CenterPoint Energy, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. This combined filing also includes separate financial statements for Houston Electric and CERC. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context and results
CenterPoint is a regulated electric and natural gas utility holding company with an investment in Enable Midstream. Its continuing operations include electric service in Texas and Indiana, natural gas operations in multiple states, and Indiana-based energy performance and infrastructure services. Results are seasonal and affected by weather, regulation, energy costs and financing needs.
| CenterPoint consolidated | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,742 | $1,575 | $4,289 | $3,742 |
| Operating income | $296 | $235 | $749 | $452 |
| Net income (loss) | $251 | $105 | $614 | $(1,094) |
| Income (loss) available to common shareholders | $221 | $59 | $555 | $(1,169) |
| Diluted EPS | $0.37 | $0.11 | $0.93 | $(2.27) |
Operating margin was approximately 17.0% in Q2 2021 versus 14.9% in Q2 2020, and 17.5% for the first half versus 12.1% a year earlier. Q2 utility revenue was $1,652; non-utility revenue was $90. Results include market-sensitive gains and losses: Q2 included a $75 gain on marketable securities and a $77 loss on indexed debt securities. Equity-method earnings from Enable were $67 in Q2 and $175 for the first half.
Segments and changes versus prior period
- Electric: Q2 net income was $125 versus $106; first-half net income was $200 versus a $28 loss. Higher transmission revenue, customer growth and rate effects contributed; the comparison also benefits from a $185 Indiana Electric goodwill impairment recorded in first-half 2020.
- Natural Gas: Q2 net income was $74 versus $30; first-half net income was $303 versus $231. Revenue and operating income increased, although first-half natural gas costs rose substantially, including costs associated with the February storm.
- Midstream Investments: Q2 segment net income was $54 versus $24; first-half net income was $125 versus a $1,103 loss. The 2020 comparison included a $1,541 impairment of CenterPoint’s Enable investment.
- Management attributed improved results, excluding major prior-year items, to rate relief, customer growth, reduced COVID-19 impacts and interest expense, and higher Enable equity earnings. First-half 2021 earnings also benefited from state tax changes; CenterPoint recorded a $46 tax benefit in Q2.
- Prior-year discontinued operations reduced common earnings by $30 in Q2 2020 and $176 in the first half of 2020. Series C preferred stock was fully converted to common stock by May 7, 2021.
Cash flow, debt and liquidity
- For the six months, operating cash flow was negative $1,076 versus positive $1,181 in 2020, primarily reflecting approximately $2.3 billion of increased regulatory assets, chiefly storm-related natural gas costs. Investing cash use was $1,376, including $1,383 of capital expenditures. Financing provided $2,442, including substantial debt issuance and repayment activity.
- At June 30, cash and cash equivalents were $136; marketable securities were $923. Long-term debt, including current maturities, had a carrying amount of $16,131, versus $13,401 at year-end 2020. The filing reports $1,743 of commercial paper outstanding across CenterPoint, VUHI and CERC; revolving facilities totaled $4.0 billion and the registrants were covenant-compliant.
- CenterPoint issued $1.7 billion of notes in May; CERC issued $1.7 billion in March; Houston Electric issued $1.1 billion of mortgage bonds in March. The issuances funded general corporate needs, including storm-related working capital, capital spending and debt repayment.
- Planned remaining-2021 capital expenditures were $1,897 for CenterPoint, $894 for Houston Electric and $632 for CERC. The filing expects cash needs to be met through operating cash, debt and commercial paper, credit facilities, Enable distributions and anticipated asset-sale proceeds, among other sources.
Outlook, material events and risks
- Winter Storm Uri: Management estimated approximately $2.1 billion of incremental natural gas spending from February 12–22, subject to final settlement. The costs are recorded as regulatory assets and considered probable of recovery, but recovery timing and final recoverable amounts remain uncertain and subject to prudency review. Minnesota authorities’ proposals could disallow up to approximately $290 million. Management said it did not anticipate meaningful long-term financial impacts, while warning that delayed or partial recovery or additional borrowing could pressure credit metrics and ratings.
- Arkansas and Oklahoma sale: CERC agreed to sell these natural gas businesses for $2.15 billion in cash, including approximately $425 million of storm-related costs, subject to adjustments and regulatory and other closing conditions. The sale was expected to close by year-end 2021; no gain or loss was recorded upon held-for-sale classification. The assets and liabilities were not treated as discontinued operations.
- Enable merger: The proposed transaction would exchange CenterPoint’s Enable common units for Energy Transfer common units and its preferred units for Energy Transfer Series G preferred units, plus cash for its Enable GP interest. Closing was expected in 2021 but remained subject to conditions, including antitrust clearance; related litigation was pending.
- Other risks and contingencies: CenterPoint and Houston Electric faced approximately 65 lawsuits related to the winter storm and multiple governmental and regulatory inquiries; the company could not estimate potential losses. Other exposures include regulatory recovery, customer/REP payment defaults, credit-rating changes, environmental obligations and capital-project approvals. No material changes to the 2020 Form 10-K risk factors were reported.
- Post-quarter governance: In July, the board named an independent chair and eliminated the Executive Chairman role. A separation agreement provided former Executive Chairman Milton Carroll a $28 million lump-sum payment and enhanced retirement treatment for certain equity awards. CEO David Lesar’s retention agreement provides for 1 million shares in multiple annual awards.
- No specific full-year earnings guidance is stated in the supplied filing text. Management’s cash and recovery expectations are subject to regulatory decisions, market access and transaction closings.
Key facts for investors to verify
- Progress, approvals, purchase-price adjustments and closing timing for the $2.15 billion Arkansas and Oklahoma sale, including the treatment of storm-cost recovery.
- Regulatory recovery schedules and prudency outcomes for the approximately $2.1 billion storm-related gas costs, especially potential Minnesota disallowances and carrying costs.
- Actual operating cash flow, borrowing needs, debt costs and credit ratings as storm costs are recovered and planned capital spending proceeds.
- Status and final terms of the Enable merger, including litigation and resulting Energy Transfer securities and distributions.
- Whether winter-storm lawsuits, REP defaults, environmental matters or regulatory proceedings produce material costs beyond recorded amounts.
- Full-year earnings outlook and any quantified guidance, which the supplied filing text does not clearly provide.