Bond Company IV和Restoration Bond Company，均为全资破产远程实体，成立的目的仅为通过发行证券化债券购买和拥有过渡或系统恢复财产
债券公司 IV
CenterPoint 能源转型债券公司 IV, LLC，休斯敦电气的全资子公司
BTA
建立转让协议
CAMT
企业替代性最低税
CCN
便利性和必要性证书
CCR
煤炭燃烧残留物
CECA
清洁能源成本调整
CEIP
CenterPoint Energy 州内管道有限责任公司，CERC 公司的全资子公司
中心点能源
CenterPoint Energy, Inc. 及其子公司
首席执行官
俄亥俄州Vectren Energy Delivery, LLC以俄亥俄州CenterPoint Energy Delivery公司的名义开展业务，该公司于2022年6月13日将其公司结构从俄亥俄州的Vectren Energy Delivery, Inc.转换为俄亥俄州有限责任公司，该公司前身是Vectren的全资子公司，于2022年6月30日被CERC收购
CEP
资本支出计划
CERC
CERC Corp. 及其子公司
CERC 公司
CenterPoint 能源资源公司
CES
CenterPoint 能源服务有限公司（现名为 Symmetry Energy Solutions, LLC），以前是CERC公司的全资子公司
Junior Subordinated Indenture, dated as of August 14, 2024, between CenterPoint Energy and The Bank of New York Mellon Trust Company , National Association, as trustee, as supplemented by the Supplemental Indenture to the Junior Subordinated Indenture, dated as of August 14, 2024, between CenterPoint Energy and the trustee
kV
千伏
LAMS资产购买协议
2024年2月19日达成的资产购买协议，由CERC Corp.和LAMS买家之间达成
iii
GLOSSARY
LAMS Buyers
Delta Utilities No. LA, LLC, a Delaware limited liability company, Delta Utilities S. LA, LLC, a Delaware limited liability company, Delta Utilities MS, LLC, a Delaware limited liability company, and Delta Shared Services Co., LLC, a Delaware limited liability company
LDC
Local distribution company
LPSC
Louisiana Public Service Commission
M&DOT
Mortgage and Deed of Trust, dated November 1, 1944, between Houston Lighting and Power Company and Chase Bank of Texas, National Association (formerly, South Texas Commercial National Bank of Houston), as Trustee, as amended and supplemented
MDL
Multi-district litigation
May 2024 Storm Events
The sudden and destructive severe weather events in May 2024 that included hurricane-like winds and tornadoes and resulted in widespread damage to Houston Electric’s electric delivery system
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 Sub
Pacer Merger Sub, Inc., an Indiana corporation and wholly-owned subsidiary of CenterPoint Energy
MGP
Manufactured gas plant
MISO
Midcontinent Independent System Operator
MMBtu
One million British thermal units
Moody’s
Moody’s Investors Service, Inc.
MPSC
Mississippi Public Service Corporation
MPUC
Minnesota Public Utilities Commission
MW
Megawatt
NERC
North American Electric Reliability Corporation
NOLs
Net operating losses
NRG
NRG Energy, Inc.
NYSE
New York Stock Exchange
Oriden
Oriden LLC
Origis
Origis Energy USA Inc.
OUCC
Indiana Office of Utility Consumer Counselor
Posey Solar
Posey Solar, LLC, a special purpose entity
PPA
Power Purchase Agreement
PRPs
Potentially responsible parties
PTCs
Production Tax Credits
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
REP
Retail electric provider
Restoration Bond Company
CenterPoint Energy Restoration Bond Company, LLC, a wholly-owned subsidiary of Houston Electric
Restructuring
CERC Corp.’s common control acquisition of Indiana Gas and CEOH from VUH on June 30, 2022
ROE
Return on equity
ROU
Right of use
RRA
Rate Regulation Adjustment
RSP
Rate Stabilization Plan
S&P
S&P Global Ratings
Scope 1 emissions
Direct source of emissions from a company’s operations
Scope 2 emissions
Indirect source of emissions from a company’s energy usage
Scope 3 emissions
Indirect source of emissions from a company’s end-users
SEC
Securities and Exchange Commission
iv
GLOSSARY
Securitization Bonds
Transition and system restoration bonds issued by the Bond Companies and SIGECO Securitization Bonds issued by the SIGECO Securitization Subsidiary
Series A Preferred Stock
CenterPoint Energy’s Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share
SIGECO
Southern Indiana Gas and Electric Company, a wholly-owned subsidiary of Vectren
SIGECO Securitization Bonds
SIGECO Securitization Subsidiary’s Series 2023-A Senior Secured Securitization Bonds
SIGECO Securitization Subsidiary
SIGECO Securitization I, LLC, a direct, wholly-owned subsidiary of SIGECO
SOFR
Secured Overnight Financing Rate
SRC
Sales Reconciliation Component
TBD
To be determined
TCJA
Tax reform legislation informally called the Tax Cuts and Jobs Act of 2017
TCOS
Transmission Cost of Service
TCRF
Transmission Cost Recovery Factor
TDSIC
Transmission, Distribution and Storage System Improvement Charge
TDU
Transmission and distribution utility
TEEEF
Assets leased or costs incurred as “temporary emergency electric energy facilities” under the Public Utility Regulatory Act Section 39.918, also referred to as temporary generation
Topic 326
Accounting Standards Update 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Utility Holding
Utility Holding, LLC, a wholly-owned subsidiary of CenterPoint Energy
Vectren
Vectren, LLC, which converted its corporate structure from Vectren Corporation to a limited liability company on June 30, 2022, a wholly-owned subsidiary of CenterPoint Energy as of February 1, 2019
Vectren Energy Services
Vectren Energy Services Corporation, an Indiana corporation and a wholly-owned subsidiary of CenterPoint Energy
VIE
Variable interest entity
Vistra Energy Corp.
Texas-based energy company focused on the competitive energy and power generation markets
VRP
Voluntary Remediation Program
VUH
Vectren Utility Holdings, LLC, which converted its corporate structure from Vectren Utility Holdings, Inc. to a limited liability company on June 30, 2022, a wholly-owned subsidiary of Vectren
WBD Common
Warner Bros. Discovery, Inc. Series A common stock
Winter Storm Elliott
From December 21 to 26, 2022, a historic extratropical cyclone created winter storm conditions, including blizzards, high winds, snowfall and record cold temperatures across the majority of the United States and parts of Canada
ZENS
2.0% Zero-Premium Exchangeable Subordinated Notes due 2029
ZENS-Related Securities
As of September 30, 2024 and December 31, 2023, consisted of AT&T Common, Charter Common and WBD Common
2023 Form 10-K
Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC on February 20, 2024
v
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 SIGECO.
The following are some of the factors that could cause actual results to differ from those expressed or implied by the Registrants’ forward-looking statements and apply to all Registrants unless otherwise indicated:
•CenterPoint Energy’s business strategies and strategic initiatives, restructurings, joint ventures and acquisitions or dispositions of assets or businesses, including the announced sale of our Louisiana and Mississippi natural gas LDC businesses, and the completed sale of Energy Systems Group, which we cannot assure will have the anticipated benefits to us;
•industrial, commercial and residential growth in our service territories and changes in market demand, including the effects of energy efficiency measures and demographic patterns;
•our ability to fund and invest planned capital and the timely recovery of our investments, including the timing of and amounts sought for those related to Indiana Electric’s generation transition plan as part of its IRPs and Houston Electric’s GHRI and longer-term resiliency plans;
•our ability to successfully construct, operate, repair and maintain electric generating facilities, natural gas facilities, TEEEF and electric transmission facilities, including complying with applicable environmental standards and the implementation of a well-balanced energy and resource mix, as appropriate;
•timely and appropriate rate actions that allow and authorize timely recovery of costs and a reasonable return on investment, including the timing of and amounts sought for recovery of Houston Electric’s TEEEF leases and restoration costs relating to the May 2024 Storm Events and Hurricane Beryl, and requested or favorable adjustments to rates and approval of other requested items as part of base rate proceedings;
•economic conditions in regional and national markets, including changes to inflation and interest rates, and their effect on sales, prices and costs;
•weather variations and other natural phenomena, including the impact of severe weather events on operations, capital, legislation and/or regulations, such as seen in connection with the February 2021 Winter Storm Event, the May 2024 Storm Events and Hurricane Beryl;
•volatility in the markets for natural gas as a result of, among other factors, armed conflicts, including the conflict in the Middle East and any broader related conflict, and the conflict in Ukraine, and the related sanctions on certain Russian entities;
•disruptions to the global supply chain, including volatility in commodity prices, and tariffs and other legislation impacting the supply chain, that could prevent CenterPoint Energy from securing the resources needed to, among other things, fully execute on its 10-year capital plan or achieve its net zero and carbon emissions reduction goals;
•non-payment for our services due to financial distress of our customers and the ability of our customers, including REPs, to satisfy their obligations to CenterPoint Energy, Houston Electric, and CERC, and the negative impact on such ability related to adverse economic conditions and severe weather events;
•public health threats and their effect on our operations, business and financial condition, our industries and the communities we serve, U.S. and world financial markets and supply chains, potential regulatory actions and changes in customer and stakeholder behavior relating thereto;
•state and federal legislative and regulatory actions or developments affecting various aspects of our businesses, including, among others, any actions resulting from the May 2024 Storm Events and/or Hurricane Beryl, 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;
•our ability to execute Houston Electric’s GHRI and longer-term resiliency plans;
•direct or indirect effects on our facilities, resources, operations and financial condition resulting from terrorism, cyberattacks or intrusions, data security breaches or other attempts to disrupt our businesses or the businesses of third
vi
parties, or other catastrophic events such as fires, ice, earthquakes, explosions, leaks, floods, droughts, hurricanes, tornadoes and other severe weather events, pandemic health events or other occurrences;
•risks relating to potential wildfires, including costs of potential regulatory penalties and damages in excess of insurance liability coverage;
•tax legislation, including the effects of the IRA (which includes but is not limited to any potential changes to tax rates, CAMT imposed, tax credits and/or interest deductibility), as well as any changes in tax laws under the current or future administrations, and uncertainties involving state commissions’ and local municipalities’ regulatory requirements and determinations regarding the treatment of EDIT and our rates;
•our ability to mitigate weather impacts through normalization or rate mechanisms, and the effectiveness of such mechanisms;
•actions by credit rating agencies, including any potential downgrades to credit ratings;
•matters affecting regulatory approval, legislative actions, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or cancellation or in costs that cannot be recouped in rates;
•local, state and federal legislative and regulatory actions or developments relating to the environment, including, among others, those related to global climate change, air emissions, carbon, waste water discharges and the handling and disposal of CCR that could impact operations, cost recovery of generation plant costs and related assets, and CenterPoint Energy’s net zero and carbon emissions reduction goals;
•the impact of unplanned facility outages or other closures;
•the sufficiency of our insurance coverage, including availability, cost, coverage and terms and ability to recover claims;
•the availability and prices of raw materials and services and changes in labor for current and future construction projects and operations and maintenance costs, including our ability to control such costs;
•impacts from CenterPoint Energy’s pension and postretirement benefit plans, such as the investment performance and increases to net periodic costs as a result of plan settlements and changes in assumptions, including discount rates;
•changes in interest rates and their impact on costs of borrowing and the valuation of CenterPoint Energy’s pension benefit obligation;
•commercial bank and financial market conditions, including disruptions in the banking industry, our access to capital, the cost of such capital, impacts on our vendors, customers and suppliers, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets;
•inability of various counterparties to meet their obligations to us;
•the extent and effectiveness of our risk management activities;
•timely and appropriate regulatory actions, which include actions allowing requested securitization, for any hurricanes or other severe weather events, such as the May 2024 Storm Events and Hurricane Beryl, or natural disasters or other amounts sought for recovery of costs, including stranded coal-fired generation asset costs;
•acquisition and merger or divestiture activities involving us or our industry, including the ability to successfully complete merger, acquisition and divestiture plans on the timelines we expect or at all, such as the proposed sale of our Louisiana and Mississippi natural gas LDC businesses;
•our ability to recruit, effectively transition, motivate and retain management and key employees and maintain good labor relations;
•changes in technology, particularly with respect to efficient battery storage or the emergence or growth of new, developing or alternative sources of generation, and their adoption by consumers;
•the impact of climate change and alternate energy sources on the demand for natural gas and electricity generated or transmitted by us;
•the timing and outcome of any audits, disputes and other proceedings related to taxes;
•the recording of impairment charges;
•political and economic developments, including energy and environmental policies under the current administration;
•CenterPoint Energy’s ability to execute on its strategy, initiatives, targets and goals, including its net zero and carbon
emissions reduction goals and its operations and maintenance expenditure goals;
•the outcome of litigation, including litigation related to the February 2021 Winter Storm Event and Hurricane Beryl;
•obligations related to warranties, guarantees and other contractual and legal obligations;
•the effect of changes in and application of accounting standards and pronouncements; and
•other factors discussed in “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2023 Form 10-K, which are incorporated herein by reference, Item 1A of Part II of this combined Form 10-Q, and in other reports that 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 and other information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, the Registrants may use the Investors section of CenterPoint
vii
Energy’s website (http://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.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
COMBINED NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
(1) Background and Basis of Presentation
General.This combined Form 10-Q is filed separately by three registrants: CenterPoint Energy, Houston Electric and CERC. Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other Registrants or the subsidiaries of CenterPoint Energy other than itself or its subsidiaries.
Except as discussed in Note 11, 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.
Basis of Presentation. 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 Interim Condensed Financial Statements, which omit certain financial statement disclosures, are unaudited and should be read with the Registrants’ financial statements included in the Registrants’ combined 2023 Form 10-K. The Combined Notes to Interim Condensed Financial Statements apply to all Registrants and specific references to Houston Electric and CERC herein also pertain to CenterPoint Energy, unless otherwise indicated. The Interim Condensed Financial Statements reflect all normal and 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, (b) changes in energy commodity prices, (c) timing of maintenance and other expenditures and (d) acquisitions and dispositions of businesses, assets and other interests.
Background. CenterPoint Energy is a public utility holding company. On June 30, 2023, CenterPoint Energy completed the sale of its indirect subsidiary, Energy Systems Group, to an unaffiliated third party. On February 19, 2024, CenterPoint Energy, through its subsidiary CERC Corp., entered into the LAMS Asset Purchase Agreement to sell its Louisiana and Mississippi natural gas LDC businesses. The transaction is expected to close in the first quarter of 2025. For additional information, see Note 3.
As of September 30, 2024, CenterPoint Energy’s operating subsidiaries were as follows:
•Houston Electric owns and operates electric transmission and distribution facilities in the Texas gulf coast area that includes the city of Houston;
•CERC Corp. (i) directly owns and operates natural gas distribution systems in Louisiana, Minnesota, Mississippi and Texas, (ii) indirectly, through Indiana Gas and CEOH, owns and operates natural gas distribution systems in Indiana and Ohio, respectively, and (iii) owns and operates permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP; and
•SIGECO provides energy delivery services to electric and natural gas customers located in and near Evansville in southwestern Indiana and owns and operates electric generation assets to serve its electric customers and optimizes those assets in the wholesale power market.
As of September 30, 2024, CenterPoint Energy’s reportable segments were Electric, Natural Gas, and Corporate and Other. Houston Electric and CERC each consist of a single reportable segment. For a description of CenterPoint Energy’s reportable segments, see Note 15.
Principles of Consolidation. The accompanying Interim Condensed Financial Statements have been prepared in conformity with generally accepted accounting principles. The accounts of the Registrants and their wholly-owned and majority-owned and controlled subsidiaries are included in the Interim Condensed Financial Statements. All intercompany transactions and balances are eliminated in consolidation.
As of September 30, 2024, CenterPoint Energy, Houston Electric and SIGECO had VIEs including Bond Company IV and the SIGECO Securitization Subsidiary, which are consolidated. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed solely for the purpose of securitizing transition property or facilitating the securitization financing of qualified costs in the second quarter of 2023 associated with the completed retirement of SIGECO’s A.B. Brown coal generation facilities. CenterPoint Energy, through SIGECO, has a controlling financial interest in the SIGECO Securitization Subsidiary and is the VIE’s primary beneficiary. For further information, see Note 6. Creditors of CenterPoint Energy, Houston Electric and SIGECO have no recourse to any assets or revenues of Bond Company IV or the SIGECO Securitization Subsidiary, as applicable. The Securitization Bonds issued by these VIEs are payable only from and secured by transition or securitization property, as applicable, and the bondholders have no recourse to the general credit of CenterPoint Energy, Houston Electric or SIGECO.
The preparation of the Registrants’ financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(2) New Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This ASU updates segment disclosure requirements through enhanced disclosures around significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Registrants are currently evaluating the impact of this ASU on their respective consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). This ASU enhances the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Registrants are currently evaluating the impact of this ASU on their respective consolidated financial statements.
Management believes that all other recently adopted and recently issued accounting 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) Held for Sale and Divestitures (CenterPoint Energy and CERC)
Held for Sale. On February 19, 2024, CERC Corp. entered into the LAMS Asset Purchase Agreement, pursuant to which CERC Corp. has agreed to sell its Louisiana and Mississippi natural gas LDC businesses. The purchase price for the Louisiana and Mississippi natural gas LDC businesses is $1.2 billion and subject to adjustment as set forth in the LAMS Asset Purchase Agreement, including adjustments based on net working capital, regulatory assets and liabilities and capital expenditures at closing. The completion of the proposed transaction is subject to customary closing conditions, including (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) approval of the LPSC, (iii) approval of the MPSC, (iv) no Material Adverse Effect (as defined in the LAMS Asset Purchase Agreement) having occurred, and (v) customary closing conditions regarding the accuracy of the representations and warranties and compliance by the parties with the respective obligations under the LAMS Asset Purchase Agreement. The proposed transaction is not subject to a financing condition and is expected to close by the end of the first quarter of 2025, subject to satisfaction of the foregoing conditions. The businesses include approximately 12,000 miles of main pipeline in Louisiana and Mississippi serving more than 300,000 customers. The Louisiana and Mississippi natural gas LDC businesses are reflected in CenterPoint Energy’s Natural Gas reportable segment and CERC’s single reportable segment, as applicable. Filings were made on April 24, 2024 to the LPSC and on April 25, 2024 to the MPSC requesting approval of the transaction.
In February 2024, certain assets and liabilities representing the Louisiana and Mississippi natural gas LDC businesses met the held for sale criteria. The sale will be considered an asset sale for tax purposes, requiring net deferred tax liabilities to be excluded from held for sale balances.
The Registrants record assets and liabilities held for sale at the lower of their carrying value or their estimated fair value less cost to sell. Neither CenterPoint Energy nor CERC recognized any gains or losses upon classification of held for sale during the three and nine months ended September 30, 2024. See Note 9 for further information about the allocation of goodwill to the businesses to be sold.
The assets and liabilities of the Louisiana and Mississippi natural gas LDC businesses classified as held for sale in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets, as applicable, included the following:
September 30, 2024
CenterPoint Energy
CERC
(in millions)
Receivables, net
$
9
$
9
Accrued unbilled revenues
11
11
Natural gas inventory
6
6
Materials and supplies
13
13
Property, plant and equipment, net
1,030
1,030
Goodwill
217
122
Regulatory assets
57
57
Other
3
3
Total current assets held for sale
$
1,346
$
1,251
Short-term borrowings
$
3
$
3
Accounts payable
18
18
Customer deposits
14
14
Regulatory liabilities
92
92
Other
93
93
Total current liabilities held for sale
$
220
$
220
Although the Louisiana and Mississippi natural gas LDC businesses meet the held for sale criteria, their proposed disposals do not represent a strategic shift for CenterPoint Energy and CERC as both will retain significant operations in, and will continue to invest in, their natural gas businesses. Therefore, the assets and liabilities associated with these transactions are not reflected as discontinued operations on CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income, as applicable, and the December 31, 2023 Condensed Consolidated Balance Sheets were not required to be recast for assets held for sale. Since the depreciation on the Louisiana and Mississippi natural gas LDC businesses assets will continue to be reflected in revenues through customer rates until the expected closing of the transaction and will be reflected in the carryover basis of the rate-regulated assets once sold, CenterPoint Energy and CERC will continue to record depreciation on those assets through the expected closing of the transaction.
The pre-tax income for the Louisiana and Mississippi natural gas LDC businesses, excluding interest and corporate allocations, included in CenterPoint Energy’s and CERC’s Condensed Statements of Consolidated Income is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(in millions)
Income (loss) Before Income Taxes
$
1
$
(2)
$
45
$
33
Divestiture of Energy Systems Group. On May 21, 2023, CenterPoint Energy, through its subsidiary Vectren Energy Services, entered into an Equity Purchase Agreement to sell all of the outstanding limited liability company interests of Energy Systems Group to ESG Holdings Group, for a purchase price of $157 million, subject to customary adjustments set forth in the Equity Purchase Agreement, including adjustments based on Energy Systems Group’s net working capital at closing, indebtedness, cash and cash equivalents and transaction expenses. The transaction closed on June 30, 2023, and CenterPoint Energy received $154 million in cash. Additionally, as of September 30, 2024, CenterPoint Energy had a payable of approximately $2 million to ESG Holdings Group for working capital and other adjustments set forth in the Equity Purchase Agreement, which had not yet been finalized. For a discussion of CenterPoint Energy’s pre-disposition guarantees related to Energy Systems Group, see Note 13(b).
CenterPoint Energy recognized a loss on sale of approximately $12 million, including $3 million of transaction costs, during the nine months ended September 30, 2023, in connection with the closing of the sale of Energy Systems Group. Additionally, CenterPoint Energy recognized a current tax expense of $33 million during the nine months ended September 30, 2023, as a result of the cash taxes payable upon the closing of the sale.
The pre-tax loss for Energy Systems Group, excluding interest and corporate allocations, included in CenterPoint Energy’s Condensed Statements of Consolidated Income is as follows:
Three Months Ended September 30, 2023
Nine Months Ended September 30, 2023
(in millions)
Loss Before Income Taxes
$
—
$
4
(4) Revenue Recognition and Allowance for Credit Losses
In accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Registrants expect to be entitled to receive in exchange for these goods or services.
ARPs are contracts between the utility and its regulators, not between the utility and a customer. The Registrants recognize ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation in rates charged for utility service to customers, ARP revenue is reversed and recorded as revenue from contracts with customers. The recognition of ARP revenues and the reversal of ARP revenues upon recovery through rates charged for utility service may not occur in the same period.
The following tables disaggregate revenues by reportable segment and major source:
(1)Primarily consists of income from ARPs and leases. Total lease income was $1 million and $2 million for the three months ended September 30, 2024 and 2023, respectively, and $5 million and $6 million for the nine months ended September 30, 2024 and 2023, respectively.
Houston Electric
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(in millions)
Revenue from contracts with customers
$
1,065
$
1,100
$
3,024
$
2,821
Other (1)
(7)
(17)
(21)
(37)
Total revenues
$
1,058
$
1,083
$
3,003
$
2,784
(1)Primarily consists of income from ARPs and leases. Lease income was not significant for the three and nine months ended September 30, 2024 and 2023.
CERC
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(in millions)
Revenue from contracts with customers
$
593
$
575
$
2,760
$
3,012
Other (1)
7
8
31
33
Total revenues
$
600
$
583
$
2,791
$
3,045
(1)Primarily consists of income from ARPs and leases. Lease income was $1 million and $1 million for the three months ended September 30, 2024 and 2023, respectively, and $3 million and $3 million for the nine months ended September 30, 2024 and 2023, respectively.
Revenues from Contracts with Customers
Electric (CenterPoint Energy and Houston Electric). Houston Electric distributes electricity to customers over time and customers consume the electricity when delivered. Indiana Electric generates, transmits and distributes electricity to customers over time and customers consume the electricity when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by state regulators, such as the PUCT and the IURC, is recognized as electricity is delivered and represents amounts both billed and unbilled. Discretionary services requested by customers are provided at a point in time with control transferring upon the completion of the service. Revenue for discretionary services provided by Houston Electric is recognized upon completion of service based on the tariff rates set by the PUCT. Payments for electricity distribution and discretionary services are aggregated and received on a monthly basis. Houston Electric performs transmission services over time as a stand-ready obligation to provide a reliable network of transmission systems. Revenue is recognized upon time elapsed, and the monthly tariff rate set by the regulator. Payments are received on a monthly basis. Indiana Electric customers are billed monthly and payment terms, set by the regulator, require payment within a month of billing.
Natural Gas (CenterPoint Energy and CERC). CenterPoint Energy and CERC distribute and transport natural gas to customers over time and customers consume the natural gas when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by the state governing agency for that service area, is recognized as natural gas is delivered and represents amounts both billed and unbilled. Discretionary services requested by the customer are provided at a point in time with control transferring upon completion of the service. Revenue for discretionary services is recognized upon completion of service based on 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.
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 a contract liability when customer payment precedes performance. Those customers that prepay are represented by contract liabilities until the performance obligations are satisfied. The Registrants’ contract liabilities are included in Accounts payable and Other current liabilitiesin their Condensed Consolidated Balance Sheets.
The opening and closing balances of accounts receivable, accrued unbilled revenues and contract liabilities from contracts with customers are as follows:
CenterPoint Energy
Accounts Receivable
Accrued Unbilled Revenues
Contract Liabilities
(in millions)
Opening balance as of December 31, 2023
$
652
$
516
$
2
Closing balance as of September 30, 2024
650
349
5
Increase (decrease)
$
(2)
$
(167)
$
3
The amount of revenue recognized during the nine months ended September 30, 2024 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 CenterPoint Energy’s performance and the customer’s payment.
Houston Electric
Accounts Receivable
Accrued Unbilled Revenues
Contract Liabilities
(in millions)
Opening balance as of December 31, 2023
$
275
$
142
$
2
Closing balance as of September 30, 2024
421
191
5
Increase
$
146
$
49
$
3
The amount of revenue recognized during the nine months ended September 30, 2024 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
Accrued Unbilled Revenues
(in millions)
Opening balance as of December 31, 2023
$
330
$
329
Closing balance as of September 30, 2024
183
122
Decrease
$
(147)
$
(207)
CERC does not have any opening or closing contract asset or contract liability balances.
Remaining Performance Obligations (CenterPoint Energy).Following the completed sale of Energy Systems Group on June 30, 2023, as discussed in Note 3, CenterPoint Energy had no remaining performance obligations.
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.
Allowance for Credit Losses
CenterPoint Energy and CERC segregate financial assets that fall under the scope of Topic 326, primarily trade receivables due in one year or less, into portfolio segments based on shared risk characteristics, such as geographical location and regulatory environment, for evaluation of expected credit losses. Historical and current information, such as average write-offs, are applied to each portfolio segment to estimate the allowance for losses on uncollectible receivables. Additionally, the allowance for losses on uncollectible receivables is adjusted for reasonable and supportable forecasts of future economic conditions, which can include changing weather, commodity prices, regulations, and macroeconomic factors, among others. Houston Electric had no material changes in its methodology to recognize losses on financial assets that fall under the scope of Topic 326, primarily due to the nature of its customers and regulatory environment. For a discussion of regulatory deferrals, see Note 6.
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,
2024
2023
2024
2023
(in millions)
Service cost (1)
$
6
$
6
$
18
$
19
Interest cost (2)
18
19
55
57
Expected return on plan assets (2)
(19)
(19)
(56)
(57)
Amortization of net loss (2)
7
7
21
21
Net periodic cost
$
12
$
13
$
38
$
40
(1)Included in Operation and maintenance expense in CenterPoint Energy’s Condensed Statements of Consolidated Income, net of amounts capitalized and regulatory deferrals.
(2)Included in Other income, net in CenterPoint Energy’s Condensed Statements of Consolidated Income, net of regulatory deferrals.
Postretirement Benefits
Three Months Ended September 30,
2024
2023
CenterPoint Energy
Houston Electric
CERC
CenterPoint Energy
Houston Electric
CERC
(in millions)
Interest cost (2)
$
3
$
1
$
1
$
3
$
1
$
1
Expected return on plan assets (2)
(1)
(1)
(1)
(1)
(1)
—
Amortization of prior service cost (credit) (2)
(1)
(1)
1
(1)
(1)
1
Amortization of net loss (2)
(2)
(1)
(1)
(2)
(1)
(1)
Net periodic cost (benefit)
$
(1)
$
(2)
$
—
$
(1)
$
(2)
$
1
Nine Months Ended September 30,
2024
2023
CenterPoint Energy
Houston Electric
CERC
CenterPoint Energy
Houston Electric
CERC
(in millions)
Service cost (1)
$
1
$
—
$
—
$
1
$
—
$
—
Interest cost (2)
9
4
3
9
4
3
Expected return on plan assets (2)
(4)
(3)
(1)
(4)
(3)
—
Amortization of prior service cost (credit) (2)
(2)
(4)
2
(2)
(4)
2
Amortization of net loss (2)
(6)
(3)
(2)
(6)
(3)
(2)
Net periodic cost (benefit)
$
(2)
$
(6)
$
2
$
(2)
$
(6)
$
3
(1)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)Included in Other income, net in each of the Registrants’ respective Condensed Statements of Consolidated Income, net of regulatory deferrals.
The table below reflects the expected contributions to be made to the pension and postretirement benefit plans during 2024:
CenterPoint Energy
Houston Electric
CERC
(in millions)
Expected contributions to pension plans
$
11
$
—
$
—
Expected contributions to postretirement benefit plans
8
1
4
The table below reflects the contributions made to the pension and postretirement benefit plans during the periods presented:
Three Months Ended September 30, 2024
Nine Months Ended September 30, 2024
CenterPoint Energy
Houston Electric
CERC
CenterPoint Energy
Houston Electric
CERC
(in millions)
Pension plans
$
2
$
—
$
—
$
5
$
—
$
—
Postretirement benefit plans
2
—
1
6
—
4
(6) Regulatory Matters
Equity Return
The Registrants are at times allowed by a regulator to defer an equity return as part of the recoverable carrying costs of a regulatory asset. A deferred equity return is capitalized for rate-making purposes, but it is not included in the Registrant’s regulatory assets on its Condensed Consolidated Balance Sheets. The allowed equity return is recognized in the Condensed Statements of Consolidated Income as it is recovered in rates. The recoverable allowed equity return not yet recognized by the Registrants is as follows:
September 30, 2024
December 31, 2023
CenterPoint Energy (1)
Houston Electric (2)
CERC (3)
CenterPoint Energy (1)
Houston Electric (2)
CERC (3)
(in millions)
Unrecognized equity return
$
226
$
76
$
85
$
204
$
75
$
69
(1)In addition to the amounts described in (2) and (3) below, represents CenterPoint Energy’s allowed equity return on post in-service carrying cost generally associated with investments in Indiana.
(2)Represents Houston Electric’s allowed equity return on its true-up balance of stranded costs, other changes and related interest resulting from the formerly integrated electric utilities prior to Texas deregulation to be recovered in rates through 2024 and certain TEEEF costs and storm restoration costs.
(3)Represents CERC’s allowed equity return on post in-service carrying cost associated with certain distribution facilities replacement expenditures in Texas and costs associated with investments in Indiana.
The table below reflects the amount of allowed equity return recognized by each Registrant in its Condensed Statements of Consolidated Income:
In February 2021, certain of the Registrants’ jurisdictions experienced an extreme and unprecedented winter weather event that resulted in prolonged freezing temperatures, which impacted their businesses. The February 2021 Winter Storm Event impacted wholesale prices of CenterPoint Energy’s and CERC’s natural gas purchases and their ability to serve customers in their Natural Gas service territories, including due to the reduction in available natural gas capacity and impacts to CenterPoint Energy’s and CERC’s natural gas supply portfolio activities, and the effects of weather on their systems and their ability to transport natural gas, among other things. The overall natural gas market, including the markets from which CenterPoint Energy and CERC sourced a significant portion of their natural gas for their operations, experienced significant impacts caused by the February 2021 Winter Storm Event, resulting in extraordinary increases in the cost of natural gas purchased by CenterPoint Energy and CERC of approximately $2 billion. CenterPoint Energy and CERC have completed recovery of natural gas costs in Mississippi, Indiana, Louisiana and Texas, and continue to recover the natural gas cost in Minnesota. As of September 30, 2024, CenterPoint Energy and CERC had each recorded current regulatory assets of $67 million and non-current regulatory assets of $83 million associated with the February 2021 Winter Storm Event. As of December 31, 2023, CenterPoint Energy and CERC had each recorded current regulatory assets of $86 million and non-current regulatory assets of $130 million associated with the February 2021 Winter Storm Event.
As of September 30, 2024 and December 31, 2023, as authorized by the PUCT, both CenterPoint Energy and Houston Electric had each recorded a regulatory asset of $8 million for bad debt expenses resulting from REPs’ default on their obligation to pay delivery charges to Houston Electric net of collateral. Additionally, both CenterPoint Energy and Houston Electric had each recorded a regulatory asset of $18 million and $17 million as of September 30, 2024 and December 31, 2023, respectively, and requested reimbursement of costs associated with the February 2021 Winter Storm Event in Houston Electric’s rate case, which was filed in March 2024. On August 1, 2024, Houston Electric announced that it was withdrawing its base rate application with the PUCT in order to focus on addressing the impacts of Hurricane Beryl in its service territory and accelerating preparedness and resiliency efforts for the remaining storm season. Subsequently, intervenors filed a motion to challenge the withdrawal of the base rate proceeding. On August 16, 2024, the ALJ issued an order denying the requested withdrawal of the base rate proceeding, leaving the base rate proceeding abated. Houston Electric filed an appeal of the ALJ’s order to the PUCT, and on October 24, 2024, the PUCT heard oral arguments on the appeal and indicated that they will decide the appeal on November 14, 2024.
See Note 13(c) for further information regarding litigation related to the February 2021 Winter Storm Event.
Texas Public Securitization
The Texas Natural Gas Securitization Finance Corporation issued customer rate relief bonds in March 2023, and on March 23, 2023, CenterPoint Energy and CERC, collectively, received approximately $1.1 billion in cash proceeds from the issuance and sale of the state’s customer rate relief bonds. The proceeds from the state’s customer rate relief bonds included carrying costs incurred through August 2022. Incremental carrying costs incurred after August 2022 until the date the proceeds were received are recorded in a separate regulatory asset; the most recent CERC rate proceeding in Texas included a request for recovery of this regulatory asset and was included in the settlement agreement approved by the Railroad Commission in June 2024. As CenterPoint Energy and CERC have no future financial obligations for the repayment of the state’s customer rate relief bonds, the customer rate relief bonds are not recorded on CenterPoint Energy’s or CERC’s balance sheets. The $1.1 billion in cash proceeds from the state’s customer rate relief bonds is considered to be a government grant. The state’s customer rate relief bonds are backed in part by customer rate relief property, including customer rate relief charges, which are non-bypassable uniform monthly volumetric charges to be paid by all existing and future sales customers as a component of each regulated utility’s gas cost, separate from their base rate. CERC only acts as a collection agent, whose duties include management, servicing and administration of a portion of the customer rate relief property which is associated with the customer rate relief charge imposed on customers of CERC under the guidance and direction from the Railroad Commission. The Texas Natural Gas Securitization Finance Corporation, and not CenterPoint Energy or CERC, is the owner of the customer rate relief property. The assets of the Texas Natural Gas Securitization Finance Corporation are not available to pay creditors of CenterPoint Energy, CERC, or their affiliates. While the customer rate relief charges will be included by CERC in their monthly billings, the billing amount is established by the Railroad Commission. CERC will remit all customer rate relief charges collected to the financing entity set up by the Railroad Commission. Therefore, the collection and servicing of customer rate relief charges have no impact on the respective Condensed Statements of Consolidated Income of CenterPoint Energy or CERC.
As U.S. generally accepted accounting principles have no specific accounting guidance for government grants or assistance, the cash proceeds from the state’s customer rate relief bonds were accounted for as a government grant by analogy to the grant model under IAS 20—Accounting for Government Grants and Disclosures of Government Assistance. CenterPoint
Energy and CERC reflect the proceeds from the grant as a deduction to natural gas costs and recognized the $1.1 billion of cash proceeds from the state’s customer rate relief bonds within Utility natural gas expense on their respective Condensed Statements of Consolidated Income in the three months ended March 31, 2023, net of the recognition of natural gas cost related to relieving CenterPoint Energy and CERC’s regulatory assets related to the February 2021 Winter Storm Event in the same period.
Indiana Electric Securitization of Generation Retirements (CenterPoint Energy)
On January 4, 2023, the IURC issued an order in accordance with Indiana Senate Enrolled Act 386 authorizing the issuance of up to $350 million in securitization bonds to securitize qualified costs associated with the retirements of Indiana Electric’sA.B. Brown coal-fired generation facilities. Accordingly, CenterPoint Energy determined that the retirement of property, plant and equipment became probable upon the issuance of the order. No loss on abandonment was recognized in connection with issuance of the order as there was no disallowance of all or part of the cost of the abandoned property, plant and equipment. In the first quarter of 2023, upon receipt of the order, CenterPoint Energy reclassified property, plant and equipment to be recovered through securitization to a regulatory asset and such amounts continued to earn a full return until recovered through securitization.
The SIGECO Securitization Subsidiary issued $341 million aggregate principal amount of the SIGECO Securitization Bonds on June 29, 2023. The SIGECO Securitization Subsidiary used a portion of the net proceeds from the issuance of the SIGECO Securitization Bonds to purchase the securitization property from SIGECO. No gain or loss was recognized.
The SIGECO Securitization Bonds are secured by the securitization property, which includes the right to recover, through non-bypassable securitization charges payable by SIGECO’s retail electric customers, the qualified costs of SIGECO authorized by the IURC order. The SIGECO Securitization Subsidiary, and not SIGECO, is the owner of the securitization property, and the assets of the SIGECO Securitization Subsidiary are not available to pay the creditors of SIGECO or its affiliates, other than the SIGECO Securitization Subsidiary. SIGECO has no payment obligations with respect to the SIGECO Securitization Bonds except to remit collections of securitization charges as set forth in a servicing agreement between SIGECO and the SIGECO Securitization Subsidiary. The non-bypassable securitization charges are subject to a true-up mechanism.
Houston Electric TEEEF
Pursuant to legislation passed in 2021, Houston Electric entered into two leases for TEEEF (temporary generation) which are detailed in Note 19. Houston Electric initially sought recovery of the lease costs and the applicable return as of December 31, 2021 under these lease agreements of approximately $200 million in its DCRF application filed with the PUCT on April 5, 2022, and subsequently amended on July 1, 2022, to show temporary generation in a separate Rider TEEEF. A final order was issued on April 5, 2023 approving a revenue requirement of $39 million that results in full recovery of costs requested but lengthens the amortization period for the short-term lease to be collected over 82.5 months. On May 25, 2023, the PUCT issued its order on rehearing which clarified some of the findings, but did not change the approval of TEEEF cost recovery. The PUCT’s decision on the first TEEEF filing is final and non-appealable.
On April 5, 2023, Houston Electric made its second TEEEF filing requesting recovery of TEEEF related costs incurred through December 31, 2022. Houston Electric requested a new annual revenue requirement of approximately $188 million using 78 months to amortize the related deferred costs for proposed rates beginning September 2023, a net increase in TEEEF revenues of approximately $149 million. On August 28, 2023, the State Office of Administrative Hearings issued an Order setting interim rates to collect an annual revenue requirement at the filed amount. Interim rates became effective on September 1, 2023, subject to surcharge or refund if they differ from the final rates approved by the PUCT. An agreement in principle was reached which reduced the annual revenue requirement by approximately $35 million based on recovering the balance as of December 31, 2022 over a 102 month amortization period (instead of the 78 month period in the initial filing) and also allows for revised interim rates (to incorporate the agreement in principle and the initial interim rates that have been in place since September 1, 2023). The updated interim rates were implemented on December 15, 2023 and approved by the PUCT pursuant to its order issued on February 1, 2024 when the PUCT approved the agreement in principle. The PUCT’s decision on the second TEEEF filing is final and non-appealable.
On September 11, 2024, the Texas Consumer Association (“TCA”) filed a complaint with the PUCT requesting that the PUCT modify its rulings with respect to its prior decisions related to the TEEEF filings made in 2022 and 2023. Specifically, TCA requested that the PUCT end cost recovery and return on investment on all the large 32 MW and 5 MW TEEEF units approved in docket 53442. On October 2, 2024, Houston Electric filed a response to the TCA complaint and requested that the complaint be dismissed due to the principles of res judicata and collateral estoppel. On October 8, 2024, TCA supplemented its complaint and on October 9, 2024, PUCT staff filed a statement of position stating that Houston Electric’s response provided a
strong argument for dismissal of the complaint, but also stating that it would be prudent to have a thorough legal argument from TCA. On October 10, 2024, PUCT issued Order No. 2 finding the TCA complaint insufficient and requiring supplemental information or amendment from TCA by October 24, 2024; TCA filed supplemental information on October 24, 2024.
Houston Electric defers costs associated with the short-term and long-term leases that are probable of recovery and would otherwise be charged to expense in a regulatory asset, including allowed debt returns, and determined that such regulatory assets remain probable of recovery as of September 30, 2024. Right of use finance lease assets, such as assets acquired under the long-term leases, are evaluated for impairment under the long-lived asset impairment model by assessing if a capital disallowance from a regulator is probable through monitoring the outcome of rate cases and other proceedings. Houston Electric continues to monitor the ongoing proceedings and did not record any impairments on its right of use assets in the year ended December 31, 2023 nor the three and nine months ended September 30, 2024. See Note 19 for further information.
May 2024 Storm Events
Houston Electric’s service territory experienced sudden and destructive severe weather events in May 2024 that included hurricane-like winds and tornadoes. The May 2024 Storm Events caused significant damage to Houston Electric’s electric delivery system. As of September 30, 2024, Houston Electric had recorded $345 million in Property, plant and equipment and $74 million in Regulatory assets, excluding carrying costs, for such restoration costs. Based on currently available information, as of September 30, 2024, Houston Electric estimates that total costs to restore the electric delivery facilities damaged as a result of the May 2024 Storm Events will be approximately $462 million, excluding carrying costs. These preliminary estimates are subject to revision as certain restoration costs are expected to be incurred through the end of 2025.
As is common with electric utilities serving coastal regions, the poles, towers, wires, street lights and pole-mounted equipment that comprise Houston Electric’s transmission and distribution system are not covered by property insurance. Houston Electric is deferring certain storm restoration costs as management believes it is probable that such costs will be recovered through the regulatory process. The ultimate recovery of the costs (or a portion thereof) is expected to be sought through the issuance and sale of non-recourse securitization bonds for distribution-related costs and the TCOS capital mechanism for transmission-related costs. However, neither the amount nor timing of the recovery is certain.
See Note 11 for further information regarding a term loan facility to fund certain costs related to the May 2024 Storm Events.
Hurricane Beryl
On July 8, 2024, Hurricane Beryl made landfall in Texas, bringing sustained winds, storm surges and torrential rain into Houston Electric’s service territory. Hurricane Beryl caused significant damage to Houston Electric’s electric delivery system. Based on currently available information, as of September 30, 2024, Houston Electric estimates that total costs to restore the electric delivery facilities damaged as a result of Hurricane Beryl will be approximately $1.1 billion, excluding carrying costs. As of September 30, 2024, Houston Electric had recorded $670 million in Property, plant and equipment and $453 million in Regulatory assets, excluding carrying costs, for such restoration costs.
Houston Electric is deferring certain storm restoration costs as management believes it is probable that such costs will be recovered through the regulatory process. Similar to the costs related to the May 2024 Storm Events, insurance coverage was not available for damages to much of our transmission and distribution assets. The ultimate recovery of the costs (or a portion thereof) relating to Hurricane Beryl is expected to be sought through the issuance and sale of non-recourse securitization bonds for distribution-related costs. However, neither the amount nor timing of the recovery is certain.
(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, from time to time, utilize derivative instruments such as swaps and options to mitigate the impact of changes in commodity prices, weather and interest rates on operating results and cash flows.
Commodity Derivative Instruments (CenterPoint Energy and CERC). CenterPoint Energy and CERC, through the Indiana Utilities they respectively own, enter into certain derivative instruments to mitigate the effects of commodity price movements. Outstanding derivative instruments designated as economic hedges at the 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. Houston Electric and the Indiana Utilities have authority to refund and recover mark-to-market gains and losses associated with hedging financing activity, and thus the gains and losses on derivatives are deferred in a regulatory liability or asset.
The table below summarizes CenterPoint Energy’s and Houston Electric’s outstanding interest rate hedging activity:
September 30, 2024
December 31, 2023
Hedging Classification
Notional Principal
(in millions)
CenterPoint Energy:
Cash flow hedge (1) (2)
$
—
$
200
Economic hedge (3)
$
150
$
—
Houston Electric:
Cash flow hedge (2)
$
—
$
100
Economic hedge (3)
$
150
$
—
(1)Relates to interest rate derivative instruments at CenterPoint Energy that terminated on May 8, 2024. The interest rate swap agreements were designated as cash flow hedges of forecasted transactions. CenterPoint Energy records all changes in the fair value of cash flow hedges in accumulated other comprehensive income (loss) until the underlying hedged transaction occurs, when it reclassifies that amount into earnings.
(2)Relates to interest rate derivative instruments at Houston Electric that terminated on February 26, 2024. The interest rate treasury lock agreements were designated as cash flow hedges of forecasted transactions. Houston Electric records all changes in the fair value of cash flow hedges to a regulatory asset or liability, which is amortized over the life of the associated debt being hedged.
(3)Relates to interest rate derivative instruments at Houston Electric with a termination date of December 24, 2025.
(b)Derivative Fair Values and Financial Statement Presentation
CenterPoint Energy and Houston Electric had no interest rate derivatives designated as cash flow hedges outstanding as of September 30, 2024. Houston Electric’s interest rate derivatives not designated as cash flow hedges were not material as of September 30, 2024. CenterPoint Energy’s interest rate derivatives designated as cash flow hedges were not material as of December 31, 2023 and were included in current Non-trading derivative liabilities on CenterPoint Energy’s Condensed Consolidated Balance Sheets. Houston Electric’s interest rate derivatives designated as cash flow hedges were not material as of December 31, 2023 and were included in Prepaid expenses and other current assets on Houston Electric’s Condensed Consolidated Balance Sheets.
The following tables provide a balance sheet overview of the Registrants’ derivative assets and liabilities in the periods presented:
September 30, 2024
December 31, 2023
Balance Sheet Location
Derivative Assets Fair Value
Derivative Liabilities Fair Value
Derivative Assets Fair Value
Derivative Liabilities Fair Value
CenterPoint Energy:
(in millions)
Derivatives not designated as hedging instruments:
Natural gas derivatives (1)
Current Assets: Non-trading derivative assets
$
1
$
—
$
—
$
—
Natural gas derivatives (1)
Current Liabilities: Non-trading derivative liabilities
—
5
—
9
Natural gas derivatives (1)
Other Liabilities: Non-trading derivative liabilities
—
2
—
3
Indexed debt securities derivative (2)
Current Liabilities
—
591
—
605
Total
$
1
$
598
$
—
$
617
(1)Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due. However, the mark-to-market fair value of each natural gas contract was in a liability position with no offsetting amounts as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, the notional volume of natural gas derivatives were 32,251 MMBtu per day and 27,421 MMBtu per day, respectively.
(2)Derivative component of the ZENS obligation that represents the ZENS holder’s option to receive the appreciated value of the reference shares at maturity and other payments to which they may be entitled. See Note 10 for further information.
September 30, 2024
December 31, 2023
Balance Sheet Location
Derivative Assets Fair Value
Derivative Liabilities Fair Value
Derivative Assets Fair Value
Derivative Liabilities Fair Value
CERC:
(in millions)
Derivatives not designated as hedging instruments:
Natural gas derivatives (1)
Current Assets: Non-trading derivative assets
$
1
$
—
$
—
$
—
Natural gas derivatives (1)
Current Liabilities: Non-trading derivative liabilities
—
4
—
8
Natural gas derivatives (1)
Other Liabilities: Non-trading derivative liabilities
—
2
—
3
Total
$
1
$
6
$
—
$
11
(1)Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due. However, the mark-to-market fair value of each natural gas contract was in a liability position with no offsetting amounts as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, the notional volume of natural gas derivatives were 27,644 MMBtu per day and 23,504 MMBtu per day, respectively.
The table below provides the related income statement impacts of derivative activity for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
Income Statement Location
2024
2023
2024
2023
CenterPoint Energy:
(in millions)
Derivatives not designated as hedging instruments:
Indexed debt securities derivative (1)
Gain (loss) on indexed debt securities
$
(53)
$
(47)
$
14
$
(52)
(1)The indexed debt securities derivative is recorded at fair value and changes in the fair value are recorded in CenterPoint Energy’s Condensed Statements of Consolidated Income.
Cash inflows and outflows associated with derivatives are included in operating activities on the statement of cash flows.
(c) Credit Risk Contingent Features (CenterPoint Energy and CERC)
Certain of CenterPoint Energy’s and CERC’s derivative instruments contain provisions that require CenterPoint Energy and CERC to maintain an investment grade credit rating on their respective long-term unsecured unsubordinated debt from S&P and Moody’s. If CenterPoint Energy’s or CERC’s debt were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or additional collateral. No collateral had been posted for CenterPoint Energy or CERC as of September 30, 2024 or December 31, 2023. The table below sets forth additional detail for the periods presented:
September 30, 2024
December 31, 2023
CenterPoint Energy
CERC
CenterPoint Energy
CERC
(in millions)
Aggregate fair value of derivatives containing material adverse change provisions in a net liability position
$
5
$
4
$
9
$
8
Additional collateral required to be posted if credit risk contingent features triggered
5
4
9
8
(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.
Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets and inputs other than quoted prices that are observable for the asset or liability. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets. A market approach is utilized to value the Registrants’ Level 2 interest rate derivative assets or liabilities and 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.
The Registrants determine the appropriate level for each financial asset and liability on a quarterly basis.
The following tables present information about the Registrants’ assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 and indicate the fair value hierarchy of the valuation techniques utilized by the Registrants to determine such fair value.
CenterPoint Energy
September 30, 2024
December 31, 2023
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
(in millions)
Equity securities
$
531
$
—
$
—
$
531
$
541
$
—
$
—
$
541
Investments, including money market funds (1)
35
—
—
35
31
—
—
31
Natural gas derivatives
—
1
—
1
—
—
—
—
Total assets
$
566
$
1
$
—
$
567
$
572
$
—
$
—
$
572
Liabilities
Indexed debt securities derivative
$
—
$
591
$
—
$
591
$
—
$
605
$
—
$
605
Natural gas derivatives
—
7
—
7
—
12
—
12
Total liabilities
$
—
$
598
$
—
$
598
$
—
$
617
$
—
$
617
Houston Electric
September 30, 2024
December 31, 2023
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
(in millions)
Investments, including money market funds (1)
$
20
$
—
$
—
$
20
$
14
$
—
$
—
$
14
Total assets
$
20
$
—
$
—
$
20
$
14
$
—
$
—
$
14
CERC
September 30, 2024
December 31, 2023
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
(in millions)
Investments, including money market funds (1)
$
15
$
—
$
—
$
15
$
15
$
—
$
—
$
15
Natural gas derivatives
—
1
—
1
—
—
—
—
Total assets
$
15
$
1
$
—
$
16
$
15
$
—
$
—
$
15
Liabilities
Natural gas derivatives
$
—
$
6
$
—
$
6
$
—
$
11
$
—
$
11
Total liabilities
$
—
$
6
$
—
$
6
$
—
$
11
$
—
$
11
(1)Amounts are included in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.
Items Measured at Fair Value on a Nonrecurring Basis
As a result of classifying the Louisiana and Mississippi natural gas LDC businesses as held for sale, CenterPoint Energy and CERC used a market approach consisting of contractual sales price adjusted for estimated working capital and other contractual purchase price adjustments to determine the fair value of the businesses classified as held for sale, which are Level 2 inputs. Neither CenterPoint Energy nor CERC recognized any gains or losses upon classification as held for sale during the three and nine months ended September 30, 2024. See Note 3 for further information.
Estimated Fair Value of Financial Instruments
The fair values of cash and cash equivalents, investments in debt and equity securities measured at fair value and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s ZENS indexed debt securities derivative are stated at fair value and are excluded from the table below. The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by a combination of historical trading prices and comparable issue data. These liabilities, which are not measured at fair value in the Registrants’ Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 2 in the fair value hierarchy.
CenterPoint Energy’s goodwill by reportable segment is as follows:
December 31, 2023
Held For Sale
September 30, 2024
(in millions)
Electric (1)
$
936
$
—
$
936
Natural gas (2)
2,920
217
2,703
Corporate and other
304
—
304
Total
$
4,160
$
217
$
3,943
(1)Amount presented is net of the accumulated goodwill impairment charge of $185 million recorded in 2020.
(2)If a disposal group reflects a component of a reporting unit and meets the definition of a business, the goodwill within that reporting unit is allocated to the disposal group based on the relative fair value of the components representing a business that will be retained and disposed. As a result, goodwill attributable to the Louisiana and Mississippi natural gas LDC businesses to be disposed of was classified as held for sale as of September 30, 2024. CenterPoint Energy did not recognize any goodwill impairments within the Natural Gas reportable segment during the nine months ended September 30, 2024. For further information, see Note 3.
CERC’s goodwill is as follows:
December 31, 2023
Held For Sale
September 30, 2024
(in millions)
Goodwill (1)
$
1,583
$
122
$
1,461
(1)In connection with the classification of the Louisiana and Mississippi natural gas LDC businesses as held for sale as of September 30, 2024 described above, goodwill attributable to CERC to be disposed of as part of the transaction was classified as held for sale as of September 30, 2024. CERC did not recognize any goodwill impairments during the nine months ended September 30, 2024. For further information, see Note 3.
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. Goodwill is evaluated for impairment by performing a qualitative assessment or using a quantitative test. If we choose to perform a qualitative assessment and determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative test is then performed; otherwise, no further testing is required. The quantitative test, if required, 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 based on an income approach or a weighted combination of income and market approaches. When the carrying amount is in excess of the estimated fair value of the reporting unit, the excess amount is recorded as an impairment charge, not to exceed the carrying amount of goodwill. CenterPoint Energy and CERC performed their annual goodwill impairment tests in the third quarter of 2024 and determined that no goodwill impairment charge was required for any reporting unit as a result of those tests.
(10) Equity Securities and Indexed Debt Securities (ZENS) (CenterPoint Energy)
(a) Equity Securities
Gains and losses on equity securities, net of transaction costs, are recorded in Gain (loss) on equity securities in CenterPoint Energy’s Condensed Statements of Consolidated Income. The following table presents unrealized gains (losses), net on equity securities owned by CenterPoint Energy for each period presented:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(in millions)
AT&T Common
$
29
$
(10)
$
53
$
(35)
Charter Common
22
63
(56)
88
WBD Common
3
(5)
(7)
3
Other
—
1
—
—
Total gains (losses) on equity securities, net
$
54
$
49
$
(10)
$
56
CenterPoint Energy and its subsidiaries hold shares of certain securities detailed in the table below, which are classified as trading securities. Shares of AT&T Common, Charter Common and WBD Common are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS. The following table presents information on CenterPoint Energy’s equity securities for each period presented:
Shares Held
Carrying Value
September 30, 2024
December 31, 2023
September 30, 2024
December 31, 2023
(in millions)
AT&T Common
10,212,945
10,212,945
$
224
$
171
Charter Common
872,503
872,503
283
339
WBD Common
2,470,685
2,470,685
21
28
Other
3
3
Total
$
531
$
541
(b) ZENS
In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1.0 billion of which $828 million remained outstanding as of September 30, 2024. Each ZENS is 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 attributable to such note. The number and identity of the reference shares attributable to each ZENS are adjusted for certain corporate events. CenterPoint Energy’s reference shares for each ZENS consisted of the following:
September 30, 2024
December 31, 2023
(in shares)
AT&T Common
0.7185
0.7185
Charter Common
0.061382
0.061382
WBD Common
0.173817
0.173817
CenterPoint Energy pays interest on the ZENS at an annual rate of 2% plus the amount of any quarterly cash dividends paid in respect of the reference shares attributable to the ZENS. The principal amount of the ZENS is subject to increases or decreases to the extent that the annual yield from interest and cash dividends on the reference shares attributable to the ZENS is less than or more than 2.309%. The adjusted principal amount is defined in the ZENS instrument as “contingent principal.” As of September 30, 2024, the ZENS, having an original principal amount of $828 million and a contingent principal amount of $11 million, were outstanding and were exchangeable, at the option of the holders, for cash equal to 95% of the market value of the reference shares attributable to the ZENS.
(11) Short-term Borrowings and Long-term Debt
Inventory Financing. CenterPoint Energy’s and CERC’s Natural Gas businesses utilize third-party AMAs associated with their utility distribution service in Indiana, Louisiana, Minnesota, Mississippi and Texas. The AMAs have varying terms, the longest of which expires in 2029. Pursuant to the provisions of the agreements, CenterPoint Energy’s and CERC’s Natural Gas
either sells natural gas to the asset manager and agrees to repurchase an equivalent amount of natural gas throughout the year at the same cost, or simply purchases its full natural gas requirements at each delivery point from the asset manager. Certain of these transactions are accounted for as an inventory financing. CenterPoint Energy and CERC had $3 million outstanding obligations related to the AMAs as of September 30, 2024 and $4 million as of December 31, 2023, recorded in Short-term borrowings on CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets.
Debt Issuance. In February 2024, Houston Electric issued $400 million aggregate principal amount of 5.15% general mortgage bonds due 2034. Total proceeds, net of discount, transaction expenses and fees, were approximately $395 million, which were used for general limited liability company purposes, including capital expenditures and working capital purposes.
In May 2024, CenterPoint Energy issued $700 million aggregate principal amount of 5.40% senior notes due 2029. Total proceeds, net of discount, transaction expenses and fees were approximately $693 million, which were used for general corporate purposes, including the redemption of $350 million aggregate principal amount of CenterPoint Energy’s outstanding floating rate senior notes due 2024, as further described below.
In June 2024, CERC issued $400 million aggregate principal amount of 5.40% senior notes due 2034. Total proceeds, net of discount, transaction expenses and fees, were approximately $396 million, which were used for general corporate purposes, including working capital purposes.
In June 2024, Houston Electric entered into a delayed draw term loan agreement with a maturity date of December 24, 2025, pursuant to which the banks party thereto committed to provide term loans in an aggregate principal amount of up to $300 million. The term loan agreement also permits Houston Electric to request additional commitments and/or additional loans, such additional commitments and/or loans not to exceed $200 million and subject to the satisfaction of certain customary conditions precedent. The borrowings under the term loan agreement bear interest at Houston Electric’s option, at a rate equal to either (i) Term SOFR (as defined in the term loan agreement), which includes an adjustment of 0.10% per annum plus a margin of 1.0%, or (ii) the Alternate Base Rate (as defined in the term loan agreement). On June 28, 2024, Houston Electric borrowed $100 million, and the proceeds thereof were used for working capital to support liquidity needs from the May 2024 Storm Events and for general limited liability company purposes. In September 2024, Houston Electric borrowed the remaining $200 million aggregate principal amount available under the term loan agreement and has used the proceeds thereof for working capital to support liquidity needs from the May 2024 Storm Events and general limited liability company purposes.
In August 2024, CenterPoint Energy, through its wholly-owned subsidiary SIGECO, and certain institutional investors in the private placement market (“Private Placement Purchasers”) entered into a bond purchase agreement, under which SIGECO agreed to sell, and each Private Placement Purchaser agreed to severally purchase (i) on August 29, 2024, $100 million 5.18% First Mortgage Bonds, Series 2024A, Tranche A due 2034 (the “Series 2024A Tranche A Bonds”) and $60 million 5.28% First Mortgage Bonds, Series 2024A, Tranche B due 2036 (the “Series 2024A Tranche B Bonds” and, together with the Series 2024A Tranche A Bonds, the “Series 2024A Bonds”), and (ii) on January 31, 2025, or such sooner date, as may be selected by SIGECO upon not less than five business days’ advance notice, $165 million 5.69% First Mortgage Bonds, Series 2025A, Tranche A due 2055 (the “Series 2025A Bonds” and, together with the Series 2024A Bonds, the “Private Placement Bonds”).
The proceeds of the Private Placement Bonds will be used for general corporate purposes, including repaying short-term debt, refunding long-term debt at maturity or otherwise, and funding capital expenditures such as SIGECO’s Posey Solar project. On August 29, 2024, SIGECO closed on the offering of $160 million of the Series 2024A Bonds. The closing of the Series 2025 A Bonds is expected to occur on or prior to January 31, 2025.
Junior Subordinated Notes. In August 2024, CenterPoint Energy issued $400 million aggregate principal amount of 7.000% Fixed-to-Fixed Reset Rate Junior Subordinated Notes, Series A, due 2055 (the “Series A Notes”) and $400 million aggregate principal amount of 6.850% Fixed-to-Fixed Reset Rate Junior Subordinated Notes, Series B, due 2055 (the “Series B Notes,” and together with the Series A Notes, the “Junior Subordinated Notes”). Interest on the Junior Subordinated Notes accrues from August 14, 2024 and is payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2025, and maturing on February 15, 2055. The Series A Notes bear interest (i) from and including August 14, 2024 to, but excluding, February 15, 2030 at the rate of 7.000% per annum and (ii) from and including February 15, 2030, during each five-year period following February 15, 2030 (each such five-year period, a “Series A Interest Reset Period”), at a rate per annum equal to the Five-Year Treasury Rate (as defined in the Junior Subordinated Notes Indenture) as of two business days prior to the beginning of the applicable Series A Interest Reset Period plus a spread of 3.254%, with such rate per annum to be reset on each five-year anniversary of February 15, 2030. The Series B Notes bear interest (i) from and including August 14, 2024, but excluding, February 15, 2035 at the rate of 6.850% per annum and (ii) from and including February 15, 2035, during each five-year period following February 15, 2035 (each such five-year period, a “Series B Interest Reset Period”), at a rate per annum equal to the Five-Year Treasury Rate (as defined in the Junior Subordinated Notes Indenture) as of two business days prior to the beginning of the applicable Series B Interest Reset Period plus a spread of 2.946%, with such rate per annum
to be reset on each five-year anniversary of February 15, 2035. So long as no event of default (as defined in the prospectus supplement relating to the offering of the Junior Subordinated Notes) with respect to a given series of Junior Subordinated Notes has occurred and is continuing, CenterPoint Energy may, at its option, defer interest payments on such series of Junior Subordinated Notes, from time to time, for one or more deferral periods of up to 20 consecutive semiannual interest payment periods, except that no such optional deferral period (as defined in the prospectus supplement relating to the offering of the Junior Subordinated Notes) may extend beyond the final maturity date of such series of Junior Subordinated Notes or end on a day other than the day immediately preceding an interest payment date.
During any optional deferral period, CenterPoint Energy (and its majority-owned subsidiaries, as applicable) will not (subject to certain exceptions as described in the Junior Subordinated Notes Indenture): (i) declare or pay any dividends or distributions on any of CenterPoint Energy’s capital stock; (ii) redeem, purchase, acquire or make a liquidation payment with respect to any of CenterPoint Energy’s capital stock; (iii) pay any principal, interest (to the extent such interest is deferrable) or premium on, or repay, repurchase or redeem any of CenterPoint Energy’s indebtedness that ranks equally with or junior to the Junior Subordinated Notes in right of payment (including debt securities of other series, such as the other series of the Junior Subordinated Notes issued); or (iv) make any payments with respect to any guarantees by CenterPoint Energy of any indebtedness if such guarantees rank equally with or junior to the Junior Subordinated Notes in right of payment.
The Junior Subordinated Notes are CenterPoint Energy’s unsecured obligations and rank junior and subordinate in right of payment to the prior payment in full of CenterPoint Energy’s existing and future Senior Indebtedness (as defined in the Junior Subordinated Notes Indenture). Total proceeds for the sale of the Junior Subordinated Notes, net of issuance costs and transaction expenses and fees, were approximately $790 million, which were used for general corporate purposes, including the redemption of $500 million aggregate principal amount of CenterPoint Energy’s outstanding 2.50% senior notes due 2024 as further described below and the repayment of a portion of outstanding commercial paper.
Convertible Senior Notes. Interest on the Convertible Notes is payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2024. The Convertible Notes will mature on August 15, 2026, unless earlier converted or repurchased by CenterPoint Energy in accordance with their terms.
Prior to the close of business on the business day immediately preceding May 15, 2026, the Convertible Notes are convertible only under certain conditions. On or after May 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or any portion of their Convertible Notes at any time at the conversion rate then in effect, irrespective of the conditions. CenterPoint Energy may not redeem the Convertible Notes prior to the maturity date and no sinking fund is provided for the Convertible Notes.
Upon conversion of the Convertible Notes, CenterPoint Energy will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of Common Stock, or a combination of cash and shares of Common Stock, at CenterPoint Energy’s election, in respect of the remainder, if any, of CenterPoint Energy’s conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. The conversion rate for the Convertible Notes is initially 27.1278 shares of Common Stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $36.86 per share of Common Stock). The initial conversion price of the Convertible Notes represents a premium of approximately 25.0% over the last reported sale price of the Common Stock on the NYSE on August 1, 2023. Initially, a maximum of 33,909,700 shares of Common Stock may be issued upon conversion of the Convertible Notes based on the initial maximum conversion rate of 33.9097 shares of Common Stock per $1,000 principal amount of Convertible Notes. The conversion rate will be subject to adjustment in some events (as described in the Convertible Notes Indenture) but will not be adjusted for any accrued and unpaid interest.
In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes, CenterPoint Energy will, in certain circumstances, increase the conversion rate for a holder of Convertible Notes who elects to convert its Convertible Notes in connection with such a corporate event. If CenterPoint Energy undergoes a fundamental change (as described in the Convertible Notes Indenture), holders of the Convertible Notes may require CenterPoint Energy to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Convertible Notes are senior unsecured obligations of CenterPoint Energy and rank senior in right of payment to any of CenterPoint Energy’s indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to any of CenterPoint Energy’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of CenterPoint Energy’s secured indebtedness it may incur in the future to the extent of the value of the assets securing such future secured indebtedness; and structurally junior to all indebtedness and other liabilities (including trade
payables but excluding intercompany obligations and liabilities of a type not required to be reflected on a balance sheet of such subsidiaries in accordance with generally accepted accounting principles) of CenterPoint Energy’s subsidiaries.
Debt Redemption. In March 2024, CenterPoint Energy, through its wholly-owned subsidiary SIGECO, redeemed $22 million aggregate principal amount of SIGECO’s outstanding 3.50% first mortgage bonds due 2024 at a redemption price equal to 100% of the principal amount of the first mortgage bonds to be redeemed plus accrued and unpaid interest thereon.
In May 2024, CenterPoint Energy redeemed $350 million aggregate principal amount of its outstanding floating rate senior notes due 2024 at a redemption price equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest thereon.
In September 2024, CenterPoint Energy redeemed $500 million aggregate principal amount of its outstanding 2.50% senior notes due 2024 at a redemption price equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest thereon.
Credit Facilities. The Registrants had the following revolving credit facilities as of September 30, 2024:
Execution Date
Registrant
Size of Facility
Draw Rate of SOFR plus (1)
Financial Covenant Limit on Debt for Borrowed Money to Capital Ratio
Debt for Borrowed Money to Capital
Ratio as of
September 30, 2024 (2)
Termination Date
(in millions)
December 6, 2022
CenterPoint Energy
$
2,400
1.500%
65.0%
(3)
59.7%
December 6, 2027
December 6, 2022
CenterPoint Energy (4)
250
1.125%
65.0%
45.1%
December 6, 2027
December 6, 2022
Houston Electric
300
1.250%
67.5%
(3)
53.2%
December 6, 2027
December 6, 2022
CERC
1,050
1.125%
65.0%
39.5%
December 6, 2027
Total
$
4,000
(1)Based on credit ratings as of September 30, 2024.
(2)As defined in the revolving credit facility agreements, excluding Securitization Bonds.
(3)For CenterPoint Energy and Houston Electric, the financial covenant limit will temporarily increase to 70% if Houston Electric experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive 12-month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification.
(4)This credit facility was issued by SIGECO.
The Registrants, as well as the subsidiaries of CenterPoint Energy discussed above, were in compliance with all financial debt covenants as of September 30, 2024.
The table below reflects the utilization of the Registrants’ respective revolving credit facilities:
September 30, 2024
December 31, 2023
Registrant
Loans
Letters of Credit
Commercial Paper (2)
Weighted Average Interest Rate
Loans
Letters of Credit
Commercial Paper (2)
Weighted Average Interest Rate
(in millions, except weighted average interest rate)
CenterPoint Energy
$
—
$
—
$
803
4.91
%
$
—
$
—
$
1,036
5.54
%
CenterPoint Energy (1)
—
—
—
—
%
—
—
—
—
%
Houston Electric
—
—
—
—
%
—
—
—
—
%
CERC
—
1
197
4.90
%
—
1
484
5.53
%
Total
$
—
$
1
$
1,000
$
—
$
1
$
1,520
(1)This credit facility was issued by SIGECO.
(2)CenterPoint Energy’s and CERC’s outstanding commercial paper generally have maturities of up to 60 days and 30 days, respectively, and are backstopped by the respective issuer’s long-term revolving credit facility. Neither Houston Electric nor SIGECO has a commercial paper program.
Liens. As of September 30, 2024, Houston Electric’s assets were subject to liens securing approximately $8 billion of general mortgage bonds outstanding under the General Mortgage, including approximately $68 million held in trust to secure pollution control bonds that mature in 2028 for which CenterPoint Energy is obligated. The general mortgage bonds that are held in trust to secure pollution control bonds are not reflected in Houston Electric’s consolidated financial statements because of the contingent nature of the obligations. Houston Electric may issue additional general mortgage bonds on the basis of retired bonds, 70% of property additions or cash deposited with the trustee. Houston Electric could issue approximately $5.1 billion of additional general mortgage bonds on the basis of retired bonds and 70% of property additions as of September 30, 2024. No first mortgage bonds are outstanding under the M&DOT, and Houston Electric is contractually obligated to not issue any additional first mortgage bonds under the M&DOT and is undertaking actions to release the lien of the M&DOT and terminate the M&DOT.
As of September 30, 2024, SIGECO had approximately $985 million aggregate principal amount of first mortgage bonds outstanding. Generally, all of SIGECO’s real and tangible property is subject to the lien of SIGECO’s mortgage indenture which was amended and restated effective as of January 1, 2023. As of September 30, 2024, SIGECO was permitted to issue additional bonds under its mortgage indenture up to 70% of then currently unfunded property additions and approximately $814 million of additional first mortgage bonds could be issued on this basis.
(12) Income Taxes
The Registrants reported the following effective tax rates:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
CenterPoint Energy (1)
21
%
19
%
18
%
25
%
Houston Electric(2)
19
%
22
%
19
%
22
%
CERC (3)
21
%
25
%
20
%
22
%
(1)CenterPoint Energy’s higher effective tax rate for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to a decrease in EDIT amortization and a decrease in qualifying costs eligible for research and development tax credits. CenterPoint Energy’s lower effective tax rate for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to the absence of impacts associated with the sale of Energy Systems Group recorded in 2023, a decrease in state income taxes, and the tax impacts of the state deferred remeasurement benefit of $25 million related to the Louisiana and Mississippi natural gas LDC businesses sale, which met the held for sale criteria in the first quarter of 2024 and is described further below, partially offset by the tax impacts of the valuation allowance of $21 million established against Louisiana and Mississippi NOLs, since those NOLs will not be utilized due to the Louisiana and Mississippi natural gas LDC businesses sale. See Note 3 for further details.
(2)Houston Electric’s lower effective tax rate for the three and nine months ended September 30, 2024 compared to the same period ended September 30, 2023 was primarily driven by a decrease in state income taxes and an increase in EDIT amortization.
(3)CERC’s lower effective tax rate for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily driven by a decrease in state income taxes, partially offset by a decrease in EDIT amortization. CERC’s lower effective tax rate for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily driven by a decrease in state income taxes, partially offset by a decrease in EDIT amortization. In addition, the tax impacts of the state deferred remeasurement benefit of $24 million associated with the Louisiana and Mississippi natural gas LDC businesses sale meeting the held for sale criteria during 2024. For tax purposes, when the held for sale criteria is met, the CERC and unitary state apportionment rates must be updated to account for the sale and applied to the estimated post-sale net deferred tax liability. This impact was partially offset by the tax impacts of a valuation allowance of $21 million against Louisiana and Mississippi NOLs, since those NOLs will not be utilized due to the Louisiana and Mississippi natural gas LDC businesses sale.
CenterPoint Energy reported a net uncertain tax liability, inclusive of interest and penalties, of $31 million as of September 30, 2024. The Registrants believe that it is reasonably possible that the Registrants will recognize a $3 million tax benefit, including penalties and interest, in the next 12 months as a result of a lapse of statutes on the 2020 Indiana state return.
Tax Audits and Settlements. Tax years through 2022 have been audited and settled with the IRS for CenterPoint Energy. For tax years 2023 and 2024, the Registrants are participants in the IRS’s Compliance Assurance Process. Vectren’s pre-Merger 2014 through 2019 tax years have been audited and settled with the IRS.
(13) Commitments and Contingencies
(a)Purchase Obligations (CenterPoint Energy and CERC)
Commitments include minimum purchase obligations related to CenterPoint Energy’s and CERC’s Natural Gas reportable segment and CenterPoint Energy’s Electric reportable segment. A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the registrant and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Contracts with minimum payment provisions have various quantity requirements and durations and are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s and CERC’s Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 because 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 transportation contracts that do not meet the definition of a derivative.
On February 1, 2023, Indiana Electric entered into an amended and restated BTA to purchase the 191 MW Posey Solar project for a fixed purchase price over the anticipated 35-year life. On February 7, 2023, Indiana Electric filed a CPCN with the IURC to approve the amended BTA. With the passage of the IRA, Indiana Electric can now pursue PTCs for solar projects. Indiana Electric filed the updated CPCN with a request that project costs, net of PTCs, be recovered in rate base, through base rates or the CECA mechanism, depending on which provides more timely recovery. On September 6, 2023, the IURC issued an order approving the CPCN. The Posey Solar project is expected to be placed in service in 2025.
On January 11, 2023, the IURC issued an order approving the settlement agreement granting Indiana Electric a CPCN to purchase and acquire the 130 MW Pike County solar project through a BTA and approved the estimated cost. The IURC also designated the project as a clean energy project as well as approved the proposed levelized rate and associated ratemaking and accounting treatment. Due to inflationary pressures, the developer disclosed that costs exceeded the agreed upon levels in the BTA. After negotiations, Indiana Electric and the developer were not able to agree upon updated pricing. As a result, on February 27, 2024, Indiana Electric provided notice that it was exercising its right to terminate the BTA, which terminated all further obligations of Indiana Electric with respect to the project.
As of September 30, 2024, other than discussed below, minimum purchase obligations were approximately:
CenterPoint Energy
CERC
Natural Gas Supply
Electric Supply (1)
Other (2)
Natural Gas Supply
(in millions)
Remainder of 2024
$
207
$
45
$
23
$
205
2025
616
457
55
612
2026
554
113
57
550
2027
476
107
12
473
2028
432
68
8
429
Thereafter
1,870
767
213
1,844
(1)CenterPoint Energy’s undiscounted minimum payment obligations related to PPAs with commitments ranging from 15 years to 25 years and its purchase commitments under its BTA in Posey County, Indiana at the original contracted amount.
(2)The undiscounted payment obligations relate primarily to technology hardware and software agreements.
Excluded from the table above are estimates for cash outlays from other PPAs through Indiana Electric that do not have minimum thresholds but do require payment when energy is generated by the provider. Costs arising from certain of these commitments are pass-through costs, generally collected dollar-for-dollar from retail customers through regulator-approved cost recovery mechanisms.
(b) Guarantees (CenterPoint Energy)
On May 21, 2023, CenterPoint Energy, through Vectren Energy Services, entered into the Equity Purchase Agreement to sell Energy Systems Group. The sale closed on June 30, 2023. See Note 3 for further information.
In the normal course of business prior to the consummation of the transaction on June 30, 2023, CenterPoint Energy, primarily through Vectren, issued parent company level guarantees supporting Energy Systems Group’s obligations. When Energy Systems Group was wholly-owned by CenterPoint Energy, these guarantees did not represent incremental consolidated obligations, but rather, these guarantees represented guarantees of Energy Systems Group’s obligations to allow it to conduct business without posting other forms of assurance. For those obligations where potential exposure can be estimated, management estimated the maximum exposure under these guarantees to be approximately $473 million as of September 30, 2024 and expects the exposure to decrease pro rata. 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, were issued prior to the sale of Energy Systems Group in support of federal operations and maintenance projects for which a maximum exposure cannot be estimated based on the nature of the projects.
Under the terms of the Equity Purchase Agreement, ESG Holdings Group must generally use reasonable best efforts to replace existing CenterPoint Energy guarantees with credit support provided by a party other than CenterPoint Energy as of and after the closing of the transaction. The Equity Purchase Agreement also requires certain protections to be provided for any damages incurred by CenterPoint Energy in relation to these guarantees not released by closing. No additional guarantees were provided by CenterPoint Energy in favor of Energy Systems Group subsequent to the closing of the sale on June 30, 2023.
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. CenterPoint Energy believes that, from Energy Systems Group’s inception in 1994 to the closing of the sale of Energy Systems Group on June 30, 2023, Energy Systems Group had a history of generally meeting its performance obligations and energy savings guarantees and its installed products operated effectively. CenterPoint Energy recorded no amounts on its Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 related to its obligation under the outstanding guarantees.
(c)Legal, Environmental and Other Matters
Legal Matters
Litigation Related to Hurricane Beryl. Various federal, state and local governmental and regulatory agencies and other entities, such as the Texas Governor’s office, the Texas Legislature and the PUCT, have called for or are conducting inquiries and investigations into Hurricane Beryl, the efforts made by Houston Electric to prepare for, and respond to, this event,
including the electric service outage issues, and the procurement of temporary generation units. Moreover, additional governmental and regulatory agencies and other entities may conduct such inquiries and investigations, as well. There are significant uncertainties around these inquiries and investigations and potential results and consequences, including whether any financial penalties will be assessed or changes to Houston Electric’s system, service territories, operations and/or regulatory treatment will result therefrom.
CenterPoint Energy and Houston Electric are subject to current and potential future litigation and claims arising out of Hurricane Beryl, which litigation and claims could include allegations of, among other things, personal injury, property damage, various economic losses in connection with loss of power, unlawful business practices, and others. As of September 30, 2024, three putative class actions have been filed against CenterPoint Energy and/or Houston Electric in the District Courts of Harris County, Texas, on behalf of individuals or entities who claim losses due to power outages lasting at least 48 hours as a result of Hurricane Beryl, such actions consisting of the following proposed classes: (1) all restaurants in Harris County, Galveston County, and Montgomery County; (2) all residential customers; and (3) all health, wellness, medical and beauty facilities in Harris County. These putative classes assert claims and theories of negligence, gross negligence, nuisance, fraud, and/or violation of Houston Electric’s tariff for retail delivery service, and each seeks damages in excess of $100 million for, among other things, business interruption, property damage and loss, cost of repair, loss of use and market value, lost income, nuisance, extreme mental anguish and/or punitive damages. In addition, as of September 30, 2024, an individual action has been filed in Harris County District Court asserting claims of negligence, negligence per se and gross negligence against CenterPoint Energy and Houston Electric. The plaintiff in this action alleges personal injury from a power line and seeks damages in excess of $1 million. CenterPoint Energy and Houston Electric intend to vigorously defend themselves against the lawsuits. CenterPoint Energy and its subsidiaries have general and excess liability insurance policies that provide coverage for third party bodily injury and property damage claims. Given the nature of some allegations, it is possible that the insurers could dispute coverage for some types of claims or damages that may be alleged by plaintiffs, and one of CenterPoint Energy’s insurers has denied indemnity coverage in the putative class actions based on the failure to supply exclusion and has also reserved its rights with respect to coverage in those actions. CenterPoint Energy and Houston Electric intend to continue to pursue all available insurance coverage for all of these matters. For more information regarding Hurricane Beryl, see Note 6.
Litigation Related to the February 2021 Winter Storm Event. Various legal proceedings are still pending against numerous entities with respect to the February 2021 Winter Storm Event, including against CenterPoint Energy, Utility Holding, Houston Electric, and CERC. Like other Texas energy companies and TDUs, CenterPoint Energy and Houston Electric have become involved in certain investigations, litigation and other regulatory and legal proceedings regarding their efforts to restore power during the storm and their compliance with NERC, ERCOT and PUCT rules and directives. Additionally, like other natural gas market participants, CERC has been named in litigation alleging gas market manipulation.
CenterPoint Energy, Utility Holding, and Houston Electric, along with hundreds of other defendants (including ERCOT, power generation companies, other TDUs, natural gas producers, REPs, and other entities) have received claims and lawsuits filed by plaintiffs alleging wrongful death, personal injury, property damage and other injuries and damages. As of September 30, 2024, there were approximately 220 pending lawsuits that are consolidated in Texas state court in Harris County, Texas, as part of the MDL proceeding related to the February 2021 Winter Storm Event, and CenterPoint Energy and Houston Electric, along with numerous other entities, have been named as defendants in approximately 155 of those lawsuits. One of the lawsuits in the MDL is a putative class action on behalf of everyone who received electric power via the ERCOT grid and sustained a power outage between February 10, 2021 and February 28, 2021. Additionally, Utility Holding is currently named as a defendant in one lawsuit in which CenterPoint Energy and Houston Electric are also named as defendants.
The judge overseeing the MDL issued an initial case management order and stayed all proceedings and discovery. Per the case management order, the judge entertained dispositive motions in five representative or “bellwether” cases and, in late January 2023, issued rulings on them. The judge ruled that ERCOT has sovereign immunity as a governmental entity and dismissed the suits against it. In a subsequent opinion in an unrelated matter, the Texas Supreme Court held that ERCOT is entitled to sovereign immunity. This ruling will apply to claims against ERCOT in the MDL. The MDL judge also dismissed all claims against the natural gas defendants (which list of natural gas defendants incorrectly included Utility Holding) and the REP defendants and some causes of action against the other defendants. CenterPoint Energy expects that the claims against Utility Holding will ultimately be dismissed in light of the judge’s initial rulings. As to the TDU and generator defendants, the judge dismissed some causes of action but denied the motions to dismiss claims for negligence, gross negligence, and nuisance, which denial the TDU defendants and generator defendants asked the courts of appeals to overturn. On April 2, 2024, a three-judge panel of the Court of Appeals for the Fourteenth District of Texas issued an opinion in the TDU mandamus proceeding, granting in part and denying in part the TDUs’ mandamus request. In its opinion, the panel granted the TDUs’ mandamus request relating to the TDUs’ motion to dismiss the plaintiffs’ claims for negligence and negligent and strict liability nuisance and ordered those claims be dismissed. The panel denied the TDUs’ mandamus request relating to the TDUs’ motion to dismiss the plaintiffs’ gross negligence and intentional nuisance claims. On May 22, 2024, the TDUs filed a mandamus petition with the Supreme Court of Texas, seeking dismissal of the remaining claims. On June 28, 2024, the Supreme Court of Texas requested a
response from the plaintiffs to the mandamus petition, and the plaintiffs filed their response on July 26, 2024. The TDUs filed their reply in support of their mandamus petition on August 12, 2024. On August 30, 2024, the Supreme Court of Texas requested briefing on the merits of the TDUs’ mandamus. The TDUs’ initial brief was filed on September 30, 2024. The plaintiffs’ response was filed on October 21, 2024, and the TDUs’ reply brief is due on November 5, 2024.In the generator mandamus proceeding pending in the Court of Appeals for the First District of Texas, the plaintiffs have asked the entire First Court of Appeals to rehear the panel’s decision granting the generators’ mandamus request. The MDL judge allowed defendants (including Houston Electric) to file several additional motions on preliminary legal issues, and otherwise the cases remain stayed. CenterPoint Energy, Utility Holding, and Houston Electric intend to vigorously defend themselves against the claims raised.
CenterPoint Energy and Houston Electric have also responded to inquiries from the Texas Attorney General and the Galveston County District Attorney’s Office, and various other regulatory and governmental entities also conducted inquiries, investigations and other reviews of the February 2021 Winter Storm Event and the efforts made by various entities to prepare for, and respond to, the event, including the electric generation shortfall issues.
In February 2023, twelve lawsuits were filed in state district court in Harris County and Tom Green County, Texas, against dozens of gas market participants in Texas, including natural gas producers, processors, pipelines, marketers, sellers, traders, gas utilities, and financial institutions. Plaintiffs named CERC as a defendant, along with “CenterPoint Energy Services, Inc.,” incorrectly identifying it as CERC’s parent company (CenterPoint Energy previously divested CES). One lawsuit filed in Harris County is a putative class action on behalf of two classes of electric and natural gas customers (those who experienced a loss of electricity and/or natural gas, and those who were charged securitization-related surcharges on a utility bill or were otherwise charged higher rates for electricity and/or gas during the February 2021 Winter Storm Event), potentially including millions of class members. Two other lawsuits (one filed in Harris County and one in Tom Green County) are brought by an entity that purports to be an assignee of claims by tens of thousands of persons and entities that have assigned claims to the plaintiff. These, and nine other similar lawsuits filed in Harris County, generally allege that the defendants engaged in gas market manipulation and price gouging, including by intentionally withholding, suppressing, or diverting supplies of natural gas in connection with the February 2021 Winter Storm Event, Winter Storm Elliott, and other severe weather conditions, and through financial market manipulation. Plaintiffs allege that this manipulation impacted gas supply and prices as well as the market, supply, and price of electricity in Texas and caused blackouts and other damage. Plaintiffs assert claims for tortious interference with existing contract, private nuisance, and unjust enrichment, and allege a broad array of injuries and damages, including personal injury, property damage, and harm from certain costs being securitized and passed on to ratepayers. The lawsuits do not specify the amount of damages sought, but seek broad categories of actual, compensatory, statutory, consequential, economic, and punitive damages; restitution and disgorgement; pre- and post-judgment interest; costs and attorneys’ fees; and other relief. As of September 30, 2024, most of the lawsuits had not been served, but the three cases in which defendants were served were tagged for transfer to the existing MDL proceeding referenced above. On February 2, 2024, CERC filed pleas to the jurisdiction in the three cases in which it was served; CERC also partially joined the other defendants’ motions to dismiss and additional pleas to the jurisdiction. On April 2, 2024, plaintiffs in the three served cases filed amended petitions rather than responding to pleas to the jurisdiction and motions to dismiss. Among other changes, plaintiffs in these three cases dismissed CES, but maintained the same three causes of action as to the remaining defendants. CERC has vigorously defended itself against the claims raised, including filing updated pleas to the jurisdiction on May 17, 2024 in response to plaintiffs’ amended petitions – and will continue to do so. On August 12, 2024, plaintiffs in the putative class action filed a motion for leave to amend to add additional plaintiffs/class representatives. Defendants opposed this motion on September 20, 2024. On September 23, 2024, the MDL judge heard oral argument on CERC’s plea to the jurisdiction and defendants’ motions to dismiss and other pleas to the jurisdiction. The MDL judge has not yet issued any rulings on these motions. The nine other similar lawsuits filed in Harris County have also been tagged for transfer to the MDL proceeding, but the defendants, including CERC, have not been served. These gas market cases are in addition to the 220 cases noted above regarding electric market issues.
To date, there have not been demands, quantification, disclosure or discovery of damages by any party to any of the above legal matters that are sufficient to enable CenterPoint Energy and its subsidiaries to estimate exposure. Given that, as well as the preliminary nature of the proceedings, the numerosity of parties and complexity of issues involved, and the uncertainties of litigation, CenterPoint Energy and its subsidiaries are unable to predict the outcome or consequences of any of the foregoing matters or to estimate a range of potential losses. CenterPoint Energy and its subsidiaries have general and excess liability insurance policies that provide coverage for third party bodily injury and property damage claims. As CenterPoint Energy previously noted, given the nature of certain of the plaintiffs’ allegations, insurance coverage may not be available other than for third party bodily injury and property damage claims caused by an accident, and one of CenterPoint Energy’s insurers has reserved its rights with respect to coverage for plaintiffs’ intentional nuisance claims as well as plaintiffs’ claims in the gas market cases. CenterPoint Energy and its subsidiaries intend to continue to pursue all available insurance coverage for all of these matters.
Jefferson Parish. Several parishes and the State of Louisiana filed 42 suits under Louisiana’s State and Local Coastal Resources Management Act (SLCRMA) against hundreds of oil and gas companies seeking compensatory damages for contamination and erosion of the Louisiana coastline allegedly caused by historical oil and gas operations. One of the defendants in one of the lawsuits (filed in 2013 only by the Parish of Jefferson) is Primary Fuels, Inc., a predecessor company of CenterPoint Energy, which operated in Louisiana from 1983-1989. All 42 suits were removed to Louisiana federal courts twice and were stayed for several years pending the district courts’ consideration of various motions to remand and multiple appeals of remand orders. Recently, several cases involving other parishes that had been remanded to Louisiana state court have begun to resume proceedings in state court. However, as of September 30, 2024, the federal district court had not ruled on Jefferson Parish’s motion to remand to state court the lawsuit which includes Primary Fuels, Inc. among the defendants.
Because of the procedurally preliminary nature of the proceedings, lack of information about both the scope of and damages for Jefferson Parish’s claim against Primary Fuels, Inc., the numerosity of parties and complexity of issues involved, and the uncertainties of litigation, CenterPoint Energy and its subsidiaries are unable to predict the outcome or consequences of this matter or to estimate a range of potential losses. CenterPoint Energy will continue to vigorously defend itself against the claims raised and pursue any and all available insurance coverage.
Environmental Matters
MGP Sites. CenterPoint Energy, CERC and their predecessors, including predecessors of Vectren, operated MGPs in the past. The costs CenterPoint Energy or CERC, as applicable, expect to incur to fulfill their respective obligations are estimated by management using assumptions based on actual costs incurred, the timing of expected future payments and inflation factors, among others. While CenterPoint Energy and CERC have recorded obligations for all costs which are probable and estimable, including amounts they are presently obligated to incur in connection with activities at these sites, it is possible that future events may require remedial activities which are not presently foreseen, and those costs may not be subject to PRP or insurance recovery.
(i)Minnesota MGPs (CenterPoint Energy and CERC). With respect to certain Minnesota MGP sites, CenterPoint Energy and CERC 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.
(ii)Indiana MGPs (CenterPoint Energy and CERC). In the Indiana Gas service territory, the existence, location and certain general characteristics of 26 gas manufacturing and storage sites have been identified for which CenterPoint Energy and CERC may have some remedial responsibility. A remedial investigation/feasibility study was completed at one of the sites under an agreed upon order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. The remaining sites have been submitted to the IDEM’s VRP. CenterPoint Energy has also identified its involvement in 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.
(iii)Other MGPs(CenterPoint Energy and CERC). In addition to the Minnesota and Indiana sites, the EPA and other regulators have investigated MGP sites that were owned or operated by CenterPoint Energy or CERC or may have been owned by one of their former affiliates.
Total costs that may be incurred in connection with addressing these sites cannot be determined at this time. The estimated accrued costs are limited to CenterPoint Energy’s and CERC’s share of the remediation efforts and are therefore net of exposures of other PRPs. The estimated range of possible remediation costs for the sites for which CenterPoint Energy and CERC believe they may have responsibility was based on remediation continuing for the minimum time frame given in the table below:
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.
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 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 a portion of the ash generated by Indiana Electric’s generating plants will continue to be reused. In July 2018, the EPA released its final CCR Rule Phase I Reconsideration which extended the deadline to October 31, 2020 for ceasing placement of ash in ponds that exceed groundwater protections standards or that fail to meet location restrictions. In August 2019, the EPA proposed additional “Part A” amendments to its CCR Rule with respect to beneficial reuse of ash and other materials. The Part A amendments were finalized in August 2020 and extended the deadline to cease placement of ash in ponds to April 11, 2021, discussed further below. The Part A amendments do not restrict Indiana Electric’s current beneficial reuse of its fly ash.
Indiana Electric has three ash ponds, two at the F.B. Culley facility (Culley East and Culley West) and one at the A.B. Brown facility. Under the 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 were necessary to determine the remaining service life of the ponds and whether a pond must be retrofitted with liners or closed in place. Groundwater monitoring indicates potential groundwater impacts very close to Indiana Electric’s ash impoundments, and further analysis is ongoing. The CCR Rule required companies to complete location restriction determinations by October 18, 2018. Indiana Electric completed its evaluation and determined that one F.B. Culley pond (Culley East) and the A.B. Brown pond fail the aquifer placement location restriction. As a result of this failure, Indiana Electric was required to cease disposal of new ash in the ponds and commence closure of the ponds by April 11, 2021, unless approved for an extension. CenterPoint Energy filed timely extension requests available under the CCR Rule that would allow Indiana Electric to continue to use the ponds through October 15, 2023. On October 5, 2022, the EPA issued a proposed conditional approval of the Part A extension request for the A.B. Brown pond. Both the Culley East and A.B. Brown facilities have been taken out of service in a timely manner per the commitments made to the EPA in the extension requests filed for both ponds. On April 24, 2019, Indiana Electric received an order from the IURC approving recovery in rates of costs associated with the closure of the Culley West pond, which has already completed closure activities. On August 14, 2019, Indiana Electric filed its petition with the IURC for recovery of costs associated with the closure of the A.B. Brown ash pond, which would include costs associated with the excavation and recycling of ponded ash. This petition was subsequently approved by the IURC on May 13, 2020. On October 28, 2020, the IURC approved Indiana Electric’s ECA proceeding, which included the initiation of recovery of the federally mandated project costs.
In July 2018, Indiana Electric filed a Complaint for Damages and Declaratory Relief against its insurers seeking reimbursement of defense, investigation and pond closure costs incurred to comply with the CCR Rule, and has since reached confidential settlement agreements with its insurers. The proceeds of these settlements will offset costs that have been and will be incurred to close the ponds.
On November 1, 2022, Indiana Electric filed for a CPCN to recover federally mandated costs associated with closure of the Culley East Pond, its third and final ash pond. Indiana Electric sought accounting and ratemaking relief for the project, and on June 8, 2023, Indiana Electric filed a revised CPCN for recovery of the federally mandated ash pond costs. On February 7, 2024 the IURC approved the federally mandated costs, both incurred and projected, of $52 million in capital costs, plus an estimated $133 thousand in annual operation and maintenance expenses, for recovery through the ECA.
As of September 30, 2024, CenterPoint Energy recorded an approximate $119 million ARO, which represents the discounted value of future cash flow estimates to close the ponds at A.B. Brown and F.B. Culley. This estimate is subject to change due to the contractual arrangements; continued assessments of the ash, closure methods, and the timing of closure; implications of Indiana Electric’s generation transition plan; changing environmental regulations; and proceeds received from
the settlements in the aforementioned insurance proceeding. In addition to these AROs, Indiana Electric also anticipates equipment purchases of between $60 million and $80 million to complete the A.B. Brown closure project.
On April 25, 2024, the EPA released its final Hazardous and Solid Waste Management System; Disposal of Coal Combustion Residuals from Electric Utilities; Legacy CCR Surface Impoundments rule (CCR Legacy Rule), which was published in the federal register in May 2024. The CCR Legacy Rule requires companies to investigate previously closed impoundments that were used historically for ash disposal or locations which have had ash placed on them in amounts set forth in the CCR Legacy Rule. The Registrants have completed their preliminary review of potential sites that will require further investigation under the CCR Legacy Rule and identified certain sites in Indiana for further evaluation. In September 2024, Indiana Electric recorded an approximate $11 million ARO with a corresponding increase of $11 million to Property, plant and equipment for amounts recoverable for electric generation stations that are currently in service. These estimates reflect the discounted value of future estimated capping costs for an area of historic ash placement at F.B. Culley. Indiana Electric will continue to refine the assumptions, engineering analyses and resulting cost estimates associated with this ARO and such refinement could materially impact the amount of the estimated ARO.
Clean Water Act Permitting of Groundwater and Power Plant Discharges. In April 2020, the U.S. Supreme Court issued an opinion providing that indirect discharges via groundwater or other non-point sources are subject to permitting and liability under the Clean Water Act when they are the functional equivalent of a direct discharge. On November 27, 2023, the EPA published draft guidance regarding the application of the “functional equivalent” analysis as related to permitting of certain discharges through groundwater to surface waters. The Registrants do not currently anticipate impacts from this guidance, but groundwater monitoring continues under the CCR Rule.
In 2015, the EPA finalized revisions to the existing steam electric wastewater discharge standards which set more stringent wastewater discharge limits and effectively prohibited further wet disposal of coal ash in ash ponds. In February 2019, the IURC approved Indiana Electric’s Effluent Limitation Guidelines Compliance Plan for its F.B. Culley Generating Station, which was completed in compliance with the requirements of the Effluent Limitation Guidelines. On April 25, 2024, the EPA released its final Supplemental Effluent Limitation Guidelines and Standards for the Steam Electric Generating Point Source Category. The Registrants currently anticipate that they will be in compliance with the Supplemental ELG Guidelines at the Culley facility due to previous wastewater treatment upgrades.
Other Environmental. From time to time, the Registrants identify the presence of environmental contaminants during operations or on property where their 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.
(14) Earnings Per Share (CenterPoint Energy)
Basic earnings per common share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Participating securities are excluded from weighted average number of common shares outstanding in the computation of basic earnings per common share. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding, including all potentially dilutive common shares, if the effect of such common shares is dilutive.
Diluted earnings per common share reflects the dilutive effect of potential common shares from share-based awards. The dilutive effect of restricted stock is computed using the if-converted method, which assumes conversion of the restricted stock
at the beginning of the period. The dilutive effect of restricted stock is computed using the treasury stock method, as applicable, which includes the incremental shares that would be hypothetically vested in excess of the number of shares assumed to be hypothetically repurchased with the assumed proceeds.
Diluted earnings per common share will also reflect the dilutive effect of potential common shares from the conversion of the Convertible Notes. Convertible debt in which the principal amount must be settled in cash is excluded from the calculation of diluted earnings per common share. There would be no interest expense adjustment to the numerator for the cash-settled portion of the Convertible Notes because that portion will always be settled in cash. The conversion spread value in shares will be included in diluted earnings per common share using the if-converted method if the convertible debt is in the money. The denominator of diluted earnings per common share is determined by dividing the conversion spread value of the share-settled portion of the Convertible Notes as of the reporting date by the average share price over the reporting period. For the three and nine months ended September 30, 2024, the convertible debt was not in the money; therefore, no incremental shares were assumed converted or included in the diluted earnings per share calculation below. For further details about the Convertible Notes, see Note 11.
The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings per common share:
Income available to common shareholders – basic and diluted
$
193
$
256
$
771
$
675
Denominator:
Weighted average common shares outstanding – basic
647,797,000
631,185,000
640,287,000
630,854,000
Plus: Incremental shares from assumed conversions:
Restricted stock
417,000
1,858,000
1,074,000
2,183,000
Weighted average common shares outstanding – diluted
648,214,000
633,043,000
641,361,000
633,037,000
Earnings Per Common Share:
Basic
$
0.30
$
0.41
$
1.20
$
1.07
Diluted
$
0.30
$
0.40
$
1.20
$
1.07
(15) Reportable Segments
The Registrants’ determination of reportable segments considers the strategic operating units under which the CODM manages sales, allocates resources and assesses performance of various products and services to wholesale or retail customers in differing regulatory environments. Each Registrant’s CODM views net income as the measure of profit or loss for the reportable segments.
As of September 30, 2024, reportable segments by Registrant were as follows:
CenterPoint Energy
•CenterPoint Energy’s Electric reportable segment consists of electric transmission and distribution services in the Texas gulf coast area in the ERCOT region and electric transmission and distribution services primarily to southwestern Indiana and includes power generation and wholesale power operations in the MISO region.
•CenterPoint Energy’s Natural Gas reportable segment consists of (i) intrastate natural gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers in Indiana, Louisiana, Minnesota, Mississippi, Ohio and Texas; and (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.
•CenterPoint Energy’s Corporate and Other category consists of energy performance contracting and sustainable infrastructure services through Energy Systems Group through June 30, 2023, the date of the sale of Energy Systems
Group, and corporate operations which support all of the business operations of CenterPoint Energy. CenterPoint Energy’s Corporate and Other also includes office buildings and other real estate used for business operations.
Houston Electric
•Houston Electric’s single reportable segment consists of electric transmission services to transmission service customers in the ERCOT region and distribution services to REPs serving the Texas gulf coast area that includes the city of Houston.
CERC
•CERC’s single reportable segment following the Restructuring consisted of (i) intrastate natural gas sales to, and natural gas transportation and distribution for, residential, commercial, industrial and institutional customers in Indiana, Louisiana, Minnesota, Mississippi, Ohio and Texas; and (ii) permanent pipeline connections through interconnects with various interstate and intrastate pipeline companies through CEIP.
The following table provides financial data for CenterPoint Energy’s reportable segments. Each of Houston Electric and CERC consist of a single reportable segment; therefore, a tabular reportable segment presentation has not been included for Houston Electric or CERC.
CenterPoint Energy
Three Months Ended September 30,
2024
2023
Revenues from External Customers
Net Income (Loss)
Revenues from External Customers
Net Income (Loss)
(in millions)
Electric
$
1,243
$
226
$
1,261
$
290
Natural Gas
611
30
597
27
Corporate and Other
2
(63)
2
(35)
Consolidated
$
1,856
$
193
$
1,860
$
282
Nine Months Ended September 30,
2024
2023
Revenues from External Customers
Net Income (Loss)
Revenues from External Customers
Net Income (Loss)
(in millions)
Electric
$
3,499
$
562
$
3,250
$
593
Natural Gas
2,876
360
3,136
296
Corporate and Other
6
(151)
128
(164)
Consolidated
$
6,381
$
771
$
6,514
$
725
Total Assets
September 30, 2024
December 31, 2023
(in millions)
Electric
$
23,458
$
21,089
Natural Gas
17,966
17,429
Corporate and Other, net of eliminations (1)
1,469
1,197
Consolidated
$
42,893
$
39,715
(1)Total assets included pension and other postemployment-related regulatory assets of $368 million and $385 million as of September 30, 2024 and December 31, 2023, respectively.
(16) Supplemental Disclosure of Cash Flow and Balance Sheet Information
Supplemental Disclosure of Cash Flow Information
The table below provides supplemental disclosure of cash flow information:
Nine Months Ended September 30,
2024
2023
CenterPoint Energy
Houston Electric
CERC
CenterPoint Energy
Houston Electric
CERC
(in millions)
Cash Payments/Receipts:
Interest, net of capitalized interest
$
620
$
218
$
169
$
521
$
211
$
153
Income tax payments (refunds), net
(8)
26
3
200
12
113
Non-cash transactions:
Accounts payable related to capital expenditures
1,133
1,075
97
264
137
122
ROU assets obtained in exchange for lease liabilities (1)
5
—
—
3
1
—
(1) Excludes ROU assets obtained through prepayment of the lease liabilities. See Note 19.
The table below provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets to the amount reported in the Condensed Statements of Consolidated Cash Flows:
September 30, 2024
December 31, 2023
CenterPoint Energy
Houston Electric
CERC
CenterPoint Energy
Houston Electric
CERC
(in millions)
Cash and cash equivalents (1)
$
112
$
97
$
1
$
90
$
76
$
1
Restricted cash included in Prepaid expenses and other current assets (2)
17
13
—
19
13
—
Total cash, cash equivalents and restricted cash shown in Condensed Statements of Consolidated Cash Flows
$
129
$
110
$
1
$
109
$
89
$
1
(1)Cash and cash equivalents related to VIEs as of September 30, 2024 and December 31, 2023 included $111 million and $90 million, respectively, at CenterPoint Energy and $96 million and $76 million, respectively, at Houston Electric.
(2)Restricted cash primarily related to accounts established by CenterPoint Energy and Houston Electric in connection with the issuance of the Securitization Bonds to collateralize the Securitization Bonds that were issued in these financing transactions. These restricted cash accounts are not available for withdrawal until the maturity of the Securitization Bonds.
Supplemental Disclosure of Balance Sheet Information
Included in other current liabilities on CERC’s Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 was $99 million and $118 million, respectively, of credits related to customers on budget billing programs. Included in other current liabilities on Houston Electric’s Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 was $85 million and $47 million, respectively, of accrued contributions in aid of construction.
(17) Related Party Transactions(Houston Electric and CERC)
Houston Electric and CERC participate in CenterPoint Energy’s 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 CenterPoint Energy money pool are expected to be met with borrowings under CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper.
The table below summarizes CenterPoint Energy money pool activity:
September 30, 2024
December 31, 2023
Houston Electric
CERC
Houston Electric
CERC
(in millions, except interest rates)
Money pool investments (borrowings), net (1)
$
(71)
$
—
$
238
$
1
Weighted average interest rate
4.98
%
4.98
%
5.59
%
5.59
%
(1)Included in Accounts and notes payable–affiliated companies on Houston Electric’s Condensed Consolidated Balance Sheets as of September 30, 2024 and Accounts and notes receivable–affiliated companies on Houston Electric’s and CERC’s respective Condensed Consolidated Balance Sheets as of December 31, 2023, as applicable.
CenterPoint Energy provides some corporate services to Houston Electric and CERC. The costs of services have been charged directly to Houston Electric and CERC using methods that management believes are reasonable. These methods include usage rates, dedicated asset assignment and proportionate corporate formulas based on operating expenses, assets, gross margin, employees and a composite of assets, gross margin and employees. Houston Electric provides certain services to CERC. These services are billed at actual cost, either directly or as an allocation and include fleet services, shop services, geographic services, surveying and right-of-way services, radio communications, data circuit management and field operations. Additionally, CERC provides certain services to Houston Electric. These services are billed at actual cost, either directly or as an allocation and include line locating and other miscellaneous services. These charges are not necessarily indicative of what would have been incurred had Houston Electric and CERC not been affiliates.
Amounts charged for these services were as follows and are included primarily in Operation and maintenance expenses on the Condensed Statements of Consolidated Income:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Houston Electric
CERC
Houston Electric
CERC
Houston Electric
CERC
Houston Electric
CERC
(in millions)
Corporate service charges
$
45
$
50
$
40
$
56
$
124
$
156
$
115
$
162
Net affiliate service charges (billings)
(1)
1
(1)
1
(4)
4
(7)
7
The table below presents transactions among Houston Electric, CERC and their parent, Utility Holding:
CenterPoint Energy declared and paid dividends on its Common Stock as follows during the periods indicated below:
Dividends Declared Per Share
Dividends Paid Per Share
Three Months Ended September 30,
Nine Months Ended September 30,
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
2024
2023
2024
2023
Common Stock
$
0.410
$
0.390
$
0.610
$
0.580
$
0.200
$
0.190
$
0.600
$
0.570
Series A Preferred Stock (1)
—
30.625
—
30.625
—
30.625
—
61.250
(1)On September 1, 2023, CenterPoint Energy redeemed all 800,000 outstanding shares of its Series A Preferred Stock, in whole for cash at a redemption price of $1,000 per share, plus any accumulated and unpaid dividends thereon to, but excluding, the redemption date.
Common Stock (CenterPoint Energy)
(a) Underwritten Offering
On August 9, 2024, CenterPoint Energy issued 9,754,194 shares of Common Stock in an underwritten public offering at a price of $25.36 per share, for net proceeds of $247 million after deducting issuance costs. The proceeds from the offering were used for the repayment of a portion of CenterPoint Energy’s then-outstanding commercial paper.
(b) Equity Distribution Agreement
On January 10, 2024, CenterPoint Energy entered into an Equity Distribution Agreement with certain financial institutions with respect to the offering and sale from time to time of shares of Common Stock, having an aggregate gross sales price of up to $500 million. Sales of Common Stock may be made by any method permitted by applicable law and deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. CenterPoint Energy may also enter into one or more forward sales agreements pursuant to master forward confirmations. The offer and sale of Common Stock under the Equity Distribution Agreement will terminate upon the earliest of (1) the sale of all Common Stock subject to the Equity Distribution Agreement, (2) termination of the Equity Distribution Agreement, or (3) May 17, 2026. During the three months ended September 30, 2024, CenterPoint Energy did not issue any shares of Common Stock through the ATM Managers under the Equity Distribution Agreement. During the nine months ended September 30, 2024, CenterPoint Energy issued 8,790,848 shares of Common Stock through the ATM Managers under the Equity Distribution Agreement, representing aggregate cash proceeds of $247 million, which was net of compensation paid by CenterPoint Energy to the ATM Managers of $2 million. As of September 30, 2024, CenterPoint Energy had not entered into any forward sale agreements under the at-the-market program. Additionally, as of September 30, 2024, CenterPoint Energy had $250 million of remaining capacity available under the program.
Income Allocated to Series A Preferred Shareholders (CenterPoint Energy)
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(in millions)
Series A Preferred Stock (1)
$
—
$
26
$
—
$
50
Total income allocated to preferred shareholders
$
—
$
26
$
—
$
50
(1)On September 1, 2023, CenterPoint Energy redeemed all 800,000 outstanding shares of its Series A Preferred Stock, in whole for cash at a redemption price of $1,000 per share, plus any accumulated and unpaid dividends thereon to, but excluding, the redemption date.
Changes in accumulated comprehensive income (loss) are as follows:
Three Months Ended September 30,
2024
2023
CenterPoint Energy
CERC
CenterPoint Energy
CERC
(in millions)
Beginning Balance
$
(30)
$
15
$
(32)
$
15
Other comprehensive income before reclassifications:
Net deferred gain from cash flow hedges
—
—
2
—
Amounts reclassified from accumulated other comprehensive income (loss):
Prior service cost (1)
—
—
1
—
Actuarial losses (1)
1
—
—
—
Reclassification of deferred loss from cash flow hedges realized in net income
(1)
—
—
—
Other comprehensive income
—
—
3
—
Ending Balance
$
(30)
$
15
$
(29)
$
15
Nine Months Ended September 30,
2024
2023
CenterPoint Energy
CERC
CenterPoint Energy
CERC
(in millions)
Beginning Balance
$
(35)
$
16
$
(31)
$
16
Other comprehensive income (loss) before reclassifications:
Remeasurement of pension and other postretirement plans
(2)
—
—
—
Net deferred gain from cash flow hedges
4
—
2
—
Amounts reclassified from accumulated other comprehensive income (loss):
Prior service cost (benefit) (1)
2
—
—
(1)
Actuarial losses (gain) (1)
2
(1)
—
—
Reclassification of deferred loss from cash flow hedges realized in net income
(1)
—
—
—
Other comprehensive income (loss)
5
(1)
2
(1)
Ending Balance
$
(30)
$
15
$
(29)
$
15
(1)Amounts are included in the computation of net periodic cost and are reflected in Other income, net in each of the Registrants’ respective Condensed Statements of Consolidated Income.
(19) Leases
In 2021, Houston Electric entered into a temporary short-term lease and long-term leases for temporary generation. The short-term lease agreement allowed Houston Electric to take delivery of TEEEF assets on a short-term basis with an initial term ending on September 30, 2022 and extended until December 31, 2022. At such time, the short-term lease agreement expired and all temporary generation assets were leased under the long-term lease agreement. Per Houston Electric’s short-term lease accounting policy election, a ROU asset and lease liability are not reflected on Houston Electric’s Condensed Consolidated Balance Sheets. Expenses associated with the short-term lease, including carrying costs, are deferred to a regulatory asset and totaled, net of amounts recovered in rates, $92 million and $100 million as of September 30, 2024 and December 31, 2023, respectively.
The long-term lease agreement includes up to 505 MW of TEEEF, all of which was delivered as of December 31, 2022, triggering lease commencement at delivery, with an initial term ending in 2029 for all TEEEF leases. These assets were previously available under the short-term lease agreement. Houston Electric derecognized the finance lease liability when the extinguishment criteria in Topic 405 - Liabilities was achieved. Per the terms of the agreement, lease payments are due and
made in full by Houston Electric upon taking possession of the asset, relieving substantially all of the associated finance lease liability at that time.The remaining finance lease liability associated with the commenced long-term TEEEF agreement was not significant as of September 30, 2024 and December 31, 2023 and relates to removal costs that will be incurred at the end of the lease term. As of September 30, 2024, Houston Electric secured a first lien on the assets leased under the prepayment agreement, except for assets with lease payments totaling $84 million, which is being held in an escrow account, not controlled by Houston Electric, and the funds will be released when a first lien can be secured for Houston Electric. Expenses associated with the long-term lease, including depreciation expense on the right of use asset and carrying costs, are deferred to a regulatory asset and totaled, net of amounts recovered in rates, $147 million and $124 million as of September 30, 2024 and December 31, 2023, respectively. For further discussion of the regulatory impacts, see Note 6.
Houston Electric will also incur variable costs throughout the lease term for the operation and maintenance of the TEEEF units. Lease costs, including variable and ROU asset amortization costs, are deferred to Regulatory assets as incurred as a recoverable cost under the 2021 Texas legislation. See Note 6 for further information regarding recovery of these deferred costs.
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 September 30,
2024
2023
CenterPoint Energy
Houston Electric
CERC
CenterPoint Energy
Houston Electric
CERC
(in millions)
Operating lease cost
$
2
$
—
$
—
$
1
$
1
$
—
Short-term lease cost
—
—
—
15
14
—
Total lease cost (1)
$
2
$
—
$
—
$
16
$
15
$
—
Nine Months Ended September 30,
2024
2023
CenterPoint Energy
Houston Electric
CERC
CenterPoint Energy
Houston Electric
CERC
(in millions)
Operating lease cost
$
4
$
2
$
1
$
4
$
2
$
1
Short-term lease cost
8
7
—
28
27
—
Total lease cost (1)
$
12
$
9
$
1
$
32
$
29
$
1
(1) CenterPoint Energy and Houston Electric defer finance lease costs for TEEEF to Regulatory assets for recovery rather than to Depreciation and Amortization in the Condensed Statements of Consolidated Income.
Supplemental balance sheet information related to leases was as follows:
September 30, 2024
December 31, 2023
CenterPoint Energy
Houston Electric
CERC
CenterPoint Energy
Houston Electric
CERC
(in millions, except lease term and discount rate)
Assets:
Operating ROU assets (1)
$
16
$
5
$
4
$
13
$
6
$
4
Finance ROU assets (2)
454
454
—
526
526
—
Total leased assets
$
470
$
459
$
4
$
539
$
532
$
4
Liabilities:
Current operating lease liability (3)
$
3
$
2
$
1
$
3
$
1
$
1
Non-current operating lease liability (4)
13
3
3
10
5
3
Total leased liabilities (5)
$
16
$
5
$
4
$
13
$
6
$
4
Weighted-average remaining lease term (in years) - operating leases
11.9
3.2
3.4
4.7
3.9
3.1
Weighted-average discount rate - operating leases
4.53
%
4.11
%
4.04
%
4.13
%
4.09
%
3.60
%
Weighted-average remaining lease term (in years) - finance leases
4.8
4.8
—
5.5
5.5
—
Weighted-average discount rate - finance leases
3.60
%
3.60
%
—
3.60
%
3.60
%
—
(1)Reported within Other assets in the Registrants’ respective Condensed Consolidated Balance Sheets, net of accumulated amortization.
(2)Reported within Property, Plant and Equipment in the Registrants’ respective Condensed Consolidated Balance Sheets, net of accumulated amortization.
(3)Reported within Current other liabilities in the Registrants’ respective Condensed Consolidated Balance Sheets.
(4)Reported within Other liabilities in the Registrants’ respective Condensed Consolidated Balance Sheets.
(5)Finance lease liabilities were not significant as of September 30, 2024 or December 31, 2023 and are reported within Other long-term debt in the Registrants’ respective Condensed Consolidated Balance Sheets when applicable.
As of September 30, 2024, finance lease liabilities were not significant to the Registrants. As of September 30, 2024, maturities of operating lease liabilities were as follows:
As of September 30, 2024, future minimum finance lease payments to be received were not significant to the Registrants. As of September 30, 2024, maturities of undiscounted operating lease payments to be received are as follows:
CenterPoint Energy
Houston Electric
CERC
(in millions)
Remainder of 2024
$
—
$
—
$
—
2025
3
1
—
2026
3
—
—
2027
2
—
—
2028
2
—
—
Thereafter
2
—
—
Total lease payments to be received
$
12
$
1
$
—
Other information related to leases is as follows:
Nine Months Ended September 30,
2024
2023
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
$
4
$
2
$
1
$
4
$
1
$
1
See Note 16 for information on ROU assets obtained in exchange for operating lease liabilities.
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
The following combined discussion and analysis should be read in combination with the Interim Condensed Financial Statements contained in this combined Form 10-Q and the Registrants’ combined 2023 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. Unless the context indicates otherwise, specific references to Houston Electric and CERC also pertain to CenterPoint Energy. In this combined Form 10-Q, the terms “our,” “we” and “us” are used as abbreviated references to CenterPoint Energy, Inc. together with its consolidated subsidiaries, including Houston Electric and CERC, unless otherwise stated. No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.
RECENT EVENTS
May 2024 Storm Events and Hurricane Beryl. Houston Electric’s service territory experienced sudden and destructive severe weather events in May 2024 that included hurricane-like winds and tornadoes. Subsequently, on July 8, 2024, Hurricane Beryl made landfall in Texas, bringing sustained winds, storm surges and torrential rain into Houston Electric’s service territory. The May 2024 Storm Events and Hurricane Beryl caused significant damage to Houston Electric’s electric delivery system and resulted in electric service interruptions peaking at an estimated 922,000 customers and more than 2.1 million customers, respectively.
Various federal, state and local governmental and regulatory agencies and other entities, such as the Texas Governor’s office, the Texas Legislature and the PUCT, have called for or are conducting inquiries and investigations into Hurricane Beryl, the efforts made by Houston Electric to prepare for, and respond to, this event, including the electric service outage issues, and the procurement of temporary generation units. Moreover, additional governmental and regulatory agencies and other entities may conduct such inquiries and investigations, as well. Texas Lieutenant Governor Patrick has publicly urged the PUCT to hold Houston Electric, rather than ratepayers, responsible for paying $800 million, which was the amount the PUCT had previously approved Houston Electric to recover from ratepayers pursuant to Texas legislation passed after the 2021 Winter Storm Event relating to emergency responsiveness and the leasing of temporary generation units. On August 12, 2024, Texas Attorney General Ken Paxton opened an investigation to evaluate CenterPoint Energy’s conduct during Hurricane Beryl. There are significant uncertainties around these inquiries and investigations and potential results and consequences, including whether any financial penalties will be assessed or changes to Houston Electric’s system, service territories, operations and/or regulatory treatment will result therefrom.
Houston Electric announced an initial hurricane preparedness and response action plan to the PUCT on July 25, 2024 to enhance the resiliency of the electric system through various investments. Following a meeting with Texas Governor Abbott on August 1, 2024, Houston Electric publicly committed to accelerating its previously announced initial hurricane preparedness and response action plan. Additionally, Houston Electric announced that it was withdrawing both its base rate application and its application for approval of its transmission and distribution system resiliency plan with the PUCT in order to focus on addressing the impacts of Hurricane Beryl in its service territory and accelerating preparedness and resiliency efforts for the remaining storm season. The withdrawal of the system resiliency plan was granted by the PUCT. Subsequently, intervenors filed a motion to challenge the withdrawal of the base rate proceeding. On August 16, 2024, the ALJ issued an order denying the requested withdrawal of the base rate proceeding, leaving the base rate proceeding abated. Houston Electric filed an appeal of the ALJ’s order to the PUCT, and on October 15, 2024, PUCT commissioners voted to consider the merits of Houston Electric’s appeal at the PUCT’s open meeting scheduled for November 14, 2024. The PUCT’s decision on the withdrawal of the base rate proceeding is expected in the fourth quarter of 2024. CenterPoint Energy cannot predict the outcome of this proceeding.
On August 5, 2024, Houston Electric announced the launch of its GHRI. Subsequently, Houston Electric announced the completion of core resiliency actions as part of the first phase of its GHRI, which included certain vegetation management and pole installation goals. In September 2024, Houston Electric announced the launch of the second phase of its GHRI, which included a series of resiliency plans to install new poles, manage higher-risk vegetation and install certain automated devices prior to the start of the 2025 hurricane season as part of its efforts to strengthen grid resiliency, improve public and customer communications and strengthen local, community and emergency partnerships. Houston Electric also announced a longer-term proposal for approximately $5 billion in resiliency investment from 2026 to 2028. Houston Electric intends to include this longer-term proposal in a new transmission and distribution system resiliency plan that is expected to be filed with the PUCT on or before January 31, 2025 following feedback from customers, external experts, elected officials, local agencies and other stakeholders. Additionally, Houston Electric announced its proposal to forego approximately $110 million of profit related to its storm hardening and TEEEF efforts, which would be represented by (1) Houston Electric not seeking to recover approximately $70 million in incremental storm hardening expenses incurred in connection with accelerated operational activities after
Hurricane Beryl; and (2) Houston Electric not filing, beginning in 2028, for approximately $40 million in anticipated equity profit associated with load-shed orientated TEEEF leased by Houston Electric through the remaining regulatory life of the leases in 2032 as new dispatchable generation is likely to come online in the state of Texas as a result of the Texas Energy Fund.
For more information regarding regulatory impacts and the term loan facility to fund certain costs related to the May 2024 Storm Events and litigation related to Hurricane Beryl, see Notes 6, 11 and 13 to the Interim Condensed Financial Statements and “Liquidity and Capital Resources” below.
Regulatory Proceedings. For further information, see Note 6 to the Interim Condensed Financial Statements. For information related to our pending and completed regulatory proceedings to date in 2024, see “Liquidity and Capital Resources —Regulatory Matters” below.
Debt Transactions. For information about debt transactions to date in 2024, see Note 11 to the Interim Condensed Financial Statements.
CENTERPOINT ENERGY CONSOLIDATED RESULTS OF OPERATIONS
For information regarding factors that may affect the future results of our consolidated operations, see “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2023 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.
Income available to common shareholders for the three and nine months ended September 30, 2024 and 2023 was as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Favorable (Unfavorable)
2024
2023
Favorable (Unfavorable)
(in millions)
Electric
$
226
$
290
$
(64)
$
562
$
593
$
(31)
Natural Gas
30
27
3
360
296
64
Total Utility Operations
256
317
(61)
922
889
33
Corporate & Other (1)
(63)
(61)
(2)
(151)
(214)
63
Total CenterPoint Energy
$
193
$
256
$
(63)
$
771
$
675
$
96
(1)Includes energy performance contracting and sustainable infrastructure services through Energy Systems Group before June 30, 2023, the date of the sale of Energy Systems Group, unallocated corporate costs, interest income and interest expense, intercompany eliminations and the reduction of income allocated to preferred shareholders before September 1, 2023, the date of the redemption of all of the outstanding shares of the Series A Preferred Stock.
Three months ended September 30, 2024 compared to three months ended September 30, 2023
Income available to common shareholders decreased $63 million primarily due to the following items:
•a decrease in income available to common shareholders of $64 million for the Electric reportable segment, as further discussed below;
•an increase in income available to common shareholders of $3 million for the Natural Gas reportable segment, as further discussed below; and
•a decrease in income available to common shareholders of $2 million for Corporate and Other, primarily due to $9 million of higher state income taxes, $7 million associated with corporate operating expenses, and $6 million associated with increased borrowing costs . The decrease is partially offset by $26 million of income allocated to holders of Series A Preferred Stock in the third quarter of 2023 prior to the redemption of all outstanding shares of Series A Preferred Stock in September 2023 as discussed in Note 18 to the Interim Condensed Financial Statements.
Nine months ended September 30, 2024 compared to nine months ended September 30, 2023
Income available to common shareholders increased $96 million primarily due to the following items:
•a decrease in income available to common shareholders of $31 million for the Electric reportable segment, as further discussed below;
•an increase in income available to common shareholders of $64 million for the Natural Gas reportable segment, as further discussed below; and
•an increase in income available to common shareholders of $63 million for Corporate and Other, primarily due to $50 million of income allocated to holders of Series A Preferred Stock in the nine months ended September 30, 2023 prior to the redemption of all outstanding shares of Series A Preferred Stock in September 2023 as discussed in Note 18 to the Interim Condensed Financial Statements, a loss on sale of $12 million and current tax expense of $33 million related to divestiture of Energy Systems Group recorded in the nine months ended June 30, 2023 further discussed in Note 3 to the Interim Condensed Financial Statements, as well as $19 million due to remeasurement of deferred income tax balances recorded during the six months ended June 30, 2023. The increase is partially offset by $29 million associated with increased borrowing costs, $9 million of higher state income taxes, and $7 million associated with corporate operating expenses.
Income Tax Expense. For a discussion of effective tax rate per period, see Note 12 to the Interim Condensed Financial Statements.
CENTERPOINT ENERGY’S RESULTS OF OPERATIONS BY REPORTABLE SEGMENT
CenterPoint Energy’s CODM views net income as the measure of profit or loss for the reportable segments. Segment results include inter-segment interest income and expense, which may result in inter-segment profit and loss.
The following discussion of CenterPoint Energy’s results of operations is separated into two reportable segments, Electric and Natural Gas.
Electric (CenterPoint Energy)
For information regarding factors that may affect the future results of operations of CenterPoint Energy’s Electric reportable segment, see “Risk Factors — Risk Factors Affecting Operations — Electric Generation, Transmission and Distribution,” “— Risk Factors Affecting Regulatory, Environmental and Legal Risks,” “— Risk Factors Affecting Financial, Economic and Market Risks,” “— Risk Factors Affecting Safety and Security Risks” and “— General and Other Risks” in Item 1A of Part I of the Registrants’ combined 2023 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.
The following table provides summary data of CenterPoint Energy’s Electric reportable segment:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Favorable (Unfavorable)
2024
2023
Favorable (Unfavorable)
(in millions, except operating statistics)
Revenues
$
1,243
$
1,261
$
(18)
$
3,499
$
3,250
$
249
Expenses:
Utility natural gas, fuel and purchased power
58
51
(7)
151
130
(21)
Operation and maintenance
560
459
(101)
1,532
1,335
(197)
Depreciation and amortization
201
241
40
664
650
(14)
Taxes other than income taxes
73
73
—
228
208
(20)
Total expenses
892
824
(68)
2,575
2,323
(252)
Operating Income
351
437
(86)
924
927
(3)
Other Income (Expense):
Interest expense and other finance charges
(88)
(81)
(7)
(276)
(213)
(63)
Other income, net
16
13
3
45
39
6
Income Before Income Taxes
279
369
(90)
693
753
(60)
Income tax expense
53
79
26
131
160
29
Net Income
$
226
$
290
$
(64)
$
562
$
593
$
(31)
Throughput (in GWh):
Residential
11,807
13,851
(15)
%
27,219
28,855
(6)
%
Total
32,633
35,029
(7)
%
84,730
84,794
—
%
Weather (percentage of normal weather for service area):
The following table provides variance explanations for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 as well as for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 by major income statement caption for CenterPoint Energy’s Electric reportable segment:
Favorable (Unfavorable)
Three Months Ended September 30, 2024 vs. 2023
Nine Months Ended September 30, 2024 vs. 2023
(in millions)
Revenues
Transmission Revenues, including TCOS and TCRF, inclusive of costs billed by transmission providers, partially offset in operation and maintenance below
$
53
$
168
Customer rates and the impact of the change in rate design
32
121
Customer growth
9
22
Cost of fuel and purchased power, offset in utility natural gas, fuel and purchased power below
7
21
Energy efficiency, and other pass-through, offset in operation and maintenance below
5
3
Miscellaneous revenues, including service connections and off-system sales
(4)
2
Lost revenues as a result of outages associated with Hurricane Beryl
(10)
(10)
Equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods
(14)
(12)
Weather, efficiency improvements and other usage impacts
(41)
(29)
Bond Companies and SIGECO Securitization Subsidiary, offset in other line items below
(55)
(37)
Total
$
(18)
$
249
Utility natural gas, fuel and purchased power
Cost of purchased power, offset in revenues above
$
(32)
$
(78)
Cost of fuel, including coal, natural gas, and fuel oil, offset in revenues above
25
57
Total
$
(7)
$
(21)
Operation and maintenance
Transmission costs billed by transmission providers, offset in revenues above
$
(28)
$
(90)
Incremental storm hardening expenses incurred in connection with accelerated operational activities after Hurricane Beryl
(70)
(70)
Contract services
(29)
(25)
Corporate support services
(4)
(9)
Labor and benefits
12
(4)
Bond Companies and SIGECO Securitization Subsidiary, offset in other line items
—
(1)
Energy efficiency, and other pass-through, offset in revenues above
(3)
(1)
All other operation and maintenance expense, including materials and supplies and insurance
For information regarding factors that may affect the future results of operations of CenterPoint Energy’s Natural Gas reportable segment, see “Risk Factors — Risk Factors Affecting Operations — Natural Gas,” “— Risk Factors Affecting Regulatory, Environmental and Legal Risks,” “— Risk Factors Affecting Financial, Economic and Market Risks,” “— Risk Factors Affecting Safety and Security Risks” and “— General and Other Risks” in Item 1A of Part I of the Registrants’ combined 2023 Form 10-K.
The following table provides summary data of CenterPoint Energy’s Natural Gas reportable segment:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Favorable (Unfavorable)
2024
2023
Favorable (Unfavorable)
(in millions, except operating statistics)
Revenues
$
611
$
597
$
14
$
2,876
$
3,136
$
(260)
Expenses:
Utility natural gas and fuel
139
141
2
1,066
1,420
354
Non-utility cost of revenues, including natural gas
2
1
(1)
3
2
(1)
Operation and maintenance
214
198
(16)
637
648
11
Depreciation and amortization
129
130
1
403
380
(23)
Taxes other than income taxes
51
53
2
177
182
5
Total expenses
535
523
(12)
2,286
2,632
346
Operating Income
76
74
2
590
504
86
Other Income (Expense):
Interest expense and other finance charges
(40)
(46)
6
(152)
(138)
(14)
Other income, net
3
8
(5)
10
14
(4)
Income Before Income Taxes
39
36
3
448
380
68
Income tax expense
9
9
—
88
84
(4)
Net Income
$
30
$
27
$
3
$
360
$
296
$
64
Throughput (in Bcf):
Residential
16
14
14
%
141
138
2
%
Commercial and Industrial
91
84
8
%
321
308
4
%
Total
107
98
9
%
462
446
4
%
Weather (percentage of 10-year average for service area):
The following table provides variance explanations for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 as well as for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 by major income statement caption for CenterPoint Energy’s Natural Gas reportable segment:
Favorable (Unfavorable)
Three Months Ended September 30, 2024 vs. 2023
Nine Months Ended September 30, 2024 vs. 2023
(in millions)
Revenues
Cost of natural gas, offset in utility natural gas and fuel below
$
(2)
$
(354)
Energy efficiency and other pass-through, offset in operation and maintenance below
(5)
(25)
Gross receipts tax, offset in taxes other than income taxes below
2
(2)
Non-volumetric and miscellaneous revenue
(2)
(2)
Weather and usage
1
4
Customer growth
2
9
Non-utility revenues
1
10
Customer rates
17
100
Total
$
14
$
(260)
Utility natural gas and fuel
Cost of natural gas, offset in revenues above
$
2
$
354
Total
$
2
$
354
Non-utility costs of revenues, including natural gas
Non-utility cost of revenues, including natural gas
$
(1)
$
(1)
Total
$
(1)
$
(1)
Operation and maintenance
All other operations and maintenance expense, including bad debt expense
$
(26)
$
(17)
Contract services
(3)
(5)
Labor and benefits
2
1
Corporate support services
6
7
Energy efficiency and other pass-through, offset in revenues above
5
25
Total
$
(16)
$
11
Depreciation and amortization
$
—
Ongoing additions to plant-in-service
$
1
$
(23)
Total
$
1
$
(23)
Taxes other than income taxes
Gross receipts tax, offset in revenues above
$
(2)
$
2
Incremental capital projects placed in service, and the impact of updated property tax rates
4
3
Total
$
2
$
5
Interest expense and other finance charges
Other, primarily AFUDC and impacts of regulatory deferrals
$
13
$
(8)
Changes in outstanding debt
(7)
(6)
Total
$
6
$
(14)
Other income, net
Other income, including AFUDC - Equity
$
1
$
3
Other
(6)
(7)
Total
$
(5)
$
(4)
Income Tax Expense. For a discussion of effective tax rate per period by Registrant, see Note 12 to the Interim Condensed Financial Statements.
HOUSTON ELECTRIC CONSOLIDATED RESULTS OF OPERATIONS
Houston Electric’s CODM views net income as the measure of profit or loss for its single reportable segment. 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, see “Risk Factors — Risk Factors Affecting Operations — Electric Generation, Transmission and Distribution,” “— Risk Factors Affecting Regulatory, Environmental and Legal Risks,” “— Risk Factors Affecting Financial, Economic and Market Risks,” “— Risk Factors Affecting Safety and Security Risks” and “— General and Other Risks” in Item 1A of Part I of the Registrants’ combined 2023 Form 10-K and in Item 1A of Part II of this combined Form 10-Q.
The following table provides summary data of Houston Electric’s single reportable segment:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Favorable (Unfavorable)
2024
2023
Favorable (Unfavorable)
(in millions, except operating statistics)
Revenues:
TDU
$
1,057
$
1,027
$
30
$
2,926
$
2,655
$
271
Bond Companies
1
56
(55)
77
129
(52)
Total revenues
1,058
1,083
(25)
3,003
2,784
219
Expenses:
Operation and maintenance, excluding Bond Companies
533
407
(126)
1,423
1,186
(237)
Depreciation and amortization, excluding Bond Companies
170
157
(13)
506
433
(73)
Taxes other than income taxes
71
70
(1)
221
201
(20)
Bond Companies
1
55
54
77
126
49
Total expenses
775
689
(86)
2,227
1,946
(281)
Operating Income
283
394
(111)
776
838
(62)
Other Income (Expense):
Interest expense and other finance charges
(74)
(69)
(5)
(229)
(185)
(44)
Interest expense on Securitization Bonds
(1)
(2)
1
(3)
(6)
3
Other income, net
12
5
7
33
22
11
Income Before Income Taxes
220
328
(108)
577
669
(92)
Income tax expense
41
72
31
112
147
35
Net Income
$
179
$
256
$
(77)
$
465
$
522
$
(57)
Throughput (in GWh):
Residential
11,364
13,410
(15)
%
26,108
27,803
(6)
%
Total
31,228
33,546
(7)
%
81,059
80,984
—
%
Weather (percentage of 10-year average for service area):
Cooling degree days
104
%
123
%
(19)
%
109
%
117
%
(8)
%
Heating degree days
—
%
—
%
—
%
92
%
87
%
5
%
Number of metered customers at end of period:
Residential
2,495,669
2,443,150
2
%
2,495,669
2,443,150
2
%
Total
2,806,984
2,751,218
2
%
2,806,984
2,751,218
2
%
63
The following table provides variance explanations for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 as well as for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 by major income statement caption for Houston Electric:
Favorable (Unfavorable)
Three Months Ended September 30, 2024 vs. 2023
Nine Months Ended September 30, 2024 vs. 2023
(in millions)
Revenues
Transmission Revenues, including TCOS and TCRF, inclusive of costs billed by transmission providers, partially offset in operation and maintenance below
$
53
$
168
Customer rates and the impact of the change in rate design
27
131
Customer growth
8
20
Energy efficiency, partially offset in operations and maintenance below
5
7
Miscellaneous revenues
1
2
Lost revenues as a result of outages associated with Hurricane Beryl
(10)
(10)
Equity return, related to the annual true-up of transition charges for amounts over or under collected in prior periods
(13)
(12)
Weather, efficiency improvements and other usage impacts
(41)
(35)
Bond Companies, offset in other line items below
(55)
(52)
Total
$
(25)
$
219
Operation and maintenance, excluding Bond Companies
Transmission costs billed by transmission providers, offset in revenues above
$
(28)
$
(90)
Incremental storm hardening expenses incurred in connection with accelerated operational activities after Hurricane Beryl
(70)
(70)
Contract services
(30)
(31)
All other operation and maintenance expense, including materials and supplies and insurance
(3)
(25)
Corporate support services
(2)
(8)
Energy efficiency, offset in revenues above
(5)
(7)
Labor and benefits
12
(6)
Total
$
(126)
$
(237)
Depreciation and amortization, excluding Bond Companies
Ongoing additions to plant-in-service
$
(13)
$
(73)
Total
$
(13)
$
(73)
Taxes other than income taxes
Incremental capital projects placed in service, and the impact of changes to tax rates
$
(1)
$
(20)
Total
$
(1)
$
(20)
Bond Companies expense
Operations and maintenance and depreciation expense, offset in revenues above
$
54
$
49
Total
$
54
$
49
Interest expense and other finance charges
Changes in outstanding debt
$
(12)
$
(40)
Other, primarily AFUDC and impacts of regulatory deferrals
7
(4)
Total
$
(5)
$
(44)
Interest expense on Securitization Bonds
Lower outstanding principal balance, offset in revenues above
$
1
$
3
Total
$
1
$
3
Other income, net
Other income, including AFUDC - Equity
$
7
$
11
Total
$
7
$
11
Income Tax Expense. For a discussion of effective tax rate per period, see Note 12 to the Interim Condensed Financial Statements.
CERC’s CODM views net income as the measure of profit or loss for its single reportable segment. CERC’s results of operations are affected by seasonal fluctuations in the demand for natural gas. 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, debt service costs and income tax expense, CERC’s ability to collect receivables from customers and CERC’s ability to recover its regulatory assets. For more information regarding factors that may affect the future results of operations for CERC’s business, see “Risk Factors — Risk Factors Affecting Operations — Natural Gas,” “— Risk Factors Affecting Regulatory, Environmental and Legal Risks,” “— Risk Factors Affecting Financial, Economic and Market Risks,” “— Risk Factors Affecting Safety and Security Risks” and “— General and Other Risks” in Item 1A of Part I of the Registrants’ combined 2023 Form 10-K.
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Favorable (Unfavorable)
2024
2023
Favorable (Unfavorable)
(in millions, except operating statistics)
Revenues
$
600
$
583
$
17
$
2,791
$
3,045
$
(254)
Expenses:
Utility natural gas
140
141
1
1,046
1,399
353
Non-utility cost of revenues, including natural gas
1
1
—
2
2
—
Operation and maintenance
207
187
(20)
614
616
2
Depreciation and amortization
124
125
1
389
365
(24)
Taxes other than income taxes
51
53
2
176
181
5
Total expenses
523
507
(16)
2,227
2,563
336
Operating Income
77
76
1
564
482
82
Other Income (Expense):
Interest expense and other finance charges
(38)
(44)
6
(145)
(131)
(14)
Other income, net
4
6
(2)
10
12
(2)
Income Before Income Taxes
43
38
5
429
363
66
Income tax expense
9
10
1
84
80
(4)
Net Income
$
34
$
28
$
6
$
345
$
283
$
62
Throughput (in Bcf):
Residential
15
14
7
%
137
135
1
%
Commercial and Industrial
81
76
7
%
294
282
4
%
Total
96
90
7
%
431
417
3
%
Weather (percentage of 10-year average for service area):
The following table provides variance explanations for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 as well as for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 by major income statement caption for CERC:
Favorable (Unfavorable)
Three Months Ended September 30, 2024 vs. 2023
Nine Months Ended September 30, 2024 vs. 2023
(in millions)
Revenues
Cost of natural gas, offset in utility natural gas below
$
(1)
$
(353)
Energy efficiency and other pass-through, offset in operation and maintenance below
(3)
(18)
Gross receipts tax, offset in taxes other than income taxes below
2
(2)
Non-volumetric and miscellaneous revenue
(2)
(1)
Weather and usage
3
6
Customer growth
2
9
Non-utility revenues
1
10
Customer rates
15
95
Total
$
17
$
(254)
Utility natural gas
Cost of natural gas, offset in revenues above
$
1
$
353
Total
$
1
$
353
Operation and maintenance
All other operations and maintenance expense, including bad debt expense
$
(29)
$
(20)
Contract services
(3)
(5)
Labor and benefits
3
2
Corporate support services
6
7
Energy efficiency and other pass-through, offset in revenues above
$
3
$
18
Total
$
(20)
$
2
Depreciation and amortization
Ongoing additions to plant-in-service
$
1
$
(24)
Total
$
1
$
(24)
Taxes other than income taxes
Gross receipts tax, offset in revenues above
$
(2)
$
2
Incremental capital projects placed in service, and the impact of updated property tax rates
4
3
Total
$
2
$
5
Interest expense and other finance charges
Other, primarily AFUDC and impacts of regulatory deferrals
$
12
$
(9)
Changes in outstanding debt
(6)
(5)
Total
$
6
$
(14)
Other income, net
Other income, including AFUDC - Equity
$
1
$
3
Other
(3)
(5)
Total
$
(2)
$
(2)
Income Tax Expense. For a discussion of effective tax rate per period, see Note 12 to the Interim Condensed Financial Statements.
CERTAIN FACTORS AFFECTING FUTURE EARNINGS
For information on other developments, factors and trends that may impact the Registrants’ future earnings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Factors Affecting Future Earnings” in Item 7 of Part II and “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2023 Form 10-K, and “Cautionary Statement Regarding Forward-Looking Information” and “Risk Factors” in this combined Form 10-Q.
The following table summarizes the net cash provided by (used in) operating, investing and financing activities during the nine months ended September 30, 2024 and 2023:
Nine Months Ended September 30,
2024
2023
CenterPoint Energy
Houston Electric
CERC
CenterPoint Energy
Houston Electric
CERC
(in millions)
Cash provided by (used in):
Operating activities
$
1,250
$
306
$
858
$
3,069
$
858
$
2,270
Investing activities
(2,559)
(1,044)
(982)
(3,190)
(2,132)
(1,320)
Financing activities
1,329
759
124
168
1,312
(949)
Operating Activities. The following items contributed to increased (decreased) net cash provided by operating activities for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:
CenterPoint Energy
Houston Electric
CERC
(in millions)
Changes in net income after adjusting for non-cash items
$
219
$
(107)
$
294
Changes in working capital
(243)
23
(398)
Changes in current regulatory assets and liabilities (1)
(1,264)
(7)
(1,218)
Changes in non-current regulatory assets and liabilities
(482)
(408)
(83)
Higher pension contribution
25
—
—
Other
(74)
(53)
(7)
$
(1,819)
$
(552)
$
(1,412)
(1)This change is primarily related to the receipt of proceeds at CenterPoint Energy and CERC from the Texas securitization program in 2023. For further details, see Note 6 to the Interim Condensed Financial Statements.
Investing Activities.The following items contributed to (increased) decreased net cash used in investing activities for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:
CenterPoint Energy
Houston Electric
CERC
(in millions)
Net change in capital expenditures
$
822
$
553
$
192
Net change in notes receivable from affiliated companies
Financing Activities.The following items contributed to (increased) decreased net cash provided by (used in) financing activities for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:
CenterPoint Energy
Houston Electric
CERC
(in millions)
Net changes in commercial paper outstanding
$
976
$
—
$
518
Net changes in proceeds from issuances of Common Stock
494
—
—
Net changes in long-term debt and term loans outstanding, excluding commercial paper
(1,167)
(702)
668
Net changes in debt issuance costs
25
8
9
Net changes in short-term borrowings
12
—
12
Redemption of Series A Preferred Stock
800
—
—
Increased payment of Common Stock dividends
(25)
—
—
Decreased payment of preferred stock dividends
49
—
—
Net change in notes payable from affiliated companies
—
713
—
Change in contribution from parent
—
(561)
(210)
Change in dividend to parent
—
(10)
77
Other
(3)
(1)
(1)
$
1,161
$
(553)
$
1,073
Future Sources and Uses of Cash
The liquidity and capital requirements of the Registrants are affected primarily by results of operations, capital expenditures, storm restoration costs, debt service requirements, tax payments, working capital needs and various regulatory actions. Capital expenditures (other than expenditures associated with the May 2024 Storm Events and Hurricane Beryl) are expected to be used for investment in infrastructure. These capital expenditures are anticipated to enhance reliability and safety, increase resiliency and expand our systems through value-added projects. Substantial capital expenditures are also expected for restoration costs associated with the May 2024 Storm Events and Hurricane Beryl, as further described below. In addition to dividend payments on CenterPoint Energy’s Common Stock and interest payments on debt, the Registrants’ principal anticipated cash requirements for the remainder of 2024 include the following:
CenterPoint Energy
Houston
Electric
CERC
(in millions)
Estimated capital expenditures (1)
$
1,248
$
805
$
322
Estimated restoration costs associated with May 2024 Storm Events (2)
8
8
—
Estimated restoration costs associated with Hurricane Beryl (2)
849
849
—
Scheduled principal payments on Securitization Bonds
88
81
—
Expected contributions to pension plans and other post-retirement plans
8
1
—
(1)Excludes expenditures for the restoration costs associated with the May 2024 Storm Events and Hurricane Beryl.
(2)Represents cash requirements associated with the estimated storm restoration costs for the remainder of 2024.
The Registrants expect that anticipated cash needs for the remainder of 2024 will be met with borrowings under their credit facilities, proceeds from the issuance of long-term debt, anticipated cash flows from operations, and, with respect to CenterPoint Energy and CERC, proceeds from commercial paper. Issuances of debt securities in the capital markets, funds raised in the commercial paper markets, term loans and additional credit facilities may not, however, be available on acceptable terms.
For more information regarding the May 2024 Storm Events and Hurricane Beryl, see Notes 6, 11 and 13 to the Interim Condensed Financial Statements as well as “Recent Events” in Part I, Item 2 and “Risk Factors” in Part II, Item 1A of this combined Form 10-Q.
Other than Houston Electric’s general mortgage bonds issued as collateral for tax-exempt long-term debt of CenterPoint Energy as discussed in Note 11 and guarantees as discussed in Note 13(b) to the Interim Condensed Financial Statements, we have no off-balance sheet arrangements.
Regulatory Matters
Hurricane Beryl
For additional information about Hurricane Beryl, see Note 6 to the Interim Condensed Financial Statements as well as “Recent Events” in Part I, Item 2 and “Risk Factors” in Part II, Item 1A of this combined Form 10-Q.
May 2024 Storm Events
For additional information about the May 2024 Storm Events, see Note 6 to the Interim Condensed Financial Statements as well as “Recent Events” in Part I, Item 2 and “Risk Factors” in Part II, Item 1A of this combined Form 10-Q.
February 2021 Winter Storm Event
For further information about the February 2021 Winter Storm Event, see Note 6 to the Interim Condensed Financial Statements.
Indiana Electric Securitization of Generation Retirements (CenterPoint Energy)
For further information about the issuance of SIGECO Securitization Bonds, see Note 6 to the Interim Condensed Financial Statements.
Indiana Electric CPCN (CenterPoint Energy)
BTAs
On February 23, 2021, Indiana Electric filed a CPCN with the IURC seeking approval to purchase the Posey Solar project. On October 27, 2021, the IURC issued an order approving the CPCN, authorizing Indiana Electric to purchase the Posey Solar project through a BTA to acquire its solar array assets for a fixed purchase price and approved recovery of costs via a levelized rate over the anticipated 35-year life. Due to community feedback and rising project costs caused by inflation and supply chain issues affecting the energy industry, Indiana Electric, along with Arevon, the developer, announced plans in January 2022 to downsize the Posey Solar project to 191 MW. Indiana Electric collaboratively agreed to the scope change, and on February 1, 2023, Indiana Electric entered into an amended and restated BTA that is contingent on further IURC review and approval. On February 7, 2023, Indiana Electric filed a CPCN with the IURC to approve the amended BTA. With the passage of the IRA, Indiana Electric can now pursue PTCs for solar projects. Indiana Electric requested that project costs, net of PTCs, be recovered in rate base rather than a levelized rate, through base rates or the CECA mechanism, depending on which provides more timely recovery. On September 6, 2023 the IURC issued an order approving the CPCN. The Posey Solar project is expected to be placed in service in 2025 and recovered through base rates.
On July 5, 2022, Indiana Electric entered into a BTA to acquire a 130 MW solar array in Pike County, Indiana through a special purpose entity for a capped purchase price. A CPCN for the project was filed with the IURC on July 29, 2022. On September 21, 2022, an agreement in principle was reached resolving all the issues between Indiana Electric and OUCC. The Stipulation and Settlement agreement was filed on October 6, 2022 and a settlement hearing was held on November 1, 2022. On January 11, 2023, the IURC issued an order approving the settlement agreement authorizing Indiana Electric to purchase and acquire the Pike County solar project through a BTA and approved the estimated cost. The IURC also designated the project as a clean energy project under applicable Indiana regulations, approved the proposed levelized rate and associated ratemaking and accounting treatment. Due to inflationary pressures, the developer disclosed that costs exceeded the agreed upon levels in the BTA. After negotiations, Indiana Electric and the developer were not able to agree upon updated pricing. As a result, on February 27, 2024, Indiana Electric provided notice that it was exercising its right to terminate the BTA, which terminated all further obligations of Indiana Electric with respect to the project.
On January 10, 2023, Indiana Electric filed a CPCN with the IURC to acquire a wind energy generating facility with installed capacity of 200 MWs through a BTA, consistent with its 2019/2020 IRP that calls for up to 300 MWs of wind
generation. The wind project is located in MISO’s Central Region. Indiana Electric received approval from the IURC to recover the costs of the wind facility via the CECA mechanism, which is expected to be placed in service by the end of 2026. On June 6, 2023 the IURC issued an order approving the CPCN, thereby authorizing Indiana Electric to purchase the wind generating facility. However, as of the date of the filing of this Form 10-Q, Indiana Electric has not entered into any definitive agreement relating to this wind energy generating facility, and it is not certain that a definitive agreement will be entered into at all.
PPAs
Indiana Electric also sought approval in February 2021 for a 100 MW solar PPA with Clenera LLC in Warrick County, Indiana. The request accounted for increased cost of debt related to this PPA, which provides equivalent equity return to offset imputed debt during the 25 year life of the PPA. In October 2021, the IURC approved the Warrick County solar PPA but denied the request to preemptively offset imputed debt in the PPA cost. Due to rising project costs caused by inflation and supply chain issues affecting the energy industry, Clenera LLC and Indiana Electric were compelled to renegotiate terms of the agreement to increase the PPA price. On January 17, 2023, Indiana Electric filed a request with the IURC to amend the previously approved PPA with certain modifications. Revised purchase power costs are requested to be recovered through the fuel adjustment clause proceedings over the term of the amended PPA. On May 30, 2023, the IURC approved the Warrick County solar amended PPA; however, due to MISO interconnection study delays, the developer disclosed the project in-service date would be delayed to 2026.
On August 25, 2021, Indiana Electric filed with the IURC seeking approval to purchase 185 MW of solar power, under a 15-year PPA, from Oriden, which is developing a solar project in Vermillion County, Indiana, and 150 MW of solar power, under a 20-year PPA, from Origis, which is developing a solar project in Knox County, Indiana. On May 4, 2022, the IURC issued an order approving Indiana Electric to enter into both PPAs. In March 2022, when the results of the MISO interconnection study were completed, Origis advised Indiana Electric that the costs to construct the solar project in Knox County, Indiana had increased. The increase was largely driven by escalating commodity and supply chain costs impacting manufacturers worldwide. In August 2022, Indiana Electric and Origis entered into an amended PPA, which reiterated the terms contained in the 2021 PPA with certain modifications. On February 22, 2023, the IURC approved the Knox County solar amended PPA; however, due to MISO interconnection delays, the project in-service date will be delayed from 2024 to 2026. On January 17, 2023, Indiana Electric filed a request with the IURC to amend the previously approved PPA with Oriden with certain modifications. Revised purchase power costs were approved to be recovered through the fuel adjustment clause proceedings over the term of the amended PPA with Oriden. On May 30, 2023, the IURC approved the Vermillion County solar amended PPA; however, due to MISO interconnection study delays, the developer disclosed the project in-service date would be delayed to 2026.
On May 1, 2024, Indiana Electric filed with the IURC seeking approval to purchase 147 MW of wind power under a 25-year PPA with an affiliate of NextEra Energy, Inc., which is developing a wind project in Knox County, IL. The facility is targeted to be in operation in early 2026. Indiana Electric expects a decision from the IURC in the fourth quarter of 2024. If Indiana Electric’s request is approved, the purchase power costs will be recovered through the fuel adjustment clause proceedings over the term of the PPA.
Natural Gas Combustion Turbines
On June 17, 2021, Indiana Electric filed a CPCN with the IURC seeking approval to construct two natural gas combustion turbines to replace portions of its existing coal-fired generation fleet. On June 28, 2022, the IURC approved the CPCN. The estimated $334 million turbine facility is being constructed at the previous site of the A.B. Brown power plant in Posey County, Indiana and is expected to provide a combined output of 460 MW. Indiana Electric received approval for depreciation expense and post in-service carrying costs to be deferred in a regulatory asset until the date Indiana Electric’s base rates include a return on and recovery of depreciation expense on the facility. A new approximately 23.5 mile pipeline will be constructed and operated by Texas Gas Transmission, LLC to supply natural gas to the turbine facility. FERC granted a certificate to construct the pipeline on October 20, 2022. The period to challenge FERC’s certificate in a federal district court expired on February 20, 2023. Indiana Electric granted its contractor a full notice to proceed to construct the turbines on December 9, 2022. The facility is targeted to be operational by mid-year 2025. Recovery of the proposed natural gas combustion turbines and regulatory asset is included in the forecasted test year in the Indiana Electric rate case, which was filed with the IURC on December 5, 2023.
Culley Unit 3 Operations
In June 2022, F.B. Culley Unit 3, an Indiana Electric coal-fired electric generation unit with an installed generating capacity of 270 MW, experienced an operating issue relating to its boiler feed pump turbine. The unit returned to service in March 2023. In testimony filed September 13, 2023, the OUCC and an intervenor that represents industrial customers filed testimony with the IURC alleging that Indiana Electric did not act prudently which led to the unplanned outage and
recommended disallowances between $21 million to $27 million. On July 3, 2024, the IURC issued an order finding Indiana Electric acted reasonably and prudently with respect to the events that gave rise to the Culley Unit 3 outage and, in addition, did not approve the intervenors proposed disallowance. The order is now final and non-appealable.
Space City Solar Transmission Interconnection Project (CenterPoint Energy and Houston Electric)
On December 17, 2020, Houston Electric filed a CCN with the PUCT for approval to build a 345 kV transmission line in Wharton County, Texas connecting the Hillje substation on Houston Electric’s transmission system to the planned 610 MW Space City Solar Generation facility being developed by third-party developer EDF Renewables. In November 2021, the PUCT approved a route that was estimated to cost $25 million and issued a final order on January 12, 2022. There have been project delays due to supply chain constraints in the developer acquiring solar panels. Houston Electric substantially completed construction in the fall of 2023, and the transmission line is expected to be energized shortly after the generation facility is complete, which is anticipated to occur in the first half of 2025.
Kilgore Transmission Project (CenterPoint Energy and Houston Electric)
On August 30, 2023, Houston Electric filed a CCN application with the PUCT for approval to build a 138 kV double circuit transmission line in Chambers County, Texas that will loop the existing 138 kV Chevron to Langston circuit number 86 on Houston Electric’s transmission system to Houston Electric’s planned Kilgore substation. On March 7, the PUCT issued a final order approving a route that was estimated to cost $60 million, including substation costs. The actual capital costs of the project, including the transmission line and the planned Kilgore substation, will depend on actual land acquisition costs, construction costs, and other factors. Completion of construction and energization of the line and substation is anticipated to occur in the second quarter of 2026.
Mill CreekTransmission Project (CenterPoint Energy and Houston Electric)
On November 17, 2023, Houston Electric filed a CCN application with the PUCT for approval to build a 138 kV double circuit transmission line in Harris and Montgomery counties, Texas that will connect Houston Electric’s transmission system to Houston Electric’s planned Mill Creek substation. The actual capital costs of the project, including the transmission line and the planned Mill Creek substation, will depend on actual land acquisition costs, construction costs, and other factors and have been estimated to be $62 million to $98 million, based on an amended CCN application filed by Houston Electric on February 26, 2024 and subsequent errata filed on May 9, 2024. On October 24, 2024, the PUCT heard oral arguments and indicated that they will issue a decision on this project on November 14, 2024.
Texas Legislation (CenterPoint Energy, Houston Electric and CERC)
Houston Electric and CERC are also reviewing legislation passed in 2023 and associated PUCT rulemaking projects, including the following pieces of legislation that became law during the 88th Texas Legislature, including:
•House Bill 1500 became effective on September 1, 2023 and continues the functions of the PUCT, the Office of Public Utility Counsel, and ERCOT through 2029. This bill also includes an amendment that clarifies the use cases under which TDUs may lease and operate temporary generation during “significant” power outages;
•House Bill 2263 became effective on June 12, 2023 and authorizes LDCs to offer programs to promote energy conservation and to recover costs prudently incurred to implement such programs under Railroad Commission authority;
•House Bill 2555 became effective on June 13, 2023 and allows an electric utility to file a transmission and distribution system resiliency plan with the PUCT and associated cost recovery to enhance its system through hardening, modernization, undergrounding certain lines, lightning mitigation measures, flood mitigation measures, information technology, cybersecurity, physical security, vegetation management and wildfire mitigation. On January 18, 2024, the PUCT issued an Order adopting its Resiliency Plan Rule (16 Tex. Admin. Code § 25.62);
•Senate Bill 947 became effective on September 1, 2023 and creates severe criminal offenses for intentional damage to critical infrastructure facilities that create extended power outages;
•Senate Bill 1015 became effective on June 18, 2023 and allows utilities to file the DCRF twice a year, on any day the PUCT is open (at least 185 days after filing a full base rate proceeding) and setting an administrative approval timeline of 60 days;
•Senate Bill 1016 became effective on May 5, 2023 and requires the PUCT to presume that all employee compensation and benefits are reasonable and necessary when establishing a utility’s rates if based upon market compensation studies issued within the last three years; it includes exceptions for utility officer incentives that are based on financial metrics. Certain incentive compensation that is in-line with market studies will be presumed reasonable and recoverable; and
•Senate Bill 1076 became effective on June 2, 2023 and moves the timeline for the PUCT to approve CCN for transmission projects to 180 days after the date of filing, rather than the first anniversary of the day it was filed.
Minnesota Legislation (CenterPoint Energy and CERC)
The Natural Gas Innovation Act was passed by the Minnesota legislature in June 2021 with bipartisan support. This law establishes a regulatory framework to enable the state’s investor-owned natural gas utilities to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing GHG emissions and advancing the state’s clean energy future. The maximum allowable cost for an innovation plan will start at 1.75% of the utility's revenue in the state and could increase to 4% by 2033, subject to review and approval by the MPUC. Specifically, the Natural Gas Innovation Act allows a natural gas utility to submit an innovation plan for approval by the MPUC which could propose the use of renewable energy resources and innovative technologies such as:
•renewable natural gas (produces energy from organic materials such as wastewater, agricultural manure, food waste, agricultural or forest waste);
•renewable hydrogen gas (produces energy from water through electrolysis with renewable electricity such as solar);
•energy efficiency measures (avoids energy consumption in excess of the utility’s existing conservation programs); and
•innovative technologies (reduces or avoids GHG emissions using technologies such as carbon capture).
On June 28, 2023, CERC submitted its first innovation plan to the MPUC; the five-year plan includes 18 pilot projects and seven smaller research-and-development projects. These projects will deploy and evaluate a broad array of innovative resources including made-in-Minnesota alternative gases such as renewable natural gas and green hydrogen as well as pioneering technologies such as a networked geothermal district energy system and end-use carbon capture. The proposed plan requires approval from the MPUC through a review process that is expected to take about one year. The MPUC requested comments by September 15, 2023 if parties believe that the filing is incomplete based on the reporting requirements or if parties do not believe that that the MPUC’s standard informal proceeding process is appropriate. No parties filed comments regarding completeness or raising concerns that the MPUC’s standard informal procedural process is inappropriate. The initial comment period closed January 15, 2024, the reply comment period closed March 15, 2024 and the supplemental comment period closed May 15, 2024. On July 25, 2024, the MPUC voted to approve the plan with some minor modifications during its agenda meeting and a formal order was issued on October 9, 2024.
Solar Panel Issues (CenterPoint Energy)
CenterPoint Energy’s current and future solar projects have been impacted by delays and/or increased costs. The potential delays and inflationary cost pressures communicated from the developers of our solar projects have been primarily due to (i) unavailability of solar panels and other uncertainties related to DOC anti-dumping and countervailing duties investigation(s), (ii) the December 2021 Uyghur Forced Labor Prevention Act on solar modules and other products manufactured in China’s Xinjiang Uyghur Autonomous Region and (iii) persistent general global supply chain and labor availability issues. On May 15, 2024, based on a petition filed by the American Alliance for Solar Manufacturing Trade Committee, the DOC announced the initiation of antidumping and countervailing duty investigations of silicon photovoltaic cells from Cambodia, Malaysia, Thailand, and Vietnam. On October 1, 2024, the DOC’s preliminary countervailing duty determination affirmed the petition and established preliminary duty rates. The DOC is expected to issue a preliminary antidumping determination in the fourth quarter of 2024 with final determinations expected in the first quarter of 2025. These impacts could result in cost increases for certain projects, and such impacts may require that we seek additional regulatory review and approvals. Additionally, significant changes to project costs and schedules as a result of these factors could impact the viability of the projects. For more information regarding potential delays, cancellations and supply chain disruptions, see “Risk Factors” in Item 1A of Part I of the Registrants’ combined 2023 Form 10-K.
TDSIC 2.0 (CenterPoint Energy)
On May 24, 2023, Indiana Electric filed its petition and case-in-chief with the IURC requesting, among other things, approval of its five-year plan for transmission, distribution, and storage improvements (TDSIC Plan). Intervenors filed their case-in-chief on August 16, 2023 and Indiana Electric filed rebuttal on August 29, 2023. A hearing was held on September 13, 2023 and an order approving the TDSIC Plan was issued on December 27, 2023. The approved five-year TDSIC Plan, covering the period January 1, 2024 through December 31, 2028, consists of approximately $454 million in proposed investments across seven different programs: (1) Distribution 12kV Circuit Rebuild, (2) Distribution Underground Rebuild, (3) Distribution Automation, (4) Wood Pole Replacement, (5) Transmission Line Rebuild, (6) Substation Rebuild, and (7) Substation Physical Security.
Transmission and Distribution System Resiliency Plan (CenterPoint Energy and Houston Electric)
House Bill 2555, codified as Tex. Util. Code § 38.078, was passed by the 88th Texas Legislature in 2023 and allows an electric utility to file a transmission and distribution system resiliency plan with the PUCT to enhance the resiliency of the utility’s transmission system through at least one or more of the following measures: hardening, modernization, undergrounding certain lines, lightning mitigation measures, flood mitigation measures, information technology, cybersecurity measures, physical security measures, vegetation management, and wildfire mitigation and response. House Bill 2555 also allows an electric utility to establish a regulatory asset for distribution-related costs, including depreciation expense and carrying costs at the electric utility’s weighted average cost of capital, relating to the implementation of a transmission and distribution system resiliency plan.
On April 29, 2024, Houston Electric filed its first transmission and distribution system resiliency plan with the PUCT, which proposed to implement 25 resiliency measures over a three-year period. On August 1, 2024, Houston Electric announced that it was withdrawing its application for approval of its transmission and distribution system resiliency plan in order to focus on addressing the impacts of Hurricane Beryl and accelerating preparedness and resiliency efforts for the remaining storm season. The ALJ granted Houston Electric’s request for withdrawal of the transmission and distribution system resiliency plan on August 16, 2024.
On August 28, 2024, Houston Electric announced a series of resiliency actions, including a proposal for approximately $5 billion in resiliency investment from 2026 to 2028, which Houston Electric intends to include in a transmission and distribution system resiliency plan that is expected to be filed with the PUCT on or before January 31, 2025 following feedback from customers, external experts and other stakeholders, including elected officials and local agencies.
Rate Change Applications
The 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, Registrants are periodically involved in proceedings to adjust its capital tracking mechanisms (e.g., CSIA, DCRF, DRR, GRIP, TCOS, ECA, CECA and TDSIC), its cost of service adjustments (e.g., RSP and RRA), its decoupling mechanism (e.g., decoupling and SRC), and its energy efficiency cost trackers (e.g., CIP, DSMA, EECR, EECRF, EEFC and EEFR).
Texas Gas Rate Case. On October 30, 2023, CERC filed an application with the Railroad Commission and municipal regulatory authorities to set new natural gas base rates that would be applied consistently across the approximately 1.9 million customers. The need for a rate change was primarily driven by the continuing investment in the safety and reliability of the natural gas system, including new Intelis natural gas meters that feature an integrated safety shutoff valve, changes to depreciation rates that better reflect the actual life and salvage characteristics of assets, and changes in other costs to serve customers. A settlement agreement was filed on April 23, 2024. The settlement agreement was approved by the Railroad Commission on June 25, 2024 and provides for a $5 million annual increase in current revenues, establishes a 9.80% ROE and a 60.61% equity ratio for future GRIP filings.New rates will be effective beginning the month of December 2024.
Minnesota Rate Case. On November 1, 2023, CERC filed an application with the MPUC requesting an adjustment to delivery charges in 2024 and 2025 for the natural gas business in Minnesota. The requested increase is approximately 6.5% or $85 million for 2024 and an additional approximately 3.7% or $52 million for 2025. The need for a rate change is primarily driven by the continuing investment in the safety and reliability of the natural gas system, including new Intelis natural gas meters that feature an integrated safety shutoff valve, changes to depreciation rates that better reflect the actual life and salvage characteristics of assets, and changes in other costs to serve customers. The request reflects a proposed 10.3% ROE on a 52.5% equity ratio. Interim rates for 2024 of $69 million, subject to refund, were implemented as of January 1, 2024. A request for interim rates of $33 million for 2025 was filed on September 30, 2024 and decision on 2025 interim rates is expected in the fourth quarter of 2024. A pretrial and settlement conference is scheduled for December 16, 2024 and the anticipated decision date of the rate case is July 1, 2025.
Indiana Electric Rate Case. On December 5, 2023, Indiana Electric filed a petition with the IURC for authority to modify its rates and charges for electric utility service through a phase-in of rates. The requested increase is approximately 16% or $119 million based on a forward looking 2025 test year. The need for a rate increase is primarily driven by the continuing investment that is being made to bolster the safety and reliability of the system and normal increases in operating expenses. The initial filing of the rate case reflected a proposed 10.4% ROE on a 55% equity ratio. On April 9, 2024 Indiana Electric filed rebuttal in the rate case. Indiana Electric reached a settlement agreement with less than all parties and submitted the agreement to the IURC on May 20, 2024. The settlement reflects a proposed 9.8% ROE on a 55% equity ratio. The requested increase was lowered to 11% with an updated requested increase of $80 million. A hearing took place on September 10, 2024 through September 11, 2024. A final order is expected in the first half of 2025.
Houston Electric Rate Case. On March 6, 2024, Houston Electric filed an application with the PUCT requesting authority to change rates and charges for electric transmission and distribution service. The requested increase is approximately $17 million (1%) for retail customers and $43 million (6.6%) for wholesale transmission service, excluding TCRF and rate case expenses. Texas law mandates that electric utilities file a base rate proceeding no later than every four years from the date of their last base rate proceeding final order. Houston Electric’s most recent base rate proceeding order was approved by the PUCT on March 9, 2020, in Docket No. 49421. Therefore, Houston Electric was required to file its next base rate proceeding no later than March 9, 2024. The need for a rate increase is primarily driven by the continuing investment that has been made to support customer growth and to bolster the safety and reliability of Houston Electric’s transmission and distribution system. The request reflects a proposed 10.4% ROE and a 45% equity ratio. Errata testimony was filed to correct minor errors included in the initial filing which reduced the requested increase to $56 million compared to current rates. Intervenor and PUCT staff testimony was filed in June 2024. Rebuttal testimony was due on July 12, 2024 and Houston Electric filed rebuttal testimony from 13 witnesses that covered issues other than operations; however, due to their significant operational responsibilities associated with Houston Electric’s emergency operations plan and response to Hurricane Beryl, an extension was requested (and granted) for the operations witnesses. A hearing on the merits was scheduled to start in late July 2024. On July 17, 2024, Houston Electric filed an unopposed motion to abate the pending deadlines in order to provide additional time to facilitate the continued settlement discussions; the motion was granted on the same day. On August 1, 2024, Houston Electric announced that it was withdrawing its base rate application with the PUCT requesting authority to change rates and charges for electric transmission and distribution service in order to focus on addressing the impacts of Hurricane Beryl in its service territory and accelerating preparedness and resiliency efforts for the remaining storm season. Intervenors filed a motion to challenge the withdrawal of the base rate proceeding. PUCT staff and the Office of Public Utility Counsel filed a letter in support of such withdrawal. On August 16, 2024, the ALJ issued an order denying the requested withdrawal of the base rate proceeding, leaving the base rate proceeding abated. On August 23, 2024, Houston Electric filed an appeal of the ALJ’s order to the PUCT. On September 12, 2024, the PUCT issued an order extending the time to act on Houston Electric’s appeal. On October 24, 2024, the PUCT heard oral arguments on the appeal and indicated that they will decide the appeal on November 14, 2024.
Ohio CEP. On March 1, 2024, CEOH filed an application with the PUCO for authority to modify its CEP rates and charges. The requested increase is approximately $3 million resulting in a proposed CEP rate for residential customers of $1.54 per month. Per the PUCO’s Opinion and Order in the 2018 general rate case, the CEP rate is capped at $1.50 per month for residential customers. CEOH requested deferral of the 2023 CEP revenue requirement above the CEP rate cap of approximately $155,000. On June 20, 2024, PUCO staff filed comments recommending that CEOH be permitted to collect $1.50 in this annual rider. However, PUCO staff recommended that CEOH be denied the opportunity to collect deferrals that exceed $1.50. PUCO staff also recommended that CEOH cease accruing deferrals until such time as a new CEP alternative regulation case has been approved and asserted the $1.50 cap was reached at some point in 2023. CEOH filed comments on July 15, 2024, providing additional clarification on its interpretation of the 2018 rate case stipulation language. CEOH’s interpretation is that CEOH has complied with the PUCO’s Opinion and Order from the 2018 general rate case, and CEOH plans to file a Notice of Intent to file a rate case application prior to the $1.50 cap being reached, allowing for the deferral to be maintained. CEOH filed a statement of resolution on July 30, 2024, indicating CEOH and PUCO staff agree to certain statements including: CEOH’s existing deferral authority has not expired and will continue uninterrupted, provided CEOH files its notice of intent for its base rate case prior to the new CEP Rider charges taking effect. PUCO issued a Finding & Order on August 21, 2024, finding that the parties’ resolution of the rate cap and deferral authority issues were reasonable.
Ohio Gas Rate Case. On August 27, 2024, CEOH filed a Notice of Intent with PUCO to begin the process of requesting an adjustment in natural gas base rates. CEOH plans to file its Application and Standard Filing Requirement by the end of October 2024 based on a hybrid test year of January through March 2024 results and April through December 2024 estimated financial data. Direct testimony will be filed with PUCO 14 days after the application filing. The need for a rate increase is primarily driven by the continuing investment that is being made to provide safe and reliable service of the system. CEOH’s last base rate case was filed in 2018 with final PUCO approval August 28, 2019.
The table below reflects significant applications pending or completed since the Registrants’ combined 2023 Form 10-K was filed with the SEC through the date of the filing of this Form 10-Q:
Mechanism
Annual Increase (1)
(in millions)
Filing Date
Effective Date
Approval Date
Additional Information
CenterPoint Energy and Houston Electric (PUCT)
DCRF
73
December 2023
April
2024
March 2024
Based on the net change in distribution invested capital since its last base rate proceeding of approximately $2.5 billion for the period January 1, 2019 through September 30, 2023 for an incremental revenue increase of $86 million, adjusted for load growth. On February 5, 2024, Houston Electric notified the ALJ that the parties reached an agreement in principle on all issues in this proceeding, and filed an agreed expedited motion for interim rates. On February 13, 2024, interim rates designed to collect $220 million ($73 million incremental) were approved by the ALJ, to be effective April 2024. A final order was issued by the PUCT March 7, 2024.
Rate Case
56
March 2024
TBD
TBD
See discussion above under Houston Electric Rate Case.
EECRF
15
May
2024
TBD
TBD
The requested $65 million is comprised primarily of the following: 2025 program costs of $50 million; a credit of $0.5 million related to the over-recovery of 2023 program costs; the 2023 earned bonus of $15 million; and 2025 projected evaluation, measurement and verification costs of $0.5 million. On August 21, 2024, Houston Electric requested the proceeding be abated to facilitate settlement negotiations with the parties. On September 6, 2024, Houston Electric notified the ALJ that the parties reached an agreement in principal and requested the proceeding continue in abatement; the stipulation and settlement agreement was filed on October 17, 2024.
CenterPoint Energy and CERC - Beaumont/East Texas, South Texas, Houston and Texas Coast (Railroad Commission)
Rate Case
5
October 2023
December 2024
June
2024
See discussion above under Texas Gas Rate Case.
Tax Act Rider
20
August 2024
TBD
TBD
Resulting from the Texas Gas Rate Case, the first Tax Act Rider Calculation was filed on August 1, 2024 pursuant to Docket No. OS-23-00015513 to recover the effects of the Inflation Reduction Act (“Tax Act 2022”) and certain other tax-related costs for rates to become effective January 1, 2025. These effects include the return on the CAMT deferred tax asset (“DTA”) resulting from the Tax Act 2022, income tax credits resulting from the Tax Act 2022, and the return on the increment or decrement in the NOL DTA included in rate base and in the standard service base revenue requirement approved in the Texas Gas Rate Case. CERC believes its filing is consistent with the Tax Act Rider tariff approved in Docket No. OS-23-00015513. On October 1, 2024, certain parties filed comments disputing the application. The Railroad Commission is currently seeking comments and a procedural schedule for review.
CenterPoint Energy and CERC - Minnesota (MPUC)
CIP Financial Incentive
8
May
2024
TBD
TBD
CIP Financial Incentive based on 2023 CIP program activity.
Rate Case
136
November 2023
TBD
TBD
See discussion above under Minnesota Rate Case.
CenterPoint Energy and CERC - Louisiana (LPSC)
RSP
12
September/October 2023
June
2024
April
2024
Based on ROE of 9.95% with 50 basis point (+/-) earnings band. The North Louisiana increase, net of TCJA effects considered outside of the earnings band and completion of COVID-19 asset recovery, is $8 million based on a test year ended June 2023 and adjusted ROE of 3.67%. The South Louisiana increase, net of TCJA effects considered outside of the earnings band and completion of COVID-19 asset recovery, is $5 million based on a test year ended June 2023 and adjusted ROE of 5.47%. The TCJA refund impact to North Louisiana and South Louisiana was $0.6 million and $0.4 million, respectively. South Louisiana interim rates were implemented on December 28, 2023, subject to refund. North Louisiana interim rates were implemented on January 29, 2024. Staff reports issued on January 31, 2024 recommended disallowances of $0.3 million and $0.2 million in North and South Louisiana, respectively. LPSC voted to approve the January 2024 staff reports on April 19, 2024. Implementation occurred in June 2024.
RSP
13
October 2024
TBD
TBD
Based on ROE of 9.95% with 50 basis point (+/-) earnings band. The North Louisiana increase, inclusive of TCJA effects considered outside of the earnings band, is $7 million based on a test year ended June 2024 and adjusted ROE of 5.56%. The South Louisiana increase, inclusive of TCJA effects considered outside of the earnings band, is $6 million based on a test year ended June 2024 and adjusted ROE of 5.96%. Interim rates, subject to refund, will be implemented December 19, 2024.
Based on ROE of 10.263% with 100 basis points (+/-) earnings band. Revenue increase of approximately $11 million based on 2023 test year adjusted earned ROE of 5.11%. Interim increase of approximately $1.3 million implemented May 31, 2024. On September 5, 2024, MPSC approved a settlement revenue adjustment of $9.4 million.
CenterPoint Energy - Indiana South - Gas (IURC)
CSIA
4
April
2024
August
2024
July 2024
Requested an increase of $35 million to rate base, which reflects approximately $3.6 million annual increase in current revenues. An 80% of revenue requirement is included in the requested rate increase and 20% is deferred until the next rate case. The mechanism also includes a change in (over)/under-recovery variance of $0.03 million annually. The Final IURC Order was issued July 31, 2024, approving CSIA rates as proposed effective August 1, 2024.
CSIA
2
October 2024
TBD
TBD
Requested an increase of $18 million to rate base, which reflects approximately $2.4 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until the next rate case. The mechanism also includes a change in (over)/under-recovery variance of $(1.0) million annually. OUCC to file testimony on December 4, 2024. Indiana South Rebuttal due December 18, 2024. Evidentiary Hearing to be scheduled for week of January 6, 2025.
CenterPoint Energy and CERC - Indiana North - Gas (IURC)
CSIA
9
April
2024
August 2024
July 2024
Requested an increase of $97 million to rate base, which reflects approximately $9.4 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until the next rate case. The mechanism also includes a change in (over)/under-recovery variance of $1 million annually. Final IURC Order issued July 31, 2024, approving CSIA rates as proposed effective August 1, 2024.
CSIA
11
October 2024
TBD
TBD
Requested an increase of $84 million to rate base, which reflects approximately $11.0 million annual increase in current revenues. 80% of revenue requirement is included in requested rate increase and 20% is deferred until the next rate case. The mechanism also includes a change in (over)/under-recovery variance of $(3.0) million annually. OUCC to file testimony on December 4, 2024. Indiana South Rebuttal due December 18, 2024. Evidentiary Hearing to be scheduled for week of January 6, 2025.
CenterPoint Energy and CERC - Ohio - Gas (PUCO)
CEP
3
March 2024
September 2024
August 2024
See discussion above under Ohio Capital Expenditure Program.
DRR
12
May
2024
September 2024
August 2024
Requested an increase of $77 million to rate base for investments made in 2023, which reflects a $12 million annual increase in current revenues. A change in (over)/under-recovery variance of $0.8 million annually is also included in rates. PUCO Opinion & Order was issued August 21, 2024, approving DRR rates as proposed. Revised rates effective September 1, 2024.
CenterPoint Energy - Indiana Electric (IURC)
Rate Case
80
December 2023
TBD
TBD
See discussion above under Indiana Electric Rate Case.
TDSIC
5
February 2024
May
2024
May
2024
Requested an increase of $36 million to rate base, which reflects a $5 million annual increase in current revenues. 80% of the revenue requirement is included in requested rate increase and 20% is deferred until next rate case. An order approving the request was issued on May 17, 2024 and was effective May 16, 2024.
CECA
—
February 2024
May
2024
June
2024
Requested a decrease of $1 million to rate base, which reflects no change in current revenues. The mechanism also includes a change in (over)/under-recovery variance of $0.1 million. The final order was issued May 29, 2024, approving rates effective June 1, 2024.
ECA
6
May
2024
August 2024
August 2024
Requested an increase of $48 million to rate base, which reflects a $6 million annual increase in current revenues. Eighty percent of the revenue requirement is included in the requested rate increase and 20% is deferred until next rate case. The mechanism also includes a reduction in the under-recovery variance of $1 million. The OUCC filed testimony on July 1, 2024 recommending approval. A final order approving the request was issued on August 28, 2024.
Requested an increase of $30 million to rate base, which reflects a $5 million annual increase in current revenues. An 80% of the revenue requirement is included in the requested rate increase and 20% is deferred until the next rate case. The OUCC filed testimony on September 30, 2024. An evidentiary hearing is scheduled for October 28, 2024.
(1)Represents proposed increases (decreases) when effective date and/or approval date is not yet determined. Approved rates could differ materially from proposed rates.
Inflation Reduction Act (IRA)
On August 16, 2022, the IRA was signed into law. The new law extends or creates tax-related energy incentives for solar, wind and alternative clean energy sources, implements, subject to certain exceptions, a 1% tax on share repurchases after December 31, 2022, and implements a 15% CAMT based on the adjusted financial statement income of certain large corporations. Corporations are entitled to a CAMT credit to the extent CAMT liability exceeds regular tax liability, which can be carried forward indefinitely and used in future years when regular tax exceeds the CAMT. It is likely that the Registrants will owe CAMT in excess of their regular tax liability beginning in 2024. As a result, the Registrants may experience a temporary increase in federal cash tax liability due to this provision beginning in 2024. On September 12, 2024, the IRS issued proposed regulations addressing the application of the CAMT. The proposed regulations offer guidance for computing an entity’s adjusted financial statement income, in addition to addressing other provisions of the CAMT. At this time, the Company does not anticipate changes to the applicability of CAMT to the Registrants as a result of the proposed regulations.
Greenhouse Gas Regulation and Compliance (CenterPoint Energy)
On August 3, 2015, the EPA released its CPP rule, which required a 32% reduction in carbon emissions from 2005 levels. The final rule was published in the Federal Register on October 23, 2015, and that action was immediately followed by litigation ultimately resulting in the U.S. Supreme Court staying implementation of the rule. On July 8, 2019, the EPA published the ACE rule, which (i) repealed the CPP rule; (ii) replaced the CPP rule with a program that requires states to implement a program of energy efficiency improvement targets for individual coal-fired electric generating units; and (iii) amended the implementing regulations for Section 111(d) of the Clean Air Act. On January 19, 2021, the majority of the ACE rule — including the CPP repeal, CPP replacement, and the timing-related portions of the Section 111(d) implementing rule — was struck down by the U.S. Court of Appeals for the D.C. Circuit and on October 29, 2021, the U.S. Supreme Court agreed to consider four petitions filed by various coal interests and a coalition of 19 states. On June 30, 2022, the U.S. Supreme Court ruled that the EPA exceeded its authority in promulgating the CPP. On May 11, 2023, the EPA announced proposed emission limits and guidelines for carbon dioxide from fossil fuel-fired power plants under Section 111 of the Clean Air Act which, if finalized, apply new GHG performance standards for those existing coal-fired units expected to continue operation beyond December 31, 2029. On February 29, 2024, the EPA announced that it would be delaying the rulemaking as applied to existing natural gas-fired units. On April 25, 2024, the EPA released its New Source Performance Standards for Greenhouse Gas Emissions From New, Modified, Reconstructed Fossil Fuel-Fired Units; Emission Guidelines for Greenhouse Gas Emissions From Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule. CenterPoint Energy is currently reviewing this rule, but would note that CenterPoint Energy does not currently have plans to operate any of its coal-fired units beyond December 2029.
The Biden administration recommitted the United States to the Paris Agreement, which has driven a renewed regulatory push to require further GHG emission reductions from the energy sector, and led negotiations at the global climate conference in Glasgow, Scotland. On April 22, 2021, President Biden announced new goals of 50% reduction of economy-wide GHG emissions, and 100% carbon-free electricity by 2035 from a 2021 baseline, which formed the basis of the U.S. commitments announced in Glasgow. In September 2021, CenterPoint Energy announced its net zero emissions goals for both Scope 1 emissions and certain Scope 2 emissions by 2035 as well as a goal to reduce certain Scope 3 emissions by 20% to 30% by 2035. Because Texas is an unregulated market, CenterPoint Energy’s Scope 2 emissions estimates do not take into account Texas electric transmission and distribution assets in the line loss calculation and, in addition, exclude emissions related to purchased power in Indiana between 2024 and 2026 as estimated. CenterPoint Energy’s Scope 3 emissions estimates are based on the total natural gas supply delivered to residential and commercial customers as reported in the U.S. Energy Information Administration (EIA) Form EIA-176 reports and do not take into account the emissions of transport customers and emissions related to upstream extraction. These emission goals are expected to be used to position CenterPoint Energy to comply with anticipated future regulatory requirements from the current and future administrations to further reduce GHG emissions. CenterPoint Energy’s and CERC’s revenues, operating costs and capital requirements could be adversely affected as a result of any regulatory action that would require installation of new control technologies or a modification of their operations or would have
the effect of reducing the consumption of natural gas. The IRA established the Methane Emissions Reduction Program, which imposes a charge on methane emissions from certain natural gas transmission facilities, and the EPA has proposed new regulations targeting reductions in methane emissions, which if implemented will increase costs related to production, transmission and storage of natural gas.
CenterPoint Energy’s net zero emissions goals are aligned with Indiana Electric’s generation transition plan and are expected to position Indiana Electric to comply with anticipated future regulatory requirements related to GHG emissions reductions. Houston Electric, in contrast to some electric utilities including Indiana Electric, does not generate electricity, other than TEEEF, and thus is not directly exposed to the risk of high capital costs and regulatory uncertainties that face electric utilities that burn fossil fuels to generate electricity. Nevertheless, Houston Electric’s and Indiana Electric’s revenues could be adversely affected to the extent any resulting regulatory action has the effect of reducing consumption of electricity by ultimate consumers within their respective service territories. Likewise, incentives to conserve energy or to use energy sources other than natural gas could result in a decrease in demand for the Registrants’ services. For example, Minnesota has enacted the Natural Gas Innovation Act that seeks to provide customers with access to renewable energy resources and innovative technologies, with the goal of reducing GHG emissions.Further, certain local government bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain specified dates. For example, Minneapolis has adopted carbon emission reduction goals in an effort to decrease reliance on natural gas. Additionally, cities in Minnesota within CenterPoint Energy’s Natural Gas operational footprint are considering initiatives to eliminate natural gas use in buildings and focus on electrification. Also, Minnesota cities may consider seeking legislative authority for the ability to enact voluntary enhanced energy standards for all development projects. These initiatives could have a significant impact on CenterPoint Energy and its operations, and this impact could increase if other cities and jurisdictions in its service area enact similar initiatives. Further, our third-party suppliers, vendors and partners may also be impacted by climate change laws and regulations, which could impact CenterPoint Energy’s business by, among other things, causing permitting and construction delays, project cancellations or increased project costs passed on to CenterPoint Energy. Conversely, regulatory actions that effectively promote the consumption of natural gas because of its lower emissions characteristics would be expected to benefit CenterPoint Energy and CERC and their natural gas-related businesses. At this time, however, we cannot quantify the magnitude of the impacts from possible new regulatory actions related to GHG emissions, either positive or negative, on the Registrants’ businesses.
Compliance costs and other effects associated with climate change, reductions in GHG emissions and obtaining renewable energy sources remain uncertain. Although the amount of compliance costs remains uncertain, any new regulation or legislation relating to climate change will likely result in an increase in compliance costs. While the requirements of a federal or state rule remain uncertain, CenterPoint Energy will continue to monitor regulatory activity regarding GHG emission standards that may affect its business. Currently, CenterPoint Energy does not purchase carbon credits. In connection with its net zero emissions goals, CenterPoint Energy is expected to purchase carbon credits in the future; however, CenterPoint Energy does not currently expect the number of credits, or cost for those credits, to be material.
Climate Change Trends and Uncertainties
As a result of increased attention regarding climate change, coupled with adverse economic conditions, availability of alternative energy sources, including private solar, microturbines, fuel cells, energy-efficient buildings and energy storage devices, and new regulations restricting emissions, including potential regulations of methane emissions, some consumers and companies may use less energy, meet their own energy needs through alternative energy sources or avoid expansions of their facilities, including natural gas facilities, resulting in less demand for the Registrants’ services. As these technologies likely become more cost-competitive option over time, whether through cost effectiveness or government incentives and subsidies, certain customers may choose to meet their own energy needs and subsequently decrease usage of the Registrants’ systems and services, which may result in, among other things, Indiana Electric’s generating facilities becoming less competitive and economical. Further, evolving investor sentiment related to the use of fossil fuels and initiatives to restrict continued production of fossil fuels have had significant impacts on CenterPoint Energy’s electric generation and natural gas businesses. For example, because Indiana Electric’s current generating facilities substantially rely on coal for their operations, certain financial institutions choose not to participate in CenterPoint Energy’s financing arrangements. Conversely, demand for the Registrants’ services may increase as a result of customer changes in response to climate change. For example, as the expected utilization of electric vehicles increases, demand for electricity may increase, resulting in increased usage of CenterPoint Energy’s systems and services. Any negative opinions with respect to CenterPoint Energy’s environmental practices or its ability to meet the challenges posed by climate change formed by regulators, customers, investors, legislators or other stakeholders could harm its reputation.
To address these developments, CenterPoint Energy announced its net zero emissions goals for both Scope 1 emissions and certain Scope 2 emissions by 2035. Indiana Electric’s 2019/2020 IRP identified a preferred portfolio that retires 730 MW of coal-fired generation facilities and replaces these resources with a mix of generating resources composed primarily of
renewables, including solar, wind, and solar with storage, supported by dispatchable natural gas combustion turbines including a pipeline to serve such natural gas generation. Indiana Electric continues to execute on its 2019/2020 IRP and has received initial approvals for 626 MWs of the 700-1,000 MWs identified within Indiana Electric’s 2019/2020 IRP. Additionally, as reflected in its 10-year capital plan announced in September 2021, CenterPoint Energy anticipates spending over $3 billion in cleaner energy investments and enablement, which may be used to support, among other things, renewable energy generation and electric vehicle expansion. CenterPoint Energy believes its planned investments in renewable energy generation and corresponding planned reduction in its GHG emissions as part of its net zero emissions goals support global efforts to reduce the impacts of climate change. Indiana Electric has conducted a new IRP, which was submitted to the IURC in May 2023, to identify an appropriate generation resource portfolio to satisfy the needs of its customers and comply with environmental regulations. The proposed preferred portfolio is the second evolution to the generation transition plan to move away from coal-fired generation to a more sustainable portfolio of resources. Under the proposed preferred portfolio, Indiana Electric plans to convert its last remaining coal unit to natural gas by the end of 2027 and to add a significant amount of additional renewable resources through 2033. For more information regarding CenterPoint Energy’s net zero emission goals and the risks associated with them, see “Risk Factors — Risk Factors Affecting Regulatory, Environmental and Legal Risks — CenterPoint Energy is subject to operational and financial risks...” in Part I, Item 1A of the Registrants’ combined 2023 Form 10-K.
To the extent climate changes result in warmer temperatures in the Registrants’ service territories, financial results from the Registrants’ businesses could be adversely impacted. For example, CenterPoint Energy’s and CERC’s Natural Gas could be adversely affected through lower natural gas sales. On the other hand, warmer temperatures in CenterPoint Energy’s and Houston Electric’s electric service territory may increase revenues from transmission and distribution and generation through increased demand for electricity used for cooling. Another possible result of climate change is more frequent and more severe weather events, such as hurricanes, tornadoes and flooding, including such storms as the February 2021 Winter Storm Event, the May 2024 Storm Events and Hurricane Beryl. Since many of the Registrants’ facilities are located along or near the Texas gulf coast, increased or more severe weather events, such as hurricanes, tornadoes or flooding, could increase costs to repair damaged facilities and restore service to customers. CenterPoint Energy’s current 10-year capital plan includes capital expenditures to enhance reliability and safety and increase resiliency of its systems as climate change may result in more frequent significant weather events. Houston Electric does not own or operate any electric generation facilities other than, since September 2021, its operation of TEEEF. Houston Electric transmits and distributes to customers of REPs electric power that the REPs obtain from power generation facilities owned by third parties. To the extent adverse weather conditions affect the Registrants’ suppliers, results from their energy delivery businesses may suffer. For example, in Texas, the February 2021 Winter Storm Event caused an electricity generation shortage that was severely disruptive to Houston Electric’s service territory and the wholesale generation market and also caused a reduction in available natural gas capacity. Additionally, the May 2024 Storm Events and Hurricane Beryl caused significant damage to Houston Electric’s electric delivery system and resulted in electric service interruptions peaking at an estimated 922,000 customers and more than 2.1 million customers, respectively. When the Registrants cannot deliver electricity or natural gas to customers, or customers cannot receive services, the Registrants’ financial results can be impacted by lost revenues, and they generally must seek approval from regulators to recover restoration costs. To the extent the Registrants are unable to recover those costs, or if higher rates resulting from recovery of such costs result in reduced demand for services, the Registrants’ future financial results may be adversely impacted. Further, as the intensity and frequency of significant weather events continues, it may impact our ability to secure cost-efficient insurance.
On March 6, 2024, the SEC adopted final rules that require the Registrants to disclose certain climate-related information in registration statements and annual reports. The final rules require Registrants to disclose, among other things, material climate-related risks, activities to mitigate such risks and information about the Registrants’ board of directors’ oversight and management’s role in managing material climate-related risks. The final rule also requires the Registrants to provide information related to any climate-related targets or goals that are material to the Registrants’ businesses, results of operations, or financial condition. Litigation challenging the new rule was filed by multiple parties in multiple jurisdictions, which have been consolidated and assigned to the U.S. Court of Appeals for the Eighth Circuit. On April 4, 2024, the SEC announced that it is voluntarily delaying the implementation of the climate disclosure regulations while the U.S. Court of Appeals considers the litigation. While a majority of the reporting requirements would have been applicable to the Registrants in the fiscal year beginning in 2025, with the addition of assurance reporting for GHG inventories starting in 2029 for large accelerated filers, as of April 12, 2024, the effective date of the final rules has been delayed indefinitely and the SEC has indicated that it will publish a document in the Federal Register at the conclusion of the stay addressing a new effective date for the final rules. The Registrants continue to evaluate the impact of the final rules on their respective consolidated financial statements and related disclosures.
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, see Note 11 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 $4.0 billion as of September 30, 2024. As of October 21, 2024, the Registrants had the following revolving credit facilities and utilization of such facilities:
Amount Utilized as of October 21, 2024
Registrant
Size of Facility
Loans
Letters of Credit
Commercial Paper
Weighted Average Interest Rate
Termination Date
(in millions)
CenterPoint Energy
$
2,400
$
—
$
—
$
899
4.92%
December 6, 2027
CenterPoint Energy (1)
250
—
—
—
—%
December 6, 2027
Houston Electric
300
—
—
—
—%
December 6, 2027
CERC
1,050
—
1
427
4.90%
December 6, 2027
Total
$
4,000
$
—
$
1
$
1,326
(1)This credit facility was issued by SIGECO.
Borrowings under each of the 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 revolving credit facilities, the spread to SOFR and the commitment fees fluctuate based on the borrower’s credit rating. Each of the Registrant’s credit facilities provide for a mechanism to replace SOFR with possible alternative benchmarks upon certain benchmark replacement events. The borrowers are currently in compliance with the various business and financial covenants in the four revolving credit facilities.
Debt Transactions
For detailed information about the Registrants’ debt transactions to date in 2024, see Note 11 to the Interim Condensed Financial Statements.
Securities Registered with the SEC
On May 17, 2023, the Registrants filed a joint shelf registration statement with the SEC registering indeterminate principal amounts of Houston Electric’s general mortgage bonds, CERC Corp.’s senior debt securities and CenterPoint Energy’s senior debt securities and junior subordinated debt securities and an indeterminate number of 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 May 17, 2026. For information related to the Registrants’ debt issuances in 2024, see Note 11 to the Interim Condensed Financial Statements.
Additionally, for information related to shares of Common Stock sold during the nine months ended September 30, 2024, see Note 18 to the Interim Condensed Financial Statements.
Temporary Investments
As of October 21, 2024, the Registrants had no temporary investments.
The Registrants participate in a money pool through which they and certain of their subsidiaries can borrow or invest on a short-term basis. Funding needs are aggregated and external borrowing or investing is based on the net cash position. The net funding requirements of the CenterPoint Energy money pool are expected to be met with borrowings under CenterPoint Energy’s revolving credit facility or the sale of CenterPoint Energy’s commercial paper. The net funding requirements of the CERC money pool are expected to be met with borrowings under CERC’s revolving credit facility or the sale of CERC’s commercial paper. The money pool may not provide sufficient funds to meet the Registrants’ cash needs.
The table below summarizes CenterPoint Energy money pool activity by Registrant as of October 21, 2024:
Weighted Average Interest Rate
Houston Electric
CERC
(in millions)
Money pool borrowings
4.98%
$
221
$
—
Impact on Liquidity of a Downgrade in Credit Ratings
The interest rate on borrowings under the credit facilities is based on each respective borrower’s credit ratings. As of October 21, 2024, Moody’s, S&P and Fitch had assigned the following credit ratings to the borrowers:
Moody’s
S&P
Fitch
Registrant
Borrower/Instrument
Rating
Outlook (1)
Rating
Outlook (2)
Rating
Outlook (3)
CenterPoint Energy
CenterPoint Energy Senior Unsecured Debt
Baa2
Negative
BBB
Negative
BBB
Negative
CenterPoint Energy
Vectren Corp. Issuer Rating
n/a
Negative
BBB+
Negative
n/a
n/a
CenterPoint Energy
SIGECO Senior Secured Debt
A1
Stable
A
Negative
n/a
n/a
Houston Electric
Houston Electric Senior Secured Debt
A2
Negative
A
Negative
A
Negative
CERC
CERC Corp. Senior Unsecured Debt
A3
Stable
BBB+
Negative
A-
Negative
CERC
Indiana Gas Senior Unsecured Debt
n/a
n/a
BBB+
Negative
n/a
n/a
(1)A Moody’s rating outlook is an opinion regarding the likely direction of an issuer’s rating over the medium term.
(2)An S&P outlook assesses the potential direction of a long-term credit rating over the intermediate to longer term.
(3)A Fitch rating outlook indicates the direction a rating is likely to move over a one- to two-year period.
The Registrants cannot assure that the ratings set forth above will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. The Registrants note that these credit ratings are included for informational purposes and are not recommendations to buy, sell or hold the 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 the Registrants’ credit ratings could have a material adverse impact on the Registrants’ ability to obtain short- and long-term financing, the cost of such financings and the execution of the 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 S&P and Moody’s from the ratings that existed as of September 30, 2024, the impact on the borrowing costs under the four revolving credit facilities would have been insignificant. A decline in credit ratings would also increase the interest rate on long-term debt to be issued in the capital markets and could negatively impact 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 reportable segments.
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 might need to provide cash or other collateral of up to $180 million as of September 30, 2024. The amount of collateral will depend on seasonal variations in transportation levels.
ZENS and Securities Related to ZENS (CenterPoint Energy)
If CenterPoint Energy’s creditworthiness were to drop such that ZENS holders thought CenterPoint Energy’s 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 CenterPoint Energy owns or from other sources. CenterPoint Energy owns shares of ZENS-Related Securities equal to approximately 100% of the reference shares used to calculate its 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 would typically cease when ZENS are exchanged or otherwise retired and shares of ZENS-Related Securities are sold. The ultimate tax liability related to the ZENS and ZENS-Related Securities continues to increase by the amount of the tax benefit realized each year, and there could be a significant cash outflow when the taxes are paid as a result of the retirement or exchange of the ZENS. If all ZENS had been exchanged for cash on September 30, 2024, deferred taxes of approximately $787 million would have been payable in 2024. If all the ZENS-Related Securities had been sold on September 30, 2024, capital gains taxes of approximately $78 million would have been payable in 2024 based on 2024 tax rates in effect. For additional information about ZENS, see Note 10 to the Interim Condensed Financial Statements.
Cross Defaults
Under the Registrants’ respective revolving credit facilities, a payment default on, or a non-payment default, event or condition that permits acceleration of, any indebtedness for borrowed money and certain other specified types of obligations (including guarantees) exceeding $125 million by the borrower or any of their respective significant subsidiaries will cause a default under such borrower’s respective credit facility or term loan agreement. Under SIGECO’s revolving credit facility, a payment default on, or a non-payment default, event or condition that permits acceleration of, any indebtedness for borrowed money and certain other specific types of obligations (including guarantees) exceeding $75 million by SIGECO or any of its significant subsidiaries will cause a default under SIGECO’s credit facility. A default by CenterPoint Energy would not trigger a default under its subsidiaries’ debt instruments or revolving credit facilities.
Possible Acquisitions, Divestitures and Joint Ventures
From time to time, the 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. The 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 the 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 has increased its planned capital expenditures in its Electric and Natural Gas businesses multiple times over the recent years to support rate base growth and may continue to do so in the future. The Registrants may continue to explore asset sales as a means to efficiently finance a portion of its increased capital expenditures in the future, subject to the considerations listed above. For further information, see Note 3 to the Interim Condensed Financial Statements.
On February 19, 2024, CenterPoint Energy, through its subsidiary CERC Corp., entered into the LAMS Asset Purchase Agreement to sell its Louisiana and Mississippi natural gas LDC businesses. The transaction is expected to close in the first quarter of 2025. For further information, see Note 3 to the Interim Condensed Financial Statements.
Hedging of Interest Expense for Future Debt Issuances
From time to time, the Registrants may enter into 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.
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, weather events such as the February 2021 Winter Storm Event, 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 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, the Registrants’ liquidity and capital resources could also be negatively 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 CenterPoint Energy’s and CERC’s Natural Gas reportable segment;
•acceleration of payment dates on certain gas supply contracts, under certain circumstances, as a result of increased natural gas prices, and concentration of natural gas suppliers (CenterPoint Energy and CERC);
•increased costs related to the acquisition of natural gas (CenterPoint Energy and CERC);
•increases in interest expense in connection with debt refinancings and borrowings under credit facilities or term loans or the use of alternative sources of financings, including financings due to the May 2024 Storm Events and Hurricane Beryl;
•various legislative or regulatory actions, including such actions in response to the May 2024 Storm Events and Hurricane Beryl;
•incremental collateral, if any, that may be required due to regulation of derivatives (CenterPoint Energy);
•the ability of REPs, including REP affiliates of NRG and Vistra Energy 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, changing economic conditions, public health threats or severe weather events, such as the May 2024 Storm Events and Hurricane Beryl (CenterPoint Energy and CERC);
•the satisfaction of any obligations pursuant to guarantees;
•the outcome of litigation, including litigation related to the February 2021 Winter Storm Event and Hurricane Beryl;
•contributions to pension and postretirement benefit plans;
•recovery of any losses under applicable insurance policies;
•restoration costs and revenue losses resulting from future natural disasters such as hurricanes or other severe weather events, such as the May 2024 Storm Events and Hurricane Beryl, and the timing of and amounts sought for recovery of such restoration costs; and
•various other risks identified in “Risk Factors” in Part I, Item 1A of the Registrants’ combined 2023 Form 10-K, which are incorporated herein by reference, in Item 1A of Part II of this combined Form 10-Q, and in other reports that the Registrants file from time to time with the SEC.
Certain Contractual Limits on Our Ability to Issue Securities and Borrow Money
Certain provisions in certain note purchase agreements relating to debt issued by CERC have the effect of restricting the amount of secured debt issued by CERC and debt issued by subsidiaries of CERC Corp. Additionally, Houston Electric and SIGECO are limited in the amount of mortgage bonds they can issue by the General Mortgage and SIGECO’s mortgage indenture, respectively. For information about the total debt to capitalization financial covenants in the Registrants’ and SIGECO’s revolving credit facilities, see Note 11 to the Interim Condensed Financial Statements.
CRITICAL ACCOUNTING POLICIES
A critical accounting policy is one that is both important to the presentation of the Registrants’ financial condition and results of operations and requires management to make difficult, subjective or complex accounting estimates. An accounting estimate is an approximation made by management of a financial statement element, item or account in the financial statements. Accounting estimates in the Registrants’ historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require the Registrants to make assumptions about matters that are highly uncertain at the time the estimate is made. Additionally, different estimates that the Registrants could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of their financial condition, results of operations or cash flows. The circumstances
that make these judgments difficult, subjective and/or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. Estimates and assumptions about future events and their effects cannot be predicted with certainty. The Registrants base their estimates on historical experience and on various other assumptions that they believe to be reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Registrants’ operating environment changes.
Assets Held for Sale
Generally, a long-lived asset to be sold is classified as held for sale in the period in which management, with approval from the Board of Directors, as applicable, commits to a plan to sell, and a sale is expected to be completed within one year. The Registrants record assets and liabilities held for sale, or the disposal group, at the lower of their carrying value or their estimated fair value less cost to sell. If a disposal group reflects a component of a reporting unit and meets the definition of a business, the goodwill within that reporting unit is allocated to the disposal group based on the relative fair value of the components representing a business that will be retained and disposed. Goodwill is not allocated to a portion of a reporting unit that does not meet the definition of a business.
During the nine months ended September 30, 2024, as described further in Note 3 to the Interim Condensed Financial Statements, certain assets and liabilities representing the Louisiana and Mississippi natural gas LDC businesses met the held for sale criteria. The sale will be considered an asset sale for tax purposes, requiring net deferred tax liabilities to be excluded from held for sale balances.
Fair value is the amount at which an asset, liability or business could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices, present value techniques based on estimates of cash flows, or multiples of earnings or revenue performance measures. The fair value could be different if different estimates and assumptions in these valuation techniques were applied.
Fair value measurements require significant judgment and often unobservable inputs, including (i) projected timing and amount of future cash flows, which factor in planned growth initiatives, (ii) the regulatory environment, as applicable, and (iii) discount rates reflecting risk inherent in the future market prices. Changes in these assumptions could have a significant impact on the resulting fair value.
Other than the assets held for sale analysis discussed above, there have been no significant changes in our critical accounting policies during the nine months ended September 30, 2024, as compared to the critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Registrants’ combined 2023 Form 10-K.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Houston Electric and CERC meet the conditions specified in General Instruction H(1)(a) and (b) to Form 10-Q and are therefore permitted to use the reduced disclosure format for wholly-owned subsidiaries of reporting companies. Accordingly, Houston Electric and CERC have omitted from this report the information called for by Item 3 (Quantitative and Qualitative Disclosures About Market Risk) of Part I of the Form 10-Q.
Interest Rate Risk (CenterPoint Energy)
As of September 30, 2024, the Registrants had outstanding long-term debt and lease obligations and CenterPoint Energy had obligations under its ZENS that subject them to the risk of loss associated with movements in market interest rates. The Registrants seek to manage interest rate exposure by monitoring the effects of changes in market interest rates and using a combination of fixed and variable rate debt. Additionally, interest rate swaps are used to mitigate interest rate exposure when deemed appropriate. See Note 7 to the Interim Condensed Financial Statements.
CenterPoint Energy’s floating rate obligations aggregated $1.3 billion and $1.9 billion as of September 30, 2024 and December 31, 2023, respectively. If the floating interest rates were to increase by 100 basis points from September 30, 2024 rates, CenterPoint Energy’s combined interest expense would increase by approximately $13 million annually.
As of September 30, 2024 and December 31, 2023, CenterPoint Energy had outstanding fixed-rate debt (excluding indexed debt securities) aggregating $18.7 billion and $16.9 billion, respectively, in principal amount and having a fair value of $18.1 billion and $16.1 billion, respectively. Because these instruments are fixed-rate, they do not expose CenterPoint 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 $715 million if interest rates were to decline by 10% from levels at September 30, 2024. In general, such an increase in fair value would impact earnings and cash flows only if CenterPoint Energy were to reacquire all or a portion of these instruments in the open market prior to their maturity.
The ZENS obligation is bifurcated into a debt component and a derivative component. The debt component of $3 million as of September 30, 2024 was a fixed-rate obligation and, therefore, did not expose CenterPoint 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 less than $1 million if interest rates were to decline by 10% from levels at September 30, 2024. Changes in the fair value of the derivative component, a $591 million recorded liability at September 30, 2024, are recorded in CenterPoint Energy’s Condensed Statements of Consolidated Income and, therefore, it 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 September 30, 2024 levels, the fair value of the derivative component liability would decrease by $1 million, which would be recorded as a gain on indexed debt securities in CenterPoint Energy’s Condensed Statements of Consolidated Income.
Equity Market Value Risk (CenterPoint Energy)
CenterPoint Energy is exposed to equity market value risk through its ownership of 10.2 million shares of AT&T Common, 0.9 million shares of Charter Common and 2.5 million shares of WBD Common, which CenterPoint Energy holds to facilitate its ability to meet its obligations under the ZENS. See Note 10 to the Interim Condensed Financial Statements for a discussion of CenterPoint Energy’s ZENS obligation. Changes in the fair value of the ZENS-Related Securities held by CenterPoint Energy are expected to substantially offset changes in the fair value of the derivative component of the ZENS. A decrease of 10% from the September 30, 2024 aggregate market value of these shares would result in a net loss of less than $1 million, which would be recorded on a gross basis as both a gain on indexed debt securities and as a loss on equity securities in CenterPoint Energy’s Condensed Statements of Consolidated Income.
Commodity Price Risk From Non-Trading Activities (CenterPoint Energy and CERC)
CenterPoint Energy’s regulated operations are exposed to commodity price risk during severe weather events such as hurricanes, tornadoes and severe winter weather conditions. Severe weather events can increase commodity prices related to natural gas, coal and purchased power, which may increase our costs of providing service, and those costs may not be recoverable in rates. Recovery of cost increases driven by rising commodity prices during severe weather events could be resisted by our regulators and our regulators might attempt to deny or defer timely recovery of those costs.
However, CenterPoint Energy’s and CERC’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 and CERC’s utility natural gas operations in Indiana have regulatory authority to lock in pricing for up to 50% of annual natural gas purchases using 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 September 30, 2024, the recorded fair value of non-trading energy derivative liabilities was $7 million and $6 million, respectively, for CenterPoint Energy’s and CERC’s utility natural gas operations in Indiana.
Although CenterPoint Energy’s and CERC’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 and CERC’s Ohio natural gas service territory, allowing Ohio customers to purchase substantially all natural gas directly from retail marketers rather than from CenterPoint Energy or CERC.
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 September 30, 2024 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.
There has been no change in the Registrants’ internal controls over financial reporting that occurred during the three months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Registrants’ internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
For a description of material legal and regulatory proceedings, including environmental legal proceedings that involve a governmental authority as a party and that the Registrants reasonably believe would result in $1,000,000 or more of monetary sanctions, exclusive of interest and costs, under federal, state and local laws that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, affecting the Registrants, see Note 13(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 — Regulation” and “— Environmental Matters” in Part I, Item 1 and “Legal Proceedings” in Part I, Item 3 of the Registrants’ combined 2023 Form 10-K.
Item 1A.RISK FACTORS
Other than with respect to the risk factors set forth below, there have been no material changes from the risk factors disclosed in the Registrants’ combined 2023 Form 10-K.
Hurricane Beryl caused severe disruptions to our operations, customers and markets in certain of our service territories and could have a material adverse impact on our financial condition, results of operations, cash flows and liquidity.
In July 2024, Hurricane Beryl made landfall in Texas, bringing sustained winds, storm surges and torrential rain, which impacted our operations, customers and personnel in our Texas gulf coast markets. Hurricane Beryl caused significant damage to Houston Electric’s electric delivery system, resulting in a substantial number of its customers (peaking at more than 2.1 million customers out of 2.8 million customers) being without power, many for extended periods of time.
The total cost for the restoration of Houston Electric’s electric delivery facilities as a result of Hurricane Beryl is currently estimated to be $1.1 billion, excluding carrying costs, but such estimate is preliminary and restoration costs could vary from that estimate. Houston Electric believes it is entitled to recover prudently incurred storm restoration costs in accordance with applicable regulatory and legal principles. However, neither the amount nor timing of the recovery is certain. Houston Electric’s failure to recover costs incurred as a result of Hurricane Beryl could adversely affect our liquidity, cash flows and financial condition.
Various federal, state and local governmental and regulatory agencies and other entities, such as the Texas Governor’s office, the Texas Legislature and the PUCT, have called for or are conducting inquiries and investigations into Hurricane Beryl and the efforts made by Houston Electric to prepare for, and respond to, this event, including the electric service outage issues. Moreover, additional governmental and regulatory agencies and other entities may conduct such inquiries and investigations, as well. Texas Lieutenant Governor Patrick has publicly urged the PUCT to hold Houston Electric, rather than ratepayers, responsible for paying $800 million, which was the amount the PUCT had previously approved Houston Electric to recover from ratepayers pursuant to Texas legislation passed after the 2021 Winter Storm Event relating to emergency responsiveness and the leasing of temporary generation units. On August 12, 2024, Texas Attorney General Ken Paxton opened an investigation to evaluate CenterPoint Energy’s conduct during Hurricane Beryl. There are significant uncertainties around these inquiries and investigations and potential results and consequences, including whether any financial penalties will be assessed or changes to Houston Electric’s system, service territories, operations and/or regulatory treatment will result therefrom. If these or other inquiries, investigations or reviews ultimately result in changes to Houston Electric’s system, service territories, operations and/or regulatory treatment, such changes could have a material adverse impact on our business, results of operations, cash flows and financial condition.
CenterPoint Energy and Houston Electric are subject to current and potential future litigation and claims arising out of Hurricane Beryl, which litigation and claims could include allegations of, among other things, personal injury, property damage, various economic losses in connection with loss of power, unlawful business practices, and others. Several lawsuits have been filed against CenterPoint Energy and/or Houston Electric, including three putative class actions claiming losses due
to power outages following Hurricane Beryl and each seeking damages in excess of $100 million for, among other things, business interruption, property damage and loss, cost of repair, loss of use and market value, lost income, nuisance, extreme mental anguish and/or punitive damages. CenterPoint Energy and its subsidiaries have general and excess liability insurance policies that provide coverage for third party bodily injury and property damage claims. Given the nature of some allegations, it is possible that the insurers could dispute coverage for some types of claims or damages that may be alleged by plaintiffs, and one of CenterPoint Energy’s insurers has denied indemnity coverage in the putative class actions based on the failure to supply exclusion and has also reserved its rights with respect to coverage in those actions. CenterPoint Energy and Houston Electric intend to continue to pursue all available insurance coverage for all of these matters. While CenterPoint Energy and Houston Electric intend to vigorously defend themselves against the lawsuits, final resolution of these matters, or any potential future claims or liabilities, may require expenditures that may be in excess of established insurance or reserves and may have a material adverse effect on the Registrants’ financial condition, results of operation, cash flows and liquidity.
Item 5.OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2024, no director or officer of CenterPoint Energy, Houston Electric or CERC adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
Item 6.EXHIBITS
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. The 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 such agreements should not 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 combined Form 10-Q certain long-term debt instruments, including indentures, under which the total amount of securities authorized does not exceed 10% of the total assets of 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.
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
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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Schedules to this agreement have been omitted pursuant to Items 601(a)(5) and 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished.
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CENTERPOINT ENERGY, INC.
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC
CENTERPOINT ENERGY RESOURCES CORP.
By:
/s/ Kristie L. Colvin
Kristie L. Colvin
Senior Vice President and Chief Accounting Officer
(Duly Authorized Officer and Principal Accounting Officer)