CenterPoint Energy, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts are in millions of dollars unless noted. The combined filing also reports separately on Houston Electric and CERC, wholly owned subsidiaries. CenterPoint’s businesses include regulated electric and natural gas utilities and an investment in Enable Midstream.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $2,167 | $2,229 |
| Operating income | $217 | $211 |
| Operating margin | 10.0% | 9.5% |
| Continuing operations net income (loss) | $(1,053) | $143 |
| Net income (loss) | $(1,199) | $169 |
| Loss available to common shareholders; diluted EPS | $(1,228); $(2.44) | $140; $0.28 |
| Operating cash flow | $662 | $271 |
| Capital expenditures | $664 | $537 |
- Revenue declined 2.8%; reported operating income rose modestly despite a $185 goodwill impairment included in operating expenses.
- The primary driver of the net loss was a $1,541 impairment of the Enable equity-method investment. CenterPoint reported a $1,475 loss from unconsolidated affiliates, including that impairment. Other significant charges included $185 of Indiana Electric goodwill impairment and disposal-related losses and impairments associated with the businesses held for sale.
- Cash flow from operations less capital expenditures was approximately $(2) million. Cash and cash equivalents were $220 at quarter-end; cash, cash equivalents and restricted cash totaled $247. Marketable securities were $678.
- Long-term debt, including current maturities, had a reported carrying amount of $15,238 and fair value of $16,047. Total revolving credit facilities were $5.1 billion; at March 31, the registrants had $1.05 billion of facility loans and $1.45 billion of commercial paper outstanding, plus $7 million of letters of credit. They reported compliance with debt covenants. CenterPoint’s current liabilities slightly exceeded current assets ($4,042 versus $4,164, respectively, meaning current assets were modestly higher).
Material changes and segment results
- Midstream Investments recorded a $1,127 net loss, versus $24 net income in the prior-year quarter, mainly due to the Enable impairment. Enable’s common-unit price decline, industry conditions and an announced 50% distribution cut contributed to the valuation assessment.
- Natural Gas Distribution segment net income at CenterPoint increased to $204 from $120, reflecting rate increases, lower prior-year merger-related costs and an additional month of acquired-business results; milder weather and higher taxes and interest expense partly offset the gains. CERC’s Natural Gas Distribution net income rose to $134 from $119.
- Houston Electric’s net income increased to $33 from $27. Indiana Electric Integrated reported a $171 net loss, including the $185 goodwill impairment.
- Comparisons are affected by the Vectren merger closing on February 1, 2019: the 2019 quarter includes only two months of Vectren results in certain segments.
- Infrastructure Services and Energy Services were classified as discontinued operations and held for sale. Their combined results included a $146 loss in Q1 2020, compared with $26 income in Q1 2019.
Outlook, management commentary and significant items
- Management said operations remained functional but expected COVID-19 to adversely affect future quarters. It cited uncertainty around demand, customer collections, supplier availability, workforce, regulatory timing, liquidity and capital-market access. The full impact could not be estimated.
- On April 1, Enable cut its quarterly common-unit distribution by 50%, from $0.3305 to $0.16525. CenterPoint estimated this would reduce its annual common-unit distributions by about $155 million. CenterPoint also cut its quarterly common dividend from $0.29 to $0.15 per share, targeted approximately $300 million in lower 2020 capital spending, and targeted approximately $40 million in lower 2020 O&M expense, subject to stated exclusions.
- For the remaining nine months of 2020, CenterPoint estimated capital expenditures of $1.682 billion, scheduled securitization-bond principal payments of $168 million, and $600 million of maturing Vectren term loans. Management expected to fund needs through operating cash flow, credit facilities, debt and equity financing, and sale proceeds, while warning financing may not be available on acceptable terms.
- The Infrastructure Services sale closed April 9 for $850 million cash, subject to adjustments; net proceeds were used to repay debt. The Energy Services sale was expected to close in Q2 2020; the filing does not provide a clear sale price.
- On May 6, CenterPoint agreed to private placements expected to raise gross proceeds of $725 million from Series C preferred stock and $675 million from common stock. These are subsequent events, not Q1-period results.
- Houston Electric’s rate-case settlement was approved March 9 and rates took effect April 23. It provides an approximately $13 million annual revenue-requirement increase, a 9.4% allowed ROE, and customer refunds of $105 million plus carrying costs over approximately 30–36 months.
- Notable exposures include a $69 million recorded ARO for Indiana ash-pond closures, with additional equipment purchases estimated at $60–$80 million; $1.5 billion face amount of CERC guarantees for Energy Services obligations; and estimated maximum ESG parent guarantees of approximately $513 million. Management did not expect the identified legal and environmental matters to have a material adverse effect, while acknowledging outcomes remain uncertain.
Most important facts for investors to verify
- Whether Enable’s lower distributions, commodity-market conditions or further declines in its unit value lead to additional impairment or cash-flow pressure.
- Completion and proceeds of the Energy Services sale, related held-for-sale adjustments, and release or replacement of CERC’s guarantees.
- CenterPoint’s execution of dividend, capital-spending and O&M reductions, and the availability and cost of financing for maturities and planned investment.
- The effects of COVID-19 on utility demand, bad-debt expense, regulatory cost recovery and customer collections.
- Progress and recoverability of major regulatory and environmental costs, including ash-pond closure obligations and the Houston Electric customer refunds.