CenterPoint Energy, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The combined filing also reports for Houston Electric and CenterPoint Energy Resources Corp. (CERC). Financial amounts below are in millions of dollars unless stated otherwise.
Business context and reporting changes
CenterPoint is a regulated utility holding company with electric transmission and distribution, natural gas distribution and pipeline operations, and energy performance contracting. On June 30, 2022, Indiana Gas and VEDO were transferred to CERC in a common-control restructuring; comparative CERC periods were recast. CenterPoint completed the sale of its Arkansas and Oklahoma natural gas businesses on January 10, 2022, and sold its remaining Energy Transfer securities during the first half.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,944 | $1,742 | $4,707 | $4,289 |
| Operating income | $351 | $296 | $828 | $749 |
| Income from continuing operations | $190 | $200 | $721 | $480 |
| Net income | $190 | $251 | $721 | $614 |
| Income available to common shareholders | $179 | $221 | $697 | $555 |
| Diluted EPS | $0.28 | $0.37 | $1.10 | $0.93 |
| Operating cash flow | Not separately presented | Not separately presented | $978 | $(1,076) |
Q2 revenue rose about 12%, while operating income increased $55. Common income and diluted EPS declined year over year, principally reflecting the absence of 2021 discontinued-operation earnings from the Enable investment. For the first half, common income and diluted EPS increased; results included a $303 gain on the Arkansas and Oklahoma sale and market-value fluctuations in equity and indexed debt securities. The 2021 comparison included $134 of after-tax discontinued income from Enable.
- Electric: Q2 segment net income was $173 versus $125; first-half net income was $255 versus $200. Revenue growth reflected transmission charges, higher usage and weather, customer growth, and rate-related items.
- Natural Gas: Q2 segment net income was $28 versus $74; first-half net income was $426 versus $303. First-half results included a $557 CERC gain on the Arkansas and Oklahoma sale. Higher gas costs generally flowed through revenue and expense; the sale also reduced the business included in 2022 results.
- Margins: The filing does not provide a single consolidated margin measure; revenue growth should be considered alongside pass-through energy costs and the divestiture gain.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $555, up from $230 at December 31, 2021. Operating cash flow for the first half was $978, compared with cash used of $1,076 a year earlier; the prior-year comparison was significantly affected by winter-storm-related regulatory asset and liability movements.
- First-half capital expenditures were $1,880. Investing cash flow was positive $942, including $2,075 of divestiture proceeds and $702 from sales of marketable securities.
- Long-term debt, including current maturities and securitization bonds, was approximately $15.0 billion at June 30. The filing reports $1,423 of commercial paper and $11 of letters of credit outstanding against $3.6 billion of revolving facilities; no facility loans were drawn. The registrants reported compliance with debt covenants.
- CenterPoint expects $1,901 of capital expenditures during the remaining six months of 2022. Management expects cash requirements to be met through operating cash flows, debt and commercial paper financing, credit facilities, and anticipated Texas storm-cost securitization proceeds.
Material changes, outlook and risks
- The Arkansas and Oklahoma sale generated $2,075 of cash proceeds and a $303 gain for CenterPoint; CERC recorded a $557 gain. Sale proceeds and Energy Transfer security sales supported debt repayments and redemptions. CenterPoint also issued $800 of Houston Electric debt and $500 of CERC notes during the first half.
- CenterPoint and CERC recorded $1,186 and $1,185, respectively, in current regulatory assets for February 2021 Winter Storm natural gas costs, plus $272 each in non-current regulatory assets. Recovery remains subject to regulatory review. In Minnesota, administrative law judges recommended no disallowance; the MPUC decision was expected in Q3 2022. Proposals by parties included potential CERC disallowances of up to $409, or an alternative $57, from the Minnesota Attorney General.
- Approximately 185 winter-storm-related lawsuits were pending. The company stated it could not estimate potential losses; proceedings and discovery were stayed while bellwether cases proceed. The company intends to defend the claims.
- Houston Electric sought recovery of deferred mobile-generation costs, including an amended request tied to approximately $200 of costs and an annual revenue increase of about $57. Regulatory approval and cost recovery remain relevant uncertainties.
- Solar projects face potential delays and cost increases from supply-chain constraints, labor and commodity costs, and trade investigations affecting panel imports. The Posey County solar project was being downsized from 300 MW to approximately 200 MW, subject to further review. The company also disclosed a June outage at F.B. Culley Unit 3; estimated repair costs were $7–$9, with return to service expected in 6–12 months.
- Management’s stated long-term goals include net-zero Scope 1 and Scope 2 emissions by 2035 and a 20%–30% reduction in Scope 3 emissions by 2035. The filing provides no quantified full-year earnings guidance. A common dividend of $0.18 per share was declared in July for payment in September.
Important facts for investors to verify
- Progress and final recoverability of winter-storm gas costs, including the Minnesota prudency proceeding and Texas securitization.
- Exposure and insurance coverage relating to winter-storm litigation; potential losses remain unestimable in the filing.
- Approval, timing and cost recovery for mobile generation, Indiana generation projects, and solar investments.
- Capital spending and financing needs, debt maturities, commercial-paper usage, and continued covenant compliance.
- How much reported earnings growth reflects recurring utility operations versus the divestiture gain and market-value changes in securities.