CenterPoint Energy, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; financial statements are unaudited. CenterPoint is a regulated utility holding company with electric and natural gas operations. This filing also includes separate statements for Houston Electric and CERC.
Key financial results
Amounts in millions except per-share data. Consolidated results are for CenterPoint Energy.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1,860 | $1,903 | $6,514 | $6,610 |
| Operating income | $518 | $384 | $1,439 | $1,212 |
| Net income | $282 | $202 | $725 | $923 |
| Income available to common shareholders | $256 | $189 | $675 | $886 |
| Diluted EPS | $0.40 | $0.30 | $1.07 | $1.40 |
- Margins: Operating margin was approximately 27.8% in Q3 versus 20.2% a year earlier, and 22.1% for the first nine months versus 18.3%. These are calculated from reported revenue and operating income.
- Cash flow: Nine-month operating cash flow was $3.069 billion, compared with $1.325 billion. Investing used $3.190 billion, including $3.323 billion of capital expenditures. Financing provided $168 million, versus $1.220 billion used in 2022.
- Debt and liquidity: Long-term debt, including current maturities and securitization bonds, totaled $18.263 billion at September 30, compared with $16.338 billion at year-end 2022. Cash and cash equivalents were $120 million. The company reported $4.0 billion of revolving credit facilities and $1.079 billion of commercial paper outstanding at quarter-end; it was in compliance with debt covenants.
- Balance sheet: Total assets were $39.001 billion and shareholders’ equity was $9.585 billion at September 30, 2023.
Material changes and drivers
- Q3 operating income improved by $134 million despite slightly lower revenue. Electric and Natural Gas segment income increased by $56 million and $37 million, respectively, year over year. The Electric segment benefited from higher customer rates, transmission revenue, usage and customer growth.
- For the nine-month period, common-shareholder income fell $211 million. Electric income rose $104 million, but Natural Gas income declined $120 million and Corporate and Other declined $195 million. The comparison reflects, among other items, a $557 million CERC gain on the 2022 sale of Arkansas and Oklahoma gas businesses, prior-year equity-security gains, higher borrowing costs, and 2023 costs and taxes related to the Energy Systems Group sale.
- Natural Gas operating results benefited from substantially lower natural gas costs, largely offset by lower pass-through revenue. Nine-month segment income also lacked the prior-year sale gain. Weather was materially warmer than the ten-year average in Q3: cooling degree days were 123% of average and heating degree days were 20% for the Natural Gas segment.
- CenterPoint sold Energy Systems Group on June 30, 2023, receiving $154 million cash, subject to final purchase-price adjustments. It recorded a $12 million loss on sale and $33 million of current tax expense for the nine-month period.
- CenterPoint issued $1.0 billion of 4.25% convertible notes due 2026 and $400 million of 5.25% senior notes due 2026, among other financing. It redeemed $800 million of Series A Preferred Stock on September 1.
Outlook, risks and unusual items
- The filing does not provide a clear consolidated earnings guidance range. Management expects remaining-2023 cash needs to be funded through operating cash flow, credit facilities, long-term debt, term loans and commercial paper. Estimated capital expenditures for the final three months of 2023 were $802 million for CenterPoint, including $379 million for Houston Electric and $329 million for CERC.
- CenterPoint and CERC recognized approximately $1.1 billion of Texas customer rate-relief bond proceeds in 2023 as a government grant, reducing natural gas expense. These proceeds relate to Winter Storm Uri costs; recovery of remaining costs and some carrying costs is still subject to regulatory processes.
- Houston Electric’s first TEEEF cost-recovery order became final, approving a $39 million annual revenue requirement. Its subsequent filing sought a $149 million net annual revenue increase; interim rates began September 1, 2023, and the parties later reported an agreement in principle, subject to PUCT approval.
- Winter Storm Uri litigation remains unresolved. CenterPoint and Houston Electric were named in approximately 155 of roughly 220 pending or expected MDL lawsuits. The company says damages have not been quantified sufficiently to estimate exposure or a loss range.
- Other risks include regulatory cost recovery, severe weather and restoration costs, interest rates and access to financing, REP collection risk, environmental requirements, and solar-project inflation and supply-chain delays. The filing reports no material change to risk factors from the 2022 Form 10-K.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The 2023 annual goodwill impairment tests required no charge.
Important facts for investors to verify
- Whether the TEEEF agreement in principle receives PUCT approval and what final rates and recovery period are authorized.
- Regulatory decisions on remaining Winter Storm Uri cost recovery and the potential outcomes of related litigation, for which the filing provides no estimable loss range.
- Debt growth, refinancing costs, commercial-paper usage and continued compliance with credit-facility covenants.
- Whether capital spending and planned generation and solar projects remain on schedule and within recoverable costs.
- How much of the year-over-year earnings change reflects recurring utility performance versus prior-period sale gains, market-value movements, securitization accounting and other unusual items.