CenterPoint Energy, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. This is an annual report, not a standalone fourth-quarter earnings report. The combined filing covers CenterPoint Energy, Houston Electric and CERC; financial figures below refer to CenterPoint Energy unless specified.
Business context
CenterPoint is a regulated utility holding company with electric transmission and distribution, Indiana electric generation, natural gas distribution, and an equity investment in Enable Midstream. During 2020, it sold its Infrastructure Services business for approximately $854 million and its Energy Services business for approximately $365 million. Following those sales, its principal reportable segments were Electric, Natural Gas and Midstream Investments.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $7.418 billion | $7.564 billion |
| Operating income | $1.039 billion | $1.071 billion |
| Net income (loss) | $(773) million | $791 million |
| Income (loss) available to common shareholders | $(949) million | $674 million |
| Diluted EPS | $(1.79) | $1.33 |
| Cash provided by operating activities | $1.995 billion | $1.638 billion |
| Capital expenditures | $2.596 billion | $2.506 billion |
- Revenue declined about 2%; 2019 included only 11 months of Vectren results, while 2020 included 12 months. Divestitures and COVID-19 also affect comparability.
- Electric segment net income was $230 million versus $419 million; Natural Gas segment net income was $278 million versus $251 million. Midstream Investments reported a $1.116 billion segment loss, principally reflecting the Enable impairment.
- Cash from operations exceeded reported capital expenditures by approximately $601 million. Investing cash flow was $(1.265) billion, including $1.215 billion of divestiture proceeds; financing cash flow was $(834) million.
- At year-end, cash and cash equivalents were $147 million. Total debt was approximately $13.44 billion, including current maturities and securitization debt; shareholders’ equity was $8.35 billion. No standalone consolidated current ratio or operating-margin figure is stated here.
- Houston Electric reported 2020 net income of $334 million, operating cash flow of $899 million and debt of approximately $5.02 billion. CERC reported net income of $81 million, operating cash flow of $729 million and debt of approximately $2.45 billion, including short-term borrowings.
Material changes versus prior year
- Common-shareholder results swung from $674 million of income to a $949 million loss. Major factors included a $1.541 billion impairment of CenterPoint’s Enable investment, its share of an Enable equity-method investment impairment, a $185 million Indiana Electric goodwill impairment, disposal-related losses, COVID-19 effects and higher preferred-stock dividend requirements.
- Enable reduced its quarterly common-unit distribution by 50% in April 2020. CenterPoint received $193 million in common-unit distributions in 2020, versus $303 million in 2019; the company estimated the reduction lowered annual distributions by about $155 million versus the previous expected level.
- CenterPoint reduced its quarterly common dividend from $0.29 to $0.15 per share in April 2020. Total common dividends declared for 2020 were $0.90 per share.
- CenterPoint raised capital through private placements of common and preferred stock, with net proceeds of approximately $673 million and $724 million, respectively. It also issued debt and redeemed or repaid other debt during the year.
- The 2020 results include full-year Vectren operations, acquired in February 2019; prior-year comparisons therefore are not fully like-for-like.
Outlook, commentary and risks
- Capital plan: Estimated 2021 capital expenditures are $3.379 billion for CenterPoint, including $1.960 billion for Electric and $1.402 billion for Natural Gas. Management described increased utility investment as supporting rate-base growth, reliability, safety and system resiliency. The filing does not provide a specific 2021 EPS guidance range.
- Strategic actions: CenterPoint planned to sell certain Arkansas and Oklahoma natural gas businesses to help fund investment; completion and proceeds were uncertain. In February 2021, Enable agreed to be acquired by Energy Transfer. CenterPoint expected to receive Energy Transfer common units and Series G preferred units, subject to closing conditions; the transaction was expected in the second half of 2021.
- February 2021 winter storm—subsequent event: Management preliminarily estimated incremental natural gas purchases of approximately $2.5 billion versus plan from February 12–22, including $2.3 billion at CERC. As of February 22, CenterPoint reported approximately $2.1 billion of total liquidity; CERC received commitments for a $1.7 billion, 364-day term loan facility. Recovery of extraordinary gas costs from customers, including its timing and completeness, was not assured. The event also caused ERCOT-directed outages and raised potential customer, credit, regulatory, litigation and market-reform risks. These events occurred after the fiscal year-end and are not 2020 operating results.
- Other significant risks: Rate-case outcomes and regulatory cost recovery; concentrated Houston Electric receivables from retail electric providers; financing access, refinancing and credit-rating changes; lower Enable distributions and commodity-market exposure; COVID-19-related demand and collections; environmental compliance and coal-ash closure costs; severe weather, aging infrastructure, cyber threats and Vectren integration execution.
- Indiana Electric recorded the $185 million goodwill impairment following an interim test; CenterPoint also recorded the $1.541 billion Enable investment impairment. The auditor issued an unqualified opinion on the financial statements and CenterPoint’s internal controls over financial reporting.
Investor verification priorities
- Review the Enable impairment valuation assumptions, year-end carrying value and the terms, approvals and eventual consideration of the proposed Energy Transfer merger.
- Track recovery proceedings, financing costs and credit-rating effects related to the February 2021 winter-storm gas purchases; distinguish preliminary estimates from final settled costs.
- Check execution and funding of the 2021–2025 capital program, including rate-base growth, rate cases and the proposed Arkansas and Oklahoma asset sale.
- Assess liquidity, debt maturities, preferred-stock dividends and conversion terms, and the effects of the reduced common dividend.
- Monitor Houston Electric REP collections and the consequences of Texas market investigations or reforms, as well as Indiana Electric coal-ash closure obligations and generation-transition approvals.