CenterPoint Energy, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. CenterPoint is a utility holding company with electric transmission and distribution, natural gas distribution and energy services businesses, and a 55.4% limited partner interest in Enable Midstream Partners.
Financial performance and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $1.884B | $1.894B | $5.047B | $4.282B |
| Operating income | $186M | $223M | $481M | $555M |
| Net income (loss) | $107M | $(100)M | $292M | $47M |
| Diluted EPS | $0.25 | $(0.23) | $0.68 | $0.11 |
- Six-month operating cash flow was $712M, versus $790M. Investing used $659M, including $625M of capital expenditures; financing used $55M. Cash at period-end was $206M.
- At June 30, current assets were $2.529B and current liabilities $3.026B. Long-term debt was $7.755B; current debt-related balance-sheet items included short-term borrowings of $42M, current bond maturities of $363M, indexed debt of $147M and other current debt of $200M.
- Revolving credit facilities totaled $2.1B; the filing reports covenant compliance. The company expected cash, operating flows, Enable distributions and available borrowing to cover anticipated cash needs for the rest of 2014.
- Quarterly dividend declared was $0.2375 per share; six-month dividends paid were $204M.
Material changes and management commentary
- Q2 revenue was broadly unchanged, while operating income fell $37M. Management cited lower electric utility income, including milder weather and higher operating costs, partly offset by customer growth; gas distribution and Energy Services income improved.
- Six-month revenue increased substantially, but operating income declined $74M. Higher natural gas-related revenues and costs contributed to the revenue increase. The prior-year comparison includes only the former pipeline and field-services businesses through their May 2013 contribution to Enable.
- Net income improved in both comparisons chiefly because 2013 included a large tax charge associated with Enable’s formation. The effective tax rate was 37% in 2014; the comparable 2013 rates were 169% for Q2 and 88% for the first half. Higher Enable equity earnings also contributed to first-half improvement.
- Enable completed its IPO in April. CenterPoint received no IPO proceeds; its interest was diluted and later increased to approximately 55.4% after contributing a 24.95% SESH interest for Enable units. CenterPoint recorded no gain or loss on the contribution.
- For the rest of 2014, management estimated capital expenditures of about $745M, bond principal payments of $165M and pension contributions of approximately $62M. These are cash requirements, not earnings guidance.
Outlook, risks and contingencies
- Key exposures include weather, commodity prices and basis differentials, regulatory rate recovery, capital-project execution, interest rates, access to financing, customer and counterparty credit, and Enable’s operating results and distributions. Management cautioned that interim results are seasonal and not necessarily indicative of full-year performance.
- CenterPoint guaranteed up to $1.1B of Enable senior notes, subject to automatic release in May 2016, and up to $100M of certain Enable gathering and treating obligations. No balance-sheet amounts were recorded for these guarantees. A separate GenOn-related transportation guarantee had a maximum potential payout of about $51M.
- Natural-gas supply commitments were approximately $259M for the remainder of 2014, with additional obligations thereafter. The company reported a $13M liability for Minnesota manufactured-gas-plant remediation; estimated possible costs ranged from $6M to $41M.
- A Nevada gas-market litigation matter remained pending; CenterPoint said it did not expect a material impact. The filing reported no material change in previously disclosed risk factors.
- Regulatory developments included approval of a $13.6M annual transmission-revenue increase effective May 2014 and a Minnesota gas-rate increase, with final rates expected in Q4 2014 and a customer refund anticipated because approved rates were below interim rates.
Important facts for investors to verify
- How much of the first-half earnings improvement reflects recurring operations versus the unusually high 2013 tax expense and increased Enable equity earnings.
- Whether regulated rate increases and cost recovery offset weather-driven usage, operating-cost growth and capital spending.
- Enable’s distribution capacity and performance, and CenterPoint’s exposure under Enable-related guarantees and affiliate arrangements.
- Debt maturities, liquidity availability and potential collateral or cash demands following a credit-rating downgrade, adverse commodity movements or severe weather.