CenterPoint Energy, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. The combined filing also reports for wholly owned subsidiaries Houston Electric and CenterPoint Energy Resources Corp. (CERC). Amounts below are in millions of dollars unless noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,875 | $1,944 | $4,654 | $4,707 |
| Operating income | $380 | $351 | $921 | $828 |
| Net income | $118 | $190 | $443 | $721 |
| Income available to common shareholders | $106 | $179 | $419 | $697 |
| Diluted earnings per share | $0.17 | $0.28 | $0.66 | $1.10 |
- Operating margin, calculated as operating income divided by revenue, was approximately 20.3% in Q2 2023 versus 18.1% in Q2 2022, and 19.8% for the first half versus 17.6%.
- Operating cash flow was $2,482 for the first half, compared with $978 in 2022; capital expenditures were $2,259 versus $1,880. Cash flow after capital expenditures was approximately $223, compared with negative $902. The filing attributes much of the operating cash flow improvement to working-capital and regulatory-balance movements, including Texas securitization proceeds.
- At June 30, cash and cash equivalents were $214; cash, cash equivalents and restricted cash totaled $232. Current assets were $2,802 against current liabilities of $3,184.
- Long-term debt, including current maturities, had a carrying amount of $16,958, versus $16,338 at year-end 2022. The company reported $4.0 billion of revolving credit facilities and $1,655 of commercial paper outstanding; it was in compliance with debt covenants.
Business context and changes versus prior period
- CenterPoint operates electric transmission and distribution, natural gas distribution and pipeline businesses, and Indiana electric generation. Its reportable segments are Electric, Natural Gas, and Corporate and Other.
- Q2 revenue decreased about 4%, while operating income increased about 8%; net income fell about 38%. Lower utility fuel and natural gas costs helped operating results, but higher financing costs, tax effects and investment-security results weighed on bottom-line earnings.
- For the first half, Electric segment net income rose to $303 from $255. Natural Gas segment net income fell to $269 from $426, principally reflecting the prior-year $303 gain on the sale of the Arkansas and Oklahoma gas businesses. The prior-year comparison also included a $557 CERC gain on that sale.
- CenterPoint sold Energy Systems Group on June 30, 2023, receiving $154 cash subject to final purchase-price adjustments. It recorded a $12 loss on sale and $33 of current tax expense related to the transaction.
Liquidity, financing, outlook and material developments
- CenterPoint and CERC received approximately $1.1 billion in March from Texas customer rate-relief bonds associated with Winter Storm Uri costs. The proceeds were treated as a government grant and recorded as a reduction of natural gas expense; the company has no repayment obligation on those state-issued bonds.
- SIGECO issued $341 of securitization bonds in June to finance qualified costs associated with the planned retirement of the A.B. Brown coal units. Repayment is through customer securitization charges.
- During the first half, the registrants issued or borrowed approximately $3.7 billion of debt and repaid or redeemed approximately $2.54 billion. The filing identifies higher interest rates and borrowing costs as a drag on earnings.
- Estimated capital expenditures for the remaining six months of 2023 are $1,391 for CenterPoint Energy, $618 for Houston Electric and $620 for CERC. Management expects to fund anticipated needs through operating cash flow, credit facilities, commercial paper and debt issuance. The filing does not provide a clear consolidated earnings guidance figure.
- Houston Electric’s first TEEEF cost-recovery order approved a $39 annual revenue requirement; rehearing motions remained pending. A second filing seeks a $188 annual requirement, with proceedings ongoing. The filing also reports pending rate applications, including a Houston Electric distribution-rate settlement proposal for a $70 annual increase.
- Indiana Electric’s solar, wind and generation-transition projects face potential cost and timing pressure from supply-chain constraints, inflation, permitting and interconnection processes. CenterPoint’s stated emissions goals include net zero Scope 1 and certain Scope 2 emissions by 2035 and a 20%–30% reduction in certain Scope 3 emissions by 2035.
Risks, contingencies and unusual items
- Winter Storm Uri litigation: CenterPoint and Houston Electric were named in approximately 155 of about 225 pending lawsuits in or expected to be added to a Texas multidistrict proceeding. CERC also faces gas-market manipulation and price-gouging claims. The company says damages have not been sufficiently quantified to estimate exposure or a loss range; it intends to defend the claims and pursue insurance coverage.
- Storm-cost recovery: The filing reports $104 of current and $140 of non-current regulatory assets for storm-related natural gas costs, with approximately $75 of the total costs still under prudence review. Minnesota regulators disallowed approximately $36 of CERC’s claimed costs; recovery proceedings continue in Louisiana and Minnesota.
- Energy Systems Group guarantees: Certain parent-level guarantees remained after the sale. Management estimated maximum exposure at approximately $519 for guarantees that could be estimated, primarily energy-savings guarantees, and said the likelihood of a material payment was remote. Some other guarantees have no estimable maximum exposure.
- Environmental matters: CenterPoint recorded an approximately $109 asset-retirement obligation for Indiana ash-pond closures and anticipates $60–$80 of equipment purchases for the A.B. Brown closure project. Remediation costs for manufactured-gas-plant sites are also subject to estimation uncertainty.
- Other key risks cited include severe weather and restoration costs, timely regulatory recovery, counterparty and retail-electric-provider credit, interest rates and access to financing, changing energy demand and emissions regulation, and solar-project supply constraints.
Important facts for investors to verify
- How much of first-half operating cash flow reflects recurring operations versus temporary working-capital and regulatory-balance changes, particularly the Texas rate-relief bond accounting.
- Final recovery outcomes and timing for Houston Electric’s TEEEF requests and the remaining Winter Storm Uri costs.
- Whether Winter Storm Uri and gas-market litigation, or remaining Energy Systems Group guarantees, result in losses not currently estimable or accrued.
- Execution, total cost and regulatory recovery of planned capital projects, including Indiana generation transition and solar and wind investments, alongside rising debt and financing costs.