June 2019, Houston Electric filed its base rate application requests recoverywith the PUCT and the cities in its service area to change its rates, seeking approval for base rate increases of 2019 EECRF of $41.7approximately $149 million, including a $8.4rider of $(40) million performance bonus. |
DCRF | | 30.9 | | April
2018
| | September
2018
| | August 2018 | | Unanimous settlement agreement approved bydiscussed below, for service to retail customers and approximately $5 million for wholesale transmission service based on a test year ending December 31, 2018. This rate filing is based on a rate base of $6.4 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 PUCT in August 2018 results in incremental annual revenueestablishment of $30.9 million. It results in a $120.6rider to refund over three years to its customers approximately $119 million annual revenue requirement effective September 1, 2018. The settlement agreement also reflects an approximately $39 million decreaseof unprotected EDIT resulting from the TCJA, updated depreciation rates and approval to clarify and update various non-rate tariff provisions. Recovery of all reasonable and necessary rate case expenses for this case and certain prior rate case proceedings were severed into a separate proceeding. A hearing was held June 24–28, 2019, and a final order is expected 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. In December 2018, Houston Electric will file an updated DCRF tariff to adjust the interim DCRF rates to reflect any difference between the $20 million estimated tax-expense regulatory liability and the actual tax-expense regulatory liability recorded by Houston Electric. |
CERC - South Texas (Railroad Commission) |
Rate Case | | (1.0) | | November 2017 | | May
2018
| | May
2018 | | Unanimous settlement agreement approved by the Railroad Commission in May 2018 that provides for a $1 million annual decrease in current revenues. The settlement agreement also reflects an approximately $2 million decrease in the federal income tax rate and amortizationfourth quarter of certain EDIT balances and establishes a 9.8% ROE for future GRIP filings for the South Texas jurisdiction. |
CERC - Beaumont/East Texas, Houston and Texas Coast (Railroad Commission) |
GRIP | | 14.7 | | March
2018
| | July
2018
| | June
2018
| | Based on net change in invested capital of $70.0 million and reflects a $14.7 million annual increase in current revenues. Also reflects an approximately $1.0 million decrease in the federal income tax rate. |
Administrative 104.111 | | N/A | | July
2018
| | September 2018 | | August 2018 | | Beaumont/East Texas, Houston and Texas Coast proposed 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 | | September 2018 | | 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 - Louisiana (LPSC) |
RSP | | 6.6 | | September 2018 | | December 2018 | | TBD | | Based on ROE of 9.95% and the 21% federal income tax rate and reflects a $6.6 million annual increase in current revenues. Other impacts of the TCJA, which were calculated outside the band, reduce the annual increase by approximately $4.3 million.2019. |
|
| | | | | | | | | | |
Mechanism | | Annual Increase (Decrease) (1) (in millions) | | Filing Date | | Effective Date | | Approval Date | | Additional Information |
EECRF | | 39 | | May 2019 | | March 2020 | | TBD | | The requested amount, as amended in an errata filing in July 2019, is comprised primarily of the following: 2020 Program costs of $38 million, 2018 over recovery of ($6) million and 2018 Earned bonus of $7 million. |
CenterPoint Energy and CERC - Beaumont/East Texas, South Texas, Houston and Texas Coast (Railroad Commission) |
GRIP | | 20 | | March 2019 | | July 2019 | | June 2019 | | Based on net change in invested capital of $123 million. |
CenterPoint Energy and CERC - Arkansas (APSC) |
FRP (1) | | 14 | | April 2019 | | October 2019 | | TBD | | Based on ROE of 9.5% approved in the last rate case. On July 31, 2019, a unanimous comprehensive settlement was filed that, if approved, would result in an FRP revenue increase of $7 million and includes additional non-monetary items. |
CenterPoint Energy and CERC - Minnesota (MPUC) |
Rate CaseCIP Financial Incentive | | 3.9 | | August 2017 | | November 201811 | | JulyMay
20182019
| | Includes a proposal to extend decoupling beyond current expiration date of June 2018. Interim rates reflecting an annual increase of $47.8 million were effective October 1, 2017. A unanimous settlement agreement was filed in March 2018, subject to MPUC approval. The settlement agreement increases base rates by $3.9 million, makes decoupling a permanent part of the tariff, incorporates the impact of the decrease in the federal income tax rate and amortization of EDIT balances (approximately $20 million) and establishes or continues tracker recovery mechanisms that account for approximately $13.3 million in the initial filing. The MPUC voted to approve the settlement and a formal order was issued on July 20, 2018. Final rates (and the refund of interim rates that exceed final rates) will be implemented beginning November 1, 2018. |
Decoupling | | (13.8) | | September 2018 | | September 2018 | | TBD | | Represents revenue over-recovery of $21.9 million recorded for and during the period July 1, 2017 through June 30, 2018 offset by the rate and prior period adjustments totaling $8.1 million recorded in third quarter 2018. |
CIPTBD | | 12.5 | | May
CIP Financial Incentive based on 2018 | | September 2018 | | September 2018 | | Annual reconciliation filing for program year 2017 and includes performance bonus of $12.5 million which was recorded in September 2018. activity. |
CenterPoint Energy and CERC - Mississippi (MPSC) |
RRA | | 3.2 | | May
2018(1)
| | November 20182 | | November 2018May 2019 | | TBD | | TBD | | Based on authorized ROE of 9.144% and a capital structure of 50% debt and 50% equity and reflects a $3.2 million annual increase in revenues.9.26%. |
CenterPoint Energy and CERC - Oklahoma (OCC) |
PBRC(1) | | 5.42 | | March 2019 | | TBD | | TBD | | Based on ROE of 10%. On July 27, 2019, the ALJ recommended that the OCC approve an increase of $2 million. The OCC is anticipated to issue a final order on the PBRC docket in the third quarter of 2019. |
CenterPoint Energy - Indiana South - Gas (IURC) |
CSIA | | 3 | | October 2018 | | January 2019 | | January 2019 | | Requested an increase of $16 million to rate base, which reflects a $3 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes refunds associated with the TCJA, resulting in a change of $(2) million, and a change in the total (over)/under-recovery variance of $(4) million annually. |
CSIA | | 5 | | April 2019 | | July 2019 | | July 2019 | | Requested an increase of $22 million to rate base, which reflects a $5 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes refunds associated with the TCJA, resulting in a change of $1 million, and a change in the total (over)/under-recovery variance of $3 million annually. |
CenterPoint Energy - Indiana North - Gas (IURC) |
CSIA | | 3 | | October 2018 | | January 2019 | | January 2019 | | Requested an increase of $54 million to rate base, which reflects a $3 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes refunds associated with the TCJA, resulting in a change of $(10) million, and a change in the total (over)/under-recovery variance of $(17) million annually. |
CSIA | | 13 | | April 2019 | | July 2019 | | July 2019 | | Requested an increase of $58 million to rate base, which reflects a $13 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes refunds associated with the TCJA, resulting in a change of $(2) million, and a change in the total (over)/under-recovery variance of $12 million annually. |
CenterPoint Energy - Ohio (PUCO) |
DRR (1) | | 11 | | May 2019 | | September 2019 | | TBD | | Requested an increase of $78 million to rate base for investments made in 2018, which reflects a $11 million annual increase in current revenues. A change in (over)/under-recovery variance of $(3) million annually is also included in rates. All pre-2018 investments are included in rate case request. |
Rate Case (1) | | 23 | | March 2018 | | October 2018TBD | | October 2018TBD | | Based on ROE of 10% and reflectsSettlement agreement awaiting approval by PUCO that provides for a $5.4$23 million annual increase in current revenues. AsSettlement agreement also includes $622 million of total rate base, a result7.48% overall rate of thereturn, and extension of conservation and DRR programs. A final order all EDIT was removedis expected in the third quarter of 2019. |
TSCR (1) | | (18) | | January 2019 | | TBD | | TBD | | Application to flow back to customers certain benefits from the PBRC calculation. Protected EDIT amortization willTCJA. Initial impact reflects credits for 2018 of $(10) million and 2019 of $(8) million, with mechanism to begin to be refunded in April 2019 via one-time annual bill credits. Unprotected EDIT will be refunded over a five-year period via annual bill credits beginning in October 2018.conjunction with new base rates. |
|
| | | | | | | | | | |
Mechanism | | Annual Increase (Decrease) (1) (in millions) | | Filing Date | | Effective Date | | Approval Date | | Additional Information |
CenterPoint Energy - Indiana Electric (IURC) |
TDSIC | | 3 | | February 2019 | | May 2019 | | May 2019 | | Requested an increase of $24 million to rate base, which reflects a $3 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes refunds associated with the TCJA, resulting in a change of $5 million, and a change in the total (over)/under-recovery variance of $5 million annually. |
TDSIC (1) | | 4 | | August 2019 | | November 2019 | | TBD | | Requested an increase of $35 million to rate base, which reflects a $4 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism also includes a change in (over)/under-recovery variance of $4 million annually. |
ECA - MATS | | 13 | | February 2018 | | January 2019 | | April 2019 | | Requested an increase of $58 million to rate base, which reflects a $13 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until next rate case. The mechanism includes recovery of prior accounting deferrals associated with investments (depreciation, carrying costs, operating expenses). |
CECA | | 2 | | February 2019 | | June 2019 | | May 2019 | | Requested an increase of $13 million to rate base related to solar pilot investments, which reflects a $2 million annual increase in current revenues. Additional solar investment to supply 50 MW of solar capacity is approved and 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, the 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 reduction in federal income tax rates. On February 13, 2018, Houston ElectricELG rule that selected impoundment as the best available technology for legacy wastewater and other likely parties to a future rate case announced a settlement that requires Houston Electric to make (i) a TCOS filing by February 20, 2018 to reflect the change in the federal income tax rate for Houston Electric’s transmission rate base through July 31, 2017 and account for certain EDIT (and such filing was timely submitted), (ii) a DCRF filing in April 2018 to reflect the change in the federal income tax rate for Houston Electric’s distribution rate base through December 31, 2017 (and such filing was timely submitted) and (iii) a full rate case filing by April 30, 2019. The settlement was presentedleachate. It is not clear what revisions to the PUCT duringELG 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 its open meeting on February 15, 2018. In response torecently renewed wastewater discharge permits, it does not anticipate immediate impacts from the settlement, the PUCT did not proceed with a prior proposal to require Houston Electric to file a rate case in the summerEPA’s two-year extension of 2018. The PUCT also amended its prior accounting order to remove the requirement that utilities include carrying costs in the new regulatory liability. Additional information related to tax reform for Houston Electric is described in the table above.
On January 12, 2018, the APSC issued an order in Docket No. 18-006-U opening an investigatory docket into the TCJA and directing utilities, including CERC, to record as a regulatory liability the current and deferred impacts of the TCJA. On July 26, 2018, the APSC issued an order in the investigatory docket requiring CERC to (1) include the reduction in tax expensepreliminary implementation deadlines due to the longer compliance time frames granted by IDEM and will continue to work with IDEM to evaluate further implementation plans.
January 1, 2018 changeCPP and ACE Rule (CenterPoint Energy)
On August 3, 2015, the EPA released its CPP Rule, which required a 32% reduction in carbon emissions from 2005 levels. The final rule was published in the tax rate from 35% to 21%Federal Register on October 23, 2015, and that action was immediately followed by litigation ultimately resulting 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 daysU.S. Supreme Court staying implementation of the July 26, 2018 order.rule. On August 24, 2018 CERC filed Rider TCJA in Docket No. 18-050-TF. This rider returns the entire unprotected excess ADIT of approximately $19 million over five months from October 2018 through February 2019. The GMES Rider, which is not currently in effect, was revised to reflect the effects of the TCJA. No other riders were impacted. On September 21,31, 2018, the APSC approved Rider TCJA as filed, with an effective dateEPA published its proposed CPP replacement rule, the ACE Rule, which was finalized on July 8, 2019 and requires states to implement a program of October 1, 2018.
On October 5, 2018,energy efficiency improvement targets for individual coal-fired electric generating units. States have three years to develop state plans to implement the LPSC Staff filed its Final ReportACE rule, and Recommended Proposed Rule in Docket No. R-34754, which addresses the TCJA. The proposedCenterPoint Energy does not expect a state ACE rule recommends that CERC (1) adjust rates prospectively to reflect the new 21% federal corporate income tax rate; (2) refund to ratepayers 100% of federal corporate income taxes collected that are in excess of the new lower applicable tax rate plus carrying cost at the utility’s WACC over a 12-month period or other periodbe finalized and approved by the LPSC; (3) accrue carrying charges on EDIT balances atEPA until 2024. CenterPoint Energy is currently unable to predict the utility’s WACC until fully amortized, excepteffect of a state plan to implement the extent ratepayers are receiving benefitsACE rule but does not anticipate that such a plan would have a material effect.
Impact of EDIT asLegislative 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. While the requirements of a reductionstate ACE rule remain uncertain, Indiana Electric will continue to rate base; (4) amortize protected EDIT over ARAM and implement through an outside-the-band reduction in rates attributable to the annual amortization; and (5) amortize unprotected EDIT over 24 months or other period approved by the LPSC and implement through an outside-the-band reduction in rates or special tax rider. The LPSC Staff presented this proposed rule to the LPSC for vote at the October 26, 2018 Business & Executive Session. The anticipated implementation date for these TCJA related changes begins December 26, 2018, concurrent with the RSP implementation, with the time frame of the return of unprotected EDIT still to be determined.monitor regulatory activity regarding GHG emission standards that may affect its electric generating units.
On November 6, 2018, within the order approving the 2018 Mississippi RRA, the MPSC ruled that protected EDIT will be amortized over ARAM beginning with the 2019 RRA, unprotected EDIT will be amortized over a three-year period beginning December 1, 2018, and the refund due to the change in tax rate for 2018 billings prior to the 2018 RRA implementation will be a component of the 2019 RRA filing for the 2018 calendar year.
FERC Revised Policy Statement and NOPR (CenterPoint Energy and CERC)
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 requests for rehearingaccepting MRT’s proposed rate increases subject to refund upon a final determination of MRT’s rates and ordering MRT to refile its Revised Policy Statement because it is a non-binding policy and parties will haverate case to reflect the opportunity to address the policy as applied in future cases. Accordingly, the impacts that such changes may have on the rates Enable can charge for transportation services are unknown at this time.
On March 15, 2018, the FERC also proposed, in a NOPR, the method by which it would apply the Revised Policy Statement to FERC-jurisdictional natural gas pipeline rates, as well as account for the corporateelimination 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. The FERC set MRT’s refiled rate reductioncase for hearing to begin in the TCJA. On July 18, 2018, the FERC issued a final rule requiring FERC-regulated natural gas pipelines that have cost-based rates to make a filing providing certain cost and revenue information and then either propose to reduce or support current cost-based rates, or take no further action. The final rule is currently subject to requests for rehearing. Enable Gas Transmission, LLC, an Enable subsidiary and owner of a FERC-regulated interstate natural gas pipeline, made its required filing on October 11, 2018, in which it asserted that no rate reduction is warranted. That filing remains subject to FERC review. Enable’s other interstate pipeline subsidiary, Enable Mississippi River Transmission, LLC, is not required to make such a filing as it is engaged in an ongoing rate case. At this time, we cannot predict the outcome of the final rule on Enable, but it could adversely impact the rates Enable is permitted to charge its customers.January 2020.
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 June 30, 2019. As of October 22, 2018,July 26, 2019, the Registrants had the following revolving credit facilities and utilization of such facilities:
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| | | | | | | | | | |
Registrant | | Size of Facility | | Amount Utilized (1) | | Termination Date |
(in millions) |
CenterPoint Energy | | $ | 3,300 |
| (2) | $ | 6 |
| (3) | March 3, 2022 |
Houston Electric | | 300 |
| | 4 |
| (3) | March 3, 2022 |
CERC Corp. | | 900 |
| | 26 |
| (4) | March 3, 2022 |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Amount Utilized as of July 26, 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 |
| | $ | 2,101 |
| | 2.57% | | March 3, 2022 |
CenterPoint Energy (2) | | 400 |
| | — |
| | — |
| | 314 |
| | 2.54% | | July 14, 2022 |
CenterPoint Energy (3) | | 200 |
| | 135 |
| | — |
| | — |
| | 3.51% | | July 14, 2022 |
Houston Electric | | 300 |
| | — |
| | 4 |
| | — |
| | —% | | March 3, 2022 |
CERC | | 900 |
| | — |
| | 1 |
| | 285 |
| | 2.54% | | March 3, 2022 |
Total | | $ | 5,100 |
| | $ | 135 |
| | $ | 11 |
| | $ | 2,700 |
| | | | |
| |
(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 currently aggregate $4.5 billion.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 increased to $3.3 billion on October 5, 2018 due to the satisfaction of certain conditions, including the termination of the Bridge Facility. 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 letters of credit.The credit facility was issued by VCC and is guaranteed by Vectren. |
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(4) | Represents outstanding commercial paper of $25 million and outstanding letters of credit of $1 million. |
Borrowings under each of the three revolving credit facilities are subject to customary terms and conditions. However, there is no requirement that the borrower 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 threetheir respective revolving credit facilities.
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. In October 2018, CenterPoint Energy issued $1.5 billion aggregate principal amount of unsecured senior notes. For furtherdetailed information about our 2018the Registrants’ debt issuances,transactions in 2019, see Note 12 to the Interim Condensed Financial Statements.
As of September 30, 2018, Houston Electric’s outstanding first mortgage bonds and general mortgage bonds aggregated approximately $3.4 billion, of which $118 million is not reflected in its consolidated financial statements because of the contingent nature of the obligation.
The lien of the general mortgage indenture is junior to that of the mortgage pursuant to which the first mortgage bonds are issued. Houston Electric may issue additional general mortgage bonds on the basis of retired bonds, 70% of property additions or cash deposited with the trustee. Approximately $4.2 billion of additional first mortgage bonds and general mortgage bonds could be issued on the basis of retired bonds and 70% of property additions as of September 30, 2018. Houston Electric has contractually agreed that it will not issue additional first mortgage bonds, subject to certain exceptions.
Houston Electric’s long-term debt consists of its obligations and the obligations of its subsidiaries, including Securitization Bonds issued by its wholly-owned subsidiaries. As of September 30, 2018, the Bond Companies had the following aggregate principal amount, exclusive of debt issuance costs, of Securitization Bonds outstanding.
|
| | | | |
Company | | Aggregate Principal Amount Outstanding |
| | (in millions) |
Bond Company II | | $ | 208 |
|
Bond Company III | | 85 |
|
Bond Company IV | | 955 |
|
Restoration Bond Company | | 256 |
|
Total | | $ | 1,504 |
|
The Securitization Bonds are paid through the imposition of “transition” or “system restoration” charges, as defined in the Texas Public Utility Regulatory Act, which are irrevocable, non-bypassable charges to provide recovery of authorized qualified costs. The Securitization Bonds are reported as our long-term debt, although the holders of these bonds have no recourse to any of our assets or revenues, and our creditors have no recourse to any assets or revenues (including, without limitation, the transition or system restoration charges) of the Bond Companies. Houston Electric has no payment obligations with respect to the Securitization Bonds except to remit collections of transition and system restoration charges as set forth in servicing agreements between Houston Electric and the Bond Companies and in an intercreditor agreement among Houston Electric, the Bond Companies and other parties.
Securities Registered with the SEC
On January 31, 2017, 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, 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 and equity securitysecurities issuances to date in 2018,2019, see NotesNote 12 and 19 to the Interim Condensed Financial Statements.
Temporary Investments
As of October 22, 2018,July 26, 2019, the Registrants had $4.2 billionno 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. CNP Midstream cannot borrow from the money pool but can invest in it. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the money pool are expected to be met with borrowings under 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 October 22, 2018, Houston Electric had borrowings from the
The table below summarizes money pool activity by Registrant as of $79 million, and CERC had investments in the money pool of $38 million.July 26, 2019:
|
| | | | | | | | | |
| Weighted Average Interest Rate | | Houston Electric | | CERC |
| | | (in millions) |
Money pool investments | 2.60% | | $ | 778 |
| | $ | 180 |
|
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. On September 4, 2018, Moody’s revised its rating outlook on CERC senior debt to positive from stable and upgraded its rating to Baa1 from Baa2. On September 6, 2018, Fitch revised its rating outlook on CERC senior debt to stable from positive and upgraded its rating to BBB+ from BBB. As of October 22, 2018,July 26, 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 | | StableNegative | | A | | NegativeStable | | A+ | | Stable |
CERC | | CERC Corp. Senior Unsecured Debt | | Baa1 | | Positive | | A-BBB+ | | NegativeStable | | BBB+ | | Stable |
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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. |
| |
(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. |
| |
(3) | A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-year period. |
WeThe 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 SeptemberJune 30, 2018,2019, 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 SeptemberJune 30, 2018,2019, the amount posted by CES as collateral aggregated approximately $41$49 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 SeptemberJune 30, 2018,2019, unsecured credit limits extended to CES by counterparties aggregated $268$367 million, and noneless than $1 million of such amount was utilized.
Pipeline tariffs and contracts typically provide that if the credit ratings of a shipper or the shipper’s guarantor drop below a threshold level, which is generally investment grade ratings from both Moody’s and S&P, cash or other collateral may be demanded from the shipper in an amount equal to the sum of three months’ charges for pipeline services plus the unrecouped cost of any lateral built for such shipper. If the credit ratings of CERC Corp. decline below the applicable threshold levels, CERC Corp. might need to provide cash or other collateral of as much as $185$192 million as of SeptemberJune 30, 2018.2019. 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 SeptemberJune 30, 2018,2019, deferred taxes of approximately $410$432 million would have been payable in 2018.2019. If all the ZENS-Related Securities had been sold on SeptemberJune 30, 2018,2019, capital gains taxes of approximately $109$121 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 each of CenterPoint Energy’s, Houston Electric’s and CERC’s respective revolving credit facility,facilities, as well as under CenterPoint Energy’s term loan agreement, a payment default on, or a non-payment default that permits acceleration of, any indebtedness for borrowed money and certain other specified types of obligations (including guarantees) exceeding
$125 $125 million by itthe borrower or any of itstheir respective significant subsidiaries will cause a default.default under such borrower’s respective credit facility or term loan agreement. A default by CenterPoint Energy would not trigger a default under its subsidiaries’ debt instruments or revolving credit facilities.
Under each of VUHI’s and VCC’s respective revolving credit facilities and term loan agreements, 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 $50 million by the borrower, any of their respective subsidiaries or any of the respective guarantors of a credit facility or term loan agreement will cause a default under such borrower’s respective credit facility or term loan agreement.
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.
CenterPoint Energy previously disclosed that it may reduce its ownership in Enable over time through sales in the public equity markets, or otherwise, of the Enable common units it holds, subject to market conditions. CenterPoint Energy has no intention to reduce its ownership of Enable common units and currently plans to hold such Enable common units and to utilize any cash
distributions received on such Enable common units to finance a portion of CenterPoint Energy’s capital expenditure program. CenterPoint Energy may consider or alter its plans or proposals in respect of any such plans in the future.
Enable Midstream Partners (CenterPoint Energy and CERC)
In 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. A reduction in the cash distributions CenterPoint Energy receives from Enable could significantly impact CenterPoint Energy’s liquidity. For additional information about cash distributions from Enable, see Notes 9 and 2021 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;facilities or term loans;
various legislative or regulatory actions;
incremental collateral, if any, that may be required due to regulation of derivatives;derivatives (CenterPoint Energy and CERC);
the ability of GenOn and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations to us, including indemnity obligations, which may be contested by GenOn;
the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to 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;
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 SeptemberJune 30, 2018, we2019, 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 $202$4.4 billion and $210 million and $1.8 billion as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. If the floating interest rates were to increase by 10% from SeptemberJune 30, 20182019 rates, ourCenterPoint Energy’s combined interest expense would increase by less than $1approximately $13 million annually.
As of SeptemberJune 30, 20182019 and December 31, 2017, we2018, CenterPoint Energy had outstanding fixed-rate debt (excluding indexed debt securities) aggregating $7.6$10.2 billion and $7.0$9.0 billion, respectively, in principal amount and having a fair value of $7.811.1 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 $263$328 million if interest rates were to decline by 10% from levels at SeptemberJune 30, 2018.2019. 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 $2522 million as of SeptemberJune 30, 20182019 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 $83 million if interest rates were to decline by 10% from levels at SeptemberJune 30, 2018.2019. Changes in the fair value of the derivative component, a $685$755 million recorded liability at SeptemberJune 30, 2018,2019, 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 SeptemberJune 30, 20182019 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 SeptemberJune 30, 20182019 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)
CenterPoint Energy and CERC)
We useuses 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 SeptemberJune 30, 2018,2019, the recorded fair value of ourCenterPoint Energy’s non-trading energy derivatives was a net asset of $51$74 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 $7$13 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 June 30, 2019, the recorded fair value of non-trading energy derivative liabilities was $17 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 SeptemberJune 30, 20182019 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 SeptemberJune 30, 20182019 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.
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 | | |
3.8 | | | | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | | 1-3187 | | 3.2 | | x | | |
3.9 | | Bylaws of RERC Corp. | | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(b) | | x | |
| | 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 |
3.7 | | | | | CenterPoint Energy’s Form 8-K dated February 21, 2017 | | 1-31447 | | 3.1 | | x | |
3.8 | | | | | Houston Electric’s Form 10-Q for the quarter ended June 30, 2011 | | 1-3187 | | 3.2 | | x | |
3.9 | | | Bylaws of RERC Corp. | | CERC Form 10-K for the year ended December 31, 1997 | | 1-13265 | | 3(b) | | x |
3.10 | | | | CenterPoint Energy’s Form 10-K for the year ended December 31, 2011 | | 1-31447 | | 3(c) | | x | | | | | 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 | | | | | 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 | | | | | 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 | | | | | 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 | | | | | CenterPoint Energy’s Form 8-K dated August 22, 2018 | | 1-31447 | | 4.1 | | x | |
4.3 | | | | CenterPoint Energy’s Form 8-K dated September 25, 2018 | | 1-31447 | | 4.1 | | x | | | | | 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 | | | | | 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 | | | | | 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 | | | | | 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 | | | | | 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 | | | | 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 | | | | | 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 | | | | | 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 | | | | | 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 | | | | CenterPoint Energy’s Form 8-K dated May 19, 2003 | | 1-31447 | | 4.1 | | x | | |
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Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
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 | | | | | | | | | | x | | | | |
4.18 | | $1,000,000,000 Term Loan Agreement, dated as of May 15, 2019, among CenterPoint Energy, as Borrower, Mizuho Bank, Ltd., as Administrative Agent and Lead Arranger, and the banks named therein | | CenterPoint Energy’s Form 8-K dated May 15, 2019 | | 1-31447 | | 4.1 | | x | | | | |
+10.1 | | | | | | | | | | x | | | | |
+31.1.1 | | | | | | | | | | x | | | | |
+31.1.2 | | | | | | | | | | | | x | | |
+31.1.3 | | | | | | | | | | | | | | x |
+31.2.1 | | | | | | | | | | x | | | | |
+31.2.2 | | | | | | | | | | | | x | | |
+31.2.3 | | | | | | | | | | | | | | x |
+32.1.1 | | | | | | | | | | x | | | | |
+32.1.2 | | | | | | | | | | | | x | | |
+32.1.3 | | | | | | | | | | | | | | x |
+32.2.1 | | | | | | | | | | x | | | | |
+32.2.2 | | | | | | | | | | | | x | | |
+32.2.3 | | | | | | | | | | | | | | x |
+101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | x | | x | | x |
+101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | x | | x | | x |
+101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | x | | x | | x |
+101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | x | | x | | x |
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| | | | | | | | | | | | | | |
Exhibit Number | | Description | | Report or Registration Statement | | SEC File or Registration Number | | Exhibit Reference | | CenterPoint Energy | | Houston Electric | | CERC |
+4.14 | | | | | | | | | | 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 |
+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 | | Inline XBRL Taxonomy Extension Labels Linkbase Document | | | | | | | | x | | x | | x |
+101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | x | | x | | x |
+104 | | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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.
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| CENTERPOINT ENERGY, INC. |
| CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC |
| CENTERPOINT ENERGY RESOURCES CORP. |
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By: | /s/ Kristie L. Colvin |
| Kristie L. Colvin |
| Senior Vice President and Chief Accounting Officer |
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Date: November 8, 2018August 7, 2019