CENTERPOINT ENERGY INC annual report, FY2021

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CenterPoint Energy, Inc. — FY2021 Form 10-K

Reporting period: Year ended December 31, 2021; this is an annual filing, not a standalone Q4 report. The combined filing also reports separately on Houston Electric and CenterPoint Energy Resources Corp. (CERC). CenterPoint’s core businesses are regulated electric and natural gas delivery, with electric generation in Indiana.

Financial results and condition

  • Revenue: $8.352 billion, up from $7.418 billion in 2020. Utility revenue was $8.042 billion. Natural Gas revenue increased partly because of higher gas costs, which are generally passed through to customers.
  • Profit: Operating income was $1.363 billion, versus $1.039 billion. Income from continuing operations was $668 million, or $0.97 basic EPS ($0.94 diluted EPS). Net income was $1.486 billion, and income available to common shareholders was $1.391 billion, or $2.35 basic EPS ($2.28 diluted EPS). Results included $818 million of after-tax discontinued-operations income, principally related to the Enable merger.
  • Margins: Operating margin was approximately 16.3% of revenue, compared with approximately 14.0% in 2020. These are calculated from reported revenue and operating income; the filing does not present them as company-defined measures.
  • Cash flow and investment: Cash from operating activities was $22 million, down from $1.995 billion in 2020. Capital expenditures were $3.164 billion, implying approximate operating-cash-flow less capital-expenditure cash flow of negative $3.142 billion. The company attributed much of the cash pressure to the winter storm’s natural-gas costs and related regulatory assets.
  • Debt and liquidity: Consolidated debt was approximately $16.1 billion at year-end, including $537 million of securitization bonds. Cash and cash equivalents were $230 million. The four revolving credit facilities totaled $4.0 billion; as of February 15, 2022, $1.074 billion was used for commercial paper and $11 million for letters of credit. All registrants were in compliance with debt covenants at December 31, 2021.
  • Other metrics: Total assets were $37.679 billion and shareholders’ equity was $9.415 billion. The company’s 2021 income-tax effective rate from continuing operations was 14%.

Material changes versus 2020

  • Income available to common shareholders improved from a $949 million loss to $1.391 billion of income. The change was driven largely by Enable-related discontinued operations and the prior-year Indiana Electric goodwill impairment; continuing-operations income rose from $483 million to $668 million.
  • Utility segment earnings improved: Electric net income rose to $475 million from $230 million; Natural Gas net income rose to $403 million from $278 million. Electric revenue increased to $3.763 billion, while Natural Gas revenue increased to $4.336 billion.
  • Cash from operations fell sharply, principally reflecting the increase in regulatory assets associated with extraordinary 2021 winter-storm gas costs.
  • CenterPoint issued $4.5 billion of debt and repaid or redeemed $2.7 billion during 2021. It also converted its Series B and Series C preferred shares into common stock.
  • The Enable merger closed in December 2021. CenterPoint sold portions of the Energy Transfer securities received, generating $1.320 billion in net proceeds, and announced plans to exit its remaining midstream investment by the end of 2022.

Outlook, commentary, and key risks

  • Capital plan: Management announced a 10-year capital plan exceeding $40 billion, including more than $3 billion for clean-energy investments and enablement. Planned 2022 capital expenditures were $3.490 billion.
  • Business direction: Management intends to focus on regulated electric and natural gas operations and rate-base growth. The Arkansas and Oklahoma natural-gas businesses were sold on January 10, 2022 for $2.15 billion in cash, including approximately $425 million related to gas costs.
  • Winter storm recovery: CenterPoint reported approximately $2.2 billion of incremental natural-gas spending during the February 2021 storm period. Recovery is subject to regulatory processes and prudence reviews. Texas regulators approved securitization financing for CERC’s gas costs; Minnesota recovery timing was extended to 63 months, with no carrying-cost recovery. Minnesota parties proposed potential disallowances for CERC ranging up to $409 million; the outcome remained unresolved in the filing.
  • Regulatory and litigation exposure: Houston Electric’s billed REP receivables were $207 million at year-end, including substantial balances owed by affiliates of NRG and Vistra. Winter-storm-related lawsuits and investigations were ongoing; the company said it could not predict outcomes or estimate a loss range.
  • Investment and execution risks: Indiana Electric’s planned Posey County solar project was downsized from 300 MW to approximately 200 MW amid supply-chain and commodity-cost pressures, subject to further regulatory review and contract negotiations. Rate recovery, construction costs, regulatory decisions, weather, supply-chain disruption, credit access, and fossil-fuel transition policies remain important uncertainties.
  • Emissions goals: CenterPoint set goals for net-zero Scope 1 and certain Scope 2 emissions by 2035 and a 20%–30% reduction in certain Scope 3 emissions by 2035 versus 2021. The company cautioned that assumptions and execution are uncertain.
  • Unusual items and governance: The company recorded a $28 million lump-sum separation payment to former Executive Chairman Milton Carroll. The 2020 Indiana Electric goodwill impairment was $185 million; no goodwill impairment was recorded in 2021. Deloitte issued unqualified opinions on CenterPoint’s financial statements and internal control over financial reporting.

Important facts for investors to verify

  • How much of the winter-storm regulatory assets will ultimately be recovered, on what timetable, and whether any amounts are disallowed—particularly in Minnesota.
  • Whether the Arkansas and Oklahoma sale proceeds, including storm-cost recovery, were received and applied as expected after closing.
  • CenterPoint’s funding plan for the large capital program, projected borrowing needs, debt maturities, and ability to maintain investment-grade credit ratings.
  • The status and cost recovery of mobile-generation leases, and the company’s exposure to REP payment delays or defaults.
  • Progress, revised cost estimates, approvals, and in-service timing for Indiana generation-transition and renewable projects, including the downsized Posey project.
  • How much of 2021 reported earnings came from recurring continuing operations versus discontinued operations and other unusual items.