CenterPoint Energy, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing also includes results for wholly owned CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. (CERC). CenterPoint’s regulated businesses deliver electricity and natural gas; the quarter included the completed sale of its Arkansas and Oklahoma natural gas businesses.
Financial performance and liquidity
- Revenue: $2.763 billion, up 8.5% from $2.547 billion. Utility revenue was $2.709 billion; non-utility revenue was $54 million.
- Operating income: $477 million, versus $453 million.
- Net income: $531 million, versus $363 million. Income available to common shareholders was $518 million, or $0.82 per basic and diluted share, compared with $334 million and $0.56 per share.
- Cash flow: Operating cash flow was $580 million, compared with cash use of $1.681 billion in Q1 2021. Investing provided $1.934 billion, including $2.060 billion of divestiture proceeds and $702 million from equity-security sales; capital expenditures were $846 million. Financing used $2.621 billion. Cash, cash equivalents and restricted cash ended at $147 million.
- Debt and liquidity: Long-term debt including current maturities was reported at $13.870 billion, excluding indexed debt securities, down from $16.086 billion at year-end. CenterPoint and its subsidiaries had $4.0 billion of revolving facilities; at March 31, $708 million of commercial paper and $11 million of letters of credit were outstanding. All registrants reported compliance with financial debt covenants.
- Operating subsidiaries: Houston Electric revenue was $746 million and net income was $61 million, versus $684 million and $53 million. CERC revenue was $1.385 billion and net income was $554 million, versus $1.177 billion and $151 million; CERC’s 2022 result included a $557 million sale gain.
Material changes versus Q1 2021
- Common-shareholder income rose $184 million. The increase primarily reflected the Arkansas and Oklahoma sale gain and the absence of the prior-year Series B preferred dividend requirement; it was partly offset by lower midstream investment earnings and costs of early debt redemptions. Excluding those items, management said income available to common shareholders increased $9 million.
- The January 10 sale generated a $303 million gain for CenterPoint and $557 million for CERC, net of transaction costs as reported by the respective registrants. The $2.15 billion cash sale price included approximately $425 million for natural gas costs, subject to customary adjustments. Future gain or loss could result from final working-capital and other adjustments.
- CenterPoint sold its remaining Energy Transfer common and preferred units for net proceeds of $702 million and used proceeds to repay or redeem debt and cover associated costs. Houston Electric issued $800 million of bonds; CenterPoint and CERC also repaid or redeemed debt.
- Reported earnings included a $303 million divestiture gain and a $106 million gain on indexed debt securities; equity securities produced a $17 million loss. Comparability is also affected by $83 million of discontinued-operations income in Q1 2021 from the former Enable investment.
Outlook, risks and contingencies
- The filing does not provide a clear full-year earnings guidance figure. For the remaining nine months of 2022, estimated capital expenditures were $2.986 billion for CenterPoint, including $1.475 billion for Houston Electric and $1.182 billion for CERC. Management expects cash needs to be met through operating cash flow, debt and credit facilities, and commercial paper; financing availability on acceptable terms is not assured.
- CenterPoint and CERC reported $1.504 billion and $1.473 billion, respectively, of current and non-current regulatory assets associated with February 2021 Winter Storm natural gas costs at March 31. Recovery remains subject to prudence reviews. Minnesota parties proposed potentially significant disallowances, including proposals for CERC ranging up to $409 million (or, alternatively, $57 million) from the Attorney General’s Office; the company believes the costs were prudently incurred and recoverable. Recovery timing and any return on deferred balances remain uncertain.
- CenterPoint and Houston Electric faced more than 100 lawsuits related to the February 2021 Winter Storm. The companies said they could not predict the outcome or estimate a range of potential losses.
- Risks include weather and storm restoration costs, regulatory rate and cost-recovery decisions, commodity and interest-rate changes, REP payment defaults, credit-rating changes, and supply-chain constraints. A U.S. Commerce Department investigation into possible circumvention of solar import duties could raise costs or delay, downsize or cancel solar projects. The Posey County solar project was being renegotiated from approximately 300 MW to 200 MW because of cost pressures and community feedback.
- Management cited continued customer growth and rate relief, partly offset by higher operating and interest costs. CenterPoint’s stated climate goals include net-zero Scope 1 and Scope 2 emissions by 2035 and a 20%–30% Scope 3 reduction by 2035; the company noted that regulation, technology, project costs and demand shifts could affect execution and results.
Most important facts for investors to verify
- Underlying earnings excluding the divestiture, indexed-debt and other unusual effects, and the sustainability of reported EPS growth.
- Final sale adjustments and the cash and debt-allocation effects of the Arkansas and Oklahoma transaction and Energy Transfer security sales.
- Regulatory recovery outcomes and timing for Winter Storm costs, including potential Minnesota disallowances and litigation exposure.
- Execution, cost and funding of the 2022 capital program, mobile-generation leases, and planned generation and solar projects.
- Debt maturities, refinancing access, credit ratings and covenant headroom, alongside cash-flow needs and REP collections.