CenterPoint Energy, Inc.
CENTERPOINT ENERGY INC (Form: 10-Q, Received: 11/06/2013 08:16:41)

 
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 SEPTEMBER 30, 2013
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, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting 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
 
 
(Do not check if a smaller reporting company)
 
 
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 October 18, 2013 , CenterPoint Energy, Inc. had 428,640,167 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 SEPTEMBER 30, 2013

TABLE OF CONTENTS

PART I.
 
FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
Three and Nine Months Ended September 30, 2012 and 2013 (unaudited)
 
 
 
 
 
 
 
 
 
Three and Nine Months Ended September 30, 2012 and 2013 (unaudited)
 
 
 
 
 
 
 
 
 
December 31, 2012 and September 30, 2013 (unaudited)
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2012 and 2013 (unaudited)
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
 
OTHER INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 


i


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,” “will” or other similar words.

We have based our forward-looking statements on our management’s beliefs and assumptions based on information 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 materially from those expressed or implied in forward-looking statements:

state and federal legislative and regulatory actions or developments affecting various aspects of our businesses (including the businesses of Enable Midstream Partners, LP (Enable), our midstream partnership with OGE Energy Corp. (OGE) and affiliates of ArcLight Capital Partners, LLC (ArcLight)), including, among others, energy deregulation or re-regulation, pipeline integrity and safety, health care reform, financial reform, tax legislation and actions regarding the rates charged by our regulated businesses;

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

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

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

problems with 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;

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

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

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

any direct or indirect effects on our 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;

the impact of unplanned facility outages;

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

changes in interest rates or rates of inflation;

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;

actions by credit rating agencies;

effectiveness of our risk management activities;

inability of various counterparties to meet their obligations to us;

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

the ability of GenOn Energy, Inc. (formerly known as RRI Energy, Inc., Reliant Energy, Inc. and Reliant Resources, Inc.), a wholly owned subsidiary of NRG Energy, Inc. (NRG), and its subsidiaries to satisfy their obligations to us, including indemnity obligations, or obligations in connection with the contractual arrangements pursuant to which we are their guarantor;

ii



the ability of retail electric providers (REPs), including REP affiliates of NRG and Energy Future Holdings Corp., which are CenterPoint Energy Houston Electric, LLC’s two largest customers, to satisfy their obligations to us and our subsidiaries;

the outcome of litigation brought by or against us;

our ability to control costs;

the investment performance of our pension and postretirement benefit plans;

our potential business strategies, including restructurings, joint ventures and acquisitions or dispositions of assets or businesses, which we cannot assure you will be completed or will have the anticipated benefits to us;

acquisition and merger activities involving us or our competitors;

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

the performance of Enable, the amount of cash distributions we receive from Enable, and the value of our interest in Enable, and factors that may have a material impact on such performance, cash distributions and value, including certain of the factors specified above and:

the integration of the operations of the businesses we contributed to Enable with those contributed by OGE and ArcLight;

the achievement of anticipated operational and commercial synergies and expected growth opportunities, and the successful implementation of its business plan;

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 commodity prices, particularly 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 natural gas, NGLs and transportation and storage services;

changes in tax status;

access to growth capital;

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

the timing and terms of Enable’s planned initial public offering, the actual consummation of which is subject to market conditions, regulatory requirements and other factors; and
other factors we discuss in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012 , which is incorporated herein by reference, in Item 1A of Part II of our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2013, which are incorporated herein by reference, in Item 1A of Part II of this Quarterly Report on Form 10-Q and other reports we file from time to time with the Securities and Exchange Commission.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement.

iii

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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2013
 
2012
 
2013
 
 
 
 
 
 
 
 
Revenues
$
1,705

 
$
1,640

 
$
5,314

 
$
5,922

 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 

 
 

Natural gas
520

 
595

 
1,898

 
2,671

Natural gas - affiliates

 
42

 

 
70

Operation and maintenance
458

 
422

 
1,364

 
1,352

Depreciation and amortization
301

 
248

 
800

 
741

Taxes other than income taxes
86

 
89

 
272

 
289

Goodwill impairment
252

 

 
252

 

Total
1,617

 
1,396

 
4,586

 
5,123

Operating Income
88

 
244

 
728

 
799

 
 
 
 
 
 
 
 
Other Income (Expense):
 

 
 

 
 

 
 

Gain on marketable securities
77

 
54

 
136

 
158

Loss on indexed debt securities
(52
)
 
(42
)
 
(76
)
 
(120
)
Interest and other finance charges
(104
)
 
(86
)
 
(318
)
 
(269
)
Interest on transition and system restoration bonds
(37
)
 
(32
)
 
(112
)
 
(101
)
Equity in earnings of unconsolidated affiliates, net
8

 
80

 
25

 
122

Step acquisition gain
136

 

 
136

 

Other, net
12

 
11

 
28

 
17

Total
40

 
(15
)
 
(181
)
 
(193
)
 
 
 
 
 
 
 
 
Income Before Income Taxes
128

 
229

 
547

 
606

Income tax expense
118

 
78

 
264

 
408

Net Income
$
10

 
$
151

 
$
283

 
$
198

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
0.02

 
$
0.35

 
$
0.66

 
$
0.46

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
0.02

 
$
0.35

 
$
0.66

 
$
0.46

 
 
 
 
 
 
 
 
Dividends Declared Per Share
$
0.2025

 
$
0.2075

 
$
0.6075

 
$
0.6225

 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding, Basic
427

 
429

 
427

 
428

 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding, Diluted
430

 
431

 
430

 
431


See Notes to Interim 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2013
 
2012
 
2013
Net income
$
10

 
$
151

 
$
283

 
$
198

Other comprehensive income:
 

 
 

 
 

 
 

Adjustment related to pension and other postretirement plans (net of tax of $2, $2, $6 and $5)
3

 
3

 
8

 
8

Total
3

 
3

 
8

 
8

Comprehensive income
$
13

 
$
154

 
$
291

 
$
206



See Notes to Interim Condensed Consolidated Financial Statements


2

Table of Contents


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

ASSETS

 
December 31,
2012
 
September 30,
2013
Current Assets:
 
 
 
Cash and cash equivalents ($266 and $154 related to VIEs at December 31, 2012 and September 30, 2013, respectively)
$
646

 
$
219

Investment in marketable securities
540

 
689

Accounts receivable, net ($68 and $77 related to VIEs at December 31, 2012 and September 30, 2013, respectively)
768

 
617

Accrued unbilled revenues
339

 
170

Accounts receivable - affiliated companies

 
23

Natural gas inventory
145

 
237

Materials and supplies
177

 
137

Non-trading derivative assets
36

 
26

Taxes receivable
7

 
89

Prepaid expenses and other current assets ($54 and $44 related to VIEs at December 31, 2012 and September 30, 2013, respectively)
216

 
112

Total current assets
2,874

 
2,319

 
 
 
 
Property, Plant and Equipment:
 

 
 

Property, plant and equipment
18,377

 
13,909

Less accumulated depreciation and amortization
4,780

 
4,523

Property, plant and equipment, net
13,597

 
9,386

 
 
 
 
Other Assets:
 

 
 

Goodwill
1,468

 
840

Regulatory assets ($3,545 and $3,253 related to VIEs at December 31, 2012 and September 30, 2013, respectively)
4,324

 
3,992

Notes receivable - affiliated companies

 
363

Non-trading derivative assets
6

 
10

Investment in unconsolidated affiliates
405

 
4,525

Other
197

 
140

Total other assets
6,400

 
9,870

 
 
 
 
Total Assets
$
22,871

 
$
21,575


See Notes to Interim 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

 
December 31,
2012
 
September 30,
2013
Current Liabilities:
 
 
 
Short-term borrowings
$
38

 
$
70

Current portion of VIE transition and system restoration bonds long-term debt
447

 
353

Current portion of indexed debt
138

 
141

Current portion of other long-term debt
815

 
59

Indexed debt securities derivative
268

 
382

Accounts payable
561

 
364

Accounts payable - affiliated companies

 
22

Taxes accrued
160

 
130

Interest accrued
150

 
100

Non-trading derivative liabilities
14

 
6

Accumulated deferred income taxes, net
604

 
625

Other
380

 
343

Total current liabilities
3,575

 
2,595

 
 
 
 
 
 
 
 
Other Liabilities:
 

 
 

Accumulated deferred income taxes, net
4,153

 
4,504

Non-trading derivative liabilities
2

 
1

Benefit obligations
1,143

 
1,052

Regulatory liabilities
1,093

 
1,153

Other
247

 
251

Total other liabilities
6,638

 
6,961

 
 
 
 
Long-term Debt:
 

 
 

VIE transition and system restoration bonds
3,400

 
3,106

Other
4,957

 
4,652

Total long-term debt
8,357

 
7,758

 
 
 
 
Commitments and Contingencies (Note 12)


 


 
 
 
 
Shareholders’ Equity:
 

 
 

Common stock (427,599,564 shares and 428,640,167 shares outstanding at December 31, 2012 and September 30, 2013, respectively)
4

 
4

Additional paid-in capital
4,130

 
4,151

Retained earnings
302

 
233

Accumulated other comprehensive loss
(135
)
 
(127
)
Total shareholders’ equity
4,301

 
4,261

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
22,871

 
$
21,575


See Notes to Interim Condensed Consolidated Financial Statements

4

Table of Contents

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

 
Nine Months Ended September 30,
 
2012
 
2013
Cash Flows from Operating Activities:
 
 
 
Net income
$
283

 
$
198

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
800

 
741

Amortization of deferred financing costs
23

 
23

Deferred income taxes
237

 
356

Goodwill impairment
252

 

Step acquisition gain
(136
)
 

Unrealized gain on marketable securities
(136
)
 
(158
)
Unrealized loss on indexed debt securities
76

 
120

Write-down of natural gas inventory
4

 
4

Equity in earnings of unconsolidated affiliates, net of distributions
(6
)
 
(65
)
Pension contributions
(80
)
 
(89
)
Changes in other assets and liabilities:
 
 
 
Accounts receivable and unbilled revenues, net
260

 
173

Inventory
(3
)
 
(111
)
Taxes receivable
(5
)
 
(53
)
Accounts payable
(186
)
 
(151
)
Fuel cost recovery
(72
)
 
105

Non-trading derivatives, net
16

 
(6
)
Margin deposits, net
49

 
5

Interest and taxes accrued
(71
)
 
(66
)
Net regulatory assets and liabilities
71

 
78

Other current assets
(12
)
 
21

Other current liabilities
(23
)
 
(40
)
Other assets
(4
)
 
(2
)
Other liabilities
32

 
36

Other, net
10

 
13

Net cash provided by operating activities
1,379

 
1,132

 
 
 
 
Cash Flows from Investing Activities:
 

 
 

Capital expenditures
(818
)
 
(912
)
Acquisitions, net of cash acquired
(360
)
 

Decrease (increase) in restricted cash of transition and system restoration bond companies
(12
)
 
13

Distributions from unconsolidated affiliates
6

 

Cash contribution to Enable

 
(38
)
Proceeds from sale of marketable securities

 
9

Other, net
(25
)
 
2

Net cash used in investing activities
(1,209
)
 
(926
)
 
 
 
 
Cash Flows from Financing Activities:
 

 
 

Increase (decrease) in short-term borrowings, net
(9
)
 
32

Payments of commercial paper, net
(285
)
 

Proceeds from long-term debt
2,495

 
1,050

Payments of long-term debt
(1,528
)
 
(1,455
)
Cash paid for debt exchange and debt retirement
(69
)
 

Debt issuance costs
(16
)
 
(4
)
Redemption of indexed debt securities

 
(8
)
Payment of common stock dividends
(259
)
 
(267
)
Proceeds from issuance of common stock, net
3

 
2

Other, net

 
17

Net cash provided by (used in) financing activities
332

 
(633
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
502

 
(427
)
Cash and Cash Equivalents at Beginning of Period
220

 
646

Cash and Cash Equivalents at End of Period
$
722

 
$
219

See Notes to Interim Condensed Consolidated Financial Statements


5

Table of Contents



CENTERPOINT ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS, cont.
(In Millions)
(Unaudited)
 
Nine Months Ended September 30,
 
2012
 
2013
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 

 
 

Cash Payments:
 

 
 

Interest, net of capitalized interest
$
446

 
$
394

Income taxes, net
46

 
77

Non-cash transactions:
 
 
 
Accounts payable related to capital expenditures
100

 
83

See Notes to Interim Condensed Consolidated Financial Statements


6

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 Quarterly Report on Form 10-Q (Form 10-Q) of CenterPoint Energy, Inc. are the condensed consolidated interim financial statements and notes (Interim Condensed Financial Statements) of CenterPoint Energy, Inc. and its subsidiaries (collectively, CenterPoint Energy). The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the Annual Report on Form 10-K of CenterPoint Energy for the year ended December 31, 2012 (CenterPoint Energy 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 facilities and natural gas distribution facilities and own an interest in Enable Midstream Partners, LP (Enable) as described below. As of September 30, 2013 , CenterPoint Energy’s indirect wholly owned subsidiaries included:

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

CenterPoint Energy Resources Corp. (CERC Corp. and, together with its subsidiaries, CERC), which owns and operates natural gas distribution systems (Gas Operations). A wholly owned subsidiary of CERC Corp. offers variable and fixed-price physical natural gas supplies primarily to commercial and industrial customers and electric and gas utilities. CERC Corp. also owns approximately 58.3% of the limited partner interests in Enable, which owns and operates interstate pipelines and natural gas gathering, processing and treating facilities.

On March 14, 2013, CenterPoint Energy entered into a Master Formation Agreement (MFA) with OGE Energy Corp. (OGE) and affiliates of ArcLight Capital Partners, LLC (ArcLight), pursuant to which CenterPoint Energy, OGE and ArcLight agreed to form Enable as a private limited partnership. On May 1, 2013, the parties closed on the formation of Enable. In connection with the closing (i) CERC Corp. converted its direct wholly owned subsidiary, CenterPoint Energy Field Services, LLC, a Delaware limited liability company (CEFS), into a Delaware limited partnership that became Enable, (ii) CERC Corp. contributed to Enable its equity interests in each of CenterPoint Energy Gas Transmission Company, LLC, which has been subsequently renamed Enable Gas Transmission, LLC (EGT), CenterPoint Energy - Mississippi River Transmission, LLC, which has been subsequently renamed Enable Mississippi River Transmission, LLC (MRT), certain of its other midstream subsidiaries (Other CNP Midstream Subsidiaries), and a 24.95% interest in Southeast Supply Header, LLC (SESH and, collectively with CEFS, EGT, MRT and Other CNP Midstream Subsidiaries, CenterPoint Midstream), and (iii) OGE and ArcLight indirectly contributed 100% of the equity interests in Enogex LLC, which has been subsequently renamed Enable Oklahoma Intrastate Transmission, LLC (Enogex), to Enable.

CERC Corp., OGE and ArcLight hold approximately 58.3% , 28.5% and 13.2% , respectively, of the limited partner interests in Enable. Enable is equally controlled by CERC Corp. and OGE; each own 50% of the management rights in the general partner of Enable. CERC Corp. and OGE will also own a 40% and 60% interest, respectively, in any incentive distribution rights to be held by the general partner of Enable following an initial public offering. The general partner of Enable is governed by a board of directors made up of an equal number of representatives designated by each of CERC Corp. and OGE. See Note 7 for further discussion on the formation of Enable. The investment in Enable is accounted for utilizing the equity method of accounting. See Notes 7 and 14 below.

As of September 30, 2013 , CenterPoint Energy had four variable interest entities (VIEs) consisting of transition and system restoration 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 property. Creditors of CenterPoint Energy have no recourse to any assets or revenues of the transition and system restoration 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.

Additionally, as of September 30, 2013, CenterPoint Energy determined that Enable was a VIE; however, CenterPoint Energy is not the primary beneficiary and as such, this entity is not consolidated. See Note 7 for further discussion.

Basis of Presentation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets

7


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 14.

(2)
New Accounting Pronouncements

I n February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (ASU 2013-02).   The objective of ASU 2013-02 is to improve the transparency of changes in other comprehensive income and items reclassified out of Accumulated Other Comprehensive Income in financial statements.  This new guidance is effective for a reporting entity's first reporting period beginning after December 15, 2012 and should be applied prospectively.  CenterPoint Energy's adoption of this new guidance on January 1, 2013 did not have a material impact on its financial position, results of operations or cash flows.

In December 2011 and January 2013, the FASB issued Accounting Standards Update No. 2011-11, “Disclosures About Offsetting Assets and Liabilities” (ASU 2011-11) and No. 2013-01, “Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities” (ASU 2013-01), respectively.  The objective of ASU 2011-11 is to enhance disclosures about the nature of an entity's rights of setoff and related arrangements associated with its financial instruments and derivative instruments.  The objective of ASU 2013-01 is to clarify which instruments and transactions are subject to ASU 2011-11.  Both ASU 2011-11 and ASU 2013-01 are effective for a reporting entity's first reporting period beginning on or after January 1, 2013 and should be applied retrospectively. CenterPoint Energy's adoption of this new guidance on January 1, 2013 did not have a material impact on its financial position, results of operations or cash flows.

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

(3)
Employee Benefit Plans

CenterPoint Energy’s net periodic cost includes the following components relating to pension and postretirement benefits:
 
Three Months Ended September 30,
 
2012
 
2013
 
Pension
Benefits   (1)
 
Postretirement
Benefits
 
Pension
Benefits   (1)
 
Postretirement
Benefits
 
(in millions)
Service cost
$
9

 
$

 
$
11

 
$

Interest cost
25

 
6

 
22

 
5

Expected return on plan assets
(30
)
 
(1
)
 
(33
)
 
(1
)
Amortization of prior service credit
2

 

 
3

 
1

Amortization of net loss
15

 
1

 
15

 
2

Amortization of transition obligation

 
2

 

 
1

Net periodic cost
$
21

 
$
8

 
$
18

 
$
8


8


 
Nine Months Ended September 30,
 
2012
 
2013
 
Pension
Benefits   (1)
 
Postretirement
Benefits
 
Pension
Benefits   (1)
 
Postretirement
Benefits
 
(in millions)
Service cost
$
27

 
$
1

 
$
33

 
$
1

Interest cost
74

 
18

 
68

 
15

Expected return on plan assets
(90
)
 
(5
)
 
(101
)
 
(5
)
Amortization of prior service credit
6

 
2

 
7

 
1

Amortization of net loss
45

 
3

 
47

 
5

Amortization of transition obligation

 
5

 

 
5

Net periodic cost
$
62

 
$
24

 
$
54

 
$
22

________________
(1)
Net periodic cost in these tables is before considering amounts subject to overhead allocations for capital expenditure projects or for amounts subject to deferral for regulatory purposes.  

CenterPoint Energy's changes in accumulated comprehensive loss related to defined benefit and postretirement plans are as follows:
 
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2013
 
 
Pension and Postretirement Plans
 
 
(in millions)
Beginning Balance
 
$
(127
)
 
$
(132
)
Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
     Prior service cost (1)
 
1

 
2

     Actuarial gains (1)
 
4

 
11

Total reclassifications from accumulated other comprehensive income
 
5

 
13

Tax expense
 
(2
)
 
(5
)
Net current period other comprehensive income
 
3

 
8

Ending Balance
 
$
(124
)
 
$
(124
)
________________
(1)
These accumulated other comprehensive components are included in the computation of net periodic cost.

CenterPoint Energy expects to contribute a total of approximately $92 million to its pension plans in 2013, of which approximately $52 million and $89 million , respectively, was contributed during the three and nine months ended September 30, 2013 .

CenterPoint Energy expects to contribute a total of approximately $17 million to its postretirement benefits plan in 2013, of which approximately $4 million and $12 million , respectively, was contributed during the three and nine months ended September 30, 2013 .

(4)
Regulatory Accounting

As of September 30, 2013 , CenterPoint Energy has not recognized an allowed equity return of $518 million because such return will be recognized as it is recovered in rates. During the three months ended September 30, 2012 and 2013 , CenterPoint Houston recognized approximately $16 million and $15 million , respectively, of the allowed equity return not previously recognized. During the nine months ended September 30, 2012 and 2013 , CenterPoint Houston recognized approximately $37 million and $35 million , respectively, of the allowed equity return not previously recognized.

(5)
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 and weather on its operating results and cash flows. Such derivatives are recognized

9


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 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 all 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 risk management policies 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 manage physical commodity price risks and does not engage in proprietary or speculative commodity trading.  These 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 its gas operations in Arkansas, Louisiana, Mississippi and Oklahoma. Gas operations in Texas and Minnesota and electric operations in Texas do not have such mechanisms. As a result, fluctuations from normal weather may have a significant positive or negative effect on Gas Operations’ results in these jurisdictions and on CenterPoint Houston’s results in its service territory.

In 2012 and 2013, CenterPoint Energy entered into heating-degree day swaps for certain Gas Operations jurisdictions to mitigate the effect of fluctuations from normal weather on its results of operations and cash flows for the winter heating season. In 2013, CenterPoint Energy also entered into a similar winter weather hedge for the CenterPoint Houston service territory. The swaps are based on ten -year normal weather. During both the three months ended September 30, 2012 and 2013 , CenterPoint Energy recognized gains of $-0- related to these swaps. During the nine months ended September 30, 2012 and 2013 , CenterPoint Energy recognized gains of $6 million and losses of $6 million , respectively, related to these swaps. Weather hedge gains and losses are included in revenues in the Condensed Statements of Consolidated Income.

(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 as of December 31, 2012 and September 30, 2013 , while the last two tables provide a breakdown of the related income statement impacts for the three and nine months ended September 30, 2012 and 2013 .
Fair Value of Derivative Instruments
 
 
 
 
December 31, 2012
Total derivatives not designated
as hedging instruments
 
Balance Sheet
Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
 
 
 
(in millions)
Natural gas derivatives (1) (2)
 
Current Assets: Non-trading derivative assets
 
$
37

 
$
1

Natural gas derivatives (1) (2)
 
Other Assets: Non-trading derivative assets
 
6

 

Natural gas derivatives (1) (2)
 
Current Liabilities: Non-trading derivative liabilities
 
5

 
27

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

 
4

Indexed debt securities derivative
 
Current Liabilities
 

 
268

Total                                                                          
 
$
49

 
$
300

 ________________
(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 489 billion cubic feet (Bcf) or a net 101  Bcf long position.  Of the net long position, basis swaps constitute 73  Bcf.
 
(2)
Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets. Natural gas contracts are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes

10


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 derivative assets and liabilities was a $26 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 offset by collateral netting of $9 million :
Offsetting of Natural Gas Derivative Assets and Liabilities
 
 
December 31, 2012
 
 
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
 
$
42

 
$
(6
)
 
$
36

Other Assets: Non-trading derivative assets
 
7

 
(1
)
 
6

Current Liabilities: Non-trading derivative liabilities
 
(28
)
 
14

 
(14
)
Other Liabilities: Non-trading derivative liabilities
 
(4
)
 
2

 
(2
)
Total
 
$
17

 
$
9

 
$
26

________________
(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 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
 
 
 
 
September 30, 2013
Total derivatives not designated
as hedging instruments
 
Balance Sheet
Location
 
Derivative
Assets
Fair Value
 
Derivative
Liabilities
Fair Value
 
 
 
 
(in millions)
Natural gas derivatives (1) (3)
 
Current Assets: Non-trading derivative assets
 
$
26

 
$

Natural gas derivatives (1) (3)
 
Other Assets: Non-trading derivative assets
 
10

 

Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
8

 
17

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

 
4

Indexed debt securities derivative
 
Current Liabilities
 

 
382

Total                                                                          
 
$
44

 
$
403

 ________________
(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 607  Bcf or a net 24  Bcf long position.  Of the net long position, basis swaps constitute 89  Bcf.

(2)
The $17 million Derivative Current Liability includes $2 million related to physical forwards purchased from Enable.

(3)
Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets. Natural gas contracts 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 derivative assets and liabilities was a $29 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 offset by collateral netting of $6 million :

11


Offsetting of Natural Gas Derivative Assets and Liabilities
 
 
September 30, 2013
 
 
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
 
$
34

 
$
(8
)
 
$
26

Other Assets: Non-trading derivative assets
 
10

 

 
10

Current Liabilities: Non-trading derivative liabilities
 
(17
)
 
11

 
(6
)
Other Liabilities: Non-trading derivative liabilities
 
(4
)
 
3

 
(1
)
Total
 
$
23

 
$
6

 
$
29

________________
(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 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.

For CenterPoint Energy’s price stabilization activities of the Natural Gas Distribution business segment, the settled costs of derivatives are ultimately recovered through purchased gas adjustments. Accordingly, the net unrealized gains and losses associated with these contracts are recorded as net regulatory assets. Realized and unrealized gains and losses on other derivatives are recognized in the Condensed Statements of Consolidated Income as revenue for physical natural gas sales derivative contracts and as natural gas expense for financial natural gas derivatives and other physical natural gas derivatives. Unrealized gains and losses on indexed debt securities are recorded as Other Income (Expense) in the Condensed Statements of Consolidated Income.
Income Statement Impact of Derivative Activity
 
 
 
 
Three Months Ended September 30,
Total derivatives not designated
as hedging instruments
 
Income Statement Location
 
2012
 
2013
 
 
 
 
(in millions)
Natural gas derivatives
 
Gains (Losses) in Revenue
 
$
(21
)
 
$
11

Natural gas derivatives (1)
 
Gains (Losses) in Expense: Natural Gas
 
24

 
(2
)
Indexed debt securities derivative
 
Gains (Losses) in Other Income (Expense)
 
(52
)
 
(42
)
Total
 
$
(49
)
 
$
(33
)
Income Statement Impact of Derivative Activity
 
 
 
 
Nine Months Ended September 30,
Total derivatives not designated
as hedging instruments
 
Income Statement Location
 
2012
 
2013
 
 
 
 
(in millions)
Natural gas derivatives
 
Gains (Losses) in Revenue
 
$
22

 
$
24

Natural gas derivatives (1) (2)
 
Gains (Losses) in Expense: Natural Gas
 
(44
)
 
(3
)
Indexed debt securities derivative
 
Gains (Losses) in Other Income (Expense)
 
(76
)
 
(120
)
Total
 
$
(98
)
 
$
(99
)
 ________________
(1)
The Gains (Losses) in Expense: Natural Gas includes $-0- during the three months ended September 30, 2013 and $(3) million during the nine months ended September 30, 2013 related to physical forwards purchased from Enable.

(2)
The Gains (Losses) in Expense: Natural Gas includes $(38) million and $-0- of costs during the nine months ended September 30, 2012 and 2013 , respectively, associated with price stabilization activities of the Natural Gas Distribution business segment that will be ultimately recovered through purchased gas adjustments.

12



(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 Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc. 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 at December 31, 2012 and September 30, 2013 was $5 million and $3 million , respectively.  The aggregate fair value of assets that were posted as collateral was less than $1 million at both December 31, 2012 and September 30, 2013 .  If all derivative contracts (in a net liability position) containing credit risk contingent features were triggered at December 31, 2012 and September 30, 2013 , $5 million and $3 million , respectively, of additional assets would be required to be posted as collateral.

(6)
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.

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. Currently, CenterPoint Energy’s Level 3 assets and liabilities are comprised of physical forward contracts and options. Level 3 physical forward contracts are valued using a discounted cash flow model which includes illiquid forward price curve locations (ranging from $2.85 to $4.48 per one million British thermal units) as an unobservable input. Level 3 options are valued through Black-Scholes (including forward start) option models which include option volatilities (ranging from 0 to 52% ) as an unobservable input.  CenterPoint Energy’s Level 3 derivative assets and liabilities consist of both long and short positions (forwards and options) and their fair value is sensitive to forward prices and volatilities. If forward prices decrease, CenterPoint Energy’s long forwards lose value whereas its short forwards gain in value.  If volatility decreases, CenterPoint Energy’s long options lose value whereas its short options gain in value.

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 nine months ended September 30, 2013 , there were no transfers between Level 1 and 2 with regard to Natural Gas derivatives. CenterPoint Energy also recognizes purchases of Level 3 financial assets and liabilities at their fair market value at the end of the reporting period.


13


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 as of December 31, 2012 and September 30, 2013 , and indicate the fair value hierarchy of the valuation techniques utilized by CenterPoint Energy to determine such fair value.
 
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
as of
December 31, 2012
 
 
 
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Corporate equities
$
542

 
$

 
$

 
$

 
$
542

Investments, including money
market funds
76

 

 

 

 
76

Natural gas derivatives
1

 
40

 
7

 
(6
)
 
42

Total assets
$
619

 
$
40

 
$
7

 
$
(6
)
 
$
660

Liabilities
 

 
 

 
 

 
 

 
 

Indexed debt securities derivative
$

 
$
268

 
$

 
$

 
$
268

Natural gas derivatives
5

 
21

 
5

 
(15
)
 
16

Total liabilities
$
5

 
$
289

 
$
5

 
$
(15
)
 
$
284

 ________________
(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 $9 million posted with the same counterparties.

 
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
as of
September 30, 2013
 
 
 
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Corporate equities
$
691

 
$

 
$

 
$

 
$
691

Investments, including money
market funds
65

 

 

 

 
65

Natural gas derivatives
4

 
33

 
7

 
(8
)
 
36

Total assets
$
760

 
$
33

 
$
7

 
$
(8
)
 
$
792

Liabilities
 

 
 

 
 

 
 

 
 

Indexed debt securities derivative
$

 
$
382

 
$

 
$

 
$
382

Natural gas derivatives (2)
4

 
15

 
2

 
(14
)
 
7

Total liabilities
$
4

 
$
397

 
$
2

 
$
(14
)
 
$
389

 ________________
(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 $6 million posted with the same counterparties.

(2)
The (Level 2) Natural gas derivative liability of $15 million includes $2 million related to physical forwards purchased from Enable.


14


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 September 30,
 
Nine Months Ended September 30,
 
2012
 
2013
 
2012
 
2013
 
(in millions)
Beginning balance
$
3

 
$
4

 
$
6

 
$
2

Total gains (1)

 
2

 
4

 
5

Total settlements (1)
(2
)
 
(1
)
 
(8
)
 
(2
)
Transfers out of Level 3

 

 
(1
)
 

Ending balance (2)
$
1

 
$
5

 
$
1

 
$
5

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
$
(1
)
 
$
2

 
$

 
$
4

 ________________
(1)
CenterPoint Energy did not have Level 3 unrealized gains (losses) or settlements related to price stabilization activities of the Natural Gas Distribution business segment during either the three or nine months ended September 30, 2012 or 2013 .

(2)
CenterPoint Energy did not have significant Level 3 purchases, sales or transfers into Level 3 during either the three or nine months ended September 30, 2012 or 2013 .

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 fair values of non-trading derivative assets and liabilities and CenterPoint Energy’s 2.0% Zero-Premium Exchangeable Subordinated Notes due 2029 (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 the market price. These assets and 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 1 in the fair value hierarchy.
 
December 31, 2012
 
September 30, 2013
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
(in millions)
Financial assets:
 
 
 
 
 
 
 
Notes receivable - affiliated companies
$

 
$

 
$
363

 
$
362

Financial liabilities:
 
 
 
 
 
 
 
Long-term debt
$
9,619

 
$
10,807

 
$
8,170

 
$
8,807


(7) Unconsolidated Affiliates

As discussed in Note 1, on May 1, 2013 (the Closing Date) CERC Corp., OGE and ArcLight closed on the formation of Enable. Enable owns CenterPoint Midstream, which consists of substantially all of CERC Corp.’s former Interstate Pipelines and Field Services business segments. As a result, CenterPoint Energy no longer has Interstate Pipelines or Field Services business segments. Equity earnings associated with CenterPoint Energy's interest in Enable and equity earnings associated with its retained 25.05% interest in SESH are now reported under the Midstream Investments segment. For a further description of CenterPoint Energy's reportable business segments, see Note 14.

The formation of Enable by CenterPoint Energy has been considered a contribution of in-substance real estate to a limited partnership as the businesses are composed of, and reliant upon, substantial real estate assets and integral equipment. Real estate assets and integral equipment primarily includes gas transmission pipelines, compressor station equipment, rights of way, storage and processing assets, and long-term customer contracts. Accordingly, CenterPoint Energy did not recognize a gain or loss upon

15


contribution and recorded its investment in Enable using the equity method of accounting based on the historical cost of the contributed assets and liabilities as of the Closing Date. Approximately $5.8 billion of assets and $1.5 billion of liabilities (which includes the Term Loan and the indebtedness owed to CERC, both discussed below, of $1.05 billion and $363 million , respectively) were contributed by CERC Corp. CenterPoint Energy has the ability to significantly influence the operating and financial policies of Enable and, accordingly, recorded an equity method investment of $4.3 billion in Enable on the Closing Date. Pursuant to the MFA, CenterPoint Energy retained certain assets and liabilities historically held by CenterPoint Midstream such as balances relating to federal income taxes and benefit plan obligations.

CenterPoint Energy’s investment in Enable is considered to be a VIE because the power to direct the activities that most significantly impact Enable’s economic performance does not reside with the holders of equity investment at risk. However, CenterPoint Energy is not considered the primary beneficiary of Enable since it does not have the power to direct the activities of Enable that are considered most significant to the economic performance of Enable. As discussed above, CenterPoint Energy accounts for its investment in Enable using the equity method of accounting. Under the equity method, the investment will be adjusted each period for contributions made, distributions received and CenterPoint Energy’s share of Enable’s comprehensive income. CenterPoint Energy’s maximum exposure to loss related to Enable is limited to its equity investment as presented in the Condensed Consolidated Balance Sheet at September 30, 2013 and its guarantee of Enable’s $1.05 billion Term Loan and certain other guarantees as discussed in Note 12. CenterPoint Energy evaluates its equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline. See Note 1 for further discussion on Enable’s ownership structure.

Effective on the Closing Date, CenterPoint Energy and Enable entered into a Services Agreement, Employee Transition Agreement, Transitional Services Agreement and other agreements (collectively, Transition Agreements) whereby CenterPoint Energy agreed to provide certain support services to Enable such as accounting, legal, risk management and treasury functions. Additionally, CenterPoint Energy provides seconded employees to Enable to support its operations. CenterPoint Energy does not anticipate extending the services provided to Enable, including providing seconded employees, beyond December 31, 2014. CenterPoint Energy did not transfer any employees to Enable at formation of the partnership or at any time during the nine months ended September 30, 2013. CenterPoint Energy billed Enable for reimbursement of transitional services, including the costs of seconded employees, of $42 million and $70 million during the three and five months ended September 30, 2013 , respectively, under the Transition Agreements. Actual transitional services costs are recorded net of reimbursements received from Enable.

Enable, at its discretion, has the right to select and offer employment to seconded employees from CenterPoint Energy. As of September 30, 2013 , CenterPoint Energy determined it cannot reasonably estimate the impact of the costs associated with the termination of employees related to the formation of Enable or transfer of employees from CenterPoint Energy to Enable, including the impact of the changes to the actuarial determination of employee benefit plan obligations. Pursuant to the Transition Agreements, Enable has agreed to reimburse CenterPoint Energy for severance and termination costs related to the termination of CenterPoint Energy's seconded employees, including any potential benefit-related costs, regardless of whether such seconded employees are offered employment by Enable.

On the Closing Date, Enable entered into a $1.05 billion three-year senior unsecured term loan facility (the Term Loan) with third parties and repaid $1.05 billion of affiliated notes payable (Affiliated Notes Payable) owed to CERC. CERC provided a guarantee of Enable's obligations under the Term Loan. The guarantee is subordinated to all senior debt of CERC. Certain of the entities contributed to Enable by CERC are obligated on approximately $363 million of indebtedness owed to CERC bearing interest at an annual rate of 2.10% to 2.45% and scheduled to mature in 2017.

CERC has certain put rights, and Enable has certain call rights, exercisable with respect to the 25.05% interest in SESH retained by CERC, under which CERC would contribute its retained interest in SESH, in exchange for a specified number of limited partnership units in Enable and a cash payment, payable either from CERC to Enable or from Enable to CERC, for changes in the value of SESH.

As of September 30, 2013 , CenterPoint Energy held an approximate 58.3% interest in Enable and a 25.05% interest in SESH.


16


Investment in Unconsolidated Affiliates:
 
 
December 31, 2012
 
September 30, 2013
 
 
(in millions)
Enable
 
$

 
$
4,326

SESH
 
404

 
199

Other
 
1

 

  Total
 
$
405

 
$
4,525


Equity in Earnings of Unconsolidated Affiliates, net:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2012
 
2013
 
2012
 
2013
 
 
(in millions)
Enable
 
$

 
$
77

 
$

 
$
110

SESH
 
8

 
3

 
20

 
12

Other
 

 

 
5

 

 
 
$
8

 
$
80

 
$
25

 
$
122

Summarized income information for Enable from formation on May 1, 2013 through September 30, 2013, based on the Enogex assets recorded at estimated fair value on the Closing Date, is as follows (in millions):
Operating Revenues
 
$
1,298

Gross Margin
 
545

Operating Income
 
207

Net Income from Controlling Interest
 
188

 
 
 
CenterPoint Energy's 58.3% interest
 
$
110

Summarized balance sheet information for Enable as of September 30, 2013 is as follows (in millions):
Current assets
 
$
428

Non-current assets
 
10,537

Current liabilities
 
622

Non-current liabilities
 
2,140


Enable concluded that the formation of Enable is considered a business combination, and CenterPoint Midstream is the acquirer for accounting purposes.  Under this method, the fair value of the consideration paid by CenterPoint Midstream for Enogex is allocated to the assets acquired and liabilities assumed on the Closing Date based on their fair value.  Enogex’s assets, liabilities and equity were accordingly adjusted to estimated fair value as of May 1, 2013.  Determining the fair value of assets and liabilities is judgmental in nature and often involves the use of significant estimates and assumptions.  Enable used appraisers to assist in the determination of the estimated fair value of certain assets and liabilities contributed by Enogex.

CenterPoint Energy recorded its 58.3% interest in Enable’s net income for the period May 1, 2013 through September 30, 2013 of $110 million , which includes the depreciation and amortization of the step-up in fair value of Enogex assets at Enable.

As of September 30, 2013, CenterPoint Energy’s investment in Enable, recorded at the historical cost of the contributed CenterPoint Midstream assets and liabilities, was $439 million less than CenterPoint Energy’s proportionate share of Enable’s limited partners’ capital. This difference in CenterPoint Energy’s investment basis included $229 million related to CenterPoint Energy’s proportionate share of Enable’s goodwill arising from its acquisition of Enogex, and therefore will not be recognized by CenterPoint Energy. CenterPoint Energy will accrete the remaining $210 million basis difference over 30 years.


17


Distributions received from Enable were approximately $36 million during the three and five months ended September 30, 2013.

(8)
Goodwill

Goodwill by reportable business segment as of December 31, 2012 and changes in the carrying amount of goodwill as of September 30, 2013 are as follows (in millions):
 
December 31, 2012
 
Contributed to Enable
 
September 30, 2013
Natural Gas Distribution
$
746

 
$

 
$
746

Interstate Pipelines
579

 
579

 

Competitive Natural Gas Sales and Services
83

 

 
83

Field Services
49

 
49

 

Other Operations
11

 

 
11

Total
$
1,468

 
$
628

 
$
840


CenterPoint Energy performs its goodwill impairment tests at least annually and evaluates goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed by using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. The estimated fair value of the reporting unit is generally determined on the basis of discounted cash flows. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, then a second step must be completed in order to determine the amount of the goodwill impairment that should be recorded. In the second step, the implied fair value of the reporting unit's goodwill is determined by allocating the reporting unit's fair value to all of its assets and liabilities other than goodwill (including any unrecognized intangible assets) in a manner similar to a purchase price allocation. The resulting implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge is recorded for the difference.

CenterPoint Energy performed its annual impairment test in the third quarter of 2013 and determined, based on the results of the first step, that no impairment charge was required for any reportable segment.

(9)
Capital Stock

CenterPoint Energy, Inc. has 1,020,000,000 authorized shares of capital stock, comprised of 1,000,000,000  shares of $0.01 par value common stock and 20,000,000  shares of $0.01 par value preferred stock. At December 31, 2012 , 427,599,730  shares of CenterPoint Energy, Inc. common stock were issued and 427,599,564  shares were outstanding. At September 30, 2013 , 428,640,333  shares of CenterPoint Energy, Inc. common stock were issued and 428,640,167 shares were outstanding. Outstanding common shares exclude 166 treasury shares at both December 31, 2012 and September 30, 2013 .

(10)
Short-term Borrowings and Long-term Debt

(a)
Short-term Borrowings

Inventory Financing . Gas Operations has asset management agreements associated with its utility distribution service in Arkansas, north Louisiana and Oklahoma that extend through 2015. Pursuant to the provisions of the agreements, Gas Operations 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 a financing and had an associated principal obligation of $38 million and $70 million as of December 31, 2012 and September 30, 2013 , respectively.

(b)
Long-term Debt

Debt Repayments. In April 2013, CERC Corp. retired approximately $365 million aggregate principal amount of its 7.875% senior notes at their maturity. The retirement of senior notes was financed by CERC Corp. with the issuance of commercial paper. In May 2013, CERC Corp. applied proceeds from Enable's May 1, 2013 debt repayment of $1.05 billion to the repayment of $357 million aggregate principal amount of its commercial paper and to the May 31, 2013 redemption of $160 million aggregate principal amount of its 5.95% senior notes due January 15, 2014 at 103.419% of their aggregate principal amount. On August 1, 2013, approximately $92 million aggregate principal amount of pollution control bonds issued on CenterPoint Energy's behalf were redeemed at 101% of their aggregate principal amount. These bonds had an interest rate of 4% , a maturity date of August 1, 2015

18


and were collateralized by first mortgage bonds of CenterPoint Houston. On October 15, 2013, approximately $59 million aggregate principal amount of pollution control bonds issued on CenterPoint Energy’s behalf were redeemed at 101% of their aggregate principal amount. These bonds had an interest rate of 4% , a maturity date of October 15, 2015 and were collateralized by first mortgage bonds of CenterPoint Houston.

Credit Facilities. As of December 31, 2012 and September 30, 2013 , CenterPoint Energy, CenterPoint Houston and CERC Corp. had the following revolving credit facilities and utilization of such facilities (in millions):
 
December 31, 2012
 
September 30, 2013
 
Size of
Facility
 
Loans
 
Letters
of Credit
 
Commercial
Paper
 
Size of
Facility
 
Loans
 
Letters
of Credit
 
Commercial
Paper
CenterPoint Energy
$
1,200

 
$

 
$
7

 
$

 
$
1,200

 
$

 
$
6

 
$

CenterPoint Houston
300

 

 
4

 

 
300

 

 
4

 

CERC Corp.
950

 

 

 

 
600

 

 

 

Total
$
2,450

 
$

 
$
11

 
$

 
$
2,100

 
$

 
$
10

 
$


CenterPoint Energy’s $1.2 billion revolving credit facility, which is scheduled to terminate on September 9, 2018, can be drawn at the London Interbank Offered Rate (LIBOR) plus 150 basis points based on CenterPoint Energy’s current credit ratings. The revolving credit facility contains a financial covenant which limits CenterPoint Energy’s consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of CenterPoint Energy’s consolidated capitalization. The financial covenant limit will temporarily increase from 65% to 70% if CenterPoint Houston experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that CenterPoint Houston has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive twelve -month period, all or part of which CenterPoint Houston intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date CenterPoint Energy delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of CenterPoint Energy’s certification or (iii) the revocation of such certification.

CenterPoint Houston’s $300 million revolving credit facility, which is scheduled to terminate on September 9, 2018, can be drawn at LIBOR plus 125 basis points based on CenterPoint Houston’s current credit ratings. The revolving credit facility contains a financial covenant which limits CenterPoint Houston’s consolidated debt (excluding transition and system restoration bonds) to an amount not to exceed 65% of CenterPoint Houston's consolidated capitalization.

CERC Corp.’s $600 million revolving credit facility, which is scheduled to terminate on September 9, 2018, can be drawn at LIBOR plus 150 basis points based on CERC Corp.’s current credit ratings. The revolving credit facility contains a financial covenant which limits CERC’s consolidated debt to an amount not to exceed 65% of CERC’s consolidated capitalization.

(11)
Income Taxes

The effective tax rate for the three and nine months ended September 30, 2013 was 34% and 67% , respectively, compared to 92% and 48% , respectively, for the same periods in 2012. The lower effective tax rate for the three months ended September 30, 2013 was primarily due to the tax effects associated with the goodwill impairment for the same period in 2012. In addition, CenterPoint Energy recognized a tax benefit of $8 million based on the settlement of outstanding tax claims for the 2002 and 2003 audit cycles in 2013. The higher effective tax rate for the nine month period ended September 30, 2013 compared to the same period in 2012 is primarily due to additional tax expense of $225 million recorded for the book to tax basis difference arising from the formation of Enable. In addition, CenterPoint Energy recognized a tax benefit of $29 million associated with the remeasurement of state deferred taxes related to the formation of Enable.

The following table summarizes CenterPoint Energy’s unrecognized tax benefits (expenses) at December 31, 2012 and September 30, 2013 :
 
December 31,
2012
 
September 30,
2013
 
(in millions)
Unrecognized tax expenses
$
(23
)
 
$

Portion of unrecognized tax expenses that, if recognized,
would increase the effective income tax rate
(3
)
 

Interest accrued on unrecognized tax expenses
(8
)
 



19


CenterPoint Energy does not expect the change to the amount of unrecognized tax expenses over the twelve months ending September 30, 2014 to materially impact the financial position of CenterPoint Energy.
  
CenterPoint Energy’s consolidated federal income tax returns have been audited by the Internal Revenue Service (IRS) and settled through the 2009 tax year. On July 9, 2013, CenterPoint Energy received notification that the Joint Committee of Taxation had approved its outstanding tax claims related to the 2002 and 2003 audit cycles. As a result, CenterPoint Energy recorded the settlement of all unrecognized tax expenses during the three month period ended September 30, 2013. CenterPoint Energy is currently under examination by the IRS for tax years 2010 and 2011. CenterPoint Energy has considered the effects of these examinations in its accrual for settled issues and liability for uncertain income tax positions as of September 30, 2013.

(12)
Commitments and Contingencies

(a)
Natural Gas Supply Commitments

Natural gas supply commitments include natural gas contracts related to CenterPoint Energy’s Natural Gas Distribution and Competitive Natural Gas Sales and Services business segments, which have various quantity requirements and durations, that are not classified as non-trading derivative assets and liabilities in CenterPoint Energy’s Condensed Consolidated Balance Sheets as of December 31, 2012 and September 30, 2013 as these contracts meet the exception to be classified as “normal purchases contracts” or do not meet the definition of a derivative. Natural gas supply commitments also include natural gas transportation contracts that do not meet the definition of a derivative. As of September 30, 2013 , minimum payment obligations for natural gas supply commitments are approximately $143 million for the remaining three months in 2013, $449 million in 2014, $382 million in 2015, $309 million in 2016, $250 million in 2017 and $366 million after 2017.

(b)
Legal, Environmental and Other Regulatory Matters

Legal Matters

Gas Market Manipulation Cases .  CenterPoint Energy, CenterPoint Houston or their predecessor, Reliant Energy, Incorporated (Reliant Energy), and certain of their former subsidiaries have been named as defendants in certain lawsuits described below. Under a master separation agreement between CenterPoint Energy and a former subsidiary, Reliant Resources, Inc. (RRI), CenterPoint Energy and its subsidiaries are entitled to be indemnified by RRI and its successors for any losses, including certain attorneys’ fees and other costs, arising out of these lawsuits.  In May 2009, RRI sold its Texas retail business to a subsidiary of NRG Energy, Inc. (NRG) and RRI changed its name to RRI Energy, Inc. In December 2010, Mirant Corporation merged with and became a wholly owned subsidiary of RRI, and RRI changed its name to GenOn Energy, Inc. (GenOn). In December 2012, NRG acquired GenOn through a merger in which GenOn became a wholly owned subsidiary of NRG. None of the sale of the retail business, the merger with Mirant Corporation, or the acquisition of GenOn by NRG alters RRI’s (now GenOn’s) contractual obligations to indemnify CenterPoint Energy and its subsidiaries, including CenterPoint Houston, for certain liabilities, including their indemnification obligations regarding the gas market manipulation litigation, nor does it affect the terms of existing guarantee arrangements for certain GenOn gas transportation contracts discussed below.

A large number of lawsuits were filed against numerous gas market participants in a number of federal and western state courts in connection with the operation of the natural gas markets in 2000-2002. CenterPoint Energy’s former affiliate, RRI, was a participant in gas trading in the California and Western markets. These lawsuits, many of which were filed as class actions, allege violations of state and federal antitrust laws. Plaintiffs in these lawsuits are seeking a variety of forms of relief, including, among others, recovery of compensatory damages (in some cases in excess of $1 billion ), a trebling of compensatory damages, full consideration damages and attorneys’ fees. CenterPoint Energy and/or Reliant Energy were named in approximately 30 of these lawsuits, which were instituted between 2003 and 2009. CenterPoint Energy and its affiliates have since been released or dismissed from all but one such case. CenterPoint Energy Services, Inc. (CES), a subsidiary of CERC Corp., is a defendant in a case now pending in federal court in Nevada alleging a conspiracy to inflate Wisconsin natural gas prices in 2000-2002.  In July 2011, the court issued an order dismissing the plaintiffs’ claims against other defendants in the case, each of whom had demonstrated FERC jurisdictional sales for resale during the relevant period, based on federal preemption.  The plaintiffs appealed this ruling to the United States Court of Appeals for the Ninth Circuit, which reversed the trial court's dismissal of the plaintiffs' claims. In August 2013, the other defendants filed a petition for review with the U.S. Supreme Court. CenterPoint Energy believes that CES is not a proper defendant in this case and will continue to pursue a dismissal.  CenterPoint Energy does not expect the ultimate outcome of this matter to have a material impact on its financial condition, results of operations or cash flows.


20


Environmental Matters

Manufactured Gas Plant Sites. CERC and its predecessors operated manufactured gas plants (MGPs) in the past. In Minnesota, CERC has completed remediation on two sites, other than ongoing monitoring and water treatment. There are five remaining sites in CERC’s Minnesota service territory. CERC believes that it has no liability with respect to two of these sites.

At September 30, 2013 , CERC had recorded a liability of $13 million for remediation of these Minnesota sites. The estimated range of possible remediation costs for the sites for which CERC believes it may have responsibility was $6 million to $41 million based on remediation continuing for 30 to 50 years. The cost estimates are based on studies of a site or industry average costs for remediation of sites of similar size. The actual remediation costs will be dependent upon the number of sites to be remediated, the participation of other potentially responsible parties (PRPs), if any, and the remediation methods used. The Minnesota Public Utilities Commission includes approximately $285,000 annually in rates to fund normal ongoing remediation costs.  As of September 30, 2013 , CERC had collected $6.1 million from insurance companies to be used for future environmental remediation.

In addition to the Minnesota sites, the United States Environmental Protection Agency and other regulators have investigated MGP sites that were owned or operated by CERC or may have been owned by one of its former affiliates. CERC and CenterPoint Energy do not expect the ultimate outcome of these investigations will have a material adverse impact on the financial condition, results of operations or cash flows of either CenterPoint Energy or CERC.

Asbestos. Some facilities owned by CenterPoint Energy contain or have contained asbestos insulation and other asbestos-containing materials. CenterPoint Energy or its subsidiaries have been named, along with numerous others, as a defendant in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos. Some of the claimants have worked at locations owned by subsidiaries of CenterPoint Energy, but most existing claims relate to facilities previously owned by CenterPoint Energy’s subsidiaries. CenterPoint Energy anticipates that additional claims like those received may be asserted in the future. In 2004 and early 2005, CenterPoint Energy sold its generating business, to which most of these claims relate, to a company which is now an affiliate of NRG. Under the terms of the arrangements regarding separation of the generating business from CenterPoint Energy and its sale of that business, ultimate financial responsibility for uninsured losses from claims relating to the generating business has been assumed by the NRG affiliate, but CenterPoint Energy has agreed to continue to defend such claims to the extent they are covered by insurance maintained by CenterPoint Energy, subject to reimbursement of the costs of such defense by the NRG affiliate. Although their ultimate outcome cannot be predicted at this time, CenterPoint Energy intends to continue vigorously contesting claims that it does not consider to have merit and, based on its experience to date, does not expect these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’s financial condition, results of operations or cash flows.

Other Environmental. From time to time CenterPoint Energy identifies the presence of environmental contaminants on property where its subsidiaries conduct or have conducted operations.  Other such sites involving contaminants may be identified in the future.  CenterPoint Energy has and expects to continue to remediate identified sites consistent with its legal obligations. From time to time CenterPoint Energy has received notices from regulatory authorities or others regarding its status as a PRP in connection with sites found to require remediation due to the presence of environmental contaminants. In addition, CenterPoint Energy has been named from time to time as a defendant in litigation related to such sites. Although the ultimate outcome of such matters cannot be predicted at this time, CenterPoint Energy does not expect, based on its experience to date, these matters, either individually or in the aggregate, to have a material adverse effect on CenterPoint Energy’s financial condition, results of operations or cash flows.

Other Proceedings

CenterPoint Energy is involved in other legal, environmental, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. From time to time, CenterPoint Energy is also a defendant in legal proceedings with respect to claims brought by various plaintiffs against broad groups of participants in the energy industry. Some of these proceedings involve substantial amounts. CenterPoint Energy regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. CenterPoint Energy does not expect the disposition of these matters to have a material adverse effect on CenterPoint Energy’s financial condition, results of operations or cash flows.

(c)
Guarantees

Prior to the distribution of CenterPoint Energy’s ownership in RRI to its shareholders, CERC had guaranteed certain contractual obligations of what became RRI’s trading subsidiary.  When the companies separated, RRI agreed to secure CERC against obligations under the guarantees RRI had been unable to extinguish by the time of separation.  Pursuant to such agreement, as

21


amended in December 2007, RRI (now GenOn) agreed to provide to CERC cash or letters of credit as security against CERC’s obligations under its remaining guarantees for demand charges under certain gas transportation agreements if and to the extent changes in market conditions expose CERC to a risk of loss on those guarantees based on an annual calculation, with any required collateral to be posted each December.  The undiscounted maximum potential payout of the demand charges under these transportation contracts, which will be in effect until 2018, was approximately $62 million as of September 30, 2013 .  Based on market conditions in the fourth quarter of 2013 at the time the most recent annual calculation was made under the agreement, GenOn was not obligated to post any security. If GenOn should fail to perform the contractual obligations, CERC could have to honor its guarantee and, in such event, any collateral then provided as security may be insufficient to satisfy CERC’s obligations.

CenterPoint Energy, Inc. has provided guarantees (CenterPoint Midstream Guarantees) with respect to the performance of certain obligations of Enable under long-term gas gathering and treating agreements with an indirect wholly owned subsidiary of Encana Corporation and an indirect wholly owned subsidiary of Royal Dutch Shell plc. As of September 30, 2013 , CenterPoint Energy, Inc. had guaranteed Enable's obligations up to an aggregate amount of $100 million under these agreements. CERC Corp. has provided guarantees (CERC Midstream Guarantees) with respect to the performance of certain obligations of EGT under certain contractual arrangements with third parties, which guarantees are scheduled to expire in June 2015 and December 2018. The maximum aggregate amount payable by CERC Corp. under these guarantees is $53.2 million . The aggregate dollar amount of the obligations covered by the CERC Midstream Guarantees varies over time. The obligations supported by the CERC Midstream Guarantees for the months of September and October 2013 totaled less than $1 million . Under the terms of the omnibus agreement entered into in connection with the closing of the formation of Enable, Enable and CenterPoint Energy, Inc. have agreed to use commercially reasonable efforts and cooperate with each other to terminate the CenterPoint Midstream Guarantees and the CERC Midstream Guarantees, and to release CenterPoint Energy, Inc. or CERC Corp. from such guarantees by causing Enable or one of its subsidiaries to enter into substitute guarantees or to assume the CenterPoint Midstream Guarantees or CERC Midstream Guarantees, as applicable. CERC Corp. has also provided a guarantee of collection of Enable's obligations under its $ 1.05 billion three-year unsecured term loan facility, which guarantee is subordinated to all senior debt of CERC Corp.

(13)
Earnings Per Share

The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings per share calculations:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2013
 
2012
 
2013
 
(in millions, except share and per share amounts)
Net income
$
10

 
$
151

 
$
283

 
$
198

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
427,406,000

 
428,628,000

 
427,086,000

 
428,389,000

Plus: Incremental shares from assumed conversions:
 

 
 

 
 

 
 

Stock options
230,000

 
97,000

 
222,000

 
93,000

Restricted stock
2,347,000

 
2,142,000

 
2,347,000

 
2,142,000

Diluted weighted average shares
429,983,000

 
430,867,000

 
429,655,000

 
430,624,000

 
 
 
 
 
 
 
 
Basic earnings per share:
 

 
 

 
 
 
 
Net income
$
0.02

 
$
0.35

 
$
0.66

 
$
0.46

 
 
 
 
 
 
 
 
Diluted earnings per share:
 

 
 

 
 

 
 

Net income
$
0.02

 
$
0.35

 
$