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 JUNE 30, 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 __________________

 
Registrant, State or Other Jurisdiction of Incorporation or Organization
 
Commission file number
Address of Principal Executive Offices, Zip Code and Telephone Number
I.R.S. Employer Identification No.
 
 
 
1-31447
CenterPoint Energy, Inc.
74-0694415
 
(a Texas corporation)
 
 
1111 Louisiana
 
 
Houston, Texas 77002
 
 
(713-207-1111)
 
 
 
 
1-3187
CenterPoint Energy Houston Electric, LLC
22-3865106
 
(a Texas limited liability company)
 
 
1111 Louisiana
 
 
Houston, Texas 77002
 
 
(713-207-1111)
 
 
 
 
1-13265
CenterPoint Energy Resources Corp.
76-0511406
 
(a Delaware corporation)
 
 
1111 Louisiana
 
 
Houston, Texas 77002
 
 
(713-207-1111)
 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

CenterPoint Energy, Inc.            Yes þ  No o
CenterPoint Energy Houston Electric, LLC    Yes þ  No o
CenterPoint Energy Resources Corp.        Yes þ  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

CenterPoint Energy, Inc.            Yes þ  No o
CenterPoint Energy Houston Electric, LLC    Yes þ  No o
CenterPoint Energy Resources Corp.        Yes þ  No o 




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):
CenterPoint Energy, Inc.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
CenterPoint Energy Houston Electric, LLC
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
Emerging growth company o
CenterPoint Energy Resources Corp.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
Emerging growth company o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

CenterPoint Energy, Inc.            Yes o  No þ
CenterPoint Energy Houston Electric, LLC    Yes o  No þ
CenterPoint Energy Resources Corp.        Yes o  No þ

Indicate the number of shares outstanding of each of the issuers’ classes of common stock as of July 23, 2018:
CenterPoint Energy, Inc.
 
431,553,691 shares of common stock outstanding, excluding 166 shares held as treasury stock
CenterPoint Energy Houston Electric, LLC
 
1,000 common shares outstanding, all held by Utility Holding, LLC, a wholly-owned subsidiary of CenterPoint Energy, Inc.
CenterPoint Energy Resources Corp.
 
1,000 shares of common stock outstanding, all held by Utility Holding, LLC, a wholly-owned subsidiary of CenterPoint Energy, Inc.
            
This combined Form 10-Q is filed separately by three registrants: CenterPoint Energy, Inc., CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.

Except as discussed in the last paragraph in Note 12 to the Registrants’ Condensed Consolidated Financial Statements, no registrant has an obligation in respect of any other Registrant’s debt securities, and holders of such debt securities should not consider the financial resources or results of operations of any Registrant other than the obligor in making a decision with respect to such securities.

CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.

 



TABLE OF CONTENTS

PART I.
 
FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
ARAM
 
Average rate assumption method
ARP
 
Alternative revenue program
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
AT&T
 
AT&T Inc.
AT&T Common
 
AT&T common stock
Bcf
 
Billion cubic feet
Bond Companies
 
Bond Company II, Bond Company III, Bond Company IV and Restoration Bond Company, each a wholly-owned, bankruptcy remote entity formed solely for the purpose of purchasing and owning transition or system restoration property through the issuance of Securitization Bonds
Bond Company II
 
CenterPoint Energy Transition Bond Company II, LLC, a wholly-owned subsidiary of Houston Electric
Bond Company III
 
CenterPoint Energy Transition Bond Company III, LLC, a wholly-owned subsidiary of Houston Electric
Bond Company IV
 
CenterPoint Energy Transition Bond Company IV, LLC, a wholly-owned subsidiary of Houston Electric
Brazos Valley Connection
 
A portion of the Houston region transmission project between Houston Electric’s Zenith substation and the Gibbons Creek substation owned by the Texas Municipal Power Agency
Bridge Facility
 
A $5 billion 364-day senior unsecured bridge term loan facility
CenterPoint Energy
 
CenterPoint Energy, Inc., and its subsidiaries
CERC Corp.
 
CenterPoint Energy Resources Corp.
CERC
 
CERC Corp., together with its subsidiaries
CES
 
CenterPoint Energy Services, Inc., a wholly-owned subsidiary of CERC Corp.
Charter Common
 
Charter Communications, Inc. common stock
CIP
 
Conservation Improvement Program
COLI
 
Corporate-owned life insurance
Continuum
 
The retail energy services business of Continuum Retail Energy Services, LLC, including its wholly-owned subsidiary Lakeshore Energy Services, LLC and the natural gas wholesale assets 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
FCC
 
Federal Communications Commission
FERC
 
Federal Energy Regulatory Commission
Fitch
 
Fitch, Inc.
Form 10-Q
 
Quarterly Report on Form 10-Q
FRP
 
Formula Rate Plan

ii


GLOSSARY
FTC
 
Federal Trade Commission
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
HSR
 
Hart-Scott-Rodino
Interim Condensed Financial Statements
 
Unaudited condensed consolidated interim financial statements and combined notes
IRS
 
Internal Revenue Service
kV
 
Kilovolt
LIBOR
 
London Interbank Offered Rate
Meredith
 
Meredith Corporation
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
Registrants
 
CenterPoint Energy, Houston Electric and CERC, collectively
Reliant Energy
 
Reliant Energy, Incorporated
REP
 
Retail electric provider
Restoration Bond Company
 
CenterPoint Energy Restoration Bond Company, LLC, a wholly-owned subsidiary of Houston Electric
Revised Policy Statement
 
Revised Policy Statement on Treatment of Income Taxes
ROE
 
Return on equity
RRA
 
Rate Regulation Adjustment
RRI
 
Reliant Resources, Inc.
RSP
 
Rate Stabilization Plan
SEC
 
Securities and Exchange Commission

iii


GLOSSARY
Securitization Bonds
 
Transition and system restoration bonds
Series A Preferred Units
 
Enable’s 10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units, representing limited partner interests in Enable
S&P
 
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies
TBD
 
To be determined
TCEH Corp.
 
Formerly Texas Competitive Electric Holdings Company LLC, predecessor to Vistra Energy Corp. whose major subsidiaries include Luminant and TXU Energy
TCJA
 
Tax reform legislation informally called the Tax Cuts and Jobs Act of 2017
TCOS
 
Transmission Cost of Service
TDU
 
Transmission and distribution utility
Time
 
Time Inc.
Time Common
 
Time common stock
Transition Agreements
 
Services Agreement, Employee Transition Agreement, Transitional Seconding Agreement and other agreements entered into in connection with the formation of Enable
TW
 
Time Warner Inc.
TW Common
 
TW common stock
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
ZENS-Related Securities
 
As of June 30, 2018, consisted of AT&T Common and Charter Common and as of December 31, 2017, consisted of Charter Common, Time Common and TW Common
2017 Form 10-K
 
Annual Report on Form 10-K for the fiscal year ended December 31, 2017

iv


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.

The following are some of the factors that could cause actual results to differ from those expressed or implied by the Registrants’ forward-looking statements and apply to all Registrants unless otherwise indicated:

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

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 demand for our non-rate regulated products and services and effects of energy efficiency measures and demographic patterns;

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

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

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

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

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


v


tax legislation, including the effects of the TCJA (which includes any potential changes to interest deductibility) and uncertainties involving state commissions’ and local municipalities’ regulatory requirements and determinations regarding the treatment of EDIT and our rates;

CenterPoint Energy’s and CERC’s ability to mitigate weather impacts through normalization or rate mechanisms, and the effectiveness of such mechanisms;

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

actions by credit rating agencies, including any potential downgrades to credit ratings;

changes in interest rates and their impact on costs of borrowing and the valuation of CenterPoint Energy’s pension benefit obligation;

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

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

the impact of unplanned facility outages;

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

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

our ability to control operation and maintenance costs;

the sufficiency of our insurance coverage, including availability, cost, coverage and terms and ability to recover claims;

the investment performance of CenterPoint Energy’s pension and postretirement benefit plans;

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

changes in rates of inflation;

inability of various counterparties to meet their obligations to us;

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

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

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

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

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

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

the outcome of litigation;

the ability of REPs, including REP affiliates of NRG and Vistra Energy Corp., formerly known as TCEH Corp., to satisfy their obligations to CenterPoint Energy and Houston Electric;

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

vi



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

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

the effective tax rates;

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

other factors discussed in “Risk Factors” in Item 1A of Part I of each of the Registrants’ 2017 Form 10-K and in Item 1A of Part II of CenterPoint Energy’s First Quarter 2018 Form 10-Q, which are incorporated herein by reference, and other reports the Registrants file from time to time with the SEC.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and the Registrants undertake no obligation to update or revise any forward-looking statements. Investors should note that the Registrants announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, the Registrants may use the Investors section of CenterPoint Energy’s website (www.centerpointenergy.com) to communicate with investors about the Registrants. It is possible that the financial and other information posted there could be deemed to be material information. The information on CenterPoint Energy’s website is not part of this combined Form 10-Q.

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
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Utility revenues
$
1,341

 
$
1,222

 
$
3,235

 
$
2,768

Non-utility revenues
845

 
921

 
2,106

 
2,110

Total
2,186

 
2,143

 
5,341

 
4,878

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Utility natural gas
188

 
150

 
825

 
600

Non-utility natural gas
790

 
882

 
2,063

 
2,011

Operation and maintenance
578

 
518

 
1,147

 
1,061

Depreciation and amortization
342

 
254

 
656

 
480

Taxes other than income taxes
101

 
99

 
212

 
195

Total
1,999

 
1,903

 
4,903

 
4,347

Operating Income
187

 
240

 
438

 
531

 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
Gain on marketable securities
22

 
23

 
23

 
67

Loss on indexed debt securities
(254
)
 
(13
)
 
(272
)
 
(23
)
Interest and other finance charges
(91
)
 
(77
)
 
(169
)
 
(155
)
Interest on Securitization Bonds
(14
)
 
(20
)
 
(30
)
 
(40
)
Equity in earnings of unconsolidated affiliate, net
58

 
59

 
127

 
131

Other, net
4

 
(1
)
 
7

 
(1
)
Total
(275
)
 
(29
)
 
(314
)
 
(21
)
 
 
 
 
 
 
 
 
Income (Loss) Before Income Taxes
(88
)
 
211

 
124

 
510

Income tax expense (benefit)
(13
)
 
76

 
34

 
183

Net Income (Loss)
$
(75
)
 
$
135

 
$
90

 
$
327

 
 
 
 
 
 
 
 
Basic Earnings (Loss) Per Share
$
(0.17
)
 
$
0.31

 
$
0.21

 
$
0.76

 
 
 
 
 
 
 
 
Diluted Earnings (Loss) Per Share
$
(0.17
)
 
$
0.31

 
$
0.21

 
$
0.75

 
 
 
 
 
 
 
 
Dividends Declared Per Share
$
0.2775

 
$
0.2675

 
$
0.2775

 
$
0.5350

 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding, Basic
432

 
431

 
431

 
431

 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding, Diluted
432

 
434

 
434

 
434


See Combined 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
(75
)
 
$
135

 
$
90

 
$
327

Other comprehensive income:
 
 
 
 
 
 
 
Adjustment to pension and other postretirement plans (net of tax of $-0-, $1, $1 and $2)
2

 
1

 
3

 
2

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

 
3

 
(1
)
Total
1

 
1

 
6

 
1

Comprehensive income (loss)
$
(74
)
 
$
136

 
$
96

 
$
328


See Combined Notes to Unaudited Condensed Consolidated Financial Statements


2

Table of Contents


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

ASSETS

 
June 30,
2018
 
December 31,
2017
Current Assets:
 
 
 
Cash and cash equivalents ($253 and $230 related to VIEs, respectively)
$
328

 
$
260

Investment in marketable securities
584

 
960

Accounts receivable ($112 and $73 related to VIEs, respectively), less bad debt reserve of $21 and $19, respectively
958

 
1,000

Accrued unbilled revenues
207

 
427

Natural gas inventory
152

 
222

Materials and supplies
192

 
175

Non-trading derivative assets
74

 
110

Taxes receivable
39

 

Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively)
167

 
241

Total current assets
2,701

 
3,395

 
 
 
 
Property, Plant and Equipment:
 
 
 
Property, plant and equipment
19,585

 
19,031

Less: accumulated depreciation and amortization
6,188

 
5,974

Property, plant and equipment, net
13,397

 
13,057

 
 
 
 
Other Assets:
 
 
 
Goodwill
867

 
867

Regulatory assets ($1,293 and $1,590 related to VIEs, respectively)
2,067

 
2,347

Non-trading derivative assets
46

 
44

Investment in unconsolidated affiliate
2,451

 
2,472

Preferred units – unconsolidated affiliate
363

 
363

Other
216

 
191

Total other assets
6,010

 
6,284

 
 
 
 
Total Assets
$
22,108

 
$
22,736


See Combined 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

 
June 30,
2018
 
December 31,
2017
Current Liabilities:
 
 
 
Short-term borrowings
$

 
$
39

Current portion of VIE Securitization Bonds long-term debt
446

 
434

Indexed debt, net
26

 
122

Current portion of other long-term debt
50

 
50

Indexed debt securities derivative
641

 
668

Accounts payable
706

 
963

Taxes accrued
103

 
181

Interest accrued
118

 
104

Dividends accrued

 
120

Non-trading derivative liabilities
26

 
20

Due to ZENS note holders
382

 

Other
344

 
368

Total current liabilities
2,842

 
3,069

 
 
 
 
Other Liabilities:
 

 
 

Deferred income taxes, net
3,168

 
3,174

Non-trading derivative liabilities
12

 
4

Benefit obligations
723

 
785

Regulatory liabilities
2,521

 
2,464

Other
412

 
357

Total other liabilities
6,836

 
6,784

 
 
 
 
Long-term Debt:
 

 
 

VIE Securitization Bonds, net
1,193

 
1,434

Other long-term debt, net
6,567

 
6,761

Total long-term debt, net
7,760

 
8,195

 
 
 
 
Commitments and Contingencies (Note 14)


 


 
 
 
 
Shareholders’ Equity:
 

 
 

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

 

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 431,547,782 shares and 431,044,845 shares outstanding, respectively
4

 
4

Additional paid-in capital
4,215

 
4,209

Retained earnings
513

 
543

Accumulated other comprehensive loss
(62
)
 
(68
)
Total shareholders’ equity
4,670

 
4,688

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
22,108

 
$
22,736


See Combined 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)
 
Six Months Ended June 30,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Net income
$
90

 
$
327

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
656

 
480

Amortization of deferred financing costs
18

 
12

Deferred income taxes
(12
)
 
95

Unrealized gain on marketable securities
(23
)
 
(67
)
Loss on indexed debt securities
272

 
23

Write-down of natural gas inventory
1

 

Equity in earnings of unconsolidated affiliate, net of distributions
(9
)
 
(131
)
Pension contributions
(64
)
 
(18
)
Changes in other assets and liabilities, excluding acquisitions:
 
 
 
Accounts receivable and unbilled revenues, net
232

 
234

Inventory
52

 
(20
)
Taxes receivable
(39
)
 
30

Accounts payable
(246
)
 
(158
)
Fuel cost recovery
69

 
(12
)
Non-trading derivatives, net
64

 
(49
)
Margin deposits, net
(9
)
 
(43
)
Interest and taxes accrued
(64
)
 
(17
)
Net regulatory assets and liabilities
57

 
(34
)
Other current assets
(4
)
 
10

Other current liabilities
(13
)
 
(29
)
Other assets
(3
)
 
(1
)
Other liabilities
60

 
27

Other, net
8

 
18

Net cash provided by operating activities
1,093

 
677

Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(697
)
 
(649
)
Acquisitions, net of cash acquired

 
(132
)
Distributions from unconsolidated affiliate in excess of cumulative earnings
30

 
149

Proceeds from sale of marketable securities
398

 

Other, net
2

 
(8
)
Net cash used in investing activities
(267
)
 
(640
)
Cash Flows from Financing Activities:
 
 
 
Decrease in short-term borrowings, net
(39
)
 
(11
)
Proceeds from (payments of) commercial paper, net
(1,188
)
 
284

Proceeds from long-term debt, net
997

 
298

Payments of long-term debt
(230
)
 
(469
)
Debt issuance costs
(35
)
 
(6
)
Payment of dividends on common stock
(240
)
 
(230
)
Distribution to ZENS note holders
(16
)
 

Other, net
(5
)
 
(4
)
Net cash used in financing activities
(756
)
 
(138
)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
70

 
(101
)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
296

 
381

Cash, Cash Equivalents and Restricted Cash at End of Period
$
366

 
$
280



See Combined Notes to Unaudited Condensed Consolidated Financial Statements

5

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Millions of Dollars)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
Revenues
$
854

 
$
752

 
$
1,609

 
$
1,390

 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 

 
 

Operation and maintenance
351

 
343

 
693

 
684

Depreciation and amortization
262

 
180

 
495

 
332

Taxes other than income taxes
60

 
58

 
121

 
118

Total
673

 
581

 
1,309

 
1,134

Operating Income
181

 
171

 
300

 
256

 
 
 
 
 
 
 
 
Other Income (Expense):
 

 
 

 
 

 
 

Interest and other finance charges
(36
)
 
(32
)
 
(69
)
 
(65
)
Interest on Securitization Bonds
(14
)
 
(20
)
 
(30
)
 
(40
)
Other, net
(3
)
 
(2
)
 
(6
)
 
(6
)
Total
(53
)
 
(54
)
 
(105
)
 
(111
)
Income Before Income Taxes
128

 
117

 
195

 
145

Income tax expense
27

 
42

 
42

 
52

Net Income
$
101

 
$
75

 
$
153

 
$
93


See Combined Notes to Unaudited Condensed Consolidated Financial Statements


6

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Millions of Dollars)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
101

 
$
75

 
$
153

 
$
93

Other comprehensive income:
 
 
 
 
 
 
 
Net deferred gain (loss) from cash flow hedges (net of tax of $-0-, $-0-, $1 and $-0-)

 

 
4

 
(1
)
Total

 

 
4

 
(1
)
Comprehensive income
$
101

 
$
75

 
$
157

 
$
92


See Combined Notes to Unaudited Condensed Consolidated Financial Statements


7

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)

ASSETS
 
June 30,
2018
 
December 31,
2017
Current Assets:
 
 
 
Cash and cash equivalents ($253 and $230 related to VIEs, respectively)
$
253

 
$
238

Accounts and notes receivable ($112 and $73 related to VIEs, respectively), less bad debt reserve of $1 and $1, respectively
389

 
284

Accounts and notes receivable–affiliated companies
32

 
7

Accrued unbilled revenues
122

 
120

Materials and supplies
125

 
119

Taxes receivable
23

 

Prepaid expenses and other current assets ($37 and $35 related to VIEs, respectively)
59

 
62

Total current assets
1,003

 
830

 
 
 
 
Property, Plant and Equipment:
 
 
 
Property, plant and equipment
11,812

 
11,496

Less: accumulated depreciation and amortization
3,741

 
3,633

Property, plant and equipment, net
8,071

 
7,863

 
 
 
 
Other Assets:
 

 
 

Regulatory assets ($1,293 and $1,590 related to VIEs, respectively)
1,321

 
1,570

Other
35

 
29

Total other assets
1,356

 
1,599

 
 
 
 
Total Assets
$
10,430

 
$
10,292



See Combined Notes to Unaudited Condensed Consolidated Financial Statements


















8

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)

LIABILITIES AND MEMBERS EQUITY
 
June 30,
2018
 
December 31,
2017
Current Liabilities:
 

 
 

Current portion of VIE Securitization Bonds long-term debt
$
446

 
$
434

Accounts payable
208

 
243

Accounts and notes payable–affiliated companies
121

 
104

Taxes accrued
61

 
116

Interest accrued
75

 
65

Other
93

 
120

Total current liabilities
1,004

 
1,082

Other Liabilities:
 

 
 

Deferred income taxes, net
1,025

 
1,059

Benefit obligations
143

 
146

Regulatory liabilities
1,265

 
1,263

Other
56

 
54

Total other liabilities
2,489

 
2,522

Long-term Debt:
 

 
 

VIE Securitization Bonds, net
1,193

 
1,434

Other, net
3,280

 
2,885

Total long-term debt, net
4,473

 
4,319

 
 
 
 
Commitments and Contingencies (Note 14)

 

 
 
 
 
Member’s Equity:
 
 
 
Common stock

 

Paid-in capital
1,697

 
1,696

Retained earnings
763

 
673

Accumulated other comprehensive income
4

 

Total member’s equity
2,464

 
2,369

 
 
 
 
Total Liabilities and Member’s Equity
$
10,430

 
$
10,292



See Combined Notes to Unaudited Condensed Consolidated Financial Statements


9

Table of Contents

CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
(Unaudited)
 
Six Months Ended June 30,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Net income
$
153

 
$
93

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
495

 
332

Amortization of deferred financing costs
6

 
6

Deferred income taxes
(38
)
 
23

Changes in other assets and liabilities:
 

 
 

Accounts and notes receivable, net
(107
)
 
(63
)
Accounts receivable/payable–affiliated companies
78

 
(35
)
Inventory
(6
)
 
(1
)
Accounts payable
(6
)
 
57

Taxes receivable
(23
)
 
(38
)
Interest and taxes accrued
(45
)
 
(41
)
Net regulatory assets and liabilities
(59
)
 
(59
)
Other current assets
4

 
2

Other current liabilities
(11
)
 
(7
)
Other assets
2

 
4

Other liabilities
2

 
1

Other, net
(2
)
 
5

Net cash provided by operating activities
443

 
279

Cash Flows from Investing Activities:
 

 
 

Capital expenditures
(441
)
 
(414
)
Decrease (increase) in notes receivable–affiliated companies
(26
)
 
5

Other, net
(1
)
 
(9
)
Net cash used in investing activities
(468
)
 
(418
)
Cash Flows from Financing Activities:
 

 
 

Proceeds from long-term debt, net
398

 
298

Payments of long-term debt
(230
)
 
(219
)
Decrease in notes payable–affiliated companies
(60
)
 

Dividend to parent
(63
)
 
(42
)
Debt issuance costs
(4
)
 
(3
)
Other, net
1

 
1

Net cash provided by financing activities
42

 
35

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
17

 
(104
)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
274

 
381

Cash, Cash Equivalents and Restricted Cash at End of Period
$
291

 
$
277



See Combined Notes to Unaudited Condensed Consolidated Financial Statements


10

Table of Contents


CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Millions of Dollars)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Utility revenues
$
487

 
$
470

 
$
1,630

 
$
1,377

Non-utility revenues
841

 
917

 
2,098

 
2,103

Total
1,328

 
1,387

 
3,728

 
3,480

 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 

 
 

Utility natural gas
188

 
150

 
825

 
600

Non-utility natural gas
790

 
882

 
2,063

 
2,011

Operation and maintenance
217

 
190

 
455

 
405

Depreciation and amortization
72

 
68

 
145

 
134

Taxes other than income taxes
39

 
38

 
87

 
72

Total
1,306

 
1,328

 
3,575

 
3,222

Operating Income
22

 
59

 
153

 
258

 
 
 
 
 
 
 
 
Other Income (Expense):
 

 
 

 
 

 
 

Interest and other finance charges
(33
)
 
(31
)
 
(62
)
 
(60
)
Equity in earnings of unconsolidated affiliate, net
58

 
59

 
127

 
131

Other, net
(1
)
 
(4
)
 
(5
)
 
(9
)
Total
24

 
24

 
60

 
62

Income Before Income Taxes
46

 
83

 
213

 
320

Income tax expense
10

 
29

 
47

 
119

Net Income
$
36

 
$
54

 
$
166

 
$
201





See Combined Notes to Unaudited Condensed Consolidated Financial Statements



11

Table of Contents

CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Millions of Dollars)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income
$
36

 
$
54

 
$
166

 
$
201

Comprehensive income
$
36

 
$
54

 
$
166

 
$
201



See Combined Notes to Unaudited Condensed Consolidated Financial Statements


12

Table of Contents

CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
 
ASSETS
 
June 30,
2018
 
December 31,
2017
Current Assets:
 
 
 
Cash and cash equivalents
$
1

 
$
12

Accounts receivable, less bad debt reserve of $20 and $18, respectively
566

 
713

Accrued unbilled revenues
85

 
307

Accounts and notes receivable–affiliated companies
15

 
6

Materials and supplies
67

 
56

Natural gas inventory
152

 
222

Non-trading derivative assets
74

 
110

Prepaid expenses and other current assets
80

 
166

Total current assets
1,040

 
1,592

 
 
 
 
Property, Plant and Equipment:
 
 
 
Property, plant and equipment
7,104

 
6,888

Less: accumulated depreciation and amortization
2,136

 
2,036

Property, plant and equipment, net
4,968

 
4,852

 
 
 
 
Other Assets:
 

 
 

Goodwill
867

 
867

Regulatory assets
173

 
181

Non-trading derivative assets
46

 
44

Investment in unconsolidated affiliate
2,451

 
2,472

Other
97

 
104

Total other assets
3,634

 
3,668

 
 
 
 
Total Assets
$
9,642

 
$
10,112



See Combined Notes to Unaudited Condensed Consolidated Financial Statements


















13

Table of Contents


CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
 
LIABILITIES AND STOCKHOLDER’S EQUITY

 
June 30,
2018
 
December 31,
2017
Current Liabilities:
 

 
 

Short-term borrowings
$

 
$
39

Accounts payable
434

 
669

Accounts and notes payable–affiliated companies
36

 
611

Taxes accrued
48

 
75

Interest accrued
38

 
32

Customer deposits
75

 
76

Non-trading derivative liabilities
26

 
20

Other
152

 
137

Total current liabilities
809

 
1,659

 
 
 
 
Other Liabilities:
 

 
 

Deferred income taxes, net
1,330

 
1,289

Non-trading derivative liabilities
12

 
4

Benefit obligations
98

 
97

Regulatory liabilities
1,256

 
1,201

Other
352

 
297

Total other liabilities
3,048

 
2,888

 
 
 
 
Long-Term Debt
2,722

 
2,457

 
 
 
 
Commitments and Contingencies (Note 14)


 


 
 
 
 
Stockholder’s Equity:
 
 
 
Common stock

 

Paid-in capital
2,528

 
2,528

Retained earnings
529

 
574

Accumulated other comprehensive income
6

 
6

Total stockholder’s equity
3,063

 
3,108

 
 
 
 
Total Liabilities and Stockholder’s Equity
$
9,642

 
$
10,112



See Combined Notes to Unaudited Condensed Consolidated Financial Statements


14

Table of Contents

CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES
(AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CENTERPOINT ENERGY, INC.)
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
(Unaudited)
 
Six Months Ended June 30,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Net income
$
166

 
$
201

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
145

 
134

Amortization of deferred financing costs
4

 
4

Deferred income taxes
41

 
115

Write-down of natural gas inventory
1

 

Equity in earnings of unconsolidated affiliate, net of distributions
(9
)
 
(131
)
Changes in other assets and liabilities, excluding acquisitions:
 

 
 

Accounts receivable and unbilled revenues, net
339

 
295

Accounts receivable/payable–affiliated companies
(14
)
 
(1
)
Inventory
58

 
(18
)
Accounts payable
(248
)
 
(203
)
Fuel cost recovery
69

 
(12
)
Interest and taxes accrued
(21
)
 
(27
)
Non-trading derivatives, net
61

 
(49
)
Margin deposits, net
(9
)
 
(43
)
Net regulatory assets and liabilities
92

 
(1
)
Other current assets
7

 
12

Other current liabilities
8

 
(14
)
Other assets
4

 
5

Other liabilities
52

 
10

Other, net

 
1

Net cash provided by operating activities
746

 
278

Cash Flows from Investing Activities:
 

 
 

Capital expenditures
(230
)
 
(223
)
Distributions from unconsolidated affiliate in excess of cumulative earnings
30

 
149

Acquisitions, net of cash acquired

 
(132
)
Other, net
3

 
1

Net cash used in investing activities
(197
)
 
(205
)
Cash Flows from Financing Activities:
 

 
 

Decrease in short-term borrowings, net
(39
)
 
(11
)
Proceeds from (payments of) commercial paper, net
(333
)
 
149

Proceeds from long-term debt
599

 

Dividends to parent
(211
)
 
(248
)
Debt issuance costs
(5
)
 
(1
)
Decrease in notes payable–affiliated companies
(570
)
 

Contribution from parent

 
38

Other, net
(1
)
 

Net cash used in financing activities
(560
)
 
(73
)
Net Decrease in Cash and Cash Equivalents
(11
)
 

Cash and Cash Equivalents at Beginning of Period
12

 
1

Cash and Cash Equivalents at End of Period
$
1

 
$
1


See Combined Notes to Unaudited Condensed Consolidated Financial Statements


15

Table of Contents


CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CENTERPOINT ENERGY HOUSTON ELECTRIC, LLC AND SUBSIDIARIES
CENTERPOINT ENERGY RESOURCES CORP. AND SUBSIDIARIES

COMBINED NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Background and Basis of Presentation

No Registrant makes any representations as to the information related solely to CenterPoint Energy or the subsidiaries of CenterPoint Energy other than itself.

General. Included in this combined Form 10-Q are the Interim Condensed Financial Statements of CenterPoint Energy, Houston Electric and CERC, which are referred to collectively as the Registrants. The Combined Notes to the Unaudited Condensed Consolidated Financial Statements apply to all Registrants unless otherwise indicated. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with each of the Registrants’ 2017 Form 10-K.

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

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

CERC Corp. (i) owns and operates natural gas distribution systems in six states and (ii) obtains and offers competitive variable and fixed-price physical natural gas supplies and services primarily to commercial and industrial customers and electric and natural gas utilities in 33 states through its wholly-owned subsidiary, CES. As of June 30, 2018, CERC Corp. owned approximately 54.0% of the common units representing limited partner interests in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets.

As of June 30, 2018, CenterPoint Energy also owned an aggregate of 14,520,000 Series A Preferred Units in Enable.

As of June 30, 2018, CenterPoint Energy and Houston Electric had VIEs consisting of the Bond Companies, which are consolidated. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed specifically for the purpose of securitizing transition and system restoration-related property. Creditors of CenterPoint Energy and Houston Electric have no recourse to any assets or revenues of the Bond Companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property, and the bondholders have no recourse to the general credit of CenterPoint Energy or Houston Electric.

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

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

For a description of the Registrants’ reportable business segments, see Note 16.

16

Table of Contents


(2) New Accounting Pronouncements

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

 
January 1, 2018
 
Note 4 addresses the disclosure requirements. Adoption of the standard did not result in significant changes to revenue recognition. A substantial amount of the Registrants’ revenues are tariff and/or derivative based, which were not significantly impacted by these ASUs.
ASU 2017-05- Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
 
This standard clarifies when and how to apply ASC 610-20, which was issued as part of ASU 2014-09. It amends or supersedes the guidance in ASC 350 and ASC 360 on determining a gain or loss recognized upon the derecognition of nonfinancial assets.
Transition method: modified retrospective
 
January 1, 2018
 
ASU 2017-05 eliminates industry specific guidance, including ASC 360-20 Property, Plant, and Equipment - Real Estate Sales, for the recognition of gains or losses upon the sale of in-substance real estate. CenterPoint Energy and CERC elected to apply the practical expedient upon adoption to only evaluate transactions that were not determined to be complete as of the date of adoption. Subsequent to adoption, gains or losses on sales or dilution events in CenterPoint Energy’s or CERC’s investment in Enable may result in gains or losses recognized in earnings. See Note 9 for further discussion.
ASU 2016-01-Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

ASU 2018-03-Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
 
This standard requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value and to recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. It does not change the guidance for classifying and measuring investments in debt securities and loans. It also changes certain disclosure requirements and other aspects related to recognition and measurement of financial assets and financial liabilities.
Transition method: cumulative-effect adjustment to beginning retained earnings, and two features prospective
 
January 1, 2018
 
The adoption of this standard did not have an impact on the Registrants’ financial position, results of operations or cash flows. The Registrants elected the practicability exception for investments without a readily determinable fair value to be measured at cost. This includes the Series A Preferred Units in Enable, which were previously accounted for under the cost method. See Note 9 for further discussion.
ASU 2016-15- Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
 
This standard provides clarifying guidance on the classification of certain cash receipts and payments in the statement of cash flows and eliminates the variation in practice related to such classifications.
Transition method: retrospective
 
January 1, 2018
 
The adoption did not have a material impact on the Registrants’ financial position, results of operations or disclosures. However, CenterPoint Energy’s and Houston Electric’s Condensed Statements of Consolidated Cash Flows reflect an increase in investing activities and a corresponding decrease in operating activities of $1 million and $3 million for the six months ended June 30, 2018 and 2017, respectively, due to the requirement that cash proceeds from COLI policies be classified as cash inflows from investing activity.
ASU 2016-18- Statement of Cash Flows (Topic 230): Restricted Cash
 
This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet.
Transition method: retrospective
 
January 1, 2018
 
The adoption of this standard did not have an impact on the Registrants’ financial position, results of operations or disclosures. However, CenterPoint Energy’s and Houston Electric’s Condensed Statements of Consolidated Cash Flows are reconciled to cash, cash equivalents and restricted cash, resulting in a decrease in investing activities of $2 million and an increase in investing activities of $8 million for the six months ended June 30, 2018 and 2017, respectively.

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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 the Registrants’ accounting for future acquisitions.
ASU 2017-04- Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
 
This standard eliminates Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Transition method: prospective
 
January 1, 2018
 
The adoption of this standard will have an impact on CenterPoint Energy’s and CERC’s future calculation of goodwill impairments if an impairment is identified.
ASU 2017-07- Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
 
This standard requires an employer to report the service cost component of the net periodic pension cost and postretirement benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period; all other components will be presented separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. In addition, only the service cost component will be eligible for capitalization in assets.
Transition method: retrospective for the presentation of the service cost component and other components; prospective for the capitalization of the service cost component
 
January 1, 2018
 
The adoption of this standard did not have a material impact on the Registrants’ financial position, results of operations, cash flows or disclosures; however, it resulted in the increases to operating income and corresponding decreases to other income reported in the table below. Other components previously capitalized in assets will be recorded as regulatory assets in the Registrants’ rate-regulated businesses, prospectively.
ASU 2017-09- Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting
 
This standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes.
Transition method: prospective
 
January 1, 2018
 
The adoption of this standard will have an impact on CenterPoint Energy’s accounting for future changes to share-based payment awards.

The table below reflects the impact of adoption of ASU 2017-07:
 
Three Months Ended June 30,
 
2018
 
2017
 
CenterPoint Energy
 
Houston Electric
 
CERC
 
CenterPoint Energy
 
Houston Electric
 
CERC
 
(in millions)
Increase to operating income
$
15

 
$
8

 
$
4

 
$
17

 
$
7

 
$
6

Decrease to other income
15

 
8

 
4

 
17

 
7

 
6

 
Six Months Ended June 30,
 
2018
 
2017
 
CenterPoint Energy
 
Houston Electric
 
CERC
 
CenterPoint Energy
 
Houston Electric
 
CERC
 
(in millions)
Increase to operating income
$
29

 
$
15

 
$
8

 
$
34

 
$
15

 
$
11

Decrease to other income
29

 
15

 
8

 
34

 
15

 
11



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Issued, Not Yet Effective Accounting Standards
ASU Number and Name
 
Description
 
Date of Adoption
 
Financial Statement Impact
upon Adoption
ASU 2016-02- Leases (Topic 842) and related amendments



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

ASU 2018-01 allows entities to elect not to assess whether existing land easements that were not previously accounted for in accordance with ASC 840 Leases under ASC 842 Leases when transitioning to the new leasing standard.
 
January 1, 2019 Early adoption is permitted
 
The Registrants will elect the practical expedient on existing easements provided by ASU 2018-01 and are evaluating other available transitional practical expedients. The Registrants are in the process of reviewing contracts to identify leases as defined in ASU 2016-02 and expect to recognize on the statements of financial position right-of-use assets and lease liabilities for the majority of their respective leases that are currently classified as operating leases. The Registrants are continuing to assess the impact that adoption of these standards will have on their financial position, results of operations, cash flows and disclosures.
ASU 2017-12- Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
 
This standard expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness, eases certain documentation and assessment requirements and updates the presentation and disclosure requirements.
Transition method: cumulative-effect adjustment for elimination of the separate measurement of ineffectiveness; prospective for presentation and disclosure
 
January 1, 2019 Early adoption is permitted
 
The Registrants are currently assessing the impact that adoption of this standard will have on their financial position, results of operations, cash flows and disclosures.
ASU 2018-02-Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
 
This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA and requires entities to provide certain disclosures regarding stranded tax effects.
Transition method: either in the period of adoption or retrospective
 
January 1, 2019
Early adoption is permitted
 
The adoption of this standard will allow the Registrants to reclass stranded deferred tax adjustments primarily related to benefit plans from other comprehensive income to retained earnings. The Registrants are currently assessing the impact that adoption of this standard will have on their financial position and disclosures.

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

(3) Proposed Merger with Vectren (CenterPoint Energy)

On April 21, 2018, CenterPoint Energy entered into the Merger Agreement. Under the terms of the Merger Agreement, CenterPoint Energy will acquire Vectren for approximately $6 billion in cash. Upon closing, Vectren will become a wholly-owned subsidiary of CenterPoint Energy.

Pursuant to the Merger Agreement, upon the closing of the Merger, each share of Vectren common stock issued and outstanding immediately prior to the closing will be converted automatically into the right to receive $72.00 in cash per share. CenterPoint Energy expects to finance the Merger with a combination of debt, equity-linked and equity issuances and has obtained commitments by lenders for a Bridge Facility to provide flexibility for the timing of the long-term acquisition financing and fund, in part, amounts payable by CenterPoint Energy in connection with the Merger. All outstanding debt held by Vectren and its subsidiaries will be assumed by CenterPoint Energy at the closing of the Merger. As of June 30, 2018, Vectren and its subsidiaries had outstanding $248 million of short-term debt and $2.0 billion of long-term debt, including current maturities. It is anticipated that Vectren and its subsidiaries will have approximately $2.5 billion of outstanding short-term and long-term debt as of December 31, 2018.

Consummation of the Merger is conditioned upon approval by federal regulatory commissions, orders from state regulatory commissions, expiration or termination of the applicable HSR waiting period and approval of the Merger by Vectren shareholders. In June 2018, CenterPoint Energy and Vectren (i) submitted their filings with the FERC and the FCC and pursuant to the HSR Act and (ii) initiated informational proceedings with regulators in Indiana and Ohio. On June 26, 2018, CenterPoint Energy and Vectren received notice from the FTC granting early termination of the waiting period under the HSR Act in connection with the Merger. On July 16, 2018, Vectren filed its definitive proxy statement, as supplemented, with the SEC for a special meeting of its shareholders to be held on August 28, 2018 in connection with the Merger.

The Merger Agreement contains termination rights for both CenterPoint Energy and Vectren, and provides that, upon termination of the Merger Agreement under specified circumstances, CenterPoint Energy would be required to pay a termination fee of $210 million to Vectren and Vectren would be required to pay CenterPoint Energy a termination fee of $150 million. Subject

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to receipt of required regulatory and statutory approvals and satisfaction and/or waiver of the closing conditions, CenterPoint Energy continues to anticipate closing the Merger in the first quarter of 2019.

(4) Revenue Recognition

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

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

The following tables disaggregate revenues by reportable business segment and major source:

CenterPoint Energy
 
 
Three Months Ended June 30,
 
 
2018
 
2017
 
 
Electric Transmission & Distribution (1)
 
Natural Gas Distribution (1)