CenterPoint Energy, Inc.
CENTERPOINT ENERGY INC (Form: 10-Q, Received: 11/05/2014 08:16:13)

 
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, 2014
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 22, 2014 , CenterPoint Energy, Inc. had 429,795,830 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, 2014

TABLE OF CONTENTS

PART I.
 
FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)
 
 
 
 
 
 
 
 
 
Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)
 
 
 
 
 
 
 
 
 
September 30, 2014 and December 31, 2013 (unaudited)
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014 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)), 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;

local, 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;

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

the timing and extent of changes in commodity prices, particularly natural gas, 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

ii


indemnity obligations, or obligations in connection with the contractual arrangements pursuant to which we are their guarantor;

the ability of retail electric providers (REPs), including REP affiliates of NRG, Energy Future Holdings Corp. and Just Energy Group, Inc., to satisfy their obligations to us and our subsidiaries;

the outcome of litigation brought by or against us;

our ability to control costs;

our ability to invest planned capital;

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 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 the supply of natural gas and associated commodity prices, particularly prices of natural gas and natural gas liquids (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;

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

changes in tax status;

access to growth capital; and

the availability and prices of raw materials for current and future construction projects; 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, 2013 and in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, which are incorporated herein by reference, 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,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Revenues
$
1,807

 
$
1,640

 
$
6,854

 
$
5,922

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Natural gas
702

 
637

 
3,625

 
2,741

Operation and maintenance
493

 
422

 
1,441

 
1,352

Depreciation and amortization
293

 
248

 
784

 
741

Taxes other than income taxes
86

 
89

 
290

 
289

Total
1,574

 
1,396

 
6,140

 
5,123

Operating Income
233

 
244

 
714

 
799

 
 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
 
 
Gain on marketable securities
31

 
54

 
73

 
158

Loss on indexed debt securities
(22
)
 
(42
)
 
(29
)
 
(120
)
Interest and other finance charges
(88
)
 
(86
)
 
(261
)
 
(269
)
Interest on transition and system restoration bonds
(30
)
 
(32
)
 
(90
)
 
(101
)
Equity in earnings of unconsolidated affiliates, net
79

 
80

 
241

 
122

Other, net
10

 
11

 
28

 
17

Total
(20
)
 
(15
)
 
(38
)
 
(193
)
 
 
 
 
 
 
 
 
Income Before Income Taxes
213

 
229

 
676

 
606

Income tax expense
70

 
78

 
241

 
408

Net Income
$
143

 
$
151

 
$
435

 
$
198

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
0.33

 
$
0.35

 
$
1.01

 
$
0.46

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
0.33

 
$
0.35

 
$
1.01

 
$
0.46

 
 
 
 
 
 
 
 
Dividends Declared Per Share
$
0.2375

 
$
0.2075

 
$
0.7125

 
$
0.6225

 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding, Basic
430

 
429

 
430

 
428

 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding, Diluted
432

 
431

 
431

 
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,
 
2014
 
2013
 
2014
 
2013
Net income
$
143

 
$
151

 
$
435

 
$
198

Other comprehensive income:
 
 
 
 
 
 
 
Adjustment related to pension and other postretirement plans (net of tax of $1, $2, $4 and $5)
2

 
3

 
5

 
8

Total
2

 
3

 
5

 
8

Comprehensive income
$
145

 
$
154

 
$
440

 
$
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

 
September 30,
2014
 
December 31,
2013
Current Assets:
 
 
 
Cash and cash equivalents ($212 and $207 related to VIEs, respectively)
$
230

 
$
208

Investment in marketable securities
840

 
767

Accounts receivable ($99 and $60 related to VIEs, respectively), less bad debt reserve of $22 and $28, respectively
712

 
851

Accrued unbilled revenues
174

 
398

Natural gas inventory
253

 
140

Materials and supplies
156

 
145

Non-trading derivative assets
34

 
24

Prepaid expenses and other current assets ($49 and $41 related to VIEs, respectively)
177

 
125

Total current assets
2,576

 
2,658

 
 
 
 
Property, Plant and Equipment:
 
 
 
Property, plant and equipment
14,975

 
14,138

Less: accumulated depreciation and amortization
4,770

 
4,545

Property, plant and equipment, net
10,205

 
9,593

 
 
 
 
Other Assets:
 
 
 
Goodwill
840

 
840

Regulatory assets ($2,824 and $3,179 related to VIEs, respectively)
3,372

 
3,726

Notes receivable - affiliated companies
363

 
363

Non-trading derivative assets
17

 
10

Investment in unconsolidated affiliates
4,525

 
4,518

Other
150

 
162

Total other assets
9,267

 
9,619

 
 
 
 
Total Assets
$
22,048

 
$
21,870


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

 
September 30,
2014
 
December 31,
2013
Current Liabilities:
 
 
 
Short-term borrowings
$
80

 
$
43

Current portion of VIE transition and system restoration bonds long-term debt
370

 
354

Indexed debt
149

 
143

Current portion of other long-term debt
203

 

Indexed debt securities derivative
483

 
455

Accounts payable
441

 
689

Taxes accrued
139

 
184

Interest accrued
110

 
124

Non-trading derivative liabilities
11

 
17

Accumulated deferred income taxes, net
649

 
608

Other
373

 
402

Total current liabilities
3,008

 
3,019

 
 
 
 
 
 
 
 
Other Liabilities:
 

 
 

Accumulated deferred income taxes, net
4,606

 
4,542

Non-trading derivative liabilities
2

 
4

Benefit obligations
718

 
802

Regulatory liabilities
1,237

 
1,152

Other
207

 
205

Total other liabilities
6,770

 
6,705

 
 
 
 
Long-term Debt:
 

 
 

VIE transition and system restoration bonds
2,736

 
3,046

Other
5,061

 
4,771

Total long-term debt
7,797

 
7,817

 
 
 
 
Commitments and Contingencies (Note 12)


 


 
 
 
 
Shareholders’ Equity:
 

 
 

Common stock (429,795,830 shares and 428,798,446 shares outstanding, respectively)
4

 
4

Additional paid-in capital
4,167

 
4,157

Retained earnings
387

 
258

Accumulated other comprehensive loss
(85
)
 
(90
)
Total shareholders’ equity
4,473

 
4,329

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
22,048

 
$
21,870


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,
 
2014
 
2013
Cash Flows from Operating Activities:
 
 
 
Net income
$
435

 
$
198

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
784

 
741

Amortization of deferred financing costs
21

 
23

Deferred income taxes
94

 
356

Unrealized gain on marketable securities
(73
)
 
(158
)
Unrealized loss on indexed debt securities
29

 
120

Write-down of natural gas inventory
2

 
4

Equity in earnings of unconsolidated affiliates, net of distributions
(6
)
 
(65
)
Pension contributions
(94
)
 
(89
)
Changes in other assets and liabilities:
 
 
 
Accounts receivable and unbilled revenues, net
348

 
173

Inventory
(126
)
 
(111
)
Taxes receivable

 
(53
)
Accounts payable
(237
)
 
(151
)
Fuel cost recovery
(57
)
 
105

Non-trading derivatives, net
(26
)
 
(6
)
Margin deposits, net
(13
)
 
5

Interest and taxes accrued
(59
)
 
(66
)
Net regulatory assets and liabilities
53

 
78

Other current assets
23

 
21

Other current liabilities
(20
)
 
(40
)
Other assets
5

 
(2
)
Other liabilities
29

 
36

Other, net
12

 
13

Net cash provided by operating activities
1,124

 
1,132

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(998
)
 
(912
)
Decrease (increase) in restricted cash of transition and system restoration bond companies
(9
)
 
13

Cash contribution to Enable

 
(38
)
Proceeds from sale of marketable securities

 
9

Other, net
(19
)
 
2

Net cash used in investing activities
(1,026
)
 
(926
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Increase in short-term borrowings, net
37

 
32

Proceeds from commercial paper, net
72

 

Proceeds from long-term debt
600

 
1,050

Payments of long-term debt
(477
)
 
(1,455
)
Debt issuance costs
(8
)
 
(4
)
Redemption of indexed debt securities

 
(8
)
Payment of common stock dividends
(306
)
 
(267
)
Other, net
6

 
19

Net cash used in financing activities
(76
)
 
(633
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
22

 
(427
)
Cash and Cash Equivalents at Beginning of Period
208

 
646

Cash and Cash Equivalents at End of Period
$
230

 
$
219

 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash Payments:
 
 
 
Interest, net of capitalized interest
$
338

 
$
394

Income taxes, net
157

 
77

Non-cash transactions:
 
 
 
Accounts payable related to capital expenditures
63

 
83

Formation of Enable

 
4,252

Exercise of SESH put to Enable
196

 


See Notes to Interim Condensed Consolidated Financial Statements

5

Table of Contents

CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Background and Basis of Presentation

General. Included in this 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, 2013 (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 in Note 7 . As of September 30, 2014 , 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. As of September 30, 2014 , CERC Corp. also owned approximately 55.4% of the limited partner interests in Enable, which owns, operates and develops natural gas and crude oil infrastructure assets.

As of September 30, 2014 , CenterPoint Energy had 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.

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 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

In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08 (ASU 2014-08), Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity , which significantly changes the existing accounting guidance on discontinued operations. Under ASU 2014-08, only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results should be reported as a discontinued operation.  ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014.  ASU 2014-08 should be applied to components classified as held for sale after its effective date. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The adoption is expected to reduce the number of disposals that meet the definition of a discontinued operation.

6



In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ( Topic 606 ) (ASU 2014-09), which supersedes most current revenue recognition guidance. ASU 2014-09 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. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted, and entities have the option of using either a full retrospective or a modified retrospective adoption approach. Accordingly, CenterPoint Energy will adopt ASU 2014-09 on January 1, 2017, and is currently evaluating the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.

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,
 
2014
 
2013
 
Pension
Benefits   (1)
 
Postretirement
Benefits
 
Pension
Benefits   (1)
 
Postretirement
Benefits
 
(in millions)
Service cost
$
10

 
$

 
$
11

 
$

Interest cost
25

 
5

 
22

 
5

Expected return on plan assets
(32
)
 
(1
)
 
(33
)
 
(1
)
Amortization of prior service cost
3

 

 
3

 
1

Amortization of net loss
11

 

 
15

 
2

Amortization of transition obligation

 
1

 

 
1

Net periodic cost
$
17

 
$
5

 
$
18

 
$
8

 
Nine Months Ended September 30,
 
2014
 
2013
 
Pension
Benefits   (1)
 
Postretirement
Benefits
 
Pension
Benefits   (1)
 
Postretirement
Benefits
 
(in millions)
Service cost
$
31

 
$
1

 
$
33

 
$
1

Interest cost
75

 
16

 
68

 
15

Expected return on plan assets
(94
)
 
(5
)
 
(101
)
 
(5
)
Amortization of prior service cost (credit)
8

 
(1
)
 
7

 
1

Amortization of net loss
33

 
1

 
47

 
5

Amortization of transition obligation

 
4

 

 
5

Net periodic cost
$
53

 
$
16

 
$
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.  


7


CenterPoint Energy's changes in accumulated comprehensive loss related to defined benefit and postretirement plans are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
Pension and Postretirement Plans
 
Pension and Postretirement Plans
 
(in millions)
Beginning Balance
$
(85
)
 
$
(127
)
 
$
(88
)
 
$
(132
)
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
     Prior service cost (1)
1

 
1

 
2

 
2

     Actuarial losses (1)
2

 
4

 
7

 
11

Total reclassifications from accumulated other comprehensive loss
3

 
5

 
9

 
13

Tax expense
(1
)
 
(2
)
 
(4
)
 
(5
)
Net current period other comprehensive income
2

 
3

 
5

 
8

Ending Balance
$
(83
)
 
$
(124
)
 
$
(83
)
 
$
(124
)
________________
(1)
These other comprehensive components are included in the computation of net periodic cost.

CenterPoint Energy expects to contribute a total of approximately $96 million to its pension plans in 2014 , of which approximately $60 million and $94 million , respectively, was contributed during the three and nine months ended September 30, 2014 .

CenterPoint Energy expects to contribute a total of approximately $17 million to its postretirement benefits plan in 2014 , of which approximately $4 million and $12 million , respectively, was contributed during the three and nine months ended September 30, 2014 .

(4) Regulatory Accounting

As of September 30, 2014 , CenterPoint Energy has not recognized an allowed equity return of $456 million because such return will be recognized as it is recovered in rates. During the three months ended September 30, 2014 and 2013 , CenterPoint Houston recognized approximately $20 million and $15 million , respectively, of the allowed equity return not previously recognized. During the nine months ended September 30, 2014 and 2013 , CenterPoint Houston recognized approximately $52 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 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, 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.


8


(a)
Non-Trading Activities

Derivative Instruments. CenterPoint Energy enters into certain derivative instruments to manage physical commodity price risk 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.

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, which contained a bilateral dollar cap of $15 million in 2012 - 2013, $16 million in 2013 - 2014 and $16 million in 2014 - 2015. In both 2013 and 2014, CenterPoint Energy also entered into a similar winter weather hedge for the CenterPoint Houston service territory, which each contained a bilateral dollar cap of $8 million . The swaps are based on ten -year normal weather. During both the three months ended September 30, 2014 and 2013 , CenterPoint Energy recognized losses of $-0- related to these swaps. During the nine months ended September 30, 2014 and 2013 , CenterPoint Energy recognized losses of $8 million and $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 September 30, 2014 and December 31, 2013 , while the last two tables provide a breakdown of the related income statement impacts for the three and nine months ended September 30, 2014 and 2013 .
Fair Value of Derivative Instruments
 
 
 
 
September 30, 2014
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
 
$
45

 
$
11

Natural gas derivatives (1) (2)
 
Other Assets: Non-trading derivative assets
 
17

 

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

 
12

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

 
5

Indexed debt securities derivative
 
Current Liabilities
 

 
483

Total
 
$
66

 
$
511

_____________
(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 811  billion cubic feet (Bcf) or a net 34  Bcf long position.  Of the net long position, basis swaps constitute 126  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 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 $38 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.

9


Offsetting of Natural Gas Derivative Assets and Liabilities
 
 
September 30, 2014
 
 
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
 
$
46

 
$
(12
)
 
$
34

Other Assets: Non-trading derivative assets
 
20

 
(3
)
 
17

Current Liabilities: Non-trading derivative liabilities
 
(23
)
 
12

 
(11
)
Other Liabilities: Non-trading derivative liabilities
 
(5
)
 
3

 
(2
)
Total
 
$
38

 
$

 
$
38

________________
(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
 
 
 
 
December 31, 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) (2) (3)
 
Current Assets: Non-trading derivative assets
 
$
28

 
$
4

Natural gas derivatives (1) (2)
 
Other Assets: Non-trading derivative assets
 
10

 

Natural gas derivatives (1) (2)
 
Current Liabilities: Non-trading derivative liabilities
 
4

 
21

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

 
5

Indexed debt securities derivative
 
Current Liabilities
 

 
455

Total
 
$
43

 
$
485

_______________
(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 607 Bcf or a net 46  Bcf long position.  Of the net long position, basis swaps constitute 99  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 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 $13 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 less than $1 million .

(3)
The $28 million Derivative Current Asset includes $1 million related to physical forwards purchased from Enable.


10


Offsetting of Natural Gas Derivative Assets and Liabilities
 
 
December 31, 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
 
$
32

 
$
(8
)
 
$
24

Other Assets: Non-trading derivative assets
 
11

 
(1
)
 
10

Current Liabilities: Non-trading derivative liabilities
 
(25
)
 
8

 
(17
)
Other Liabilities: Non-trading derivative liabilities
 
(5
)
 
1

 
(4
)
Total
 
$
13

 
$

 
$
13

________________
(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.

Realized and unrealized gains and losses on 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
 
2014
 
2013
 
 
 
 
(in millions)
Natural gas derivatives
 
Gains (Losses) in Revenues
 
$
22

 
$
11

Natural gas derivatives (1)
 
Gains (Losses) in Expenses: Natural Gas
 
(4
)
 
(2
)
Indexed debt securities derivative
 
Gains (Losses) in Other Income (Expense)
 
(22
)
 
(42
)
Total
 
$
(4
)
 
$
(33
)

Income Statement Impact of Derivative Activity
 
 
 
 
Nine Months Ended September 30,
Total derivatives not designated
as hedging instruments
 
Income Statement Location
 
2014
 
2013
 
 
 
 
(in millions)
Natural gas derivatives
 
Gains (Losses) in Revenues
 
$
(74
)
 
$
24

Natural gas derivatives (1)
 
Gains (Losses) in Expenses: Natural Gas
 
110

 
(3
)
Indexed debt securities derivative
 
Gains (Losses) in Other Income (Expense)
 
(29
)
 
(120
)
Total
 
$
7

 
$
(99
)
________________
(1)
The Gains (Losses) in Expenses: Natural Gas includes $-0- and $2 million during the three and nine months ended September 30, 2014 , respectively, related to physical forwards purchased from Enable.

(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 both September 30, 2014 and December 31, 2013 was $1 million .  The aggregate fair value of assets that were posted as collateral was less than $1 million at both September 30, 2014 and December 31, 2013 .  If all derivative contracts (in a net liability position) containing credit risk

11


contingent features were triggered at both September 30, 2014 and December 31, 2013 , $1 million 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 $2.04 to $4.95 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 81% ) 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, 2014 , there were no transfers between Level 1 and 2. CenterPoint Energy also recognizes purchases of Level 3 financial assets and liabilities at their fair market value at the end of the reporting period.

The following tables present information about CenterPoint Energy’s assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of September 30, 2014 and December 31, 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
September 30, 2014
 
 
 
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Corporate equities
$
843

 
$

 
$

 
$

 
$
843

Investments, including money
market funds
57

 

 

 

 
57

Natural gas derivatives
4

 
51

 
11

 
(15
)
 
51

Total assets
$
904

 
$
51

 
$
11

 
$
(15
)
 
$
951

Liabilities
 

 
 

 
 

 
 

 
 

Indexed debt securities derivative
$

 
$
483

 
$

 
$

 
$
483

Natural gas derivatives
3

 
23

 
2

 
(15
)
 
13

Total liabilities
$
3

 
$
506

 
$
2

 
$
(15
)
 
$
496

 ________________

12


(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 $-0- 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
December 31, 2013
 
 
 
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Corporate equities
$
770

 
$

 
$

 
$

 
$
770

Investments, including money
market funds
61

 

 

 

 
61

Natural gas derivatives (2)
5

 
33

 
5

 
(9
)
 
34

Total assets
$
836

 
$
33

 
$
5

 
$
(9
)
 
$
865

Liabilities
 

 
 

 
 

 
 

 
 

Indexed debt securities derivative
$

 
$
455

 
$

 
$

 
$
455

Natural gas derivatives
1

 
27

 
2

 
(9
)
 
21

Total liabilities
$
1

 
$
482

 
$
2

 
$
(9
)
 
$
476

 ________________
(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 less than $1 million posted with the same counterparties.

(2)
The (Level 2) Natural gas derivative assets of $33 million include $1 million related to physical forwards purchased from Enable.

The following table presents additional information about assets or liabilities, including derivatives that are measured at fair value on a recurring basis for which CenterPoint Energy has utilized Level 3 inputs to determine fair value:
 
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
 
Derivative assets and liabilities, net
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(in millions)
Beginning balance
$
4

 
$
4

 
$
3

 
$
2

Total gains
6

 
2

 
6

 
5

Total settlements
(1
)
 
(1
)
 
1

 
(2
)
Transfers into Level 3

 

 
(1
)
 

Ending balance (1)
$
9

 
$
5

 
$
9

 
$
5

The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date
$
6

 
$
2

 
$
7

 
$
4

 ________________
(1)
CenterPoint Energy did not have significant Level 3 purchases, sales or transfers out of Level 3 during either the three or nine months ended September 30, 2014 or 2013 .


13


Estimated Fair Value of Financial Instruments

The fair values of cash and cash equivalents, investments in debt and equity securities classified as “trading” and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s 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 or Level 2 in the fair value hierarchy.
 
September 30, 2014
 
December 31, 2013
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
(in millions)
Financial assets:
 
 
 
 
 
 
 
Notes receivable - affiliated companies
$
363

 
$
366

 
$
363

 
$
363

Financial liabilities:
 
 
 
 
 
 
 
Long-term debt
$
8,370

 
$
9,089

 
$
8,171

 
$
8,670


(7) Unconsolidated Affiliates

On May 1, 2013 (the Closing Date) CERC Corp., OGE Energy Corp. (OGE) and ArcLight Capital Partners, LLC (ArcLight) closed on the formation of Enable. CenterPoint Energy has the ability to significantly influence the operating and financial policies of Enable and, accordingly, accounts for its investment in Enable using the equity method of accounting. Under the equity method, CenterPoint Energy will adjust its investment in Enable each period for contributions made, distributions received, CenterPoint Energy’s share of Enable’s comprehensive income and accretion of basis differences, as appropriate. 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.

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. 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, 2014 , CERC Corp.’s guarantee of collection of Enable’s $1.1 billion senior notes due 2019 and 2024 (Guaranteed Senior Notes) and other guarantees discussed in Note 12 , CERC Corp.’s $363 million notes receivable from Enable and outstanding current accounts receivable from Enable. The $363 million of notes receivable from Enable bears interest at an annual rate of 2.10% to 2.45% and matures in 2017. CenterPoint Energy recorded interest income of $2 million and $2 million during the three months ended September 30, 2014 and 2013, respectively, and $6 million and $3 million during the nine months ended September 30, 2014 and 2013, respectively, for interest earned on or after the Closing Date and had interest receivable from Enable of $2 million and $4 million as of September 30, 2014 and December 31, 2013, respectively, on its notes receivable from Enable.

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 for an initial term ending on April 30, 2016. The support services automatically extend year-to-year at the end of the initial term, unless terminated by Enable with at least 90 days’ notice. Enable may terminate the initial support services at any time with 180 days’ notice if approved by the board of Enable's general partner.  Additionally, CenterPoint Energy agreed to provide seconded employees to Enable to support its operations for an initial term ending on December 31, 2014, unless revised by mutual agreement with CenterPoint Energy, OGE and Enable prior to that date.

CenterPoint Energy billed Enable for reimbursement of transitional services, including the costs of seconded employees, $36 million and $42 million during the three months ended September 30, 2014 and 2013, respectively, and $118 million and $70 million during the nine months ended September 30, 2014 and 2013, respectively, under the Transition Agreements for transition services incurred on or after the Closing Date. Actual transitional services costs are recorded net of reimbursements received from Enable. Effective April 1, 2014, Enable’s general partner, CenterPoint Energy and OGE agreed to reduce certain governance related costs billed to Enable for transition services.  CenterPoint Energy had accounts receivable from Enable of $17 million and $21

14


million as of September 30, 2014 and December 31, 2013, respectively, for amounts billed for transitional services, including the cost of seconded employees.

Enable, at its discretion, has the right to select and offer employment to seconded employees from CenterPoint Energy. CenterPoint Energy did not transfer any employees to Enable at formation of the partnership or at any time during the period from the Closing Date through September 30, 2014 . As of September 30, 2014 , 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 certain severance and termination costs related to the termination of CenterPoint Energy's seconded employees.

On April 16, 2014, Enable completed its initial public offering (IPO) of 28,750,000 common units, at a price of $20.00 per unit, which included 3,750,000 common units sold by ArcLight pursuant to an over-allotment option that was fully exercised by the underwriters. Enable received $464 million in net proceeds from the sale of the units, after deducting underwriting fees, structuring fees and other offering costs. In connection with Enable’s IPO, a portion of CenterPoint Energy’s common units were converted into subordinated units, as discussed further below. Subsequent to the IPO, Enable continues to be equally controlled by CenterPoint Energy and OGE; each own 50% of the management rights in the general partner of Enable. CenterPoint Energy and OGE also own a 40% and 60% economic interest, respectively, in the incentive distribution rights held by the general partner of Enable.

As a result of Enable’s IPO, CenterPoint Energy’s limited partner interest in Enable was reduced from approximately 58.3% to approximately 54.7% . CenterPoint Energy accounted for the dilution of its investment in Enable as a result of Enable’s IPO as a failed partial sale of in-substance real estate. CenterPoint Energy did not receive any cash from Enable’s IPO and, as such, CenterPoint Energy did not recognize a gain or loss. CenterPoint Energy’s basis difference in Enable was reduced for the impact of the Enable IPO.

In accordance with the Enable formation agreements, CenterPoint Energy had certain put rights, and Enable had certain call rights, exercisable with respect to the 25.05% interest in Southeast Supply Header, LLC (SESH) retained by CenterPoint Energy on the Closing Date, under which CenterPoint Energy would contribute its retained interest in SESH, in exchange for a specified number of limited partner units in Enable and a cash payment, payable either from CenterPoint Energy to Enable or from Enable to CenterPoint Energy, to the extent of changes in the value of SESH subject to certain restrictions. Specifically, the rights were and are exercisable with respect to (1) a 24.95% interest in SESH ( 24.95% Put), which closed on May 30, 2014 as discussed below and (2) a 0.1% interest in SESH, which may be exercised no earlier than June 2015 for 25,341 common units in Enable.

On May 30, 2014, CenterPoint Energy closed its 24.95% Put and contributed to Enable its 24.95% interest in SESH in exchange for 6,322,457 common units of Enable, which increased CenterPoint Energy’s limited partner interest in Enable from approximately 54.7% to approximately 55.4% . No cash payment was required to be made pursuant to the Enable formation agreements in connection with CenterPoint Energy’s exercise of the 24.95% Put. CenterPoint Energy accounted for the contribution of its 24.95% interest in SESH to Enable in exchange for common units of Enable as a non-monetary transaction of in-substance real estate equity method investments. As such, CenterPoint Energy recorded the 6,322,457 common units at the historical cost of the contributed 24.95% interest in SESH of $196 million and recorded no gain or loss in connection with its exercise of the 24.95% Put. As a result, CenterPoint Energy’s basis difference in Enable was reduced for the impact of its exercise of the 24.95% Put.

CenterPoint Energy incurred natural gas expenses, including transportation and storage costs, of $24 million and $42 million , during the three months ended September 30, 2014 and 2013 , respectively, and $99 million and $70 million during the nine months ended September 30, 2014 and 2013 , respectively, for transactions with Enable occurring on or after the Closing Date. CenterPoint Energy had accounts payable to Enable of $10 million and $22 million at September 30, 2014 and December 31, 2013 , respectively, from such transactions.

As of September 30, 2014 , CenterPoint Energy held an approximate 55.4% limited partner interest in Enable consisting of 94,126,366 common units and 139,704,916 subordinated units and a 0.1% interest in SESH. The principal difference between Enable common units and subordinated units is that in any quarter during the subordination period, holders of the subordinated units are not entitled to receive any distribution of available cash until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. If Enable does not pay distributions on its subordinated units, the subordinated units will not accrue arrearages for those unpaid distributions. At the end of the subordination period, CenterPoint Energy’s subordinated units in Enable will be converted to common units in Enable on a one-for-one basis. On September 30, 2014 , Enable’s common units closed at $24.64 per unit on the New York Stock Exchange.


15


Investment in Unconsolidated Affiliates:
 
 
September 30,
2014
 
December 31, 2013
 
 
(in millions)
Enable
 
$
4,524

 
$
4,319

SESH (1)
 
1

 
199

  Total
 
$
4,525

 
$
4,518


(1)
On May 30, 2014, CenterPoint Energy contributed a 24.95% interest in SESH to Enable, leaving CenterPoint Energy with a 0.1% interest in SESH as of September 30, 2014 .

Equity in Earnings of Unconsolidated Affiliates, net:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(in millions)
Enable (1)
 
$
79

 
$
77

 
$
236

 
$
110

SESH (2)
 

 
3

 
5

 
12

  Total
 
$
79

 
$
80

 
$
241

 
$
122

(1)
On May 1, 2013, CenterPoint Energy formed Enable with OGE and ArcLight.

(2)
On each of May 1, 2013 and May 30, 2014, CenterPoint Energy contributed a 24.95% interest in SESH to Enable, leaving CenterPoint Energy with a 0.1% interest in SESH as of September 30, 2014 .

Summarized unaudited consolidated income information for Enable is as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013 (1)
 
2014
 
2013 (1)
 
 
(in millions)
Operating revenues
 
$
804

 
$
796

 
$
2,632

 
$
1,298

Cost of sales, excluding depreciation and amortization
 
439

 
458

 
1,550

 
753

Operating income
 
151

 
132

 
452

 
207

Net income attributable to Enable
 
139

 
123

 
408

 
188

 
 
 
 
 
 
 
 
 
CenterPoint Energy's approximate interest
 
$
76

 
$
72

 
$
230

 
$
110

Basis difference accretion
 
3

 
5

 
6

 

CenterPoint Energy's equity in earnings, net
 
$
79

 
$
77

 
$
236

 
$
110

(1)
On May 1, 2013, CenterPoint Energy formed Enable with OGE and ArcLight. The amounts included in the table represent the three- and five- month periods ended September 30, 2013. Enable concluded that its formation was considered a business combination, in which the fair value of the consideration paid for Enogex, LLC (Enogex), the businesses contributed by OGE, was allocated to the assets acquired and liabilities assumed by Enable on the Closing Date. In the third quarter of 2013, Enable completed its valuation of Enogex, and Enogex's assets, liabilities and equity, and its related depreciation and amortization for the five-month period ended September 30, 2013, was accordingly adjusted to estimated fair value as of the Closing Date. CenterPoint Energy’s equity in earnings, net of basis difference, in the third quarter of 2013 was not materially different as a result of the final fair value determination.


16


Summarized unaudited consolidated balance sheet information for Enable is as follows:
 
 
September 30, 2014
 
December 31, 2013
 
 
(in millions)
Current assets
 
$
520

 
$
549

Non-current assets
 
11,172

 
10,683

Current liabilities
 
520

 
720

Non-current liabilities
 
2,346

 
2,331

Non-controlling interest
 
32

 
33

Enable partners' capital
 
8,794

 
8,148

 
 
 
 
 
CenterPoint Energy's ownership interest in Enable's partner capital
 
$
4,870

 
$
4,753

CenterPoint Energy's basis difference
 
(346
)
 
(434
)
CenterPoint Energy's investment in Enable
 
$
4,524

 
$
4,319


Distributions Received from Unconsolidated Affiliates:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(in millions)
Enable (1)
 
$
70

 
$
36

 
$
227

 
$
36

SESH (2)
 
1

 
3

 
8

 
21

  Total
 
$
71

 
$
39

 
$
235

 
$
57

(1)
On May 1, 2013, CenterPoint Energy formed Enable with OGE and ArcLight.

(2)
On each of May 1, 2013 and May 30, 2014, CenterPoint Energy contributed a 24.95% interest in SESH to Enable, leaving CenterPoint Energy with a 0.1% interest in SESH as of September 30, 2014 .

(8) Goodwill

Goodwill by reportable business segment as of both September 30, 2014 and December 31, 2013 is as follows (in millions):
Natural Gas Distribution
$
746

Energy Services
83

Other Operations
11

Total
$
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 2014 and determined, based on the results of the first step, that no impairment charge was required for any reportable segment.


17


(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 September 30, 2014 , 429,795,996  shares of CenterPoint Energy, Inc. common stock were issued and 429,795,830 shares were outstanding. At December 31, 2013 , 428,798,612  shares of CenterPoint Energy, Inc. common stock were issued and 428,798,446  shares were outstanding. Outstanding common shares exclude 166 treasury shares at both September 30, 2014 and December 31, 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 March 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 $80 million and $43 million as of September 30, 2014 and December 31, 2013 , respectively.

(b)
Long-term Debt

On March 17, 2014, CenterPoint Energy Houston Electric, LLC issued $600 million principal amount of 4.50% General Mortgage Bonds due 2044.

Debt Repayments. Approximately $44 million aggregate principal amount of pollution control bonds issued on behalf of CenterPoint Houston were redeemed on March 3, 2014 at 101% of their principal amount plus accrued interest. The bonds had an interest rate of 4.25% , were scheduled to mature in 2017 and were collateralized by general mortgage bonds of CenterPoint Houston.

Approximately $56 million aggregate principal amount of pollution control bonds issued on behalf of CenterPoint Houston were purchased by CenterPoint Houston on March 3, 2014 at 101% of their principal amount plus accrued interest pursuant to the mandatory tender provisions of the bonds. The bonds had an interest rate of 5.60% prior to CenterPoint Houston's purchase and have a variable rate thereafter. The bonds mature in 2027 and are collateralized by general mortgage bonds of CenterPoint Houston. The purchased pollution control bonds may be remarketed.

Approximately $84 million aggregate principal amount of pollution control bonds issued on behalf of CenterPoint Houston were redeemed on June 2, 2014 at 100% of their principal amount plus accrued interest. The bonds had an interest rate of 4.25% , were scheduled to mature in 2017 and were collateralized by general mortgage bonds of CenterPoint Houston.

Credit Facilities. On September 9, 2014, the revolving credit facilities of CenterPoint Energy, CenterPoint Houston and CERC Corp. were amended to, among other things, extend the maturity date of the commitments under the credit facilities from September 9, 2018 to September 9, 2019. The amendments also reduced the swingline and letter of credit sub-facilities under each credit facility, with total commitments under each credit facility remaining unchanged. As of September 30, 2014 and December 31, 2013 , CenterPoint Energy, CenterPoint Houston and CERC Corp. had the following revolving credit facilities and utilization of such facilities (in millions):
 
 
 
September 30, 2014
 
December 31, 2013
 
Size of
Facility
 
Loans
 
Letters
of Credit
 
Commercial
Paper
 
Loans
 
Letters
of Credit
 
Commercial
Paper
CenterPoint Energy
$
1,200

 
$

 
$
6

 
$
190

 
$

 
$
6

 
$

CenterPoint Houston
300

 

 
4

 

 

 
4

 

CERC Corp.
600

 

 

 

 

 

 
118

Total
$
2,100

 
$

 
$
10

 
$
190

 
$

 
$
10

 
$
118


CenterPoint Energy’s $1.2 billion revolving credit facility, which is scheduled to terminate on September 9, 2019 , can be drawn at the London Interbank Offered Rate (LIBOR) plus 1.25% 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

18


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, 2019 , can be drawn at LIBOR plus 1.125% 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, 2019 , can be drawn at LIBOR plus 1.50% 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.

CenterPoint Energy, CenterPoint Houston and CERC Corp. were in compliance with all financial covenants in their respective revolving credit facilities as of September 30, 2014 .

(11) Income Taxes

The effective tax rate reported for the three months ended September 30, 2014 was 33% , compared to 34% for the same period in 2013 . For the three months ended September 30, 2014, CenterPoint Energy recognized a tax benefit of $6 million related to the reversal of previously accrued taxes as a result of filing the 2013 federal income tax return. For the three months ended September 30, 2013, CenterPoint Energy recognized a tax benefit of $8 million based on the settlement of outstanding tax claims for the 2002 and 2003 audit cycles.

The effective tax rate reported for the nine months ended September 30, 2014 was 36% , compared to 67% for the same period in 2013. The higher effective tax rate for the nine months ended September 30, 2013 was primarily associated with the formation of Enable. As a result of the formation of Enable, a deferred tax liability of $225 million was recorded for the book-to-tax basis difference in CenterPoint Energy’s investment resulting from the goodwill that was contributed by CenterPoint Energy. In addition, CenterPoint Energy recognized a tax benefit of $29 million associated with the remeasurement of state deferred taxes related to Enable's formation.

CenterPoint Energy reported no uncertain tax liability as of September 30, 2014 and expects no significant change to the uncertain tax liability over the next twelve months. The consolidated federal income tax returns for the years 2012 and 2013 are currently under audit by the Internal Revenue Service (IRS). Tax years through 2011 have been audited and settled with the IRS. For 2014, CenterPoint Energy is a participant in the IRS's Compliance Assurance Process.

(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 Energy 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 Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 as these contracts meet an exception 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, 2014 , minimum payment obligations for natural gas supply commitments are approximately $232 million for the remaining three months in 2014, $634 million in 2015, $557 million in 2016, $485 million in 2017, $434 million in 2018 and $180 million after 2018.

(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

19


attorneys’ fees and other costs, arising out of these lawsuits.  In May 2009, RRI sold its Texas retail business to a subsidiary of 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 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 Federal Energy Regulatory Commission 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, which the court granted on July 1, 2014. The defendants filed an opening brief with the court on September 18, 2014. The plaintiffs’ brief is due on November 21, 2014, and the other defendants' reply brief is due on December 22, 2014. Four amicus briefs favorable to our co-defendants were filed by the United States, Interstate Natural Gas Association of America, et. al., Washington Legal Foundation and Noble America Corporation, et. al. 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.

Environmental Matters

Manufactured Gas Plant Sites. CERC and its predecessors operated manufactured gas plants (MGPs) in the past.  There are seven MGP sites in CERC’s Minnesota service territory.  CERC believes it never owned or operated, and therefore has no liability with respect to, two of these sites.  With respect to two other sites, CERC has completed state ordered remediation, other than ongoing monitoring and water treatment.

At September 30, 2014 , 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, 2014 , CERC had collected $6.5 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, some of which are currently owned by an affiliate of NRG. 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.


20


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 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 $46 million as of September 30, 2014 .  Based on market conditions in the fourth quarter of 2014 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 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, 2014 , CenterPoint Energy had guaranteed Enable's obligations up to an aggregate amount of $100 million under these agreements. Under the terms of the omnibus agreement entered into in connection with the closing of the formation of Enable, Enable and CenterPoint Energy have agreed to use commercially reasonable efforts and cooperate with each other to terminate the CenterPoint Midstream Guarantees and to release CenterPoint Energy from such guarantees by causing Enable or one of its subsidiaries to enter into substitute guarantees or to assume the CenterPoint Midstream Guarantees as applicable.

CERC Corp. has also provided a guarantee of collection of $1.1 billion of Enable's Guaranteed Senior Notes. This guarantee is subordinated to all senior debt of CERC Corp. and is subject to automatic release on May 1, 2016.

The fair value of these guarantees is not material.


21


(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,
 
2014
 
2013
 
2014
 
2013
 
(in millions, except share and per share amounts)
Net income
$
143

 
$
151

 
$
435

 
$
198

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
429,796,000

 
428,628,000

 
429,580,000

 
428,389,000

Plus: Incremental shares from assumed conversions:
 
 
 
 
 
 
 
Stock options

 
97,000