Document
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
FOR THE TRANSITION PERIOD FROM __________________ TO __________________

Commission file number 1-31447
_____________________________________
CenterPoint Energy, Inc.
(Exact name of registrant as specified in its charter)
Texas
74-0694415
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
1111 Louisiana
 
Houston, Texas 77002
(713) 207-1111
(Address and zip code of principal executive offices)
(Registrant’s telephone number, including area code)
_____________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
      Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
(Do not check if a smaller reporting company)
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ
 
As of April 24, 2018, CenterPoint Energy, Inc. had 431,473,292 shares of common stock outstanding, excluding 166 shares held as treasury stock.
 



CENTERPOINT ENERGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2018

TABLE OF CONTENTS

PART I.
 
FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
 
 
March 31, 2018 and December 31, 2017 (unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
 
OTHER INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 


i



GLOSSARY
AEM
 
Atmos Energy Marketing, LLC, previously a wholly-owned subsidiary of Atmos Energy Holdings, Inc., a wholly-owned subsidiary of Atmos Energy Corporation
AMA
 
Asset Management Agreement
AMS
 
Advanced Metering System
APSC
 
Arkansas Public Service Commission
ARP
 
Alternative revenue program
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
AT&T
 
AT&T Inc.
AT&T Common
 
AT&T common stock
Bcf
 
Billion cubic feet
Bond Companies
 
Wholly-owned, bankruptcy remote entities formed solely for the purpose of purchasing and owning transition or system restoration property through the issuance of Securitization Bonds
Brazos Valley Connection
 
A portion of the Houston region transmission project between Houston Electric’s Zenith substation and the Gibbons Creek substation owned by the Texas Municipal Power Agency
CenterPoint Energy
 
CenterPoint Energy, Inc., and its subsidiaries
CERC Corp.
 
CenterPoint Energy Resources Corp.
CERC
 
CERC Corp., together with its subsidiaries
CES
 
CenterPoint Energy Services, Inc., a wholly-owned subsidiary of CERC Corp.
Charter Common
 
Charter Communications, Inc. common stock
CIP
 
Conservation Improvement Program
COLI
 
Corporate-owned life insurance
Continuum
 
The retail energy services business of Continuum Retail Energy Services, LLC, including its wholly-owned subsidiary Lakeshore Energy Services, LLC and the natural gas wholesale assets of Continuum Energy Services, LLC
DCRF
 
Distribution Cost Recovery Factor
EDIT
 
Excess deferred income taxes
EECR
 
Energy Efficiency Cost Recovery
EECRF
 
Energy Efficiency Cost Recovery Factor
Enable
 
Enable Midstream Partners, LP
EPA
 
Environmental Protection Agency
ERCOT
 
Electric Reliability Council of Texas
FERC
 
Federal Energy Regulatory Commission
Fitch
 
Fitch, Inc.
Form 10-Q
 
Quarterly Report on Form 10-Q
FRP
 
Formula Rate Plan
Gas Daily
 
Platts gas daily indices
GenOn
 
GenOn Energy, Inc.
GRIP
 
Gas Reliability Infrastructure Program
GWh
 
Gigawatt-hours
Houston Electric
 
CenterPoint Energy Houston Electric, LLC and its subsidiaries
Interim Condensed Financial Statements
 
Unaudited condensed consolidated interim financial statements and notes
IRS
 
Internal Revenue Service
kV
 
Kilovolt
LIBOR
 
London Interbank Offered Rate
Meredith
 
Meredith Corporation

ii


GLOSSARY
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
MLP
 
Master Limited Partnership
MMBtu
 
One million British thermal units
Moody’s
 
Moody’s Investors Service, Inc.
MPSC
 
Mississippi Public Service Commission
MPUC
 
Minnesota Public Utilities Commission
NGD
 
Natural gas distribution business
NGLs
 
Natural gas liquids
NOPR
 
Notice of Proposed Rulemaking
NRG
 
NRG Energy, Inc.
NYMEX
 
New York Mercantile Exchange
NYSE
 
New York Stock Exchange
OCC
 
Oklahoma Corporation Commission
OGE
 
OGE Energy Corp.
PBRC
 
Performance Based Rate Change
PRPs
 
Potentially responsible parties
PUCT
 
Public Utility Commission of Texas
Railroad Commission
 
Railroad Commission of Texas
Reliant Energy
 
Reliant Energy, Incorporated
REP
 
Retail electric provider
Revised Policy Statement
 
Revised Policy Statement on Treatment of Income Taxes
ROE
 
Return on equity
RRA
 
Rate Regulation Adjustment
RRI
 
Reliant Resources, Inc.
RSP
 
Rate Stabilization Plan
SEC
 
Securities and Exchange Commission
Securitization Bonds
 
Transition and system restoration bonds
Series A Preferred Units
 
Enable’s 10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units, representing limited partner interests in Enable
S&P
 
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies
TBD
 
To be determined
TCEH Corp.
 
Formerly Texas Competitive Electric Holdings Company LLC, predecessor to Vistra Energy Corp. whose major subsidiaries include Luminant and TXU Energy
TCJA
 
Tax reform legislation informally called the Tax Cuts and Jobs Act of 2017
TCOS
 
Transmission Cost of Service
TDU
 
Transmission and distribution utility
Time
 
Time Inc.
Time Common
 
Time common stock

iii


GLOSSARY
Transition Agreements
 
Services Agreement, Employee Transition Agreement, Transitional Seconding Agreement and other agreements entered into in connection with the formation of Enable
TW
 
Time Warner Inc.
TW Common
 
TW common stock
TW Securities
 
As of March 31, 2018, consisted of Charter Common and TW Common and as of December 31, 2017, consisted of Charter Common, Time Common and TW Common
Vectren
 
Vectren Corporation, an Indiana corporation
VIE
 
Variable interest entity
Vistra Energy Corp.
 
Texas-based energy company focused on the competitive energy and power generation markets
ZENS
 
2.0% Zero-Premium Exchangeable Subordinated Notes due 2029
2017 Form 10-K
 
Annual Report on Form 10-K for the year ended December 31, 2017

iv


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “target,” “will” or other similar words.

We have based our forward-looking statements on our management’s beliefs and assumptions based on information reasonably available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.

The following are some of the factors that could cause actual results to differ from those expressed or implied by our forward-looking statements:

the performance of Enable, the amount of cash distributions we receive from Enable, Enable’s ability to redeem the Series A Preferred Units in certain circumstances and the value of our interest in Enable, and factors that may have a material impact on such performance, cash distributions and value, including factors such as:

competitive conditions in the midstream industry, and actions taken by Enable’s customers and competitors, including the extent and timing of the entry of additional competition in the markets served by Enable;

the timing and extent of changes in the supply of natural gas and associated commodity prices, particularly prices of natural gas and NGLs, the competitive effects of the available pipeline capacity in the regions served by Enable, and the effects of geographic and seasonal commodity price differentials, including the effects of these circumstances on re-contracting available capacity on Enable’s interstate pipelines;

the demand for crude oil, natural gas, NGLs and transportation and storage services;

environmental and other governmental regulations, including the availability of drilling permits and the regulation of hydraulic fracturing;

recording of non-cash goodwill, long-lived asset or other than temporary impairment charges by or related to Enable;

changes in tax status;

access to debt and equity capital; and

the availability and prices of raw materials and services for current and future construction projects;

industrial, commercial and residential growth in our service territories and changes in market demand, including the effects of energy efficiency measures and demographic patterns;

timely and appropriate rate actions that allow recovery of costs and a reasonable return on investment;

future economic conditions in regional and national markets and their effect on sales, prices and costs;

weather variations and other natural phenomena, including the impact of severe weather events on operations and capital;

state and federal legislative and regulatory actions or developments affecting various aspects of our businesses (including the businesses of Enable), including, among others, energy deregulation or re-regulation, pipeline integrity and safety and changes in regulation and legislation pertaining to trade, health care, finance and actions regarding the rates charged by our regulated businesses;

tax reform and legislation, including the effects of the TCJA 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;

the timing and extent of changes in commodity prices, particularly natural gas, and the effects of geographic and seasonal commodity price differentials;

actions by credit rating agencies;

changes in interest rates and their impact on our costs of borrowing and the valuation of our pension benefit obligation;

v


problems with regulatory approval, construction, implementation of necessary technology or other issues with respect to major capital projects that result in delays or in cost overruns that cannot be recouped in rates;

local, state and federal legislative and regulatory actions or developments relating to the environment, including those related to global climate change;

the impact of unplanned facility outages;

any direct or indirect effects on our or Enable’s facilities, operations and financial condition resulting from terrorism, cyber-attacks, data security breaches or other attempts to disrupt our businesses or the businesses of third parties, or other catastrophic events such as fires, earthquakes, explosions, leaks, floods, droughts, hurricanes, pandemic health events or other occurrences;

our ability to invest planned capital and the timely recovery of our investment in capital;

our ability to control operation and maintenance costs;

the sufficiency of our insurance coverage, including availability, cost, coverage and terms;

the investment performance of our pension and postretirement benefit plans;

commercial bank and financial market conditions, our access to capital, the cost of such capital, and the results of our financing and refinancing efforts, including availability of funds in the debt capital markets;

changes in rates of inflation;

inability of various counterparties to meet their obligations to us;

non-payment for our services due to financial distress of our customers;

the extent and effectiveness of our risk management and hedging activities, including, but not limited to our financial and weather hedges;

timely and appropriate regulatory actions allowing securitization for any future hurricanes or natural disasters or other recovery of costs, including costs associated with Hurricane Harvey;

our or Enable’s potential business strategies and strategic initiatives, including restructurings, joint ventures and acquisitions or dispositions of assets or businesses (including a reduction of our interests in Enable, if any, whether through our decision to sell all or a portion of the Enable common units we own in the public equity markets or otherwise, subject to certain limitations), which we cannot assure you will be completed or will have the anticipated benefits to us or Enable;

the expected timing, likelihood and benefits of completion of the Merger, including the timing, receipt and terms and conditions of any required approvals by Vectren’s shareholders and governmental and regulatory agencies that could reduce anticipated benefits or cause the parties to delay or abandon the Merger, as well as the ability to successfully integrate the businesses and realize anticipated benefits, the possibility that long-term financing for the Merger may not be put in place before the closing of the Merger and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect;

acquisition and merger activities involving us or our competitors, including the ability to successfully complete merger, acquisition and divestiture plans;

our or Enable’s ability to recruit, effectively transition and retain management and key employees and maintain good labor relations;

the outcome of litigation;

the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to us and our subsidiaries;

the ability of GenOn (formerly known as RRI Energy, Inc., Reliant Energy and RRI), a wholly-owned subsidiary of NRG, and its subsidiaries, currently the subject of bankruptcy proceedings, to satisfy their obligations to us, including indemnity obligations;

changes in technology, particularly with respect to efficient battery storage or the emergence or growth of new, developing or alternative sources of generation;

the timing and outcome of any audits, disputes and other proceedings related to taxes;

the effective tax rates;

the effect of changes in and application of accounting standards and pronouncements; and

vi



other factors we discuss in “Risk Factors” in Item 1A of Part I of our 2017 Form 10-K and in Item 1A of Part II of this Form 10-Q, which are incorporated herein by reference, and other reports we 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 we undertake no obligation to update or revise any forward-looking statements.

vii

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.     FINANCIAL STATEMENTS

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(In Millions, Except Per Share Amounts)
(Unaudited)

 
Three Months Ended
 
March 31,
 
2018
 
2017
 
 
 
 
Revenues:
 
 
 
Utility revenues
$
1,894

 
$
1,546

Non-utility revenues
1,261

 
1,189

Total
3,155

 
2,735

 
 
 
 
Expenses:
 
 
 
Utility natural gas
637

 
450

Non-utility natural gas
1,273

 
1,129

Operation and maintenance
569

 
543

Depreciation and amortization
314

 
226

Taxes other than income taxes
111

 
96

Total
2,904

 
2,444

Operating Income
251

 
291

 
 
 
 
Other Income (Expense):
 
 
 
Gain on marketable securities
1

 
44

Loss on indexed debt securities
(18
)
 
(10
)
Interest and other finance charges
(78
)
 
(78
)
Interest on Securitization Bonds
(16
)
 
(20
)
Equity in earnings of unconsolidated affiliate, net
69

 
72

Other, net
3

 

Total
(39
)
 
8

 
 
 
 
Income Before Income Taxes
212

 
299

Income tax expense
47

 
107

Net Income
$
165

 
$
192

 
 
 
 
Basic Earnings Per Share
$
0.38

 
$
0.45

 
 
 
 
Diluted Earnings Per Share
$
0.38

 
$
0.44

 
 
 
 
Dividends Declared Per Share
$

 
$
0.2675

 
 
 
 
Weighted Average Shares Outstanding, Basic
431

 
431

 
 
 
 
Weighted Average Shares Outstanding, Diluted
434

 
433


See Notes to Unaudited Condensed Consolidated Financial Statements

1

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(In Millions)
(Unaudited)

 
Three Months Ended
 
March 31,
 
2018
 
2017
Net income
$
165

 
$
192

Other comprehensive income:
 
 
 
Adjustment to pension and other postretirement plans (net of tax of $1 and $1)
1

 
1

Net deferred gain (loss) from cash flow hedges (net of tax of $1 and $-0-)
4

 
(1
)
Total
5

 

Comprehensive income
$
170

 
$
192


See Notes to Unaudited Condensed Consolidated Financial Statements


2

Table of Contents


CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
(Unaudited)

ASSETS

 
March 31,
2018
 
December 31,
2017
Current Assets:
 
 
 
Cash and cash equivalents ($181 and $230 related to VIEs, respectively)
$
219

 
$
260

Investment in marketable securities
944

 
960

Accounts receivable ($86 and $73 related to VIEs, respectively), less bad debt reserve of $23 and $19, respectively
1,081

 
1,000

Accrued unbilled revenues
275

 
427

Natural gas inventory
81

 
222

Materials and supplies
176

 
175

Non-trading derivative assets
84

 
110

Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively)
189

 
241

Total current assets
3,049

 
3,395

 
 
 
 
Property, Plant and Equipment:
 
 
 
Property, plant and equipment
19,294

 
19,031

Less: accumulated depreciation and amortization
6,089

 
5,974

Property, plant and equipment, net
13,205

 
13,057

 
 
 
 
Other Assets:
 
 
 
Goodwill
867

 
867

Regulatory assets ($1,455 and $1,590 related to VIEs, respectively)
2,213

 
2,347

Non-trading derivative assets
52

 
44

Investment in unconsolidated affiliate
2,467

 
2,472

Preferred units – unconsolidated affiliate
363

 
363

Other
194

 
191

Total other assets
6,156

 
6,284

 
 
 
 
Total Assets
$
22,410

 
$
22,736


See Notes to Unaudited Condensed Consolidated Financial Statements

3

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
(In Millions, except share amounts)
(Unaudited)

LIABILITIES AND SHAREHOLDERS’ EQUITY

 
March 31,
2018
 
December 31,
2017
Current Liabilities:
 
 
 
Short-term borrowings
$

 
$
39

Current portion of VIE Securitization Bonds long-term debt
444

 
434

Indexed debt, net
119

 
122

Current portion of other long-term debt
50

 
50

Indexed debt securities derivative
674

 
668

Accounts payable
712

 
963

Taxes accrued
176

 
181

Interest accrued
77

 
104

Dividends accrued

 
120

Non-trading derivative liabilities
21

 
20

Other
343

 
368

Total current liabilities
2,616

 
3,069

 
 
 
 
Other Liabilities:
 

 
 

Deferred income taxes, net
3,160

 
3,174

Non-trading derivative liabilities
12

 
4

Benefit obligations
723

 
785

Regulatory liabilities
2,505

 
2,464

Other
361

 
357

Total other liabilities
6,761

 
6,784

 
 
 
 
Long-term Debt:
 

 
 

VIE Securitization Bonds, net
1,260

 
1,434

Other long-term debt, net
6,916

 
6,761

Total long-term debt, net
8,176

 
8,195

 
 
 
 
Commitments and Contingencies (Note 13)


 


 
 
 
 
Shareholders’ Equity:
 

 
 

Cumulative preferred stock, $0.01 par value, 20,000,000 shares authorized, none issued or outstanding

 

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 431,471,369 shares and 431,044,845 shares outstanding, respectively
4

 
4

Additional paid-in capital
4,208

 
4,209

Retained earnings
708

 
543

Accumulated other comprehensive loss
(63
)
 
(68
)
Total shareholders’ equity
4,857

 
4,688

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
22,410

 
$
22,736


See Notes to Unaudited Condensed Consolidated Financial Statements

4

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Millions)
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Net income
$
165

 
$
192

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
314

 
226

Amortization of deferred financing costs
6

 
6

Deferred income taxes
(17
)
 
85

Unrealized gain on marketable securities
(1
)
 
(44
)
Loss on indexed debt securities
18

 
10

Write-down of natural gas inventory
1

 

Equity in earnings of unconsolidated affiliate, net of distributions
(9
)
 
(72
)
Pension contributions
(62
)
 
(2
)
Changes in other assets and liabilities, excluding acquisitions:
 
 
 
Accounts receivable and unbilled revenues, net
39

 
114

Inventory
139

 
74

Taxes receivable

 
16

Accounts payable
(209
)
 
(122
)
Fuel cost recovery
64

 
(6
)
Non-trading derivatives, net
64

 
(32
)
Margin deposits, net
(28
)
 
(46
)
Interest and taxes accrued
(32
)
 
(82
)
Net regulatory assets and liabilities
42

 
15

Other current assets
(15
)
 
(5
)
Other current liabilities
1

 
(27
)
Other assets
(3
)
 
(4
)
Other liabilities
5

 
15

Other, net
2

 
6

Net cash provided by operating activities
484

 
317

Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(362
)
 
(312
)
Acquisitions, net of cash acquired

 
(132
)
Distributions from unconsolidated affiliate in excess of cumulative earnings
14

 
74

Proceeds from sale of marketable securities
16

 

Other, net
1

 
(2
)
Net cash used in investing activities
(331
)
 
(372
)
Cash Flows from Financing Activities:
 
 
 
Decrease in short-term borrowings, net
(39
)
 
(35
)
Proceeds from (payments of) commercial paper, net
(837
)
 
227

Proceeds from long-term debt, net
997

 
298

Payments of long-term debt
(165
)
 
(405
)
Debt issuance costs
(7
)
 
(2
)
Payment of dividends on common stock
(120
)
 
(115
)
Distribution to ZENS note holders
(16
)
 

Other, net
(5
)
 
(4
)
Net cash used in financing activities
(192
)
 
(36
)
Net Decrease in Cash, Cash Equivalents and Restricted Cash
(39
)
 
(91
)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
296

 
381

Cash, Cash Equivalents and Restricted Cash at End of Period
$
257

 
$
290



See Notes to Unaudited Condensed Consolidated Financial Statements

5

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Background and Basis of Presentation

General. Included in this Form 10-Q are the Interim Condensed Financial Statements of CenterPoint Energy. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the 2017 Form 10-K.

Background. CenterPoint Energy, Inc. is a public utility holding company. CenterPoint Energy’s operating subsidiaries own and operate electric transmission and distribution and natural gas distribution facilities, supply natural gas to commercial and industrial customers and electric and natural gas utilities and own interests in Enable as described below. CenterPoint Energy’s indirect, wholly-owned subsidiaries include:

Houston Electric, which engages in the electric transmission and distribution business in the Texas Gulf Coast area that includes the city of Houston;

CERC Corp., which owns and operates natural gas distribution systems in six states; and

CES, which obtains and offers competitive variable and fixed-price physical natural gas supplies and services primarily to commercial and industrial customers and electric and natural gas utilities in 33 states.

As of March 31, 2018, CenterPoint Energy also owned an aggregate of 14,520,000 Series A Preferred Units in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets, and CERC Corp. owned approximately 54.0% of the common units representing limited partner interests in Enable.

As of March 31, 2018, CenterPoint Energy had VIEs consisting of the Bond Companies, which it consolidates. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed specifically for the purpose of securitizing transition and system restoration-related property. Creditors of CenterPoint Energy have no recourse to any assets or revenues of the Bond Companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property, and the bondholders have no recourse to the general credit of CenterPoint Energy.

Basis of Presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CenterPoint Energy’s Interim Condensed Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the respective periods. Amounts reported in CenterPoint Energy’s Condensed Statements of Consolidated Income are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy and energy services, (b) changes in energy commodity prices, (c) timing of maintenance and other expenditures and (d) acquisitions and dispositions of businesses, assets and other interests.

For a description of CenterPoint Energy’s reportable business segments, see Note 15.

6

Table of Contents



(2) New Accounting Pronouncements

The following table provides an overview of recently adopted or issued accounting pronouncements applicable to CenterPoint Energy.
Recently Adopted Accounting Standards
ASU Number and Name
 
Description
 
Date of Adoption
 
Financial Statement Impact
upon Adoption
ASU 2014-09- Revenue from Contracts with Customers (Topic 606) and related amendments
 
This standard provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services.
Transition method: modified retrospective

 
January 1, 2018
 
CenterPoint Energy added a revenue recognition footnote (Note 3) to address the disclosure requirements, and it did not identify significant changes to revenue recognition. A substantial amount of CenterPoint Energy’s revenues are tariff and derivative based, which were not significantly impacted by these ASUs.
ASU 2017-05- Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
 
This standard clarifies when and how to apply ASC 610-20, which was issued as part of ASU 2014-09. It amends or supersedes the guidance in ASC 350 and ASC 360 on determining a gain or loss recognized upon the derecognition of nonfinancial assets.
Transition method: modified retrospective
 
January 1, 2018
 
ASU 2017-05 eliminates industry specific guidance, including ASC 360-20 Property, Plant, and Equipment - Real Estate Sales, for the recognition of gains or losses upon the sale of in-substance real estate. CenterPoint Energy elected to apply the practical expedient upon adoption to only evaluate transactions that were not determined to be complete as of the date of adoption. Subsequent to adoption, gains or losses on sales or dilution events in CenterPoint Energy’s investment in Enable may result in gains or losses recognized in earnings. See Note 8 for further discussion.
ASU 2016-01-Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

ASU 2018-03-Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
 
This standard requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value and to recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. It does not change the guidance for classifying and measuring investments in debt securities and loans. It also changes certain disclosure requirements and other aspects related to recognition and measurement of financial assets and financial liabilities.
Transition method: cumulative-effect adjustment to beginning retained earnings, and two features prospective
 
January 1, 2018
 
The adoption of this standard did not have an impact on CenterPoint Energy’s financial position, results of operations or cash flows. CenterPoint Energy elected the practicability exception for investments without a readily determinable fair value to be measured at cost for the Series A Preferred Units in Enable, which were previously accounted for under the cost method. See Note 8 for further discussion.
ASU 2016-15- Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
 
This standard provides clarifying guidance on the classification of certain cash receipts and payments in the statement of cash flows and eliminates the variation in practice related to such classifications.
Transition method: retrospective
 
January 1, 2018
 
The adoption did not have a material impact on CenterPoint Energy’s financial position, results of operations or disclosures. However, the statement of cash flows reflects an increase in investing activities and a corresponding decrease in operating activities of $-0- and $2 million for the three months ended March 31, 2018 and 2017, respectively, due to the requirement that cash proceeds from COLI policies be classified as cash inflows from investing activity.
ASU 2016-18- Statement of Cash Flows (Topic 230): Restricted Cash
 
This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet.
Transition method: retrospective
 
January 1, 2018
 
The adoption of this standard did not have an impact on CenterPoint Energy’s financial position, results of operations or disclosures. However, the statement of cash flows is reconciled to cash, cash equivalents and restricted cash, resulting in a decrease in investing activities of $2 million and an increase in investing activities of $4 million for the three months ended March 31, 2018 and 2017, respectively.

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Recently Adopted Accounting Standards
ASU Number and Name
 
Description
 
Date of Adoption
 
Financial Statement Impact
upon Adoption
ASU 2017-01- Business Combinations (Topic 805): Clarifying the Definition of a Business
 
This standard revises the definition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then under ASU 2017-01, the asset or group of assets is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs to be more closely aligned with how outputs are described in ASC 606.
Transition method: prospective
 
January 1, 2018
 
The adoption of this revised definition will reduce the number of transactions that are accounted for as a business combination, and therefore may have a potential impact on CenterPoint Energy’s accounting for future acquisitions.
ASU 2017-04- Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
 
This standard eliminates Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Transition method: prospective
 
January 1, 2018
 
The adoption of this standard will have an impact on CenterPoint Energy’s future calculation of goodwill impairments if an impairment is identified.
ASU 2017-07- Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
 
This standard requires an employer to report the service cost component of the net periodic pension cost and postretirement benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period; all other components will be presented separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, only the service cost component will be eligible for capitalization in assets.
Transition method: retrospective for the presentation of the service cost component and other components; prospective for the capitalization of the service cost component
 
January 1, 2018
 
The adoption of this standard did not have a material impact on CenterPoint Energy’s financial position, results of operations, cash flows or disclosures; however, it resulted in an increase to operating income and a corresponding decrease to other income of $14 million and $17 million in the three months ended March 31, 2018 and 2017, respectively. Other components previously capitalized in assets will be recorded as regulatory assets in CenterPoint Energy’s rate-regulated businesses, prospectively.
ASU No. 2017-09- Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting
 
This standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes.
Transition method: prospective
 
January 1, 2018
 
The adoption of this standard will have an impact on CenterPoint Energy’s accounting for future changes to share-based payment awards.
Issued, Not Yet Effective Accounting Standards
ASU Number and Name
 
Description
 
Date of Adoption
 
Financial Statement Impact
upon Adoption
ASU 2016-02- Leases (Topic 842) and related amendments



ASU 2018-01- Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842
 
ASU 2016-02 provides a comprehensive new lease model that requires lessees to recognize assets and liabilities for most leases and would change certain aspects of lessor accounting.
Transition method: modified retrospective

ASU 2018-01 allows entities to elect not to assess whether existing land easements that were not previously accounted for in accordance with ASC 840 Leases under ASC 842 Leases when transitioning to the new leasing standard.
 
January 1, 2019 Early adoption is permitted
 
CenterPoint Energy will elect the practical expedient on existing easements provided by ASU 2018-01 and is evaluating other available transitional practical expedients. CenterPoint Energy is in the process of reviewing contracts to identify leases as defined in ASU 2016-02 and expects to recognize on the statements of financial position right-of-use assets and lease liabilities for the majority of its leases that are currently classified as operating leases. CenterPoint Energy is continuing to assess the impact that adoption of these standards will have on its financial position, results of operations, cash flows and disclosures.
ASU 2017-12- Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
 
This standard expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness, eases certain documentation and assessment requirements and updates the presentation and disclosure requirements.
Transition method: cumulative-effect adjustment for elimination of the separate measurement of ineffectiveness; prospective for presentation and disclosure
 
January 1, 2019 Early adoption is permitted
 
CenterPoint Energy is currently assessing the impact that adoption of this standard will have on its financial position, results of operations, cash flows and disclosures.

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Issued, Not Yet Effective Accounting Standards
ASU Number and Name
 
Description
 
Date of Adoption
 
Financial Statement Impact
upon Adoption
ASU 2018-02-Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
 
This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA and requires entities to provide certain disclosures regarding stranded tax effects.
Transition method: either in the period of adoption or retrospective
 
January 1, 2019
Early adoption is permitted
 
The adoption of this standard will allow CenterPoint Energy to reclass stranded deferred tax adjustments primarily related to benefit plans from other comprehensive income to retained earnings. CenterPoint Energy is currently assessing the impact that adoption of this standard will have on its financial position and disclosures.

Management believes that other recently adopted standards and recently issued standards that are not yet effective will not have a material impact on CenterPoint Energy’s financial position, results of operations or cash flows upon adoption.

(3) Revenue Recognition

CenterPoint Energy adopted ASC 606 and all related amendments on January 1, 2018 using the modified retrospective method for those contracts that were not completed as of the date of adoption. Application of the new revenue standard did not result in a cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new standard did not have a material impact on CenterPoint Energy’s financial position, results of operations or cash flows.

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which CenterPoint Energy expects to be entitled to receive in exchange for these goods or services. Contract assets and liabilities are not material.

The following tables disaggregate revenues by major source:
 
 
Three Months Ended March 31, 2018
 
 
Electric Transmission & Distribution (1)
 
Natural Gas Distribution (1)
 
Energy
 Services (2)
 
Other Operations (2)
 
Total
 
 
(in millions)
Revenue from contracts
 
$
761

 
$
1,186

 
$
178

 
$
1

 
$
2,126

Derivatives income
 
(4
)
 

 
1,107

 

 
1,103

Other (3)
 
(6
)
 
(33
)
 

 
3

 
(36
)
Eliminations
 

 
(10
)
 
(28
)
 

 
(38
)
Total revenues
 
$
751

 
$
1,143

 
$
1,257

 
$
4

 
$
3,155

 
 
Three Months Ended March 31, 2017
 
 
Electric Transmission & Distribution (1)
 
Natural Gas Distribution (1)
 
Energy
Services
(2)
 
Other Operations (2)
 
Total
 
 
(in millions)
Revenue from contracts
 
$
644

 
$
925

 
$
142

 
$
1

 
$
1,712

Derivatives income
 
1

 

 
1,054

 

 
1,055

Other (3)
 
(6
)
 
(9
)
 

 
3

 
(12
)
Eliminations
 

 
(9
)
 
(11
)
 

 
(20
)
Total revenues
 
$
639

 
$
907

 
$
1,185

 
$
4

 
$
2,735


(1)
Reflected in Utility revenues in the Condensed Statements of Consolidated Income.

(2)
Reflected in Non-utility revenues in the Condensed Statements of Consolidated Income.


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(3)
Primarily consists of income from ARPs and leases. ARPs are contracts between the utility and its regulators, not between the utility and a customer. CenterPoint Energy recognizes ARP revenue as other revenues when the regulator-specified conditions for recognition have been met. Upon recovery of ARP revenue through incorporation in rates charged for utility service to customers, ARP revenue is reversed and recorded as revenue from contracts with customers. The recognition of ARP revenues and the reversal of ARP revenues upon recovery through rates charged for utility service may not occur in the same period.

Revenues from Contracts with Customers

Electric Transmission & Distribution. Houston Electric distributes electricity to customers over time and customers consume the electricity when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by the PUCT, is recognized as electricity is delivered and represents amounts both billed and unbilled. Discretionary services requested by customers are provided at a point in time with control transferring upon the completion of the service. Revenue for discretionary services is recognized upon completion of service based on the tariff rates set by the PUCT. Payments for electricity distribution and discretionary services are aggregated and received on a monthly basis. Houston Electric performs transmission services over time as a stand-ready obligation to provide a reliable network of transmission systems. Revenue is recognized upon time elapsed, and the monthly tariff rate set by the PUCT. Payments are received on a monthly basis.

Natural Gas Distribution. CERC distributes and transports natural gas to customers over time, and customers consume the natural gas when delivered. Revenue, consisting of both volumetric and fixed tariff rates set by the state governing agency for that service area, is recognized as natural gas is delivered and represents amounts both billed and unbilled. Discretionary services requested by the customer are satisfied at a point in time and revenue is recognized upon completion of service and the tariff rates set by the applicable state regulator. Payments of natural gas distribution, transportation and discretionary services are aggregated and received on a monthly basis.

Energy Services. The majority of CES natural gas sales contracts are considered a derivative, as the contracts typically have a stated minimum or contractual volume of delivery.

For contracts in which CES delivers the full requirement of the natural gas needed by the customer and a volume is not stated, a contract as defined under ASC 606 is created upon the customer’s exercise of its option to take natural gas. CES supplies natural gas to retail customers over time as customers consume the natural gas when delivered. For wholesale customers, CES supplies natural gas at a point in time because the wholesale customer is presumed to have storage capabilities. Control is transferred to both types of customers upon delivery of natural gas. Revenue is recognized on a monthly basis based on the estimated volume of natural gas delivered and the price agreed upon with the customer. Payments are received on a monthly basis.

AMAs are natural gas sales contracts under which CES also assumes management of a customer’s physical storage and/or transportation capacity. AMAs have two distinct performance obligations, which consist of natural gas sales and natural gas delivery because delivery could occur separate from the sale of natural gas (e.g., from storage to customer premises). Most AMAs’ natural gas sales performance obligations are accounted for as embedded derivatives. The transaction price is allocated between the sale of natural gas and the delivery based on the stand-alone selling price as stated in the contract. CES performs natural gas delivery over time as customers take delivery of the natural gas and recognizes revenue on an aggregated monthly basis based on the volume of natural gas delivered and the fees stated within the contract. Payments are received on a monthly basis.

Practical Expedients and Exemption. Sales taxes and other similar taxes collected from customers are excluded from the transaction price.

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(4) Employee Benefit Plans

CenterPoint Energy’s 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 post retirement benefits:
 
Three Months Ended March 31,
 
2018
 
2017
 
Pension
Benefits
 
Postretirement
Benefits
 
Pension
Benefits
 
Postretirement
Benefits
 
(in millions)
Service cost (1)
$
9

 
$

 
$
9

 
$

Interest cost (2)
20

 
3

 
22

 
4

Expected return on plan assets (2)
(27
)
 
(1
)
 
(24
)
 
(1
)
Amortization of prior service cost (credit) (2)
2

 
(1
)
 
2

 
(1
)
Amortization of net loss (2)
11

 

 
14

 

Net periodic cost
$
15

 
$
1

 
$
23

 
$
2


(1)
Included in Operation and maintenance expense in the Condensed Statements of Consolidated Income.

(2)
Included in Other, net in the Condensed Statements of Consolidated Income.

CenterPoint Energy’s changes in accumulated other comprehensive loss related to defined benefit and postretirement plans are as follows:
 
Three Months Ended March 31,
 
2018
 
2017
 
(in millions)
Beginning Balance
$
(66
)
 
$
(72
)
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
Actuarial losses (1)
2

 
2

Tax expense
(1
)
 
(1
)
Net current period other comprehensive income
1

 
1

Ending Balance
$
(65
)
 
$
(71
)

(1)
These accumulated other comprehensive components are included in the computation of net periodic cost.

CenterPoint Energy expects to contribute a minimum of approximately $67 million to its pension plans in 2018, of which approximately $62 million was contributed during the three months ended March 31, 2018.

CenterPoint Energy expects to contribute a total of approximately $16 million to its postretirement benefit plan in 2018, of which approximately $4 million was contributed during the three months ended March 31, 2018.


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(5) Regulatory Accounting

The following is a list of regulatory assets and liabilities reflected on CenterPoint Energy’s Condensed Consolidated Balance Sheets:
 
March 31,
2018
 
December 31, 2017
 
(in millions)
Regulatory Assets:
 
 
 
Current regulatory assets (1)
$
65

 
$
130

Non-current regulatory assets:
 
 
 
Securitized regulatory assets
1,455

 
1,590

Unrecognized equity return (2)
(266
)
 
(287
)
Unamortized loss on reacquired debt
74

 
75

Pension and postretirement-related regulatory asset (3)
636

 
646

Hurricane Harvey restoration costs (4)
64

 
64

Regulatory assets related to TCJA (5)
48

 
48

Other long-term regulatory assets (6)
202

 
211

Total non-current regulatory assets
2,213

 
2,347

Total regulatory assets
2,278

 
2,477

Regulatory Liabilities:
 
 
 
Current regulatory liabilities (7)
43

 
24

Non-current regulatory liabilities:
 
 
 
Regulatory liabilities related to TCJA (5)
1,373

 
1,354

Estimated removal costs
882

 
878

Other long-term regulatory liabilities
250

 
232

Total non-current regulatory liabilities
2,505

 
2,464

Total regulatory liabilities
2,548

 
2,488

Total regulatory assets and liabilities, net
$
(270
)
 
$
(11
)

(1)
Current regulatory assets are included in Prepaid expenses and other current assets in CenterPoint Energy’s Condensed Consolidated Balance Sheets.

(2)
The unrecognized equity return will be recognized as it is recovered in rates through 2024. During the three months ended March 31, 2018 and 2017, Houston Electric recognized approximately $21 million and $7 million, respectively, of the allowed equity return. The timing of CenterPoint Energy’s recognition of the equity return will vary each period based on amounts actually collected during the period. The actual amounts recognized are adjusted at least annually to correct any over-collections or under-collections during the preceding 12 months.

(3)
Includes a portion of NGD’s actuarially determined pension and other postemployment expense in excess of the amount being recovered through rates that is being deferred for rate making purposes. Deferred pension and other postemployment expenses of $6 million and $7 million as of March 31, 2018 and December 31, 2017, respectively, were not earning a return.

(4)
CenterPoint Energy is not earning a return on its Hurricane Harvey restoration costs.

(5)
The EDIT and deferred revenues will be recovered or refunded to customers as required by tax and regulatory authorities.

(6)
Other long-term regulatory assets that are not earning a return were not material as of March 31, 2018 and December 31, 2017.

(7)
Current regulatory liabilities are included in Other current liabilities in CenterPoint Energy’s Condensed Consolidated Balance Sheets.


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Table of Contents

(6) Derivative Instruments

CenterPoint Energy is exposed to various market risks. These risks arise from transactions entered into in the normal course of business.  CenterPoint Energy utilizes derivative instruments such as physical forward contracts, swaps and options to mitigate the impact of changes in commodity prices, weather and interest rates on its operating results and cash flows. Such derivatives are recognized in CenterPoint Energy’s Condensed Consolidated Balance Sheets at their fair value unless CenterPoint Energy elects the normal purchase and sales exemption for qualified physical transactions. A derivative may be designated as a normal purchase or normal sale if the intent is to physically receive or deliver the product for use or sale in the normal course of business.

CenterPoint Energy has a Risk Oversight Committee composed of corporate and business segment officers that oversees commodity price, weather and credit risk activities, including CenterPoint Energy’s marketing, risk management services and hedging activities. The committee’s duties are to establish CenterPoint Energy’s commodity risk policies, allocate board-approved commercial risk limits, approve the use of new products and commodities, monitor positions and ensure compliance with CenterPoint Energy’s commercial risk management policy and procedures and limits established by CenterPoint Energy’s Board of Directors.

CenterPoint Energy’s policies prohibit the use of leveraged financial instruments. A leveraged financial instrument, for this purpose, is a transaction involving a derivative whose financial impact will be based on an amount other than the notional amount or volume of the instrument.

(a)
Non-Trading Activities

Derivative Instruments. CenterPoint Energy enters into certain derivative instruments to mitigate the effects of commodity price movements. Certain financial instruments used to hedge portions of the natural gas inventory of the Energy Services business segment are designated as fair value hedges for accounting purposes. All other financial instruments do not qualify or are not designated as cash flow or fair value hedges.

Weather Hedges. CenterPoint Energy has weather normalization or other rate mechanisms that mitigate the impact of weather on NGD in Arkansas, Louisiana, Mississippi, Minnesota and Oklahoma. NGD and electric operations in Texas do not have such mechanisms, although fixed customer charges are historically higher in Texas for NGD compared to CenterPoint Energy’s other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on NGD’s results in Texas and on electric operations’ results in its service territory.

CenterPoint Energy enters into winter season weather hedges from time to time for certain NGD jurisdictions and electric operations’ service territory to mitigate the effect of fluctuations from normal weather on results of operations and cash flows. These weather hedges are based on heating degree days at 10-year normal weather.

The table below summarizes CenterPoint Energy’s current weather hedge activity:
 
 
 
 
 
 
Three Months Ended March 31,
Jurisdiction
 
Winter Season
 
Bilateral Cap
 
2018
 
2017
 
 
 
 
(in millions)
Certain NGD jurisdictions
 
2017 – 2018
 
$
8

 
$

 
$

Electric operations’ service territory
 
2017 – 2018
 
9

 
(4
)
 

Electric operations’ service territory
 
2016 – 2017
 
9

 

 
1

Total (1)
 
 
 
 
 
$
(4
)
 
$
1


(1)
Weather hedge gains (losses) are recorded in Revenues in the Condensed Statements of Consolidated Income.

Hedging of Interest Expense for Future Debt Issuances. In January and February 2018, Houston Electric entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $200 million. These agreements were executed to hedge, in part, volatility in the 30-year U.S. treasury rate by reducing Houston Electric’s exposure to variability in cash flows related to interest payments of Houston Electric’s $400 million issuance of fixed rate debt in February 2018. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized gains associated with the forward interest rate agreements, which totaled approximately $5 million, is a component of accumulated other comprehensive income in 2018 and will be amortized over the life of the fixed rate debt.


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In March 2018, CERC Corp. entered into forward interest rate agreements with multiple counterparties, having an aggregate notional amount of $450 million. These agreements were executed to hedge, in part, volatility in the 5-year and 10-year U.S. treasury rates by reducing CERC Corp.’s exposure to variability in cash flows related to interest payments of CERC Corp.’s $600 million issuance of fixed rate debt in March 2018. These forward interest rate agreements were designated as cash flow hedges. Accordingly, the effective portion of realized losses associated with the forward interest rate agreements, which totaled less than $1 million, is a component of accumulated other comprehensive income in 2018 and will be amortized over the life of the fixed rate debt.

(b)
Derivative Fair Values and Income Statement Impacts

The following tables present information about CenterPoint Energy’s derivative instruments and hedging activities. The first four tables provide a balance sheet overview of CenterPoint Energy’s Derivative Assets and Liabilities, while the last table provides a breakdown of the related income statement impacts.
Fair Value of Derivative Instruments
 
 
March 31, 2018
 
 
Balance Sheet Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
Derivatives designated as fair value hedges:
 
 
 
(in millions)
Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
$
1

 
$
1

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Natural gas derivatives (1) (2) (3)
 
Current Assets: Non-trading derivative assets
 
86

 
2

Natural gas derivatives (1) (2) (3)
 
Other Assets: Non-trading derivative assets
 
52

 

Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
18

 
70

Natural gas derivatives (1) (2) (3)
 
Other Liabilities: Non-trading derivative liabilities
 
9

 
42

Indexed debt securities derivative
 
Current Liabilities
 

 
674

Total
 
$
166

 
$
789


(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,735 Bcf or a net 437 Bcf long position.  Certain natural gas contracts hedge basis risk only and lack a fixed price exposure.

(2)
Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities was a $103 million asset as shown on CenterPoint Energy’s Condensed Consolidated Balance Sheets (and as detailed in the table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above, impacted by collateral netting of $52 million.

(3)
Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.
Offsetting of Natural Gas Derivative Assets and Liabilities
 
 
March 31, 2018
 
 
Gross Amounts Recognized (1)
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amount Presented in the Consolidated Balance Sheets (2)
 
 
(in millions)
Current Assets: Non-trading derivative assets
 
$
105

 
$
(21
)
 
$
84

Other Assets: Non-trading derivative assets
 
61

 
(9
)
 
52

Current Liabilities: Non-trading derivative liabilities
 
(73
)
 
52

 
(21
)
Other Liabilities: Non-trading derivative liabilities
 
(42
)
 
30

 
(12
)
Total
 
$
51

 
$
52

 
$
103


(1)
Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements.


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Table of Contents

(2)
The derivative assets and liabilities on the Condensed Consolidated Balance Sheets exclude accounts receivable or accounts payable that, should they exist, could be used as offsets to these balances in the event of a default.
Fair Value of Derivative Instruments
 
 
December 31, 2017
 
 
Balance Sheet
Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
Derivatives designated as fair value hedges:
 
 
 
(in millions)
Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
$
13

 
$
1

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Natural gas derivatives (1) (2) (3)
 
Current Assets: Non-trading derivative assets
 
114

 
4

Natural gas derivatives (1) (2) (3)
 
Other Assets: Non-trading derivative assets
 
44

 

Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
38

 
78

Natural gas derivatives (1) (2) (3)
 
Other Liabilities: Non-trading derivative liabilities
 
9

 
24

Indexed debt securities derivative
 
Current Liabilities
 

 
668

Total
 
$
218

 
$
775


(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 1,795 Bcf or a net 224 Bcf long position.  Certain natural gas contracts hedge basis risk only and lack a fixed price exposure.

(2)
Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Condensed Consolidated Balance Sheets. The net of total non-trading natural gas derivative assets and liabilities was a $130 million asset as shown on CenterPoint Energy’s Condensed Consolidated Balance Sheets (and as detailed in the table below), and was comprised of the natural gas contracts derivative assets and liabilities separately shown above, impacted by collateral netting of $19 million.

(3)
Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.
Offsetting of Natural Gas Derivative Assets and Liabilities
 
 
December 31, 2017
 
 
Gross Amounts Recognized (1)
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amount Presented in the Consolidated Balance Sheets (2)
 
 
(in millions)
Current Assets: Non-trading derivative assets
 
$
165

 
$
(55
)
 
$
110

Other Assets: Non-trading derivative assets
 
53

 
(9
)
 
44

Current Liabilities: Non-trading derivative liabilities
 
(83
)
 
63

 
(20
)
Other Liabilities: Non-trading derivative liabilities
 
(24
)
 
20

 
(4
)
Total
 
$
111

 
$
19

 
$
130


(1)
Gross amounts recognized include some derivative assets and liabilities that are not subject to master netting arrangements.

(2)
The derivative assets and liabilities on the Condensed Consolidated Balance Sheets exclude accounts receivable or accounts payable that, should they exist, could be used as offsets to these balances in the event of a default.

Realized and unrealized gains and losses on natural gas derivatives are recognized in the Condensed Statements of Consolidated Income as revenue for physical sales derivative contracts and as natural gas expense for financial natural gas derivatives and physical purchase natural gas derivatives. Realized and unrealized gains and losses on indexed debt securities are recorded as Other Income (Expense) in the Condensed Statements of Consolidated Income.

Hedge ineffectiveness is recorded as a component of natural gas expense and primarily results from differences in the location of the derivative instrument and the hedged item. Basis ineffectiveness arises from natural gas market price differences between the locations of the hedged inventory and the delivery location specified in the hedge instruments. The impact of natural gas

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derivatives designated as fair value hedges, the related hedged item, and natural gas derivatives not designated as hedging instruments are presented in the table below.

Income Statement Impact of Derivative Activity
 
 
 
 
Three Months Ended March 31,
 
 
Income Statement Location
 
2018
 
2017
Derivatives designated as fair value hedges:
 
 
 
(in millions)
Natural gas derivatives
 
Gains (Losses) in Expenses: Natural Gas
 
$

 
$
3

Fair value adjustments for natural gas inventory designated as the hedged item
 
Gains (Losses) in Expenses: Natural Gas
 
(2
)
 
(4
)
Total increase in Expenses: Natural Gas (1)
 
$
(2
)
 
$
(1
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Natural gas derivatives
 
Gains (Losses) in Revenues
 
$
57

 
$
96

Natural gas derivatives
 
Gains (Losses) in Expenses: Natural Gas
 
(69
)
 
(67
)
Indexed debt securities derivative
 
Gains (Losses) in Other Income (Expense)
 
(18
)
 
(10
)
Total - derivatives not designated as hedging instruments
 
$
(30
)
 
$
19


(1)
Hedge ineffectiveness results from the basis ineffectiveness discussed above, and excludes the impact to natural gas expense from timing ineffectiveness.  Timing ineffectiveness arises due to changes in the difference between the spot price and the futures price, as well as the difference between the timing of the settlement of the futures and the valuation of the underlying physical commodity.  As the commodity contract nears the settlement date, spot-to-forward price differences should converge, which should reduce or eliminate the impact of this ineffectiveness on natural gas expense.

(c)
Credit Risk Contingent Features

CenterPoint Energy enters into financial derivative contracts containing material adverse change provisions.  These provisions could require CenterPoint Energy to post additional collateral if the S&P or Moody’s credit ratings of CenterPoint Energy, Inc. or its subsidiaries are downgraded.  The total fair value of the derivative instruments that contain credit risk contingent features that are in a net liability position as of both March 31, 2018 and December 31, 2017 was $2 million.  CenterPoint Energy posted no assets as collateral toward derivative instruments that contain credit risk contingent features as of either March 31, 2018 or December 31, 2017.  If all derivative contracts (in a net liability position) containing credit risk contingent features were triggered as of both March 31, 2018 and December 31, 2017, $2 million of additional assets would be required to be posted as collateral.

(7) Fair Value Measurements

Assets and liabilities that are recorded at fair value in the Condensed Consolidated Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined below and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value generally are exchange-traded derivatives and equity securities, as well as natural gas inventory that has been designated as the hedged item in a fair value hedge.

Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets.  A market approach is utilized to value CenterPoint Energy’s Level 2 assets or liabilities.

Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Unobservable inputs reflect CenterPoint Energy’s judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. CenterPoint Energy develops these inputs based on the best information available, including CenterPoint Energy’s own data. A market approach is utilized to value CenterPoint Energy’s Level 3 assets or liabilities. As of March 31, 2018, CenterPoint Energy’s Level 3 assets and liabilities are comprised of physical natural gas forward contracts and options and its indexed debt securities. Level 3 physical natural gas forward contracts and options are valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $1.36 to $3.26 per MMBtu) as an unobservable input. CenterPoint Energy’s Level 3 physical natural gas forward

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contracts and options derivative assets and liabilities consist of both long and short positions (forwards and options) and their fair value is sensitive to forward prices. If forward prices decrease, CenterPoint Energy’s long forwards and options lose value whereas its short forwards and options gain in value. CenterPoint Energy’s Level 3 indexed debt securities are valued using a Black-Scholes option model and a discounted cash flow model, which use option volatility (19%) and a projected dividend growth rate (6%) as unobservable inputs. An increase in either volatilities or projected dividends will increase the value of the indexed debt securities, and a decrease in either the volatilities or projected dividends will decrease the value of the indexed debt securities.

CenterPoint Energy determines the appropriate level for each financial asset and liability on a quarterly basis and recognizes transfers between levels at the end of the reporting period.  For the three months ended March 31, 2018, there were no transfers between Level 1 and 2. CenterPoint Energy also recognizes purchases of Level 3 financial assets and liabilities at their fair market value at the end of the reporting period.

The following tables present information about CenterPoint Energy’s assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by CenterPoint Energy to determine such fair value.
 
March 31, 2018
 
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Netting
Adjustments (1)
 
Balance
 
 
 
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Corporate equities
$
946

 
$

 
$

 
$

 
$
946

Investments, including money
market funds (2)
70

 

 

 

 
70

Natural gas derivatives (3)

 
147

 
19

 
(30
)
 
136

Total assets
$
1,016

 
$
147

 
$
19

 
$
(30
)
 
$
1,152

Liabilities
 

 
 

 
 

 
 

 
 

Indexed debt securities derivative
$

 
$

 
$
674

 
$

 
$
674

Natural gas derivatives (3)

 
108

 
7

 
(82
)
 
33

Hedged portion of natural gas inventory
8

 

 

 

 
8

Total liabilities
$
8

 
$
108

 
$
681

 
$
(82
)
 
$
715

 
(1)
Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy to settle positive and negative positions and also include cash collateral of $52 million posted with the same counterparties.

(2)
Amounts are included in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

(3)
Natural gas derivatives include no material amounts related to physical forward transactions with Enable.

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December 31, 2017
 
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Netting
Adjustments (1)
 
Balance
 
 
 
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Corporate equities
$
963

 
$

 
$

 
$

 
$
963

Investments, including money
market funds (2)
68

 

 

 

 
68

Natural gas derivatives (3)

 
161

 
57

 
(64
)
 
154

Hedged portion of natural gas inventory
14

 

 

 

 
14

Total assets
$
1,045

 
$
161

 
$
57

 
$
(64
)
 
$
1,199

Liabilities
 

 
 

 
 

 
 

 
 

Indexed debt securities derivative
$

 
$

 
$
668

 
$

 
$
668

Natural gas derivatives (3)

 
96

 
11

 
(83
)
 
24

Total liabilities
$

 
$
96

 
$
679

 
$
(83
)
 
$
692


(1)
Amounts represent the impact of legally enforceable master netting arrangements that allow CenterPoint Energy to settle positive and negative positions and also include cash collateral of $19 million posted with the same counterparties.

(2)
Amounts are included in Prepaid expenses and other current assets and Other assets in the Condensed Consolidated Balance Sheets.

(3)
Natural gas derivatives include no material amounts related to physical forward transactions with Enable.

The following table presents additional information about assets or liabilities, including derivatives that are measured at fair value on a recurring basis for which CenterPoint Energy has utilized Level 3 inputs to determine fair value:
 
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
 
Derivative assets and liabilities, net
 
Three Months Ended March 31,
 
2018
 
2017
 
(in millions)
Beginning balance
$
(622
)
 
$
(704
)
Total gains (losses)
(4
)
 
6

Total settlements
(34
)
 
(4
)
Transfers into Level 3

 
1

Transfers out of Level 3
(2
)
 
1

Ending balance (1)
$
(662
)
 
$
(700
)
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date
$
(5
)
 
$
5


(1)
CenterPoint Energy did not have significant Level 3 sales or purchases during either of the three months ended March 31, 2018 or 2017.

Estimated Fair Value of Financial Instruments

The fair values of cash and cash equivalents, investments in debt and equity securities classified as “trading” and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s ZENS indexed debt securities derivative are stated at fair value and are excluded from the table below.  The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by a combination of historical trading prices and comparable issue data. These

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liabilities, which are not measured at fair value in the Condensed Consolidated Balance Sheets, but for which the fair value is disclosed, would be classified as Level 2 in the fair value hierarchy.
 
March 31, 2018
 
December 31, 2017
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
(in millions)
Financial liabilities:
 
 
 
 
 
 
 
Long-term debt
$
8,670

 
$
9,008

 
$
8,679

 
$
9,220


(8) Unconsolidated Affiliate

CenterPoint Energy has the ability to significantly influence the operating and financial policies of Enable, a publicly traded MLP, and, accordingly, accounts for its investment in Enable’s common units using the equity method of accounting for in-substance real estate. Upon the adoption of ASU 2014-09 and ASU 2017-05 on January 1, 2018, CenterPoint Energy evaluated transactions in its investment in Enable that occurred prior to January 1, 2018 (the effective date) and concluded a cumulative effect adjustment to the opening balance of retained earnings was not required. See Note 2 for further discussion.

CenterPoint Energy’s maximum exposure to loss related to Enable, a VIE in which CenterPoint Energy is not the primary beneficiary, is limited to its equity investment, its Series A Preferred Unit investment and its outstanding current accounts receivable from Enable.


Limited Partner Interest and Units Held in Enable:
 
March 31, 2018
 
Limited Partner Interest (1)
 
Common Units
 
Series A Preferred Units (2)
CenterPoint Energy
54.0
%
 
233,856,623

 
14,520,000

OGE
25.6
%
 
110,982,805

 

Public unitholders
20.4
%
 
88,232,573

 

        Total units outstanding
100.0
%
 
433,072,001

 
14,520,000


(1)
Excluding the Series A Preferred Units owned by CenterPoint Energy.

(2)
The carrying amount of the Series A Preferred Units, reflected as Preferred units - unconsolidated affiliate on the Condensed Consolidated Balance Sheets, was $363 million as of both March 31, 2018 and December 31, 2017. No impairment charges or adjustment due to observable price changes were made during the current or prior reporting periods. See Note 2 for further discussion.

Generally, sales to any person or entity (including a series of sales to the same person or entity) of more than 5% of the aggregate of the common units CenterPoint Energy owns in Enable or sales to any person or entity (including a series of sales to the same person or entity) by OGE of more than 5% of the aggregate of the common units it owns in Enable are subject to mutual rights of first offer and first refusal set forth in Enable’s Agreement of Limited Partnership.

Enable is controlled jointly by CERC Corp. and OGE, and each own 50% of the management rights in the general partner of Enable. Sale of CenterPoint Energy’s or OGE’s ownership interests in Enable’s general partner to a third party is subject to mutual rights of first offer and first refusal, and CenterPoint Energy is not permitted to dispose of less than all of its interest in Enable’s general partner.

Distributions Received from Enable:
 
Three Months Ended March 31,
 
2018
 
2017
 
(in millions)
Investment in Enable common units
$
74

 
$
74

Investment in Enable Series A Preferred Units
9

 
9

  Total
$
83

 
$
83


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As of March 31, 2018, CERC Corp. and OGE also owned 40% and 60%, respectively, of the incentive distribution rights held by the general partner of Enable. Enable is expected to pay a minimum quarterly distribution of $0.2875 per common unit on its outstanding common units to the extent it has sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to its general partner and its affiliates, within 60 days after the end of each quarter. If cash distributions to Enable’s unitholders exceed $0.330625 per common unit in any quarter, the general partner will receive increasing percentages or incentive distributions rights, up to 50%, of the cash Enable distributes in excess of that amount. In certain circumstances the general partner of Enable will have the right to reset the minimum quarterly distribution and the target distribution levels at which the incentive distributions receive increasing percentages to higher levels based on Enable’s cash distributions at the time of the exercise of this reset election. To date, no incentive distributions have been made.

Transactions with Enable:
 
Three Months Ended March 31,
 
2018
 
2017
 
(in millions)
Reimbursement of transition services (1)
$
2

 
$
2

Natural gas expenses, including transportation and storage costs
37

 
33


(1)
Represents amounts billed under the Transition Agreements for certain support services provided to Enable. Actual transition services costs are recorded net of reimbursement.
 
March 31, 2018
 
December 31, 2017
 
(in millions)
Accounts receivable for amounts billed for transition services
$
1

 
$
1

Accounts payable for natural gas purchases from Enable
11

 
13


Summarized unaudited consolidated income information for Enable is as follows:
 
 
Three Months Ended March 31,
 
 
2018

2017
 
 
(in millions)
Operating revenues
 
$
748

 
$
666

Cost of sales, excluding depreciation and amortization
 
375

 
308

Operating income
 
139

 
140

Net income attributable to Enable
 
105

 
111

Reconciliation of Equity in Earnings, net:
 
 
 
 
CenterPoint Energy’s interest
 
$
57

 
$
60

Basis difference amortization (1)
 
12

 
12

CenterPoint Energy’s equity in earnings, net
 
$
69

 
$
72

(1)
Equity in earnings of unconsolidated affiliate includes CenterPoint Energy’s share of Enable’s earnings adjusted for the amortization of the basis difference of CenterPoint Energy’s original investment in Enable and its underlying equity in Enable’s net assets. The basis difference is amortized over approximately 31 years, the average life of the assets to which the basis difference is attributed.


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Table of Contents

Summarized unaudited consolidated balance sheet information for Enable is as follows:
 
 
March 31,
2018

December 31, 2017
 
 
(in millions)
Current assets
 
$
413

 
$
416

Non-current assets
 
11,274

 
11,177

Current liabilities
 
1,404

 
1,279

Non-current liabilities
 
2,664

 
2,660

Non-controlling interest
 
11

 
12

Preferred equity
 
362

 
362

Enable partners’ equity
 
7,246

 
7,280

Reconciliation of Investment in Enable:
 
 
 
 
CenterPoint Energy’s ownership interest in Enable partners’ equity
 
$
3,913

 
$
3,935

CenterPoint Energy’s basis difference
 
(1,446
)
 
(1,463
)
CenterPoint Energy’s equity method investment in Enable
 
$
2,467

 
$
2,472


(9) Goodwill and Other Intangibles

Goodwill by reportable business segment as of both March 31, 2018 and December 31, 2017 is as follows:
 
(in millions)
 
Natural Gas Distribution
$
746

 
Energy Services
110

(1)
Other Operations
11

 
Total
$
867

 
(1) Amount presented is net of the accumulated goodwill impairment charge of $252 million recorded in 2012.

The tables below present information on CenterPoint Energy’s other intangible assets recorded in Other non-current assets on the Condensed Consolidated Balance Sheets.
 
 
 
March 31, 2018
 
December 31, 2017
 
Useful Lives
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Balance
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Balance
 
(in years)
 
(in millions)
Customer relationships
15
 
$
86

 
$
(23
)
 
$
63

 
$
86

 
$
(21
)
 
$
65

Covenants not to compete
4
 
4

 
(2
)
 
2

 
4

 
(2
)
 
2

Other
Various
 
15

 
(9
)
 
6

 
15

 
(8
)
 
7

Total
 
 
$
105

 
$
(34
)
 
$
71

 
$
105

 
$
(31
)
 
$
74

 
Three Months Ended March 31,
 
2018
 
2017
 
(in millions)
Amortization expense of intangible assets
$
3

 
$
2



21

Table of Contents

(10) Indexed Debt Securities (ZENS) and Securities Related to ZENS

(a) Investment in Securities Related to ZENS

In 1995, CenterPoint Energy sold a cable television subsidiary to TW and received certain TW securities as partial consideration. A subsidiary of CenterPoint Energy holds shares of certain securities detailed in the table below, which are classified as trading securities and are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS. Unrealized gains and losses resulting from changes in the market value of the TW Securities are recorded in CenterPoint Energy’s Condensed Statements of Consolidated Income.
 
 
Shares Held
 
 
 March 31, 2018
 
December 31, 2017
TW Common
 
7,107,130

 
7,107,130

Time Common
 

 
888,392

Charter Common
 
872,503

 
872,503


(b) ZENS

In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1 billion of which $828 million remain outstanding as of March 31, 2018. Each ZENS was originally exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares of TW Common attributable to such note. The number and identity of the reference shares attributable to each ZENS are adjusted for certain corporate events.

On October 22, 2016, AT&T announced that it had entered into a definitive agreement to acquire TW in a stock and cash transaction. On February 15, 2017, TW shareholders approved the announced transaction with AT&T. Pursuant to the merger agreement, upon closing of the merger, TW shareholders would receive for each of their shares of TW Common an estimated implied value of $107.50, comprised of $53.75 per share in cash and $53.75 per share in AT&T Common. The stock portion will be subject to a collar such that TW shareholders will receive 1.437 shares of AT&T Common if AT&T Common’s average stock price is below $37.411 at closing and 1.3 shares of AT&T Common if AT&T Common’s average stock price is above $41.349 at closing. Cash received for the TW Common reference shares would subsequently be distributed to ZENS holders, which is expected to reduce the contingent principal balance, and reference shares would consist of Charter Common, Time Common and AT&T Common. In November 2017, the U.S. Department of Justice filed a civil antitrust lawsuit to block AT&T’s acquisition of TW. AT&T has announced it does not expect the outcome of this matter to prohibit the acquisition. Such proceedings began March 19, 2018 and the judge’s ruling is expected by June 12, 2018.

On November 26, 2017, Meredith announced that it had entered into a definitive merger agreement with Time. Pursuant to the merger agreement, upon closing of the merger, a subsidiary of Meredith would purchase for cash all outstanding Time Common shares for $18.50 per share. The transaction was consummated on January 31, 2018. CenterPoint Energy elected to make a reference share offer adjustment and distribute additional interest, if any, in accordance with the terms of its ZENS rather than electing to increase the early exchange ratio to 100%. CenterPoint Energy’s distribution of additional interest in connection with the reference share offer was proportionate to the percentage of eligible shares that were validly tendered by Time stockholders in Meredith’s tender offer. CenterPoint Energy received $18.50 for each share of Time Common held, resulting in cash proceeds of approximately $16 million. In accordance with the terms of the ZENS, CenterPoint Energy distributed additional interest of approximately $16 million to ZENS holders on March 6, 2018, which reduced the contingent principal amount.

As a result, CenterPoint Energy recorded the following during the three months ended March 31, 2018:
 
(in millions)
Cash payment to ZENS holders
$
16

Indexed debt – reduction
(4
)
Indexed debt securities derivative – reduction
(1
)
     Loss on indexed debt securities
$
11



22

Table of Contents

The reference shares for each ZENS consisted of the following:
 
 
 March 31, 2018
 
December 31, 2017
 
 
 
(in shares)
TW Common
 
0.5

 
0.5

 
Time Common
 

 
0.0625

 
Charter Common
 
0.061382

 
0.061382

 

As of March 31, 2018, the contingent principal balance was $486 million.

(11) Short-term Borrowings and Long-term Debt

(a)
Short-term Borrowings

Inventory Financing. NGD has AMAs associated with its utility distribution service in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. In March 2018, NGD’s third party AMAs in Arkansas, Louisiana and Oklahoma expired, and NGD entered into new AMAs with CES effective April 1, 2018 in these states. The AMAs have varying terms, the longest of which expires in 2021. Pursuant to the provisions of the agreements, NGD sells natural gas and agrees to repurchase an equivalent amount of natural gas during the winter heating seasons at the same cost, plus a financing charge. These transactions are accounted for as an inventory financing and had an associated principal obligation of $-0- and $39 million as of March 31, 2018 and December 31, 2017, respectively.

(b)
Long-term Debt

Debt Issuances. During the three months ended March 31, 2018, Houston Electric and CERC Corp. issued the following debt instruments:
 
 
Issuance Date
 
Debt Instrument