CenterPoint Energy, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; the filing also reports fourth-quarter results. CenterPoint is a utility holding company with regulated electric transmission and distribution and natural gas distribution businesses, plus competitive gas sales, interstate pipelines and field services.
Financial performance and condition
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $8.450 billion | $8.785 billion |
| Operating income | $1.298 billion | $1.249 billion |
| Operating margin | Approximately 15.4% | Approximately 14.2% |
| Income before extraordinary item | $770 million | $442 million |
| Extraordinary gain, net of tax | $587 million | None |
| Net income | $1.357 billion | $442 million |
| Diluted EPS | $3.17 | $1.07 |
| Operating cash flow | $1.888 billion | $1.386 billion |
| Cash and cash equivalents at year-end | $220 million | $199 million |
| Total assets | $21.703 billion | $20.111 billion |
| Consolidated debt, including current maturities | Approximately $9.2 billion | Approximately $9.5 billion |
| Shareholders’ equity | $4.222 billion | $3.198 billion |
Revenue declined about 3.8%, while operating income increased about 3.9%. Net income and EPS benefited substantially from the true-up appeal resolution: excluding its $587 million after-tax extraordinary gain, 2011 net income was $770 million and diluted EPS was $1.80. The filing also records $352 million of pretax ($224 million after-tax) true-up interest return in other income.
Fourth-quarter revenue was $2.145 billion, operating income $274 million and net income $117 million, compared with $2.098 billion, $302 million and $124 million, respectively, in fourth-quarter 2010.
Year-end current assets were $2.337 billion versus current liabilities of $2.593 billion. The company reported $2.45 billion of revolving credit facilities, with commercial paper and letters of credit using part of the capacity. Management expected cash, January 2012 transition-bond proceeds and operating cash flow to cover anticipated 2012 needs. Consolidated debt includes approximately $2.5 billion of non-recourse transition and system-restoration bonds.
Material changes and segment results
- Electric Transmission & Distribution: Operating income rose to $623 million from $567 million, reflecting unusually favorable heat and higher usage, customer growth and transmission revenues. Throughput increased to 80,013 GWh from 76,973 GWh.
- Natural Gas Distribution: Operating income eased to $226 million from $231 million. The customer base grew to approximately 3.28 million; throughput was 423 Bcf versus 426 Bcf.
- Competitive Natural Gas Sales and Services: Operating income fell to $6 million from $16 million, primarily due to narrower transportation and storage spreads and a larger inventory write-down.
- Interstate Pipelines: Operating income declined to $248 million from $270 million, including effects of an expired backhaul contract and lower off-system revenue.
- Field Services: Operating income increased to $189 million from $151 million, supported by shale-related gathering volumes and contracted minimum-volume commitments. Olympia construction was substantially completed at a cost of approximately $406 million.
Cash from operations increased by $502 million year over year, primarily due to higher tax refunds, partly offset by less favorable receivable/payable and fuel-cost-recovery cash flows. Cash used in investing activities was $1.206 billion; cash used in financing was $661 million. The declared 2011 dividend was $0.79 per share, up from $0.78.
Outlook, risks and unusual items
- The true-up settlement authorized recovery of an additional $1.695 billion. CenterPoint Houston issued $1.695 billion of transition bonds in January 2012 at rates of 0.9012%–3.0282%; customer charges will repay the bonds. The filing says a further $405 million after-tax equity return will be recorded over the bonds’ life.
- Management anticipated 2012 capital expenditures of approximately $1.3 billion and a required qualified pension contribution of $116 million. The company estimated 2012 operating income would be approximately $35 million lower than 2011 due to the electric rate-case order.
- The rate order set CenterPoint Houston’s return on equity at 10% and overall rate of return at 8.21%; the order was appealed by various parties. Management also noted a possible MRT rate case later in 2012 if customer settlement discussions failed.
- Principal risks include rate-setting and cost-recovery outcomes; weather and seasonality; concentrated exposure to retail electric providers; natural-gas prices, production and pipeline volumes; construction costs; credit-rating changes and collateral requirements; pension funding; severe weather, cyberattacks and environmental or pipeline-safety regulation.
- Environmental contingencies include Minnesota manufactured-gas-plant remediation, accrued at $13 million with estimated possible costs of $6 million–$41 million. The company also disclosed asbestos claims and other proceedings, which it did not expect to have a material adverse effect.
- Deloitte issued an unqualified opinion on the financial statements and internal controls; management reported effective financial reporting controls as of year-end.
Important facts for investors to verify
- Separate recurring earnings from the $587 million after-tax extraordinary gain and $224 million after-tax true-up interest return.
- Track the appeal status of the electric rate order and whether the forecast $35 million 2012 operating-income reduction materializes.
- Assess the company’s ability to fund planned capital spending, scheduled debt payments and pension contributions while maintaining liquidity and credit ratings.
- Monitor electric-provider receivable concentration, including the filing’s $163 million billed REP receivables and exposure to NRG and Energy Future Holdings affiliates.
- Follow natural-gas volumes, commodity spreads and producer activity, as well as execution and returns on gathering-system investments.
- Review updates to environmental, pipeline-safety and other regulatory obligations, and any changes to disclosed contingencies.