Business context and reporting period
CenterPoint Energy, Inc. (CNP) filed this unaudited Form 10-Q for the three months ended March 31, 2023. The company is a regulated utility holding company with electric transmission and distribution, natural gas distribution and pipeline operations, and energy services. The combined filing also reports separately for Houston Electric and CenterPoint Energy Resources Corp. (CERC).
Key financial metrics
Unless otherwise noted, amounts are in millions of dollars.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $2,779 | $2,763 |
| Operating income | $541 | $477 |
| Net income | $325 | $531 |
| Income available to common shareholders | $313 | $518 |
| Diluted EPS | $0.49 | $0.82 |
| Cash from operating activities | $1,713 | $580 |
| Capital expenditures | $1,123 | $846 |
- Operating margin, calculated as operating income divided by revenue, was approximately 19.5%, compared with 17.3% a year earlier.
- At March 31, 2023, cash and cash equivalents were $114; reported long-term debt, net, was $15,783 and short-term borrowings were $500. Current liabilities were $3,150 and current assets were $3,139.
- Revolving credit facilities totaled $4.0 billion. At quarter-end, commercial paper outstanding was $1.260 billion and letters of credit totaled $12 million; there were no facility loans outstanding. Registrants reported compliance with financial debt covenants.
- Common dividends paid were $120; the quarterly common dividend was $0.19 per share. A $0.19-per-share dividend was declared April 20, payable June 8, 2023.
Material changes versus the prior comparable period
- Revenue was broadly stable, while operating income rose $64 million. CenterPoint’s Electric segment net income increased $41 million to $123 million; Natural Gas segment net income decreased $164 million to $234 million.
- Consolidated net income and EPS fell mainly because Q1 2022 included a $303 million gain on the Arkansas and Oklahoma natural gas business sale, a $557 million sale gain in CERC, and favorable indexed-debt-security results. The 2023 quarter also had unfavorable indexed-debt-security results.
- Cash from operations increased substantially, primarily reflecting changes in regulatory assets and liabilities, including receipt of approximately $1.1 billion in Texas customer rate-relief bond proceeds related to the February 2021 winter storm. The proceeds were recorded as a reduction of natural gas costs; they should not be viewed as recurring operating cash generation.
- Q1 2023 capital expenditures increased $277 million. Long-term debt, net, rose from $14,836 million at December 31, 2022 to $15,783 million at March 31, 2023, amid significant issuance and refinancing activity.
- Houston Electric net income increased to $108 million from $61 million. CERC net income declined to $212 million from $631 million, principally because the prior-year period included the $557 million sale gain.
Outlook, commentary, risks and unusual items
- No explicit earnings or EPS guidance is provided in the supplied filing text. For the remaining nine months of 2023, estimated capital expenditures are $2.571 billion for CenterPoint, including $1.210 billion for Houston Electric and $1.088 billion for CERC. Management expects cash needs to be funded through operating cash flow, credit facilities, commercial paper and debt issuance.
- Texas regulators issued a final order on April 5, 2023 approving a $39 million revenue requirement for Houston Electric’s 2021 TEEEF mobile-generation costs. Houston Electric subsequently requested recovery of approximately $188 million of additional TEEEF-related costs incurred through 2022.
- CenterPoint and CERC received approximately $1.1 billion in March 2023 from Texas customer rate-relief bonds to address eligible winter-storm gas costs. Recovery of remaining storm-related regulatory assets is subject to regulatory review; Minnesota regulators disallowed approximately $36 million, and approximately $75 million of total storm gas costs remained under prudence review.
- Approximately 220 winter-storm-related lawsuits were pending or expected to join consolidated proceedings as of March 31; CenterPoint and Houston Electric were named in approximately 155. Separate gas-market manipulation suits name CERC. The company says damages have not been sufficiently quantified to estimate exposure or a loss range.
- Other notable risks include rate-recovery timing and regulatory decisions, severe weather, interest rates and refinancing access, customer and retail-electric-provider payment risk, supply-chain and inflation pressures, and environmental requirements. The filing says there were no material changes to the risk factors in the 2022 Form 10-K.
- Indiana regulators authorized up to $350 million of securitization bonds for planned generation retirements; the related registration statement was not yet effective at quarter-end. Solar and other generation projects face potential cost and schedule pressures from supply-chain constraints and regulatory developments.
Important facts for investors to verify
- How much of the $1.1 billion storm-related proceeds represents a nonrecurring benefit to reported expenses and operating cash flow, and the remaining timing and recoverability of storm-related regulatory assets.
- Final regulatory outcomes and cash recovery for Houston Electric’s additional TEEEF request and other pending rate applications.
- Developments, insurance coverage and potential exposure in winter-storm litigation, for which the company cannot currently estimate a loss range.
- Debt refinancing costs, commercial-paper usage, covenant headroom and the ability to fund the stated capital program while maintaining credit ratings.
- Whether planned generation-transition and renewable projects proceed on schedule and within cost estimates, and whether their costs are recovered in rates.