CenterPoint Energy, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2020. The combined filing also reports separately for Houston Electric and CenterPoint Energy Resources Corp. (CERC). Amounts below are U.S. dollars; financial figures are in millions unless stated otherwise.
Business context and reporting period
CenterPoint is a utility holding company with electric transmission and distribution, natural gas distribution, Indiana electric operations, and an investment in Enable Midstream. In 2020 it sold its Infrastructure Services business (closed April 9) and Energy Services business (closed June 1); both are presented as discontinued operations. The filing reflects the continuing effects of the COVID-19 pandemic and lower energy-sector activity.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1,622 | $1,658 | $5,364 | $5,545 |
| Operating income | $302 | $357 | $754 | $797 |
| Net income (loss) | $121 | $270 | $(973) | $634 |
| Income (loss) available to common shareholders | $69 | $241 | $(1,100) | $546 |
| Diluted EPS | $0.13 | $0.47 | $(2.10) | $1.08 |
Operating margin was approximately 18.6% in Q3 2020 versus 21.5% in Q3 2019, and approximately 14.1% for the first nine months of 2020 versus 14.4% in 2019.
- Cash flow: Nine-month operating cash flow was $1,439, compared with $1,086 in 2019. Investing used $683, including $1,889 of capital expenditures and $1,136 of divestiture proceeds. Financing used $819. Cash, cash equivalents and restricted cash ended the period at $208.
- Debt and liquidity: Carrying value of long-term debt, including current maturities, was $13,268. Cash was $185 and marketable securities were $836. Revolving credit facilities totaled $4.9 billion; at September 30, commercial paper outstanding was $1,221 and letters of credit were $8. The company reported compliance with debt covenants.
- Other financial items: Total assets were $32,705 and shareholders’ equity was $8,388 at September 30. CenterPoint issued common stock and Series C preferred stock in private placements, raising net proceeds of approximately $673 and $724, respectively. Common dividends were reduced from $0.29 to $0.15 per share quarterly.
Material changes versus prior periods
- Q3 common-shareholder income fell $172 year over year, reflecting weaker Enable results and its equity-method impairment, COVID-19 effects, and higher preferred-stock dividend requirements; rate relief and customer growth partly offset the decline.
- Nine-month common-shareholder results declined by $1,646. CenterPoint recorded a $1,541 impairment of its Enable investment and a $185 goodwill impairment in Indiana Electric Integrated. Discontinued-operation losses were $182 for the period.
- Enable cut its quarterly common-unit distribution by 50%, to $0.16525 per unit. CenterPoint estimated this would reduce annual cash distributions to it by about $155, assuming no further cuts.
- The Infrastructure Services business sold for $850 in cash. Energy Services sold for approximately $286 in cash; a $79 working-capital receivable was collected in October. CenterPoint used sale proceeds in part to repay debt.
- Utility operations had mixed results: nine-month Houston Electric net income was $281 versus $315; Indiana Electric Integrated reported a $121 loss versus $41 income, including the goodwill charge; and CenterPoint’s Natural Gas Distribution segment earned $242 versus $149.
Outlook, management commentary, risks and contingencies
- Management said utility systems remained operational and service continued. It nevertheless expected COVID-19 to adversely affect future quarters and said the full financial impact could not be estimated reliably. Commercial and industrial usage weakened, while residential electric usage increased; suspended disconnections and payment arrangements contributed to higher receivables and bad-debt allowances.
- CenterPoint targeted about $300 lower 2020 capital spending and about $40 lower 2020 O&M expense, subject to stated exclusions, while maintaining its previously stated five-year capital investment target of approximately $13 billion. No specific earnings-per-share guidance is provided in the supplied filing text.
- Remaining-three-month 2020 estimated capital expenditures were $515 for CenterPoint, $225 for Houston Electric and $53 for CERC. The filing also identifies scheduled securitization-bond principal payments and the CERC notes redemption as cash needs; the $593 CERC notes were redeemed in October, funded in part by an October issuance of $500 of 1.75% notes due 2030.
- COVID-19 regulatory deferrals may support recovery of certain costs, but recovery is subject to future regulatory review. Recorded COVID-related bad-debt regulatory assets were $16 for CenterPoint and $14 for CERC; the Houston Electric COVID-19 program regulatory asset was $10.
- Key exposures include the possibility of further Enable distribution reductions or investment impairment; credit-rating downgrades and restricted capital-market access; customer or retail electric provider nonpayment; regulatory recovery and rate-case outcomes; severe weather; and environmental compliance. Indiana Electric recorded an approximately $73 asset-retirement obligation for ash-pond closure and anticipates another $60–$80 of equipment purchases for the A.B. Brown closure project.
- Other disclosed matters include a maximum $21 contractual exposure for specified Infrastructure Services change orders, estimated CERC collateral exposure of up to $207 if credit ratings fall below contract thresholds, and ongoing litigation and environmental remediation. Management generally stated it did not expect the described legal and remediation matters to have a material adverse effect. The appeal in merger-related litigation remained pending, with a ruling expected in late 2020 or early 2021.
Important facts for investors to verify
- Whether Enable’s operating performance and distributions stabilize, and whether the valuation assumptions supporting the $1,541 impairment remain appropriate.
- How much of the reported loss reflects non-cash impairments and discontinued operations, and how continuing utility earnings and cash generation develop.
- Actual capital spending, O&M savings, debt repayment and refinancing, and the effect of the dividend reduction on liquidity.
- Customer collections, bad-debt trends, regulatory recovery of COVID-related costs, and the outcome and timing of major rate proceedings.
- Costs, schedule and regulatory recovery for Indiana ash-pond closure and other environmental obligations.
- Potential dilution and cash alternatives associated with Series C preferred-stock conversion; the filing reported a planned conversion of 100,000 shares on November 6, 2020.