CenterPoint Energy, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This annual filing includes unaudited fourth-quarter results; it is not a standalone quarterly report. CenterPoint is a utility holding company operating electric transmission and distribution, natural gas distribution, energy services, and an investment in Enable Midstream Partners.
Financial performance
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $7.528 billion | $7.386 billion |
| Operating income | $959 million | $933 million |
| Net income (loss) | $432 million | $(692) million |
| Diluted EPS | $1.00 | $(1.61) |
| Cash from operating activities | $1.928 billion | $1.865 billion |
| Capital expenditures (cash flow statement) | $1.414 billion | $1.584 billion |
| Cash and cash equivalents, year-end | $341 million | $264 million |
Operating margin was approximately 12.7% in 2016 versus 12.6% in 2015, calculated from reported operating income and revenue. The filing does not provide a consolidated gross-margin figure. Year-end total assets were $21.829 billion and shareholders’ equity was $3.460 billion. Current assets of $2.923 billion compared with current liabilities of $3.080 billion.
Consolidated debt was approximately $8.6 billion, including $2.3 billion of securitization bonds; the filing reports capitalization as 71% long-term debt and 29% common equity, or 64% debt and 36% equity excluding securitization bonds. Scheduled principal payments through 2019 were approximately $850 million, excluding about $1.3 billion of securitization bond repayments supported by dedicated revenues. CenterPoint had $2.5 billion of revolving credit facilities, with substantial utilization through commercial paper as of February 10, 2017; it reported compliance with debt covenants.
Material changes and segment performance
- Net income improved by $1.124 billion from 2015, principally because 2015 included $1.846 billion of non-cash impairment charges related to Enable. CenterPoint recorded no comparable Enable impairment in 2016.
- Revenue rose about 2%, while operating income increased $26 million. Electric Transmission & Distribution operating income increased to $628 million from $607 million; Natural Gas Distribution rose to $303 million from $273 million. Energy Services declined to $20 million from $42 million, including a $25 million adverse year-over-year change in derivative mark-to-market results.
- Natural Gas Distribution throughput declined to 411 Bcf from 433 Bcf, while customer count increased to 3.44 million. Electric delivery throughput increased to 86,829 GWh from 84,191 GWh, and metered customers rose to 2.40 million.
- Energy Services acquired Continuum in April 2016 for $102 million; the acquired business contributed approximately $466 million of revenue and $1 million of operating income in 2016. CES acquired AEM in January 2017 for approximately $140 million, including estimated working capital.
- Fourth-quarter 2016 revenue was $2.081 billion, operating income $243 million, net income $101 million, and diluted EPS $0.23. Fourth-quarter 2015 reported a $509 million net loss, including $984 million of Enable-related impairment charges.
Cash, outlook, and notable matters
- 2016 operating cash flow increased $63 million. Cash used in investing was $1.046 billion and cash used in financing was $805 million. Cash dividends declared were $1.03 per share; the reported dividend payout ratio was 103%.
- Management estimated 2017 capital expenditures of approximately $1.5 billion, including $922 million for electric delivery and $534 million for natural gas distribution. Expected 2017 cash needs also included $500 million of maturing senior notes, $411 million of securitization bond principal, the AEM acquisition, dividends, and interest.
- Management expected to fund 2017 needs from operating cash flow, Enable distributions, revolving credit facilities, commercial paper, and general mortgage bond issuance. The filing gives no consolidated earnings guidance. It anticipates Houston-area customer growth of roughly 2% and notes that energy-sector weakness and low commodity prices may restrain regional growth.
- CenterPoint continued to evaluate strategic alternatives for its Enable investment, including retaining it, a sale, or a tax-qualified spin-off; no specific action was assured. It decided not to pursue a REIT structure for its utility businesses.
- Houston Electric began construction on the Brazos Valley Connection in February 2017. Estimated project cost was $270–$310 million, with completion expected by June 2018.
- Key risks include regulated-rate recovery and regulatory lag; weather and severe storms; reliance on Enable distributions and producer activity; commodity-price and counterparty exposure; significant capital needs and debt; pipeline integrity and environmental compliance costs; cyber and physical security; and potential liabilities under legacy indemnities. CenterPoint also disclosed concentration in Houston Electric receivables owed by REP affiliates, including NRG and Energy Future Holdings.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of the 2016 earnings rebound reflects recurring operations versus the absence of 2015’s Enable impairment, and how Enable’s valuation and distributions develop.
- Current commercial-paper and revolving-facility balances, upcoming maturities, refinancing costs, and the effect of any credit-rating changes.
- Regulatory decisions and timing of cost recovery, including the pending Texas gas rate case and electric transmission and distribution filings.
- Actual costs, schedule, and rate recovery for planned capital projects and pipeline-safety work.
- Continuum and AEM integration results, including customer retention, margins, and whether acquisitions deliver the anticipated earnings contribution.
- Dividend sustainability in light of the reported 103% payout ratio, capital program, and dependence on subsidiary and Enable distributions.