CenterPoint Energy, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. This combined filing covers CenterPoint Energy, Inc. and its subsidiaries, CenterPoint Energy Houston Electric, LLC, and CenterPoint Energy Resources Corp. for the three months ended March 31, 2021; financial statements are unaudited. Operations include regulated electric and natural gas utilities, and an equity-method investment in Enable Midstream Partners.
Key financial results
| CenterPoint Energy consolidated | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $2.547 billion | $2.167 billion |
| Operating income | $453 million | $217 million |
| Net income (loss) | $363 million | ($1.199 billion) |
| Income (loss) available to common shareholders | $334 million | ($1.228 billion) |
| Diluted EPS | $0.56 | ($2.44) |
| Cash from operating activities | ($1.681 billion) | $662 million |
| Capital expenditures | $594 million | $664 million |
- Revenue growth reflected higher utility revenue, including natural gas costs associated with the February winter storm. Utility natural gas, fuel and purchased-power expense rose to $935 million from $609 million.
- The prior-year comparison included a $1.541 billion impairment of the Enable investment, a $185 million Indiana Electric goodwill impairment, and discontinued-operation losses. Excluding these items, management said common income increased $73 million, citing rate relief, favorable weather and usage, customer growth, expense discipline, lower interest expense, and higher Enable earnings.
- Operating cash flow was negative largely because regulatory assets increased by approximately $2.297 billion, primarily due to storm-related natural gas costs. Financing activities provided $2.285 billion, including debt proceeds; cash, cash equivalents and restricted cash ended at $167 million.
- At March 31, total assets were $35.906 billion and shareholders’ equity was $8.716 billion. Debt carrying value, including current maturities and securitization debt, was reported as $15.823 billion. The company reported no short-term borrowings on its balance sheet, while commercial paper was outstanding under credit facilities.
Operating businesses
- Electric segment: net income was $75 million versus a $134 million loss, which included the prior-year impairment. Houston Electric reported revenue of $684 million and net income of $53 million, compared with $634 million and $33 million.
- Natural Gas segment: net income increased to $229 million from $201 million. CERC reported revenue of $1.177 billion and net income of $151 million, compared with $1.011 billion and $67 million; the prior period included a $64 million discontinued-operations loss.
- Midstream Investments: CenterPoint recorded $108 million of equity earnings from Enable, compared with a $1.475 billion equity-method loss in Q1 2020, which included the investment impairment.
Liquidity, debt and material developments
- During March, CERC issued $700 million of 0.70% senior notes and $1.0 billion of floating-rate senior notes, both due 2023. Houston Electric issued $400 million of 2.35% mortgage bonds due 2031 and $700 million of 3.35% mortgage bonds due 2051. These financings supported general corporate needs, including storm-related working capital, capital expenditures and debt repayment.
- Revolving credit facilities totaled $4.0 billion at quarter-end; approximately $1.555 billion of commercial paper was outstanding. Registrants reported compliance with their financial debt covenants. CERC’s Moody’s outlook was negative; the company cautioned that a downgrade could increase financing costs or constrain access to capital.
- Remaining-nine-month 2021 estimated capital expenditures were $2.778 billion for CenterPoint Energy, $1.365 billion for Houston Electric and $866 million for CERC. These figures are presented for the respective registrants and should not be added as independent consolidated amounts.
- After quarter-end, CenterPoint Energy agreed to sell its Arkansas and Oklahoma natural gas businesses for $2.15 billion in cash, including approximately $425 million related to winter-storm gas costs, subject to adjustments and approvals. Closing was anticipated by year-end 2021.
- Enable agreed to merge with Energy Transfer. CenterPoint expected to receive Energy Transfer common units and Series G preferred units; closing was expected in the second half of 2021, subject to conditions including antitrust clearance.
Outlook, risks and unusual items
- February 2021 Winter Storm Event: management estimated approximately $2.2 billion of incremental natural gas spending from February 12–22, subject to final settlement. CenterPoint and CERC recorded substantial storm-related regulatory assets and intend to seek recovery from customers, but timing is uncertain; recovery may be subject to prudency reviews, and the company may not earn a return on all deferred amounts. The event also caused ERCOT-directed outages, potential bad debts, higher financing costs and litigation and regulatory scrutiny.
- Management said it did not anticipate meaningful long-term changes to CenterPoint’s credit profile or ratings, citing financing access and regulatory recovery mechanisms. It also warned that delayed or partial recovery and further borrowing could pressure credit metrics.
- The filing provides no specific earnings guidance. Cash needs were expected to be met through operating cash flow, debt and credit facilities, commercial paper, Enable distributions and potential disposition proceeds; access to financing on acceptable terms is not assured.
- Other risks include the outcome of storm-related claims and investigations, ability of retail electric providers to pay Houston Electric, regulatory approvals and rate recovery, weather and commodity-price volatility, and completion and expected benefits of the Enable merger and announced asset sale. CenterPoint said the storm-related litigation loss range could not be estimated.
- Other notable matters include the $927 million fair-value liability for the derivative component of ZENS and environmental obligations. The filing reports an approximately $88 million asset-retirement obligation for Indiana ash-pond closures, with closure timing, costs and regulatory requirements subject to change.
Important facts for investors to verify
- Progress, final settlement and regulatory recovery timing and terms for the winter-storm costs, including any effects on financing needs and credit ratings.
- Whether the Arkansas and Oklahoma sale and the Enable merger close on expected terms and schedule, and how proceeds or consideration affect debt, earnings and distributions.
- Cash generation and debt levels relative to the substantial 2021 capital program and scheduled maturities.
- Houston Electric’s collection exposure to retail electric providers and developments in storm-related litigation, investigations and regulatory proceedings.
- Final approved rates and recovery outcomes in pending utility rate cases and other regulatory filings.