CenterPoint Energy, Inc. — FY 2015 Form 10-K
Reporting period: Year ended December 31, 2015; filed February 26, 2016. This is an annual report, not a standalone fourth-quarter filing. CenterPoint is a utility holding company whose principal businesses are Houston-area electric transmission and distribution, multistate natural gas distribution, energy services, and an equity investment in Enable Midstream Partners.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $7.386 billion | $9.226 billion |
| Operating income | $933 million | $935 million |
| Net income (loss) | ($692 million) | $611 million |
| Diluted earnings (loss) per share | ($1.61) | $1.42 |
| Cash from operating activities | $1.865 billion | $1.397 billion |
| Capital expenditures | $1.575 billion | $1.402 billion |
| Cash and cash equivalents at year-end | $264 million | $298 million |
| Total assets | $21.334 billion | $23.200 billion |
| Consolidated debt | Approximately $8.8 billion | — |
- Revenue fell about 20%, while operating income was essentially unchanged. Revenue included substantial natural-gas sales and costs, so lower commodity prices affected reported revenue.
- The net loss primarily reflects a $1.846 billion non-cash impairment impact related to Enable: a $1.225 billion impairment of CenterPoint’s investment and $621 million representing its share of Enable’s goodwill and long-lived-asset impairments. The equity-in-earnings line was a $1.633 billion loss, including $213 million of earnings offsetting the impairments.
- Operating cash flow rose $468 million year over year, partly due to lower tax payments and working-capital changes, and partly offset by $159 million less in distributions from equity-method investments. Cash used in investing was $1.387 billion; cash used in financing was $512 million.
- Electric Transmission & Distribution operating income increased to $607 million from $595 million. Natural Gas Distribution operating income declined to $273 million from $287 million, mainly due to warmer weather and higher depreciation, partly offset by rate increases. Energy Services operating income decreased to $42 million from $52 million, largely reflecting lower derivative mark-to-market gains.
- CenterPoint declared $0.99 per common share in dividends for 2015, versus $0.95 in 2014. The board declared a subsequent quarterly dividend of $0.2575 per share.
Material changes, liquidity and capital
- Enable’s impairment reduced the carrying value of CenterPoint’s investment in Enable; the balance was $2.594 billion at year-end, compared with $4.520 billion a year earlier. Enable’s common-unit price was $9.20 at year-end and fell as low as $5.80 through February 12, 2016; further impairment was possible.
- CenterPoint reported $8.8 billion of consolidated debt, including $2.7 billion of non-recourse transition and system-restoration bonds. Approximately $1.5 billion of debt principal, excluding specified bond repayments, was due through 2018. Debt represented 72% of capitalization including those bonds; excluding them, debt represented 64%.
- At December 31, the company had $2.1 billion in aggregate revolving credit facilities. Reported facility usage included $935 million of commercial paper, $200 million of bank loans and $12 million of letters of credit. CenterPoint’s debt-to-capital ratio under its facility covenant was 55.1%, below the 65% limit; the borrowers were reported in compliance with covenants.
- 2016 anticipated cash requirements included approximately $1.4 billion of capital expenditures, $391 million of transition and system-restoration bond principal, $325 million of maturing senior notes, the $363 million Enable preferred-unit investment, the Continuum acquisition price of $77.5 million plus working capital, dividends and interest. Management expected to fund needs with operating cash flow, distributions, credit facilities, commercial paper and debt issuance; acceptable market financing was not assured.
- Management estimated capital expenditures of $1.362 billion for 2016. The Houston Brazos Valley Connection project was approved with estimated capital costs of $270–$310 million and expected completion by mid-2018; a route-selection rehearing request remained pending as of the filing.
Outlook, commentary and risks
- No consolidated earnings guidance was provided in the supplied filing text. Management said results depend on weather, customer growth and usage, regulatory rate actions, costs and Enable’s performance. Houston-area energy-sector employment growth had slowed after energy and commodity price declines; management expected the trend to continue in the foreseeable future.
- Warmer-than-normal weather reduced natural-gas throughput in 2015. NGD did not enter into heating-degree-day swaps for winter 2015–2016 following a Minnesota decoupling pilot; CenterPoint Houston did have a weather hedge for that winter.
- Enable faced depressed oil and gas prices, reduced producer drilling, volume and customer-contract renewal risks, competition, financing constraints, and potential distribution pressure. CenterPoint owns approximately 55.4% of Enable’s limited-partner interests but shares control of its general partner with OGE.
- On February 1, 2016, CenterPoint said it was evaluating strategic alternatives for its Enable investment, including a sale or tax-qualified spin-off, and exploring a REIT structure for some or all utility businesses. No specific action was assured.
- CenterPoint’s $363 million purchase of Enable 10% Series A preferred units closed February 18, 2016; Enable used the proceeds to redeem notes owed to a CenterPoint subsidiary. The proposed $77.5 million-plus-working-capital Continuum acquisition was subject to third-party consents and approvals.
- Other material exposures include rate-case outcomes and regulatory lag; concentrated electric receivables from retail electric providers (including NRG and Energy Future Holdings affiliates); severe weather and uninsured transmission/distribution-system damage; pipeline safety and environmental compliance costs; pension funding; cyber and operational disruption; and contingent obligations. A $1.1 billion CERC guarantee of collection on Enable senior notes was scheduled for automatic release May 1, 2016. A separate guarantee of up to $50 million for Enable obligations to a Shell affiliate remained outstanding at year-end.
- Minnesota manufactured-gas-plant remediation liability was $7 million, with estimated possible remediation costs of $5–$29 million. The company said it did not expect disclosed legal and environmental matters to have a material adverse effect, while noting outcomes were uncertain.
Most important facts for investors to verify
- Whether Enable’s unit price, distributions, cash flows and commodity-market conditions led to further impairment or changes in CenterPoint’s investment value after year-end.
- Enable’s ability to sustain distributions and CenterPoint’s expected cash receipts, including the reported approximately $74 million distribution expected in first-quarter 2016.
- CenterPoint’s 2016 funding plan, debt maturities, access to capital markets, credit ratings and compliance with debt covenants.
- Final regulatory outcomes and cost recovery for the Brazos Valley project and pending gas rate proceedings; confirm project cost and schedule as construction advances.
- Completion and terms of the Continuum acquisition and any Board-approved action arising from the strategic-alternatives review.