CenterPoint Energy, Inc.
CENTERPOINT ENERGY INC (Form: 10-Q, Received: 05/10/2016 06:34:40)
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016
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 April 20, 2016 , CenterPoint Energy, Inc. had 430,619,432 shares of common stock outstanding, excluding 166 shares held as treasury stock.
 



CENTERPOINT ENERGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2016

TABLE OF CONTENTS

PART I.
 
FINANCIAL INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
 
 
March 31, 2016 and December 31, 2015 (unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2016 and 2015 (unaudited)
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
 
OTHER INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 


i


GLOSSARY
 
 
 
ArcLight
 
ArcLight Capital Partners, LLC
APSC
 
Arkansas Public Service Commission
ASU
 
Accounting Standards Update
BDA
 
Billing Determinant Adjustment
Brazos Valley Connection
 
A portion of the Houston region transmission project between Houston Electric’s Zenith substation and the Gibbons Creek substation owned by the Texas Municipal Power Agency
Bond Companies
 
Transition and system restoration bond companies
Bcf
 
Billion cubic feet
CenterPoint Energy
 
CenterPoint Energy, Inc., and its subsidiaries
CERC Corp.
 
CenterPoint Energy Resources Corp.
CERC
 
CERC Corp., together with its subsidiaries
CES
 
CenterPoint Energy Services, Inc.
Charter
 
Charter Communications, Inc.
Continuum
 
Continuum Energy Services, a Tulsa and Houston-based company
DCRF
 
Distribution Cost Recovery Factor
Dodd-Frank
 
Dodd-Frank Wall Street Reform and Consumer Protection Act
Electric Generators
 
Calpine Corporation and NRG
Enable
 
Enable Midstream Partners, LP
ERCOT
 
Electric Reliability Council of Texas
FASB
 
Financial Accounting Standards Board
Fitch
 
Fitch, Inc.
Form 10-Q
 
Quarterly Report on Form 10-Q
GenOn
 
GenOn Energy, Inc.
GRIP
 
Gas Reliability Infrastructure Program
GWh
 
Gigawatt-hours
Houston Electric
 
CenterPoint Energy Houston Electric, LLC and its subsidiaries
Interim Condensed Financial Statements
 
Condensed consolidated interim financial statements and notes
IRS
 
Internal Revenue Service
LIBOR
 
London Interbank Offered Rate
LPSC
 
Louisiana Public Service Commission
MGPs
 
Manufactured gas plants
Moody’s
 
Moody’s Investors Service, Inc.
MPUC
 
Minnesota Public Utilities Commission
NAV
 
Net asset value
NGD
 
Natural gas distribution business
NGLs
 
Natural gas liquids
NRG
 
NRG Energy, Inc.
OGE
 
OGE Energy Corp.
PHMSA
 
Pipeline and Hazardous Materials Safety Administration
PBRC
 
Performance Based Rate Change
Private Placement
 
An agreement with Enable to purchase an aggregate of 14,520,000 Series A Preferred Units
PRPs
 
Potentially responsible parties
REP
 
Retail electric provider
Reliant Energy
 
Reliant Energy, Incorporated
ROE
 
Return on equity
RRI
 
Reliant Resources, Inc.
RSP
 
Rate Stabilization Plan

ii


 
 
 
GLOSSARY (cont.)
 
 
 
SEC
 
Securities and Exchange Commission
Securitization Bonds
 
Transition and system restoration bonds
Series A Preferred Units
 
Enable’s 10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units
S&P
 
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies
TDU
 
Transmission and distribution utility
Texas Utility Commission
 
Public Utility Commission of Texas
Time Common
 
Time Inc. common stock
Transition Agreements
 
Services Agreement, Employee Transition Agreement, Transitional Seconding Agreement and other agreements entered into in connection with the formation of Enable
Treasury Locks
 
Treasury lock derivative instruments
TW
 
Time Warner Inc.
TW Common
 
TW common stock
TWC
 
Time Warner Cable Inc.
TWC Common
 
TWC common stock
TW Securities
 
Time Common, TW Common and TWC Common
VIE
 
Variable interest entity
ZENS
 
2.0% Zero-Premium Exchangeable Subordinated Notes due 2029
2015 Form 10-K
 
Annual Report on Form 10-K for the year ended December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


iii


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

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

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

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

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

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

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

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

changes in tax status;

access to debt and equity capital; and

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

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

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

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

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

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

our ability to mitigate weather impacts through normalization or rate mechanisms, and the effectiveness of such mechanisms;

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

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

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

the impact of unplanned facility outages;

iv



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 such as fires, earthquakes, explosions, leaks, floods, droughts, hurricanes, pandemic health events or other occurrences;

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

our ability to control operation and maintenance costs;

actions by credit rating agencies;

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

the investment performance of our pension and postretirement benefit plans;

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

changes in interest rates or rates of inflation;

inability of various counterparties to meet their obligations to us;

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

effectiveness of our risk management activities;

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

our potential business strategies and strategic initiatives, 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;

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

the ability of GenOn (formerly known as RRI Energy, Inc., Reliant Energy and RRI), a wholly-owned subsidiary of 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;

the outcome of litigation;

the ability of REPs, including REP affiliates of NRG and Energy Future Holdings Corp., to satisfy their obligations to us and our subsidiaries;

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

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

the effective tax rates;

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

other factors we discuss in “Risk Factors” in Item 1A of Part I of our 2015 Form 10-K, which is incorporated herein by reference, and other reports we file from time to time with the SEC.

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

v

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.     FINANCIAL STATEMENTS

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

 
Three Months Ended
 
March 31,
 
2016
 
2015
 
 
 
 
Revenues
$
1,984

 
$
2,433

 
 
 
 
Expenses:
 
 
 
Natural gas
852

 
1,354

Operation and maintenance
521

 
498

Depreciation and amortization
260

 
217

Taxes other than income taxes
101

 
108

Total
1,734

 
2,177

Operating Income
250

 
256

 
 
 
 
Other Income (Expense):
 
 
 
Gain (loss) on marketable securities
90

 
(17
)
Gain (loss) on indexed debt securities
(56
)
 
24

Interest and other finance charges
(87
)
 
(89
)
Interest on securitization bonds
(24
)
 
(28
)
Equity in earnings of unconsolidated affiliate, net
60

 
52

Other, net
7

 
11

Total
(10
)
 
(47
)
 
 
 
 
Income Before Income Taxes
240

 
209

Income tax expense
86

 
78

Net Income
$
154

 
$
131

 
 
 
 
Basic Earnings Per Share
$
0.36

 
$
0.30

 
 
 
 
Diluted Earnings Per Share
$
0.36

 
$
0.30

 
 
 
 
Dividends Declared Per Share
$
0.2575

 
$
0.2475

 
 
 
 
Weighted Average Shares Outstanding, Basic
430

 
430

 
 
 
 
Weighted Average Shares Outstanding, Diluted
433

 
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
 
March 31,
 
2016
 
2015
Net income
$
154

 
$
131

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

 
2

Total
1

 
2

Comprehensive income
$
155

 
$
133



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

 
March 31,
2016
 
December 31,
2015
Current Assets:
 
 
 
Cash and cash equivalents ($205 and $264 related to VIEs, respectively)
$
218

 
$
264

Investment in marketable securities
894

 
805

Accounts receivable ($63 and $64 related to VIEs, respectively), less bad debt reserve of $25 and $20, respectively
577

 
593

Accrued unbilled revenues
207

 
279

Natural gas inventory
58

 
168

Materials and supplies
176

 
179

Non-trading derivative assets
75

 
89

Taxes receivable
3

 
172

Prepaid expenses and other current assets ($39 and $35 related to VIEs, respectively)
127

 
140

Total current assets
2,335

 
2,689

 
 
 
 
Property, Plant and Equipment:
 
 
 
Property, plant and equipment
16,900

 
16,650

Less: accumulated depreciation and amortization
5,182

 
5,113

Property, plant and equipment, net
11,718

 
11,537

 
 
 
 
Other Assets:
 
 
 
Goodwill
840

 
840

Regulatory assets ($2,279 and $2,373 related to VIEs, respectively)
3,031

 
3,129

Notes receivable – unconsolidated affiliate

 
363

Non-trading derivative assets
28

 
36

Investment in unconsolidated affiliate
2,580

 
2,594

Preferred units – unconsolidated affiliate
363

 

Other
109

 
102

Total other assets
6,951

 
7,064

 
 
 
 
Total Assets
$
21,004

 
$
21,290


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

 
March 31,
2016
 
December 31,
2015
Current Liabilities:
 
 
 
Short-term borrowings
$

 
$
40

Current portion of VIE securitization bonds long-term debt
400

 
391

Indexed debt
148

 
145

Current portion of other long-term debt
576

 
328

Indexed debt securities derivative
498

 
442

Accounts payable
378

 
483

Taxes accrued
101

 
158

Interest accrued
108

 
117

Non-trading derivative liabilities
8

 
11

Other
317

 
343

Total current liabilities
2,534

 
2,458

 
 
 
 
Other Liabilities:
 

 
 

Deferred income taxes, net
5,116

 
5,047

Non-trading derivative liabilities
3

 
5

Benefit obligations
909

 
904

Regulatory liabilities
1,306

 
1,276

Other
276

 
273

Total other liabilities
7,610

 
7,505

 
 
 
 
Long-term Debt:
 

 
 

VIE securitization bonds
2,122

 
2,276

Other long-term debt
5,232

 
5,590

Total long-term debt
7,354

 
7,866

 
 
 
 
Commitments and Contingencies (Note 13)


 


 
 
 
 
Shareholders’ Equity:
 

 
 

Common stock (430,614,900 shares and 430,262,703 shares outstanding, respectively)
4

 
4

Additional paid-in capital
4,180

 
4,180

Accumulated deficit
(613
)
 
(657
)
Accumulated other comprehensive loss
(65
)
 
(66
)
Total shareholders’ equity
3,506

 
3,461

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
21,004

 
$
21,290


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)
 
Three Months Ended March 31,
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
Net income
$
154

 
$
131

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
260

 
217

Amortization of deferred financing costs
6

 
7

Deferred income taxes
65

 
7

Unrealized loss (gain) on marketable securities
(90
)
 
17

Loss (gain) on indexed debt securities
56

 
(24
)
Write-down of natural gas inventory
1

 
2

Equity in (earnings) losses of unconsolidated affiliate, net of distributions
(60
)
 
20

Pension contributions
(3
)
 
(23
)
Changes in other assets and liabilities:
 
 
 
Accounts receivable and unbilled revenues, net
67

 
57

Inventory
112

 
179

Taxes receivable
169

 
190

Accounts payable
(82
)
 
(208
)
Fuel cost recovery
(3
)
 
86

Non-trading derivatives, net
8

 
1

Margin deposits, net
27

 
(4
)
Interest and taxes accrued
(66
)
 
(27
)
Net regulatory assets and liabilities
2

 
58

Other current assets
2

 
17

Other current liabilities
(2
)
 
(41
)
Other assets

 
6

Other liabilities
8

 
(1
)
Other, net
3

 
(1
)
Net cash provided by operating activities
634

 
666

Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(332
)
 
(341
)
Decrease in notes receivable – unconsolidated affiliate
363

 

Investment in preferred units – unconsolidated affiliate
(363
)
 

Distributions from unconsolidated affiliate in excess of cumulative earnings
74

 

Decrease (increase) in restricted cash of Bond Companies
(4
)
 
5

Other, net
(7
)
 
(1
)
Net cash used in investing activities
(269
)
 
(337
)
Cash Flows from Financing Activities:
 
 
 
Decrease in short-term borrowings, net
(40
)
 
(53
)
Payments of commercial paper, net
(111
)
 
(96
)
Payments of long-term debt
(147
)
 
(139
)
Debt issuance costs
(4
)
 

Payment of common stock dividends
(110
)
 
(106
)
Other, net
1

 
1

Net cash used in financing activities
(411
)
 
(393
)
Net Decrease in Cash and Cash Equivalents
(46
)
 
(64
)
Cash and Cash Equivalents at Beginning of Period
264

 
298

Cash and Cash Equivalents at End of Period
$
218

 
$
234

Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash Payments:
 
 
 
Interest, net of capitalized interest
$
113

 
$
115

Income tax refunds, net
(158
)
 
(166
)
Non-cash transactions:
 
 
 
Accounts payable related to capital expenditures
72

 
72


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 Form 10-Q are the Interim Condensed Financial Statements of CenterPoint Energy. The Interim Condensed Financial Statements are unaudited, omit certain financial statement disclosures and should be read with the 2015 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 both CenterPoint Energy and its operating subsidiaries own interests in Enable as described in Note 7 . As of March 31, 2016 , CenterPoint Energy’s indirect, wholly-owned subsidiaries included:

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

CERC Corp. (together with its subsidiaries), which owns and operates natural gas distribution systems. 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 March 31, 2016 , 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 March 31, 2016 , CenterPoint Energy had VIEs consisting of Bond Companies, which it consolidates. The consolidated VIEs are wholly-owned, bankruptcy-remote, special purpose entities that were formed specifically for the purpose of securitizing transition and system restoration-related property. Creditors of CenterPoint Energy have no recourse to any assets or revenues of Bond Companies. The bonds issued by these VIEs are payable only from and secured by transition and system restoration property, and the bondholders have no recourse to the general credit of CenterPoint Energy.

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

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

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

(2) New Accounting Pronouncements

In February 2015, the FASB issued ASU No. 2015-02,  Consolidation (Topic 810): Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015 -02 changes the analysis that reporting organizations must perform to evaluate whether they should consolidate certain legal entities, such as limited partnerships.  The changes include, among others, modification of the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities and elimination of the presumption that a general partner should consolidate a limited partnership. ASU 2015-02 does not amend the related party guidance for situations in which power is shared between two or more entities that hold interests in a VIE. CenterPoint Energy adopted ASU 2015-02 on January 1, 2016, which CenterPoint Energy determined did not have a material impact on its financial position, results of operations, cash flows and disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost (ASU 2015-03) . ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. CenterPoint Energy adopted ASU 2015-03 retrospectively on January 1, 2016, which resulted in a reduction of other long-term assets, indexed debt

6


and total long-term debt on its Condensed Consolidated Balance Sheets. CenterPoint Energy had debt issuance costs, excluding amounts related to credit facility arrangements, of $42 million and $44 million as of March 31, 2016 and December 31, 2015, respectively.

In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (ASU 2015-07). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair values are measured at NAV using the practical expedient. Entities will be required to disclose the fair value of investments measured using the NAV practical expedient so that financial statement users can reconcile amounts reported in the fair value hierarchy table to amounts reported on the balance sheet. CenterPoint Energy adopted ASU 2015-07 on January 1, 2016, which will have an impact on its employee benefit plan disclosures, beginning with its annual report on Form 10-K for the year ended December 31, 2016. This standard did not have an impact on CenterPoint Energy’s financial position, results of operations or cash flows.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16). ASU 2015-16 eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, an acquirer would recognize a measurement-period adjustment during the period in which the amount of the adjustment is determined. CenterPoint Energy adopted ASU 2015-16 on January 1, 2016, which did not have an impact on its financial position, results of operations or cash flows.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value and to recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. It does not change the guidance for classifying and measuring investments in debt securities and loans. ASU 2016-01 also changes certain disclosure requirements and other aspects related to recognition and measurement of financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. CenterPoint Energy is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 provides a comprehensive new lease model that requires lessees to recognize assets and liabilities for most leases and would change certain aspects of lessor accounting. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. CenterPoint Energy is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.

In March 2016, the FASB issued ASU No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novation on Existing Hedge Accounting Relationships (ASU 2016-05). ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument or a change in a critical term of the hedging relationship. This clarification applies to both cash flow and fair value hedging relationships. CenterPoint Energy adopted ASU 2016-05 prospectively in the first quarter of 2016, which did not have an impact on its financial position, results of operations, cash flows and disclosures.

In March and April 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08) and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10), respectively . ASU 2016-08 and ASU 2016-10 clarify certain aspects of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which supersedes most current revenue recognition guidance. CenterPoint Energy is currently evaluating the impact that ASU 2016-08, ASU 2016-10, and ASU 2014-09 will have on its financial position, results of operations, cash flows and disclosures and expects to adopt the three ASUs on January 1, 2018.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 will change the accounting for certain aspects of share-based payments to employees, including the recognition of income tax effects of vested or settled awards in the income statement, instead of within additional paid in capital. It will also increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligations. ASU 2016-09 will allow companies to elect between two different methods to account for forfeitures of share-based payments. ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. CenterPoint Energy is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.


7


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 March 31,
 
2016
 
2015
 
Pension
Benefits (1)
 
Postretirement
Benefits (1)
 
Pension
Benefits (1)
 
Postretirement
Benefits (1)
 
(in millions)
Service cost
$
9

 
$
1

 
$
10

 
$
1

Interest cost
23

 
4

 
23

 
5

Expected return on plan assets
(25
)
 
(2
)
 
(30
)
 
(2
)
Amortization of prior service cost
2

 

 
3

 

Amortization of net loss
16

 

 
14

 
1

Settlement cost (2)

 

 
9

 

Net periodic cost
$
25

 
$
3

 
$
29

 
$
5


(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.  

(2)
A one-time, non-cash settlement charge is required when lump sum distributions or other settlements of plan benefit obligations during a plan year exceed the service cost and interest cost components of net periodic cost for that year.  Due to the amount of lump sum payment distributions from the non-qualified pension plan during the three months ended March 31, 2015 , CenterPoint Energy recognized a non-cash settlement charge of $9 million .  This charge is an acceleration of costs that would otherwise be recognized in future periods. 

CenterPoint Energy’s changes in accumulated comprehensive loss related to defined benefit and postretirement plans are as follows:
 
Three Months Ended March 31,
 
2016
 
2015
 
Pension and Postretirement Plans
 
(in millions)
Beginning Balance
$
(65
)
 
$
(85
)
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
     Actuarial losses (1)
2

 
4

Total reclassifications from accumulated other comprehensive loss
2

 
4

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

 
2

Ending Balance
$
(64
)
 
$
(83
)

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

CenterPoint Energy expects to contribute a total of approximately $8 million to its pension plans in 2016 , of which approximately $3 million was contributed during the three months ended March 31, 2016 .

CenterPoint Energy expects to contribute a total of approximately $16 million to its postretirement benefit plan in 2016 , of which approximately $4 million was contributed during the three months ended March 31, 2016 .


8


(4) Regulatory Accounting

As of March 31, 2016 , CenterPoint Energy has not recognized an allowed equity return of $380 million because such return will be recognized as it is recovered in rates. During the three months ended March 31, 2016 and 2015 , Houston Electric recognized approximately $13 million and $9 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 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.

(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 NGD in Arkansas, Louisiana, Mississippi, Minnesota and Oklahoma. NGD and electric operations in Texas do not have such mechanisms, although fixed customer charges are historically higher in Texas for NGD compared to CenterPoint Energy’s other jurisdictions. As a result, fluctuations from normal weather may have a positive or negative effect on NGD’s results in Texas and on Houston Electric’s results in its service territory.

CenterPoint Energy has historically entered into heating-degree day swaps for certain NGD 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 $16 million in 2014–2015. However, NGD did not enter into heating-degree day swaps for the 2015–2016 winter season as a result of NGD’s Minnesota division implementing a full decoupling pilot in July 2015. CenterPoint Energy also entered into weather hedges for the Houston Electric service territory, which contained a bilateral dollar cap of $8 million for the 2014–2015 winter season and a bilateral dollar cap of $7 million for the 2015–2016 winter season. The swaps are based on 10 -year normal weather. During the three months ended March 31, 2016 and 2015 , CenterPoint Energy recognized gains of $3 million and losses of $10 million , respectively, related to these swaps. Weather hedge gains and losses are included in revenues in the Condensed Statements of Consolidated Income.

Hedging of Future Debt Issuances. In April 2016, Houston Electric entered into Treasury Locks with several counterparties, having an aggregate notional amount of $150 million . These Treasury Locks were executed to hedge, in part, volatility in the 5-year U.S. treasury rate by reducing Houston Electric’s exposure to variability in cash flows relating to interest payments on a forecasted issuance of fixed rate debt in 2016. These Treasury Locks were designated as cash flow hedges. Accordingly, the effective portion of unrealized gains and losses associated with the Treasury Locks would be recorded as a component of accumulated other comprehensive income and the ineffective portion would be recorded in income.



9


(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 March 31, 2016 and December 31, 2015 , while the last table provides a breakdown of the related income statement impacts for the three months ended March 31, 2016 and 2015 .
Fair Value of Derivative Instruments
 
 
March 31, 2016
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
 
$
75

 
$

Natural gas derivatives (1) (2) (3)
 
Other Assets: Non-trading derivative assets
 
28

 

Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
10

 
57

Natural gas derivatives (1) (2) (3)
 
Other Liabilities: Non-trading derivative liabilities
 
4

 
15

Indexed debt securities derivative
 
Current Liabilities
 

 
498

Total
 
$
117

 
$
570


(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 751  Bcf or a net 139  Bcf long position.  Of the net long position, basis swaps constitute 122  Bcf.

(2)
Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Condensed Consolidated Balance Sheets. The net of total non-trading derivative assets and liabilities was a $92 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 $47 million .

(3)
Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.
Offsetting of Natural Gas Derivative Assets and Liabilities
 
 
March 31, 2016
 
 
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
 
$
85

 
$
(10
)
 
$
75

Other Assets: Non-trading derivative assets
 
32

 
(4
)
 
28

Current Liabilities: Non-trading derivative liabilities
 
(57
)
 
49

 
(8
)
Other Liabilities: Non-trading derivative liabilities
 
(15
)
 
12

 
(3
)
Total
 
$
45

 
$
47

 
$
92


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

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

10


Fair Value of Derivative Instruments
 
 
December 31, 2015
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
 
$
90

 
$
2

Natural gas derivatives (1) (2) (3)
 
Other Assets: Non-trading derivative assets
 
36

 

Natural gas derivatives (1) (2) (3)
 
Current Liabilities: Non-trading derivative liabilities
 
10

 
60

Natural gas derivatives (1) (2) (3)
 
Other Liabilities: Non-trading derivative liabilities
 
4

 
25

Indexed debt securities derivative
 
Current Liabilities
 

 
442

Total
 
$
140

 
$
529


(1)
The fair value shown for natural gas contracts is comprised of derivative gross volumes totaling 767  Bcf or a net 112  Bcf long position.  Of the net long position, basis swaps constitute 133  Bcf.

(2)
Natural gas contracts are presented on a net basis in the Condensed Consolidated Balance Sheets as they are subject to master netting arrangements. This netting applies to all undisputed amounts due or past due and causes derivative assets (liabilities) to be ultimately presented net in a liability (asset) account within the Condensed Consolidated Balance Sheets. The net of total non-trading derivative assets and liabilities was a $109 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 $56 million .

(3)
Derivative Assets and Derivative Liabilities include no material amounts related to physical forward transactions with Enable.

Offsetting of Natural Gas Derivative Assets and Liabilities
 
 
December 31, 2015
 
 
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
 
$
100

 
$
(11
)
 
$
89

Other Assets: Non-trading derivative assets
 
40

 
(4
)
 
36

Current Liabilities: Non-trading derivative liabilities
 
(62
)
 
51

 
(11
)
Other Liabilities: Non-trading derivative liabilities
 
(25
)
 
20

 
(5
)
Total
 
$
53

 
$
56

 
$
109


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

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

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

11


Income Statement Impact of Derivative Activity
 
 
 
 
Three Months Ended March 31,
Total derivatives not designated
as hedging instruments
 
Income Statement Location
 
2016
 
2015
 
 
 
 
(in millions)
Natural gas derivatives
 
Gains (Losses) in Revenues
 
$
20

 
$
(133
)
Natural gas derivatives
 
Gains (Losses) in Expenses: Natural Gas
 
(11
)
 
132

Indexed debt securities derivative
 
Gains (Losses) in Other Income (Expense)
 
(56
)
 
24

Total
 
$
(47
)
 
$
23


(c)
Credit Risk Contingent Features

CenterPoint Energy enters into financial derivative contracts containing material adverse change provisions.  These provisions could require CenterPoint Energy to post additional collateral if the S&P or Moody’s credit ratings of CenterPoint Energy, Inc. or its subsidiaries are downgraded.  The total fair value of the derivative instruments that contain credit risk contingent features that are in a net liability position at March 31, 2016 and December 31, 2015 was $2 million and $3 million , respectively.  CenterPoint Energy posted no assets as collateral towards derivative instruments that contain credit risk contingent features at either March 31, 2016 or December 31, 2015 .  If all derivative contracts (in a net liability position) containing credit risk contingent features were triggered at both March 31, 2016 and December 31, 2015 , $2 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. At March 31, 2016 , 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 $1.37 to $3.36 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 20% to 84% ) 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 three months ended March 31, 2016 , 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.


12


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 March 31, 2016 and December 31, 2015 , 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
March 31, 2016
 
 
 
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Corporate equities
$
896

 
$

 
$

 
$

 
$
896

Investments, including money
market funds (2)
53

 

 

 

 
53

Natural gas derivatives (3)
3

 
95

 
19

 
(14
)
 
103

Total assets
$
952

 
$
95

 
$
19

 
$
(14
)
 
$
1,052

Liabilities
 

 
 

 
 

 
 

 
 

Indexed debt securities derivative
$

 
$
498

 
$

 
$

 
$
498

Natural gas derivatives (3)
8

 
60

 
4

 
(61
)
 
11

Total liabilities
$
8

 
$
558

 
$
4

 
$
(61
)
 
$
509

 
(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 $47 million posted with the same counterparties.

(2)
Amounts are included in Prepaid Expenses and Other Current Assets in the Condensed Consolidated Balance Sheets.

(3)
Natural gas derivatives include no material amounts related to physical forward transactions with Enable.
 
 
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, 2015
 
 
 
 
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Corporate equities
$
807

 
$

 
$

 
$

 
$
807

Investments, including money
market funds (2)
53

 

 

 

 
53

Natural gas derivatives (3)
4

 
115

 
21

 
(15
)
 
125

Total assets
$
864

 
$
115

 
$
21

 
$
(15
)
 
$
985

Liabilities
 

 
 

 
 

 
 

 
 

Indexed debt securities derivative
$

 
$
442

 
$

 
$

 
$
442

Natural gas derivatives (3)
13

 
65

 
9

 
(71
)
 
16

Total liabilities
$
13

 
$
507

 
$
9

 
$
(71
)
 
$
458


(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 $56 million posted with the same counterparties.

(2)
Amounts are included in Prepaid Expenses and Other Current Assets in the Condensed Consolidated Balance Sheets.

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


13


The following table presents additional information about assets or liabilities, including derivatives that are measured at fair value on a recurring basis for which CenterPoint Energy has utilized Level 3 inputs to determine fair value:
 
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
 
Derivative assets and liabilities, net
 
Three Months Ended March 31,
 
2016
 
2015
 
(in millions)
Beginning balance
$
12

 
$
17

Total gains
4

 

Total settlements
(5
)
 
(3
)
Transfers into Level 3
5

 

Transfers out of Level 3
(1
)
 
(1
)
Ending balance (1)
$
15

 
$
13

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
$
8

 
$
2


(1)
CenterPoint Energy did not have significant Level 3 purchases or sales during either of the three months ended March 31, 2016 and 2015 .

Estimated Fair Value of Financial Instruments

The fair values of cash and cash equivalents, investments in debt and equity securities classified as “trading” and short-term borrowings are estimated to be approximately equivalent to carrying amounts and have been excluded from the table below. The carrying amounts of non-trading derivative assets and liabilities and CenterPoint Energy’s ZENS indexed debt securities derivative are stated at fair value and are excluded from the table below.  The fair value of each debt instrument is determined by multiplying the principal amount of each debt instrument by 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.
 
March 31, 2016
 
December 31, 2015
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
(in millions)
Financial assets:
 
 
 
 
 
 
 
Notes receivable – unconsolidated affiliate
$

 
$

 
$
363

 
$
356

Financial liabilities:
 
 
 
 
 
 
 
Long-term debt
$
8,330

 
$
8,927

 
$
8,585

 
$
9,067


(7) Unconsolidated Affiliate

On May 1, 2013 (the Formation Date) CERC Corp., OGE and 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’s common and subordinated units using the equity method of accounting.

CenterPoint Energy’s maximum exposure to loss related to Enable, a VIE in which CenterPoint Energy is not the primary beneficiary, is limited to its equity investment and preferred unit investment as presented in the Condensed Consolidated Balance Sheet as of March 31, 2016 , the guarantees discussed in Note 13 , and outstanding current accounts receivable from Enable. On February 18, 2016, CenterPoint Energy purchased in a Private Placement an aggregate of 14,520,000 Series A Preferred Units from Enable for a total purchase price of $363 million , which is accounted for as a cost method investment. In connection with the Private Placement, Enable redeemed $363 million of notes owed to a wholly-owned subsidiary of CERC Corp., which bore interest at an annual rate of 2.10% to 2.45% . CenterPoint Energy recorded interest income of $1 million and $2 million during the three months ended March 31, 2016 and 2015 , respectively, and had interest receivable from Enable of $-0- and $4 million as of March 31, 2016 and December 31, 2015 , respectively, on its notes receivable.


14


Effective on the Formation Date, CenterPoint Energy and Enable entered into Transition Agreements.  Under the Services Agreement, CenterPoint Energy agreed to provide certain support services to Enable such as accounting, legal, risk management and treasury functions for an initial term, which ended on April 30, 2016. CenterPoint Energy is providing certain services to Enable on a year-to-year basis unless terminated by Enable with at least 90 days’ notice prior to the end of the extension term.  Enable may terminate the Services Agreement, or the provision of any services thereunder, upon approval by its board of directors and at least 180 days’ notice.

CenterPoint Energy billed Enable for reimbursement of transition services of $3 million and $5 million during the three months ended March 31, 2016 and 2015 , respectively, under the Transition Agreements. Actual transition services costs are recorded net of reimbursements received from Enable. CenterPoint Energy had accounts receivable from Enable of $3 million as of both March 31, 2016 and December 31, 2015 for amounts billed for transition services.

CenterPoint Energy incurred natural gas expenses, including transportation and storage costs, of $33 million and $39 million during the three months ended March 31, 2016 and 2015 , respectively, for transactions with Enable. CenterPoint Energy had accounts payable to Enable of $11 million as of both March 31, 2016 and December 31, 2015 from such transactions.

As of March 31, 2016 , CenterPoint Energy held an approximate 55.4% limited partner interest in Enable, consisting of 94,151,707 common units and 139,704,916 subordinated units. As of March 31, 2016 , CenterPoint Energy and OGE each own a 50% management interest in the general partner of Enable and a 40% and 60% interest, respectively, in the incentive distribution rights held by the general partner. Additionally, as of March 31, 2016 , CenterPoint Energy held 14,520,000 Series A Preferred Units in Enable.

CenterPoint Energy evaluates its equity method investments and cost method investments for impairment when factors indicate that a decrease in value of its investment has occurred and the carrying amount of its investment may not be recoverable. An impairment loss, based on the excess of the carrying value over the best estimate of fair value of the investment, is recognized in earnings when an impairment is deemed to be other than temporary. Considerable judgment is used in determining if an impairment loss is other than temporary and the amount of any impairment. As of March 31, 2016 , the carrying value of CenterPoint Energy’s equity method investment in Enable was $11.03 per unit, which includes limited partner common and subordinated units, a general partner interest and incentive distribution rights. On March 31, 2016 , Enable’s common unit price closed at $8.56 . On April 29, 2016, Enable’s common unit price closed at $11.87 .

Based on an analysis of its equity method investment in Enable as of March 31, 2016 , CenterPoint Energy believes that the decline in the value of its investment is temporary, and that the carrying value of its investment of $2.6 billion will be recovered. CenterPoint Energy considered the severity and duration of the impairment, management’s intent and ability to hold its investment to recovery, significant events and conditions of Enable, to conclude that its equity method investment is not other than temporarily impaired as of March 31, 2016 .

As there were no identified events or changes in circumstances that may have a significant adverse effect on the fair value of CenterPoint Energy’s cost method investment in Enable’s preferred units as of March 31, 2016, and the investment’s fair value is not readily determinable, an estimate of the fair value of the cost method investment was not performed.

Summarized unaudited consolidated income information for Enable is as follows:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
 
 
(in millions)
Operating revenues
 
$
509

 
$
616

Cost of sales, excluding depreciation and amortization
 
195

 
292

Operating income
 
103

 
104

Net income attributable to Enable
 
86

 
91

 
 
 
 
 
Reconciliation of Equity in Earnings, net:
 
 
 
 
CenterPoint Energy’s interest
 
$
48

 
$
51

Basis difference amortization
 
12

 
1

CenterPoint Energy’s equity in earnings, net
 
$
60

 
$
52


15


Summarized unaudited consolidated balance sheet information for Enable is as follows:
 
 
March 31,
2016
 
December 31, 2015
 
 
(in millions)
Current assets
 
$
380

 
$
381

Non-current assets
 
10,869

 
10,857

Current liabilities
 
280

 
615

Non-current liabilities
 
3,122

 
3,092

Non-controlling interest
 
12

 
12

Preferred equity
 
362

 

Enable partners’ equity
 
7,473

 
7,519

 
 
 
 
 
Reconciliation of Equity Method Investment in Enable:
 
 
 
 
CenterPoint Energy’s ownership interest in Enable partners’ capital
 
$
4,138

 
$
4,163

CenterPoint Energy’s basis difference
 
(1,558
)
 
(1,569
)
CenterPoint Energy’s equity method investment in Enable
 
$
2,580

 
$
2,594


Distributions Received from Unconsolidated Affiliate:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
 
 
(in millions)
Enable
 
$
74

 
$
72

(8) Goodwill

Goodwill by reportable business segment as of both March 31, 2016 and December 31, 2015 is as follows:
 
(in millions)
Natural Gas Distribution
$
746

Energy Services (1)
83

Other Operations
11

Total
$
840

(1)
Amounts presented are net of accumulated goodwill impairment charge of $252 million .

(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 cumulative preferred stock. As of March 31, 2016 , 430,615,066  shares of CenterPoint Energy, Inc. common stock were issued and 430,614,900 shares were outstanding. As of December 31, 2015 , 430,262,869  shares of CenterPoint Energy, Inc. common stock were issued and 430,262,703  shares were outstanding. Outstanding common shares exclude 166 treasury shares as of both March 31, 2016 and December 31, 2015 .

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

(a) Investment in Securities Related to ZENS

In 1995, CenterPoint Energy sold a cable television subsidiary to TW and received TW securities as partial consideration. A subsidiary of CenterPoint Energy now holds 7.1 million shares of TW Common, 1.8 million shares of TWC Common and 0.9 million shares of Time Common, which are classified as trading securities and are expected to be held to facilitate CenterPoint Energy’s ability to meet its obligation under the ZENS. Unrealized gains and losses resulting from changes in the market value of the TW Securities are recorded in CenterPoint Energy’s Statements of Consolidated Income.


16


(b) ZENS

In September 1999, CenterPoint Energy issued ZENS having an original principal amount of $1 billion of which $828 million remain outstanding at March 31, 2016 . Each ZENS note was originally exchangeable at the holder’s option at any time for an amount of cash equal to 95% of the market value of the reference shares of TW Common attributable to such note. The number and identity of the reference shares attributable to each ZENS note are adjusted for certain corporate events. As of March 31, 2016 , the reference shares for each ZENS note consisted of 0.5  share of TW Common, 0.125505  share of TWC Common and 0.0625 share of Time Common, and the contingent principal balance was $701 million .

On May 26, 2015, Charter announced that it had entered into a definitive merger agreement with TWC. On September 21, 2015, Charter shareholders approved the announced transaction with TWC. Pursuant to the merger agreement, upon closing of the merger, TWC Common shares would be exchanged for cash and Charter stock and as a result, reference shares would consist of Charter stock, TW Common and Time Common. The merger is expected to close in the second quarter of 2016.

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

(a)
Short-term Borrowings

Inventory Financing . NGD has asset management agreements associated with its utility distribution service in Arkansas, north Louisiana and Oklahoma that extend through 2019. Pursuant to the provisions of the agreements, NGD sells natural gas and agrees to repurchase an equivalent amount of natural gas during the winter heating seasons at the same cost, plus a financing charge. These transactions are accounted for as a financing and had an associated principal obligation of $-0- and $40 million as of March 31, 2016 and December 31, 2015 , respectively.

(b)
Long-term Debt

Credit Facilities. On March 4, 2016, CenterPoint Energy announced that it had refinanced its existing $2.1 billion revolving credit facilities, which would have expired in 2019, with new revolving credit facilities totaling an aggregate $2.5 billion . The credit agreements evidencing the new revolving credit facilities provide for five -year senior unsecured revolving credit facilities in amounts of $1.6 billion for CenterPoint Energy, $300 million for Houston Electric and $600 million for CERC Corp.

As of March 31, 2016 and December 31, 2015 , CenterPoint Energy, Houston Electric and CERC Corp. had the following revolving credit facilities and utilization of such facilities:
 
March 31, 2016
 
December 31, 2015
 
 
Size of
Facility
 
Loans
 
Letters
of Credit
 
Commercial
Paper
 
Size of
Facility
 
Loans
 
Letters
of Credit
 
Commercial
Paper
 
 
(in millions)
 
CenterPoint Energy
$
1,600

 
$

 
$
6

 
$
824

(1)
$
1,200

 
$

 
$
6

 
$
716

(1)
Houston Electric
300

 
200

(2)
4

 

 
300

 
200

(2)
4

 

 
CERC Corp.
600

 

 
2

 

 
600

 

 
2

 
219

(3)
Total
$
2,500

 
$
200

 
$
12

 
$
824

 
$
2,100

 
$
200

 
$
12

 
$
935

 

(1)
Weighted average interest rate was 0.898% and 0.79% as of March 31, 2016 and December 31, 2015 , respectively.

(2)
Weighted average interest rate was 1.56% and 1.637% as of March 31, 2016 and December 31, 2015 , respectively.

(3)
Weighted average interest rate was 0.81% as of December 31, 2015 .

CenterPoint Energy’s $1.6 billion revolving credit facility, which is scheduled to terminate on March 3, 2021 , can be drawn at 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 (with certain exceptions, including but not limited to Securitization Bonds) to an amount not to exceed 65% of CenterPoint Energy’s consolidated capitalization. As of March 31, 2016 , CenterPoint Energy’s debt (excluding Securitization Bonds) to capital ratio, as defined in its credit facility agreement, was 54.2% . The financial covenant limit will temporarily increase from 65% to 70% if Houston Electric experiences damage from a natural disaster in its service territory and CenterPoint Energy certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive twelve -month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the

17


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.

Houston Electric’s $300 million revolving credit facility, which is scheduled to terminate on March 3, 2021 , can be drawn at LIBOR plus 1.125% based on Houston Electric’s current credit ratings. The revolving credit facility contains a financial covenant which limits Houston Electric’s consolidated debt (with certain exceptions, including but not limited to Securitization Bonds) to an amount not to exceed 65% of Houston Electric’s consolidated capitalization. As of March 31, 2016 , Houston Electric’s debt (excluding Securitization Bonds) to capital ratio, as defined in its credit facility agreement, was 52.6% . The financial covenant limit will temporarily increase from 65% to 70% if Houston Electric experiences damage from a natural disaster in its service territory and Houston Electric certifies to the administrative agent that Houston Electric has incurred system restoration costs reasonably likely to exceed $100 million in a consecutive twelve -month period, all or part of which Houston Electric intends to seek to recover through securitization financing. Such temporary increase in the financial covenant would be in effect from the date Houston Electric delivers its certification until the earliest to occur of (i) the completion of the securitization financing, (ii) the first anniversary of Houston Electric’s certification or (iii) the revocation of such certification.

CERC Corp.’s $600 million revolving credit facility, which is scheduled to terminate on March 3, 2021 , can be drawn at LIBOR plus 1.25% 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. As of March 31, 2016 , CERC’s debt to capital ratio, as defined in its credit facility agreement, was 32.5% .

CenterPoint Energy, Houston Electric and CERC Corp. were in compliance with all financial covenants as of March 31, 2016 .

(12) Income Taxes

The effective tax rate reported for the three months ended March 31, 2016 was 36% compared to 37% for the same period in 2015.

CenterPoint Energy reported no uncertain tax liability as of March 31, 2016 and expects no significant change to the uncertain tax liability over the next twelve months. Tax years through 2013 have been audited and settled with the IRS. For tax years 2014 through 2016, CenterPoint Energy is a participant in the IRS’s Compliance Assurance Process.

(13) 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 Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 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 March 31, 2016 , minimum payment obligations for natural gas supply commitments are approximately $283 million for the remaining nine months in 2016, $449 million in 2017, $404 million in 2018, $217 million in 2019, $90 million in 2020 and $38 million after 2020.

(b)
Legal, Environmental and Other Regulatory Matters

Legal Matters

Gas Market Manipulation Cases .  CenterPoint Energy, Houston Electric or their predecessor, 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, 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 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. 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 Houston Electric, 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.


18


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. 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, and stayed the remainder of the case pending outcome of the appeals.  The plaintiffs appealed this ruling to the U.S. Court of Appeals for the Ninth Circuit, which reversed the trial court’s dismissal of the plaintiffs’ claims. On April 21, 2015, the U.S. Supreme Court affirmed the Ninth Circuit’s ruling and remanded the case to the district court for further proceedings, which are now underway. CenterPoint Energy and CES intend to continue vigorously defending against the plaintiffs’ claims. CenterPoint Energy does not expect the ultimate outcome of this matter to have a material adverse effect on its financial condition, results of operations or cash flows.

Environmental Matters

Manufactured Gas Plant Sites. CERC and its predecessors operated MGPs in the past. With respect to certain Minnesota MGP sites, CERC has completed state-ordered remediation and continues state-ordered monitoring and water treatment. As of March 31, 2016 , CERC had a recorded liability of $7 million for continued monitoring and any future remediation required by regulators in Minnesota. The estimated range of possible remediation costs for the sites for which CERC believes it may have responsibility was $4 million to $28 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 depend on the number of sites to be remediated, the participation of other PRPs, if any, and the remediation methods used. 

In addition to the Minnesota sites, the 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. CenterPoint Energy does not expect the ultimate outcome of these matters to have a material adverse effect on the financial condition, results of operations or cash flows of either CenterPoint Energy or CERC.

Asbestos. Some facilities owned by CenterPoint Energy or its predecessors contain or have contained asbestos insulation and other asbestos-containing materials. CenterPoint Energy and its subsidiaries are from time to time named, along with numerous others, as defendants in lawsuits filed by a number of individuals who claim injury due to exposure to asbestos, and CenterPoint Energy anticipates that additional claims may be asserted in the future.  Although their ultimate outcome cannot be predicted at this time, CenterPoint Energy 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 and reasonably estimable 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.


19


(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 $24 million as of March 31, 2016 .  Based on market conditions in the fourth quarter of 2015 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.

In 2010, CenterPoint Energy provided a guarantee (the CenterPoint Midstream Guarantee) with respect to the performance of certain obligations of Enable under a long-term gas gathering and treating agreement with an indirect, wholly-owned subsidiary of Royal Dutch Shell plc. 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 Guarantee and to release CenterPoint Energy from such guarantee. As of March 31, 2016 , CenterPoint Energy had guaranteed Enable’s obligations up to an aggregate amount of $50 million under the CenterPoint Energy Midstream Guarantee.

CERC Corp. had also provided a guarantee of collection of $1.1 billion of Enable’s senior notes due 2019 and 2024. This guarantee was subordinated to all senior debt of CERC Corp. and was automatically released on May 1, 2016.

The fair value of these guarantees is not material.

(14) Earnings Per Share

The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings per share calculations:
 
Three Months Ended March 31,
 
2016
 
2015
 
(in millions, except share and per share amounts)
Net income
$
154

 
$
131

 
 
 
 
Basic weighted average shares outstanding
430,407,000

 
429,955,000

Plus: Incremental shares from assumed conversions:
 
 
 
Restricted stock
2,187,000

 
1,228,000

Diluted weighted average shares
432,594,000

 
431,183,000

 
 
 
 
Basic earnings per share
 
 
 
Net income
$
0.36

 
$
0.30

 
 
 
 
Diluted earnings per share
 
 
 
Net income
$
0.36

 
$
0.30


(15) Reportable Business Segments

CenterPoint Energy’s determination of reportable business segments considers the strategic operating units under which CenterPoint Energy manages sales, allocates resources and assesses performance of various products and services to wholesale or retail customers in differing regulatory environments. CenterPoint Energy uses operating income as the measure of profit or loss for its business segments.

CenterPoint Energy’s reportable business segments include the following: Electric Transmission & Distribution, Natural Gas Distribution, Energy Services, Midstream Investments and Other Operations. The electric transmission and distribution function is reported in the Electric Transmission & Distribution business segment. Natural Gas Distribution consists of intrastate natural

20


gas sales to, and natural gas transportation and distribution for residential, commercial, industrial and institutional customers. Energy Services represents CenterPoint Energy’s non-rate regulated gas sales and services operations. Midstream Investments consists of CenterPoint Energy’s investment in Enable. Other Operations consists primarily of other corporate operations which support all of CenterPoint Energy’s business operations.

Financial data for business segments is as follows:
 
For the Three Months Ended March 31, 2016
 
 
 
 
Revenues from
External
Customers
 
Net
Intersegment
Revenues
 
Operating
Income
 
Total Assets as of March 31, 2016
 
 
(in millions)
 
Electric Transmission & Distribution
$
660

(1)
$

 
$
83

 
$
9,960

 
Natural Gas Distribution
888

 
7

 
160

 
5,661

 
Energy Services
432

 
7

 
6

 
844

 
Midstream Investments   (2)

 

 

 
2,580

 
Other Operations
4

 

 
1

 
2,953

(3)
Eliminations

 
(14
)
 

 
(994
)
 
Consolidated
$
1,984

 
$

 
$
250

 
$
21,004

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2015
 
 
 
 
Revenues from
External
Customers
 
Net
Intersegment
Revenues
 
Operating
Income
 
Total Assets as of December 31, 2015
 
 
(in millions)
 
Electric Transmission & Distribution
$
612

(1)
$

 
$
96

 
$
10,028

 
Natural Gas Distribution
1,185

 
8

 
146

 
5,657

 
Energy Services
632

 
18

 
13

 
857

 
Midstream Investments (2)

 

 

 
2,594

 
Other Operations
4

 

 
1

 
2,879

(3)
Eliminations

 
(26
)
 

 
(725
)
 
Consolidated
$
2,433

 
$

 
$
256

 
$
21,290

 

(1)
Electric Transmission & Distribution revenues from major customers are as follows:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
 
 
(in millions)
Affiliates of NRG
 
$
145

 
$
184

Affiliates of Energy Future Holdings Corp.
 
$
45

 
$
52


(2)
Midstream Investments’ equity earnings are as follows:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
 
 
(in millions)
Enable
 
$
60

 
$
52


Midstream Investments’ total assets are as follows:
 
 
March 31, 2016
 
December 31, 2015
 
 
(in millions)
Enable
 
$
2,580

 
$
2,594


21



(3)
Included in total assets of Other Operations as of March 31, 2016 and December 31, 2015 are pension and other postemployment related regulatory assets of $798 million and $814 million , respectively.

(16) Subsequent Events

On April 1, 2016 , CES, an indirect, wholly-owned subsidiary of CenterPoint Energy, closed the previously announced agreement to acquire the retail commercial and industrial businesses of Continuum for $98.2 million , comprised of a purchase price of $77.5 million , less a $4.7 million purchase price adjustment, and working capital of $25.4 million . Due to the limited amount of time since the acquisition, the initial accounting for the acquisition is incomplete. CenterPoint Energy intends to provide additional business combination disclosures, if material, in its Form 10-Q for the second quarter of 2016.

On April 28, 2016 , CenterPoint Energy’s board of directors declared a regular quarterly cash dividend of $0.2575 per share of common stock payable on June 10, 2016 , to shareholders of record as of the close of business on May 16, 2016 .

On April 26, 2016 , Enable declared a quarterly cash distribution of $0.318 per unit on all of its outstanding common and subordinated units for the quarter ended March 31, 2016 . Accordingly, CERC Corp. expects to receive a cash distribution of approximately $74 million from Enable in the second quarter of 2016 to be made with respect to CERC Corp.’s investment in common and subordinated units in Enable for the first quarter of 2016.

On April 26, 2016 , Enable declared a quarterly cash distribution of $0.2917 per Series A Preferred Unit for the period from February 18, 2016 to March 31, 2016. Accordingly, CenterPoint Energy expects to receive a cash distribution of approximately $4 million from Enable in the second quarter of 2016 to be made with respect to CenterPoint Energy’s investment in Series A Preferred Units of Enable for the first quarter of 2016.


22


Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT ENERGY, INC. AND SUBSIDIARIES

The following discussion and analysis should be read in combination with our Interim Condensed Financial Statements contained in this Form 10-Q and our 2015 Form 10-K.

RECENT EVENTS

Preferred Units. On January 28, 2016, we entered into a purchase agreement with Enable pursuant to which we agreed to purchase in a Private Placement an aggregate of 14,520,000 10% Series A Preferred Units from Enable for a cash purchase price of $25.00 per Series A Preferred Unit. The Private Placement closed on February 18, 2016. In connection with the Private Placement, Enable redeemed approximately $363 million of notes scheduled to mature in 2017 payable to a wholly-owned subsidiary of CERC Corp. We used the proceeds from this redemption for our investment in the Series A Preferred Units.

Continuum Acquisition. On April 1, 2016, CES, our indirect, wholly-owned subsidiary, closed the previously announced agreement to acquire the retail commercial and industrial businesses of Continuum for $98.2 million, comprised of a purchase price of $77.5 million, less a $4.7 million purchase price adjustment, and working capital of $25.4 million.

Credit Facilities. On March 4, 2016, we announced that we had refinanced our existing $2.1 billion revolving credit facilities, which would have expired in 2019, with new revolving credit facilities totaling an aggregate $2.5 billion. The credit agreements evidencing the new revolving credit facilities provide for five-year senior unsecured revolving credit facilities in amounts of $1.6 billion for us, $300 million for Houston Electric and $600 million for CERC Corp. These revolving credit facilities may be drawn on by the companies from time to time to provide funds used for general corporate purposes and to backstop the companies’ commercial paper programs. The facilities may also be utilized to obtain letters of credit.

On April 4, 2016, in connection with the replacement of our $1.2 billion unsecured revolving credit facility with the new $1.6 billion facility, we increased the size of our commercial paper program to permit the issuance of commercial paper notes in an aggregate principal amount not to exceed the unused portion of our $1.6 billion facility. The size of CERC Corp.’s commercial paper program will remain at $600 million.

DCRF. On April 4, 2016, Houston Electric filed an application with the Texas Utility Commission for a DCRF interim rate adjustment to account for changes in certain distribution-invested capital since its 2010 rate case. The application requested the annualized DCRF charge to be set at $49.4 million, representing a $36.4 million increase from the prior year charge. This increase, effective September 1, 2016 through August 31, 2017, is based on an increase in eligible distribution-invested capital from January 1, 2010 through December 31, 2015 of $689 million. The application further requested the annualized DCRF charge to be set at $60.6 million starting September 1, 2017.

Houston, South Texas, Beaumont/East Texas and Texas Coast GRIP . NGD’s Houston, South Texas, Beaumont/East Texas and Texas Coast divisions each submitted annual GRIP filings on March 31, 2016 representing an aggregate increase in revenue of $18.2 million based on incremental capital expenditures of $115.5 million. For the Houston Division, the GRIP filing requested an increase in revenues of $7.7 million related to $47.2 million in incremental capital expenditures that were incurred in 2015. The requested revenue requirement increase for this filing period is based on an 8.65% overall rate of return. For the South Texas Division, the filing requested an increase in revenues of $2.1 million for recovery of costs related to $13.8 million in incremental capital expenditures that were incurred in 2015. This requested amount is based on an 8.75% overall rate of return. For the Beaumont/East Texas Division, the GRIP filing requested recovery of costs related to $26.8 million in incremental capital expenditures incurred in 2015. The increase in revenue requirements for this filing period is $4.2 million annually, based on an overall rate of return of 8.51%. For the Texas Coast Division, NGD made its first GRIP filing, which requested an increase in revenues of $4.2 million, based on an overall rate of return of 8.23% and incremental capital expenditures of $27.7 million incurred during the fifteen-month period following the test year in NGD’s most recent rate case for the Texas Coast division through December 31, 2015. For each division, rates are expected to be implemented by July 2016.


23

Table of Contents

CONSOLIDATED RESULTS OF OPERATIONS

All dollar amounts in the tables that follow are in millions, except for per share amounts.
 
Three Months Ended March 31,
 
2016
 
2015