CenterPoint Energy, Inc. — Q3 2021 Form 10-Q
Business context and period: Unaudited results cover the three and nine months ended September 30, 2021, compared with 2020. CenterPoint operates regulated electric and natural gas utilities, alongside other businesses. Houston Electric and CERC are also separate registrants in this combined filing. CenterPoint’s Enable investment is presented as discontinued operations following its planned exit from midstream.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1.749 billion | $1.622 billion | $6.038 billion | $5.364 billion |
| Operating income | $278 million | $302 million | $1.027 billion | $754 million |
| Continuing-operations income | $150 million | $199 million | $630 million | $347 million |
| Net income (loss) | $218 million | $121 million | $832 million | $(973) million |
| Income (loss) available to common shareholders | $195 million | $69 million | $750 million | $(1.100) billion |
| Diluted EPS | $0.32 | $0.13 | $1.25 | $(2.10) |
- Q3 revenue rose about 8%, but operating income fell about 8%; nine-month revenue rose about 13% and operating income about 36%. Nine-month 2020 results included a $185 million goodwill impairment.
- Continuing-operations income declined in Q3 despite higher revenue. Management cited less favorable weather and higher costs, partly offset by rate relief, customer growth, reduced COVID-19 impacts and lower interest expense. Nine-month utility earnings improved; reported total earnings also benefited substantially from discontinued operations and the prior-year impairment.
- Nine-month operating cash flow was a use of $551 million, versus $1.439 billion provided in 2020. Investing activities used $2.104 billion, including $2.148 billion of capital expenditures; financing provided $2.644 billion. Management attributed the operating cash decline primarily to increased regulatory assets for winter-storm gas costs.
- At September 30, cash and cash equivalents were $133 million and marketable securities were $911 million. Total debt, including current maturities and securitization debt, was approximately $16.5 billion; long-term debt, net, was $15.394 billion. Total debt was higher than at year-end 2020, reflecting storm-related financing and capital needs. CenterPoint reported compliance with debt covenants.
- Revolving credit facilities totaled $4.0 billion. At September 30, $2.114 billion of commercial paper was outstanding, with $11 million of letters of credit; facility loans were zero. CenterPoint’s debt-to-capital ratio under its facility covenant was 58.2% against a 65% limit.
- Houston Electric reported nine-month net income of $307 million, up from $277 million, with operating cash flow of $497 million and capital expenditures of $1.108 billion. CERC reported nine-month net income of $208 million, up from $76 million, but operating cash flow was negative $1.466 billion, largely reflecting storm-related regulatory assets; capital expenditures were $571 million.
Material changes, outlook and management commentary
- Winter Storm Uri: CenterPoint estimated approximately $2.1 billion of incremental natural gas purchases across the company, including approximately $2.0 billion for CERC. At September 30, CenterPoint had about $2.077 billion of storm-related incremental gas costs recorded as regulatory assets. Recovery is subject to regulatory review, and timing is uncertain. Minnesota regulators and the Attorney General proposed potential disallowances of up to approximately $290 million for CenterPoint and CERC.
- Divestitures and portfolio changes: CERC agreed to sell its Arkansas and Oklahoma natural gas businesses for $2.15 billion in cash, including approximately $425 million of storm-related gas costs, subject to adjustments and regulatory approvals. Closing was expected by year-end 2021 or shortly thereafter. The proposed Arkansas settlement includes a $22 million customer payment. CenterPoint completed the sale of MES on August 31, recognizing an $8 million pretax gain ($11 million at CERC).
- Enable: The pending merger would exchange CenterPoint’s Enable common units for Energy Transfer units and its preferred units for Energy Transfer Series G preferred units. CenterPoint planned a full midstream exit in 2022 and entered a forward sale agreement covering 50 million Energy Transfer common units contingent on merger closing. The expected transaction remained subject to customary closing conditions.
- Capital and energy transition: CenterPoint announced a ten-year capital plan exceeding $40 billion, including over $3 billion for clean-energy investments and enablement. It set 2035 goals of net-zero Scope 1 and 2 emissions and a 20%–30% reduction in Scope 3 emissions. Management cautioned these goals depend on regulatory approvals, technology, costs, supply chains and other assumptions. No specific earnings guidance is provided in the supplied filing text.
- Financing and liquidity: 2021 debt issuance included $4.5 billion at CenterPoint, $1.7 billion at CERC and $1.1 billion at Houston Electric, alongside repayments and refinancing. Remaining-2021 estimated capital expenditures were $1.087 billion for CenterPoint, $493 million for Houston Electric and $369 million for CERC. The company said it expected to meet cash needs through operating cash flows, debt and credit facilities, commercial paper, distributions and anticipated disposition proceeds; access to financing on acceptable terms is not assured.
- Unusual costs and governance: Former Executive Chairman Milton Carroll received a $28 million lump-sum separation payment, contributing to higher executive-compensation-related taxes. CEO David Lesar received a retention award covering one million shares, with part classified as temporary equity.
Risks and contingencies
- Winter-storm cost recovery remains exposed to regulatory prudence reviews, possible disallowances, delayed recovery and financing costs. CenterPoint and CERC recorded $15 million of storm-related deferred O&M costs and $8 million of bad-debt regulatory assets associated with REP defaults at Houston Electric.
- CenterPoint, Houston Electric and CERC face lawsuits, claims and government inquiries related to the winter storm; the company said it cannot predict outcomes or estimate potential losses.
- Other risks include utility rate decisions, weather and seasonal demand, customer and REP payment defaults, interest rates and credit ratings, capital-market access, climate and emissions regulation, cybersecurity threats, environmental obligations and execution of planned divestitures and the Enable transaction. CERC’s Moody’s outlook was negative; the filing warns that rating reductions could affect financing access, costs and collateral requirements.
- CenterPoint disclosed $513 million of estimated maximum exposure under certain ESG parent guarantees where exposure could be estimated, and ESG surety bonds with an aggregate face amount of approximately $558 million. Management considered material payment under the guarantees remote. The filing also reports environmental remediation accruals and other legal and regulatory matters.
Most important facts for investors to verify
- Progress, approvals, final proceeds and customer-related terms for the Arkansas and Oklahoma sale; whether expected closing timing and storm-cost recovery assumptions hold.
- Regulatory decisions and collection timing for the approximately $2.077 billion of storm-related gas costs, including the potential Minnesota disallowance.
- Enable merger completion, actual consideration received, forward-sale terms and execution of the planned midstream exit.
- Funding needs and debt metrics as capital spending continues, especially if regulatory recovery or asset-sale proceeds are delayed.
- Potential financial impact of winter-storm litigation, REP defaults, climate-transition commitments and cybersecurity risks.